Newswires
PROASSURANCE CORP – 10-K – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion generally focuses on the change in financial condition, results of operations and cash flows for the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 and should be read in conjunction with the Consolidated Financial Statements and Notes to those statements which accompany this report. For a full discussion of the changes in the financial condition, results of operations and cash flows for the year endedDecember 31, 2021 as compared to the year endedDecember 31, 2020 , please refer to Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" section ofProAssurance's December 31, 2021 report on Form 10-K. 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," "organization," "we," "us" and "our" refer toProAssurance 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.
Enterprise Risk Management
As a property and casualty insurance provider, we are exposed to many risks stemming from both our insurance operations and the environments in which we operate. Since certain risks can be correlated with other risks, an event or a series of events can impact multiple areas of the Company simultaneously and have a material effect on the Company's results of operations, financial position and/or liquidity. In response to these exposures we have implemented an ERM program. Our ERM program consists of numerous processes and controls that have been designed by our senior management with oversight by our Board and implemented across our organization. We utilize our ERM program to identify potential risks from all aspects of our operations and to evaluate these risks in a manner that is both prudent and balanced. Our primary objective is to develop a risk appetite that creates and preserves value for all of our stakeholders.
Management Risk Oversight
We have a risk management framework that recognizes the risks inherent in our operating segments as well as the risks associated with the operations of our holding company that is overseen by our Chief Executive Officer. The risk management process is managed by corporate executives in each line of business who are responsible for our key risk areas, including adequacy of loss reserves; defense of claims and the litigation process; the quality of investments supporting our reserves and capital; compliance with regulatory and financial reporting requirements; concentration in our insurance lines of business; and information privacy and data security. Our Chief Executive Officer and members of executive management are responsible for identifying material risks associated with these and other risk areas and for establishing and monitoring risk management solutions that address levels of risk appetite and risk tolerance that are recommended by management and reviewed by the Board. Our internal auditing department is responsible for reviewing and testing these risk management solutions.
Board of Directors Role in Risk Oversight
The Board is responsible for ensuring that our ERM process is in place and functioning. It reviews the ERM process established by management and monitors the functioning of the process, including management's assessment of the most significant enterprise-level risks identified in the ERM process. The Audit Committee has the primary oversight responsibility for risks relating to financial reporting and cybersecurity. We have established lines of communication between the Audit Committee, our independent auditor, internal auditor and management that enable the Audit Committee to perform its oversight function. ProAssurance OverviewProAssurance 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 atLloyd's of London . We operate in five segments which 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: Specialty P&C,Workers' Compensation Insurance , Segregated Portfolio Cell Reinsurance, Lloyd's Syndicates and Corporate. Additional information onProAssurance's five operating and reportable segments is included in Note 16 of the Notes to Consolidated Financial Statements, Part I and in the Segment Results sections herein that follow. 34
--------------------------------------------------------------------------------
Table of Contents
Growth Opportunities and Outlook
Over the long-term we expect our growth to come primarily through controlled expansion of our existing operations. In addition, we may identify opportunities for growth through the acquisition of other insurers, service providers or books of business. OnMay 5, 2021 , we completed our acquisition ofNORCAL Insurance Company . The NORCAL acquisition continues to contribute to top line growth, representing approximately 27% of consolidated gross premiums written in 2022. We believe this transaction delivers strategic value through the acquisition of customers, talent, distribution partners and expanded geographic footprint and scale. This supports a national platform to deliver value to our customers, business partners and other stakeholders. See further discussion on the NORCAL acquisition in Note 2 of the Notes to Consolidated Financial Statements. We operate in very competitive markets and face strong competition from other insurance companies for all of our insurance products. Our Specialty P&C segment includes our HCPL insurance which represents the largest product line in our consolidated gross premiums written (58% in 2022). The Specialty P&C segment also includes our Medical Technology