株探米国株
英語
エドガーで原本を確認する
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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023 or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to                          
Commission File Number: 0-16533
ProAssurance Corporation
(Exact name of registrant as specified in its charter)
Delaware 63-1261433
(State or other jurisdiction of
incorporation or organization)		 (I.R.S. Employer Identification No.)
100 Brookwood Place, Birmingham, AL 35209
(Address of principal executive offices) (Zip Code)
(205) 877-4400
(Registrant’s telephone number,
including area code)		 (Former name, former address and former
fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $0.01 per share PRA New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer   ☒ Accelerated filer   ☐
Non-accelerated filer ☐ Smaller reporting company   ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ☐   No  ☒
As of November 3, 2023, there were 50,969,343 shares of the registrant’s common stock outstanding.

Table of Contents
Glossary of Terms and Acronyms

When the following terms and acronyms appear in the text of this report, they have the meanings indicated below.
Term Meaning
AAD Annual aggregate deductible
AOCI Accumulated other comprehensive income (loss)
Board Board of Directors of ProAssurance Corporation
BOLI Business owned life insurance
CARES Act Coronavirus Aid, Relief and Economic Security Act
Council of Lloyd's The governing body for Lloyd's of London
CODM Chief Operating Decision Maker
DDR Death, disability and retirement
DPAC Deferred policy acquisition costs
Eastern Re Eastern Re, LTD, S.P.C.
EBUB Earned but unbilled premium
ECO/XPL Extra-contractual obligations/excess of policy limit claims
ERC Employee Retention Credit
FAL Funds at Lloyd's
FASB Financial Accounting Standards Board
FHLB Federal Home Loan Bank
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
FSMA Financial Services and Markets Act
GAAP Generally accepted accounting principles in the United States of America
GNMA Government National Mortgage Association
HCPL Healthcare professional liability
IBNR Incurred but not reported
Inova Re Inova Re, LTD, S.P.C.
Interest Rate Swaps ProAssurance's two forward-starting interest rate swap agreements associated with its Revolving Credit Agreement and Term Loan
IRS Internal Revenue Service
LIBOR London Interbank Offered Rate
LLC Limited liability company
Lloyd's Lloyd's of London market
LP Limited partnership
Medical Technology Liability Medical technology and life sciences products liability
NAV Net asset value
NOL Net operating loss
NORCAL NORCAL Insurance Company, formerly known as NORCAL Mutual Insurance Company
NRSRO Nationally recognized statistical rating organization
NYSE New York Stock Exchange
OCI Other comprehensive income (loss)
PCAOB Public Company Accounting Oversight Board
PPM RRG Preferred Physicians Medical Risk Retention Group, a Mutual Insurance Company
Revolving Credit Agreement ProAssurance's $250 million revolving credit agreement
ROE Return on equity
ROU Right-of-use
SEC Securities and Exchange Commission
SOFR Secured Overnight Financing Rate
SPC Segregated portfolio cell
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Term Meaning
Specialty P&C Specialty Property and Casualty
Syndicate 1729 Lloyd's of London Syndicate 1729
Syndicate 6131 Lloyd's of London Syndicate 6131 was a Special Purpose Arrangement with Lloyd's of London Syndicate 1729.
Syndicate Credit Agreement Unconditional revolving credit agreement with the Premium Trust Fund of Syndicate 1729
TCJA Tax Cuts and Jobs Act H.R.1 of 2017
Term Loan ProAssurance's $125 million delayed draw term loan
U.K. United Kingdom of Great Britain and Northern Ireland
ULAE Unallocated loss adjustment expenses
VIE Variable interest entity
VOBA Value of business acquired

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Caution Regarding Forward-Looking Statements
Any statements in this Form 10-Q that are not historical facts or explicitly stated as an opinion are specifically identified as forward-looking statements. These statements are based upon our estimates and anticipation of future events and are subject to significant risks, assumptions and uncertainties that could cause actual results to vary materially from the expected results described in the forward-looking statements. Forward-looking statements are identified by words such as, but not limited to, "anticipate," "believe," "estimate," "expect," "hope," "hopeful," "intend," "likely," "may," "optimistic," "possible," "potential," "preliminary," "project," "should," "will" and other analogous expressions. There are numerous factors that could cause our actual results to differ materially from those in the forward-looking statements. Thus, sentences and phrases that we use to convey our view of future events and trends are expressly designated as forward-looking statements as are sections of this Form 10-Q that are identified as giving our outlook on future business.
Forward-looking statements relating to our business include among other things: statements concerning future liquidity and capital requirements, investment valuation and performance, return on equity, financial ratios, net income, premiums, losses and loss reserve, premium rates and retention of current business, competition and market conditions, the expansion of product lines, the development or acquisition of business in new geographical areas, the pricing or availability of acceptable reinsurance, actions by regulators and rating agencies, court actions, legislative actions, payment or performance of obligations under indebtedness, payment of dividends and other matters.
These forward-looking statements are subject to significant risks, assumptions and uncertainties, including, among other things, the following factors that could affect the actual outcome of future events:
l changes in general economic conditions, including the impact of inflation or deflation and unemployment;
l regulatory, legislative and judicial actions or decisions that could affect our business plans or operations;
l the enactment or repeal of tort reforms;
l formation or dissolution of state-sponsored insurance entities providing coverages now offered by ProAssurance which could remove or add sizable numbers of insureds from or to the private insurance market;
l changes in the interest and tax rate environment;
l resolution of uncertain tax matters and changes in tax laws;
l changes in laws or government regulations regarding financial markets or market activity that may affect our business;
l changes in the ability, or perception thereof, of the U.S. government to meet its obligations that may affect the U.S. economy and our business;
l performance of financial markets affecting the fair value of our investments or making it difficult to determine the value of our investments;
l changes in requirements or accounting policies and practices that may be adopted by our regulatory agencies, the FASB, the SEC, the PCAOB or the NYSE that may affect our business;
l changes in laws or government regulations affecting the financial services industry, the property and casualty insurance industry or particular insurance lines underwritten by our subsidiaries or by Syndicate 1729;
l the effect on our insureds, particularly the insurance needs of our insureds, and our loss costs, of changes in the healthcare delivery system and/or changes in the U.S. political climate that may affect healthcare policy or our business;
l consolidation of our insureds into or under larger entities which may be insured by competitors, or may not have a risk profile that meets our underwriting criteria or which may not use external providers for insuring or otherwise managing substantial portions of their liability risk;
l the effect of cyclical insurance industry trends on our underwriting, including demand and pricing in the insurance and reinsurance markets in which we operate;
l uncertainties inherent in the estimate of our loss and loss adjustment expense reserve and reinsurance recoverable;
l changes in the availability, cost, quality or collectability of insurance/reinsurance;
l the results of litigation, including pre- or post-trial motions, trials and/or appeals we undertake;
l effects on our claims costs from mass tort litigation that are different from that anticipated by us;
l allegations of bad faith which may arise from our handling of any particular claim, including failure to settle;
l loss or consolidation of independent agents, agencies, brokers or brokerage firms;
l changes in our organization, compensation and benefit plans;
l changes in the business or competitive environment may limit the effectiveness of our business strategy and impact our revenues;
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l our ability to retain and recruit senior management and other qualified personnel;
l the availability, integrity and security of our technology infrastructure and that of our third-party providers, including any susceptibility to cyber-attacks which might result in a loss of information, operating capability or actual monetary loss;
l the impact of a catastrophe, natural or man-made, including a pandemic event, as it relates to our business and insurance operations, investment results and our insured risks;
l the effects of terrorism-related insurance legislation and laws;
l guaranty funds and other state assessments;
l our ability to achieve growth through expansion into new markets or through acquisitions or business combinations;
l changes to the ratings assigned by rating agencies to our holding company or insurance subsidiaries, individually or as a group;
l provisions in our charter documents, Delaware law and state insurance laws may impede attempts to replace or remove management or may impede a takeover;
l state insurance restrictions may prohibit assets held by our insurance subsidiaries, including cash and investment securities, from being used for general corporate purposes; and
l taxing authorities can take exception to our tax positions and cause us to incur significant amounts of legal and accounting costs and, if our defense is not successful, additional tax costs, including interest and penalties.
l expected benefits from completed acquisitions may not be achieved or may be delayed longer than expected due to business disruption; loss of customers, employees or key agents; increased operating costs or inability to achieve cost savings and synergies; and assumption of greater than expected liabilities, among other reasons.
Our results may differ materially from those we expect and discuss in any forward-looking statements. The principal risk factors that may cause these material differences are described in "Item 1A, Risk Factors" in our December 31, 2022 report on Form 10-K and other documents we file with the SEC, such as our quarterly reports on Form 10-Q.
We caution readers not to place undue reliance on any such forward-looking statements, which are based upon conditions existing only as of the date made, and advise readers that these factors could affect our financial performance and could cause actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. Except as required by law or regulations, we do not undertake and specifically decline any obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
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ProAssurance Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except share data)
September 30,
2023		 December 31,
2022
Assets
Investments
Fixed maturities, available-for-sale, at fair value (amortized cost, $3,742,234 and $3,852,411, respectively; allowance for expected credit losses, $560 as of September 30, 2023 and $427 as of December 31, 2022)
 $ 3,355,312  $ 3,472,472 
Fixed maturities, trading, at fair value (cost, $46,081 and $45,048, respectively)
 45,999  43,434 
Equity investments, at fair value (cost, $164,574 and $162,429, respectively)
 143,920  143,738 
Short-term investments 247,394  245,313 
Business owned life insurance 77,502  81,746 
Investment in unconsolidated subsidiaries 297,314  305,210 
Other investments (at fair value, $59,612 and $92,447, respectively, otherwise at cost or amortized cost)
 62,816  95,770 
Total Investments 4,230,257  4,387,683 
Cash and cash equivalents 62,110  29,959 
Premiums receivable (allowance for expected credit losses, $7,921 as of September 30, 2023 and $7,658 as of December 31, 2022)
 279,131  246,094 
Receivable from reinsurers on paid losses and loss adjustment expenses 27,811  15,313 
Receivable from reinsurers on unpaid losses and loss adjustment expenses 417,323  431,889 
Prepaid reinsurance premiums 38,141  29,120 
Deferred policy acquisition costs 67,257  58,148 
Deferred tax asset, net 213,572  209,535 
Real estate, net 29,990  29,968 
Operating lease ROU assets 16,092  18,987 
Intangible assets, net 61,939  66,835 
Goodwill 5,500  49,610 
Other assets 124,834  126,858 
Total Assets $ 5,573,957  $ 5,699,999 
Liabilities and Shareholders' Equity
Liabilities
Policy liabilities and accruals
Reserve for losses and loss adjustment expenses $ 3,395,651  $ 3,471,147 
Unearned premiums 492,950  422,950 
Reinsurance premiums payable 32,018  28,514 
Total Policy Liabilities and Accruals 3,920,619  3,922,611 
Operating lease liabilities 16,926  20,008 
Other liabilities 197,990  226,379 
Debt less unamortized debt issuance costs
 426,579  426,983 
Total Liabilities 4,562,114  4,595,981 
Shareholders' Equity
Common shares (par value $0.01 per share, 100,000,000 shares authorized, 63,576,311 and 63,427,796 shares issued, respectively)
 636  634 
Additional paid-in capital 402,144  397,919 
Accumulated other comprehensive income (loss) (net of deferred tax expense (benefit) of ($80,975) and ($80,810), respectively)
 (296,839) (298,607)
Retained earnings 1,375,604  1,423,286 
Treasury shares, at cost (12,606,968 and 9,464,160 shares, respectively)
 (469,702) (419,214)
Total Shareholders' Equity 1,011,843  1,104,018 
Total Liabilities and Shareholders' Equity $ 5,573,957  $ 5,699,999 
See accompanying notes.
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ProAssurance Corporation and Subsidiaries
Condensed Consolidated Statements of Changes in Capital (Unaudited)
(In thousands)
Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Treasury Stock Total
Balance at July 1, 2023 $ 636  $ 400,705  $ (267,480) $ 1,425,038  $ (439,185) $ 1,119,714 
Common shares reacquired —  —  —  —  (30,517) (30,517)
Share-based compensation —  1,443  —  —  —  1,443 
Net effect of restricted and performance shares issued —  (4) —  —  —  (4)
Other comprehensive income (loss) —  —  (29,359) —  —  (29,359)
Net income (loss) —  —  —  (49,434) —  (49,434)
Balance at September 30, 2023 $ 636  $ 402,144  $ (296,839) $ 1,375,604  $ (469,702) $ 1,011,843 
Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Treasury Stock Total
Balance at December 31, 2022 $ 634  $ 397,919  $ (298,607) $ 1,423,286  $ (419,214) $ 1,104,018 
Common shares reacquired —  —  —  —  (50,488) (50,488)
Common shares issued for compensation —  1,064  —  —  —  1,064 
Share-based compensation —  3,817  —  —  —  3,817 
Net effect of restricted and performance shares issued 2  (656) —  —  —  (654)
Dividends to shareholders —  —  —  (2,701) —  (2,701)
Other comprehensive income (loss) —  —  1,768  —  —  1,768 
Net income (loss) —  —  —  (44,981) —  (44,981)
Balance at September 30, 2023 $ 636  $ 402,144  $ (296,839) $ 1,375,604  $ (469,702) $ 1,011,843 
Continued on the following page.


























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Continued from the previous page.

Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Treasury Stock Total
Balance at July 1, 2022 $ 634  $ 395,540  $ (234,188) $ 1,423,865  $ (415,962) $ 1,169,889 
Common shares reacquired —  —  —  —  (3,252) (3,252)
Share-based compensation —  1,291  —  —  —  1,291 
Net effect of restricted and performance shares issued —  (56) —  —  —  (56)
Dividends to shareholders —  —  —  (2,698) —  (2,698)
Other comprehensive income (loss) —  —  (90,053) —  —  (90,053)
Net income (loss) —  —  —  (9,125) —  (9,125)
Balance at September 30, 2022 $ 634  $ 396,775  $ (324,241) $ 1,412,042  $ (419,214) $ 1,065,996 
Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Treasury Stock Total
Balance at December 31, 2021 $ 633  $ 392,941  $ 16,284  $ 1,434,491  $ (415,962) $ 1,428,387 
Common shares reacquired —  —  —  —  (3,252) (3,252)
Common shares issued for compensation —  1,068  —  —  —  1,068 
Share-based compensation —  3,681  —  —  —  3,681 
Net effect of restricted and performance shares issued 1  (915) —  —  —  (914)
Dividends to shareholders —  —  —  (8,105) —  (8,105)
Other comprehensive income (loss) —  —  (340,525) —  —  (340,525)
Net income (loss) —  —  —  (14,344) —  (14,344)
Balance at September 30, 2022 $ 634  $ 396,775  $ (324,241) $ 1,412,042  $ (419,214) $ 1,065,996 
See accompanying notes.
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ProAssurance Corporation and Subsidiaries
Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited)
(In thousands, except per share data)
Three Months Ended September 30 Nine Months Ended September 30
 
 2023 2022 2023 2022
Revenues
Net premiums earned $ 242,420  $ 258,355  $ 730,068  $ 771,337 
Net investment income 32,754  24,745  94,714  67,132 
Equity in earnings (loss) of unconsolidated subsidiaries (61) (6,852) 5,450  5,948 
Net investment gains (losses):
Impairment losses (141) —  (3,117) (972)
Portion of impairment losses recognized in other comprehensive income (loss) before taxes —  —  —  419 
Net impairment losses recognized in earnings (141) —  (3,117) (553)
Other net investment gains (losses) (2,561) (8,262) 6,273  (45,099)
Total net investment gains (losses) (2,702) (8,262) 3,156  (45,652)
Other income 3,336  5,097  6,864  13,215 
Total revenues 275,747  273,083  840,252  811,980 
Expenses
Net losses and loss adjustment expenses 208,891  198,073  605,245  585,166 
Underwriting, policy acquisition and operating expenses:
Operating expense 41,132  45,847  118,394  127,595 
DPAC amortization 32,882  34,832  100,385  102,193 
SPC U.S. federal income tax expense (benefit) (175) 433  1,351  1,424 
SPC dividend expense (income) (2,518) 183  3,171  1,697 
Interest expense 5,514  5,513  16,478  14,872 
Goodwill impairment 44,110  —  44,110  — 
Total expenses 329,836  284,881  889,134  832,947 
Income (loss) before income taxes (54,089) (11,798) (48,882) (20,967)
Provision for income taxes:
Current expense (benefit) (1,228) 1,953  (453) 1,411 
Deferred expense (benefit) (3,427) (4,626) (3,448) (8,034)
Total income tax expense (benefit) (4,655) (2,673) (3,901) (6,623)
Net income (loss) (49,434) (9,125) (44,981) (14,344)
Other comprehensive income (loss), after tax, net of reclassification adjustments (29,359) (90,053) 1,768  (340,525)
Comprehensive income (loss) $ (78,793) $ (99,178) $ (43,213) $ (354,869)
Earnings (loss) per share:
Basic $ (0.95) $ (0.17) $ (0.85) $ (0.27)
Diluted $ (0.95) $ (0.17) $ (0.85) $ (0.27)
Weighted average number of common shares outstanding:
Basic 51,837  53,990  53,205  54,023 
Diluted 52,006  54,124  53,339  54,151 
Cash dividends declared per common share $ —  $ 0.05  $ 0.05  $ 0.15 
See accompanying notes.
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ProAssurance Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Nine Months Ended September 30
  2023 2022
Operating Activities
Net income (loss) $ (44,981) $ (14,344)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Goodwill impairment 44,110  — 
Depreciation and amortization, net of accretion 20,085  30,046 
(Increase) decrease in cash surrender value of BOLI 4,244  528 
Net investment (gains) losses (3,156) 45,652 
Share-based compensation 3,817  3,681 
Deferred income tax expense (benefit) (3,448) (8,034)
Policy acquisition costs, net of amortization (net deferral) (9,109) (6,077)
Equity in (earnings) loss of unconsolidated subsidiaries (5,450) (5,948)
Distributed earnings from unconsolidated subsidiaries 7,048  28,500 
Other, net 884  (534)
Change in:
Premiums receivable (33,037) (30,822)
Reinsurance related assets and liabilities (3,449) (6,533)
Other assets 5,320  16,506 
Reserve for losses and loss adjustment expenses (75,496) (35,012)
Unearned premiums 70,000  42,309 
Other liabilities (24,023) (53,245)
Net cash provided (used) by operating activities (46,641) 6,673 
Investing Activities
Purchases of:
Fixed maturities, available-for-sale (261,485) (486,130)
Equity investments (1,354) (34,815)
Other investments (31,845) (27,576)
Investment in unconsolidated subsidiaries (17,674) (25,445)
Proceeds from sales or maturities of:
Fixed maturities, available-for-sale 354,605  433,423 
Equity investments 2,633  77,952 
Other investments 67,411  22,333 
Net sales or (purchases) of fixed maturities, trading (2,586) (756)
Return of invested capital from unconsolidated subsidiaries 23,971  33,284 
Net sales or maturities (purchases) of short-term investments 31  (72,495)
Unsettled security transactions, net change 4,312  (5,588)
Purchases of capital assets (3,345) (3,484)
Other 2,661  (2,452)
Net cash provided (used) by investing activities 137,335  (91,749)
Continued on the following page.
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Nine Months Ended September 30
  2023 2022
Continued from the previous page.
Financing Activities
Repurchase of common stock (50,488) (3,252)
Dividends to shareholders (5,379) (8,080)
Capital contribution received from (return of capital to) external segregated portfolio cell participants 50  (6,978)
Other (2,726) 1,156 
Net cash provided (used) by financing activities (58,543) (17,154)
Increase (decrease) in cash and cash equivalents 32,151  (102,230)
Cash and cash equivalents at beginning of period 29,959  143,602 
Cash and cash equivalents at end of period $ 62,110  $ 41,372 
Significant Non-Cash Transactions
Dividends declared and not yet paid $ —  $ 2,698 
Operating ROU assets obtained in exchange for operating lease liabilities $ —  $ 3,133 
Increase (decrease) in fair value of contingent consideration issued in NORCAL acquisition $ (5,500) $ — 
See accompanying notes.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023

1. Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of ProAssurance Corporation, its wholly owned subsidiaries and VIEs in which ProAssurance is the primary beneficiary (ProAssurance, PRA or the Company). See Note 11 for more information on ProAssurance's VIE interests. The financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting of normal recurring adjustments, have been included. ProAssurance’s results for the nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. The accompanying Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes contained in ProAssurance’s December 31, 2022 report on Form 10-K.
Beginning in the third quarter of 2023, ProAssurance operates in four reportable segments as follows: Specialty P&C, Workers' Compensation Insurance, Segregated Portfolio Cell Reinsurance and Corporate. For more information on the Company's segment reporting, including the nature of products and services provided and financial information by segment, refer to Note 13.
Reclassifications
As a result of the third quarter 2023 segment reorganization, prior period segment information in Note 13 has been recast to conform to the Company's current segment reporting (see Note 13 for further information).
Accounting Policies
The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and disclosures related to these amounts at the date of the financial statements. The Company evaluates these estimates and assumptions on an ongoing basis based on current and historical developments, market conditions, industry trends and other information that the Company believes to be reasonable under the circumstances. The Company can make no assurance that actual results will conform to its estimates and assumptions; reported results of operations may be materially affected by changes in these estimates and assumptions.
Other than as disclosed below, the significant accounting policies followed by ProAssurance in making estimates that materially affect financial reporting are summarized in Note 1 of the Notes to Consolidated Financial Statements in ProAssurance’s December 31, 2022 report on Form 10-K.
Derivatives
ProAssurance records derivative instruments at fair value in the Condensed Consolidated Balance Sheets. ProAssurance accounts for the changes in fair value of derivatives depending on whether the derivative is designated as a hedging instrument and if so, the type of hedging relationship. For derivative instruments not designated as hedging instruments, ProAssurance recognizes the change in fair value of the derivative in earnings during the period of change. ProAssurance does not use derivative instruments for trading purposes.
For derivative financial instruments designed as cash flow hedges, ProAssurance formally documents all relationships between the hedging instruments and the hedged items as well as its risk-management objective and strategy for undertaking various hedged transactions. ProAssurance also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, ProAssurance discontinues hedge accounting prospectively.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
As of September 30, 2023, ProAssurance uses Interest Rate Swaps that are designated and qualify as highly effective cash flow hedges to manage its exposure to variability in cash flows of forecasted interest payments attributable to variability in the selected base rates on borrowings under the amended Revolving Credit Agreement. Changes in the fair value of derivatives that are designated and qualify as highly effective cash flow hedges are recorded in AOCI, net of tax, and are reclassified into earnings when the hedged cash flows impact earnings. When the change in the fair value of a qualifying cash flow hedge is included in earnings, it is included in the same line item on the Condensed Consolidated Statement of Income and Comprehensive Income as the cash flows from the hedged item. The Company has elected not to offset fair value amounts recognized for the Interest Rate Swaps and fair value of the amounts recognized to reclaim cash collateral or the obligation to return cash collateral executed with counterparties under a master netting arrangement. The cash flows of derivatives used in hedging relationships are classified as either operating, investing, or financing cash flows based on the classification of the hedged item.
Accounting Changes Adopted
Reference Rate Reform - Deferral of LIBOR Sunset Date (ASU 2022-06)
Effective for fiscal years beginning after December 31, 2022 and interim periods within those fiscal years, the FASB amended guidance which defers the LIBOR transition date from December 31, 2022 to December 31, 2024. As of September 30, 2023, ProAssurance has no exposure to LIBOR. ProAssurance adopted the guidance beginning January 1, 2023, and adoption had no material effect on ProAssurance's results of operations, financial position or cash flows.
Presentation of Financial Statements, Income Statement—Reporting Comprehensive Income, Distinguishing Liabilities from Equity, Equity and Compensation—Stock Compensation (ASU 2023-03)
Effective immediately, the FASB amended guidance on July 14, 2023 to align various SEC paragraphs in the Codification to reflect the issuance of SEC Staff Accounting Bulletin No. 120, among other things. ProAssurance adopted the guidance beginning July 14, 2023, and adoption had no material effect on ProAssurance's results of operations, financial position or cash flows.
Accounting Changes Not Yet Adopted
Disclosure Improvements (ASU 2023-06)
In October 2023, the FASB amended guidance to clarify or improve disclosure and presentation requirements of a variety of topics, which will allow users to more easily compare entities subject to the SEC's existing disclosures with those entities that were not previously subject to the requirements and align the requirements in the Codification with the SEC's regulations. The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X becomes effective, with early adoption prohibited. Adoption is not expected to have a material effect on ProAssurance's results of operations, financial position or cash flows.
Employee Retention Credit
In response to COVID-19, the CARES Act was signed into law on March 27, 2020 and contains several provisions for corporations, including the initial version of the ERC. In December 2020 and March 2021, the ERC was extended and expanded from 50% of qualified wages to 70%. The 2020 rules limited qualified wages to $10,000 per employee and applied to employers with 100 or fewer full-time employees in 2019. The rules were expanded in 2021 to raise the qualified wage limit to $10,000 per employee, per quarter. As an eligible employer, NORCAL filed a claim during the second quarter of 2023 for a payroll tax refund of approximately $3.8 million. The Company recorded the expected payroll tax refund as a component of operating expenses on the Condensed Consolidated Statement of Income and Comprehensive Income for the nine months ended September 30, 2023 and as a component of other assets on the Condensed Consolidated Balance Sheet as of September 30, 2023.

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023

2. 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 September 30, 2023 and December 31, 2022 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 3 of the Notes to Consolidated Financial Statements in ProAssurance’s December 31, 2022 report on Form 10-K.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
September 30, 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 $ —  $ 237,828  $ —  $ 237,828 
U.S. Government-sponsored enterprise obligations —  18,871  —  18,871 
State and municipal bonds —  436,268  —  436,268 
Corporate debt, multiple observable inputs —  1,598,018  —  1,598,018 
Corporate debt, limited observable inputs —  —  65,960  65,960 
Residential mortgage-backed securities —  396,676  271  396,947 
Agency commercial mortgage-backed securities —  8,652  —  8,652 
Other commercial mortgage-backed securities —  185,809  —  185,809 
Other asset-backed securities —  406,018  941  406,959 
Fixed maturities, trading —  45,999  —  45,999 
Equity investments
Financial 8,594  2,214  287  11,095 
Utilities/Energy 845  —  —  845 
Industrial —  —  4,946  4,946 
Bond funds 109,907  —  —  109,907 
All other 17,127  —  —  17,127 
Short-term investments 184,853  62,541  —  247,394 
Other investments 1,074  56,150  2,388  59,612 
Other assets —  10,366  —  10,366 
Total assets categorized within the fair value hierarchy $ 322,400  $ 3,465,410  $ 74,793  3,862,603 
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 264,681 
Total assets at fair value $ 4,127,284 
Liabilities:
Other liabilities $ 10,680  $ —  $ 9,500  $ 20,180 
Total liabilities categorized within the fair value hierarchy $ 10,680  $ —  $ 9,500  $ 20,180 
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
December 31, 2022
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 $ —  $ 221,608  $ —  $ 221,608 
U.S. Government-sponsored enterprise obligations —  19,934  —  19,934 
State and municipal bonds —  439,450  —  439,450 
Corporate debt, multiple observable inputs —  1,717,479  —  1,717,479 
Corporate debt, limited observable inputs —  —  63,973  63,973 
Residential mortgage-backed securities —  389,291  249  389,540 
Agency commercial mortgage-backed securities —  9,704  —  9,704 
Other commercial mortgage-backed securities —  194,090  —  194,090 
Other asset-backed securities —  413,989  2,705  416,694 
Fixed maturities, trading —  43,434  —  43,434 
Equity investments
Financial 9,850  2,219  303  12,372 
Utilities/Energy 854  —  —  854 
Industrial —  —  2,500  2,500 
Bond funds 112,136  —  —  112,136 
All other 15,876  —  —  15,876 
Short-term investments 181,937  63,376  —  245,313 
Other investments 1,881  88,783  1,783  92,447 
Total assets categorized within the fair value hierarchy $ 322,534  $ 3,603,357  $ 71,513  3,997,404 
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 262,485 
Total assets at fair value $ 4,259,889 
Liabilities:
Other liabilities $ —  $ —  $ 15,000  $ 15,000 
Total liabilities categorized within the fair value hierarchy $ —  $ —  $ 15,000  $ 15,000 

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Table of Contents
ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
Level 2 Valuations
Other than as described below, see Note 3 of the Notes to Consolidated Financial Statements in ProAssurance’s December 31, 2022 report on Form 10-K for a summary description of the valuation methodologies used regarding securities in the Level 2 category, by security type.
Level 2 Valuation Methodologies
Other assets consisted of interest rate swap derivative instruments valued using a model which considers the volatilities from other instruments with similar maturities, strike prices and durations.
Level 3 Valuations
See Note 3 of the Notes to Consolidated Financial Statements in ProAssurance’s December 31, 2022 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 a quantitative information regarding securities in the Level 3 category, by security type:
Fair Value at
($ in thousands) September 30, 2023 December 31, 2022 Valuation Technique Unobservable Input Range
(Weighted Average)
Assets:
Corporate debt, limited observable inputs $65,960 $63,973 Market Comparable
Securities		 Comparability Adjustment
0% - 5% (2.5%)
Discounted Cash Flows Comparability Adjustment
0% - 5% (2.5%)
Residential mortgage-backed securities $271 $249 Market Comparable
Securities		 Comparability Adjustment
0% - 5% (2.5%)
Discounted Cash Flows Comparability Adjustment
0% - 5% (2.5%)
Other asset-backed securities $941 $2,705 Market Comparable
Securities		 Comparability Adjustment
0% - 5% (2.5%)
Discounted Cash Flows Comparability Adjustment
0% - 5% (2.5%)
Equity investments $5,233 $2,803 Discounted Cash Flows Comparability Adjustment
0% - 10% (5%)
Other investments $2,388 $1,783 Discounted Cash Flows Comparability Adjustment
0% - 10% (5%)
Liabilities:
Other liabilities $9,500 $15,000 Stochastic Model/Discounted Cash Flows Weighted Average Cost of Capital
0% - 10% (9%)
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.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
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.
  September 30, 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, June 30, 2023 $ 67,394  $ 1,229  $ 5,234  $ 500  $ 74,357  $ (11,000) $ (11,000)
Total gains (losses) realized and unrealized:
Included in earnings, as a part of:
Net investment gains (losses) 199  —  (1) (152) 46  1,500  1,500 
Included in other comprehensive income (loss) (818) (15) —  —  (833) —  — 
Purchases 1,236  —  —  2,040  3,276  —  — 
Sales (1,188) (2) —  —  (1,190) —  — 
Transfers out (863) —  —  —  (863) —  — 
Balance, September 30, 2023 $ 65,960  $ 1,212  $ 5,233  $ 2,388  $ 74,793  $ (9,500) $ (9,500)
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets and liabilities held at period-end $ —  $ —  $ (1) $ (152) $ (153) $ —  $ — 
  September 30, 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 income (loss) (23) —  —  —  (23) —  — 
Net investment gains (losses) 212  —  (741) (152) (681) 4,500  4,500 
Operating expense —  —  —  —  —  1,000  1,000 
Included in other comprehensive income (loss) (751) 11  —  —  (740) —  — 
Purchases 11,642  1,863  3,171  2,040  18,716  —  — 
Sales (5,215) (398) —  —  (5,613) —  — 
Transfers in 11,220  1,779  —  —  12,999  —  — 
Transfers out (15,098) (4,997) —  (1,283) (21,378) —  — 
Balance, September 30, 2023 $ 65,960  $ 1,212  $ 5,233  $ 2,388  $ 74,793  $ (9,500) $ (9,500)
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets and liabilities held at period-end $ —  $ —  $ (741) $ (152) $ (893) $ —  $ — 
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
  September 30, 2022
  Level 3 Fair Value Measurements
Assets Liabilities
(In thousands) State and Municipal Bonds Corporate Debt Asset-backed Securities Equity Investments Other Investments
Total Assets
 Other Liabilities Total Liabilities
Balance, June 30, 2022 $ —  $ 74,212  $ 4,038  $ 4,625  $ 901  $ 83,776  $ (24,000) $ (24,000)
Total gains (losses) realized and unrealized:
Included in earnings, as a part of:
Net investment income (loss) —  (1) 2  —  —  1  —  — 
Net investment gains (losses) —  —  —  66  14  80  —  — 
Included in other comprehensive income (loss) (24) (2,057) (152) —  —  (2,233) —  — 
Purchases 750  9,204  2,819  17  500  13,290  —  — 
Sales —  (1,777) (90) —  —  (1,867) —  — 
Transfers in —  —  —  252  —  252  —  — 
Transfers out —  (21,427) (2,444) (2,193) —  (26,064) —  — 
Balance, September 30, 2022 $ 726  $ 58,154  $ 4,173  $ 2,767  $ 1,415  $ 67,235  $ (24,000) $ (24,000)
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets and liabilities held at period-end $ —  $ —  $ —  $ 66  $ 14  $ 80  $ —  $ — 
  September 30, 2022
  Level 3 Fair Value Measurements
Assets Liabilities
(In thousands) State and Municipal Bonds Corporate Debt Asset-backed Securities Equity Investments Other Investments Total Assets Other Liabilities Total Liabilities
Balance, December 31, 2021 $ —  $ 47,129  $ 6,502  $ 2,500  $ 1,434  $ 57,565  $ (24,000) $ (24,000)
Total gains (losses) realized and unrealized:
Included in earnings, as a part of:
Net investment income (loss) —  (1) 3  —  —  2  —  — 
Net investment gains (losses) —  —  —  66  (663) (597) —  — 
Included in other comprehensive income (loss) (24) (4,369) (589) —  —  (4,982) —  — 
Purchases 750  27,702  9,877  17  1,983  40,329  —  — 
Sales —  (4,803) (287) —  (116) (5,206) —  — 
Transfers in —  18,828  570  2,377  529  22,304  —  — 
Transfers out —  (26,332) (11,903) (2,193) (1,752) (42,180) —  — 
Balance, September 30, 2022 $ 726  $ 58,154  $ 4,173  $ 2,767  $ 1,415  $ 67,235  $ (24,000) $ (24,000)
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets and liabilities held at period-end $ —  $ —  $ —  $ 66  $ (709) $ (643) $ —  $ — 

