Goodwill

9 Months Ended

Sep. 30, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

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. For the Company's last annual impairment test at October 1, 2022, management performed quantitative assessments that supported a conclusion that the fair value of all of the reporting units with goodwill exceeded their carrying value. See Note 1 and Note 7 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2022 report on Form 10-K for further information.

Impairment of goodwill is tested at the reporting unit level, which prior to the third quarter of 2023, was consistent with the Company's reportable segments. As discussed in Note 13, the Company reorganized its segment reporting in the third quarter of 2023 to align with how its CODM currently oversees the business, allocates resources and evaluates operating performance. As a result of the segment reorganization, the Lloyd's Syndicates segment is no longer a separate operating segment; however, the Lloyd's Syndicates operation will remain a separate reporting unit for purposes of testing goodwill. The reporting units are: Specialty P&C, Workers' Compensation Insurance, Segregated Portfolio Cell Reinsurance, Lloyd's Syndicates and Corporate. Of the five reporting units, two have goodwill: Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance.

Interim Impairment Assessments

Management performed a quantitative goodwill impairment assessment on the Workers' Compensation Insurance reporting unit as of June 30, 2023, due to market conditions impacting that reporting unit's actual and projected results along with a broader decline in its stock price that occurred for a sustained period of time during the second quarter of 2023. As a result of the interim goodwill impairment assessment in the second quarter of 2023, management concluded that the fair value of the Workers' Compensation Insurance reporting unit exceeded the carrying value as of the testing date by approximately 3%; therefore, goodwill was not impaired during the second quarter of 2023.

Market conditions impacting the actual and projected results of the Workers' Compensation Insurance reporting unit persisted into the third quarter of 2023. During the third quarter of 2023, the Workers' Compensation Insurance reporting unit increased its full year current accident year loss ratio and recognized unfavorable prior accident year reserve development, which reflected higher than expected loss trends observed in the average cost per claim which the Company attributes to increased medical costs driven by wage inflation and medical advancements. As a result, management performed an updated quantitative assessment of goodwill on the Workers' Compensation Insurance reporting unit using updated actual and projected results as well as marketplace data. The updated data impacted a number of key variables in the Company's analysis including the determination of a higher discount rate and lower valuation multiples.

For each of the interim impairment assessments performed in the second and third quarters of 2023, management estimated the fair value of the Workers' Compensation Insurance reporting unit using both an income approach and a market approach using marketplace data that was current at the time of each respective analysis based on the valuation methodologies and process for developing assumptions discussed in Note 1 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2022 report on Form 10-K. To corroborate the reporting unit's valuation, the Company performed a reconciliation of the estimate of the aggregate fair value of all reporting units to ProAssurance's market capitalization, including consideration of a control premium. The determination of fair value involved the use of significant estimates and assumptions, including revenue growth rates, combined ratios, capital requirements, tax rates, terminal growth rates, discount rates, comparable public companies and synergistic benefits available to market participants. In addition, management made certain judgments and assumptions in allocating shared assets and liabilities to individual reporting units to determine the carrying amount of each reporting unit.

The analysis performed during the third quarter of 2023 indicated an impairment of the goodwill associated with the Company's Workers' Compensation Insurance reporting unit and, accordingly, ProAssurance recorded a $44.1 million charge to fully impair the goodwill.

In both the second and third quarter 2023 analyses, management also estimated the fair value of its Segregated Portfolio Cell Reinsurance reporting unit, which indicated that the fair value of the reporting unit significantly exceeded the carrying amount for each of the interim impairment assessments performed.

Management also performed impairment tests of certain of the Company's definite and indefinite lived intangible assets for which a triggering event was deemed to have occurred. Based upon these impairment tests, no impairment of its definite or indefinite lived intangible assets was identified at September 30, 2023.

The table below presents the carrying amount of goodwill and accumulated impairment losses by reporting unit at September 30, 2023 and December 31, 2022:


	Reporting Unit
(In thousands)	Specialty P&C		Workers' Compensation Insurance		Segregated Portfolio Cell Reinsurance		Total
At September 30, 2023:
Goodwill, gross	$	161,115	$	44,110	$	5,500	$	210,725
Accumulated impairment losses*	$	(161,115)	$	(44,110)	$	—	$	(205,225)

Goodwill, net as of December 31, 2022	$	—	$	44,110	$	5,500	$	49,610
Impairment losses	—		(44,110)		—		(44,110)
Goodwill, net as of September 30, 2023	$	—	$	—	$	5,500	$	5,500
*Accumulated impairment losses include the $44.1 million impairment loss recognized in relation to the Workers' Compensation Insurance reporting unit during the third quarter of 2023 and the $161.1 million impairment loss recognized during the third quarter of 2020 in relation to the Specialty P&C reporting unit.