2021 Annual Report – Text only

®

2021

Annual Report

Financial Highlights

FISCAL YEARS ENDED DECEMBER 31

2021

2020

2019

2018

2017

Income Statement Highlights

(in thousands)

Gross premiums written

• $ 960,024

  • $ 854,422

    Net premiums earned

• $ 971,668

• $ 792,715

  Total revenues

  $1,124,410

• $ 874,940

  Net losses and loss adjustment expenses

  • $ 752,249

• $ 661,447

Net income (loss)(1)

• $ 144,124

  • $ (175,727)

    $ $ $ $ $

    967,490

    • $ 957,311

      • $ 874,876

        847,532

    • $ 818,853

      • $ 738,531

        999,834

    • $ 886,030

      • $ 866,149

        753,915

    • $ 593,210

      • $ 469,158

        1,004

    • $ 47,057

      • $ 107,264

        Non-GAAP operating income (loss)(2)

• $ 75,892

• $ (27,741)$ (43,779)

• $ 79,527

• $ 108,538

Balance Sheet Highlights

Total investments

Total assets

Reserve for losses and loss adjustment expenses

Debt less unamortized debt issuance costs

Total liabilities

$4,828,323 $6,191,477 $3,579,940 $ 424,986 $4,763,090

$3,389,345 $4,654,803 $2,417,179 $ 284,713 $3,305,593

• $3,390,409 $3,349,382 $3,686,528

• $4,805,599 $4,600,726 $4,929,197

• $2,346,526 $2,119,847 $2,048,381

$ 285,821 $3,293,686

$ 287,757 $3,077,724

$ 411,811 $3,334,402

(1) The 2021 Net Income includes a $74.4 million gain on bargain purchase related to closing the acquisition of NORCAL Insurance Company. The 2020 Net Loss includes a pre-tax net underwriting loss of approximately $45.7 million associated with a tail policy issued to a large national healthcare account and a pre-tax $10 million pandemic-related IBNR reserve, both of which were recorded in the second quarter of 2020, and a $161 million goodwill impairment charge recorded in the third quarter of 2020.

(2) A reconciliation of Net Income (Loss) to Non-GAAP Operating Income (Loss) is provided in Appendix A to the ProAssurance Form 10-K included with this mailing to shareholders.

To My Fellow Shareholders

2021 was a year filled with positive forward momentum for our organization.

It was a year in which we made purposeful strides toward our long-term objectives.We set challenging goals, and we achieved them.

Over the past three years we have focused inward, on reorganizing our operations in response to the challenges of the marketplace and the impact of COVID-19. We have likewise focused our energy on integrating two great organizations, ProAssurance and NORCAL. All of this lays a strong foundation for what I am confident will be a successful 2022 and a very bright future.

I am pleased to outline the components that contributed to our success in 2021.

In May of 2021, we closed the NORCAL transaction, the largest acquisition in company history. It was an important strategic transaction for several reasons, and I would like to expand upon a few of them. First, we added $300 million in gross premiums and new desir-able markets to our Standard Physicians line of business, a historically profitable, low-volatility book of business. Second, we added $1.6 billion to our investment portfolio, and when interest rates begin to rise, the earnings power of our investment portfolio rises with them. Finally, and most importantly, we secured exceptional talent with the addition of NORCAL team members, which is a difference maker in the market place.

Our emphasis in combining ProAssurance and NORCAL has been to identify and maintain the best practices in both organizations, and in doing so we have unlocked over $22 million in expense synergies. Ultimately, this positions us well to leverage the scope, scale and product advantages of a national healthcare professional liability business and redefine our competitive position.

As I said a year ago, the closing of the NORCAL transaction marked the beginning of atransformation at ProAssurance. With just three fiscal quarters of combined results reported as of this writing, we already can validate that statement.