Liability (4% in 2022) and Small Business Unit (9% in 2022) lines of business. The healthcare market in theU.S. is continuing to consolidate, which brings competitive challenges and opportunities. This consolidation initially took the form of hospitals acquiring physician practices and later the growth of physician groups owned by outside investors. As these trends continue, most physicians no longer practice medicine as owners of an independent practice. Large single and multi-specialty practices often operate in many states. Healthcare delivery settings are changing with the growth of retail delivery by allied healthcare professionals as well as physicians in distributed clinics, pharmacies, large consumer stores and online. These larger commercial enterprises have differing risk management needs from those in the traditional small physician practices. In response to these trends, we have enhanced our coverage offerings to fit the needs of combined hospital/physician entities, multi-state medical groups, telemedicine companies, miscellaneous facilities, allied healthcare professionals and self-insured entities even as we continue to service that portion of the market maintaining more traditional practice structures. Our Medical Technology Liability and Small Business Unit lines of business are less affected by these consolidation trends. Our operations at Eastern, a provider of workers' compensation insurance, represents the second largest product line in our consolidated gross premiums written (22% in 2022, including alternative market premiums). The workers' compensation market is highly competitive in our operating territories and multi-line insurers continue to leverage workers' compensation in their product offerings, which has resulted in a reduction of new business writings. We believe our workers' compensation product offerings allow us to provide flexibility in offering solutions to our customers at a competitive price. In addition, we believe that our claims handling and risk management services are attractive to our customers and provide us with a competitive advantage even when our pricing is higher than our competitors, which has contributed to strong renewal retention. Our Lloyd's Syndicates segment represents 2% of our consolidated gross premiums written in 2022. Our participation in Syndicate 1729 for the 2014 through 2022 underwriting years has ranged from a low of 5% to a high of 62%. For the 2023 underwriting year, our participation in the results of Syndicate 1729 remains unchanged at 5%. We believe our emphasis on the fair treatment of our insureds and other important stakeholders through our commitment to "Treated Fairly" has enhanced our market position and differentiated us from other insurers. We will continue to uphold our values of integrity, leadership, relationships and enthusiasm in all of our activities. We will honor these values in the execution of "Treated Fairly" to perform our Mission and realize our Vision. We believe that as we reach more customers with this message we will continue to improve retention and add new insureds. Key Performance Measures We are committed to disciplined underwriting, pricing and loss reserving practices as well as an effective investment strategy, even during difficult market conditions. We are also committed to maintaining prudent operating and financial leverage. We recognize the importance that our customers and producers place on the financial strength of our insurance subsidiaries, and we manage our business to protect our financial security.
In evaluating our performance, we consider a number of performance measures,
including the following:
•The net loss ratio which is calculated as net losses and loss adjustment
expenses incurred divided by net premiums earned and is a component of
underwriting profitability.
•The underwriting expense ratio which is calculated as underwriting, policy acquisition and operating expenses incurred divided by net premiums earned and is a component of underwriting profitability.
•The combined ratio which is the sum of the net loss ratio and the underwriting
expense ratio and measures underwriting profitability.
•The investment income ratio which is calculated as net investment income
divided by net premiums earned and measures the contribution investment earnings
provide to our overall profitability.
35
--------------------------------------------------------------------------------
Table of Contents
•The operating ratio which is the combined ratio, less the investment income ratio. This ratio provides the combined effect of underwriting profitability and investment income.
•The tax ratio which is calculated as total income tax expense (benefit) divided
by income (loss) before income taxes and measures our effective tax rate.
•Non-GAAP operating income (loss) 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 that do not reflect normal results, such as net investment gains (losses), transaction-related costs, the 2021 gain on bargain purchase and guaranty fund assessments. 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. See a reconciliation to its GAAP counterpart in the Executive Summary of Operations section under the heading "Non-GAAP Financial Measures" that follows.
•ROE which is calculated as net income (loss) divided by the average of
beginning and ending shareholders' equity. This ratio measures our overall
after-tax profitability and shows how efficiently capital is being used.
