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Segment Information
 9 Months Ended
Sep. 30, 2023
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 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.
Segment Reorganization
Effective September 2023, ProAssurance elected to discontinue its participation in the results of Syndicate 1729 beginning with the 2024 underwriting year. The results from the Company's participation in Syndicate 1729 from open underwriting years prior to 2024 will continue to earn out pro rata over the entire policy period of the underlying business. Due to the quarter lag, the Company's ceased participation in Syndicate 1729 will not be reflected in its results until the second quarter of 2024. Furthermore, ProAssurance expects to receive proceeds associated with the sale of its remaining ownership interest in the underwriting and operations entity associated with Syndicate 1729 to an unrelated third party, which is contingent upon certain approvals from the Council of Lloyd's and the Prudential Regulation Authority empowered under FSMA. Approval of this sale will not impact the Company's decision to no longer participate in the results of Syndicate 1729 beginning with the 2024 underwriting year.
During the third quarter of 2023, ProAssurance reorganized the financial results evaluated by its CODM; therefore, ProAssurance changed its operating and reportable segments to align with how the CODM currently oversees the business, allocates resources and evaluates operating performance. As a result, ProAssurance now reports the underwriting results from its participation in Lloyd’s Syndicates in the Specialty P&C segment and the investment results of assets solely allocated to its Lloyd's Syndicate operations and U.K. income taxes in the Corporate segment. All prior period segment information has been recast to conform to the current period presentation. The segment reorganization had no impact on previously reported consolidated financial results.
The Company operates in four segments that are organized around the nature of the products and services provided: Specialty P&C, Workers' Compensation Insurance, Segregated Portfolio Cell Reinsurance and Corporate. A description of each of ProAssurance's four operating and reportable segments follows.
•Specialty P&C primarily 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 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 assumed reinsurance, loss portfolio transfers 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. The Specialty P&C segment also includes the underwriting results from ProAssurance's participation in Lloyd's of London Syndicate 1729 and Syndicate 6131. ProAssurance's participation in the results of Syndicate 1729 for the 2023 underwriting year remains unchanged from the 2022 underwriting year at 5% and the Company ceased participation in Syndicate 6131 beginning with the 2022 underwriting year. Due to the quarter lag, the Company's ceased participation in Syndicate 6131 was not reflected in its results until the second quarter of 2022.
•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 captive insurers unaffiliated with ProAssurance for two programs.
•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 individual company, 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 reported as an 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.
•Corporate includes ProAssurance's investment operations excluding those reported in the Company's Segregated Portfolio Cell Reinsurance segment. In addition, this segment includes corporate expenses, interest expense, U.S. and U.K. income taxes and non-premium revenues generated outside of the Company's insurance entities.
The accounting policies of the segments are described in Note 1 of the Notes to Consolidated Financial Statements in ProAssurance’s December 31, 2022 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 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 segment, 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, changes in the fair value of contingent consideration 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, 2023
(In thousands)Specialty P&CWorkers' Compensation InsuranceSegregated Portfolio Cell ReinsuranceCorporateInter-segment EliminationsConsolidated
Net premiums earned$195,772 $39,885 $6,763 $— $— $242,420 
Net investment income— — 601 32,153 — 32,754 
Equity in earnings (loss) of unconsolidated subsidiaries— — — (61)— (61)
Net investment gains (losses)— — (525)(3,677)— (4,202)
Other income (expense)(1)
1,089 333 2 2,847 (935)3,336 
Net losses and loss adjustment expenses(162,677)(41,208)(5,006)— — (208,891)
Underwriting, policy acquisition and operating expenses(1)
(49,395)(13,542)(3,668)(8,344)935 (74,014)
SPC U.S. federal income tax benefit (expense)(2)
— — 175 — — 175 
SPC dividend (expense) income— — 2,518 — — 2,518 
Interest expense— — — (5,514)— (5,514)
Income tax benefit (expense)— — — 4,655 — 4,655 
Segment results$(15,211)$(14,532)$860 $22,059 $— (6,824)
Reconciliation of segments to consolidated results:
Goodwill impairment
(44,110)
Contingent Consideration Adjustment(3)
1,500 
Net income (loss)$(49,434)
Significant non-cash items:
Depreciation and amortization, net of accretion$2,728 $851 $300 $2,575 $— $6,454 
Goodwill impairment
$— $— $— $— $— $44,110 
Nine Months Ended September 30, 2023
(In thousands)Specialty P&CWorkers' Compensation InsuranceSegregated Portfolio Cell Reinsurance CorporateInter-segment EliminationsConsolidated