Our successes in 2021 extend beyond the NORCAL acquisition and initial integration. In our legacy ProAssurance book of healthcare professional liability business, results improved substantially year-over-year aswe executed our comprehensive business strategyto address underwriting results, operating efficiency, and expense management. In addition, we benefitted from claim frequency reductions in our physician business driven at least in part by our re-underwriting efforts and the impact of the pandemic. We secured meaningful renewal pricing increases across our Specialty Property & Casualty lines of business, accompanied by solid retention results. We were also pleased with the broad contribution across the segment as our Small Business Unit and Medical Technology business both produced an underwriting profit.

Results in our Workers' Compensation Insurance segment were pressured in 2021 and decreased from 2020 largely due to an increase in loss activity. That said, the increased loss activity experienced during the year was a natural development as workers returned to full employment with the easing of pandemic-related restrictions in our operating territories. Adding fuel to the fire, widespread labor shortages resulted in increased overtime hours by existing employees, reduced skilled job training, and increased alternative work arrangement risks. In short, despite the reduced results in the Workers' Compensation Insurance segment for the year, we're pleased with the work accomplished to date in mitigating effects of an increase in claims activity that could have been felt more keenly otherwise. The decisive actions we took in restructuring our workers' compensation operations in 2020 enabled us to recognize expense efficiencies, partly offsetting the increase in loss activity.

Trends in our Segregated Portfolio Cell Reinsurance segment were consistent with those of the Workers' Compensation Insurance and Specialty Property & Casualty segments, the lines of business which cede premium to the captive cell programs. Our captive cells offer attractive flexibility and controllable expenses to our customers seeking alternative market solutions.

Finally, as we support and grow our core insur-ance operations and seek to reduce volatility in our underlying performance, we reduced our participation in Lloyd's Syndicate 1729 from 29% to 5% for the 2021 underwriting year and ceased underwriting through Syndicate 6131 for the 2022 underwriting year. Since we began scaling down our participation at Lloyd's, we've reduced volatility inherent to the business during years of elevated natural catastrophe losses and pandemic-related risks, while also delivering profitable results for the year. The returns of cash we've received to date from our funds at Lloyd's will be reinvested through our investment portfolio and contribute to our investment income going forward.

As a result of everything we accomplished in 2021, our consolidated results have improved meaningfully year-over-year. With the closure of the NORCAL transaction, and the excellent progress made to date integrating the companies, we have achieved a truly national platform that will enhance the services we can deliver to our customers and distribution partners, while creating significant long-term value for ProAssurance shareholders.

Of course, none of this would be possible without the phenomenal team members here at ProAssurance. The linear nature of the narrative above fails to capture that everything I've described was taking place simultaneously, and amid the uncertainty of an evolving concept of what it means to "go to work" each day. The pandemic conditions of 2020 and 2021 required the majority of our team members to work remotely. I am proud of each and every teammember here at ProAssurance for their individual contributions to our collective success, not just for what they did, but how they did it - with dedication and enthusiasm.

As of March 2022, we have begun returning to our respective offices as part of a steady, measured process. Relationships are one of our core values, and we believe relationships develop better in person.

It is fundamental to the development of successful relationships that we understand one another and show appreciation not only for how we are alike but also for how we are different. To that end, we deepened our commitment toDiversity, Equity and Inclusionin 2021 with the identification of various strategic priorities that will enhance our hiring practices, provide learning and development opportunities for all team members and enable us to attract and retain the diverse talent that will be absolutely essential for our future success.

Our mission has been clear from the beginning -we exist to Protect Others. Long before it was formalized in the ProAssurance Way, this simple yet powerful declaration guided every decision we made, and does so to this day.

Our duty of protection extends to our employees, shareholders, and communities. Therefore, we recognize that being a "successful" company depends upon more than just what we report in our financial statements.

Building upon our history of excellence, ProAssurance is committed to being a company that is successful by any definition - and we know the best is yet to come.

Sincerely,

President & Chief Executive Officer

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ProAssurance Corporation published this content on 03 May 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 03 May 2022 21:09:03 UTC.