•Non-GAAP operating ROE is calculated as Non-GAAP operating income (loss) for the period divided by the average of beginning and ending total GAAP shareholders' equity. 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. See a reconciliation to its GAAP counterpart in the Executive Summary of Operations section under the heading "Non-GAAP Financial Measures" that follows. •Book value per share which is calculated as total shareholders' equity at the balance sheet date divided by the total number of common shares outstanding. This ratio measures the net worth of the Company to shareholders on a per-share basis. The declaration of dividends decreases book value per share. Growth in book value per share, adjusted for dividends declared, is an indicator of overall profitability. •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. See a reconciliation to its GAAP counterpart in the Executive Summary of Operations section under the heading "Non-GAAP Financial Measures" that follows. In particular, we focus on our combined ratio and investment returns, both of which directly affect our ROE and growth in our book value. Currently, we target a dynamic long-term ROE of 700 basis points above the 10-yearU.S. Treasury rate, which atDecember 31, 2022 was approximately 10.9%. To achieve our long-term ROE target, we emphasize rate adequacy, selective underwriting, effective claims management, operational efficiency gained by leveraging our enhanced scope and scale and prudent investment management. We closely monitor premium revenues, losses and loss adjustment expenses, and underwriting and policy acquisition expenses. Our overall investment strategy is to focus on maximizing current income from our investment portfolio while maintaining appropriate credit risk, liquidity, duration, portfolio diversification and capital efficiency. While we engage in activities that generate other income, these activities, such as insurance agency services, do not constitute a significant use of our resources or a significant source of revenues or profits. 36
--------------------------------------------------------------------------------
Table of Contents
Critical Accounting Estimates
Our 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. 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
The largest component of our liabilities is our reserve for losses and loss
adjustment expenses ("reserve for losses" or "reserve"), and the largest
component of expense for our operations is incurred losses and loss adjustment
expenses (also referred to as "losses and loss adjustment expenses," "incurred
losses," "losses incurred" and "losses"). Incurred losses reported in any period
reflect our estimate of losses incurred related to the premiums earned in that
period as well as any changes to our previous estimate of the reserve required
for prior periods.
As of December 31, 2022 , our reserve is comprised almost entirely of long-tail
exposures. The estimation of long-tailed losses is inherently complex and is
subject to significant judgment on the part of management. Due to the nature of
our claims, our loss costs, even for claims with similar characteristics, can
vary significantly depending upon many factors, including but not limited to the
specific characteristics of the claim and the manner in which the claim is
resolved. Long-tailed insurance is characterized by the extended period of time
typically required both to assess the viability of a claim and potential
damages, if any, and to reach a resolution of the claim. The claims resolution
process may extend to more than five years. Further, the industry has
experienced new conditions, including the effect of the postponement of court
cases and changes in settlement trends as a result of COVID-19. The combination
of continually changing conditions and the extended time required for claim
resolution results in a loss cost estimation process that requires actuarial
skill and the application of significant judgment, and such estimates require
periodic modification.
Our reserve is established by management after taking into consideration a
variety of factors including premium rates, historical paid and incurred loss
development trends and our evaluation of the current loss environment including
frequency, severity, expected effects of monetary and social inflation, general
economic and social trends, and the legal and political environment. The effect
of COVID-19 on recent historical trends regarding timing and severity of claims
may also impact certain of these factors and our ultimate estimation of losses.
We also take into consideration the conclusions reached by our internal and
consulting actuaries. We update and review the data underlying the estimation of
our reserve for losses each reporting period and make adjustments to loss
estimation assumptions that we believe best reflect emerging data. Both our
internal and consulting actuaries perform an in-depth review of our reserve for
losses on at least a semi-annual basis using the loss and exposure data of our
insurance subsidiaries.
We partition our reserves by accident year, which is the year in which the claim
becomes our liability. For claims-made policies, the insured event generally
becomes a liability when the event is first reported to us. For occurrence
policies, the insured event becomes a liability when the event takes place. For
retroactive coverages, the insured event becomes a liability at inception of the
underlying contract. As claims are incurred (reported) and claim payments are
made, they are aggregated by accident year for analysis purposes. We also
partition our reserves by reserve type: case reserves and IBNR reserves. Case
reserves are established by our claims departments based upon the particular
circumstances of each reported claim and represent our estimate of the future
loss costs (often referred to as expected losses) that will be paid on reported
claims. Case reserves are decremented as claim payments are made and are
periodically adjusted upward or downward as estimates regarding the amount of
future losses are revised; reported loss for an individual claim is the case
reserve at any point in time plus the claim payments that have been made to
date. IBNR reserves are estimated by accident year and represent our estimate in
the aggregate of future development on losses that have been reported to us and
our estimate of losses that have been incurred but not reported to us.