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
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 and nine months ended September 30, 2023 and 2022 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 September 30, 2023 and December 31, 2022, 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 September 30, 2023 and fair values of these investments as of September 30, 2023 and December 31, 2022 were as follows:
  Unfunded
Contractual Commitments		 Fair Value
(In thousands) September 30,
2023		 September 30,
2023		 December 31,
2022
Investment in unconsolidated subsidiaries:
Private debt funds (1)
 $1,788 $ 19,763  $ 19,620 
Long/short equity funds (2)
 None 4,626  5,089 
Non-public equity funds (3)
 $46,837 140,140  144,560 
Credit funds (4)
 $30,635 49,982  49,245 
Strategy focused funds (5)
 $8,354 50,170  43,971 
Total investments carried at NAV $ 264,681  $ 262,485 
Below is additional information regarding each of the investments listed in the table above as of September 30, 2023.
(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.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
(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. For both funds, redemptions are not permitted. The remaining funds are real estate focused LPs, one of which allows 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
During the third quarter of 2023, ProAssurance recognized a nonrecurring fair value measurement related to the goodwill in its Workers' Compensation Insurance reporting unit with a carrying value of $44.1 million prior to the fair value measurement. This nonrecurring fair value measurement resulted in the goodwill being written down to its implied fair value of zero resulting in an impairment of goodwill of $44.1 million. The inputs used in the fair value measurement were non-observable and, as such, were categorized as a Level 3 valuation. ProAssurance did not have any other assets or liabilities that were measured at fair value on a nonrecurring basis at September 30, 2023 or December 31, 2022.
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.
  September 30, 2023 December 31, 2022
(In thousands) Carrying
Value		 Fair
Value		 Carrying
Value		 Fair
Value
Financial assets:
BOLI $ 77,502  $ 77,502  $ 81,746  $ 81,746 
Other investments $ 3,204  $ 3,204  $ 3,322  $ 3,322 
Other assets $ 30,673  $ 30,652  $ 28,819  $ 28,790 
Financial liabilities:
Senior notes due 2023* $ 250,000  $ 249,528  $ 250,000  $ 248,153 
Contribution Certificates $ 178,910  $ 130,503  $ 177,525  $ 134,479 
Other liabilities $ 29,429  $ 29,429  $ 27,905  $ 27,905 
* 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 $29.7 million and $27.9 million at September 30, 2023 and December 31, 2022, 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 $29.4 million and $27.9 million at September 30, 2023 and December 31, 2022, 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.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
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 2 and Note 11 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2022 report on Form 10-K for further discussion of the terms of the Contribution Certificates).
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
3. Investments
Available-for-sale fixed maturities at September 30, 2023 and December 31, 2022 included the following:
September 30, 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 $ 261,067  $ —  $ —  $ 23,239  $ 237,828 
U.S. Government-sponsored enterprise obligations 20,354  —  —  1,483  18,871 
State and municipal bonds 480,277  —  49  44,058  436,268 
Corporate debt 1,864,148  —  598  200,768  1,663,978 
Residential mortgage-backed securities 470,066  216  333  73,236  396,947 
Agency commercial mortgage-backed securities 9,768  —  —  1,116  8,652 
Other commercial mortgage-backed securities 210,104  151  25  24,169  185,809 
Other asset-backed securities 426,450  193  243  19,541  406,959 
$ 3,742,234  $ 560  $ 1,248  $ 387,610  $ 3,355,312 
  December 31, 2022
(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 $ 243,999  $ —  $ 8  $ 22,399  $ 221,608 
U.S. Government-sponsored enterprise obligations 21,562  —  —  1,628  19,934 
State and municipal bonds 483,584  —  177  44,311  439,450 
Corporate debt 1,980,579  —  735  199,862  1,781,452 
Residential mortgage-backed securities 450,870  229  555  61,656  389,540 
Agency commercial mortgage-backed securities 10,576  —  —  872  9,704 
Other commercial mortgage-backed securities 217,021  —  63  22,994  194,090 
Other asset-backed securities 444,220  198  289  27,617  416,694 
$ 3,852,411  $ 427  $ 1,827  $ 381,339  $ 3,472,472 

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
The recorded cost basis and estimated fair value of available-for-sale fixed maturities at September 30, 2023, 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 $ 261,067  $ 35,570  $ 166,215  $ 33,643  $ 2,400  $ 237,828 
U.S. Government-sponsored enterprise obligations 20,354  5,186  13,199  486  —  18,871 
State and municipal bonds 480,277  36,817  150,101  140,152  109,198  436,268 
Corporate debt 1,864,148  216,641  830,290  534,892  82,155  1,663,978 
Residential mortgage-backed securities 470,066  396,947 
Agency commercial mortgage-backed securities 9,768  8,652 
Other commercial mortgage-backed securities 210,104  185,809 
Other asset-backed securities 426,450  406,959 
$ 3,742,234  $ 3,355,312 
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 September 30, 2023.
Cash and securities with a carrying value of $53.7 million at September 30, 2023 were on deposit with various state insurance departments to meet regulatory requirements. ProAssurance also held securities with a carrying value of $69.2 million at September 30, 2023 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 underwriting by Syndicate 1729. At September 30, 2023, ProAssurance's FAL investments were comprised of investment securities, primarily available-for-sale fixed maturities, with a fair value of $19.6 million on deposit with Lloyd's in order to satisfy these FAL requirements. During the second quarter of 2023, ProAssurance received a return of approximately $4.1 million of cash from its FAL balances related to the settlement of the Company's participation in the results of Syndicate 1729 and Syndicate 6121 for the 2020 underwriting year.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
Investments Held in a Loss Position
The following tables provide summarized information with respect to investments held in an unrealized loss position at September 30, 2023 and December 31, 2022, including the length of time the investment had been held in a continuous unrealized loss position.
September 30, 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 $ 237,828  $ 23,239  $ 53,724  $ 2,863  $ 184,104  $ 20,376 
U.S. Government-sponsored enterprise obligations 18,871  1,483  4,311  352  14,560  1,131 
State and municipal bonds 417,930  44,058  84,695  4,940  333,235  39,118 
Corporate debt 1,600,097  200,768  186,646  12,441  1,413,451  188,327 
Residential mortgage-backed securities 370,223  73,236  140,460  17,086  229,763  56,150 
Agency commercial mortgage-backed securities 8,652  1,116  821  29  7,831  1,087 
Other commercial mortgage-backed securities 183,434  24,169  20,378  1,836  163,056  22,333 
Other asset-backed securities 384,747  19,541  82,866  1,319  301,881  18,222 
$ 3,221,782  $ 387,610  $ 573,901  $ 40,866  $ 2,647,881  $ 346,744 

December 31, 2022
  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 $ 220,991  $ 22,399  $ 53,199  $ 2,393  $ 167,792  $ 20,006 
U.S. Government-sponsored enterprise obligations 19,934  1,628  8,082  663  11,852  965 
State and municipal bonds 421,769  44,311  177,393  12,352  244,376  31,959 
Corporate debt 1,708,529  199,862  687,947  42,977  1,020,582  156,885 
Residential mortgage-backed securities 363,945  61,656  155,212  15,275  208,733  46,381 
Agency commercial mortgage-backed securities 9,704  872  3,086  110  6,618  762 
Other commercial mortgage-backed securities 192,359  22,994  53,270  4,087  139,089  18,907 
Other asset-backed securities 396,452  27,617  162,192  7,050  234,260  20,567 
$ 3,333,683  $ 381,339  $ 1,300,381  $ 84,907  $ 2,033,302  $ 296,432 
As of September 30, 2023, excluding U.S. Government or U.S. Government-sponsored enterprise obligations, there were 2,829 debt securities (73.3% of all available-for-sale fixed maturity securities held) in an unrealized loss position representing 1,396 issuers. The greatest and second greatest unrealized loss positions among those securities were approximately $6.0 million and $4.1 million, respectively. The securities were evaluated for impairment as of September 30, 2023.
As of December 31, 2022, excluding U.S. Government or U.S. Government-sponsored enterprise obligations, there were 2,901 debt securities (74.4% of all available-for-sale fixed maturity securities held) in an unrealized loss position representing 1,433 issuers. The greatest and second greatest unrealized loss positions among those securities were approximately $5.7 million and $4.1 million, respectively. The securities were evaluated for impairment as of December 31, 2022.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 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, 2022 report on Form 10-K.
Fixed maturity securities held in an unrealized loss position at September 30, 2023, 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 September 30, 2023 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 and nine months ended September 30, 2023 and 2022.
Three Months Ended September 30, 2023
(In thousands) Residential mortgage-backed securities Other commercial mortgage-backed securities Other asset-backed securities Total
Balance, at July 1, 2023 $ 223  $ —  $ 196  $ 419 
Additional credit losses related to securities for which:
No allowance for credit losses has been previously recognized —  151  —  151 
Reductions related to:
Securities sold during the period (7) —  (3) (10)
Balance, at September 30, 2023 $ 216  $ 151  $ 193  $ 560 
Nine Months Ended September 30, 2023
(In thousands) Residential mortgage-backed securities Other commercial mortgage-backed securities Other asset-backed securities Total
Balance, at December 31, 2022 $ 229  $ —  $ 198  $ 427 
Additional credit losses related to securities for which:
No allowance for credit losses has been previously recognized —  151  —  151 
Reductions related to:
Securities sold during the period (13) —  (5) (18)
Balance, at September 30, 2023 $ 216  $ 151  $ 193  $ 560 
Three Months Ended September 30, 2022
(In thousands) Corporate Debt Total
Balance, at July 1, 2022 $ 553  $ 553 
Additional credit losses related to securities for which:
No allowance for credit losses has been previously recognized —  — 
Balance, at September 30, 2022 $ 553  $ 553 
Nine Months Ended September 30, 2022
(In thousands) Corporate Debt Total
Balance, at December 31, 2021 $ —  $ — 
Reductions related to:
Securities sold during the period 553  553 
Balance, at September 30, 2022 $ 553  $ 553 
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
Other information regarding sales and purchases of fixed maturity available-for-sale securities is as follows:
Three Months Ended September 30 Nine Months Ended September 30
(In millions) 2023 2022 2023 2022
Proceeds from sales (exclusive of maturities and paydowns) $ 8.0  $ 8.9  $ 31.4  $ 111.2 
Purchases $ 127.3  $ 145.4  $ 261.5  $ 486.1 
Net Investment Income
Net investment income (loss) by investment category was as follows:
Three Months Ended
September 30		 Nine Months Ended
September 30
(In thousands) 2023 2022 2023 2022
Fixed maturities $ 28,402  $ 23,725  $ 83,680  $ 67,275 
Equities 1,158  846  3,070  2,514 
Short-term investments, including Other 4,473  1,812  11,857  2,965 
BOLI 668  421  1,784  635 
Investment fees and expenses (1,947) (2,059) (5,677) (6,257)
Net investment income $ 32,754  $ 24,745  $ 94,714  $ 67,132 
Investment in Unconsolidated Subsidiaries
ProAssurance's investment in unconsolidated subsidiaries were as follows:
  September 30, 2023 Carrying Value
(In thousands) Percentage
Ownership		 September 30,
2023		 December 31,
2022
Qualified affordable housing project tax credit partnerships See below $ 787  $ 4,088 
All other investments, primarily investment fund LPs/LLCs
 See below 296,527  301,122 
$ 297,314  $ 305,210 
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 September 30, 2023 and December 31, 2022, ProAssurance did not have an ownership percentage greater than 20% in any tax credit partnership interests. ProAssurance's ownership percentage relative to the tax credit partnership interests is less than 20%; these interests had a carrying value of $0.8 million at September 30, 2023 and $4.1 million at December 31, 2022. 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 11.
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 and three of the LPs/LLCs is greater than 25% at September 30, 2023 and December 31, 2022, respectively, which is likely to be reduced as the funds mature and other investors participate in the funds; these investments had a carrying value of $45.0 million at September 30, 2023 and $36.0 million at December 31, 2022. ProAssurance's ownership percentage relative to the remaining investments and LPs/LLCs is less than 25%; these interests had a carrying value of $251.5 million at September 30, 2023 and $265.1 million at December 31, 2022. ProAssurance does not have the ability to exert control over any of these funds.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
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
September 30		 Nine Months Ended
September 30
(In thousands) 2023 2022 2023 2022
Qualified affordable housing project tax credit partnerships
Losses recorded $ 429  $ 2,164  $ 2,294  $ 7,360 
Tax credits recognized $ 401  $ 1,201  $ 473  $ 3,604 
Historic tax credit partnership*
Losses (gains) recorded $ —  $ —  $ —  $ (961)
*ProAssurance holds a historic tax credit partnership which was fully amortized in 2020. This partnership generated investment returns by providing benefits to partnership investors in the form of tax credits, tax deductible project operating losses and distributions resulting from positive cash flows. ProAssurance received a distribution associated with this investment during the second quarter of 2022 as a result of positive cash flows from a completed project, which was recognized as an operating gain during the second quarter of 2022.
Due to the consolidated loss before income taxes recognized during the three and nine months ended September 30, 2023, the tax credits generated in 2023 from tax credit partnership investments of $0.4 million and $0.5 million, respectively, were deferred and are expected to be utilized in future periods. For the three and nine months ended September 30, 2022, the tax credits generated from the Company's tax credit partnership investments of $1.2 million and $3.6 million, respectively, were deferred and are expected to be utilized in future periods. Not included in the table above is $2.2 million of tax credits recaptured from the 2019 tax year during the nine months ended September 30, 2023 due to the carryback of the Company's estimated NOL for 2023 to the 2021 tax year. The recaptured tax credits were earned in 2019 but not utilized until 2021 due to NOL's generated in both 2019 and 2020. As of September 30, 2023, the Company had approximately $53.4 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.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
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
September 30		 Nine Months Ended
September 30
(In thousands) 2023 2022 2023 2022
Total impairment losses:
Corporate debt $ —  $ —  $ (2,984) $ (972)
Asset-backed securities (141) —  (133) — 
Portion of impairment losses recognized in other comprehensive income before taxes:
Corporate debt —  —  —  419 
Net impairment losses recognized in earnings
 (141) —  (3,117) (553)
Gross realized gains, available-for-sale fixed maturities 254  142  793  1,594 
Gross realized (losses), available-for-sale fixed maturities (285) (57) (1,509) (2,146)
Net realized gains (losses), trading fixed maturities 5  (30) (101) (127)
Net realized gains (losses), equity investments 154  —  254  (5,346)
Net realized gains (losses), other investments (683) 209  (2,570) 99 
Change in unrealized holding gains (losses), trading fixed maturities (71) (100) 81  (881)
Change in unrealized holding gains (losses), equity investments (4,578) (6,655) (1,962) (24,063)
Change in unrealized holding gains (losses), convertible securities, carried at fair value (588) (1,443) 3,473  (14,502)
Other(1)
 3,231  (328) 7,814  273 
Net investment gains (losses) $ (2,702) $ (8,262) $ 3,156  $ (45,652)
(1) Includes gains of $1.5 million and $4.5 million recognized during the 2023 three- and nine-month periods, respectively, reflecting 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 discussion on the Company's accounting policy in Note 1 in its December 31, 2022 report on Form 10-K.
For the three and nine months ended September 30, 2023, ProAssurance recognized a nominal amount and $3.1 million of credit-related impairment losses in earnings, respectively. The credit-related impairment losses recognized during the three and nine months ended September 30, 2023 related to a mortgage-backed security and, for the 2023 nine-month period, two corporate bonds in the financial sector. The Company did not recognize any non-credit impairment losses in OCI during the three and nine months ended September 30, 2023. ProAssurance did not recognize any credit-related impairment losses in earnings or non-credit impairment losses in OCI during the three months ended September 30, 2022. For the nine months ended September 30, 2022, ProAssurance recognized credit-related impairment losses in earnings of $0.6 million and non-credit impairment losses in OCI of $0.4 million. The credit-related impairment losses and non-credit related impairment losses recognized during the nine months ended September 30, 2022 related to a corporate bond in the consumer sector.
The following table presents a roll forward of cumulative losses recorded in earning related to impaired debt securities for which a portion of the impairment was recorded in OCI.
Three Months Ended
September 30		 Nine Months Ended
September 30
(In thousands) 2023 2022 2023 2022
Balance beginning of period $ 57  $ 553  $ 57  $ — 
Additional credit losses recognized during the period, related to securities for which:
No impairment has been previously recognized —  —  —  553 
Balance June 30 $ 57  $ 553  $ 57  $ 553 
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
4. Income Taxes
For interim periods, ProAssurance generally utilizes the estimated annual effective tax rate method under which the Company determines its provision (benefit) for income taxes based on the current estimate of its annual effective tax rate. Under the estimated annual effective tax rate method, items which are unusual, infrequent, or that cannot be reliably estimated are considered in the effective tax rate in the period in which the item is included in income, and are referred to as discrete items. In calculating the Company's year-to-date income tax expense (benefit) under the estimated annual effective tax rate method, it includes the estimated benefit of tax credits for the year-to-date period based on the most recently available information provided by the tax credit partnerships; the actual amounts of credits provided by the tax credit partnerships may prove to be different than the Company's estimates. The effect of such a difference is recognized in the period identified.
For the three and nine months ended September 30, 2023, ProAssurance utilized the discrete effective tax rate method for recording income taxes after the estimated annual effective tax rate method produced an unreliable estimated annual effective tax rate. ProAssurance believes the use of the discrete effective tax rate method is more appropriate than the annual effective tax rate method for the three and nine months ended September 30, 2023 as minor changes in the Company's estimated ordinary income would have a significant effect on the estimated annual effective tax rate and would result in sizable variations in the customary relationship between income tax expense (benefit) and pre-tax accounting income (loss). For the six months ended June 30, 2022, ProAssurance utilized the discrete effective tax rate method for recording income taxes in the period. The Company believed the use of the discrete effective tax rate method for the six months ended June 30, 2022 was more appropriate than the annual effective tax rate method. For the nine months ended September 30, 2022, ProAssurance reevaluated the use of the discrete effective tax rate method and concluded that a return to the estimated annual effective tax rate method is appropriate given the Company's revised financial projections and ability to provide a reliable estimate of the annual effective tax rate.
For the nine months ended September 30, 2023 the provision for income taxes is different from that which would be obtained by applying the statutory federal income tax rate to income (loss) before income taxes primarily due to a $44.1 million goodwill impairment recognized in relation to the Workers' Compensation Insurance reporting unit during the third quarter of 2023, which is non-deductible (see further discussion on this goodwill impairment in Note 5). The provision for income taxes for the nine months ended September 30, 2023 is also different from that which would be obtained by applying the statutory federal income tax rate to income (loss) before income taxes due to the $5.5 million decrease in the contingent consideration liability related to the NORCAL acquisition, all of which was non-taxable. See further discussion on the contingent consideration in Note 2.
ProAssurance had a liability for U.S. federal and U.K. income taxes carried as a part of other liabilities of $3.2 million as of September 30, 2023 and a receivable of $8.0 million as of December 31, 2022 carried as a part of other assets. At September 30, 2023 and December 31, 2022, the liability for unrecognized tax benefits, which is included in the total liability for U.S. federal and U.K. income taxes, was $4.3 million and $4.1 million, respectively, which included an accrued liability for interest of approximately $0.7 million and $0.5 million, respectively.
Coronavirus Aid, Relief and Economic Security Act
In response to COVID-19, the CARES Act was signed into law on March 27, 2020 and contains several provisions for corporations and eased certain deduction limitations originally imposed by the TCJA. See further discussion in Note 6 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2022 report on Form 10-K. As a result of the CARES Act, ProAssurance was permitted to carryback NOLs generated in tax years 2019 and 2020 for up to five years. ProAssurance generated an NOL of approximately $33.3 million from the 2020 tax year that was carried back to the 2015 tax year which resulted in a tax refund of approximately $11.7 million received in February 2023.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
5. Goodwill
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.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
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.

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
6. 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 8 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2022 report on Form 10-K.
Activity in the reserve for losses and loss adjustment expenses is summarized as follows:
(In thousands) Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022 Year Ended December 31, 2022
Balance, beginning of year $ 3,471,147  $ 3,579,940  $ 3,579,940 
Less reinsurance recoverables on unpaid losses and loss adjustment expenses 431,889  451,741  451,741 
Net balance, beginning of year 3,039,258  3,128,199  3,128,199 
Net losses:
Current year(1)
 596,872  616,694  813,515 
(Favorable) unfavorable development of reserves established in prior years, net(2)
 8,373  (31,528) (36,753)
Total 605,245  585,166  776,762 
Paid related to:
Current year (67,894) (77,854) (108,139)
Prior years (598,281) (557,066) (757,564)
Total paid (666,175) (634,920) (865,703)
Net balance, end of period 2,978,328  3,078,445  3,039,258 
Plus reinsurance recoverables on unpaid losses and loss adjustment expenses 417,323  466,483  431,889 
Balance, end of period $ 3,395,651  $ 3,544,928  $ 3,471,147 
(1) Current year net losses for both the nine months ended September 30, 2022 and year ended December 31, 2022 included $4.9 million of purchase accounting amortization of the negative VOBA associated with NORCAL's assumed unearned premium, which was amortized over a period in proportion to the earn-out of the associated premium as a reduction to current accident year net losses (see Note 2 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2022 report on Form 10-K). As of June 30, 2022, the negative VOBA was fully amortized.
(2) Net prior year reserve development recognized for the nine months ended September 30, 2023 and 2022 as well as the year ended December 31, 2022 included $6.7 million, $8.3 million and $10.8 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 (see Note 2 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2022 report on Form 10-K).
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
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 unfavorable prior year reserve development recognized in the nine months ended September 30, 2023 primarily reflected higher than expected loss trends observed in the average cost per claim in the Workers' Compensation Insurance segment primarily attributable to the 2022 accident year. The consolidated net unfavorable loss development also reflected unfavorable development recognized during the first quarter of 2023 in the Workers' Compensation Insurance segment primarily attributable to one large claim from the 1997 accident year. Consolidated net unfavorable development also reflected the continued challenging loss environment in the Specialty P&C segment, as claim costs are pressured by social inflation and higher than anticipated loss severity trends which started to emerge in the fourth quarter of 2022. During the first quarter of 2023, the Company strengthened case reserves in its Specialty P&C segment related to four large claims resulting in net unfavorable prior year reserve development of $10.1 million recognized during the nine months ended September 30, 2023, $7.5 million of which related to NORCAL's accident years 2016 and 2020. The net unfavorable prior year reserve development recognized in the Specialty P&C segment also reflected higher than expected loss development on certain large claims, primarily catastrophe related losses, associated with Lloyd’s Syndicates operations, partially offset by approximately $4.0 million of favorable prior year reserve development due to lower than anticipated loss emergence in the Company's Medical Technology Liability line of business, principally related to accident years 2014 through 2017. Consolidated net unfavorable loss development recognized in the nine months ended September 30, 2023 was partially offset by favorable reserve development recognized in the Segregated Portfolio Cell Reinsurance segment driven by overall favorable trends in claim closing patterns primarily in accident years 2018 through 2021.
The net favorable loss development recognized in the nine months ended September 30, 2022 primarily reflected a lower than anticipated loss emergence in the Specialty P&C segment, primarily related to the 2018 through 2021 accident years. The net favorable development recognized in the Specialty P&C segment also included a $6.0 million reduction in the Company's prior accident year IBNR reserve for COVID-19 as early first notices of potential claims related to anticipated COVID losses have not turned into claims, partially offset by higher than expected loss development on certain large claims, primarily catastrophe related losses, associated with Lloyd’s Syndicates operations. The favorable development also reflected overall favorable trends in claim closing patterns in the Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance segments. The net favorable loss development recognized in the Workers' Compensation Insurance segment is primarily related to the 2017 accident year and prior. The net favorable loss development recognized in the Segregated Portfolio Cell Reinsurance segment is primarily related to accident years 2016 through 2020. As of September 30, 2022, ProAssurance did not recognize any development related to NORCAL's accident years 2020 or prior since the date of acquisition on May 5, 2021.
The net favorable loss development recognized for the year ended December 31, 2022 primarily reflected a lower than anticipated loss emergence in the Specialty P&C segment related to the 2017, 2020 and 2021 accident years, primarily attributable to NORCAL's 2021 accident year, and, to a lesser extent, the Medical Technology Liability line of business. The net favorable development recognized in the Specialty P&C segment also included a $9.0 million reduction in the Company's prior accident year IBNR reserve for COVID-19 as early first notices of potential claims related to anticipated COVID losses have not turned into claims. Further, the net favorable development recognized in the Specialty P&C segment was partially offset by higher than anticipated loss severity trends in select jurisdictions in the HCPL line of business, which emerged primarily in the fourth quarter of 2022 and higher than expected loss development on certain large claims, primarily catastrophe related losses, associated with Lloyd’s Syndicates operations. As of December 31, 2022, ProAssurance did not recognize any development related to NORCAL's accident years 2020 or prior since the date of acquisition on May 5, 2021. The net favorable development also reflected overall favorable trends in claim closing patterns in the Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance segments. The net favorable loss development recognized in the Workers' Compensation Insurance segment is primarily related to the 2017 through 2020 accident years. The net favorable loss development recognized in the Segregated Portfolio Cell Reinsurance segment is primarily related to the 2016 through 2021 accident years.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
7. Commitments and Contingencies
ProAssurance is involved in various legal actions related to insurance policies and claims handling including, but not limited to, claims asserted by policyholders. These types of legal actions arise in the Company's ordinary course of business and, in accordance with GAAP for insurance entities, are considered as a part of the Company's loss reserving process, which is described in detail under the heading "Losses and Loss Adjustment Expenses" in the Accounting Policies section in Note 1 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2022 report on Form 10-K. ProAssurance also has other direct actions against the Company unrelated to its claims activity which are evaluated and accounted for as a part of other liabilities. For these corporate legal actions, the Company evaluates each case separately and establishes what it believes is an appropriate reserve based on GAAP guidance related to contingent liabilities. As of September 30, 2023, there were no material reserves established for corporate legal actions.
As a member of Lloyd's, ProAssurance has obligations to Syndicate 1729 including FAL requirements. ProAssurance provides FAL to support underwriting by Syndicate 1729 which is comprised of investment securities, primarily available-for-sale fixed maturities, deposited with Lloyd's with a total fair value of approximately $19.6 million at September 30, 2023 (see Note 3). During the second quarter of 2023, the Company received a return of approximately $4.1 million of cash from its FAL balances related to the settlement of its participation in the results of Syndicate 1729 and Syndicate 6131 for the 2020 underwriting year.
ProAssurance has entered into financial instrument transactions that may present off-balance sheet credit risk or market risk. These transactions include a short-term loan commitment and commitments to provide funding to non-public investment entities. Under the short-term loan commitment, ProAssurance has agreed to advance funds on a 30 day basis to a counterparty provided there is no violation of any condition established in the contract. As of September 30, 2023, ProAssurance had total funding commitments related to non-public investment entities as well as the short-term loan commitment of approximately $146.6 million which included the amount at risk if the full short-term loan is extended and the counterparties default. However, the credit risk associated with the short-term loan commitment is minimal as the counterparties to the contract are highly rated commercial institutions and to-date have been performing in accordance with their contractual obligations. As such, ProAssurance’s expected credit losses associated with this short-term loan commitment were nominal in amount as of September 30, 2023.
ProAssurance entered into a services agreement with a company to provide data analytics services for certain product lines within the Company's HCPL book of business. Under the services agreement, the Company has committed to an annual fee of approximately $3.5 million for three years. In addition, the services agreement contains an annual one-year auto-extension feature, in November, unless either party elects to non-renew the services agreement by providing notice at least six-months prior to the end of the contract. ProAssurance incurred operating expenses associated with this services agreement of $0.8 million and $2.5 million for the three and nine months ended September 30, 2023, respectively, as compared to $0.9 million and $2.7 million for the same respective periods of 2022. As of September 30, 2023, the remaining commitment under this agreement was estimated to be approximately $3.8 million.
The purchase consideration in the NORCAL acquisition included contingent consideration. NORCAL policyholders who elected to receive NORCAL stock and tender it to ProAssurance are eligible for a share of contingent consideration in an amount of up to approximately $84 million depending upon the after-tax development of NORCAL's ultimate net losses between December 31, 2020 and December 31, 2023. As of September 30, 2023 and December 31, 2022, the contingent consideration liability was $9.5 million and $15.0 million, respectively, carried at fair value utilizing a stochastic model (see Note 2). This estimate does not guarantee that contingent consideration will ultimately be paid. Depending on NORCAL's actual ultimate net loss development between December 31, 2020 and December 31, 2023, the actual amount due to eligible policyholders may be greater than or less than the $9.5 million current fair value estimate. See further discussion around the contingent consideration and the NORCAL acquisition in Note 2 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2022 report on Form 10-K.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
8. Debt
ProAssurance’s outstanding debt consisted of the following:
($ in thousands) September 30,
2023		 December 31,
2022
Senior Notes due 2023, unsecured, interest at 5.3% annually
 $ 250,000  $ 250,000 
Contribution Certificates due 2031, interest at 3.0% (effective interest rate at 4.35%) paid annually in April
 178,910  177,525 
Total principal 428,910  427,525 
Less unamortized debt issuance costs 2,331  542 
Debt less unamortized debt issuance costs $ 426,579  $ 426,983 
Revolving Credit Agreement and Term Loan
On April 28, 2023, ProAssurance executed an amendment to the Revolving Credit Agreement, which extended the expiration from November 2024 to April 2028 and includes a $125 million delayed draw term loan ("Term Loan"). The Term Loan is available to be drawn during a five year period after closing, subject to customary borrowing conditions. The Company intends to draw on the amended Revolving Credit Agreement, including the Term Loan, to refinance its Senior Notes that mature November 2023 (see additional information on the Company's Senior Notes in Note 11 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2022 report on Form 10-K). The amended Revolving Credit Agreement may be used for general corporate purposes, including, but not limited to, short-term working capital, share repurchases as authorized by the Board and support for other activities. ProAssurance's amended Revolving Credit Agreement permits borrowings up to $250 million, and has available a $50 million accordion feature which, if successfully subscribed, would expand the permitted borrowings to a maximum of $300 million. As of September 30, 2023 and December 31, 2022, there were no outstanding borrowings on the Revolving Credit Agreement. The amended Revolving Credit Agreement permits ProAssurance to borrow, repay and reborrow from the lenders during the term of the amended Revolving Credit Agreement.
All borrowings are required to be repaid prior to the expiration date of the amended Revolving Credit Agreement. ProAssurance is required to pay a commitment fee, ranging from 0.20% to 0.45% based on ProAssurance’s debt to capitalization ratio, on the average unused portion of the amended Revolving Credit Agreement during the term of the agreement. Borrowings under the agreements may be secured or unsecured and accrue interest at a selected base rate, adjusted by a margin, which can vary from 0% to 2.375%, based on ProAssurance’s debt to capitalization ratio and whether the borrowing is secured or unsecured. The base rate selected may either be the current one-, three- or six-month SOFR, with the SOFR term selected fixing the interest period for which the rate is effective. If no selection is made, the base rate defaults to the highest of (1) Zero, (2) the Prime rate, (3) the Federal Funds rate plus 0.5% or (4) the one-month SOFR Adjusted Screen Rate plus 1.0%, determined daily. Rates are reset each successive interest period until the borrowing is repaid.
The amended Revolving Credit Agreement contains customary representations, covenants and events constituting default, and remedies for default. Additionally, the agreement carries the following financial covenants:
(1)ProAssurance is not permitted to have a leverage ratio of consolidated funded indebtedness (principally, obligations for borrowed money, obligations evidenced by instruments such as notes or acceptances, standby and commercial letters of credit, and contingent obligations) to consolidated total capitalization (principally, total non-trade liabilities on a consolidated basis plus consolidated shareholders’ equity, exclusive of AOCI) greater than 0.35 to 1.0, determined at the end of each fiscal quarter.
(2)ProAssurance is required to maintain a minimum net worth, excluding AOCI, of at least $912 million.
(3)ProAssurance is required to maintain minimum liquidity, which will include cash, securities, and capacity on its revolving line, of at least $25 million.
Covenant Compliance
There are no financial covenants associated with the Senior Notes or the Contribution Certificates due 2023 and 2031, respectively.
The amended Revolving Credit Agreement contains customary representations, covenants and events constituting default, and remedies for default, as previously discussed. As of September 30, 2023, ProAssurance is in compliance with all covenants of the amended Revolving Credit Agreement.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
Additional Information
For additional information regarding ProAssurance's debt, see Note 11 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2022 report on Form 10-K.
9. Derivatives
ProAssurance is exposed to certain risks relating to its ongoing business and investment activities. ProAssurance utilizes derivative instruments as part of its risk management strategy to reduce the market risk related to fluctuations in future interest rates associated with a portion of its variable-rate debt. See Note 1 for the Company's accounting policy regarding derivative instruments.
To manage the Company's exposure to variability in cash flows of forecasted interest payments attributable to variability in the selected base rates on borrowings under both the amended Revolving Credit Agreement and Term Loan, ProAssurance entered into two forward-starting interest rate swap agreements ("Interest Rate Swaps") on May 2, 2023, each with an effective date of December 29, 2023 and a maturity date of March 31, 2028. As ProAssurance's Interest Rate Swaps are designated and qualify as highly effective cash flow hedges, changes in the fair value of the Interest Rate Swaps are recorded in AOCI, net of tax, and are reclassified into earnings when the hedged cash flows impact earnings. The Interest Rate Swap hedging the variability in cash flows associated with interest payments on the amended Revolving Credit Agreement will have a constant $125 million notional amount throughout the term of the swap, while the Interest Rate Swap hedging the variability in cash flows associated with interest payments on the Term Loan will have an amortizing $125 million notional amount, which is designed to match the outstanding principal on the Term Loan throughout the term of the swap. Borrowings under the amended Revolving Credit Agreement and Term Loan will accrue interest at a selected base rate, adjusted by a margin. The Interest Rate Swaps effectively fix the base rate on borrowings under the amended Revolving Credit Agreement and Term Loan to 3.187% and 3.207%, respectively. The margin component of the interest rate, which can vary from 0% to 2.375%, will remain variable and is based on ProAssurance’s debt to capitalization ratio. Additional information regarding the Company's amended Revolving Credit Agreement and Term Loan is provided in Note 8.
ProAssurance received cash collateral from the counterparty to secure the net present value of future cash flows associated with the Interest Rate Swaps of $10.7 million and is reflected as a component of other liabilities on the Condensed Consolidated Balance Sheet as of September 30, 2023.
The following table provides a summary of the volume and fair value position of the Interest Rate Swaps as well as the reporting location in the Condensed Consolidated Balance Sheet as of September 30, 2023.
($ in thousands) September 30, 2023
Derivatives Designated and Qualifying as Cash Flow Hedging Instruments Location in the Condensed Consolidated Balance Sheets Number of Instruments
Aggregate Notional Amount(1)
Estimated Fair Value(2)
Interest Rate Swaps Other Assets 2 $250,000 $10,366
(1) Volume is represented by the derivative instruments' notional amount.
(2) Additional information regarding the fair value of the Company's Interest Rate Swaps is provided in Note 2.
For the three and nine months ended September 30, 2023, ProAssurance did not reclassify any gain or loss on the Interest Rate Swaps from AOCI into earnings. At September 30, 2023, management estimates that it will reclassify approximately $4.0 million of pre-tax net gains on the Interest Rate Swaps from AOCI to earnings over the next twelve months, beginning on the effective date of the Interest Rate Swaps, which will be recorded to interest expense. See additional information on gains or losses related to the Interest Rate Swaps reported as a component of AOCI in Note 10.
As a result of the Interest Rate Swaps, ProAssurance is exposed to risk that the counterparty will fail to meet its contractual obligations. To mitigate this counterparty credit risk, ProAssurance only enters into derivative contracts with carefully selected major financial institutions based upon their credit ratings and monitors their creditworthiness. As of September 30, 2023, the counterparty had an investment grade rating of A and has performed in accordance with their contractual obligations.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
10. Shareholders’ Equity
At September 30, 2023 and December 31, 2022, ProAssurance had 100 million shares of authorized common stock and 50 million shares of authorized preferred stock. The Board has the authority to determine provisions for the issuance of preferred shares, including the number of shares to be issued, the designations, powers, preferences and rights, and the qualifications, limitations or restrictions of such shares.
ProAssurance declared cash dividends of $0.05 per share during the first quarter of 2023 and each of the first three quarters of 2022, totaling $2.7 million and $8.1 million, respectively. In light of the price range in which the Company's stock traded in the second quarter of 2023, the Board decided to suspend payment of a quarterly cash dividend. Instead, the Company used available capital to repurchase shares pursuant to the existing share repurchase authorization. Any decision to pay future cash dividends is subject to the Board’s final determination after a comprehensive review of financial performance, future expectations and other factors deemed relevant by the Board. See Note 12 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2022 report on Form 10-K for additional information.
At September 30, 2023, Board authorizations for the repurchase of common shares or the retirement of outstanding debt of $55.9 million remained available for use. ProAssurance repurchased approximately 3.1 million common shares at a cost of $50.5 million and 139,000 common shares at a cost of $3.3 million during the nine months ended September 30, 2023 and 2022, respectively.
Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (Loss)
The following tables provide a detailed breakout of the components of AOCI and the amounts reclassified from AOCI to net income (loss). The tax effects of all amounts in the tables below, except for an immaterial amount of unrealized gains and losses on available-for-sale securities held at the Company's U.K. subsidiary, were computed using the enacted U.S. federal corporate tax rate of 21%. OCI included a deferred tax benefit of $8.2 million and of $0.2 million for the three and nine months ended September 30, 2023, respectively, as compared to $24.4 million and $92.2 million for the same respective periods of 2022.
The changes in the balance of each component of AOCI for the three and nine months ended September 30, 2023 and 2022 were as follows:
(In thousands) Unrealized Investment Gains (Losses) on Securities
Cash Flow Hedging Gains (Losses) (1)
 Non-credit Impairments Unrecognized Change in Defined Benefit Plan Liabilities Accumulated Other Comprehensive Income (Loss)
Balance, July 1, 2023 $ (270,325) $ 4,310  $ (11) $ (1,454) $ (267,480)
OCI, before reclassifications, net of tax (33,371) 3,879  —  —  (29,492)
Amounts reclassified from AOCI, net of tax 133  —  —  —  133 
Net OCI, current period (33,238) 3,879  —  —  (29,359)
Balance, at September 30, 2023 $ (303,563) $ 8,189  $ (11) $ (1,454) $ (296,839)
(In thousands) Unrealized Investment Gains (Losses) on Securities
Cash Flow Hedging Gains (Losses) (1)
 Non-credit Impairments Unrecognized Change in Defined Benefit Plan Liabilities Accumulated Other Comprehensive Income (Loss)
Balance, December 31, 2022 $ (297,142) $ —  $ (11) $ (1,454) $ (298,607)
OCI, before reclassifications, net of tax (9,437) 8,189  —  —  (1,248)
Amounts reclassified from AOCI, net of tax 3,016  —  —  —  3,016 
Net OCI, current period (6,421) 8,189  —  —  1,768 
Balance, September 30, 2023 $ (303,563) $ 8,189  $ (11) $ (1,454) $ (296,839)

