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Investments | 3 Months Ended
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Mar. 31, 2024
Investments, Debt and Equity Securities [Abstract] |
Investments | Investments Available-for-sale fixed maturities at March 31, 2024 and December 31, 2023 included the following:
| March 31, 2024
(In thousands) | Amortized Cost |  | Allowance for Expected Credit Losses |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Estimated Fair Value
Fixed maturities, available-for-sale |  |  |  |  |  |  |  |  |
U.S. Treasury obligations | $ | 258,462 |  |  | $ | — |  |  | $ | 24 |  |  | $ | 17,597 |  |  | $ | 240,889 |
U.S. Government-sponsored enterprise obligations | 19,957 |  |  | — |  |  | — |  |  | 1,030 |  |  | 18,927 |
State and municipal bonds | 502,549 |  |  | — |  |  | 1,736 |  |  | 30,020 |  |  | 474,265 |
Corporate debt | 1,849,162 |  |  | 740 |  |  | 2,421 |  |  | 136,791 |  |  | 1,714,052 |
Residential mortgage-backed securities | 507,312 |  |  | 207 |  |  | 2,020 |  |  | 59,073 |  |  | 450,052 |
Agency commercial mortgage-backed securities | 8,964 |  |  | — |  |  | — |  |  | 1,014 |  |  | 7,950 |
Other commercial mortgage-backed securities | 248,756 |  |  | — |  |  | 221 |  |  | 19,948 |  |  | 229,029 |
Other asset-backed securities | 418,695 |  |  | 190 |  |  | 921 |  |  | 10,453 |  |  | 408,973 |
| $ | 3,813,857 |  |  | $ | 1,137 |  |  | $ | 7,343 |  |  | $ | 275,926 |  |  | $ | 3,544,137 |
| December 31, 2023
(In thousands) | Amortized Cost |  | Allowance for Expected Credit Losses |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Estimated Fair Value
Fixed maturities, available-for-sale |  |  |  |  |  |  |  |  |
U.S. Treasury obligations | $ | 259,834 |  |  | $ | — |  |  | $ | 165 |  |  | $ | 16,474 |  |  | $ | 243,525 |
U.S. Government-sponsored enterprise obligations | 19,752 |  |  | — |  |  | 2 |  |  | 1,030 |  |  | 18,724 |
State and municipal bonds | 482,367 |  |  | — |  |  | 1,885 |  |  | 29,871 |  |  | 454,381 |
Corporate debt | 1,883,308 |  |  | — |  |  | 4,025 |  |  | 136,759 |  |  | 1,750,574 |
Residential mortgage-backed securities | 481,267 |  |  | 211 |  |  | 2,876 |  |  | 53,795 |  |  | 430,137 |
Agency commercial mortgage-backed securities | 9,369 |  |  | — |  |  | 5 |  |  | 987 |  |  | 8,387 |
Other commercial mortgage-backed securities | 210,469 |  |  | 151 |  |  | 60 |  |  | 20,904 |  |  | 189,474 |
Other asset-backed securities | 412,354 |  |  | 193 |  |  | 1,104 |  |  | 14,870 |  |  | 398,395 |
| $ | 3,758,720 |  |  | $ | 555 |  |  | $ | 10,122 |  |  | $ | 274,690 |  |  | $ | 3,493,597 |
The recorded cost basis and estimated fair value of available-for-sale fixed maturities at March 31, 2024, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
(In thousands) | Amortized Cost |  | Due in one year or less |  | Due after one year through five years |  | Due after five years through ten years |  | Due after ten years |  | Total Fair Value
Fixed maturities, available-for-sale |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury obligations | $ | 258,462 |  |  | $ | 36,249 |  |  | $ | 169,651 |  |  | $ | 32,387 |  |  | $ | 2,602 |  |  | $ | 240,889 |
U.S. Government-sponsored enterprise obligations | 19,957 |  |  | 4,790 |  |  | 11,653 |  |  | 505 |  |  | 1,979 |  |  | 18,927 |
State and municipal bonds | 502,549 |  |  | 30,409 |  |  | 157,707 |  |  | 161,274 |  |  | 124,875 |  |  | 474,265 |