Our reserving process can be broadly grouped into three areas: the establishment
of the reserve for the current accident year (the initial reserve), the
re-estimation of the reserve for prior accident years (development of prior
accident years) and the establishment of the initial reserve for risks assumed
in business combinations, applicable only in periods in which acquisitions occur
(the acquired reserve). A summary of the activity in our net reserve for losses
during 2022 and 2021 is provided under the heading "Losses" in the Liquidity and
Capital Resources and Financial Condition section that follows.
37
--------------------------------------------------------------------------------
Table of Contents
Current Accident Year - Initial Reserve
Considerable judgment is required in establishing our initial reserve for any current accident year period, as there is limited data available upon which to base our estimate (see further discussion that follows under the heading "Use of Judgment"). Our process for setting an initial reserve considers the unique characteristics of each product, but in general we rely heavily on the loss assumptions that were used to price business, as our pricing reflects our analysis of loss costs that we expect to incur relative to the insurance product being priced. Specialty P&C Segment. Loss costs within this segment are impacted by many factors including but not limited to the nature of the claim, including whether or not the claim is an individual or a mass tort claim, the personal situation of the claimant or the claimant's family, the outcome of jury trials, the legislative and judicial climate where any potential litigation may occur, general economic and social trends and the trend of healthcare costs. Within our Specialty P&C segment, for our professional liability business (88% of our consolidated gross reserve for losses and loss adjustment expenses as ofDecember 31, 2022 ; predominately comprised of our HCPL products), we set an initial reserve based upon our evaluation of the current loss environment including frequency, severity, monetary inflation, social inflation and legal trends. The current accident year net loss ratio in the Specialty P&C segment has ranged from 83% to 106% in the past five years. We observed a reduction in claims frequency that started to emerge in 2020, some of which was due to our re-underwriting efforts and some of which, we believe, was associated with the COVID-19 pandemic including the disruption of the court systems. Given the consistent and prolonged nature of these favorable trends, we recognized these favorable frequency trends in our HCPL current accident year reserve during the third and fourth quarters of 2021. Further, we reduced certain expected NORCAL loss ratios during the fourth quarter of 2021 and the third and fourth quarters of 2022 due to favorable frequency trends which, we believe, is primarily attributable to our re-underwriting efforts. While NORCAL claims frequency is generally down, we observed higher than anticipated loss emergence in our HCPL line of business in select jurisdictions, primarily in the Standard Physician line, which we recognized in our HCPL current accident year reserve during the fourth quarter of 2022. See further discussion in our Segment Results - Specialty Property & Casualty section that follows under the heading "Losses and Loss Adjustment Expenses." The risks insured in our Medical Technology Liability business (2% of our consolidated gross reserve for losses and loss adjustment expenses as ofDecember 31, 2022 ) are more varied, and policies are individually priced based on the risk characteristics of the policy and the account. The insured risks range from startup operations to large multinational entities, and the larger entities often have significant deductibles or self-insured retentions. Reserves are established using our most recently developed actuarial estimates of losses expected to be incurred based on factors which include results from prior analysis of similar business, industry indications, observed trends and judgment. Claims in this line of business primarily involve bodily injury to individuals and are affected by factors similar to those of our HCPL line of business. For the Medical Technology Liability business, we also establish an initial reserve using a loss ratio approach, including a provision in consideration of historical loss volatility that this line of business has exhibited. Workers' Compensation Insurance Segment. Many factors affect the ultimate losses incurred for our workers' compensation coverages (5% of our consolidated gross reserve for losses and loss adjustment expenses as ofDecember 31, 2022 ) including but not limited to the type and severity of the injury, the age, health and occupation of the injured worker, the estimated length of disability, medical treatment and related costs, and the jurisdiction and workers' compensation