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
(In thousands) Unrealized Investment Gains (Losses) on Securities Non-credit Impairments Unrecognized Change in Defined Benefit Plan Liabilities Accumulated Other Comprehensive Income (Loss)
Balance, July 1, 2022
 $ (235,045) $ (331) $ 1,188  $ (234,188)
OCI, before reclassifications, net of tax (90,233) —  —  (90,233)
Amounts reclassified from AOCI, net of tax 194  —  (14) 180 
Net OCI, current period (90,039) —  (14) (90,053)
Balance, at September 30, 2022
 $ (325,084) $ (331) $ 1,174  $ (324,241)

(In thousands) Unrealized Investment Gains (Losses) on Securities Non-credit Impairments Unrecognized Change in Defined Benefit Plan Liabilities Accumulated Other Comprehensive Income (Loss)
Balance, December 31, 2021 $ 14,929  $ —  $ 1,355  $ 16,284 
OCI, before reclassifications, net of tax (341,232) (331) —  (341,563)
Amounts reclassified from AOCI, net of tax 1,219  —  (181) 1,038 
Net OCI, current period (340,013) (331) (181) (340,525)
Balance, September 30, 2022 $ (325,084) $ (331) $ 1,174  $ (324,241)
(1) ProAssurance entered into two forward-starting interest rate swap agreements ("Interest Rate Swaps") on May 2, 2023, each of which are designated and qualify as a cash flow hedge. See Note 9 for additional information on the Interest Rate Swaps.
11. Variable Interest Entities
ProAssurance holds passive interests in a number of entities that are considered to be VIEs under GAAP guidance. ProAssurance's VIE interests principally consist of interests in LPs/LLCs formed for the purpose of achieving diversified equity and debt returns. ProAssurance's VIE interests, carried as a part of investment in unconsolidated subsidiaries, totaled $268.8 million at September 30, 2023 and $277.5 million at December 31, 2022. ProAssurance does not have power over the activities that most significantly impact the economic performance of these VIEs and thus is not the primary beneficiary. Investments in entities where ProAssurance holds a greater than minor interest but does not hold a controlling interest are accounted for using the equity method. Therefore, ProAssurance has not consolidated these VIEs. ProAssurance’s involvement with each of these VIEs is limited to its direct ownership interest in the VIE. Except for the funding commitments disclosed in Note 7, ProAssurance has no arrangements with any of these VIEs to provide other financial support to or on behalf of the VIE. At September 30, 2023, ProAssurance’s maximum loss exposure relative to these investments was limited to the carrying value of ProAssurance’s investment in the VIE.
ProAssurance is the primary beneficiary of PPM RRG. While there is no direct ownership of PPM RRG by ProAssurance, it manages the business operations of PPM RRG through its management services agreement and has effective control of the PPM RRG's Board of Directors through an irrevocable voting proxy. The management services agreement allows ProAssurance to provide management and oversight services to PPM RRG, which includes the ability to make business decisions impacting the operations of PPM RRG. PPM RRG has a $5 million surplus note to NORCAL which is its only source of capital. At September 30, 2023 and December 31, 2022, approximately $136 million and $154 million of ProAssurance's assets, respectively, and approximately $136 million and $154 million of its liabilities, respectively, included on the Condensed Consolidated Balance Sheet were related to PPM RRG.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
12. Earnings (Loss) Per Share
Diluted weighted average shares is calculated as basic weighted average shares plus the effect, calculated using the treasury stock method, of assuming that restricted share units and performance share units have vested. The following table provides a reconciliation between the Company's basic weighted average number of common shares outstanding to its diluted weighted average number of common shares outstanding:
(In thousands, except per share data)
 Three Months Ended
September 30		 Nine Months Ended
September 30
2023 2022 2023 2022
Weighted average number of common shares outstanding, basic 51,837  53,990  53,205  54,023 
Dilutive effect of securities:
Restricted Share Units 139  117  110  112 
Performance Share Units 30  17  24  16 
Weighted average number of common shares outstanding, diluted 52,006  54,124  53,339  54,151 
Effect of dilutive shares on earnings (loss) per share $ —  $ —  $ —  $ — 
The diluted weighted average number of common shares outstanding for the three and nine months ended September 30, 2023 excluded approximately 67,000 and 135,000, respectively, of common share equivalents issuable under the Company's stock compensation plans, as compared to approximately 2,000 during each of the three and nine months ended September 30, 2022, as their effect would have been antidilutive.
Dilutive common share equivalents are reflected in the earnings (loss) per share calculation while antidilutive common share equivalents are not reflected in the earnings (loss) per share calculation. For the three and nine months ended September 30, 2023 and 2022, all incremental common share equivalents were not included in the computation of diluted earnings (loss) per share because to do so would have been antidilutive for each period.
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Table of Contents
ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
13. 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.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
•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.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
Financial results by segment were as follows:
Three Months Ended September 30, 2023
(In thousands) Specialty P&C Workers' Compensation Insurance Segregated Portfolio Cell Reinsurance Corporate Inter-segment Eliminations Consolidated
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&C Workers' Compensation Insurance Segregated Portfolio Cell Reinsurance Corporate Inter-segment Eliminations Consolidated
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 
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
Three Months Ended September 30, 2022
(In thousands) Specialty P&C Workers' Compensation Insurance Segregated Portfolio Cell Reinsurance Corporate Inter-segment Eliminations Consolidated
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&C Workers' Compensation Insurance Segregated Portfolio Cell Reinsurance Corporate Inter-segment Eliminations Consolidated
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.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2023
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 30 Nine Months Ended September 30
(In thousands) 2023 2022 2023 2022
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 earned 195,772  198,481  562,206  593,534 
Workers' Compensation Insurance Segment
Gross premiums earned:
Traditional business 43,423  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 earned 39,885  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 earned 6,763  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.
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14. Benefit Plans
ProAssurance sponsors a defined benefit pension plan which covers substantially all NORCAL employees (except those that were previous employees of Medicus Insurance Company and FD Insurance Company, employees of PPM RRG as well as new hires after December 31, 2013). Benefits are based on years of service and the employee’s average of the highest five years of annual compensation. Annual contributions to the defined benefit pension plan are above the minimum funding standards outlined in the Employee Retirement Income Security Act of 1974, as amended. ProAssurance makes contributions to the defined benefit pension plan with the goal of ensuring that it is adequately funded to meet its future obligations. ProAssurance did not make any contributions to the pension plan during the three and nine months ended September 30, 2023 and does not anticipate making any contributions for the remainder of 2023. The defined benefit pension plan no longer has future service accruals or compensation increases because this plan was frozen effective December 31, 2015. See Note 17 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2022 report on Form 10-K for more information regarding the defined benefit pension plan.
The components of the net periodic benefit cost (income) for the three and nine months ended September 30, 2023 and 2022 were as follows:
($ in thousands) Three Months Ended
September 30		 Nine Months Ended
September 30
2023 2022 2023 2022
Components of net periodic benefit cost (income):
Interest cost $ 924  $ 727  $ 2,742  $ 2,158 
Expected return on Plan assets (893) (1,011) (2,651) (3,001)
Total net periodic benefit cost (income)* $ 31  $ (284) $ 91  $ (843)
*Net periodic benefit cost (income) is included as a component of operating expense on the Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2023 and 2022.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and Notes to those statements which accompany this report. Throughout the discussion we use certain terms and abbreviations, which can be found in the Glossary of Terms and Acronyms at the beginning of this report. In addition, a glossary of insurance terms and phrases is available on the investor section of our website. Throughout the discussion, references to "ProAssurance," "PRA," "Company," "we," "us" and "our" refer to ProAssurance Corporation and its consolidated subsidiaries. The discussion contains certain forward-looking information that involves significant risks, assumptions and uncertainties. As discussed under the heading "Caution Regarding Forward-Looking Statements," our actual financial condition and results of operations could differ significantly from these forward-looking statements.
ProAssurance Overview
ProAssurance Corporation is a holding company for property and casualty insurance companies. Our insurance subsidiaries provide professional liability insurance, liability insurance for medical technology and life sciences risks and workers' compensation insurance. We also provide capital to Syndicate 1729 at Lloyd's of London.
Effective September 2023, we decided to discontinue our participation in the results of Syndicate 1729 beginning with the 2024 underwriting year. The results from our 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, our ceased participation in Syndicate 1729 will not be reflected in our results until the second quarter of 2024. Furthermore, we expect to receive proceeds of $5.4 million associated with the sale of our 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 our decision to no longer participate in the results of Syndicate 1729 for the 2024 underwriting year.
Our operating segments are based on our internal management reporting structure for which financial results are regularly evaluated by our CODM to determine resource allocation and assess operating performance. As a result of our decision to no longer participate in the results of Syndicate 1729 beginning with the 2024 underwriting year, we reorganized our segment reporting during the third quarter of 2023 to align with how our CODM currently oversees the business, allocates resources and evaluates operating performance and, as a result, the number of our operating and reportable segments decreased from five to four: Specialty P&C, Workers' Compensation Insurance, Segregated Portfolio Cell Reinsurance and Corporate. As a result of the segment reorganization, we now report the underwriting results from our participation in Lloyd’s Syndicates in the Specialty P&C segment and the investment results of assets solely allocated to our Lloyd's Syndicate operations and U.K. income taxes in our Corporate segment. All prior period segment information has been recast to conform to the current period presentation and the segment reorganization had no impact on previously reported consolidated financial results.
Additional information on ProAssurance's four operating and reportable segments is included in Note 13 of the Notes to Condensed Consolidated Financial Statements, Note 16 of the Notes to Consolidated Financial Statements in our December 31, 2022 report on Form 10-K and in the Segment Results sections herein that follow.
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Critical Accounting Estimates
Our Condensed Consolidated Financial Statements are prepared in conformity with GAAP. Preparation of these financial statements requires us to make estimates and assumptions that affect the amounts we report on those statements. We evaluate these estimates and assumptions on an ongoing basis based on current and historical developments, market conditions, industry trends and other information that we believe to be reasonable under the circumstances. We can make no assurance that actual results will conform to our estimates and assumptions; reported results of operations may be materially affected by changes in these estimates and assumptions. A detailed discussion of our critical accounting estimates is included in our Critical Accounting Estimates section in Item 7 of our December 31, 2022 report on Form 10-K.
Management considers the following accounting estimates to be critical because they involve significant judgment by management and those judgments could result in a material effect on our financial statements:
•Reserve for losses and loss adjustment expenses
•Reinsurance
•Valuation of investments and impairment of securities
•Goodwill
•Income taxes
Goodwill / Intangibles
In accordance with GAAP, goodwill and intangible assets are tested for impairment annually or more frequently if circumstances indicate an impairment may have occurred. The date of our annual impairment testing is October 1. For our last annual impairment test at October 1, 2022, we performed quantitative assessments that supported a conclusion that the fair value of all of the reporting units with goodwill exceeded their carrying value.
Impairment of goodwill is tested at the reporting unit level, which prior to the third quarter of 2023, was consistent with our reportable segments. As discussed in Note 13 of the Notes to Condensed Consolidated Financial Statements, we reorganized our segment reporting in the third quarter of 2023 to align with how our 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 reporting unit for purposes of testing goodwill. Our 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.
As disclosed in our June 30, 2023 report on Form 10-Q, we performed a quantitative goodwill impairment assessment on our 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 our 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 actual and projected results of our Workers' Compensation Insurance reporting unit persisted into the third quarter of 2023. During the third quarter of 2023, we increased our full year current accident year loss ratio and recognized unfavorable prior accident year reserve development in our Workers' Compensation Insurance reporting unit, which reflected higher than expected loss trends observed in our average cost per claim which we attribute to increased medical costs driven by wage inflation and medical advancements. As a result, management performed an updated quantitative assessment of goodwill on our 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 our 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 our Critical Accounting Estimates section in Item 7 of our December 31, 2022 report on Form 10-K under the heading "Goodwill / Intangibles." To corroborate the reporting unit's valuation, management 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.
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The analysis during the third quarter of 2023 indicated impairment of the goodwill associated with our Workers' Compensation Insurance reporting unit and accordingly we recorded a $44.1 million charge to fully impair the goodwill in the current quarter.
In both our second and third quarter 2023 analyses, we also estimated the fair value of our 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 our definite and indefinite lived intangible assets for which a triggering event was deemed to have occurred. Based upon these impairment tests, no impairment of our definite or indefinite lived intangible assets was identified at September 30, 2023.
Estimation of Taxes / Tax Credits
For interim periods, we generally utilize the estimated annual effective tax rate method under which we determine our provision (benefit) for income taxes based on the current estimate of our annual effective tax rate. For the three and nine months ended September 30, 2023, we utilized the discrete effective tax rate method for recording income taxes after the estimated annual effective tax rate method produced an unreliable estimated annual effective tax rate. The discrete method is applied when the application of the estimated annual effective tax rate method is impractical and does not provide a reliable estimate of the annual effective tax rate. We believe the use of the discrete effective tax rate method is more appropriate than the annual effective tax rate method for the three and nine months ended September 30, 2023 as minor changes in our estimated ordinary income would have a significant effect on the estimated annual effective tax rate and would result in sizable variations in the customary relationship between income tax expense (benefit) and pre-tax accounting income (loss). For the three and nine months ended September 30, 2022, we utilized the estimated annual effective tax rate method. Under the estimated annual effective tax rate method, items which are unusual, infrequent, or that cannot be reliably estimated are considered in the effective tax rate in the period in which the item is included in income and are referred to as discrete items. See further discussion on these methods in Note 4 of the Notes to Condensed Consolidated Financial Statements. In calculating our year-to-date income tax expense (benefit), we include the estimated benefit of tax credits for the year-to-date period based on the most recently available information provided by the tax credit partnerships; the actual amounts of credits provided by the tax credit partnerships may prove to be different than our estimates. The effect of such a difference is recognized in the period identified.
Contingent Consideration
Contingent consideration is measured at fair value on the date of acquisition and remeasured at fair value each subsequent reporting period. Given the contingent consideration associated with the NORCAL acquisition is dependent upon the after-tax development of NORCAL's ultimate net losses between December 31, 2020 and December 31, 2023, we bifurcate changes in the contingent consideration each period between fair value changes and, if applicable, changes in estimates of NORCAL's ultimate net losses for accident years 2020 and prior. Changes in the contingent consideration related to fair value are recognized in earnings as a component of net investment gains (losses) and changes in the contingent consideration related to changes in estimates of NORCAL's ultimate net losses for accident years 2020 and prior are recognized in earnings as component of operating expenses.
During the three and nine months ended September 30, 2023, we recorded a $1.5 million and $5.5 million decrease to the contingent consideration liability, respectively. The decrease recorded during the three and nine months ended September 30, 2023 is comprised of $1.5 million and $4.5 million, respectively, related to the remeasurement of the liability to fair value and is reflected as a component of net investment gains (losses). In addition, the decrease to the contingent consideration liability recorded during the nine months ended September 30, 2023 includes a $1.0 million reduction related to the impact of $7.5 million of unfavorable development recognized in the first quarter of 2023 on NORCAL's reserves related to accident years 2020 and prior and is reflected as a component of operating expenses. See further discussion that follows under the heading Results of Operations.
Accounting Changes
We did not have any change in accounting estimate or policy that had a material effect on our results of operations or financial position during the nine months ended September 30, 2023. We are not aware of any accounting changes not yet adopted as of September 30, 2023 that could have a material impact on our results of operations, financial position or cash flows.
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Liquidity and Capital Resources and Financial Condition
Overview
ProAssurance Corporation is a holding company and is a legal entity separate and distinct from its subsidiaries. As a holding company, our principal source of external revenue is our investment revenues. In addition, dividends from our operating subsidiaries represent another source of funds for our obligations, including debt service and shareholder dividends, if declared. We also charge our core domestic operating subsidiaries within our Specialty P&C and Workers' Compensation Insurance segments a management fee based on the extent to which services are provided to the subsidiary and the amount of gross premium written by the subsidiary. At September 30, 2023, we held cash and liquid investments of approximately $79 million outside our insurance subsidiaries that were available for use without regulatory approval or other restriction. We also have $250 million in permitted borrowings available under our Revolving Credit Agreement as well as the possibility of a $50 million accordion feature, if successfully subscribed. On April 28, 2023, we executed an amendment to the Revolving Credit Agreement, which includes an additional $125 million delayed draw Term Loan. We intend to draw $125 million on the Revolving Credit Agreement and fund the $125 million Term Loan to refinance our Senior Notes that mature November 2023. See further information regarding the amended Revolving Credit Agreement and Term Loan in Note 8 of the Notes to Condensed Consolidated Financial Statements. As of November 3, 2023, no borrowings were outstanding under our amended Revolving Credit Agreement.
To date, during 2023, our operating subsidiaries have paid dividends to us of approximately $31 million. Our insurance subsidiaries, in the aggregate, are permitted to pay dividends of approximately $101 million over the remainder of 2023 without prior approval of state insurance regulators. However, the payment of any dividend requires prior notice to the insurance regulator in the state of domicile, and the regulator may reduce or prevent the dividend if, in its judgment, payment of the dividend would have an adverse effect on the surplus of the insurance subsidiary. We make the decision to pay dividends from an insurance subsidiary based on the capital needs of that subsidiary and may pay less than the permitted dividend or may also request permission to pay an additional amount (an extraordinary dividend).
Operating Activities and Related Cash Flows
Reinsurance
Within our Specialty P&C segment, we use insurance and reinsurance (collectively, “reinsurance”) to provide capacity to write larger limits of liability, to provide reimbursement for losses incurred under the higher limit coverages we offer and to provide protection against losses in excess of policy limits. Within our Workers' Compensation Insurance segment, we use reinsurance to reduce our net liability on individual risks, to mitigate the effect of significant loss occurrences (including catastrophic events), to stabilize underwriting results and to increase underwriting capacity by decreasing leverage. In both our Specialty P&C and Workers' Compensation Insurance segments, we use reinsurance in risk sharing arrangements to align our objectives with those of our strategic business partners and to provide custom insurance solutions for large customer groups. The discussion in our Liquidity section under the same heading in Item 7 of our December 31, 2022 report on Form 10-K includes additional information regarding our reinsurance agreements.
Our HCPL and Medical Technology Liability treaties renew annually on October 1 and our Workers' Compensation treaty renews annually on May 1. Our HCPL and Medical Technology Liability treaties renewed October 1, 2023 at a higher rate than the previous treaties and retention of HCPL coverages in excess of $2 million increased to 9% to 9.5% from 0% to 5% of the next $24 million of risk; all other material terms were consistent with the expiring treaties. Our traditional Workers' Compensation treaty renewed May 1, 2023 at a higher rate than the previous treaty; all other material terms were consistent with the expiring treaty. The significant coverages provided by our current excess of loss reinsurance agreements are depicted in the following table.
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Excess of Loss Reinsurance Agreements
Rein Chart - 1.jpg
Healthcare Professional Liability Medical Technology & Life Sciences Products Workers' Compensation - Traditional
(1) Effective October 1, 2020, one prepaid limit reinstatement of $21M and a second limit reinstatement of up to $21M for the second layer, subject to reinstatement premium, which attaches after the first reinstatement has been completely exhausted. All limit reinstatements thereafter require no additional premium. Effective October 1, 2021, limits can be reinstated a maximum of four times.
(2) Prior to October 1, 2020, retention was $1M.
(3) Historically, retention has ranged from 0% to 32.5%.
(4) Historically, retention has ranged from $1M to $2M.
(5) Subject to a limit of $20M per individual claimant. If an individual loss were to exceed this level the Company would retain this excess exposure.
(6) Subject to an AAD where retention is 3.5% of subject earned premium in annual losses otherwise recoverable in excess of the $500K retention per loss occurrence.