Corporate debt | 1,849,162 |  |  | 179,206 |  |  | 886,529 |  |  | 569,033 |  |  | 79,284 |  |  | 1,714,052 |
Residential mortgage-backed securities | 507,312 |  |  |  |  |  |  |  |  |  |  | 450,052 |
Agency commercial mortgage-backed securities | 8,964 |  |  |  |  |  |  |  |  |  |  | 7,950 |
Other commercial mortgage-backed securities | 248,756 |  |  |  |  |  |  |  |  |  |  | 229,029 |
Other asset-backed securities | 418,695 |  |  |  |  |  |  |  |  |  |  | 408,973 |
| $ | 3,813,857 |  |  |  |  |  |  |  |  |  |  | $ | 3,544,137 |
Excluding obligations of the U.S. Government, U.S. Government-sponsored enterprises and a U.S. Government obligations money market fund, no investment in any entity or its affiliates exceeded 10% of shareholders’ equity at March 31, 2024. Cash and securities with a carrying value of $53.5 million at March 31, 2024 were on deposit with various state insurance departments to meet regulatory requirements. ProAssurance also held securities with a carrying value of $70.6 million at March 31, 2024 that are pledged as collateral security for advances under the Company's borrowing relationships with FHLBs. As a member of Lloyd's, ProAssurance is required to maintain capital at Lloyd's, referred to as FAL, to support the Company's previous participation in underwriting years that remain open at Syndicate 1729. At March 31, 2024, the fair value of ProAssurance's FAL investments was $20.2 million and were comprised of investment securities, primarily short-term investments, and cash and cash equivalents on deposit with Lloyd's in order to satisfy these FAL requirements. Investments Held in a Loss Position The following tables provide summarized information with respect to investments held in an unrealized loss position at March 31, 2024 and December 31, 2023, including the length of time the investment had been held in a continuous unrealized loss position.
| March 31, 2024
| Total |  | Less than 12 months |  | 12 months or longer
| Fair |  | Unrealized |  | Fair |  | Unrealized |  | Fair |  | Unrealized
(In thousands) | Value |  | Loss |  | Value |  | Loss |  | Value |  | Loss
Fixed maturities, available-for-sale |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury obligations | $ | 226,103 |  |  | $ | 17,597 |  |  | $ | 40,747 |  |  | $ | 1,412 |  |  | $ | 185,356 |  |  | $ | 16,185 |
U.S. Government-sponsored enterprise obligations | 18,928 |  |  | 1,030 |  |  | 10,631 |  |  | 486 |  |  | 8,297 |  |  | 544 |
State and municipal bonds | 389,539 |  |  | 30,020 |  |  | 98,395 |  |  | 5,941 |  |  | 291,144 |  |  | 24,079 |
Corporate debt | 1,498,062 |  |  | 136,791 |  |  | 459,157 |  |  | 38,451 |  |  | 1,038,905 |  |  | 98,340 |
Residential mortgage-backed securities | 335,297 |  |  | 59,073 |  |  | 130,058 |  |  | 16,800 |  |  | 205,239 |  |  | 42,273 |
Agency commercial mortgage-backed securities | 7,950 |  |  | 1,014 |  |  | 2,652 |  |  | 344 |  |  | 5,298 |  |  | 670 |
Other commercial mortgage-backed securities | 214,030 |  |  | 19,948 |  |  | 90,586 |  |  | 8,120 |  |  | 123,444 |  |  | 11,828 |
Other asset-backed securities | 252,384 |  |  | 10,453 |  |  | 125,871 |  |  | 3,746 |  |  | 126,513 |  |  | 6,707 |
| $ | 2,942,293 |  |  | $ | 275,926 |  |  | $ | 958,097 |  |  | $ | 75,300 |  |  | $ | 1,984,196 |  |  | $ | 200,626 |
| December 31, 2023
| Total |  | Less than 12 months |  | 12 months or longer
| Fair |  | Unrealized |  | Fair |  | Unrealized |  | Fair |  | Unrealized
