Reserve for Losses and Loss Adjustment Expenses

3 Months Ended

Mar. 31, 2024

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 7 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2023 report on Form 10-K.

Activity in the reserve for losses and loss adjustment expenses is summarized as follows:


(In thousands)	Three Months Ended March 31, 2024		Three Months Ended March 31, 2023		Year Ended December 31, 2023
Balance, beginning of year	$	3,401,281	$	3,471,147	$	3,471,147
Less reinsurance recoverables on unpaid losses and loss adjustment expenses	445,573		431,889		431,889
Net balance, beginning of year	2,955,708		3,039,258		3,039,258

Net losses:
Current year	195,110		198,240		794,848
(Favorable) unfavorable development of reserves established in prior years, net(1)	(416)		7,056		5,646
Total	194,694		205,296		800,494
Paid related to:
Current year	(12,867)		(11,052)		(101,996)
Prior years	(202,180)		(211,916)		(782,048)
Total paid	(215,047)		(222,968)		(884,044)
Net balance, end of period	2,935,355		3,021,586		2,955,708
Plus reinsurance recoverables on unpaid losses and loss adjustment expenses	447,157		447,693		445,573
Balance, end of period	$	3,382,512	$	3,469,279	$	3,401,281

(1) Net prior year reserve development recognized for the three months ended March 31, 2024 and 2023 as well as the year ended December 31, 2023 included $1.7 million, $2.5 million and $8.3 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.

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 prior year reserve development recognized for the three months ended March 31, 2024 primarily reflected:

•Net favorable development recognized in the Specialty P&C segment of $1.7 million related to the 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.

•Consolidated net favorable loss development recognized in the three months ended March 31, 2024 was partially offset by net unfavorable reserve development of $0.9 million recognized in the Segregated Portfolio Cell Reinsurance segment and unfavorable reserve development of $0.4 million attributable to the Company's Lloyd’s Syndicates operations in the Specialty P&C segment. The unfavorable development in the Segregated Portfolio Cell Reinsurance

segment includes net favorable development in the workers' compensation business of $0.5 million that was more than offset by net unfavorable development of $1.4 million in the medical professional liability business related to higher than expected claim frequency in on program in which the Company does not participate in the underwriting results.

For additional information regarding ProAssurance's prior year reserve development recognized for the three months ended March 31, 2023 and the year ended December 31, 2023, see Note 5 of the Notes to Condensed Consolidated Financial Statements included in ProAssurance's March 31, 2023 report on Form 10-Q and Note 7 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2023 report on Form 10-K, respectively.