laws of the state of the injury occurrence. We use various actuarial methodologies in developing our workers' compensation reserve, combined with a review of the payroll exposure base. For the current accident year, given the lack of seasoned information, the different actuarial methodologies produce results with significant variability; therefore, more emphasis is placed on supplementing results from the actuarial methodologies with trends in exposure base, medical expense inflation, general inflation, severity, and claim counts, among other things, to select an ultimate loss indication. The current accident year net loss ratio in theWorkers' Compensation Insurance segment was 71.8% in 2022, which was lower than the 2021 loss ratio of 74.0%, reflecting improved claim frequency and severity trends. The current accident year net loss ratio in 2021 reflected higher claim activity as workers returned to employment with the easing of pandemic-related restrictions in our operating territories, including the impact of labor shortages on the existing workforce. Segregated Portfolio Cell Reinsurance Segment. The factors that affect the ultimate losses incurred for the workers' compensation and HCPL coverages assumed by the SPCs at Inova Re and Eastern Re (2% of our consolidated gross reserve for losses and loss adjustment expenses as ofDecember 31, 2022 ) are consistent with that of ourWorkers' Compensation Insurance and Specialty P&C segments, respectively. Lloyd's Syndicates Segment. Initial reserves for Syndicate 1729 are primarily recorded using the loss assumptions by risk category incorporated into the Syndicate's business plan submitted to Lloyd's with consideration given to loss experience incurred to date (3% of our consolidated gross reserve for losses and loss adjustment expenses as ofDecember 31, 2022 ). The assumptions used in each business plan are consistent with loss results reflected in Lloyd's historical data for similar risks. The 38
--------------------------------------------------------------------------------
Table of Contents
loss ratio may also fluctuate due to the mix of earned premium from different open underwriting years which we participate in to varying degrees, as well as the timing of earned premium adjustments. Such adjustments may be the result of premiums for certain policies and assumed reinsurance contracts being reported subsequent to the coverage period and may be subject to adjustment based on loss experience. Premium and exposure for some of Syndicate 1729's insurance policies and reinsurance contracts are initially estimated and subsequently recorded over an extended period of time as reports are received under delegated underwriting authority programs. When reports are received, the premium, exposure and corresponding loss estimates are revised accordingly. Changes in loss estimates due to premium or exposure fluctuations are incurred in the accident year in which the premium is earned. For significant property catastrophe exposures, Syndicate 1729 uses third-party catastrophe models to accumulate a listing of potentially affected policies. Each identified policy is given an estimate of loss severity based upon a combination of factors including the probable maximum loss of each policy, market share analytics, underwriting judgment, client/broker estimates and historical loss trends for similar events. These models are inherently uncertain, reliant upon key assumptions and management judgment and are not always a representation of actual events and ensuing potential loss exposure. Determination of actual losses may take an extended period of time until claims are reported and resolved, including coverage litigation.
Development of Prior Accident Years
In addition to setting the initial reserve for the current accident year, we
reassess the amount of reserve required for prior accident years each period.
The foundation of our reserve re-estimation process is an actuarial analysis that is performed by both our internal and consulting actuaries. This very detailed analysis projects ultimate losses based on partitions which include line of business, geography, coverage layer and accident year. The procedure uses the most representative data for each partition, capturing its unique patterns of development and trends. We believe that the use of consulting actuaries provides an independent view of our loss data as well as a broader perspective on industry loss trends. For the Specialty P&C,Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance segments, the analysis performed by the consulting actuaries analyzes each partition of our business in a variety of ways and uses multiple actuarial methodologies in performing these analyses, including: •Bornhuetter-Ferguson (Paid and Reported) Method •Paid Development Method •Reported (Incurred) Development Method •Average Paid Value Method •Average Reported Value Method
A brief description of each method follows.