(In thousands) | Value |  | Loss |  | Value |  | Loss |  | Value |  | Loss
Fixed maturities, available-for-sale |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury obligations | $ | 213,634 |  |  | $ | 16,474 |  |  | $ | 32,925 |  |  | $ | 1,364 |  |  | $ | 180,709 |  |  | $ | 15,110 |
U.S. Government-sponsored enterprise obligations | 18,428 |  |  | 1,030 |  |  | 4,128 |  |  | 242 |  |  | 14,300 |  |  | 788 |
State and municipal bonds | 378,313 |  |  | 29,871 |  |  | 48,960 |  |  | 2,287 |  |  | 329,353 |  |  | 27,584 |
Corporate debt | 1,524,940 |  |  | 136,759 |  |  | 84,221 |  |  | 5,054 |  |  | 1,440,719 |  |  | 131,705 |
Residential mortgage-backed securities | 313,082 |  |  | 53,795 |  |  | 74,463 |  |  | 10,271 |  |  | 238,619 |  |  | 43,524 |
Agency commercial mortgage-backed securities | 7,955 |  |  | 987 |  |  | 212 |  |  | 1 |  |  | 7,743 |  |  | 986 |
Other commercial mortgage-backed securities | 184,416 |  |  | 20,904 |  |  | 18,092 |  |  | 1,140 |  |  | 166,324 |  |  | 19,764 |
Other asset-backed securities | 293,447 |  |  | 14,870 |  |  | 30,115 |  |  | 867 |  |  | 263,332 |  |  | 14,003 |
| $ | 2,934,215 |  |  | $ | 274,690 |  |  | $ | 293,116 |  |  | $ | 21,226 |  |  | $ | 2,641,099 |  |  | $ | 253,464 |
As of March 31, 2024, excluding U.S. Government or U.S. Government-sponsored enterprise obligations, there were 2,545 debt securities (64.8% of all available-for-sale fixed maturity securities held) in an unrealized loss position representing 1,328 issuers. The greatest and second greatest unrealized loss positions among those securities were approximately $5.3 million and $3.3 million, respectively. The securities were evaluated for impairment as of March 31, 2024. As of December 31, 2023, excluding U.S. Government or U.S. Government-sponsored enterprise obligations, there were 2,531 debt securities (65.6% of all available-for-sale fixed maturity securities held) in an unrealized loss position representing 1,319 issuers. The greatest and second greatest unrealized loss positions among those securities were approximately $5.0 million and $3.2 million, respectively. The securities were evaluated for impairment as of December 31, 2023. Each quarter, ProAssurance performs a detailed analysis for the purpose of assessing whether any of the securities it holds in an unrealized loss position has suffered an impairment due to credit or non-credit factors. A detailed discussion of the factors considered in the assessment is included in Note 1 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2023 report on Form 10-K. Fixed maturity securities held in an unrealized loss position at March 31, 2024, excluding asset-backed securities, have paid all scheduled contractual payments and are expected to continue. Expected future cash flows of asset-backed securities, excluding those issued by GNMA, FNMA and FHLMC, held in an unrealized loss position were estimated as part of the March 31, 2024 impairment evaluation using the most recently available six-month historical performance data for the collateral (loans) underlying the security or, if historical data was not available, sector based assumptions, and equaled or exceeded the current amortized cost basis of the security. The following tables present a roll forward of the allowance for expected credit losses on available-for-sale fixed maturities for the three months ended March 31, 2024 and 2023.
