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Fair Value Measurement | 3 Months Ended
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Mar. 31, 2024
Fair Value Disclosures [Abstract] |
Fair Value Measurement | 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 March 31, 2024 and December 31, 2023 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. For more information on the valuation methodologies used regarding securities in the Level 2 and Level 3 categories, see Note 2 of the Notes to Consolidated Financial Statements in ProAssurance’s December 31, 2023 report on Form 10-K.
| March 31, 2024
| 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 | $ | — |  |  | $ | 240,889 |  |  | $ | — |  |  | $ | 240,889 |
U.S. Government-sponsored enterprise obligations | — |  |  | 18,927 |  |  | — |  |  | 18,927 |
State and municipal bonds | — |  |  | 474,265 |  |  | — |  |  | 474,265 |
Corporate debt, multiple observable inputs | — |  |  | 1,647,844 |  |  | — |  |  | 1,647,844 |
Corporate debt, limited observable inputs | — |  |  | — |  |  | 66,208 |  |  | 66,208 |
Residential mortgage-backed securities | — |  |  | 450,052 |  |  | — |  |  | 450,052 |
Agency commercial mortgage-backed securities | — |  |  | 7,950 |  |  | — |  |  | 7,950 |
Other commercial mortgage-backed securities | — |  |  | 229,029 |  |  | — |  |  | 229,029 |
Other asset-backed securities | — |  |  | 406,832 |  |  | 2,141 |  |  | 408,973 |
Fixed maturities, trading | — |  |  | 50,106 |  |  | — |  |  | 50,106 |
Equity investments |  |  |  |  |  |  |
Financial | 9,750 |  |  | 2,270 |  |  | 288 |  |  | 12,308 |
Utilities/Energy | 1,258 |  |  | — |  |  | — |  |  | 1,258 |
Industrial | — |  |  | — |  |  | 4,946 |  |  | 4,946 |
Bond funds | 101,571 |  |  | — |  |  | — |  |  | 101,571 |
All other | 17,831 |  |  | — |  |  | — |  |  | 17,831 |
Short-term investments | 102,675 |  |  | 81,326 |  |  | — |  |  | 184,001 |
Other investments | — |  |  | 54,990 |  |  | 742 |  |  | 55,732 |
Other assets | — |  |  | 7,674 |  |  | — |  |  | 7,674 |
Total assets categorized within the fair value hierarchy | $ | 233,085 |  |  | $ | 3,672,154 |  |  | $ | 74,325 |  |  | 3,979,564 |
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 |  |  |  |  |  |  | 246,143 |
Total assets at fair value |  |  |  |  |  |  | $ | 4,225,707 |
Liabilities: |  |  |  |  |  |  |
Other liabilities | $ | 9,050 |  |  | $ | — |  |  | $ | 6,500 |  |  | $ | 15,550 |
Total liabilities categorized within the fair value hierarchy | $ | 9,050 |  |  | $ | — |  |  | $ | 6,500 |  |  | $ | 15,550 |
| December 31, 2023
| 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 | $ | — |  |  | $ | 243,525 |  |  | $ | — |  |  | $ | 243,525 |
U.S. Government-sponsored enterprise obligations | — |  |  | 18,724 |  |  | — |  |  | 18,724 |
State and municipal bonds | — |  |  | 454,381 |  |  | — |  |  | 454,381 |
Corporate debt, multiple observable inputs | — |  |  | 1,668,197 |  |  | — |  |  | 1,668,197 |
Corporate debt, limited observable inputs | — |  |  | — |  |  | 82,377 |  |  | 82,377 |
Residential mortgage-backed securities | — |  |  | 429,883 |  |  | 254 |  |  | 430,137 |
Agency commercial mortgage-backed securities | — |  |  | 8,387 |  |  | — |  |  | 8,387 |
Other commercial mortgage-backed securities | — |  |  | 188,464 |  |  | 1,010 |  |  | 189,474 |
Other asset-backed securities | — |  |  | 395,245 |  |  | 3,150 |  |  | 398,395 |
Fixed maturities, trading | — |  |  | 48,324 |  |  | — |  |  | 48,324 |
Equity investments |  |  |  |  |  |  |
Financial | 9,464 |  |  | 2,287 |  |  | 291 |  |  | 12,042 |
Utilities/Energy | 1,256 |  |  | — |  |  | — |  |  | 1,256 |
Industrial | — |  |  | — |  |  | 4,946 |  |  | 4,946 |
Bond funds | 114,901 |  |  | — |  |  | — |  |  | 114,901 |
All other | 18,150 |  |  | — |  |  | — |  |  | 18,150 |
Short-term investments | 163,499 |  |  | 72,286 |  |  | — |  |  | 235,785 |
Other investments | — |  |  | 57,478 |  |  | 5,126 |  |  | 62,604 |
Other assets | — |  |  | 3,876 |  |  | — |  |  | 3,876 |
Total assets categorized within the fair value hierarchy | $ | 307,270 |  |  | $ | 3,591,057 |  |  | $ | 97,154 |  |  | 3,995,481 |
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 |  |  |  |  |  |  | 245,455 |
Total assets at fair value |  |  |  |  |  |  | $ | 4,240,936 |
Liabilities: |  |  |  |  |  |  |
Other liabilities | $ | 4,030 |  |  | $ | — |  |  | $ | 6,500 |  |  | $ | 10,530 |
Total liabilities categorized within the fair value hierarchy | $ | 4,030 |  |  | $ | — |  |  | $ | 6,500 |  |  | $ | 10,530 |