Bornhuetter-Ferguson Method. We use both the Paid and the Reported Bornhuetter-Ferguson Methods. The Paid Method assigns partial weight to initial expected losses for each accident year (initial expected losses being the first established case and IBNR reserves for a specific accident year) and partial weight to paid to date losses. The Reported Method assigns partial weight to the initial expected losses and partial weight to current reported losses. The weights assigned to the initial expected losses decrease as the accident year matures.Paid Development and Reported (Incurred) Development Methods. These methods use historical, cumulative losses (paid losses for the Paid Development Method, reported losses for the Reported (Incurred) Development Method) by accident year and develop those actual losses to estimated ultimate losses based upon the assumption that each accident year will develop to estimated ultimate cost in a manner that is analogous to prior years, adjusted as deemed appropriate for the expected effects of known changes in the claim payment environment (and case reserving environment for the Reported (Incurred) Development Method); and to the extent necessary, supplemented by analyses of the development of broader industry data. Average Paid Value and Average Reported Value Methods. In these methods, average claim cost data (paid claim cost for the Average Paid Value Method and reported claim cost for the Reported Value Method) is developed to an ultimate average cost level by report year based on historical data. Claim counts are similarly developed to an ultimate count level. The average claim cost (after rounding and adjustment, if necessary, to accommodate report year data that is not considered to be predictive) is then multiplied by the ultimate claim counts by report year to derive ultimate loss and ALAE. Generally, methods such as the Bornhuetter-Ferguson Method are used on more recent accident years where we have less data on which to base our analysis. As time progresses and we have an increased amount of data for a given accident year, we begin to give more confidence to the development and average methods, as these methods typically rely more heavily on our own historical data. These methods emphasize different aspects of loss reserve estimation and provide a variety of perspectives for our decisions. 39
--------------------------------------------------------------------------------
Table of Contents
Certain of the methodologies utilized to estimate the ultimate losses for each partition of our reserves consider the actual amounts paid. Paid data is particularly influential when a large portion of known claims have been closed, as is the case for older accident years. In selecting a point estimate for each partition, management considers the extent to which trends are emerging consistently for all partitions and known industry trends. Thus, actual, rather than estimated severity trends are given more consideration. If actual severity trends are lower than those estimated at the time that reserves were previously established, the recognition of favorable development is indicated. This is particularly true for older accident years where our actuarial methodologies give more weight to actual loss costs (severity). The various actuarial methods discussed above are applied in a consistent manner from period to period. In addition, we perform statistical reviews of claims data such as claim counts, average settlement costs and severity trends when establishing our reserves. We utilize the selected point estimates of ultimate losses to develop estimates of ultimate losses recoverable from reinsurers, based on the terms and conditions of our reinsurance agreements. An overall estimate of the amount receivable from reinsurers is determined by combining the individual estimates. Our net reserve estimate is the gross reserve point estimate less the estimated reinsurance recovery. For ourWorkers' Compensation Insurance segment and for the workers' compensation exposures in our Segregated Portfolio Cell Reinsurance segment, we utilize the Reported (Incurred) Development Method, Paid Development Method and Bornhuetter-Ferguson Method, to develop our reserve for each accident year. The actuarial review includes the stratification of claims data (lost time claims, medical only claims) using different variations that allow us to identify trends that may not be readily identifiable if the data was evaluated only in the aggregate. Reported and paid loss development factors are key assumptions in the reserve estimation process and are based on our historical reported and paid loss development patterns. As accident years mature, the various actuarial methodologies produce more consistent loss estimates.
For our Lloyd's Syndicates segment we rely on the analysis of actual loss
experience on the book of business written by Syndicate 1729 to determine loss
development by accident year.
Acquired Reserve The acquisition of NORCAL onMay 5, 2021 increased our gross reserves by$1.2 billion which was the fair value of NORCAL's gross loss reserve at the time of acquisition. The fair value estimate of NORCAL's gross reserve for losses and loss adjustment expenses was based on three components: an actuarial estimate of the expected future net cash flows, a reduction to those cash flows for the time value of money determined utilizing theU.S. Treasury Yield Curve and a risk margin adjustment to reflect the net present value of profit that an investor would demand in return for the assumption of the development risk associated with the reserve. The fair value of NORCAL's gross reserve, including the risk margin adjustment, exceeded the actuarial estimate of NORCAL's undiscounted gross loss reserve by approximately$42.2 million as ofMay 5, 2021 . This fair value adjustment was recorded to the reserve for losses and loss adjustment expenses and will be amortized over a period utilizing loss payment patterns as a reduction to prior accident year net losses and loss adjustment expenses. We also recorded other adjustments to NORCAL's reserve as a result of purchase accounting including negative VOBA on NORCAL's assumed unearned premium and assumed DDR reserve. See further discussion on these other purchase accounting adjustments in Note 2 of the Notes to Consolidated Financial Statements.
Use of Judgment
The process of estimating reserves involves a high degree of judgment and is
subject to a number of variables. These variables can be affected by both views
of internal and external events, such as changes in views of monetary and social
inflation, legal trends and legislative changes, as well as differentiating
views of individuals involved in the reserve estimation process, among others.