Net premiums earned
$562,206 $121,706 $46,156 $— $— $730,068 
Net investment income
— — 1,625 93,089 — 94,714 
Equity in earnings (loss) of unconsolidated subsidiaries
— — — 5,450 — 5,450 
Net investment gains (losses)— — 1,830 (3,174)— (1,344)
Other income (expense)(1)
3,106 1,565 3 5,347 (3,157)6,864 
Net losses and loss adjustment expenses(476,187)(101,813)(27,245)— — (605,245)
Underwriting, policy acquisition and operating expenses(1)
(140,949)(40,923)(15,241)(24,823)3,157 (218,779)
SPC U.S. federal income tax benefit (expense)(2)
— — (1,351)— — (1,351)
SPC dividend (expense) income
— — (3,171)— — (3,171)
Interest expense
— — — (16,478)— (16,478)
Income tax benefit (expense)
— — — 3,901 — 3,901 
Segment results
$(51,824)$(19,465)$2,606 $63,312 $— (5,371)
Reconciliation of segments to consolidated results:
Goodwill impairment
(44,110)
Contingent Consideration Adjustment(3)
4,500 
Net income (loss)$(44,981)
Significant non-cash items:
Depreciation and amortization, net of accretion$7,927 $2,573 $(187)$9,772 $— $20,085 
Goodwill impairment
$— $— $— $— $— $44,110 
Three Months Ended September 30, 2022
(In thousands)Specialty P&CWorkers' Compensation InsuranceSegregated Portfolio Cell Reinsurance CorporateInter-segment EliminationsConsolidated
Net premiums earned$198,481 $42,063 $17,811 $— $— $258,355 
Net investment income— — 294 24,451 — 24,745 
Equity in earnings (loss) of unconsolidated subsidiaries— — — (6,852)— (6,852)
Net investment gains (losses)— — (732)(7,530)— (8,262)
Other income (expense)(1)
1,000 554 1 4,695 (1,153)5,097 
Net losses and loss adjustment expenses(158,518)(28,148)(11,407)— — (198,073)
Underwriting, policy acquisition and operating expenses(1)
(53,166)(14,146)(5,599)(8,921)1,153 (80,679)
SPC U.S. federal income tax benefit (expense)(2)
— — (433)— — (433)
SPC dividend (expense) income— — (183)— — (183)
Interest expense— — — (5,513)— (5,513)
Income tax benefit (expense)— — — 2,673 — 2,673 
Segment results$(12,203)$323 $(248)$3,003 $— (9,125)
Net income (loss)$(9,125)
Significant non-cash items:
Depreciation and amortization, net of accretion$2,290 $872 $294 $6,181 $— $9,637 
Nine Months Ended September 30, 2022
(In thousands)Specialty P&CWorkers' Compensation InsuranceSegregated Portfolio Cell Reinsurance CorporateInter-segment EliminationsConsolidated
Net premiums earned$593,534 $124,456 $53,347 $— $— $771,337 
Net investment income— — 617 66,515 — 67,132 
Equity in earnings (loss) of unconsolidated subsidiaries— — — 5,948 — 5,948 
Net investment gains (losses)— — (4,225)(41,427)— (45,652)
Other income (expense)(1)
4,185 1,753 2 10,386 (3,111)13,215 
Net losses and loss adjustment expenses
(469,690)(83,306)(32,170)— — (585,166)
Underwriting, policy acquisition and operating expenses(1)
(148,339)(40,816)(15,203)(26,679)3,111 (227,926)
SPC U.S. federal income tax benefit (expense)(2)
— — (1,424)— — (1,424)
SPC dividend (expense) income
— — (1,697)— — (1,697)
Interest expense
— — — (14,872)— (14,872)
Income tax benefit (expense)
— — — 6,232 — 6,232 
Segment results
$(20,310)$2,087 $(753)$6,103 $— (12,873)
Reconciliation of segments to consolidated results:
Transaction-related costs(4)
(1,471)
Net income (loss)$(14,344)
Significant non-cash items:
Depreciation and amortization, net of accretion$7,830 $2,620 $1,009 $18,587 $— $30,046 
(1) Includes certain fees for services provided by the Workers' Compensation Insurance segment to the SPCs at Inova Re and Eastern Re which 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 change in the fair value of contingent consideration issued in connection with the NORCAL acquisition included as a component of consolidated net investment gains (losses) on the Condensed Consolidated Statements of Income and Comprehensive Income. See further discussion on the contingent consideration in Note 2.
(4) Represents the transaction-related costs, after-tax, associated with the acquisition of NORCAL. For the nine months ended September 30, 2022 pre-tax transaction-related costs of approximately $1.9 million were included as a component of consolidated operating expense and the associated income tax benefit of approximately $0.4 million were included as a component of consolidated income tax benefit (expense) on the Condensed Consolidated Statements of Income and Comprehensive Income.
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)2023202220232022
Specialty P&C Segment
Gross premiums earned:
HCPL$163,343 $172,984 $494,658 $514,027 
Small Business Unit
26,508 27,681 78,513 80,407 
Medical Technology Liability
10,904 10,911 32,060 30,879 
Lloyd's Syndicates
4,931 6,608 14,499 22,283 
Other— 206 — 603 
Ceded premiums earned(9,914)(19,909)(57,524)(54,665)
Segment net premiums earned195,772 198,481 562,206 593,534 
Workers' Compensation Insurance Segment
Gross premiums earned:
Traditional business43,423 45,680 131,623 134,231 
Alternative market business
17,311 18,283 52,421 54,287 
Ceded premiums earned(20,849)(21,900)(62,338)(64,062)
Segment net premiums earned39,885 42,063 121,706 124,456 
Segregated Portfolio Cell Reinsurance Segment
Gross premiums earned:
Workers' compensation(1)
15,979 17,034 48,613 51,304 
HCPL(2)
(6,971)3,161 4,388 9,151 
Ceded premiums earned(2,245)(2,384)(6,845)(7,108)
Segment net premiums earned6,763 17,811 46,156 53,347 
Consolidated net premiums earned$242,420 $258,355 $730,068 $771,337 
(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.