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For the workers' compensation business ceded to Inova Re and Eastern Re, each SPC has in place its own reinsurance arrangements, which are illustrated in the following table.
Segregated Portfolio Cell Reinsurance
spcrecharta03.jpg
Per Occurrence Coverage Aggregate Coverage
(1) The attachment point is based on a percentage of written premium within individual cells, ranges from 85% to 94%, and varies by cell.
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Cash Flows
Cash flows between periods compare as follows:
Nine Months Ended September 30
(In thousands) 2023 2022 Change
Net cash provided (used) by:
Operating activities $ (46,641) $ 6,673  $ (53,314)
Investing activities 137,335  (91,749) 229,084 
Financing activities (58,543) (17,154) (41,389)
Increase (decrease) in cash and cash equivalents $ 32,151  $ (102,230) $ 134,381 
The principal components of our operating cash flows are the excess of premiums collected and net investment income over losses paid and operating costs, including income taxes. Timing delays exist between the collection of premiums and the payment of losses associated with the premiums. Premiums are generally collected within the twelve-month period after the policy is written, while our claim payments are generally paid over a more extended period of time. Likewise, timing delays exist between the payment of claims and the collection of any associated reinsurance recoveries.
The decrease in operating cash flows of $53.3 million for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 was primarily due to:
•A decrease in net premium receipts of $71.7 million primarily driven by our Specialty P&C segment due to a decrease in premium receipts due to the competitive market conditions on terms and pricing and an increase in cash paid to reinsurers primarily associated with our excess of loss reinsurance arrangements. In addition, the decrease in net premium receipts reflected our ceased participation in Syndicate 6131 for the 2022 underwriting year.
•An increase in paid losses of $29.0 million driven by our Specialty P&C segment primarily due to an increase in average indemnity paid per closed claim compared to the prior year period, as claim costs in our HCPL line of business are pressured by social inflation and higher than anticipated loss severity trends.
•A decrease in cash received from investment income of $2.8 million driven by a decrease in distributed earnings and redemptions from our portfolio of investments in LPs/LLCs.
The decrease in operating cash flows was partially offset by:
•A decrease in cash paid for operating expenses of $37.1 million driven by the prior year impact of the termination of deferred compensation arrangements assumed in the NORCAL acquisition during the first quarter of 2022 totaling approximately $13.2 million and, to a lesser extent, the receipt of cash collateral to secure the net present value of future cash flows associated with the Interest Rate Swaps of $10.7 million. See further discussion of NORCAL's deferred compensation arrangements in Note 3 to the Notes to Consolidated Financial Statements in our December 31, 2022 report on Form 10-K and further discussion on the Interest Rate Swaps in Note 9 to the Notes to Condensed Consolidated Financial Statements. Furthermore, the decrease in cash paid for operating expenses reflected the prior year impact of one-time expenses of $3.6 million in our Specialty P&C segment. One-time expenses in 2022 were mainly comprised of one-time bonuses, employee severance charges and lease exit costs.
•The effect of a tax refund of approximately $11.7 million which we received in February 2023 (see additional discussion within this section under the heading "Taxes" that follows).
The remaining variance in operating cash flows for the nine months ended September 30, 2023 as compared to the same period of 2022 was composed of individually insignificant components.
We manage our investing cash flows to ensure that we will have sufficient liquidity to meet our obligations, taking into consideration the timing of cash flows from our investments, including interest payments, dividends and principal payments, as well as the expected cash flows to be generated by our operations as discussed in this section under the heading "Investing Activities and Related Cash Flows."
Our financing cash flows are primarily comprised of share repurchases and dividend payments to our stockholders.
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Taxes
We are subject to the tax laws and regulations of the U.S., Cayman Islands and U.K. We file a consolidated U.S. federal income tax return that includes the parent company and its U.S. subsidiaries, except for ProAssurance American Mutual, A Risk Retention Group. Our filing obligations include a requirement to make quarterly payments of estimated taxes to the IRS using the corporate tax rate effective for the tax year. We did not make any quarterly estimated tax payments during the three and nine months ended September 30, 2023 as we expect NOL carryforwards to offset any income taxes due.
As a result of the CARES Act that was signed into law on March 27, 2020, we were permitted to carryback NOLs generated in tax years 2019 and 2020 for up to five years. See further discussion in the Critical Accounting Estimates section under the heading "U.S. Tax Legislation" and Note 6 of the Notes to Consolidated Financial Statements in our December 31, 2022 report on Form 10-K. We generated an NOL of approximately $33.3 million from the 2020 tax year that was carried back to the 2015 tax year that resulted in a tax refund of approximately $11.7 million which was received in February 2023. In addition, the CARES Act included the initial version of the ERC which was extended and expanded in December 2020 and March 2021. See further discussion of the ERC in Note 1 of the Notes to Condensed Consolidated Financial Statements. As an eligible employer under the provisions of the CARES Act, NORCAL filed a claim for a payroll tax refund of approximately $3.8 million during the second quarter of 2023, based on eligible wages paid during 2020.
As a result of the NORCAL acquisition, we have U.S. federal NOL carryforwards, which were approximately $32.3 million as of September 30, 2023. These NOL carryforwards are subject to limitation by Internal Revenue Code Section 382 and will begin to expire in 2035. For additional information on the NORCAL acquisition see Note 2 of the Notes to Consolidated Financial Statements in our December 31, 2022 report on Form 10-K.
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Investing Activities and Related Cash Flows
Our investments at September 30, 2023 and December 31, 2022 are comprised as follows:
  September 30, 2023 December 31, 2022
($ in thousands) Carrying
Value		 % of Total Investment Carrying
Value		 % of Total Investment
Fixed maturities, available-for-sale
U.S. Treasury obligations $ 237,828  6  % $ 221,608  5  %
U.S. Government-sponsored enterprise obligations 18,871  1  % 19,934  1  %
State and municipal bonds 436,268  10  % 439,450  10  %
Corporate debt 1,663,978  39  % 1,781,452  41  %
Residential mortgage-backed securities 396,947  9  % 389,540  8  %
Commercial mortgage-backed securities 194,461  5  % 203,794  5  %
Other asset-backed securities 406,959  10  % 416,694  9  %
Total fixed maturities, available-for-sale 3,355,312  80  % 3,472,472  79  %
Fixed maturities, trading 45,999  1  % 43,434  1  %
Total fixed maturities 3,401,311  81  % 3,515,906  80  %
Equity investments(1)
 143,920  3  % 143,738  3  %
Short-term investments 247,394  6  % 245,313  6  %
BOLI 77,502  2  % 81,746  2  %
Investment in unconsolidated subsidiaries 297,314  7  % 305,210  7  %
Other investments 62,816  1  % 95,770  2  %
Total investments $ 4,230,257  100  % $ 4,387,683  100  %
(1) Includes $109.9 million and $112.1 million of investment grade bond funds as of September 30, 2023 and December 31, 2022, respectively, which are not subject to significant equity price risk.
At September 30, 2023, 99% of our investments in available-for-sale fixed maturity securities were rated and the average rating was A+. The distribution of our investments in available-for-sale fixed maturity securities by rating were as follows:
September 30, 2023 December 31, 2022
 ($ in thousands)
 Carrying
Value		 % of Total Investment Carrying
Value		 % of Total Investment
Rating*
AAA $ 480,602  14  % $ 1,008,230  29  %
AA+ 647,237  19  % 113,659  3  %
AA 203,779  6  % 210,247  6  %
AA- 177,693  4  % 190,106  5  %
A+ 274,379  8  % 264,950  8  %
A 398,413  12  % 432,442  12  %
A- 338,625  10  % 345,671  10  %
BBB+ 189,693  6  % 213,794  6  %
BBB 287,253  9  % 305,987  9  %
BBB- 129,668  4  % 137,596  4  %
Below investment grade 226,808  7  % 249,400  7  %
Not rated 1,162  1  % 390  1  %
Total $ 3,355,312  100  % $ 3,472,472  100  %
*Average of three NRSRO sources, presented as an S&P equivalent. Source: S&P, Copyright ©2023, S&P Global Market Intelligence
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A detailed listing of our investment holdings as of September 30, 2023 is located under the Financial Information heading on the Investor Relations page of our website which can be reached directly at https://investor.proassurance.com/financial-information/quarterly-investment-supplements/default.aspx or through links from the Investor Relations section of our website, investor.proassurance.com.
We manage our investments to ensure that we will have sufficient liquidity to meet our obligations, taking into consideration the timing of cash flows from our investments, including interest payments, dividends and principal payments, as well as the expected cash flows to be generated or used by our operations. In addition to the interest and dividends we will receive from our investments, we anticipate that between $80 million and $210 million of our portfolio will mature (or be paid down) each quarter over the next twelve months and become available, if needed, to meet our cash flow requirements. In response to higher severity trends and an increase in paid losses in our HCPL line of business and our Workers' Compensation Insurance segment, we have reduced the rate of reinvestment of these cash flows in order to allow for additional cash availability. The primary outflow of cash at our insurance subsidiaries is related to paid losses and operating costs, including income taxes. The payment of individual claims cannot be predicted with certainty; therefore, we rely upon the history of paid claims in estimating the timing of future claims payments with consideration given to current and anticipated industry trends and macroeconomic conditions. To the extent that we may have an unanticipated shortfall in cash, we may either liquidate securities or borrow funds under existing borrowing arrangements through our Revolving Credit Agreement and the FHLB system. Permitted borrowings under our Revolving Credit Agreement are $250 million with the possibility of an additional $50 million accordion feature, if successfully subscribed. On April 28, 2023, we executed an amendment to the Revolving Credit Agreement, which includes an additional $125 million delayed draw Term Loan. As previously discussed, we intend to draw $125 million on the Revolving Credit Agreement and fund the $125 million Term Loan to refinance our Senior Notes that mature November 2023. Given the duration of our investments, we do not foresee a shortfall that would require us to meet operating cash needs through additional borrowings. Additional information regarding our Revolving Credit Agreement is detailed in Note 8 of the Notes to Condensed Consolidated Financial Statements.
At September 30, 2023, our FAL was comprised of investment securities, primarily available-for-sale fixed maturity securities with a fair value of $19.6 million deposited with Lloyd's. During the second quarter of 2023, we received a return of approximately $4.1 million of cash from our FAL balances related to the settlement of our participation in the results of Syndicate 1729 and Syndicate 6131 for the 2020 underwriting year. Given that we decided to no longer participate in the results of Syndicate 1729 beginning with the 2024 underwriting year, we expect to receive an additional return of FAL in the future; however, the amount of which cannot be estimated at this time. Furthermore, we expect to receive proceeds of $5.4 million associated with the sale of our remaining ownership interest in the underwriting and operations entity associated with Syndicate 1729 to an unrelated third party, which is contingent upon certain approvals from the Council of Lloyd's and the Prudential Regulation Authority empowered under FSMA. Approval of this sale will not impact our decision to no longer participate in the results of Syndicate 1729 beginning with the 2024 underwriting year. Additional information regarding our FAL is detailed in Note 3 of the Notes to Condensed Consolidated Financial Statements.
Our investment portfolio continues to be primarily composed of high quality fixed income securities with approximately 92% of our fixed maturities being investment grade securities as determined by national rating agencies. The weighted average effective duration of our fixed maturity securities at September 30, 2023 was 3.28 years; the weighted average effective duration of our fixed maturity securities combined with our short-term securities was 3.06 years.
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The carrying value and unfunded commitments for certain of our investments were as follows:
Carrying Value September 30, 2023
($ in thousands, except expected funding period) September 30, 2023 December 31, 2022 Unfunded Commitment Expected funding period in years
Qualified affordable housing project tax credit partnerships (1)
 $ 787  $ 4,088  $ 133  4
All other investments, primarily investment fund LPs/LLCs 296,527  301,122  123,034  5
Total $ 297,314  $ 305,210  $ 123,167 
(1) The carrying value reflects our total commitments (both funded and unfunded) to the partnerships, less any amortization, since our initial investment. We fund these investments based on funding schedules maintained by the partnerships.
Investment fund LPs/LLCs are by nature less liquid and may involve more risk than other investments. We manage our risk through diversification of asset class and geographic location. At September 30, 2023, we had investments in 31 separate investment funds with a total carrying value of $296.5 million which represented approximately 7% of our total investments. Our investment fund LPs/LLCs generate earnings from trading portfolios, secured debt, debt securities, multi-strategy funds and private equity investments, and the performance of these LPs/LLCs is affected by the volatility of equity and credit markets. For our investments in LPs/LLCs, we record our allocable portion of the partnership operating income or loss as the results of the LPs/LLCs become available, typically following the end of a reporting period.
Financing Activities and Related Cash Flows
Treasury Shares
ProAssurance and its consolidated subsidiaries repurchased approximately 3.1 million common shares at a cost of approximately $50.5 million, conducted through a series of 10b5-1 stock repurchase plans during the nine months ended September 30, 2023 (including approximately 1.7 million shares at a total cost of $30.5 million during the three months ended September 30, 2023). During July 2022, we repurchased approximately 139,000 common shares at a cost of approximately $3.3 million, conducted through a 10b5-1 stock repurchase plan. We did not repurchase any common shares subsequent to September 30, 2023, and as of November 8, 2023, our remaining Board authorization was approximately $55.9 million.
ProAssurance Shareholder Dividends
Our Board declared quarterly cash dividends of $0.05 per share during the first quarter of 2023 and each of the first three quarters of 2022, each of which was paid in the following quarter. The Board continually evaluates how best to return capital to shareholders. In light of the price range in which our stock traded in the second quarter of 2023, the Board decided to suspend payment of a quarterly cash dividend. Instead, we used available capital to repurchase shares pursuant to the existing share repurchase authorization. Any decision to pay future cash dividends is subject to the Board’s final determination after a comprehensive review of financial performance, future expectations and other factors deemed relevant by the Board.
Debt
Our debt less unamortized debt issuance costs at September 30, 2023 is $427 million and is comprised of Senior Notes and Contribution Certificates.
At September 30, 2023 our debt included $250 million of outstanding unsecured Senior Notes. The notes bear interest at 5.3% annually and are due in November 2023, although they may be redeemed in whole or part prior to maturity. There are no financial covenants associated with these notes.
NORCAL Insurance Company, successor to NORCAL Mutual Insurance Company, issued Contribution Certificates, which bear interest at 3.0% annually and are due in 2031, to certain NORCAL policyholders in the conversion. The Contribution Certificates have a principal amount of $191 million and were recorded at their fair value of $175 million at the date of the NORCAL acquisition on May 5, 2021. The difference of $16 million between the recorded acquisition date fair value and the principal balance of the Contribution Certificates will be accreted utilizing the effective interest method over the term of the certificates of ten years as an increase to interest expense. Furthermore, interest payments are subject to deferral if we do not receive permission from the California Department of Insurance prior to payment. We received permission from the California Department of Insurance to pay the annual interest payment, which was paid in April 2023. See Note 2 and Note 11 of the Notes to Consolidated Financial Statements in our December 31, 2022 report on Form 10-K for additional information on the Contribution Certificates issued in the NORCAL acquisition. There are no financial covenants associated with these certificates.
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On April 28, 2023, we executed an amendment to the Revolving Credit Agreement, which extended the expiration from November 2024 to April 2028 and includes an additional $125 million delayed draw Term Loan. The amended Revolving Credit Agreement may be used for general corporate purposes, including, but not limited to, short-term working capital, share repurchases as authorized by the Board and support for other activities. Our amended Revolving Credit Agreement permits borrowings of up to $250 million as well as the possibility of a $50 million accordion feature, if successfully subscribed. The Term Loan is available to be drawn up to $125 million during a five year period after closing, subject to customary borrowing conditions. We intend to draw on the Revolving Credit Agreement, including the Term Loan, to refinance our Senior Notes that mature November 2023. As of September 30, 2023, there were no outstanding borrowings on our amended Revolving Credit Agreement; we are in compliance with the financial covenants of the amended Revolving Credit Agreement.
Additional information regarding our debt is provided in Note 8 of the Notes to Condensed Consolidated Financial Statements.
To manage our exposure to interest rate risk due to variability in the base rate on borrowings under the amended Revolving Credit Agreement and Term Loan, we entered into two forward-starting interest rate swap agreements ("Interest Rate Swaps") on May 2, 2023, each with an effective date of December 29, 2023 and maturity date of March 31, 2028. Additional information regarding our Interest Rate Swaps is provided in Note 1 and Note 9 of the Notes to Condensed Consolidated Financial Statements.
Three of our insurance subsidiaries are members of an FHLB. Through membership, those subsidiaries have access to secured cash advances which can be used for liquidity purposes or other operational needs. In order for us to use FHLB proceeds, regulatory approvals may be required depending on the nature of the transaction. To date, those subsidiaries have not materially utilized their membership for borrowing purposes.
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Results of Operations – Three and Nine Months Ended September 30, 2023 Compared to Three and Nine Months Ended September 30, 2022
Selected consolidated financial data for each period is summarized in the table below.
Three Months Ended September 30 Nine Months Ended September 30
($ in thousands, except per share data) 2023 2022 Change 2023 2022 Change
Revenues:
Net premiums written $ 292,023  $ 281,989  $ 10,034  $ 790,978  $ 803,055  $ (12,077)
Net premiums earned $ 242,420  $ 258,355  $ (15,935) $ 730,068  $ 771,337  $ (41,269)
Net investment result 32,693  17,893  14,800  100,164  73,080  27,084 
Net investment gains (losses) (2,702) (8,262) 5,560  3,156  (45,652) 48,808 
Other income 3,336  5,097  (1,761) 6,864  13,215  (6,351)
Total revenues 275,747  273,083  2,664  840,252  811,980  28,272 
Expenses:
Net losses and loss adjustment expenses 208,891  198,073  10,818  605,245  585,166  20,079 
Underwriting, policy acquisition and operating expenses 74,014  80,679  (6,665) 218,779  229,788  (11,009)
SPC U.S. federal income tax expense (benefit) (175) 433  (608) 1,351  1,424  (73)
SPC dividend expense (income) (2,518) 183  (2,701) 3,171  1,697  1,474 
Interest expense 5,514  5,513  1  16,478  14,872  1,606 
Goodwill impairment 44,110  —  44,110  44,110  —  44,110 
Total expenses 329,836  284,881  44,955  889,134  832,947  56,187 
Income (loss) before income taxes (54,089) (11,798) (42,291) (48,882) (20,967) (27,915)
Income tax expense (benefit) (4,655) (2,673) (1,982) (3,901) (6,623) 2,722 
Net income (loss) $ (49,434) $ (9,125) $ (40,309) $ (44,981) $ (14,344) $ (30,637)
Non-GAAP operating income (loss) $ (3,730) $ (2,976) $ (754) $ (3,240) $ 21,033  $ (24,273)
Earnings (loss) per share:
Basic $ (0.95) $ (0.17) $ (0.78) $ (0.85) $ (0.27) $ (0.58)
Diluted $ (0.95) $ (0.17) $ (0.78) $ (0.85) $ (0.27) $ (0.58)
Non-GAAP operating income (loss) per share:
Basic $ (0.07) $ (0.06) $ (0.01) $ (0.06) $ 0.39  $ (0.45)
Diluted $ (0.07) $ (0.06) $ (0.01) $ (0.06) $ 0.39  $ (0.45)
Net loss ratio 86.2  % 76.7  % 9.5   pts 82.9  % 75.9  % 7.0   pts
Underwriting expense ratio 30.5  % 31.2  % (0.7   pts) 30.0  % 29.8  % 0.2   pts
Combined ratio 116.7  % 107.9  % 8.8   pts 112.9  % 105.7  % 7.2   pts
Operating ratio 103.2  % 98.3  % 4.9   pts 99.9  % 97.0  % 2.9   pts
Effective tax rate 8.6  % 22.7  % (14.1   pts) 8.0  % 31.6  % (23.6   pts)
Return on equity* (6.6  %) (3.3  %) (3.3   pts) (4.4  %) (1.5  %) (2.9   pts)
Non-GAAP operating return on equity* (1.4  %) (1.1  %) (0.3   pts) (0.4  %) 2.2  % (2.6   pts)
*Annualized. See further discussion on this calculation in the Executive Summary of Operations section under the heading "Non-GAAP Operating ROE."
In all tables that follow, the abbreviation "nm" indicates that the information or the percentage change is not meaningful.
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Executive Summary of Operations
The following sections provide an overview of our consolidated and segment results of operations for the three and nine months ended September 30, 2023 as compared to the three and nine months ended September 30, 2022. See the Segment Results sections that follow for additional information regarding each segment's results.
As previously discussed under the heading "ProAssurance Overview," we reorganized our segment reporting in the third quarter of 2023. As a result, we now report the underwriting results from our participation in Lloyd’s Syndicates in our Specialty P&C segment and the investment results of assets solely allocated to our Lloyd's Syndicate operations and U.K. income taxes in our 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. See further information regarding the segment reorganization in Note 13 of the Notes to Condensed Consolidated Financial Statements.
Revenues
The following table shows our consolidated and segment net premiums earned:
Three Months Ended September 30 Nine Months Ended September 30
($ in thousands) 2023 2022 Change 2023 2022 Change
Net premiums earned
Specialty P&C
 $ 195,772  $ 198,481  $ (2,709) (1.4  %) $ 562,206  $ 593,534  $ (31,328) (5.3  %)
Workers' Compensation Insurance
 39,885  42,063  (2,178) (5.2  %) 121,706  124,456  (2,750) (2.2  %)
Segregated Portfolio Cell Reinsurance
 6,763  17,811  (11,048) (62.0  %) 46,156  53,347  (7,191) (13.5  %)
Consolidated total
 $ 242,420  $ 258,355  $ (15,935) (6.2  %) $ 730,068  $ 771,337  $ (41,269) (5.4  %)
For the three and nine months ended September 30, 2023, our consolidated net premiums earned decreased $15.9 million and $41.3 million, respectively, as compared to the same respective periods of 2022.
•For our Specialty P&C segment, net premiums earned decreased during the 2023 three- and nine-month periods as compared to the same respective periods of 2022 driven by the pro rata effect of a decrease in the volume of premium written during the preceding twelve months primarily due to competitive market conditions and, for the 2023 nine-month period, our process of evaluating the NORCAL book of business and implementing ProAssurance's underwriting strategies.
•For our Workers' Compensation Insurance segment, net premiums earned decreased for the 2023 three- and nine-month periods as compared to the same respective periods of 2022 driven by the continuation of competitive market conditions and, for the 2023 three-month period, a decrease in audit premium billed to policyholders. The decrease in net premiums earned for the 2023 nine-month period was partially offset by an increase in the carried EBUB estimate of $2.9 million as compared to $0.5 million during the same period of 2022.
•Net premiums earned in our Segregated Portfolio Cell Reinsurance segment decreased for the 2023 three- and nine-month periods as compared to the same respective periods of 2022 due to the continuation of competitive workers' compensation market conditions, a decrease in audit premium billed to policyholders and, for the 2023 three-month period, the cancellation of a tail coverage, resulting in the reversal of $7.9 million of tail premium during the current period. The tail coverage previously recognized during the second quarter 2023 related to one program in which we do not participate in the underwriting results.
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The following table shows our consolidated net investment result:
Three Months Ended September 30 Nine Months Ended September 30
($ in thousands) 2023 2022 Change 2023 2022 Change
Net investment income $ 32,754  $ 24,745  $ 8,009  32.4  % $ 94,714  $ 67,132  $ 27,582  41.1  %
Equity in earnings (loss) of unconsolidated subsidiaries*
 (61) (6,852) 6,791  99.1  % 5,450  5,948  (498) (8.4  %)
Net investment result $ 32,693  $ 17,893  $ 14,800  82.7  % $ 100,164  $ 73,080  $ 27,084  37.1  %
*Equity in earnings (loss) of unconsolidated subsidiaries includes our share of the operating results of interests we hold in certain LPs/LLCs as well as operating losses associated with our tax credit partnership investments, which are designed to generate returns in the form of tax credits and tax-deductible project operating losses. We record our allocable portion of the partnership operating income or loss as the results of the LPs/LLCs become available, typically following the end of a reporting period.
The increase in our consolidated net investment income for the three and nine months ended September 30, 2023 as compared to the same respective periods of 2022 reflected higher average book yields as we continue to reinvest at higher rates as our portfolio matures. For the three months ended September 30, 2023, the earnings generated from our LPs/LLCs did not exceed the tax-deductible operating losses recorded from our tax credit partnership investments resulting in an overall loss from our investment in unconsolidated subsidiaries. Our investment results from our portfolio of investments in LPs/LLCs for the 2023 three-month period as compared to the same period of 2022 increased driven by the performance of a few LPs/LLCs primarily due to a higher market valuation during the second quarter of 2023.
The following table shows our total consolidated net investment gains (losses):
Three Months Ended September 30 Nine Months Ended September 30
($ in thousands) 2023 2022 Change 2023 2022 Change
Net impairment losses recognized in earnings $ (141) $ —  $ (141) nm $ (3,117) $ (553) $ (2,564) 463.7  %
Other net investment gains (losses)(1)
 (2,561) (8,262) 5,701  69.0  % 6,273  (45,099) 51,372  113.9  %
Net investment gains (losses) $ (2,702) $ (8,262) $ 5,560  67.3  % $ 3,156  $ (45,652) $ 48,808  106.9  %
(1) Consolidated other net investment gains (losses) in the three and nine months ended September 30, 2023 include gains of $1.5 million and $4.5 million, respectively, reflecting the change in the fair value of contingent consideration issued in connection with the NORCAL acquisition (see Note 2 of the Notes to Consolidated Financial Statements in our December 31, 2022 report on Form 10-K for additional information on the NORCAL acquisition). We do not consider these adjustments in assessing the financial performance of any of our segments and therefore, we have excluded them from the Segment Results sections that follow.
For the three and nine months ended September 30, 2023, we recognized a nominal amount and $3.1 million of credit-related impairment losses in earnings, respectively. We did not recognize any non-credit impairment losses in OCI during the three and nine months ended September 30, 2023. The credit-related impairment losses recognized during the three and nine months ended September 30, 2023 related to a mortgage-backed security and, for the 2023 nine-month period, two corporate bonds in the financial sector. For the three months ended September 30, 2022, we did not recognize any credit-related impairment losses in earnings or non-credit impairment losses in OCI. For the nine months ended September 30, 2022, we recognized credit-related impairment losses in earnings of $0.6 million and non-credit impairment losses in OCI of $0.4 million, both of which related to a corporate bond in the consumer sector. Additional information regarding investment impairment losses is provided in Note 3 of the Notes to Condensed Consolidated Financial Statements.
We recognized $2.6 million of other net investment losses and $6.3 million of other net investment gains for the three and nine months ended September 30, 2023, respectively. The other net investment losses recognized during the three months ended September 30, 2023 were driven by unrealized holding losses resulting from changes in the fair value of our equity investments, partially offset by death benefit proceeds from a BOLI contract. Other net investment gains recognized during nine months ended September 30, 2023 were driven by the remeasurement of the contingent consideration liability and, to a lesser extent, unrealized holding gains resulting from changes in the fair value of our convertible securities. We recognized $8.3 million and $45.1 million of other net investment losses for the three and nine months ended September 30, 2022, respectively, driven by unrealized holding losses resulting from changes in the fair value of our equity investments and convertible securities and, for the 2022 nine-month period, realized losses from the sale of equity investments.
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The following table shows our consolidated other income:
Three Months Ended September 30, 2023 Nine Months Ended September 30, 2023
($ in thousands) 2023 2022 Change 2023 2022 Change
Other income $ 3,336  $ 5,097  $ (1,761) (34.5  %) $ 6,864  $ 13,215  $ (6,351) (48.1  %)
The decrease in consolidated other income for the 2023 three- and nine-month periods was driven by the effect of foreign currency exchange rate changes of $1.4 million and $6.6 million, respectively, in our Corporate segment related to foreign currency denominated loss reserves associated with premium assumed from an international medical professional liability insured in our Specialty P&C segment. We mitigate foreign exchange exposure by generally matching the currency and duration of associated investments to the corresponding loss reserves. In accordance with GAAP, the impact on the market value of available-for-sale fixed maturities due to changes in foreign currency exchange rates is reflected as part of OCI. Conversely, the impact of changes in foreign currency exchange rates on loss reserves is reflected through net income (loss) as a component of other income. The effect of exchange rate changes on foreign currency denominated loss reserves are reported in our Corporate segment to be consistent with the reporting of the foreign currency denominated invested assets and associated investment income. Excluding the impact of foreign currency exchange rate changes in all periods, consolidated other income decreased $0.4 million for the 2023 three-month period and increased $0.2 million for the 2023 nine-month period as compared to the same respective periods of 2022. Consolidated other income for the 2023 nine-month period included proceeds of $1.4 million associated with the sale of a portion of our ownership interest in the underwriting and operations entity associated with Syndicate 1729 to an unrelated third party in our Corporate segment during the second quarter of 2023.
Expenses
The following table shows our consolidated and segment net loss ratios and net prior accident year reserve development.
Three Months Ended September 30 Nine Months Ended September 30
($ in millions) 2023 2022 Change 2023 2022 Change
Current accident year net loss ratio
Consolidated ratio
 83.0  % 79.5  % 3.5   pts 81.8  % 80.0  % 1.8   pts
Specialty P&C
 83.4  % 82.2  % 1.2   pts 84.4  % 82.8  % 1.6   pts
Workers' Compensation Insurance 83.1  % 71.7  % 11.4   pts 76.0  % 71.8  % 4.2   pts
Segregated Portfolio Cell Reinsurance 70.5  % 67.7  % 2.8   pts 64.7  % 67.5  % (2.8   pts)
Calendar year net loss ratio
Consolidated ratio
 86.2  % 76.7  % 9.5   pts 82.9  % 75.9  % 7.0   pts
Specialty P&C
 83.1  % 79.9  % 3.2   pts 84.7  % 79.1  % 5.6   pts
Workers' Compensation Insurance
 103.3  % 66.9  % 36.4   pts 83.7  % 66.9  % 16.8   pts
Segregated Portfolio Cell Reinsurance
 74.0  % 64.0  % 10.0   pts 59.0  % 60.3  % (1.3   pts)
Favorable (unfavorable) reserve development, prior accident years
Consolidated $ (7.7) $ 7.2 $ (14.9) $ (8.4) $ 31.5 $ (39.9)
Specialty P&C $ 0.7 $ 4.6 $ (3.9) $ (1.7) $ 21.7 $ (23.4)
Workers' Compensation Insurance
 $ (8.1) $ 2.0 $ (10.1) $ (9.3) $ 6.0 $ (15.3)
Segregated Portfolio Cell Reinsurance
 $ (0.3) $ 0.6 $ (0.9) $ 2.6 $ 3.8 $ (1.2)
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Each segment's contribution to the change in our consolidated current accident year net loss ratios for the three and nine months ended September 30, 2023 as compared to the same respective periods of 2022 is as follows:
Increase (Decrease)
 2023 versus 2022
(In percentage points) Comparative
three-month
periods		 Comparative
nine-month
periods
Estimated ratio increase (decrease) attributable to:
Specialty P&C 0.9 pts 0.5 pts
Workers' Compensation Insurance 1.9 pts 0.7 pts
Segregated Portfolio Cell Reinsurance 0.7 pts — pts
NORCAL Acquisition - Purchase Accounting Amortization — pts 0.6 pts
Increase in the consolidated current accident year net loss ratio 3.5 pts 1.8 pts
•The increase in the current accident year net loss ratio in our Workers' Compensation Insurance segment for the three and nine months ended September 30, 2023 was driven by an increase in the full-year loss ratio from 72.6% at June 30, 2023 to 76.0% at September 30, 2023, which reflected higher than expected loss trends observed in our average cost per claim which we attribute to increased medical costs driven by wage inflation and medical advancements. The increase in the current accident year net loss ratios in our Workers' Compensation Insurance segment for the three and nine months ended September 30, 2023 also reflected higher ULAE and, to a lesser extent, an increase in estimated losses within the AAD.
•The increase in the current accident year net loss ratio in our Specialty P&C segment for the three and nine months ended September 30, 2023, excluding the impact of purchase accounting in the comparative nine-month period, was driven by an increase to certain expected loss ratios in our HCPL line of business during the first quarter of 2023 as we continue to observe higher than anticipated loss severity trends in select jurisdictions that started to emerge in the fourth quarter of 2022. In addition, the increase in the ratio for the three and nine months ended September 30, 2023 reflected higher ULAE and, to a lesser extent, changes in the mix of business. The increase in the current accident year net loss ratio for the nine months ended September 30, 2023 was partially offset by a decrease to certain expected loss ratios in our HCPL line of business that we began recognizing in the fourth quarter of 2022 due to favorable frequency trends.
•The increase in the current accident year net loss ratio in our Segregated Portfolio Cell Reinsurance segment for the three months ended September 30, 2023 was driven by an increase in the healthcare professional liability current accident year net loss ratio which primarily reflected the impact of the cancellation of a tail coverage and an increase in expected claim frequency. The tail coverage was previously recognized during the second quarter 2023 and is related to one program in which we do not participate in the underwriting results. See previous discussion on this tail coverage in this section under the heading "Revenues" and further discussion in our Segment Operating Results sections that follow.
•As a result of our acquisition of NORCAL, our consolidated current accident year net loss ratio for the nine months ended September 30, 2022 was impacted by the purchase accounting amortization of the negative VOBA associated with NORCAL's assumed unearned premium of $4.9 million which was recorded as a reduction to current accident year net losses in the prior year period. As of June 30, 2022, the negative VOBA was fully amortized which resulted in a 0.6 percentage point increase in the 2023 nine-month period ratio as compared to the prior year period.