|  |  | Three Months Ended March 31, 2024
(In thousands) |  |  | Corporate Debt | Residential mortgage-backed securities |  | Other commercial mortgage-backed securities | Other asset-backed securities | Total
Balance, at December 31, 2023 |  |  | $ | — |  | $ | 211 |  |  | $ | 151 |  | $ | 193 |  | $ | 555 |
Additional credit losses related to securities for which: |  |  |  |  |  |  |  |
No allowance for credit losses has been previously recognized |  |  | 740 |  | — |  |  | — |  | — |  | 740 |
Reductions related to: |  |  |  |  |  |  |  |
Securities sold during the period |  |  | — |  | (4) |  |  | (151) |  | (3) |  | (158) |
Balance, at March 31, 2024 |  |  | $ | 740 |  | $ | 207 |  |  | $ | — |  | $ | 190 |  | $ | 1,137 |
|  |  |  | Three Months Ended March 31, 2023
(In thousands) |  |  |  | Residential mortgage-backed securities |  |  | Other asset-backed securities | Total
Balance, at December 31, 2022 |  |  |  | $ | 229 |  |  |  | $ | 198 |  | $ | 427 |
Reductions related to: |  |  |  |  |  |  |  |
Securities sold during the period |  |  |  | (2) |  |  |  | (1) |  | (3) |
Balance, at March 31, 2023 |  |  |  | $ | 227 |  |  |  | $ | 197 |  | $ | 424 |
Other information regarding sales and purchases of fixed maturity available-for-sale securities is as follows:
|  |  | Three Months Ended March 31
(In millions) |  |  |  |  | 2024 |  | 2023
Proceeds from sales (exclusive of maturities and paydowns) |  |  |  |  | $ | 17.1 |  |  | $ | 3.8 |
Purchases |  |  |  |  | $ | 230.5 |  |  | $ | 68.8 |
Net Investment Income Net investment income (loss) by investment category was as follows:
|  |  | Three Months Ended March 31
(In thousands) |  |  |  |  | 2024 |  | 2023
Fixed maturities |  |  |  |  | $ | 31,451 |  |  | $ | 27,327 |
Equities |  |  |  |  | 892 |  |  | 807 |
Short-term investments, including Other |  |  |  |  | 3,411 |  |  | 3,350 |
BOLI |  |  |  |  | 452 |  |  | 657 |
Investment fees and expenses |  |  |  |  | (2,309) |  |  | (1,831) |
Net investment income |  |  |  |  | $ | 33,897 |  |  | $ | 30,310 |
Investment in Unconsolidated Subsidiaries ProAssurance's investment in unconsolidated subsidiaries were as follows:
| March 31, 2024 |  | Carrying Value
(In thousands) | Percentage Ownership |  | March 31, 2024 |  | December 31, 2023
Qualified affordable housing project tax credit partnerships | See below |  | $ | 562 |  |  | $ | 666 |
All other investments, primarily investment fund LPs/LLCs | See below |  | 278,369 |  |  | 276,090 |
|  |  | $ | 278,931 |  |  | $ | 276,756 |
Qualified affordable housing project tax credit partnership interests held by ProAssurance generate investment returns by providing tax benefits to fund investors in the form of tax credits and project operating losses. The carrying value of these investments reflects ProAssurance's total commitments (both funded and unfunded) to the partnerships, less any amortization. At March 31, 2024 and December 31, 2023, ProAssurance did not have an ownership percentage greater than 20% in any tax credit partnership interests. Since ProAssurance has the ability to exert influence over the partnerships but does not control them, all are accounted for using the equity method. See further discussion of the entities in which ProAssurance holds passive interests in Note 10. ProAssurance holds interests in investment fund LPs/LLCs and other equity method investments and LPs/LLCs which are not considered to be investment funds. ProAssurance's ownership percentage relative to four of the LPs/LLCs is greater than 25% at March 31, 2024 and December 31, 2023 which is likely to be reduced as the funds mature and other investors participate in the funds; these investments had a carrying value of $24.0 million at March 31, 2024 and $23.0 million at December 31, 2023. ProAssurance's ownership percentage relative to the remaining investments and LPs/LLCs is less than 25%; these interests had a carrying value of $254.4 million at March 31, 2024 and $253.1 million at December 31, 2023. ProAssurance does not have the ability to exert control over any of these funds. Equity in Earnings (Loss) of Unconsolidated Subsidiaries Equity in earnings (loss) of unconsolidated subsidiaries included losses from qualified affordable housing project tax credit partnerships and a historic tax credit partnership. Investment results recorded reflect ProAssurance's allocable portion of partnership operating results. Tax credits reduce income tax expense in the period they are utilized. The results recorded and tax credits recognized related to ProAssurance's tax credit partnership investments were as follows:
|  |  | Three Months Ended March 31
(In thousands) |  |  |  |  | 2024 |  | 2023
Qualified affordable housing project tax credit partnerships |  |  |  |  |  |  |