We continually refine our estimates in a regular, ongoing process as historical
loss experience develops and additional claims are reported and settled. Our
objective is to consider all significant facts and circumstances known at the
time.
Our loss reserves may be impacted by social inflation, which is generally
described as the rising costs of insurance claims resulting from factors
including, but not limited to, increasing litigation, broader definitions of
liability, more plaintiff-friendly legal decisions, jury behavior, and larger
compensatory jury awards and non-economic damages. These factors could lead to
greater than anticipated claims and claim handling expenses which could exceed
our established reserves causing us to increase our loss reserves.
40
--------------------------------------------------------------------------------
Table of Contents
The effects of monetary inflation could cause the cost of claims to rise in the future. Our loss reserves include assumptions about future payments for settlement of claims and claims handling expenses, such as medical treatments and litigation costs. To the extent inflation causes these costs to increase above reserves established for these claims, we will be required to increase our loss reserves with a corresponding reduction in our financial results in the period in which the need for additional reserves is identified. We use various actuarial methods in the process of setting reserves. Each actuarial method generally returns a different value, and for the more recent accident years the variations among the various methodologies can be significant. In order to project ultimate losses, we partition our reserves for analysis such as by line of business, geography, coverage layer or accident year. For each partition of our reserves, we evaluate the results of the various methods, along with the supplementary statistical data regarding such factors as closed with and without indemnity ratios, claim severity trends, the expected duration of such trends, changes in the legal and legislative environment and the current economic environment to develop a point estimate based upon management's judgment and past experience. The series of selected point estimates is then combined to produce an overall point estimate for ultimate losses. HCPL. Over the past several years the most influential factor affecting the analysis of our HCPL reserves and the related development recognized has been an observed increase in claim severity for the broader medical professional liability industry as well as higher initial loss expectations on incurred claims. The severity trend is an explicit component of our pricing models and directly impacts the reserving process. Our estimate of this trend and our expectations about changes in this trend impact a variety of factors, from the selection of expected loss ratios to the ultimate point estimates established by management. Because of the implicit and wide-ranging nature of severity trend assumptions on the loss reserving process, it is not practical to specifically isolate the impact of changing severity trends. However, because severity is an explicit component of our HCPL pricing process we can better isolate the impact that changing severity can have on our loss costs and loss ratios in regards to our pricing models for this business component. Our current HCPL pricing models assume severity trends in the range of 2% to 6% depending on state, territory and specialty. In some portions of our HCPL business we have observed and reflected higher severity trends in our estimates of losses and loss adjustment expenses. Due to the long-tailed nature of our claims and the previously discussed historical volatility of loss costs, selection of a severity trend assumption is a subjective process that is inherently likely to prove inaccurate over time. Given the long tail and volatility, we are generally cautious in making changes to the severity assumptions within our pricing models. All open claims and accident years are generally impacted by a change in the severity trend, which compounds the effect of such a change. Although the future degree and impact of the ultimate severity trend remains uncertain due to the long-tailed nature of our business, we have given consideration to observed loss costs in setting our rates. For our HCPL business, this practice had generally resulted in rate reductions as claim frequency declined and remained at historically low levels. However, from early 2017 to the current period, the average pricing on renewed business has steadily increased reflective of the rising loss cost environment, and we anticipate further renewal pricing increases due to increasing loss severity. Another factor affecting our analysis of our HCPL reserves and the related development recognized is the reduction in claims frequency that started to emerge in 2020, some of which was due to our re-underwriting efforts and some of which, we believe, was associated with the COVID-19 pandemic, as previously discussed. In 2020, we established a$10 million IBNR reserve