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In the 2023 three- and nine-month periods, our consolidated calendar year net loss ratios were higher than our consolidated current accident year net loss ratios due to the recognition of net unfavorable prior year reserve development, as shown in the previous table. For the 2022 three- and nine-month periods, our consolidated calendar year net loss ratios were lower than our consolidated current accident year net loss ratios due to the recognition of net favorable prior year reserve development, as shown in the previous table. The following table shows the components of our consolidated net prior accident year reserve development:
Three Months Ended September 30 Nine Months Ended September 30
($ in thousands) 2023 2022 Change 2023 2022 Change
Net favorable (unfavorable) reserve development $ (9,307) $ 4,714  $ (14,021) (297.4  %) $ (15,049) $ 23,219 $ (38,268) (164.8  %)
NORCAL Acquisition - Purchase Accounting Amortization* 1,656  2,510  (854) (34.0  %) 6,676 8,309 (1,633) (19.7  %)
Total net favorable (unfavorable) reserve development $ (7,651) $ 7,224  $ (14,875) (205.9  %) $ (8,373) $ 31,528 $ (39,901) (126.6  %)
*See Note 2 of the Notes to Consolidated Financial Statements in our December 31, 2022 report on Form 10-K for additional information on the remaining expected amortization of the NORCAL acquisition purchase accounting adjustments.
•The net unfavorable development recognized in our Specialty P&C segment during three and nine months ended September 30, 2023 included $1.0 million and $2.3 million, respectively, of net unfavorable development associated with our Lloyd’s Syndicates operations as compared to $0.9 million and $5.1 million during the same respective periods of 2022. This unfavorable prior year development for the three and nine months ended September 30, 2023 and 2022 was driven by higher than expected losses and development on certain large claims, primarily catastrophe related losses. Net unfavorable development recognized during the nine months ended September 30, 2023 was net of $4.0 million of favorable development in our Medical Technology Liability line of business, principally related to accident years 2014 through 2017.
•The loss environment in our HCPL line of business in our Specialty P&C segment continues to be challenging in some jurisdictions, as claim costs are pressured by social inflation and higher than anticipated loss severity trends which started to emerge in the fourth quarter of 2022. We are monitoring the impact that these trends have on our open case reserves and prior year development. During the first quarter of 2023, we strengthened case reserves related to four large claims resulting in net unfavorable development of $10.1 million recognized during the first quarter of 2023, $7.5 million of which related to NORCAL's accident years 2016 and 2020.
•For our Workers' Compensation Insurance segment, the net unfavorable development for the three and nine months ended September 30, 2023 reflected higher than expected loss trends observed in our average cost per claim, primarily in the 2022 accident year. We are monitoring the impact that these trends have on our open case reserves and prior year development. Net unfavorable development for the 2023 nine-month period also reflected higher than expected loss experience primarily attributable to one large claim from the 1997 accident year.
•The net unfavorable development recognized in our Segregated Portfolio Cell Reinsurance segment during the three months ended September 30, 2023 reflected higher than expected claim frequency in the healthcare professional liability business, primarily related to one program in which we do not participate in the underwriting results. The net favorable development for the nine months ended September 30, 2023 reflected overall favorable trends in claim closing patterns related to the workers' compensation business, primarily in accident years 2018 through 2021.
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Our consolidated and segment underwriting expense ratios were as follows:
Three Months Ended September 30 Nine Months Ended September 30
2023 2022 Change 2023 2022 Change
Consolidated (1)
 30.5  % 31.2  % (0.7   pts) 30.0  % 29.8  % 0.2   pts
Specialty P&C 25.2  % 26.8  % (1.6   pts) 25.1  % 25.1  % —   pts
Workers' Compensation Insurance 34.0  % 33.6  % 0.4   pts 33.6  % 32.8  % 0.8   pts
Segregated Portfolio Cell Reinsurance 54.2  % 31.4  % 22.8   pts 33.0  % 28.5  % 4.5   pts
Corporate (2)
 3.4  % 3.5  % (0.1   pts) 3.4  % 3.5  % (0.1   pts)
(1) Consolidated underwriting expenses for the nine months ended September 30, 2022 include $1.9 million of transaction-related costs associated with our acquisition of NORCAL that are not included in a segment as we do not consider these costs in assessing the financial performance of any of our segments. We did not incur any transaction-related costs during the 2023 three- and nine-month periods or the 2022 three-month period. See Note 13 of the Notes to Condensed Consolidated Financial Statements for a reconciliation of our segment results to our consolidated results.
(2) There are no net premiums earned associated with the Corporate segment. Ratios shown are the contribution of the Corporate segment to the consolidated ratio (Corporate operating expenses divided by consolidated net premiums earned).
The change in our consolidated underwriting expense ratios for the 2023 three- and nine-month periods as compared to the same respective periods of 2022 was primarily attributable to the following:
Increase (Decrease)
 2023 versus 2022
(In percentage points) Comparative three-month periods
Comparative nine-month periods
Estimated ratio increase (decrease) attributable to:
Change in Net Premiums Earned and DPAC amortization(1)
 — pts 0.3 pts
Employee Retention Credit — pts (0.5 pts)
Transaction-related Costs(2)
 — pts (0.2 pts)
Tail Premium
 1.5 pts 0.4 pts
One-Time Expenses
 (0.7 pts) (0.5 pts)
All other, net (1.5 pts) 0.7 pts
Increase (decrease) in the underwriting expense ratio (0.7 pts) 0.2 pts
(1) Excludes tail premium.
(2) See footnote 1 in the previous table for more information.
•Excluding the impact of the items specifically identified in the table above, our consolidated underwriting expense ratio decreased 1.5 percentage point for the 2023 three-month period and increased 0.7 percentage points for the 2023 nine-month period as compared to the same respective periods of 2022. The decrease in our consolidated underwriting expense ratio for the 2023 three-month period was primarily due to a decrease in compensation-related costs driven by a decrease in amounts accrued for performance-related incentive plans due to the decline of the related performance metrics across all our operating segments. The increase in the 2023 nine-month period ratio primarily reflected an increase operating expenses in our Specialty P&C segment and the prior year impact of the decrease in our allowance for expected credit losses in our Segregated Portfolio Cell Reinsurance segment related to the collection of customer accounts that were previously written off. The increase in Specialty P&C operating expenses for the 2023 nine-month period was driven by an increase in professional fees and, to a lesser extent, an increase in travel-related costs.
•As shown in the previous table, our consolidated underwriting expense ratios for the 2023 three- and nine-month periods reflected the impact of the change in premium earned from tail policies as there is typically minimal associated acquisition costs. The increase for the 2023 three-month period primarily reflected the impact of the cancellation of a healthcare professional liability tail coverage in our Segregated Portfolio Cell Reinsurance segment, which was previously written and fully earned during the second quarter of 2023 (see previous discussion under the heading "Revenues" and further discussion in the Segment Results - Specialty Property and Casualty and Segregated Portfolio Cell Reinsurance sections that follow).
•As shown in the previous table, the change in our consolidated underwriting expense ratios for the 2023 three- and nine-month periods also reflect the prior year impact of one-time expenses of $1.8 million and $3.6 million incurred during the three and nine months ended September 30, 2022, respectively, and accounted for a 0.7 and 0.5 percentage point decrease in the 2023 three- and nine-month periods ratios. One-time expenses were mainly comprised of one-time bonuses, accelerated depreciation associated with a decommissioned IT system, employee severance charges and lease exit costs in our Specialty P&C segment.
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•As shown in the previous table, our consolidated underwriting expense ratios also reflected the impact of the change in net premiums earned, excluding tail premium, in relation to the corresponding change in DPAC amortization, which had a minimal impact on the ratios for both the 2023 three- and nine-month periods as compared to the same respective periods of 2022.
•As shown in the previous table, our consolidated underwriting expense ratio for the 2023 nine-month period also reflected the impact of a payroll tax refund of $3.8 million recognized in the first quarter of 2023 as a reduction to operating expenses in our Specialty P&C segment related to the employee retention credit available to us under the CARES Act, which resulted in a 0.5 percentage point decrease in the current period ratio. See additional discussion on the ERC in Note 1 of the Notes to Condensed Consolidated Financial Statements and previous discussion in the Liquidity section under the heading "Taxes."
Taxes
Our consolidated provision for income taxes and effective tax rates for the nine months ended September 30, 2023 and 2022 were as follows:
($ in thousands)
 Nine Months Ended September 30
2023 2022 Change
Income (loss) before income taxes $ (48,882) $ (20,967) $ (27,915) (133.1  %)
Income tax expense (benefit) (3,901) (6,623) 2,722  41.1  %
Net income (loss) $ (44,981) $ (14,344) $ (30,637) (213.6  %)
Effective tax rate 8.0% 31.6% (23.6 pts)
We recognized an income tax benefit of $3.9 million and $6.6 million during the nine months ended September 30, 2023 and 2022, respectively; however, the comparability of our effective tax rates is impacted by our use of the discrete effective tax method for the 2023 nine-month period versus our use of the estimated annual effective tax rate method for the 2022 nine-month period (see further discussion on these methods in the Critical Accounting Estimates section under the heading "Estimation of Taxes/Tax Credits").
Our effective tax rate for the 2023 nine-month period was different from the statutory federal income tax rate of 21% primarily due to a $44.1 million goodwill impairment recognized in relation to the Workers' Compensation Insurance reporting unit during the third quarter of 2023, all of which is non-deductible. See further discussion on this goodwill impairment in Note 5 of the Notes to Condensed Consolidated Financial Statements. Our effective tax rate for the 2022 nine-month period was different from the statutory federal income tax rate of 21% primarily due to the benefit recognized from the tax credits transferred to us from our tax credit partnership investments. See further discussion of other notable items impacting our effective tax rate in the Segment Operating Results - Corporate section that follows under the heading "Taxes."
Operating Ratio
Our operating ratio is our combined ratio, less our investment income ratio. This ratio provides the combined effect of underwriting profitability and investment income. Our operating ratio for the three and nine months ended September 30, 2023 and 2022 was as follows:
Three Months Ended September 30 Nine Months Ended September 30
2023 2022 Change 2023 2022 Change
Combined ratio 116.7  % 107.9  % 8.8   pts 112.9  % 105.7  % 7.2   pts
Less: investment income ratio 13.5  % 9.6  % 3.9   pts 13.0  % 8.7  % 4.3   pts
Operating ratio
 103.2  % 98.3  % 4.9   pts 99.9  % 97.0  % 2.9   pts
Combined ratio, excluding transaction-related costs* 116.7  % 107.9  % 8.8   pts 112.9  % 105.5  % 7.4   pts
*Our consolidated combined ratio for the 2022 nine-month period includes $1.9 million of transaction-related costs included in consolidated operating expenses associated with our acquisition of NORCAL. We did not incur any transaction-related costs during the 2023 three- and nine-month periods or the 2022 three-month period. Given these costs do not reflect normal operating expenses, we have excluded their impact from our calculation of the consolidated combined ratio presented above. See previous discussion under the heading "Expenses."
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The primary drivers of the change in our operating ratios were as follows:
Increase (Decrease)
 2023 versus 2022
(In percentage points) Comparative
three-month
periods		 Comparative
nine-month
periods
Estimated ratio increase (decrease) attributable to:
Investment Results (3.9 pts) (4.3 pts)
Employee Retention Credit — pts (0.5 pts)
Transaction-related Costs — pts (0.2 pts)
Change in Prior Accident Year Reserve Development 5.7 pts 5.1 pts
Change in Net Premiums Earned and DPAC amortization(1)
 — pts 0.3 pts
NORCAL Acquisition - Purchase Accounting Amortization(2)
 0.3 pts 0.8 pts
All other, net 2.8 pts 1.7 pts
Increase in the operating ratio 4.9 pts 2.9 pts
(1) Excludes tail premium.
(2) Includes the impact of purchase accounting amortization on current accident year net losses and prior accident year reserve development. See Note 2 of the Notes to Consolidated Financial Statements in our December 31, 2022 report on Form 10-K for additional information on the remaining expected amortization of the NORCAL acquisition purchase accounting adjustments.
Excluding the impact of the items specifically identified in the table above, our operating ratio for the 2023 three- and nine-month periods increased 2.8 and 1.7 percentage points, respectively, as compared to the same respective periods of 2022 driven by an increase in the consolidated current accident year net loss ratio. See previous discussion in this section under the heading "Expenses" and further discussion in our Segment Operating Results sections that follow.
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Non-GAAP Financial Measures
Non-GAAP Operating Income (Loss)
Non-GAAP operating income (loss) is a financial measure that is widely used to evaluate performance within the insurance sector. In calculating Non-GAAP operating income (loss), we have excluded the effects of the items listed in the following table that do not reflect normal results. We believe Non-GAAP operating income (loss) presents a useful view of the performance of our insurance operations; however it should be considered in conjunction with net income (loss) computed in accordance with GAAP.
The following table is a reconciliation of net income (loss) to Non-GAAP operating income (loss):
Three Months Ended
September 30		 Nine Months Ended
September 30
(In thousands, except per share data) 2023 2022 2023 2022
Net income (loss) $ (49,434) $ (9,125) $ (44,981) $ (14,344)
Items excluded in the calculation of Non-GAAP operating income (loss):
Net investment (gains) losses (1)
 2,702  8,262  (3,156) 45,652 
Net investment gains (losses) attributable to SPCs which no profit/loss is retained (2)
 (431) (562) 1,421  (3,362)
Transaction-related costs (3)
 —  —  —  1,862 
Goodwill impairment 44,110  —  44,110  — 
Guaranty fund assessments (recoupments) 103  4  29  130 
Pre-tax effect of exclusions 46,484  7,704  42,404  44,282 
Tax effect, at 21% (4)
 (780) (1,555) (663) (8,905)
After-tax effect of exclusions 45,704  6,149  41,741  35,377 
Non-GAAP operating income (loss) $ (3,730) $ (2,976) $ (3,240) $ 21,033 
Per diluted common share:
Net income (loss) $ (0.95) $ (0.17) $ (0.85) $ (0.27)
Effect of exclusions 0.88  0.11  0.79  0.66 
Non-GAAP operating income (loss) per diluted common share $ (0.07) $ (0.06) $ (0.06) $ 0.39 
(1) Net investment gains (losses) for the three and nine months ended September 30, 2023 include gains of $1.5 million and $4.5 million, respectively, related to the change in the fair value of contingent consideration issued in connection with the NORCAL acquisition. We have excluded these adjustments as they do not reflect normal operating results. See further discussion around the contingent consideration in Note 2 of the Notes to Condensed Consolidated Financial Statements and discussion on our accounting policy in the Critical Accounting Estimates section under the heading "Contingent Consideration."
(2) Net investment gains (losses) on investments related to SPCs are recognized in our Segregated Portfolio Cell Reinsurance segment. SPC results, including any net investment gain or loss, that are attributable to external cell participants are reflected in the SPC dividend expense (income). To be consistent with our exclusion of net investment gains (losses) recognized in earnings, we are excluding the portion of net investment gains (losses) that is included in the SPC dividend expense (income) which is attributable to the external cell participants.
(3) Transaction-related costs associated with our acquisition of NORCAL. We are excluding these costs as they do not reflect normal operating results and are unique and non-recurring in nature.
(4) The 21% rate is the annual expected statutory tax rate associated with the taxable or tax deductible items listed above. We utilized the discrete effective tax rate method for the three and nine months ended September 30, 2023, while we used the estimated annual effective tax rate method for the three and nine months ended September 30, 2022. See further discussion on these methods in the Critical Accounting Estimates section under the heading "Estimation of Taxes/Tax Credits" and in Note 4 of the Notes to Condensed Consolidated Financial Statements. For the 2023 periods, our statutory tax rate was applied to these items in calculating net income (loss), excluding the 2023 goodwill impairment loss which is not tax deductible. In addition, the gains in 2023 related to the change in the fair value of contingent consideration are non-taxable and therefore had no associated income tax impact. For the 2022 periods, our effective tax rate was applied to these items in calculating net income (loss), excluding net investment gains (losses) and related adjustments which were treated as discrete items and were tax effected at the annual expected statutory tax rate (21%) in the period they were included in our consolidated tax provision and net income (loss). The taxes associated with the net investment gains (losses) related to SPCs in our Segregated Portfolio Cell Reinsurance segment are paid by the individual SPCs and are not included in our consolidated tax provision or net income (loss); therefore, both the net investment gains (losses) from our Segregated Portfolio Cell Reinsurance segment and the adjustment to exclude the portion of net investment gains (losses) included in the SPC dividend expense (income) in the table above are not tax effected.
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Non-GAAP Operating ROE
Non-GAAP operating ROE is a financial measure that is calculated as annualized Non-GAAP operating income (loss) for the period divided by the average of beginning and ending total GAAP shareholders’ equity. As previously discussed, in calculating Non-GAAP operating income (loss), we have excluded the effects of certain items that do not reflect normal results. Non-GAAP operating ROE measures the overall after-tax profitability of our insurance operations and shows how efficiently capital is being used; however, it should be considered in conjunction with ROE computed in accordance with GAAP. The following table is a reconciliation of ROE to Non-GAAP operating ROE for the three and nine months ended September 30, 2023 and 2022:
Three Months Ended
September 30		 Nine Months Ended
September 30
2023 2022 Change 2023 2022 Change
ROE(1)
 (6.6  %) (3.3  %) (3.3   pts) (4.4  %) (1.5  %) (2.9   pts)
Pre-tax effect of items excluded in the calculation of Non-GAAP operating ROE 5.5  % 2.8  % 2.7   pts 4.1  % 4.7  % (0.6   pts)
Tax effect, at 21%(2)
 (0.3  %) (0.6  %) 0.3   pts (0.1  %) (1.0  %) 0.9   pts
Non-GAAP operating ROE (1.4  %) (1.1  %) (0.3   pts) (0.4  %) 2.2  % (2.6   pts)
(1) Costs that are non-recurring in nature are not annualized in our calculation of ROE. Those costs include the goodwill impairment recognized during the third quarter of 2023, changes in the fair value of contingent consideration issued in connection with the NORCAL acquisition for the 2023 three- and nine-month periods and, for the 2022 nine-month period, transaction-related costs associated with our acquisition of NORCAL. See further discussion of the goodwill impairment under the heading "Goodwill / Intangibles" in the Critical Accounting Estimates section and Note 5 of the Notes to Condensed Consolidated Financial Statements.
(2) The 21% rate is the annual expected statutory tax rate associated with the taxable or tax deductible items. See further discussion in footnote 4 in this section under the heading "Non-GAAP Operating Income."
Non-GAAP operating ROE for the 2023 three- and nine-month periods decreased by 0.3 and 2.6 percentage points, respectively, as compared to the same respective periods of 2022 driven by unfavorable prior accident year reserve development and, to a lesser extent, an increase in the current accident year net loss ratio in our Workers' Compensation Insurance segment, partially offset by an increase in investment income due to higher average book yields as we continue to reinvest at higher rates as our portfolio matures. See previous discussions in this section under the headings "Executive Summary of Operations" and further discussion in our Segment Operating Results sections that follow.
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Non-GAAP Adjusted Book Value per Share
Book value per share is calculated as total GAAP shareholders’ equity divided by the total number of common shares outstanding at the balance sheet date. This ratio measures the net worth of the Company to shareholders on a per share basis.
Non-GAAP adjusted book value per share is a Non-GAAP measure widely used within the insurance sector and is calculated as shareholders’ equity, excluding AOCI, divided by the total number of common shares outstanding at the balance sheet date. This Non-GAAP calculation measures the net worth of the Company to shareholders on a per share basis excluding AOCI to eliminate the temporary and potentially significant effects of fluctuations in interest rates on our fixed income portfolio; however, it should be considered in conjunction with book value per share computed in accordance with GAAP. The increase in interest rates led to significant unrealized holding losses on our available-for-sale fixed maturity investments resulting in volatility in AOCI in 2022 and 2023. See Note 10 of the Notes to Condensed Consolidated Financial Statements for additional information.
The following table is a reconciliation of our book value per share to Non-GAAP adjusted book value per share at December 31, 2022 and September 30, 2023:
Book Value Per Share
Book Value Per Share at December 31, 2022 $ 20.46 
Less: AOCI Per Share(1)
 (5.53)
Non-GAAP Adjusted Book Value Per Share at December 31, 2022 25.99
Increase (decrease) to Non-GAAP Adjusted Book Value Per Share during the nine months ended September 30, 2023 attributable to:
Dividends paid (0.05)
Cumulative repurchase of shares(2)
 0.59 
Net income (loss)(3)
 (0.88)
Other(4)
 0.02 
Non-GAAP Adjusted Book Value Per Share at September 30, 2023
 25.67 
Add: AOCI Per Share(1)
 (5.82)
Book Value Per Share at September 30, 2023 $ 19.85 
(1) Primarily the impact of accumulated unrealized investment gains (losses) on our available-for-sale fixed maturity investments. See Note 10 of the Notes to Condensed Consolidated Financial Statements for additional information.
(2) Represents the impact of our repurchase of 3.1 million common shares, conducted through a series of 10b5-1 stock repurchase plans during 2023. See previous discussion in the Liquidity section under the heading "Treasury Shares" for additional information.
(3) Includes the $44.1 million goodwill impairment associated with the Workers' Compensation Insurance segment, which accounted for $0.87 of the decrease in book value per share. See further discussion on the goodwill impairment under the heading "Goodwill / Intangibles" in the Critical Accounting Estimates section and Note 5 of the Notes to Condensed Consolidated Financial Statements.
(4) Includes the impact of share-based compensation.


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Segment Results - Specialty Property & Casualty
Our Specialty P&C segment focuses on professional liability insurance and medical technology liability insurance as discussed in Note 16 of the Notes to Consolidated Financial Statements in our December 31, 2022 report on Form 10-K. As previously discussed under the heading "ProAssurance Overview," we reorganized our segment reporting in the third quarter of 2023. As a result, the underwriting results from our participation in the results of Syndicate 1729 and Syndicate 6131 at Lloyd's London which were previously reported in our Lloyd’s Syndicates segment are now reported in our Specialty P&C segment. We normally report results from our involvement in Lloyd's Syndicates on a quarter lag, except when information is available that is material to the current period. All prior period segment information has been recast to conform to the current period presentation and the segment reorganization had no impact on previously reported consolidated financial results. See further information regarding the segment reorganization in Note 13 of the Notes to Condensed Consolidated Financial Statements.
Segment results reflected pre-tax underwriting profit or loss from these insurance lines and included the amortization of certain purchase accounting adjustments. Segment results for the nine months ended September 30, 2022 exclude transaction-related costs associated with our acquisition of NORCAL as we do not consider these costs in assessing the financial performance of the segment. We did not incur any transaction-related costs during the three and nine months ended September 30, 2023 or the three months ended September 30, 2022. Segment results included the following:
Three Months Ended September 30 Nine Months Ended September 30
($ in thousands) 2023 2022 Change 2023 2022 Change
Net premiums written
 $ 241,888 $ 222,344 $ 19,544  8.8  % $ 607,945 $ 615,855 $ (7,910) (1.3  %)
Net premiums earned
 $ 195,772 $ 198,481 $ (2,709) (1.4  %) $ 562,206 $ 593,534 $ (31,328) (5.3  %)
Other income
 1,089 1,000 89  8.9  % 3,106 4,185 (1,079) (25.8  %)
Net losses and loss adjustment expenses (162,677) (158,518) (4,159) 2.6  % (476,187) (469,690) (6,497) 1.4  %
Underwriting, policy acquisition and operating expenses
 (49,395) (53,166) 3,771  (7.1  %) (140,949) (148,339) 7,390  (5.0  %)
Segment results $ (15,211) $ (12,203) $ (3,008) (24.6  %) $ (51,824) $ (20,310) $ (31,514) (155.2  %)
Net loss ratio
 83.1% 79.9% 3.2 pts 84.7% 79.1% 5.6 pts
Underwriting expense ratio
 25.2% 26.8% (1.6 pts) 25.1% 25.1% — pts
Premiums Written
Changes in our premium volume within our Specialty P&C segment are generally driven by three primary factors: (1) the amount of new business written, (2) our retention of existing business and (3) the premium charged for business that is renewed, which is affected by rates charged and by the amount and type of coverage an insured chooses to purchase. In addition, premium volume may periodically be affected by shifts in the timing of renewals between periods.
The medical professional liability market, which accounts for a majority of the revenues in this segment, remains challenging as physicians continue joining hospitals or larger group practices and, therefore, are no longer purchasing individual or group policies in the standard market. In addition, some competitors have chosen to compete primarily on price. Both factors may impact our ability to write new business and retain existing business. Furthermore, the insurance and reinsurance markets have historically been cyclical, characterized by extended periods of intense price competition and other periods of reduced capacity. The medical professional liability market has been particularly affected by these cycles. Underwriting cycles are driven, among other reasons, by excess capacity available to compete for the business. Changes in the frequency and severity of losses may also affect the cycles of the insurance and reinsurance markets significantly. During “soft markets” where price competition is high and underwriting profits are poor, growth and retention of business become challenging which may result in reduced premium volumes.
Gross, ceded and net premiums written were as follows:
Three Months Ended September 30 Nine Months Ended September 30
($ in thousands) 2023 2022 Change 2023 2022 Change
Gross premiums written $ 256,125  $ 244,887  $ 11,238  4.6  % $ 673,660  $ 680,217  $ (6,557) (1.0  %)
Less: Ceded premiums written 14,237  22,543  (8,306) (36.8  %) 65,715  64,362  1,353  2.1  %
Net premiums written $ 241,888  $ 222,344  $ 19,544  8.8  % $ 607,945  $ 615,855  $ (7,910) (1.3  %)
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Gross Premiums Written
Gross premiums written by component were as follows:
Three Months Ended September 30 Nine Months Ended September 30
($ in thousands) 2023 2022 Change 2023 2022 Change
Professional Liability
HCPL
Standard Physician(1)
 $ 126,425  $ 120,926  $ 5,499  4.5  % $ 339,574  $ 361,641  $ (22,067) (6.1  %)
Specialty
Custom Physician(2)(10)
 23,132  14,932  8,200  54.9  % 72,556  52,010  20,546  39.5  %
Hospitals and Facilities(3)(10)
 31,342  20,962  10,380  49.5  % 59,405  54,596  4,809  8.8  %
Senior Care(4)(10)
 1,486  811  675  83.2  % 6,483  5,481  1,002  18.3  %
Reinsurance assumed(5)
 15,851  16,850  (999) (5.9  %) 37,280  34,739  2,541  7.3  %
Total Specialty 71,811  53,555  18,256  34.1  % 175,724  146,826  28,898  19.7  %
Total HCPL 198,236  174,481  23,755  13.6  % 515,298  508,467  6,831  1.3  %
Small Business Unit(6)
 38,734  38,983  (249) (0.6  %) 81,954  84,484  (2,530) (3.0  %)
Tail Coverages(7)(10)
 420  12,113  (11,693) (96.5  %) 28,078  39,037  (10,959) (28.1  %)
Total Professional Liability 237,390  225,577  11,813  5.2  % 625,330  631,988  (6,658) (1.1  %)
Medical Technology Liability(8)
 12,145  12,167  (22) (0.2  %) 33,254  30,780  2,474  8.0  %
Lloyd's Syndicates(9)
 6,590  6,844  (254) (3.7  %) 15,076  16,741  (1,665) (9.9  %)
Other —  299  (299) nm —  708  (708) nm
Total Gross Premiums Written $ 256,125  $ 244,887  $ 11,238  4.6  % $ 673,660  $ 680,217  $ (6,557) (1.0  %)
        