Level 3 Valuations See Note 2 of the Notes to Consolidated Financial Statements in ProAssurance’s December 31, 2023 report on Form 10-K for a summary description of the valuation methodologies used regarding securities in the Level 3 category, by security type. Quantitative Information Regarding Level 3 Valuations Below is quantitative information regarding securities in the Level 3 category, by security type:
|  | Fair Value at |  |  |  |  |  |
($ in thousands) |  | March 31, 2024 |  | December 31, 2023 |  | Valuation Technique |  | Unobservable Input |  | Range (Weighted Average)
Assets: |  |  |  |  |  |  |  |  |  |
Corporate debt, limited observable inputs |  | $66,208 |  | $82,377 |  | Market Comparable Securities |  | Comparability Adjustment |  | 0% - 5% (2.5%)
|  |  |  |  |  | Discounted Cash Flows |  | Comparability Adjustment |  | 0% - 5% (2.5%)
Residential mortgage-backed, other commercial mortgage-backed and other asset-backed securities |  | $2,141 |  | $4,414 |  | Market Comparable Securities |  | Comparability Adjustment |  | 0% - 5% (2.5%)
|  |  |  |  |  | Discounted Cash Flows |  | Comparability Adjustment |  | 0% - 5% (2.5%)
Equity investments |  | $5,234 |  | $5,237 |  | Discounted Cash Flows |  | Comparability Adjustment |  | 0% - 10% (5%)
Other investments |  | $742 |  | $5,126 |  | Discounted Cash Flows |  | Comparability Adjustment |  | 0% - 10% (5%)
Liabilities: |  |  |  |  |  |  |  |  |  |
Other liabilities |  | $6,500 |  | $6,500 |  | Stochastic Model/Discounted Cash Flows |  | Weighted Average Cost of Capital |  | 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. Fair Value Measurements - Level 3 Assets & Liabilities The following tables present summary information regarding changes in the fair value of assets and liabilities measured using Level 3 inputs.
|  |  |  |  | March 31, 2024
|  |  |  |  | Level 3 Fair Value Measurements
|  |  |  |  | Assets |  | Liabilities |  |
(In thousands) |  |  |  |  | Corporate Debt |  | Asset-backed Securities |  | Equity Investments |  | Other Investments |  | Total Assets |  | Other Liabilities |  | Total Liabilities |  |
Balance, December 31, 2023 |  |  |  |  | $ | 82,377 |  |  | $ | 4,414 |  |  | $ | 5,237 |  |  | $ | 5,126 |  |  | $ | 97,154 |  |  | $ | (6,500) |  |  | $ | (6,500) |  |  |
Total gains (losses) realized and unrealized: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Included in earnings, as a part of: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net investment gains (losses) |  |  |  |  | — |  |  | — |  |  | (3) |  |  | 88 |  |  | 85 |  |  | — |  |  | — |  |  |
Included in other comprehensive income (loss) |  |  |  |  | (171) |  |  | (28) |  |  | — |  |  | — |  |  | (199) |  |  | — |  |  | — |  |  |
Purchases |  |  |  |  | 2,201 |  |  | 1,200 |  |  | — |  |  | — |  |  | 3,401 |  |  | — |  |  | — |  |  |
Sales |  |  |  |  | (702) |  |  | — |  |  | — |  |  | — |  |  | (702) |  |  | — |  |  | — |  |  |
Transfers in |  |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |
Transfers out |  |  |  |  | (17,497) |  |  | (3,445) |  |  | — |  |  | (4,472) |  |  | (25,414) |  |  | — |  |  | — |  |  |
Balance, March 31, 2024 |  |  |  |  | $ | 66,208 |  |  | $ | 2,141 |  |  | $ | 5,234 |  |  | $ | 742 |  |  | $ | 74,325 |  |  | $ | (6,500) |  |  | $ | (6,500) |  |  |
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets and liabilities held at period-end |  |  |  |  | $ | — |  |  | $ | — |  |  | $ | (3) |  |  | $ | 88 |  |  | $ | 85 |  |  | $ | — |  |  | $ | — |  |  |
|  |  |  |  | March 31, 2023
|  |  |  |  | Level 3 Fair Value Measurements
|  |  |  |  | Assets |  | Liabilities
(In thousands) |  |  |  |  | Corporate Debt |  | Asset-backed Securities |  | Equity Investments |  | Other Investments |  | Total Assets |  | Other Liabilities |  | Total Liabilities
Balance, December 31, 2022 |  |  |  |  | $ | 63,973 |  |  | $ | 2,954 |  |  | $ | 2,803 |  |  | $ | 1,783 |  |  | $ | 71,513 |  |  | $ | (15,000) |  |  | $ | (15,000) |
Total gains (losses) realized and unrealized: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Included in earnings, as a part of: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net investment gains (losses) |  |  |  |  | 16 |  |  | — |  |  | (3) |  |  | — |  |  | 13 |  |  | 1,000 |  |  | 1,000 |
Operating expense |  |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,000 |  |  | 1,000 |
Included in other comprehensive income (loss) |  |  |  |  | 209 |  |  | 39 |  |  | — |  |  | — |  |  | 248 |  |  | — |  |  | — |
Purchases |  |  |  |  | 6,322 |  |  | 1,863 |  |  | — |  |  | — |  |  | 8,185 |  |  | — |  |  | — |