Losses recorded |  |  |  |  | $ | 103 |  |  | $ | 354 |
Tax credits recognized |  |  |  |  | $ | 8 |  |  | $ | 43 |
ProAssurance accounts for its tax credit partnership investments under the equity method of accounting and records its allocable portion of the operating losses of the underlying properties based on estimates provided by the partnerships. For the Company's qualified affordable housing project tax credit partnerships, it adjusts its estimates of their allocable portion of operating losses periodically as actual operating results of the underlying properties become available. The primary benefits of tax credits and tax-deductible operating losses from the historic tax credit partnerships are earned in a short period with potential for additional cash flows extending over several years. For the three months ended March 31, 2024 and 2023, the Company generated a nominal amount of tax credits from its tax credit partnership investments, which were deferred and are expected to be utilized in future periods. As of March 31, 2024, the Company had approximately $52.7 million of available tax credit carryforwards generated from its investments in tax credit partnerships which they expect to utilize in future periods. Tax credits provided by the underlying projects of the Company's historic tax credit partnership are typically available in the tax year in which the project is put into active service, whereas the tax credits provided by qualified affordable housing project tax credit partnerships are provided over approximately a ten-year period. Net Investment Gains (Losses) Realized investment gains and losses are recognized on the first-in, first-out basis. The following table provides detailed information regarding net investment gains (losses):
|  |  | Three Months Ended March 31
(In thousands) |  |  |  |  | 2024 |  | 2023
Total impairment losses: |  |  |  |  |  |  |
Corporate debt |  |  |  |  | $ | (1,316) |  |  | $ | (2,936) |
Asset-backed securities |  |  |  |  | (194) |  |  | 3 |
Portion of impairment losses recognized in other comprehensive income before taxes: |  |  |  |  |  |  |
Corporate debt |  |  |  |  | 576 |  |  | — |
Net impairment losses recognized in earnings |  |  |  |  | (934) |  |  | (2,933) |
Gross realized gains, available-for-sale fixed maturities |  |  |  |  | 366 |  |  | 79 |
Gross realized (losses), available-for-sale fixed maturities |  |  |  |  | (1,099) |  |  | (457) |
Net realized gains (losses), trading fixed maturities |  |  |  |  | 15 |  |  | (108) |
Net realized gains (losses), equity investments |  |  |  |  | (256) |  |  | 84 |
Net realized gains (losses), other investments |  |  |  |  | 1,776 |  |  | 229 |
Change in unrealized holding gains (losses), trading fixed maturities |  |  |  |  | 214 |  |  | 97 |
Change in unrealized holding gains (losses), equity investments |  |  |  |  | 774 |  |  | 3,746 |
Change in unrealized holding gains (losses), convertible securities, carried at fair value |  |  |  |  | (1,119) |  |  | 1,132 |
Other(1) |  |  |  |  | (5) |  |  | 1,043 |
Net investment gains (losses) |  |  |  |  | $ | (268) |  |  | $ | 2,912 |
(1) Includes a gain of $1.0 million recognized during the 2023 three-month period related to the change in the fair value of contingent consideration issued in connection with the NORCAL acquisition. See further discussion on the contingent consideration in Note 2 and Note 6 and discussion on the Company's accounting policy in Note 1 in its December 31, 2023 report on Form 10-K.
For the three months ended March 31, 2024, ProAssurance recognized $0.9 million of credit-related impairment losses in earnings related to a corporate bond in the consumer sector as well as an asset-backed security. The Company recognized non-credit impairment losses in OCI of $0.6 million related to a corporate bond during the three months ended March 31, 2024. For the three months ended March 31, 2023, ProAssurance recognized credit-related impairment losses in earnings of $2.9 million related to two corporate bonds in the financial sector. The Company did not recognize any non-credit impairment losses in OCI during the three months ended March 31, 2023. The following table presents a roll forward of cumulative credit losses recorded in earnings related to impaired debt securities for which a portion of the impairment was recorded in OCI.
|  |  | Three Months Ended March 31
(In thousands) |  |  |  |  | 2024 |  | 2023
Balance beginning of period |  |  |  |  | $ | 57 |  |  | $ | 57 |
Additional credit losses recognized during the period, related to securities for which: |  |  |  |  |  |  |
No impairment has been previously recognized |  |  |  |  | 740 |  |  | — |
Balance March 31 |  |  |  |  | $ | 797 |  |  | $ | 57 |

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