(1) Standard Physician premium was our greatest source of premium revenues in both 2023 and 2022 and is comprised of twelve month term policies and, to a lesser extent, three month term policies. The increase in Standard Physician premium for the 2023 three-month period as compared to the same period of 2022 was driven by new business written, including the addition of two policies totaling $4.6 million, an increase in renewal pricing and, to a lesser extent, a timing difference of $2.7 million related to the current year renewal of one policy, partially offset by retention losses. The decrease in Standard Physician premium for the 2023 nine-month period as compared to the same period of 2022 was driven by retention losses and, to a lesser extent, the impact of the conversion of three month term policies to twelve month term policies in the prior year period, partially offset by an increase in renewal pricing and, to a lesser extent, new business written. Retention losses during the 2023 three- and nine-month periods generally reflect our pursuit of rate adequacy in a competitive market where other carriers may not have the same objectives, appreciate the rate need, or are attempting to gain market share despite near term underwriting losses (see additional discussion in Part I Item 1. Business of our December 31, 2022 report on Form 10-K under the heading "Competition"). Renewal pricing increases during the 2023 three- and nine-month periods reflect the rising loss cost environment and new business written reflects the competitive market conditions.
(2) Custom Physician premium includes large physician groups, multi-state physician groups and non-standard physicians and is written primarily on an excess and surplus lines basis. The increase in Custom Physician premium during the 2023 three- and nine-month periods as compared to the same respective periods of 2022 was driven by net timing differences of $6.4 million and $7.5 million, respectively, primarily related to the prior year renewal of several policies, an increase in renewal pricing and, to a lesser extent, new business written, partially offset by retention losses. Renewal pricing increases for the 2023 three- and nine-month periods reflect pricing actions taken in response to a rising loss cost environment and new business written reflects the competitive market conditions. The retention losses in our Custom Physician book for the 2023 three- and nine-month periods reflect our focus on underwriting discipline, the loss of a $2.2 million policy due to price competition and, for the 2023 nine-month period, the loss of a $2.8 million policy due to the insured moving to a captive arrangement.
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(3) Hospitals and Facilities premium (which includes hospitals, surgery centers and miscellaneous medical facilities) increased for the 2023 three- and nine-month periods as compared to the same respective periods of 2022 driven by new business written, including the addition of two policies totaling $6.9 million during the third quarter of 2023 and, to a lesser extent, an increase in renewal pricing, partially offset by retention losses. Renewal pricing increases for the 2023 three- and nine-month periods reflect rate increases and contract modifications that we believe are appropriate given the current loss environment and new business written reflects the competitive market conditions. Retention losses in the 2023 nine-month period were largely attributable to the loss of a $4.6 million policy due to the insured entering into a captive arrangement during the first quarter of 2023, which resulted in a decrease to our Specialty retention rate of 3.7 percentage points.
(4) Senior Care premium includes facilities specializing in long term residential care primarily for the elderly ranging from independent living through skilled nursing. Our Senior Care premium increased for the 2023 three- and nine-month periods as compared to the same respective periods of 2022 driven by new business written and, to a lesser extent, an increase in renewal pricing, partially offset by retention losses.
(5) We offer custom alternative risk solutions including assumed reinsurance. The decrease in premium during the 2023 three-month period was driven by loss of an assumed reinsurance arrangement due to price competition. The increase in premium during the 2023 nine-month period was driven by an increase in premiums assumed on a quota share basis through a strategic partnership in place since 2016 with an international medical professional liability insurer and an increase in premiums assumed through a reinsurance arrangement with a hospital captive insurance company.
(6) Our Small Business Unit is comprised of premium associated with podiatrists, legal professionals, dentists and chiropractors. Our Small Business Unit premium decreased during the 2023 three- and nine-month periods as compared to the same respective periods of 2022 driven by retention losses, partially offset by new business written and, to a lesser extent, an increase in renewal pricing. The increase in renewal pricing during the 2023 three- and nine-month periods was primarily the result of an increase in the rate charged for certain renewed policies in select states.
(7) We offer extended reporting endorsement or "tail" coverage to insureds who discontinue their claims-made coverage with us, and we also periodically offer tail coverage through stand-alone policies. Tail coverage premiums are generally 100% earned in the period written because the policies insure only incidents that occurred in prior periods and generally are not cancellable. The amount of tail coverage premium written can vary significantly from period to period.
(8) Our Medical Technology Liability business is marketed throughout the U.S.; coverage is offered on a primary and excess basis, within specified limits, to manufacturers and distributors of medical technology and life sciences products including entities conducting human clinical trials. In addition to the previously listed factors that affect our premium volume, our Medical Technology Liability premium is also impacted by the sales volume of insureds. Our Medical Technology Liability premium was relatively unchanged during the 2023 three-month period and increased for the 2023 nine-month period as compared to the same respective periods of 2022. The increase in our Medical Technology Liability premium during the 2023 nine-month period was driven by new business written and an increase in renewal pricing, partially offset by retention losses. Renewal pricing increases during the 2023 three- and nine-month periods are primarily due to changes in the sales volume and changes in exposure of certain insureds. Retention losses during the 2023 three- and nine-month periods are primarily attributable to insureds no longer needing coverage, insureds no longer in business, an increase in competition on terms and pricing, cancellation for non-payment, as well as merger activity within the industry.
(9) Our Lloyd's Syndicates business includes the results from our participation in Syndicate 1729 and Syndicate 6131 at Lloyd's of London. For each of the 2023 and 2022 underwriting years our participation in the results of Syndicate 1729 is approximately 5%. Effective January 1, 2022, Syndicate 6131 ceased underwriting on a quota share basis with Syndicate 1729. Due to the quarter lag, our ceased participation in Syndicate 6131 was not reflected in our results until the second quarter of 2022. Our Lloyd’s Syndicates premium remained relatively unchanged for the 2023 three-month period and decreased for the 2023 nine-month period as compared to the same respective periods of 2022. The decrease in Lloyd’s Syndicates premium during the 2023 nine-month period was driven by our ceased participation in Syndicate 6131 for the 2022 underwriting year, partially offset by volume increases on renewal business and renewal pricing increases, primarily on property insurance and casualty coverages.
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(10) Certain components of our gross premiums written include alternative market premiums. We currently cede either all or a portion of the alternative market premium, net of reinsurance, to three SPCs of our wholly owned Cayman Islands reinsurance subsidiaries, Inova Re and Eastern Re, which are reported in our Segregated Portfolio Cell Reinsurance segment (see further discussion in the Ceded Premiums Written section that follows). The portion not ceded to the SPCs is retained within our Specialty P&C segment.
Three Months Ended September 30 Nine Months Ended September 30
($ in millions) 2023 2022 Change 2023 2022 Change
Custom Physician
 $ (0.6) $ —  $ (0.6) nm $ 2.1  $ 2.0  $ 0.1  5.0  %
Hospitals and Facilities
 —  0.1  (0.1) nm —  0.1  (0.1) nm
Senior Care
 0.8  0.3  0.5  166.7  % 4.3  4.2  0.1  2.4  %
Tail Coverages (7.9) 1.7  (9.6) (564.7  %) 0.1  4.7  (4.6) (97.9  %)
Total
 $ (7.7) $ 2.1  $ (9.8) (466.7  %) $ 6.5  $ 11.0  $ (4.5) (40.9  %)
Alternative market gross premiums written decreased during the 2023 three- and nine-month periods as compared to the same respective periods of 2022. The decrease for the 2023 three-month period was driven by the cancellation of a tail coverage resulting in the reversal of $7.9 million of tail premium in the current period. The tail coverage was previously recognized during the second quarter of 2023 and related to one program in which we do not participate in the underwriting results. The decrease for the 2023 nine-month period reflected the prior year impact of tail coverage, primarily related to one program.
We are committed to a rate structure that will allow us to fulfill our obligations to our insureds while generating competitive long-term returns for our shareholders. Our pricing continues to be based on expected losses as indicated by our historical loss data and available industry loss data. In recent years, this practice has resulted in rate increases and we anticipate further rate increases due to indications of increasing projected loss severity. Additionally, the pricing of our business includes the effects of filed rates, surcharges and discounts. Renewal pricing reflects changes in our exposure base, deductibles, self-insurance retention limits and other policy terms and conditions. See further explanation of changes in renewal pricing above under the heading "Gross Premiums Written".
The change in renewal pricing for our Specialty P&C segment, including by major component, was as follows:
Three Months Ended
September 30		 Nine Months Ended
September 30
2023 2023
Specialty P&C segment*
 7  % 6  %
HCPL
Standard Physician 7  % 6  %
Specialty 10  % 11  %
Total HCPL
 8  % 7  %
Small Business Unit 3  % 5  %
Medical Technology Liability 1  % 1  %
* Excludes Lloyd's Syndicates premium.
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New business written by major component on a direct basis was as follows:
Three Months Ended
September 30		 Nine Months Ended
September 30
(In millions) 2023 2022 2023 2022
HCPL
Standard Physician $ 9.1  $ 4.0  $ 16.9  $ 7.8 
Specialty 12.3  5.4  22.9  13.4 
Total HCPL
 21.4  9.4  39.8  21.2 
Small Business Unit
 1.0  1.4  2.2  3.0 
Medical Technology Liability
 1.2  1.3  4.7  3.9 
Total
 $ 23.6  $ 12.1  $ 46.7  $ 28.1 
For our Specialty P&C segment, we calculate retention as annualized renewed premium divided by all annualized premium subject to renewal. Retention is affected by a number of factors. We may lose insureds to competitors or to alternative insurance mechanisms such as risk retention groups, captive arrangements or self-insurance entities (often when physicians join hospitals or large group practices) or due to pricing or other issues. We may choose not to renew an insured as a result of our underwriting evaluation. Insureds may also terminate coverage because they have left the practice of medicine for various reasons, principally for retirement, death or disability, but also for personal reasons. See further explanation of changes in retention above under the heading "Gross Premiums Written".
Retention for our Specialty P&C segment, including by major component, was as follows:
Three Months Ended
September 30		 Nine Months Ended
September 30
2023 2022 2023 2022
Specialty P&C segment*
 87  % 87  % 85  % 84  %
HCPL
Standard Physician 89  % 89  % 88  % 87  %
Specialty 80  % 74  % 74  % 69  %
Total HCPL
 87  % 85  % 85  % 82  %
Small Business Unit 90  % 91  % 89  % 91  %
Medical Technology Liability 89  % 92  % 87  % 91  %
* Excludes Lloyd's Syndicates premium.
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Ceded Premiums Written
Ceded premiums represent the amounts owed to our reinsurers for their assumption of a portion of our losses. Our HCPL and Medical Technology Liability excess of loss reinsurance arrangements renew annually on October 1. For the October 1, 2023 renewal, both our HCPL and Medical Technology Liability treaties renewed at a higher rate than the previous treaties and we continue to generally retain the first $2 million in risk insured by us and cede coverages in excess of this amount. For our HCPL coverages in excess of $2 million, we generally retain from 9% to 9.5% of the next $24 million of risk, which increased from a retention of 0% to 5% in the expiring treaty. For our Medical Technology Liability treaty, we do not retain any of the next $8 million of risk for coverages in excess of $2 million. All other material terms were consistent with the expiring treaties.
We pay our reinsurers a ceding premium in exchange for their accepting the risk, and in certain of our excess of loss arrangements, the ultimate amount of which is determined by the loss experience of the business ceded, subject to certain minimum and maximum amounts. Given the length of time that it takes to resolve our claims, many years may elapse before all losses recoverable under a reinsurance arrangement are known. As a part of the process of estimating our loss reserve we also make estimates regarding the amounts recoverable under our reinsurance arrangements. As a result, we may have an adjustment to our estimate of expected losses and associated recoveries for prior year ceded losses under certain loss sensitive reinsurance agreements. Any changes to estimates of premiums ceded related to prior accident years are fully earned in the period the changes in estimates occur.
Ceded premiums written were as follows:
Three Months Ended September 30 Nine Months Ended September 30
($ in thousands) 2023 2022 Change 2023 2022 Change
Excess of loss reinsurance arrangements (1)
 $ 11,142  $ 11,138  $ 4  —  % $ 31,182  $ 28,455  $ 2,727  9.6  %
Other shared risk arrangements (2)
 9,037  7,413  1,624  21.9  % 19,585  15,955  3,630  22.8  %
Premium ceded to SPCs (3)
 (7,815) 1,921  (9,736) (506.8  %) 5,470  10,201  (4,731) (46.4  %)
Other ceded premiums written 1,873  2,071  (198) (9.6  %) 7,278  6,751  527  7.8  %
Adjustment to premiums owed under reinsurance agreements, prior accident years, net(4)
 —  —  —  nm 2,200  3,000  (800) (26.7  %)
Total ceded premiums written $ 14,237  $ 22,543  $ (8,306) (36.8  %) $ 65,715  $ 64,362  $ 1,353  2.1  %
(1) We generally reinsure risks under our excess of loss reinsurance arrangements pursuant to which the reinsurers agree to assume all or a portion of all risks that we insure above our individual risk retention levels. Premium due to reinsurers is based on a rate factor applied to gross premiums written subject to cession under the arrangement. Ceded premiums written under our excess of loss reinsurance arrangements were relatively unchanged for the 2023 three-month period as compared to the same period of 2022. The increase in ceded premiums written under our excess of loss reinsurance arrangements during the 2023 nine-month period as compared to the same period of 2022 was driven by an increase in the overall volume of gross premiums written subject to cession and the impact of prior year adjustments on certain of our reinsurance arrangements reaching maximum limits eligible for cession on certain treaty years.
(2) We have entered into various shared risk arrangements, including quota share, fronting and captive arrangements, with certain large healthcare systems and other insurance entities. While we cede a large portion of the premium written under these arrangements, they provide us an opportunity to grow net premium through strategic partnerships. Ceded premiums written under these arrangements increased during the 2023 three- and nine-month periods as compared to the same respective periods of 2022 driven by an increase in premium ceded under a particular arrangement with a hospital group and, for the 2023 nine-month period, an existing insured entering into an arrangement during the first quarter of 2023.
(3) As previously discussed, as a part of our alternative market solutions, all or a portion of certain healthcare premium written is ceded to SPCs in our Segregated Portfolio Cell Reinsurance segment under either excess of loss or quota share reinsurance agreements, depending on the structure of the individual program. See the Segment Results - Segregated Portfolio Cell Reinsurance section for further discussion on the cession to the SPCs from our Specialty P&C segment. Premiums ceded to SPCs decreased during the 2023 three-month period as compared to the same period of 2022 driven by a decrease in tail coverage due to the reversal of a tail coverage. The tail coverage was previously recognized during the second quarter of 2023 and related to one program in which we do not participate in the underwriting results. The decrease in premiums ceded to SPCs during the 2023 nine-month period was primarily attributable to the prior year impact of tail coverage, primarily related to one program. See previous discussion in footnote 10 under the heading "Gross Premiums Written".
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4) Given the length of time that it takes to resolve our claims, many years may elapse before all losses recoverable under a reinsurance arrangement are known. As a part of the process of estimating our loss reserve we also make estimates regarding the amounts recoverable under our reinsurance arrangements. As previously discussed, the premiums ultimately ceded under certain of our swing rated excess of loss reinsurance arrangements are subject to the losses ceded under the arrangements. As part of our review of our reserves during the 2023 and 2022 three-month periods, we concluded that our estimate of expected losses and associated recoveries for prior year ceded losses was reasonable; therefore, we did not adjust our estimate of ceded premiums owed to reinsurers. As part of our review of our reserves for the 2023 and 2022 nine-month periods, we increased our estimate of expected losses and associated recoveries for prior year ceded losses, as well as our estimate of ceded premiums owed to reinsurers. The increase for the 2023 nine-month period was due to the overall change in expected loss recoveries attributable to one prior year large claim during the first quarter of 2023. The increase for the 2022 nine-month period was due to the overall change in expected loss recoveries attributable to one large claim during the second quarter of 2022. Changes to estimates of premiums ceded related to prior accident years are fully earned in the period the changes in estimates occur.
Ceded Premiums Ratio
As shown in the table below, our ceded premiums ratios were affected during the 2023 and 2022 nine-month periods by revisions to our estimate of premiums owed to reinsurers related to coverages provided in prior accident years. The ceded premiums ratio was as follows:
Three Months Ended September 30 Nine Months Ended September 30
  2023 2022 Change 2023 2022 Change
Ceded premiums ratio 5.6  % 9.2  % (3.6   pts) 9.8  % 9.5  % 0.3   pts
Less the effect of adjustments in premiums owed under reinsurance agreements, prior accident years (as previously discussed) —  % —  % —   pts 0.3  % 0.4  % (0.1   pts)
Ratio, current accident year 5.6  % 9.2  % (3.6   pts) 9.5  % 9.1  % 0.4   pts
The above table reflects ceded premiums written, excluding the effect of prior year ceded premium adjustments, as previously discussed, as a percent of gross premiums written. Our current accident year ceded premiums ratio decreased for the 2023 three-month period and remained relatively unchanged for the 2023 nine-month period as compared to the same respective periods of 2022. The decrease in our current accident year ceded premiums ratio for the 2023 three-month period was primarily attributable to a decrease in premium ceded to SPCs. See additional discussion above under the heading "Ceded Premiums Written."
Net Premiums Earned
Net premiums earned consist of gross premiums earned less the portion of earned premiums that we cede to our reinsurers for their assumption of a portion of our losses. Because premiums are generally earned pro rata over the entire policy period, fluctuations in premiums earned tend to lag those of premiums written. The majority of our policies carry a term of one year; however, some of our Medical Technology Liability policies have a multi-year term and some of our Standard Physician policies have a three-month term. Tail coverage premiums are generally 100% earned in the period written because the policies insure only incidents that occurred in prior periods and are not cancellable. Retroactive coverage premiums are 100% earned at the inception of the contract, as all of the associated underlying loss events occurred in the past. Additionally, any ceded premium changes due to changes to estimates of premiums owed under reinsurance agreements for prior accident years are fully earned in the period of change.
Net premiums earned were as follows:
Three Months Ended September 30 Nine Months Ended September 30
($ in thousands) 2023 2022 Change 2023 2022 Change
Gross premiums earned $ 205,686  $ 218,390  $ (12,704) (5.8  %) $ 619,730  $ 648,199  $ (28,469) (4.4  %)
Less: Ceded premiums earned 9,914  19,909  (9,995) (50.2  %) 57,524  54,665  2,859  5.2  %
Net premiums earned $ 195,772  $ 198,481  $ (2,709) (1.4  %) $ 562,206  $ 593,534  $ (31,328) (5.3  %)
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Gross premiums earned decreased during the 2023 three-month period as compared to the same period of 2022 due to the reversal of $7.9 million of tail premium which was previously written and fully earned during the second quarter of 2023, related to one program in which we do not participate in the underwriting results. The decrease in gross premiums earned during the 2023 nine-month period as compared to the same period of 2022 was driven by the pro rata effect of a decrease in the volume of written premium during the preceding twelve months due to competitive market conditions, our process of evaluating the NORCAL book of business and implementing ProAssurance's underwriting strategies and, to a lesser extent, our ceased participation in Syndicate 6131 for the 2022 underwriting year.
Ceded premiums earned decreased during the 2023 three-month period as compared to the same period of 2022 due to the reversal of tail premium, all of which is ceded to SPCs in our Segregated Portfolio Cell Reinsurance segment (see previous discussion in footnote 3 under the heading "Ceded Premiums Written"). Ceded premiums earned during the 2023 and 2022 nine-month periods included a prior accident year ceded premium adjustment under swing rated reinsurance agreements (see previous discussion in footnote 4 under the heading "Ceded Premiums Written"). After removing the effect of the prior accident year ceded premium adjustments, ceded premiums earned increased by $3.7 million during the 2023 nine-month period as compared to the same period of 2022 driven by the pro rata effect of an increase in premium ceded under our excess of loss arrangements during the preceding twelve months.
Losses and Loss Adjustment Expenses
The determination of calendar year losses involves the actuarial evaluation of incurred losses for the current accident year and the actuarial re-evaluation of incurred losses for prior accident years.
Accident year refers to the accounting period in which the insured event becomes a liability of the insurer. For claims-made policies, which represent the majority of the premiums written in our Specialty P&C segment, the insured event generally becomes a liability when the event is first reported to us and the policy that is in effect at that time covers the claim. For occurrence policies, the insured event becomes a liability when the event takes place even though the claim may be reported to us at a later date. For retroactive coverages, the insured event becomes a liability at inception of the underlying contract. We believe that measuring losses on an accident year basis is the best measure of the underlying profitability of the premiums earned in that period, since it associates policy premiums earned with the estimate of the losses incurred related to those policy premiums.
The following table summarizes calendar year net loss ratios for our Specialty P&C segment by separating losses between the current accident year and all prior accident years. The net loss ratios for our Specialty P&C segment were as follows:
Net Loss Ratios (1)
Three Months Ended September 30 Nine Months Ended September 30
2023 2022 Change 2023 2022 Change
Calendar year net loss ratio 83.1  % 79.9  % 3.2   pts 84.7  % 79.1  % 5.6   pts
Less impact of prior accident years on the net loss ratio (0.3  %) (2.3  %) 2.0   pts 0.3  % (3.7  %) 4.0   pts
Current accident year net loss ratio(2)
 83.4  % 82.2  % 1.2   pts 84.4  % 82.8  % 1.6   pts
(1)Net losses, as specified, divided by net premiums earned.
(2)For the three and nine months ended September 30, 2023, our current accident year net loss ratios (as shown in the table above), increased 1.2 and 1.6 percentage points, respectively, as compared to the same respective periods of 2022. The change in our current accident year net loss ratios were primarily attributable to the following:
(In percentage points) Increase (Decrease)
2023 versus 2022
Comparative
three-month
periods		 Comparative
nine-month
periods
Estimated ratio increase (decrease) attributable to:
Lloyd's Syndicates
 (0.3 pts) 0.5 pts
NORCAL Acquisition - Purchase Accounting Amortization — pts 0.8 pts
All other, net 1.5 pts 0.3 pts
Increase in current accident year net loss ratio 1.2 pts 1.6 pts
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•Excluding the impact of the items specifically identified in the table above, our current accident year net loss ratios for the three and nine months ended September 30, 2023 as compared to the same respective periods of 2022 increased 1.5 and 0.3 percentage points, respectively, driven by an increase to certain expected loss ratios in our HCPL line of business during the first period of 2023 as we continue to observe higher than anticipated loss severity trends in select jurisdictions that started to emerge in the fourth quarter of 2022. In addition, the increase in the ratio for the three and nine months ended September 30, 2023 reflected higher estimated ULAE and, to a lesser extent, changes in the mix of business. We estimate ULAE at the beginning of each year based on projected allocable expenses. ULAE represents costs that cannot be attributed to the processing of a specific claim and are allocated to net losses and loss adjustment expenses on the Condensed Consolidated Statement of Income and Comprehensive Income. The increase in our estimate of ULAE was primarily due to an increase in projected headcount in our claims department and associated compensation-related costs as well as allocable IT expenses. The increase in our current accident year net loss ratio for the nine months ended September 30, 2023 was partially offset by a decrease to certain expected loss ratios in our HCPL line of business during the fourth quarter of 2022 due to favorable frequency trends, some of which, we believe, was attributable to our process of evaluating the NORCAL book of business and implementing ProAssurance's underwriting strategies.
•As a result of our acquisition of NORCAL, our current accident year net loss ratio for the nine months ended September 30, 2022 was impacted by the purchase accounting amortization of $4.9 million related to the negative VOBA associated with NORCAL's assumed unearned premium which was recorded as a reduction to current accident year net losses. As of June 30, 2022, the negative VOBA was fully amortized which resulted in a 0.8 percentage point increase in the nine months ended September 30, 2023 ratio as compared to the prior year period.
We re-evaluate our previously established reserve each quarter based upon the most recently completed actuarial analysis supplemented by any new analysis, information or trends that have emerged since the date of that study. We also take into account currently available industry trend information.
The following table shows the components of our net prior accident year reserve development:
Three Months Ended September 30 Nine Months Ended September 30
($ in thousands) 2023 2022 Change 2023 2022 Change
Net favorable (unfavorable) reserve development $ (1,003) $ 2,057  $ (3,060) (148.8  %) $ (8,386) $ 13,400 $ (21,786) (162.6  %)
NORCAL Acquisition - Purchase Accounting Amortization* 1,656  2,510  (854) (34.0  %) 6,676 8,309 (1,633) (19.7  %)
Total net favorable (unfavorable) reserve development $ 653  $ 4,567  $ (3,914) (85.7  %) $ (1,710) $ 21,709 $ (23,419) (107.9  %)
*See Note 2 of the Notes to Consolidated Financial Statements in our December 31, 2022 report on Form 10-K for additional information on the remaining expected amortization of the NORCAL acquisition purchase accounting adjustments.
•Net unfavorable development recognized during the three and nine months ended September 30, 2023 included $1.0 million and $2.3 million of net unfavorable development associated with our Lloyd’s Syndicates operations, respectively, as compared to $0.9 million and $5.1 million during the same respective periods of 2022. This unfavorable prior year development for the three and nine months ended September 30, 2023 and 2022 was driven by higher than expected losses and development on certain large claims, primarily catastrophe related losses.
•The loss environment in our HCPL line of business continues to be challenging in some jurisdictions, as claim costs are pressured by social inflation and higher than anticipated loss severity trends which started to emerge in the fourth quarter of 2022. We are monitoring the impact that these trends have on our open case reserves and prior year development. During the first quarter of 2023, we strengthened case reserves related to four large claims resulting in net unfavorable development of $10.1 million recognized during the nine months ended September 30, 2023, $7.5 million of which related to NORCAL's accident years 2016 and 2020.
•Net unfavorable development recognized during the nine months ended September 30, 2023 was net of $4.0 million of favorable development in our Medical Technology Liability line of business, principally related to accident years 2014 through 2017, due to lower than anticipated loss emergence.
•Net favorable development recognized during the three months ended September 30, 2022 principally related to accident year 2020 and net favorable development recognized during nine months ended September 30, 2022 principally related to accident years 2018 through 2021.
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•We reduced our prior accident year IBNR reserve for COVID-19 by $3.0 million and $6.0 million during the three and nine months ended September 30, 2022, respectively, as early first notices of potential claims related to anticipated COVID losses have not turned into claims. See additional discussion on the COVID-19 IBNR reserve in our Critical Accounting Estimates section under the heading "Reserve for Losses and Loss Adjustment Expenses" in our December 31, 2022 report on Form 10-K.
•Net favorable development recognized during the nine months ended September 30, 2022 was net of an increase of $4.0 million in our reserve for potential ECO/XPL; no such adjustment was made during the current period.
A detailed discussion of factors influencing our recognition of loss development is included in our Critical Accounting Estimates section under the heading "Reserve for Losses and Loss Adjustment Expenses" in our December 31, 2022 report on Form 10-K. Assumptions used in establishing our reserve are regularly reviewed and updated by management as new data becomes available. Any adjustments necessary are reflected in the then current operations. Due to the size of our reserve, even a small percentage adjustment to the assumptions can have a material effect on our results of operations for the period in which the change is made, as was the case in both 2023 and 2022.
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Underwriting, Policy Acquisition and Operating Expenses
Our Specialty P&C segment underwriting, policy acquisition and operating expenses were comprised as follows:
Three Months Ended September 30 Nine Months Ended September 30
($ in thousands) 2023 2022 Change 2023 2022 Change
DPAC amortization $ 27,129  $ 25,771  $ 1,358  5.3  % $ 75,577  $ 75,491  $ 86  0.1  %
Management fees 1,201  1,410  (209) (14.8  %) 3,164  3,806  (642) (16.9  %)
Other underwriting and operating expenses 21,065  25,985  (4,920) (18.9  %) 62,208  69,042  (6,834) (9.9  %)
Total $ 49,395  $ 53,166  $ (3,771) (7.1  %) $ 140,949  $ 148,339  $ (7,390) (5.0  %)
DPAC amortization increased for the 2023 three-month period as compared to the same period of 2022 driven by a decrease in ceding commission income, which is an offset to expense, due to the reversal of commission income associated with the cancellation of a tail coverage previously recognized during the second quarter of 2023 (see previous discussion under the heading "Gross Premiums Written"). For the 2023 nine-month period, DPAC amortization was relatively unchanged as compared to the same respective period of 2022; however, DPAC amortization for the 2022 nine-month period reflected the impact of purchase accounting from the NORCAL acquisition which resulted in DPAC amortization being approximately $1.0 million lower than would have otherwise been recognized for the period due to the application of GAAP purchase accounting rules. Under these purchase accounting rules, the capitalized policy acquisition costs for NORCAL policies written prior to the acquisition date were written off through purchase accounting on May 5, 2021 rather than being expensed pro rata over the remaining term of the associated policies. Excluding this impact, DPAC amortization for the 2023 nine-month period was lower as compared to the same period of 2022 driven by the decrease in earned premium, partially offset by an increase in compensation-related expenses due to an increase in headcount and an increase in agency commissions.
Management fees are charged pursuant to a management agreement by the Corporate segment to the core domestic operating subsidiaries within our Specialty P&C segment for services provided based on the extent to which services are provided to the subsidiary and the amount of premium written by the subsidiary. While the terms of the management agreement were generally consistent between 2023 and 2022, fluctuations in the amount of premium written by each subsidiary can result in corresponding variations in the management fee charged to each subsidiary during a particular period.
Other underwriting and operating expenses decreased for the 2023 three- and nine-month periods as compared to the same respective periods of 2022 driven by a decrease in amounts accrued for performance-related incentive plans due to the decline of the related performance metrics, certain one-time expenses of $1.8 million and $3.6 million incurred during the prior year period, respectively, as well as an increase in costs allocated to ULAE instead of remaining in operating expenses. ULAE are costs that cannot be attributed to processing a specific claim and are allocated to net losses and loss adjustment expenses on the Condensed Consolidated Statement of Income and Comprehensive Income (see additional discussion on ULAE in the previous section under the heading "Losses and Loss Adjustment Expenses"). One-time expenses during the 2022 three- and nine-month periods were mainly comprised of one-time bonuses, accelerated depreciation associated with a decommissioned IT system, employee severance charges and lease exit costs. The decrease in other underwriting and operating expenses for the 2023 nine-month period also reflected a claim for a payroll tax refund of $3.8 million recognized in the first quarter of 2023 as a reduction to operating expenses related to the employee retention credit available to us under the CARES Act. See additional discussion on the ERC in Note 1 of the Notes to Condensed Consolidated Financial Statements and previous discussion in the Liquidity section under the heading "Taxes." In addition, the decrease in other underwriting and operating expenses for the 2023 nine-month period reflects the impact of the remeasurement of the contingent consideration liability associated with the NORCAL acquisition. We recognized $7.5 million of unfavorable development in the first quarter of 2023 on NORCAL's reserves related to accident year's 2020 and prior (see additional discussion in the previous section under the heading "Losses and Loss Adjustment Expenses"). Given the contingent consideration is dependent upon the after-tax development of those accident years, we factored in the unfavorable development in the remeasurement of the contingent consideration which resulted in a $1.0 million decrease to the liability during the first quarter of 2023. This $1.0 million decrease was recorded as a reduction to operating expenses in the segment to be consistent with the reporting of NORCAL's reserves. See further discussion on the contingent consideration in Note 2 and Note 7 of the Notes to Condensed Consolidated Financial Statements.
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Underwriting Expense Ratio (the Expense Ratio)
Our expense ratio for the Specialty P&C segment was as follows:
  Three Months Ended September 30 Nine Months Ended September 30
  2023 2022 Change 2023 2022 Change
Underwriting expense ratio
25.2  % 26.8  % (1.6   pts) 25.1  % 25.1  % —   pts
The change in our expense ratio for the 2023 three- and nine-month periods as compared to the same respective periods of 2022 was primarily attributable to the following:
Increase (Decrease)
 2023 versus 2022
(In percentage points) Comparative three-month periods
Comparative nine-month periods
Estimated ratio increase (decrease) attributable to:
Change in Net Premiums Earned and DPAC amortization(1)
 0.1 pts 0.6 pts
Tail Premium(2)
 0.3 pts 0.1 pts
One-Time Expenses
 (0.9 pts) (0.7 pts)
Employee Retention Credit — pts (0.6 pts)
Contingent Consideration Remeasurement Adjustment — pts (0.2 pts)
All other, net (1.1 pts) 0.8 pts
Increase (decrease) in the underwriting expense ratio
 (1.6 pts) — pts
(1) Excludes tail premium.
(2) Represents the effect of the change in net premium earned from tail policies as there is typically minimal associated acquisition costs (see discussion under the heading "Gross Premiums Written").
Excluding the impact of the items specifically identified in the table above, our expense ratio decreased for the 2023 three-month period by 1.1 percentage points and increased for the 2023 nine-month period by 0.8 percentage points as compared to the same respective periods of 2022. The decrease in the expense ratio for the 2023 three-month period was primarily attributable to a decrease in amounts accrued for performance-related incentive plans due to the decline of the related performance metrics and an increase in estimated ULAE allocated to net losses and loss adjustment expenses, as previously discussed. The increase in the expense ratio for the 2023 nine-month period was driven by higher compensation-related expenses due to organizational structure changes and the movement of certain employees from the Corporate segment beginning in the third quarter of 2022, an increase in professional fees and, to a lesser extent, an increase in travel-related costs.
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Segment Results - Workers' Compensation Insurance
Our Workers' Compensation Insurance segment includes workers' compensation products provided to employers generally with 1,000 or fewer employees, as discussed in Note 16 of the Notes to Consolidated Financial Statements in our December 31, 2022 report on Form 10-K. Workers' compensation products offered include guaranteed cost policies, policyholder dividend policies, retrospectively-rated policies, deductible policies and alternative market programs. Alternative market programs include services related to program design, fronting, claims administration, risk management, SPC rental, asset management and SPC management services. Alternative market program premiums are 100% ceded to either the SPCs within our Segregated Portfolio Cell Reinsurance segment or captive insurers unaffiliated with ProAssurance for two programs. Our Workers' Compensation Insurance segment results reflect pre-tax underwriting profit or loss from these workers' compensation products, exclusive of investment results, which are included in our Corporate segment. Segment results included the following:
Three Months Ended September 30 Nine Months Ended September 30
($ in thousands) 2023 2022 Change 2023 2022 Change
Net premiums written $ 44,386  $ 43,973  $ 413  0.9  % $ 134,280  $ 131,796  $ 2,484  1.9  %
Net premiums earned $ 39,885  $ 42,063  $ (2,178) (5.2  %) $ 121,706  $ 124,456  $ (2,750) (2.2  %)
Other income 333  554  (221) (39.9  %) 1,565  1,753  (188) (10.7  %)
Net losses and loss adjustment expenses (41,208) (28,148) (13,060) 46.4  % (101,813) (83,306) (18,507) 22.2  %
Underwriting, policy acquisition and operating expenses (13,542) (14,146) 604  (4.3  %) (40,923) (40,816) (107) 0.3  %
Segment results $ (14,532) $ 323  $ (14,855) (4,599.1  %) $ (19,465) $ 2,087  $ (21,552) (1,032.7  %)
Net loss ratio 103.3% 66.9% 36.4 pts 83.7% 66.9% 16.8 pts
Underwriting expense ratio 34.0% 33.6% 0.4 pts 33.6% 32.8% 0.8 pts
Premiums Written
Our workers’ compensation premium volume is driven by five primary factors: (1) the amount of new business written, (2) retention of our existing book of business, (3) premium rates charged on our renewal book of business, (4) changes in payroll exposure and (5) audit premium.
Gross, ceded and net premiums written were as follows:
Three Months Ended September 30 Nine Months Ended September 30
($ in thousands) 2023 2022 Change 2023 2022 Change
Gross premiums written
 $ 63,637  $ 63,543  $ 94  0.1  % $ 199,824  $ 199,295  $ 529  0.3  %
Less: Ceded premiums written
 19,251  19,570  (319) (1.6  %) 65,544  67,499  (1,955) (2.9  %)
Net premiums written
 $ 44,386  $ 43,973  $ 413  0.9  % $ 134,280  $ 131,796  $ 2,484  1.9  %
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Gross Premiums Written
Gross premiums written by product were as follows:
Three Months Ended September 30 Nine Months Ended September 30
($ in thousands) 2023 2022 Change 2023 2022 Change
Traditional business:
Guaranteed cost $ 38,398  $ 38,823  $ (425) (1.1  %) $ 109,966  $ 110,045  $ (79) (0.1  %)
Policyholder dividend 5,477  3,961  1,516  38.3  % 18,443  17,353  1,090  6.3  %
Deductible 1,837  1,516  321  21.2  % 4,596  4,104  492  12.0  %
Retrospective 437  893  (456) (51.1  %) 3,276  3,969  (693) (17.5  %)
Other 1,770  1,942  (172) (8.9  %) 5,030  5,668  (638) (11.3  %)
Change in EBUB estimate —  450  (450) nm 2,900  450  2,450  nm
Total traditional business (1)
 47,919  47,585  334  0.7  % 144,211  141,589  2,622  1.9  %
Alternative market business(2)
 15,718  15,958  (240) (1.5  %) 55,613  57,706  (2,093) (3.6  %)
Total $ 63,637  $ 63,543  $ 94  0.1  % $ 199,824  $ 199,295  $ 529  0.3  %
(1) Gross premiums written in our traditional business reflect the continuation of competitive workers' compensation market conditions, including the impact of compounded state loss cost reductions in our core operating territories, partially offset by higher audit premium for the 2023 nine-month period driven primarily by wage inflation. Gross premiums written increased during the three and nine months ended September 30, 2023 as compared to the same respective periods of 2022, primarily reflecting an increase in new business, partially offset by lower audit premium for the 2023 three-month period. The increase during the 2023 nine-month period, also reflected an increase in our carried EBUB estimate, partially offset by lower renewal premium. Policy audits processed during the 2023 three- and nine-month periods resulted in audit premium billed to policyholders totaling $2.2 million and $7.0 million, respectively, as compared to $2.9 million and $4.9 million for the same respective periods of 2022. We increased our carried EBUB estimate in the 2023 nine-month period based on recent audit trends and our expectation of higher levels of audit premium due to wage inflation. New business writings for the 2023 three- and nine-month periods increased to $4.8 million and $17.0 million, respectively, as compared to $3.1 million and $10.2 million for the same respective periods of 2022. Renewal premium results for the 2023 three- and nine-month periods reflected premium retention of 85% and 82%, respectively, and rate decreases of 3% and 5%, respectively, partially offset by an increase in payroll exposure.
(2) A majority of alternative market premiums are ceded to SPCs in our Segregated Portfolio Cell Reinsurance segment. See further discussion on alternative market gross premiums written in our Segment Operating Results - Segregated Portfolio Cell Reinsurance section under the heading "Gross Premiums Written" that follows. We retained 100% of the nineteen (three in the third quarter) workers’ compensation alternative market programs that were up for renewal during the nine months ended September 30, 2023.
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New business, audit premium, renewal retention and renewal price changes for our traditional business and alternative market business are shown in the table below:
Three Months Ended September 30
2023 2022
($ in millions) Traditional Business Alternative Market Business Segment
Results		 Traditional Business Alternative Market Business Segment
Results
New business $ 4.8  $ 0.6  $ 5.4  $ 3.1  $ 0.8  $ 3.9 
Audit premium (excluding EBUB) $ 2.2  $ 0.6  $ 2.8  $ 2.9  $ 1.2  $ 4.1 
Retention rate (1)
 85  % 92  % 87  % 77  % 86  % 80  %
Change in renewal pricing (2)
 (3  %) (5  %) (3  %) (5  %) (4  %) (5  %)
Nine Months Ended September 30
2023 2022
($ in millions) Traditional Business Alternative Market Business Segment
Results		 Traditional Business Alternative Market Business Segment
Results
New business $ 17.0  $ 3.3  $ 20.3  $ 10.2  $ 2.9  $ 13.1 
Audit premium (excluding EBUB) $ 7.0  $ 2.7  $ 9.7  $ 4.9  $ 4.0  $ 8.9 
Retention rate (1)
 82  % 89  % 84  % 84  % 88  % 85  %
Change in renewal pricing (2)
 (5  %) (5  %) (5  %) (5  %) (4  %) (4  %)
(1) We calculate our workers' compensation retention rate as annualized expiring renewed premium divided by all annualized expiring premium subject to renewal. Our retention rate can be impacted by various factors, including price or other competitive issues, insureds being acquired, or a decision not to renew based on our underwriting evaluation.
(2) The pricing of our business includes an assessment of the underlying policy exposure and market conditions. We continue to base our pricing on expected losses, as indicated by our historical loss data.
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Ceded Premiums Written
Ceded premiums written were as follows:
Three Months Ended September 30 Nine Months Ended September 30
($ in thousands) 2023 2022 Change 2023 2022 Change
Premiums ceded to SPCs(1)
 $ 15,745  $ 15,958  $ (213) (1.3  %) $ 50,454  $ 52,681  $ (2,227) (4.2  %)
Premiums ceded to external reinsurers(2)
 3,940  3,720  220  5.9  % 11,108  10,508  600  5.7  %
Premiums ceded to unaffiliated captive insurers(1)
 (27) —  (27) nm 5,159  5,025  134  2.7  %
Change in return premium estimate under external reinsurance (3)
 (363) (46) (317) (689.1  %) (296) 208  (504) (242.3  %)
Estimated revenue share under external reinsurance (4)
 (44) (62) 18  (29.0  %) (881) (923) 42  (4.6  %)
Total ceded premiums written $ 19,251  $ 19,570  $ (319) (1.6  %) $ 65,544  $ 67,499  $ (1,955) (2.9  %)
(1) Represents alternative market business that is ceded under 100% quota share reinsurance agreements to the SPCs in our Segregated Portfolio Cell Reinsurance segment. Premiums ceded to unaffiliated captive insurers represent alternative market business for two programs that are ceded under 100% quota share reinsurance agreements. See further discussion on alternative market gross premiums written in our Segment Operating Results - Segregated Portfolio Cell Reinsurance section under the heading "Gross Premiums Written" that follows.
(2) Under our external reinsurance treaty for traditional business, we retain the first $0.5 million in risk insured by us and cede losses in excess of this amount on each loss occurrence, subject to an AAD, equal to 3.5% of subject earned premium for the treaty years effective May 1, 2023 and 2022. Premiums ceded under our traditional reinsurance treaty are based on premiums earned during the treaty period.
(3) Changes in the return premium estimate reflect adjustments to our estimate of expected future recovery of ceded premium based on the underlying loss experience of our reinsurance treaties that include a provision for return premium.
(4) We are party to a revenue sharing agreement with our reinsurance broker under which we participate in the broker's revenue earned under our reinsurance treaties based on the volume of premium ceded. We estimate the amount of revenue we expect to receive under this agreement as premiums are recognized and ceded to the reinsurers.
Ceded premiums written decreased during the three and nine months ended September 30, 2023 as compared to the same respective periods of 2022, primarily reflecting a decrease in alternative market premiums ceded to the Segregated Portfolio Cell Reinsurance segment and an increase in the return premium estimate, partially offset by an increase in premiums ceded under our external reinsurance treaty, reflecting higher reinsurance rates, and, for the 2023 nine-month period, an increase in premiums ceded to unaffiliated captive insurers. The increase in estimated return premium for the 2023 three- and nine-month periods primarily reflects favorable reported loss development on previously ceded losses.
Ceded Premiums Ratio
Ceded premiums ratio was as follows:
Three Months Ended September 30 Nine Months Ended September 30
2023 2022 Change 2023 2022 Change
Ceded premiums ratio, as reported 34.3  % 34.2  % 0.1   pts 33.9  % 34.0  % (0.1   pts)
Less the effect of:
Premiums ceded to SPCs (100%)
 23.4  % 23.9  % (0.5   pts) 23.7  % 24.7  % (1.0   pts)
Premiums ceded to unaffiliated captive insurers (100%) 2.8  % 2.5  % 0.3   pts 2.6  % 2.0  % 0.6   pts
Change in return premium estimate under external reinsurance (0.9  %) (0.1  %) (0.8   pts) (0.2  %) 0.2  % (0.4   pts)
Estimated revenue share (0.1  %) (0.1  %) —   pts (0.7  %) (0.7  %) —   pts
Assumed premiums earned (not ceded to external reinsurers) (0.3  %) (0.3  %) —   pts (0.3  %) (0.3  %) —   pts
EBUB estimate —  % (0.1  %) 0.1   pts (0.2  %) (0.1  %) (0.1   pts)
Ceded premiums ratio (related to external reinsurance), less the effects of above 9.4  % 8.4  % 1.0   pts 9.0  % 8.2  % 0.8   pts
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The above table reflects traditional ceded premiums earned as a percent of traditional gross premiums earned. As discussed above, premiums ceded under our traditional reinsurance treaty are based on premiums earned during the treaty period. The increase in the ceded premiums ratios for the three and nine months ended September 30, 2023 as compared to the same respective periods of 2022 primarily reflected the higher reinsurance rates.
Net Premiums Earned
Net premiums earned consist of gross premiums earned less the portion of earned premiums that we cede to SPCs in our Segregated Portfolio Cell Reinsurance segment, external reinsurers (including changes related to the return premium and revenue share estimates) and the unaffiliated captive insurers. Because premiums are generally earned pro rata over the entire policy period, fluctuations in premiums earned tend to lag those of premiums written. Our workers’ compensation policies are twelve month term policies, and premiums are earned on a pro rata basis over the policy period. Net premiums earned also include premium adjustments related to the audit of our insureds' payrolls, changes in our estimates related to EBUB and premium adjustments related to retrospectively-rated policies. Payroll audits are conducted subsequent to the end of the policy period and any related premium adjustments are recorded as fully earned in the current period. We evaluate our estimates related to EBUB and retrospectively-rated premium adjustments on a quarterly basis with any adjustments being included in written and earned premium in the current period.
Net premiums earned were as follows:
Three Months Ended September 30 Nine Months Ended September 30
($ in thousands) 2023 2022 Change 2023 2022 Change
Gross premiums earned $ 60,734  $ 63,963  $ (3,229) (5.0  %) $ 184,044  $ 188,518  $ (4,474) (2.4  %)
Less: Ceded premiums earned 20,849  21,900  (1,051) (4.8  %) 62,338  64,062  (1,724) (2.7  %)
Net premiums earned $ 39,885  $ 42,063  $ (2,178) (5.2  %) $ 121,706  $ 124,456  $ (2,750) (2.2  %)
Net premiums earned decreased during the three and nine months ended September 30, 2023 as compared to the same respective periods of 2022 driven by the continuation of competitive market conditions resulting in lower renewal premium during the preceding twelve months. The decrease in net premiums earned for the 2023 nine-month period was partially offset by higher audit premium and the increase in our carried EBUB estimate.
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Losses and Loss Adjustment Expenses
We estimate our current accident year loss and loss adjustment expenses by developing actual reported losses using historical loss development factors, adjusted to reflect current and expected trends based on various internal analyses and supplemental information. The following table summarizes calendar year net loss ratios by separating losses between the current accident year and all prior accident years. Calendar year and current accident year net loss ratios by component were as follows:
Three Months Ended September 30 Nine Months Ended September 30
2023 2022 Change 2023 2022 Change
Calendar year net loss ratio 103.3  % 66.9  % 36.4   pts 83.7  % 66.9  % 16.8   pts
Less impact of prior accident years on the net loss ratio 20.2  % (4.8  %) 25.0   pts 7.7  % (4.9  %) 12.6   pts
Current accident year net loss ratio 83.1  % 71.7  % 11.4   pts 76.0  % 71.8  % 4.2   pts
Less estimated ratio increase (decrease) attributable to:
Change in ULAE
 6.0  % 5.6  % 0.4   pts 6.4  % 5.9  % 0.5   pts
Change in the AAD (1)
 3.7  % 3.5  % 0.2   pts 3.5  % 2.8  % 0.7   pts
Current accident year net loss ratio, excluding the effect of the change in ULAE and the AAD
 73.4  % 62.6  % 10.8   pts 66.1  % 63.1  % 3.0   pts
(1) See previous discussion of the AAD under the heading "Ceded Premiums Written."
During the third quarter of 2023, we increased our current accident year loss ratio for both the three and nine months ended September 30, 2023 and recognized unfavorable prior accident year reserve development, which reflected higher than expected loss trends observed in our average cost per claim. We continue to observe a reduction in reported claim frequency trends; however, the lower frequency is being more than offset by an increase in our average cost per claim in both the 2023 and 2022 accident years, which we attribute to increased medical costs driven by wage inflation and medical advancements. The 2023 full year current accident year net loss ratio was increased to 76.0% at September 30, 2023 from 72.6% at June 30, 2023, which resulted in a current accident year loss ratio of 83.1% for the 2023 three-month period. As shown in the previous table, the current accident year loss ratio also reflects higher ULAE costs due to higher average headcount in our claims department and the associated compensation-related costs.
Calendar year incurred losses (excluding IBNR) in excess of our per occurrence reinsurance retention, before consideration of the AAD, decreased $0.7 million and $2.3 million for the three and nine months ended September 30, 2023, respectively, as compared to the same respective periods of 2022. We recognized losses in excess of our per occurrence retention totaling $1.5 million and $4.3 million during the 2023 three- and nine-month periods, respectively, as compared to $1.5 million and $3.5 million for the same respective periods of 2022 which reflected our estimate of loss activity within the AAD. Accident year reported loss activity in excess of our per occurrence reinsurance retention totaled $0.9 million for the 2023 nine-month period as compared to $1.8 million for the same period in 2022.
We recognized $8.1 million and $9.3 million of net unfavorable prior year reserve development for the three and nine months ended September 30, 2023, respectively, as compared to net favorable prior year reserve development of $2.0 million and $6.0 million for the same respective periods of 2022. The net unfavorable prior year reserve development for the 2023 three- and nine-month periods reflects higher than expected average claim costs primarily in the 2022 accident year. The net unfavorable prior year reserve development for the 2023 nine-month period also reflected higher than expected loss experience primarily attributable to a large claim from the 1997 accident year. The net favorable prior year development for the three and nine months ended September 30, 2022 reflected overall favorable trends in claim closing patterns and primarily related to accident years 2017 and prior.
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Underwriting, Policy Acquisition and Operating Expenses
Underwriting, policy acquisition and operating expenses include the amortization of commissions, premium taxes and underwriting salaries, which are capitalized and deferred over the related workers’ compensation policy period, net of ceding commissions earned. The capitalization of underwriting salaries can vary as they are subject to the success rate of our contract acquisition efforts. These expenses also include a management fee charged by our Corporate segment, which represents intercompany charges pursuant to a management agreement. The management fee is based on the extent to which services are provided to the subsidiary and the amount of premium written by the subsidiary.
Our Workers' Compensation Insurance segment underwriting, policy acquisition and operating expenses were comprised as follows:
Three Months Ended September 30 Nine Months Ended September 30
($ in thousands) 2023 2022 Change 2023 2022 Change
DPAC amortization $ 7,517  $ 7,513  $ 4  0.1  % $ 21,961  $ 22,105  $ (144) (0.7  %)
Management fees 478  477  1  0.2  % 1,494  1,495  (1) (0.1  %)
Other underwriting and operating expenses 8,733  9,635  (902) (9.4  %) 27,399  27,609  (210) (0.8  %)
Policyholder dividend expense 399  216  183  84.7  % 831  708  123  17.4  %
SPC ceding commission offset (3,585) (3,695) 110  (3.0  %) (10,762) (11,101) 339  (3.1  %)
Total $ 13,542  $ 14,146  $ (604) (4.3  %) $ 40,923  $ 40,816  $ 107  0.3  %
DPAC amortization was relatively unchanged for the 2023 three- and nine-month periods as compared to the same respective periods of 2022, reflecting the change in gross premiums earned.
Other underwriting and operating expenses decreased for the three and nine months ended September 30, 2023 as compared to the same respective periods of 2022. The decrease in other underwriting and operating expenses for the 2023 three-month period primarily reflected lower compensation-related costs and the timing of certain regulatory expenses, while the reduction in expenses for the 2023 nine-month period reflected an increase in ULAE allocated to net losses and loss adjustment expenses and lower office lease and advertising expenses, partially offset by higher IT and business travel expenses. The decrease in compensation-related costs during the 2023 three- and nine-month periods primarily reflected lower amounts accrued for performance-related incentive plans due to the decline of the related performance metrics. See additional discussion on ULAE in the previous section under the heading "Losses and Loss Adjustment Expenses."
As previously discussed, alternative market premiums written by our Workers' Compensation Insurance segment are 100% ceded, less a ceding commission, to either the SPCs in our Segregated Portfolio Cell Reinsurance segment or unaffiliated captive insurers. The ceding commission charged to the SPCs consists of an amount for fronting fees, cell rental fees, commissions, premium taxes, claims administration fees and risk management fees. The fronting fees, commissions, premium taxes and risk management fees are recorded as an offset to underwriting, policy acquisition and operating expenses. Cell rental fees are recorded as a component of other income and claims administration fees are recorded as ceded ULAE. The increase in SPC ceding commissions earned for the three and nine months ended September 30, 2023 as compared to the same respective periods of 2022, primarily reflected the decrease in alternative market ceded earned premium.
Underwriting Expense Ratio (the Expense Ratio)
The underwriting expense ratio included the impact of the following:
Three Months Ended September 30 Nine Months Ended September 30
2023 2022 Change 2023 2022 Change
Underwriting expense ratio, as reported 34.0  % 33.6  % 0.4   pts 33.6  % 32.8  % 0.8   pts
Less estimated ratio increase (decrease) attributable to:
Impact of ceding commissions received from SPCs 4.1  % 4.1  % —   pts 3.9  % 3.7  % 0.2   pts
Impact of audit premium (1.2  %) (1.8  %) 0.6   pts (1.8  %) (0.9  %) (0.9   pts)
Underwriting expense ratio, less listed effects 31.1  % 31.3  % (0.2   pts) 31.5  % 30.0  % 1.5   pts
Excluding the items noted in the table above, the expense ratio for the three and nine months ended September 30, 2023, primarily reflected the impact of lower net premiums earned due to the continuation of competitive market conditions.
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Segment Results - Segregated Portfolio Cell Reinsurance
The Segregated Portfolio Cell Reinsurance segment 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, our Cayman Islands SPC operations, as discussed in Note 16 of the Notes to Consolidated Financial Statements in our December 31, 2022 report on Form 10-K. SPCs are segregated pools of assets and liabilities that provide an insurance facility for a defined set of risks. Assets of each SPC are solely for the benefit of that individual cell and each SPC is solely responsible for the liabilities of that individual cell. Assets of one SPC are statutorily protected from the creditors of the others. 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. We participate to a varying degree in the results of selected SPCs and, for the SPCs in which we participate, our participation interest ranges from a low of 15% to a high of 85%. SPC results attributable to external cell participants are reported as an SPC dividend (expense) income in our Segregated Portfolio Cell Reinsurance segment. In addition, our 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 the SPC dividend (expense) income. As of September 30, 2023, there were 27 (4 inactive) SPCs. The SPCs assume workers' compensation insurance, healthcare professional liability insurance or a combination of the two from our Workers' Compensation Insurance and Specialty P&C segments. As of September 30, 2023, there were two SPCs that assumed both workers' compensation insurance and healthcare professional liability insurance and one SPC that assumed only healthcare professional liability insurance.
Segment results reflects our share of the underwriting and investment results of the SPCs in which we participate, and included the following:
Three Months Ended September 30 Nine Months Ended September 30
($ in thousands) 2023 2022 Change 2023 2022 Change
Net premiums written $ 5,749  $ 15,672  $ (9,923) (63.3  %) $ 48,753  $ 55,404  $ (6,651) (12.0  %)
Net premiums earned $ 6,763  $ 17,811  $ (11,048) (62.0  %) $ 46,156  $ 53,347  $ (7,191) (13.5  %)
Net investment income 601  294  307  104.4  % 1,625  617  1,008  163.4  %
Net investment gains (losses) (525) (732) 207  28.3  % 1,830  (4,225) 6,055  143.3  %
Other income 2  1  1  100.0  % 3  2  1  50.0  %
Net losses and loss adjustment expenses (5,006) (11,407) 6,401  (56.1  %) (27,245) (32,170) 4,925  (15.3  %)
Underwriting, policy acquisition and operating expenses (3,668) (5,599) 1,931  (34.5  %) (15,241) (15,203) (38) 0.2  %
SPC U.S. federal income tax (expense) benefit (1)
 175  (433) 608  (140.4  %) (1,351) (1,424) 73  (5.1  %)
SPC net results (1,658) (65) (1,593) (2,450.8  %) 5,777  944  4,833  512.0  %
SPC dividend (expense) income (2)
 2,518  (183) 2,701  1,476.0  % (3,171) (1,697) (1,474) 86.9  %
Segment results (3)
 $ 860  $ (248) $ 1,108  446.8  % $ 2,606  $ (753) $ 3,359  446.1  %
Net loss ratio 74.0% 64.0% 10.0 pts 59.0% 60.3% (1.3 pts)
Underwriting expense ratio 54.2% 31.4% 22.8 pts 33.0% 28.5% 4.5 pts
(1) 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.
(2) Represents the net (profit) loss attributable to external cell participants.
(3) Represents our share of the net profit (loss) and OCI of the SPCs in which we participate.
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Premiums Written
Premiums in our Segregated Portfolio Cell Reinsurance segment are assumed from either our Workers' Compensation Insurance or Specialty P&C segments. Premium volume is driven by five primary factors: (1) the amount of new business written, (2) retention of the existing book of business, (3) premium rates charged on the renewal book of business and, for workers' compensation business, (4) changes in payroll exposure and (5) audit premium.
Gross, ceded and net premiums written were as follows:
Three Months Ended September 30 Nine Months Ended September 30
($ in thousands) 2023 2022 Change 2023 2022 Change
Gross premiums written
 $ 7,930  $ 17,879  $ (9,949) (55.6  %) $ 55,924  $ 62,882  $ (6,958) (11.1  %)
Less: Ceded premiums written
 2,181  2,207  (26) (1.2  %) 7,171  7,478  (307) (4.1  %)
Net premiums written
 $ 5,749  $ 15,672  $ (9,923) (63.3  %) $ 48,753  $ 55,404  $ (6,651) (12.0  %)
Gross Premiums Written
Gross premiums written reflected reinsurance premiums assumed by component as follows:
Three Months Ended September 30 Nine Months Ended September 30
($ in thousands) 2023 2022 Change 2023 2022 Change
Workers' compensation
 $ 15,745  $ 15,958  $ (213) (1.3  %) $ 50,454  $ 52,681  $ (2,227) (4.2  %)
Healthcare professional liability
 (7,815) 1,921  (9,736) (506.8  %) 5,470  10,201  (4,731) (46.4  %)
Gross Premiums Written $ 7,930  $ 17,879  $ (9,949) (55.6  %) $ 55,924  $ 62,882  $ (6,958) (11.1  %)
Gross premiums written for the three and nine months ended September 30, 2023 and 2022 were primarily comprised of workers' compensation coverages assumed from our Workers' Compensation Insurance segment. Workers' compensation gross premiums written decreased during the 2023 three- and nine-month periods as compared to the same respective periods of 2022 driven by lower renewal and audit premium. Renewal premium for the three and nine months ended September 30, 2023 reflected premium retention of 92% and 89%, respectively, and rate decreases of 5% in each period, partially offset by an increase in payroll exposure. Healthcare professional liability gross premiums written decreased during the 2023 three-month period as compared to the same period of 2022 due to the cancellation of a tail coverage, resulting in the reversal of $7.9 million of tail premium during the current period. The tail coverage previously recognized during the second quarter 2023 related to one program in which we do not participate in the underwriting results. The decrease in healthcare professional liability gross premiums written for the 2023 nine-month period as compared to the same period 2022 reflected the prior year impact of tail coverage related to the same program. See further discussion in our Segment Results - Specialty Property & Casualty section under the heading "Premiums Written." We retained 100% of the seventeen (three in the third quarter) workers' compensation programs and two (none in the third quarter) healthcare professional liability programs up for renewal during the nine months ended September 30, 2023.
New business, audit premium, retention and renewal price changes for the assumed workers' compensation premium is shown in the table below:
Three Months Ended September 30 Nine Months Ended September 30
($ in millions) 2023 2022 2023 2022
New business $ 0.6  $ 0.8  $ 3.3  $ 2.9 
Audit premium $ 0.6  $ 1.2  $ 2.7  $ 4.0 
Retention rate (1)
 92  % 86  % 89  % 88  %
Change in renewal pricing (2)
 (5  %) (4  %) (5  %) (4  %)
(1) We calculate our workers' compensation retention rate as annualized expiring renewed premium divided by all annualized expiring premium subject to renewal. Our retention rate can be impacted by various factors, including price or other competitive issues, insureds being acquired, or a decision not to renew based on our underwriting evaluation.
(2) The pricing of our business includes an assessment of the underlying policy exposure and market conditions. We continue to base our pricing on expected losses, as indicated by our historical loss data.
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Ceded Premiums Written
Ceded premiums written were as follows:
Three Months Ended September 30 Nine Months Ended September 30
($ in thousands) 2023 2022 Change 2023 2022 Change
Ceded premiums written $ 2,181  $ 2,207  $ (26) (1.2  %) $ 7,171  $ 7,478  $ (307) (4.1  %)
For the workers' compensation business, each SPC has in place its own external reinsurance coverage. The healthcare professional liability business is assumed net of reinsurance from our Specialty P&C segment; therefore, there are no ceded premiums related to the healthcare professional liability business reflected in the table above. The risk retention for each loss occurrence for the workers' compensation business ranges from $0.3 million to $0.4 million based on the program, with limits up to $119.7 million. In addition, each program has aggregate reinsurance coverage between $1.1 million and $2.1 million on a program year basis. Premiums ceded under our SPC reinsurance treaty are based on premiums written during the treaty period. The change in ceded premiums written during the three and nine months ended September 30, 2023 as compared to the same respective periods of 2022 primarily reflected the decrease in workers' compensation gross premiums written and the impact of rate changes under the external reinsurance treaty. External reinsurance rates vary based on the alternative market program.
Ceded Premiums Ratio
Ceded premiums ratio was as follows:
Three Months Ended September 30 Nine Months Ended September 30
2023 2022 Change 2023 2022 Change
Ceded premiums ratio 13.9% 13.8% 0.1 pts 14.2% 14.2% — pts
The above table reflects ceded premiums as a percent of gross premiums written for the workers' compensation business only; healthcare professional liability business is assumed net of reinsurance, as discussed above. The ceded premiums ratio reflects the weighted average reinsurance rates of all SPC programs.
Net Premiums Earned
Net premiums earned consist of gross premiums earned less the portion of earned premiums that the SPCs cede to external reinsurers. Because premiums are generally earned pro rata over the entire policy period, fluctuations in premiums earned tend to lag those of premiums written. Policies ceded to the SPCs are twelve month term policies and premiums are earned on a pro rata basis over the policy period. Net premiums earned also include premium adjustments related to the audit of workers' compensation insureds' payrolls. Payroll audits are conducted subsequent to the end of the policy period and any related adjustments are recorded as fully earned in the current period.
Gross, ceded and net premiums earned were as follows:
Three Months Ended September 30 Nine Months Ended September 30
($ in thousands) 2023 2022 Change 2023 2022 Change
Gross premiums earned $ 9,008  $ 20,195  $ (11,187) (55.4  %) $ 53,001  $ 60,455  $ (7,454) (12.3  %)
Less: Ceded premiums earned 2,245  2,384  (139) (5.8  %) 6,845  7,108  (263) (3.7  %)
Net premiums earned $ 6,763  $ 17,811  $ (11,048) (62.0  %) $ 46,156  $ 53,347  $ (7,191) (13.5  %)
The decrease in net premiums earned during the three months ended September 30, 2023 as compared to the same period of 2022, primarily reflected the reversal of the $7.9 million of tail coverage previously recognized during the second quarter of 2023, as previously discussed. The decrease in net premiums earned during the nine months ended September 30, 2023 primarily reflected the prior year impact of tail coverage discussed above. Net premiums earned related to the workers' compensation business decreased during the 2023 three- and nine-month periods driven by the pro rata effect of a reduction in net premiums written during the preceding twelve months, including a reduction in audit premium.
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Losses and Loss Adjustment Expenses
The following table summarizes the calendar year net loss ratios by separating losses between the current accident year and all prior accident years. The current accident year net loss ratio reflects the aggregate loss ratio for all programs. Loss reserves and associated reinsurance are estimated for each program on a quarterly basis. Each SPC has in place its own reinsurance agreement, and the attachment point of aggregate reinsurance coverage varies by program. Due to the size of some of the programs, quarterly loss results, including changes in estimated aggregate reinsurance, can create volatility in the current accident year net loss ratio from period to period.
Calendar year and current accident year net loss ratios for the three and nine months ended September 30, 2023 and 2022 were as follows:
Three Months Ended September 30 Nine Months Ended September 30
2023 2022 Change 2023 2022 Change
Calendar year net loss ratio
 74.0  % 64.0  % 10.0   pts 59.0  % 60.3  % (1.3   pts)
Less impact of prior accident years on the net loss ratio
 3.5  % (3.7  %) 7.2   pts (5.7  %) (7.2  %) 1.5   pts
Current accident year net loss ratio
 70.5  % 67.7  % 2.8   pts 64.7  % 67.5  % (2.8   pts)
Less estimated ratio increase (decrease) attributable to:
Change in estimated aggregate reinsurance (1)
 1.0  % 1.3  % (0.3   pts) 1.3  % 1.6  % (0.3   pts)
Current accident year net loss ratio, excluding the effect of the change in estimated aggregate reinsurance 69.5  % 66.4  % 3.1   pts 63.4  % 65.9  % (2.5   pts)
(1) See additional information regarding the SPC's aggregate reinsurance agreements in our Liquidity section under the heading "Operating Activities and Related Cash Flows."
The current accident year net loss ratios, excluding the effect of changes in estimated aggregate reinsurance, increased in the 2023 three-month period and decreased in the 2023 nine-month period as compared to the same respective periods of 2022. The increase in the current accident year net loss ratio for the 2023 three-month period reflected an increase in the healthcare professional liability current accident year net loss ratio, partially offset by a decrease in the workers' compensation current accident year net loss ratio. The decrease in the current accident year net loss ratio for the 2023 nine-month period reflected a decrease in the workers' compensation current accident year net loss ratio, partially offset by an increase in the healthcare professional liability current accident year net loss ratio. The increase in the healthcare professional liability current accident year net loss ratios for the 2023 three- and nine-month periods primarily reflected an increase in expected claim frequency related to one program in which we do not participate. The decrease in the workers' compensation current accident year net loss ratios for the 2023 three- and nine-month periods primarily reflects a reduction in claim frequency and severity, partially offset by the continuation of intense price competition and the resulting renewal rate decreases.
Calendar year incurred losses (excluding IBNR) ceded to our external reinsurers increased $0.2 million and decreased $7.0 million for the three and nine months ended September 30, 2023, respectively, as compared to the same respective periods of 2022. Current accident year ceded incurred losses (excluding IBNR) increased $0.3 million and decreased $6.5 million for the 2023 three- and nine-month periods, respectively, as compared to the same respective periods of 2022.
We recognized net unfavorable prior year reserve development of $0.3 million and favorable prior year reserve development of $2.6 million for the three and nine months ended September 30, 2023, respectively, as compared to favorable prior year reserve development of $0.6 million and $3.8 million for the same respective periods of 2022. The development for the 2023 three- and nine-month periods includes net favorable development in the workers' compensation business of $1.1 million and $3.9 million, respectively, and net unfavorable development of $1.4 million in each period in the healthcare professional liability business. The net favorable development related to the workers' compensation business reflected overall favorable trends in claim closing patterns primarily in accident years 2018 through 2021. The net unfavorable development in the healthcare professional liability business primarily reflected higher than expected claim frequency in one program in which we do not participate in the underwriting results. The development for the 2022 three- and nine-month periods includes net favorable development in the workers' compensation business of $1.3 million and $4.6 million, respectively, partially offset by net unfavorable development of $0.7 million in each period in the healthcare professional liability business. The net favorable development in the workers' compensation business reflected overall favorable trends in claim closing patterns primarily in accident years 2016 through 2020. The net unfavorable development in the healthcare professional liability business primarily reflected higher than expected claim frequency in one program in which we do not participate.
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Underwriting, Policy Acquisition and Operating Expenses
Our Segregated Portfolio Cell Reinsurance segment underwriting, policy acquisition and operating expenses were comprised as follows:
Three Months Ended September 30 Nine Months Ended September 30
($ in thousands) 2023 2022 Change 2023 2022 Change
DPAC amortization $ 3,152  $ 5,067  $ (1,915) (37.8  %) $ 13,759  $ 15,219  $ (1,460) (9.6  %)
Policyholder dividend expense 119  57  62  108.8  % 259  135  124  91.9  %
Other underwriting and operating expenses 397  475  (78) (16.4  %) 1,223  (151) 1,374  909.9  %
Total
 $ 3,668  $ 5,599  $ (1,931) (34.5  %) $ 15,241  $ 15,203  $ 38  0.2  %
DPAC amortization primarily represents ceding commissions, which vary by program and are paid to our Workers' Compensation Insurance and Specialty P&C segments for premiums assumed. Ceding commissions include an amount for fronting fees, commissions, premium taxes and risk management fees, which are reported as an offset to underwriting, policy acquisition and operating expenses within our Workers' Compensation Insurance and Specialty P&C segments. In addition, ceding commissions paid to our Workers' Compensation Insurance segment include cell rental fees which are recorded as other income and claims administration fees which are recorded as ceded ULAE within our Workers' Compensation Insurance segment. The decrease in DPAC amortization in the 2023 three- and nine-month periods as compared to the same respective periods of 2022 primarily reflected a decrease in earned premium, as discussed above under the heading "Net Premiums Earned."
The increase in policyholder dividend expense for the 2023 three- and nine-month periods as compared to the same respective periods of 2022 primarily reflects changes in estimated dividends for one SPC program, in which we do not participate in the underwriting results.
Other underwriting and operating expenses primarily include bank fees, professional fees and changes in the allowance for expected credit losses. Other underwriting and operating expenses remained relatively unchanged for the 2023 three-month period and increased for the 2023 nine-month period due to the collection in 2022 of a large customer account balance that was previously written off in 2021. Excluding the impact of a reduction in the allowance for credit losses, other underwriting and operating expenses for the 2023 nine-month period were relatively unchanged as compared to the same period of 2022.
Underwriting Expense Ratio (the Expense Ratio)
The underwriting expense ratio included the impact of the following:
Three Months Ended September 30 Nine Months Ended September 30
2023 2022 Change 2023 2022 Change
Underwriting expense ratio, as reported 54.2% 31.4% 22.8 pts 33.0% 28.5% 4.5 pts
Less: impact of audit premium on expense ratio (5.1%) (2.2%) (2.9 pts) (1.9%) (2.2%) 0.3 pts
Underwriting expense ratio, excluding the effect of audit premium 59.3% 33.6% 25.7 pts 34.9% 30.7% 4.2 pts
Excluding the effect of audit premium, the underwriting expense ratios increased for the 2023 three- and nine-month periods as compared the same respective periods of 2022. The increase in the underwriting expense ratio for the 2023 three-month period primarily reflected the reversal of ceding commissions related to the cancellation of tail coverage previously recognized during the second quarter of 2023. The increase in the underwriting expense ratio for the 2023 nine-month period was primarily driven by the prior year impact of a reduction in the allowance for credit losses for one program in which we do not participate in the underwriting results, as previously discussed.
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Segment Results - Corporate
Our Corporate segment includes our investment operations excluding those reported in our Segregated Portfolio Cell Reinsurance segment as discussed in Note 16 of the Notes to Consolidated Financial Statements in our December 31, 2022 report on Form 10-K. In addition, this segment includes corporate expenses, interest expense, U.S. and U.K. income taxes and non-premium revenues generated outside of our insurance entities. As previously discussed under the heading "ProAssurance Overview," we reorganized our segment reporting in the third quarter of 2023. As a result, the investment results of assets solely allocated to our Lloyd's Syndicate operations and U.K. income taxes which were previously reported in our Lloyd’s Syndicates segment are now reported in our Corporate segment. All prior period segment information has been recast to conform to the current period presentation. See further information regarding our segments in Note 13 of the Notes to Condensed Consolidated Financial Statements.
Segment results for the three and nine months ended September 30, 2023 exclude the change in fair value of contingent consideration and, for the nine months ended September 30, 2022, transaction-related costs including the associated income tax benefit related to the NORCAL acquisition as we do not consider these items in assessing the financial performance of the segment. We did not incur any transaction-related costs during the three and nine months ended September 30, 2023 or the three months ended September 30, 2022. For additional information on the NORCAL acquisition see Note 2 of the Notes to Consolidated Financial Statements in our December 31, 2022 report on Form 10-K. Segment results for our Corporate segment were net earnings of $22.1 million and $63.3 million for the three and nine months ended September 30, 2023, respectively, as compared to $3.0 million and $6.1 million for the same respective periods of 2022 and included the following:
Three Months Ended September 30 Nine Months Ended September 30
($ in thousands) 2023 2022 Change 2023 2022 Change
Net investment income
 $ 32,153  $ 24,451  $ 7,702  31.5  % $ 93,089  $ 66,515  $ 26,574  40.0  %
Equity in earnings (loss) of unconsolidated subsidiaries
 $ (61) $ (6,852) $ 6,791  99.1  % $ 5,450  $ 5,948  $ (498) (8.4  %)
Net investment gains (losses)
 $ (3,677) $ (7,530) $ 3,853  51.2  % $ (3,174) $ (41,427) $ 38,253  92.3  %
Other income
 $ 2,847  $ 4,695  $ (1,848) (39.4  %) $ 5,347  $ 10,386  $ (5,039) (48.5  %)
Operating expense
 $ 8,344  $ 8,921  $ (577) (6.5  %) $ 24,823  $ 26,679  $ (1,856) (7.0  %)
Interest expense
 $ 5,514  $ 5,513  $ 1  —  % $ 16,478  $ 14,872  $ 1,606  10.8  %
Income tax expense (benefit)
 $ (4,655) $ (2,673) $ (1,982) (74.1  %) $ (3,901) $ (6,232) $ 2,331  37.4  %
Net Investment Income, Equity in Earnings (Loss) of Unconsolidated Subsidiaries, Net Investment Gains (Losses)
Net Investment Income
Net investment income is primarily derived from the income earned by our fixed maturity securities and also includes dividend income from equity securities, income from our short-term and cash equivalent investments, earnings from other investments and changes in the cash surrender value of BOLI contracts, net of investment fees and expenses.
Net investment income (loss) by investment category was as follows:
Three Months Ended September 30 Nine Months Ended September 30
($ in thousands) 2023 2022 Change 2023 2022 Change
Fixed maturities $ 28,035  $ 23,437  $ 4,598  19.6  % $ 82,669  $ 66,485  $ 16,184  24.3  %
Equities 1,158  846  312  36.9  % 3,070  2,514  556  22.1  %
Short-term investments, including Other 4,156  1,736  2,420  139.4  % 10,948  2,864  8,084  282.3  %
BOLI 668  421  247  58.7  % 1,784  635  1,149  180.9  %
Investment fees and expenses (1,864) (1,989) 125  (6.3  %) (5,382) (5,983) 601  (10.0  %)
Net investment income $ 32,153  $ 24,451  $ 7,702  31.5  % $ 93,089  $ 66,515  $ 26,574  40.0  %
Fixed Maturities
Income from our fixed maturities increased during the 2023 three- and nine-month periods as compared to the same respective periods of 2022 driven by higher average book yields as we continue to reinvest at higher rates as our portfolio matures. However, average investment balances were approximately 2.7% and 1.5% lower for the 2023 three- and nine-month periods, respectively, as compared to the same respective periods of 2022 as we have reduced the rate of reinvestment in order to allow for additional cash availability, primarily related to operating costs and the repurchase of our stock. See additional information on our operating cash flows in the Liquidity section under the heading "Cash Flows." Average yields for our fixed maturity portfolio were as follows:
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Three Months Ended September 30 Nine Months Ended September 30
  2023 2022 2023 2022
Average income yield 3.1% 2.5% 3.0% 2.4%
Average tax equivalent income yield 3.1% 2.5% 3.0% 2.4%
Short-term Investments and Other Investments
Short-term investments, which have a maturity at purchase of one year or less are carried at fair value, which approximates their cost basis, and are primarily composed of investments in U.S. treasury obligations, commercial paper, money market funds and a certificate of deposit. Income from our short-term and other investments increased during the 2023 three- and nine-month periods as compared to the same respective periods of 2022 primarily due to higher yields given the increase in interest rates.
BOLI
We hold BOLI policies that are carried at the current cash surrender value of the policies, which includes the BOLI policies acquired from NORCAL. All insured individuals were members of ProAssurance or NORCAL management at the time the policies were acquired. Income from our BOLI policies increased in the 2023 three- and nine-month periods as compared to the same respective periods of 2022 primarily attributable to an increase in the cash surrender value.
Equity in Earnings (Loss) of Unconsolidated Subsidiaries
Equity in earnings (loss) of unconsolidated subsidiaries was comprised as follows:
Three Months Ended September 30 Nine Months Ended September 30
($ in thousands) 2023 2022 Change 2023 2022 Change
All other investments, primarily investment fund LPs/LLCs
 $ 368  $ (4,688) $ 5,056  107.8  % $ 7,744  $ 12,347  $ (4,603) (37.3  %)
Tax credit partnerships (429) (2,164) 1,735  (80.2  %) (2,294) (6,399) 4,105  (64.2  %)
Equity in earnings (loss) of unconsolidated subsidiaries $ (61) $ (6,852) $ 6,791  99.1  % $ 5,450  $ 5,948  $ (498) (8.4  %)
We hold interests in certain LPs/LLCs that generate earnings from trading portfolios, secured debt, debt securities, multi-strategy funds and private equity investments. The performance of the LPs/LLCs is affected by the volatility of equity and credit markets. For our investments in LPs/LLCs, we record our allocable portion of the partnership operating income or loss as the results of the LPs/LLCs become available, typically following the end of a reporting period. Our investment results from our portfolio of investments in LPs/LLCs for the 2023 three-month period as compared to the same period of 2022 increased primarily due to the performance of a few LPs/LLCs primarily due to a higher market valuation during the second quarter of 2023. The decrease in our investment results for our portfolio of investments in LPs/LLCs for the 2023 nine-month period as compared to the same period of 2022 was driven by to the performance of several LPs which reflected lower market valuations during the fourth quarter of 2022 and first quarter of 2023.
Our tax credit partnership investments are designed to generate returns in the form of tax credits and tax-deductible project operating losses and are comprised of qualified affordable housing project tax credit partnerships and a historic tax credit partnership. We account for our tax credit partnership investments under the equity method and record our allocable portion of the operating losses of the underlying properties based on estimates provided by the partnerships. For our qualified affordable housing project tax credit partnerships, we adjust our estimates of our 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. The results from our tax credit partnership investments for the three and nine months ended September 30, 2023 reflected lower partnership operating losses as compared to the same respective periods of 2022.
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The tax benefits received from our tax credit partnerships, which are not reflected in our investment results, reduced our tax expense in 2023 and 2022 as follows:
Three Months Ended September 30 Nine Months Ended September 30
(In millions) 2023 2022 2023 2022
Tax credits recognized during the period $ 0.4  $ 1.2  $ 0.5  $ 3.6 
Tax benefit of tax credit partnership operating losses $ 0.1  $ 0.5  $ 0.5  $ 1.3 
For the three and nine months ended September 30, 2023 we generated $0.4 million and $0.5 million, respectively, of tax credits from our tax credit partnership investments which were deferred to be utilized in future periods due to our expected consolidated loss calculated on a tax basis. For the three and nine months ended September 30, 2022 the tax credits generated from our tax credit partnership investments of $1.2 million and $3.6 million were deferred to be utilized in future periods, respectively. Not included in the table above is $2.2 million of tax credits recaptured from the 2019 tax year during the nine months ended September 30, 2023 due to the carryback of our estimated NOL for 2023 to the 2021 tax year. The recaptured tax credits were earned in 2019 but not utilized until 2021 due to NOL's generated in both 2019 and 2020. As of September 30, 2023, we had approximately $53.4 million of available tax credit carryforwards generated from our investments in tax credit partnerships which we expect to utilize in future periods.
Tax credits provided by the underlying projects of our 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.
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Net Investment Gains (Losses)
The following table provides detailed information regarding our net investment gains (losses).
Three Months Ended September 30 Nine Months Ended September 30
(In thousands) 2023 2022 2023 2022
Total impairment losses
Corporate debt $ —  $ —  $ (2,984) $ (972)
Asset-backed securities (141) —  (133) — 
Portion of impairment losses recognized in other comprehensive income before taxes:
Corporate debt —  —  —  419 
Net impairment losses recognized in earnings (141) —  (3,117) (553)
Gross realized gains, available-for-sale fixed maturities 254  142  793  1,511 
Gross realized (losses), available-for-sale fixed maturities (285) (54) (1,509) (2,047)
Net realized gains (losses), trading fixed securities 5  (31) (101) (127)
Net realized gains (losses), equity investments (7) —  (7) (5,928)
Net realized gains (losses), other investments (683) 209  (2,570) 99 
Change in unrealized holding gains (losses), trading fixed securities (70) (100) 81  (881)
Change in unrealized holding gains (losses), equity investments (3,893) (5,925) (3,532) (19,272)
Change in unrealized holding gains (losses), convertible securities, carried at fair value as a part of other investments (588) (1,441) 3,473  (14,499)
Other 1,731  (330) 3,315  270 
Net investment gains (losses) $ (3,677) $ (7,530) $ (3,174) $ (41,427)
For the three and nine months ended September 30, 2023, we recognized a nominal amount and $3.1 million of credit-related impairment losses in earnings, respectively. We did not recognize any non-credit impairment losses in OCI during the three and nine months ended September 30, 2023. The credit-related impairment losses recognized during the three and nine months ended September 30, 2023 related to a mortgage-backed security and, for the 2023 nine-month period, two corporate bonds in the financial sector. For the three months ended September 30, 2022 we did not recognize any credit-related impairment losses in earnings or non-credit impairment losses in OCI. For the nine months ended September 30, 2022, we recognized credit-related impairment losses in earnings of $0.6 million and non-credit impairment losses in OCI of $0.4 million. The credit-related and non-credit impairment losses in OCI during the nine months ended September 30, 2022 related to a corporate bond in the consumer sector.
During the 2023 three- and nine-month periods, we recognized $3.7 million and $3.2 million of net investment losses, respectively, driven by unrealized holding losses resulting from changes in the fair value of our equity investments, partially offset by death benefit proceeds from BOLI contracts and, for the 2023 nine-month period, unrealized holding gains resulting from changes in the fair value of our convertible securities. During the 2022 three- and nine-month periods, we recognized $7.5 million and $41.4 million of net investment losses, respectively, driven by unrealized holding losses resulting from changes in the fair value of our equity investments and convertible securities and, for the 2022 nine-month period, realized losses from the sale of equity investments.