Sales |  |  |  |  | (432) |  |  | — |  |  | — |  |  | — |  |  | (432) |  |  | — |  |  | — |
Transfers in |  |  |  |  | 11,220 |  |  | 1,779 |  |  | — |  |  | — |  |  | 12,999 |  |  | — |  |  | — |
Transfers out |  |  |  |  | (5,151) |  |  | (1,581) |  |  | — |  |  | (1,283) |  |  | (8,015) |  |  | — |  |  | — |
Balance, March 31, 2023 |  |  |  |  | $ | 76,157 |  |  | $ | 5,054 |  |  | $ | 2,800 |  |  | $ | 500 |  |  | $ | 84,511 |  |  | $ | (13,000) |  |  | $ | (13,000) |
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets and liabilities held at period-end |  |  |  |  | $ | — |  |  | $ | — |  |  | $ | (3) |  |  | $ | — |  |  | $ | (3) |  |  | $ | — |  |  | $ | — |
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 months ended March 31, 2024 and 2023 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. Fair Values Not Categorized At March 31, 2024 and December 31, 2023, 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 contractual commitments related to these investments as of March 31, 2024 and fair values of these investments as of March 31, 2024 and December 31, 2023 were as follows:
| Unfunded Contractual Commitments |  | Fair Value
(In thousands) | March 31, 2024 |  | March 31, 2024 |  | December 31, 2023
Investment in unconsolidated subsidiaries: |  |  |  |  |
Private debt funds (1) | $4,565 |  | $ | 16,768 |  |  | $ | 19,886 |
Long/short equity funds (2) | None |  | 4,243 |  |  | 4,497 |
Non-public equity funds (3) | $38,970 |  | 115,421 |  |  | 111,251 |
Credit funds (4) | $31,552 |  | 56,595 |  |  | 55,740 |
Strategy focused funds (5) | $50,427 |  | 53,116 |  |  | 54,081 |
Total investments carried at NAV |  |  | $ | 246,143 |  |  | $ | 245,455 |
Below is additional information regarding each of the investments listed in the table above as of March 31, 2024. (1)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. (2)This investment is comprised of one LP fund, which holds long and short publicly traded securities that will passively generate income. Redemptions are permitted with 30 days written notice if outside of a lock-up period. (3)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. (4)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. One fund allows redemptions at any quarter-end with prior notice requirements of 180 days, while two other funds allow 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. (5)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. A third fund is an LLC focused on acquiring ownership stakes in insurance agencies. For all three funds, redemptions are not permitted. The remaining funds are real estate focused LPs, two of which allow 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 ProAssurance did not have any assets or liabilities that were measured at fair value on a nonrecurring basis at March 31, 2024 or December 31, 2023. 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.
| March 31, 2024 |  | December 31, 2023
(In thousands) | Carrying Value |  | Fair Value |  | Carrying Value |  | Fair Value
Financial assets: |  |  |  |  |  |  |
BOLI | $ | 78,657 |  |  | $ | 78,657 |  |  | $ | 78,205 |  |  | $ | 78,205 |
Other investments | $ | 4,064 |  |  | $ | 4,064 |  |  | $ | 3,215 |  |  | $ | 3,215 |
Other assets | $ | 34,824 |  |  | $ | 34,824 |  |  | $ | 33,231 |  |  | $ | 33,221 |
Financial liabilities: |  |  |  |  |  |  |
Revolving Credit Agreement* | $ | 125,000 |  |  | $ | 125,000 |  |  | $ | 125,000 |  |  | $ | 125,000 |
Term Loan* | $ | 125,000 |  |  | $ | 125,000 |  |  | $ | 125,000 |  |  | $ | 125,000 |
Contribution Certificates | $ | 179,865 |  |  | $ | 147,328 |  |  | $ | 179,387 |  |  | $ | 149,782 |
Other liabilities | $ | 33,548 |  |  | $ | 33,548 |  |  | $ | 32,043 |  |  | $ | 32,043 |
* 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 $33.8 million and $32.3 million at March 31, 2024 and December 31, 2023, respectively. Other assets also included an unsecured note receivable. 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 performance of the funds selected by the participants and had a fair value of $33.5 million and $32.0 million at March 31, 2024 and December 31, 2023, respectively. 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 were a portion of the purchase consideration for the NORCAL acquisition and were 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 6 for further discussion of the terms of the Contribution Certificates).

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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