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Other Income
Other income was $2.8 million and $5.3 million for the 2023 three- and nine-month periods, respectively, as compared to $4.7 million and $10.4 million during the same respective periods of 2022. The decrease in other income for the 2023 three- and nine-month periods was driven by the effect of foreign currency exchange rate changes of $1.4 million and $6.6 million, respectively, related to foreign currency denominated loss reserves associated with premium assumed from an international medical professional liability insured in our Specialty P&C segment. We mitigate foreign exchange exposure by generally matching the currency and duration of associated investments to the corresponding loss reserves. In accordance with GAAP, the impact on the market value of available-for-sale fixed maturities due to changes in foreign currency exchange rates is reflected as part of OCI. Conversely, the impact of changes in foreign currency exchange rates on loss reserves is reflected through net income (loss) as a component of other income. The effect of exchange rate changes on foreign currency denominated loss reserves are reported in our Corporate segment to be consistent with the reporting of the foreign currency denominated invested assets and associated investment income. Excluding the impact of foreign currency exchange rate changes in all periods, other income decreased $0.5 million for the 2023 three-month period and increased $1.5 million for the 2023 nine-month period as compared to the same respective periods of 2022. Other income for the 2023 nine-month period included proceeds of $1.4 million associated with the sale of a portion of our ownership interest in the underwriting and operations entity associated with Syndicate 1729 to an unrelated third party during the second quarter of 2023.
Operating Expenses
Corporate segment operating expenses were comprised as follows:
Three Months Ended September 30 Nine Months Ended September 30
($ in thousands) 2023 2022 Change 2023 2022 Change
Operating expenses $ 10,023  $ 10,806  $ (783) (7.2  %) $ 29,481  $ 31,963  $ (2,482) (7.8  %)
Management fee offset (1,679) (1,885) 206  (10.9  %) (4,658) (5,284) 626  (11.8  %)
Total $ 8,344  $ 8,921  $ (577) (6.5  %) $ 24,823  $ 26,679  $ (1,856) (7.0  %)
Operating expenses decreased for the 2023 three- and nine-month periods as compared to the same respective periods of 2022 driven by a decrease in compensation-related costs and, to a lesser extent, a decrease in professional fees. The decrease in compensation-related costs during the 2023 three- and nine-month periods primarily reflected lower amounts accrued for performance-related incentive plans due to the decline of the related performance metrics. In addition, the decrease in compensation-related costs during the 2023 nine-month period reflected a decrease in segment headcount due to organizational structure changes and the movement of certain employees to the Specialty P&C segment beginning in the third quarter of 2022. The decrease in professional fees during the 2023 three- and nine-month periods was primarily attributable to a decrease in consulting fees and, to a lesser extent, employee placement fees as a result of filling open positions across the organization in 2022.
Core domestic operating subsidiaries within our Specialty P&C segment and our Workers' Compensation Insurance segment are charged a management fee by the Corporate segment for services provided to these subsidiaries. The management fee is based on the extent to which services are provided to the subsidiary and the amount of premium written by the subsidiary. Under the arrangement, the expenses associated with such services are reported as expenses of the Corporate segment, and the management fees charged are reported as an offset to Corporate operating expenses. While the terms of the arrangement were generally consistent between 2023 and 2022, fluctuations in the amount of premium written by each subsidiary can result in corresponding variations in the management fee charged to each subsidiary during a particular period.
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Interest Expense
Consolidated interest expense for the three and nine months ended September 30, 2023 and 2022 was comprised as follows:
Three Months Ended September 30 Nine Months Ended September 30
($ in thousands) 2023 2022 Change 2023 2022 Change
Senior Notes due 2023 $ 3,357  $ 3,357  $ —  —  % $ 10,071  $ 10,071  $ —  —  %
Contribution Certificates (including accretion)(1)
 1,910  1,906  4  0.2  % 5,652  5,438  214  3.9  %
Revolving Credit Agreement (including fees and amortization)(2)
 247  250  (3) (1.2  %) 755  768  (13) (1.7  %)
(Gain)/loss on interest rate cap —  —  —  nm —  (1,405) 1,405  nm
Interest expense $ 5,514  $ 5,513  $ 1  —  % $ 16,478  $ 14,872  $ 1,606  10.8  %
(1) Includes accretion of approximately $0.5 million and $1.4 million for the three and nine months ended September 30, 2023, respectively, as compared to $0.4 million and $1.3 million during the same respective periods of 2022, which is recorded as an increase to interest expense as a result of the difference between the recorded acquisition date fair value and the principal balance of the Contribution Certificates associated with our acquisition of NORCAL.
(2) There were no outstanding borrowings on our Revolving Credit Agreement during the three and nine months ended September 30, 2023 or 2022. Interest expense in both the 2023 and 2022 three- and nine-month periods primarily reflected unused commitment fees.
Consolidated interest expense was unchanged for the three months ended September 30, 2023 and increased during the nine months ended September 30, 2023 as compared to the same respective periods of 2022. The increase in consolidated interest expense for the nine months ended September 30, 2023 was driven by the prior year impact of the change in fair value of our interest rate cap which was terminated in the second quarter of 2022. See further discussion on our previous interest rate cap agreement in Note 3 of the Notes to Consolidated Financial Statements in our December 31, 2022 report on Form 10-K and further discussion on our outstanding debt in Note 8 of the Notes to Condensed Consolidated Financial Statements.
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Taxes
Tax expense allocated to our Corporate segment includes U.S. and U.K. tax expense, including U.S. tax expense incurred from our corporate membership in Lloyd's of London, if any. The SPCs at Inova Re, one of our Cayman Islands reinsurance subsidiaries, have each made a 953(d) election under the U.S. Internal Revenue Code and are subject to U.S. federal income tax; therefore, tax expense allocated to our Corporate segment also includes tax expense incurred from any SPC at Inova Re in which we have a participation interest of 80% or greater as those SPCs are required to be included in our consolidated tax return. Consolidated tax expense (benefit) reflects the tax expense (benefit) of both segments and the tax impact of items excluded from segment reporting, as shown in the table below:
Three Months Ended
September 30		 Nine Months Ended
September 30
(In thousands) 2023 2022 2023 2022
Corporate segment income tax expense (benefit)
 $ (4,655) $ (2,673) $ (3,901) $ (6,232)
Income tax expense (benefit) - transaction-related costs* —  —  —  (391)
Consolidated income tax expense (benefit)
 $ (4,655) $ (2,673) $ (3,901) $ (6,623)
*Represents the income tax benefit associated with the transaction-related costs related to our acquisition of NORCAL that are not included in a segment as we do not consider these costs in assessing the financial performance of any of our operating or reportable segments. See Note 13 of the Notes to Condensed Consolidated Financial Statements for a reconciliation of our segment results to our consolidated results.
Listed below are the primary factors affecting our consolidated effective tax rate for the three and nine months ended September 30, 2023 and 2022. These factors include the following:
Three Months Ended September 30
  2023 2022
($ in thousands) Income tax (benefit) expense Rate Impact Income tax (benefit) expense Rate Impact
Computed "expected" tax expense (benefit) at statutory rate
 $ (11,359) 21.0  % $ (2,478) 21.0  %
Tax-exempt income (1)
 (387) 0.7  % (291) 2.5  %
Tax credits (401) 0.7  % (1,201) 10.2  %
Non-U.S. operating results (95) 0.2  % 37  (0.2  %)
Non-taxable contingent consideration (2)
 (315) 0.6  % —  —  %
Goodwill impairment (3)
 9,263  (17.1  %) —  —  %
Estimated annual tax rate differential (4)
 (1,573) 2.9  % 1,933  (16.4  %)
Other 212  (0.4  %) (673) 5.6  %
Total income tax expense (benefit) $ (4,655) 8.6  % $ (2,673) 22.7  %
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Nine Months Ended September 30
2023 2022
($ in thousands) Income tax (benefit) expense Rate Impact Income tax (benefit) expense Rate Impact
Computed "expected" tax expense (benefit) at statutory rate
 $ (10,265) 21.0  % $ (4,403) 21.0  %
Tax-exempt income (1)
 (891) 1.8  % (767) 3.7  %
Tax credits (473) 1.0  % (3,604) 17.2  %
Non-U.S. operating results (298) 0.7  % (140) 0.8  %
Non-taxable contingent consideration (2)
 (1,155) 2.4  % — —  %
Goodwill impairment (3)
 9,263  (18.9  %) — —  %
Estimated annual tax rate differential (4)
 —  —  % 1,933 (9.2  %)
Other (82) —  % 358 (1.9  %)
Total income tax expense (benefit) $ (3,901) 8.0  % $ (6,623) 31.6  %
(1) Includes tax-exempt interest, dividends received deduction and change in cash surrender value of BOLI.
(2) Represents the tax impact of the $1.5 million and $5.5 million for the three and nine months ended September 30, 2023, respectively, decrease in the contingent consideration liability issued in connection with the NORCAL acquisition, all of which are non-taxable. See further discussion on the contingent consideration in Note 2 of the Notes to Condensed Consolidated Financial Statements and in Note 2 of the Notes to Consolidated Financial Statements in our December 31, 2022 report on Form 10-K.
(3) Represents the tax impact of the impairment of non-deductible goodwill in relation to the Workers' Compensation Insurance reporting unit during the third quarter of 2023 (see further discussion on the impairment charge under the heading "Goodwill / Intangibles" in the Critical Accounting Estimates section and in Note 5 of the Notes to Condensed Consolidated Financial Statements).
(4) Represents the tax rate differential between our actual effective tax rate for the three and nine months ended September 30, 2022 and our projected annual effective tax rate as of September 30, 2022 as calculated under the estimated annual effective tax rate method. There was no tax rate differential recorded for the nine months ended September 30, 2023 as we utilized the discrete effective tax rate method at September 30, 2023 (see further discussion on this method in the Critical Accounting Estimates section under the heading "Estimation of Taxes/Tax Credits").
For the three and nine months ended September 30, 2023, the provision (benefit) for income taxes and the effective tax rate were determined utilizing the discrete effective tax rate method for recording the provision (benefit) for income taxes which treats the income tax expense (benefit) for the period as if it were the income tax expense (benefit) for the full year and determines the income tax expense (benefit) on that basis. For the three and nine months ended September 30, 2022 we utilized the estimated annual effective tax rate method which is based upon our current estimate of our annual effective tax rate at the end of each quarterly reporting period (the projected annual effective tax rate) plus the impact of certain discrete items that are not included in the projected annual effective tax rate. See further discussion on these methods utilized to compute interim taxes in the Critical Accounting Estimates section under the heading "Estimation of Taxes/Tax Credits" and in Note 4 of the Notes to Condensed Consolidated Financial Statements.
Our effective tax rates for both the 2023 three- and nine-month periods were different from the statutory federal income tax rate of 21% primarily due to a $44.1 million goodwill impairment recognized in relation to the Workers' Compensation Insurance reporting unit during the third quarter of 2023, all of which is non-deductible. See further discussion on this goodwill impairment in Note 5 of the Notes to Condensed Consolidated Financial Statements. In addition, our effective tax rates for both the 2023 three- and nine-month periods were impacted by the $1.5 million and $5.5 million, respectively, decrease in the contingent consideration liability related to the NORCAL acquisition, all of which was non-taxable. See further discussion on our contingent consideration in Note 2 of the Notes to Condensed Consolidated Financial Statements. Our effective tax rates for both the 2022 three- and nine-month periods were different from the statutory federal income tax rate of 21% primarily due to the benefit recognized from the tax credits transferred to us from our tax credit partnership investments. There were no other individually significant items impacting our effective tax rates for the 2023 and 2022 three- and nine-month periods.
Our effective tax rate for the 2022 nine-month period, as shown in the table above, differed from our projected annual effective tax rate of 9.6% due to certain discrete items. When we utilize the estimated annual effective tax rate method, certain items are treated as discrete items and are reflected in the effective tax rate in the period in which they are included in net income (loss). These discrete items increased our effective tax rate by 22.0% for the 2022 nine-month period mainly due to the treatment of net investment losses. This treatment of net investment losses of $40.4 million for the nine months ended September 30, 2022 in our Corporate segment, excluding the investment results of assets solely allocated to Lloyd's Syndicate operations, accounted for an increase of 21.9% in the effective tax rate. The remaining discrete items that affected our effective tax rate for the 2022 nine-month period was comprised of individually insignificant components.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We believe that we are principally exposed to two types of market risk: interest rate risk and credit risk. We have limited exposure to foreign currency risk as we issue few insurance contracts denominated in currencies other than the U.S. dollar and we have few monetary or non-monetary assets or obligations denominated in foreign currencies.
Interest Rate Risk
Investments
Our fixed maturities portfolio is exposed to interest rate risk. Fluctuations in interest rates have a direct impact on the market valuation of these securities. As interest rates rise, market values of fixed income portfolios fall and vice versa. Certain of the securities are held in an unrealized loss position; we do not intend to sell and believe we will not be required to sell any debt security held in an unrealized loss position before its anticipated recovery. If recovery is not anticipated, we will record an impairment loss through earnings either by establishing a credit allowance or by directly reducing the security's amortized cost basis if there is an intent to sell.
The following tables summarize estimated changes in the fair value of our available-for-sale fixed maturity securities for specific hypothetical changes in interest rates by asset class at September 30, 2023 and December 31, 2022. There are principally two factors that determine interest rates on a given security: changes in the level of yield curves and credit spreads. As different asset classes can be affected in different ways by movements in those two factors, we have separated our portfolio by asset class in the following tables.
Interest Rate Shift in Basis Points
September 30, 2023
($ in millions) (200) (100) Current 100 200
Fair Value:
Fixed maturities, available-for-sale:
U.S. Treasury obligations $ 252  $ 245  $ 238  $ 231  $ 225 
U.S. Government-sponsored enterprise obligations 20  20  19  18  18 
State and municipal bonds 472  454  436  418  401 
Corporate debt 1,777  1,719  1,664  1,611  1,561 
Asset-backed securities 1,059  1,029  998  968  939 
Total fixed maturities, available-for-sale $ 3,580  $ 3,467  $ 3,355  $ 3,246  $ 3,144 
Duration:
Fixed maturities, available-for-sale:
U.S. Treasury obligations 3.04 2.96 2.89 2.82 2.76
U.S. Government-sponsored enterprise obligations 3.48 3.45 3.39 3.32 3.23
State and municipal bonds 3.85 3.93 4.06 4.19 4.26
Corporate debt 3.41 3.38 3.33 3.27 3.20
Asset-backed securities 2.79 2.90 2.95 2.97 2.97
Total fixed maturities, available-for-sale 3.26 3.28 3.28 3.27 3.24

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Interest Rate Shift in Basis Points
December 31, 2022
($ in millions) (200) (100) Current 100 200
Fair Value:
Fixed maturities, available-for-sale:
U.S. Treasury obligations $ 236  $ 229  $ 222  $ 215  $ 208 
U.S. Government-sponsored enterprise obligations 21  21  20  19  19 
State and municipal bonds 476  458  439  422  404 
Corporate debt 1,919  1,848  1,781  1,718  1,658 
Asset-backed securities 1,072  1,041  1,010  979  949 
Total fixed maturities, available-for-sale $ 3,724  $ 3,597  $ 3,472  $ 3,353  $ 3,238 
Duration:
Fixed maturities, available-for-sale:
U.S. Treasury obligations 3.41 3.36 3.30 3.25 3.20
U.S. Government-sponsored enterprise obligations 3.41 3.45 3.43 3.38 3.32
State and municipal bonds 3.91 3.99 4.10 4.21 4.30
Corporate debt 3.79 3.74 3.68 3.60 3.52
Asset-backed securities 2.76 2.87 2.97 3.00 3.01
Total fixed maturities, available-for-sale 3.48 3.50 3.50 3.48 3.45
Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including the maintenance of the existing level and composition of fixed income security assets, and should not be relied on as indicative of future results.
Certain shortcomings are inherent in the method of analysis presented in the computation of the fair value of fixed rate instruments. Actual values may differ from the projections presented should market conditions vary from assumptions used in the calculation of the fair value of individual securities, including non-parallel shifts in the term structure of interest rates and changing individual issuer credit spreads.
At September 30, 2023, our fixed maturities portfolio includes fixed maturities classified as trading securities which do not have a significant amount of exposure to market interest rates or credit spreads.
Our cash and short-term investments at September 30, 2023 were carried at fair value which approximates their cost basis due to their short-term nature. Our cash and short-term investments lack significant interest rate sensitivity due to their short duration.
Debt
We are exposed to interest rate risk due to variability in the base rate on borrowings under our amended Revolving Credit Agreement and Term Loan. See further information regarding the amended Revolving Credit Agreement and Term Loan in Note 8 of the Notes to Condensed Consolidated Financial Statements. Borrowings under our amended Revolving Credit Agreement and Term Loan accrue interest at a selected SOFR base rate, adjusted by a margin. To manage our exposure to interest rate risk on any borrowings under these agreements, we entered into two Interest Rate Swaps which effectively fix the base rate on borrowings under the amended Revolving Credit Agreement and Term Loan to 3.187% and 3.207%, respectively. See further information regarding the Interest Rate Swaps in Note 8 of the Notes to Condensed Consolidated Financial Statements. As of September 30, 2023, no borrowings were outstanding under our Revolving Credit Agreement.
Defined Benefit Pension Plan
We are exposed to certain economic risks related to the costs of our defined benefit pension plan, including changes in discount rates for high quality corporate bonds and changes in the expected return on plan assets. See further discussion in our December 31, 2022 report on Form 10-K within Item 7, Management's Discussion and Analysis, in the Critical Accounting Estimates section under the heading "Pension." We have exposure to credit risk primarily as a holder of fixed income securities.
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Credit Risk
We control this exposure by emphasizing investment grade credit quality in the fixed income securities we purchase.
As of September 30, 2023, 92% of our fixed maturity securities were rated investment grade as determined by NRSROs, such as Fitch, Moody’s and Standard & Poor’s. We believe that this concentration in investment grade securities reduces our exposure to credit risk on our fixed income investments to an acceptable level. However, investment grade securities, in spite of their rating, can rapidly deteriorate and result in significant losses. Ratings published by the NRSROs are one of the tools used to evaluate the creditworthiness of our securities. The ratings reflect the subjective opinion of the rating agencies as to the creditworthiness of the securities; therefore, we may be subject to additional credit exposure should the ratings prove to be unreliable.
We also have exposure to credit risk related to our premiums receivable and receivables from reinsurers; however, to-date we have not experienced any significant amount of credit losses. At September 30, 2023, our premiums receivable was approximately $279 million, net of an allowance for expected credit losses of approximately $8 million. See Note 1 of the Notes to Consolidated Financial Statements in our December 31, 2022 report on Form 10-K for further information on our allowance for expected credit losses related to our premiums receivable. Our receivables from reinsurers (with regard to both paid and unpaid losses) approximated $445 million at September 30, 2023 and $447 million at December 31, 2022. We monitor the credit risk associated with our reinsurers using publicly available financial and rating agency data. We have not historically experienced material credit losses due to the financial condition of a reinsurer, and as of September 30, 2023 our expected credit losses associated with our receivables from reinsurers were nominal in amount.
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ITEM 4. CONTROLS AND PROCEDURES.
The principal executive officer and principal financial officer of the Company participated in management’s evaluation of our disclosure controls and procedures (as defined in SEC Rule 13a-15(e)) as of September 30, 2023. ProAssurance’s disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to our management as appropriate to allow timely decisions regarding disclosure and is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Based on that evaluation, the principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There have been no significant changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, those controls during the quarter.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See Note 7 of the Notes to Condensed Consolidated Financial Statements.
ITEM 1A. RISK FACTORS.
Our results may differ materially from those we expect and discuss in any forward-looking statements. The principal risk factors that may cause these differences are described in "Item 1A, Risk Factors" in our December 31, 2022 report on Form 10-K and other documents we file with the SEC, such as our current reports on Form 8-K. There have been no material changes to the "Risk Factors" disclosed in Part 1, Item 1A of ProAssurance's December 31, 2022 report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(a)Not applicable.
(b)Not applicable.
(c)Information required by Item 703 of Regulation S-K.
Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs* (In thousands)
July 1 - July 31, 2023 653,587  $15.61 653,587  $76,102
August 1 - August 31, 2023 449,677  $17.85 449,677  $67,987
September 1 - September 30, 2023 646,246  $18.50 646,246  $55,902
Total 1,749,510  $17.25 1,749,510 
*Under its current plan begun in November 2010, the Board has authorized $600 million for the repurchase of common shares or the retirement of outstanding debt. This is ProAssurance’s only plan for the repurchase of common shares, and the plan has no expiration date.
ITEM 5. OTHER INFORMATION
During the three months ended September 30, 2023, no director or officer of the Company adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, as each term is defined in Item 408(a) of Regulation S-K.
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ITEM 6. EXHIBITS
Exhibit Number   Description
Amendment to Subsidiaries of ProAssurance Corporation effective September 30, 2023.
Certification of Principal Executive Officer of ProAssurance as required under SEC rule 13a-14(a).
Certification of Principal Financial and Accounting Officer of ProAssurance as required under SEC rule 13a-14(a).
Certification of Principal Executive Officer of ProAssurance as required under SEC Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code, as amended (18 U.S.C. 1350).
Certification of Principal Financial and Accounting Officer of ProAssurance as required under SEC Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code, as amended (18 U.S.C. 1350).
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Labels Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PROASSURANCE CORPORATION
November 8, 2023
 
/s/    Dana S. Hendricks
Dana S. Hendricks
Chief Financial Officer
(Duly authorized officer and principal financial officer)
EX-21.1 2 pra-20230930xex211.htm EX-21.1 Document

EXHIBIT 21.1
SUBSIDIARIES OF PROASSURANCE CORPORATION
PRA Professional Liability Group, Inc. (Delaware)(1)
    ProAssurance Indemnity Company, Inc. (Alabama)
        ProAssurance American Mutual, A Risk Retention Group (District of Columbia)(2)
    ProAssurance Casualty Company (Michigan)
    ProAssurance Specialty Insurance Company (Vermont)    
    ProAssurance Insurance Company of America (Illinois)
    IAO, Inc. (Alabama)
    PRA Services Corporation (Michigan)
    Medmarc Casualty Insurance Company (Vermont)
        Hamilton Resources Corporation (Delaware)
    PRACCL Ltd. (United Kingdom)
        PRA Corporate Capital Ltd. (United Kingdom)
ProAssurance Group Services Corporation (Alabama)    
Eastern Insurance Holdings, Inc. (Pennsylvania)
    Eastern Re Ltd, S.P.C. (Cayman Islands)
    Inova Re Ltd, S.P.C. (Cayman Islands)
    Eastern Advantage Assurance Company (Pennsylvania)
    Allied Eastern Indemnity Company (Pennsylvania)
    Eastern Alliance Insurance Company (Pennsylvania)
NORCAL Insurance Company (California)(3)(4)(5)
NORCAL Specialty Insurance Company (Texas)
FD Insurance Company (Florida)
PPM Insurance Services, Inc. (Missouri)
Preferred Physicians Medical Risk Retention Group, a Mutual Insurance Company (Missouri)(6)
Medicus Insurance Holdings, Inc. (Delaware)(7)
Medicus Insurance Company (Texas)

(1) Effective March 31, 2023, PRA Group Holdings, Inc. merged into PRA Professional Liability Group, Inc.
(2) Organized on January 1, 2015 by PRA Indemnity. PRA Indemnity provides all necessary services for the RRG through program management and captive management agreements and is the primary capital provider through a $10 million surplus note. PRA Indemnity also reinsures 95% of the RRG's business through a quota share reinsurance agreement.
(3) All NORCAL companies were acquired as part of ProAssurance's acquisition of NORCAL on May 5, 2021.
(4) Effective July 31, 2022, Insurance Company Managers, LLC and FLDIC Practice Solutions, LLC merged into Florida Doctors Holding Company, LLC. Subsequently, Florida Doctors Holding Company, LLC and NORCAL Management Company merged into NORCAL Insurance Company effective December 31, 2022.
(5) Effective July, 31, 2023, NORCAL Specialty Insurance Services, LLC merged into NORCAL Insurance Company.
(6) PPM Insurance Services, Inc. provides necessary services for Preferred Physicians Medical Risk Retention Group, a Mutual Insurance Company (PPM). NORCAL Insurance Company holds a $5 million surplus note and reinsures 100% of PPM's business through a quota share reinsurance agreement.
(7) Effective November 3, 2022, NORCAL Risk Purchasing Group, Inc. was dissolved.

EX-31.1 3 pra-20230930xex311.htm EX-31.1 Document

Exhibit 31.1
CERTIFICATION
I, Edward L. Rand, Jr., certify that:
1. I have reviewed this report on Form 10-Q of ProAssurance Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 8, 2023
 
/s/ Edward L. Rand, Jr.
Edward L. Rand, Jr.
Chief Executive Officer and
principal executive officer


EX-31.2 4 pra-20230930xex312.htm EX-31.2 Document

Exhibit 31.2
CERTIFICATION
I, Dana S. Hendricks, certify that:
1. I have reviewed this report on Form 10-Q of ProAssurance Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 8, 2023
 
/s/ Dana S. Hendricks
Dana S. Hendricks
Chief Financial Officer and
principal financial officer


EX-32.1 5 pra-20230930xex321.htm EX-32.1 Document

Exhibit 32.1
A signed original of this written statement required by Section 906 has been provided to ProAssurance Corporation and will be retained by ProAssurance Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of ProAssurance Corporation (the “Company”) on Form 10-Q for the quarter ending September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edward L. Rand, Jr., principal executive officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
 
/s/ Edward L. Rand, Jr.
Edward L. Rand, Jr.
Chief Executive Officer and
principal executive officer
November 8, 2023


EX-32.2 6 pra-20230930xex322.htm EX-32.2 Document

Exhibit 32.2
A signed original of this written statement required by Section 906 has been provided to ProAssurance Corporation and will be retained by ProAssurance Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of ProAssurance Corporation (the “Company”) on Form 10-Q for the quarter ending September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dana S. Hendricks, principal financial officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
 
/s/ Dana S. Hendricks
Dana S. Hendricks
Chief Financial Officer, and
principal financial officer
November 8, 2023