related to COVID-19. Given the consistent and prolonged nature of the favorable claims frequency trend and the fact that early first notices of potential claims related to anticipated COVID-19 losses have not turned into claims, we reduced our COVID-19 IBNR reserve by$9 million and$1 million in 2022 and 2021, respectively. As ofDecember 31, 2022 , we no longer carry a specific IBNR reserve for potential COVID-19 related losses. Workers' Compensation. The projection of changes in claim severity trend has not historically been an influential factor affecting our analysis of workers' compensation reserves, as claims are typically resolved more quickly than the industry norm. As previously mentioned, the determination and calculation of loss development factors requires considerable judgment. 41
--------------------------------------------------------------------------------
Table of Contents
Professional Liability
Our professional liability line of business includes both our HCPL and Small Business Unit lines, with our HCPL line representing the largest component of our reserve. Our HCPL line of business also includes the business acquired through the NORCAL transaction that closed onMay 5, 2021 . In support of our concern that the decline in frequency will result in a higher severity trend for our HCPL claims (suits), we saw our closed-with-indemnity-payment ratio (i.e., the number of suits closed with an indemnity or loss payment as compared to the total number of closed suits) for our claims increase from 28% in 2015 to 33% in 2022. The following table presents additional information about the loss development for our professional liability line of business, excluding loss development for HCPL coverages assumed by the SPCs at Inova Re and Eastern Re. Furthermore, loss development for our professional liability line of business for the year endedDecember 31, 2022 includes NORCAL and the year endedDecember 31, 2021 includes NORCAL since the date of acquisition, excluding the amortization of the purchase accounting fair value adjustment in each period: ($ in thousands) 2022 2021 2020 Estimated Ultimate Reserve Reserve Losses, Net of Development Development Reserve Development Reinsurance, (favorable) % of Known (favorable) % of Known (favorable) % of Known Accident Years December 31, 2022 unfavorable Claims Closed unfavorable Claims Closed unfavorable Claims Closed 2022$ 606,906 N/A 26.9 % N/A N/A N/A N/A 2021$ 708,733 $ (5,754) 52.9 % N/A 25.9 % N/A N/A 2020$ 802,923 $ (17,597) 66.7 %$ (4,947) 54.1 % N/A 22.0 % 2019$ 840,353 $ 20,285 83.5 %$ (20,426) 73.7 % $ 1,361 48.7 % 2018$ 821,716 $ 4,491 89.5 % $ 9,418 81.0 % $ 1,218 65.1 % 2017$ 699,144 $ (10,261) 93.3 %$ (2,342) 88.4 % $ (2,741) 77.9 % 2016$ 712,692 $ 1,642 91.0 %$ (2,739) 89.5 % $ (1,760) 88.8 % 2015$ 638,344 $ 5,190 98.1 % $ 6,011 97.1 % $ (4,489) 93.7 % 2014$ 567,219 $ (1,266) 99.0 %$ (1,017) 98.5 % $ (8,930) 96.6 % 2013$ 587,169 $ (2,608) 99.3 % $ (260) 98.9 % $ (133) 98.0 % Prior to 2013$ 8,975,275 $ (8,123) $ (610) $ (3,413) •Development recognized during 2022 principally related to accident years 2017, 2020 and 2021. Net favorable development recognized in 2022 included favorable development related to NORCAL's 2021 accident year. We have not recognized any development related to NORCAL's accident years 2020 or prior since the date of acquisition onMay 5, 2021 based on our comparison of expected loss emergence to actual loss emergence. Net favorable prior accident year reserve development recognized in 2022 was partially offset by unfavorable development recognized in our HCPL line of business, excluding NORCAL, driven by higher than anticipated loss severity trends, which emerged primarily in the fourth quarter of 2022. In addition, we recognized favorable prior year reserve development of$9.0 million in 2022 related to the 2020 accident year associated with our COVID-19 IBNR reserve, as previously discussed, due to the fact that early first notices of potential claims have not turned into claims. •Development recognized during 2021 principally related to accident years 2015 through 2020. We also recognized favorable prior year reserve development of$1.0 million associated with our COVID-19 IBNR reserve.
•Development recognized during 2020 principally related to accident years 2014
through 2017.
•Not included in the table above, is$10.8 million and$7.9 million 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 in 2022 and 2021, respectively. See Note 2 of the Notes to Consolidated Financial Statements for additional information on the NORCAL acquisition and the related purchase accounting adjustments. •Not included in the above table, as previously discussed, is$0.7 million of unfavorable development recognized in 2022 and$2.5 million and$4.4 million of favorable development recognized during 2021 and 2020, respectively, in our Segregated Portfolio Cell Reinsurance segment related to the HCPL coverages assumed by the SPCs at Inova Re and Eastern Re. 42
--------------------------------------------------------------------------------
Table of Contents
This can also be seen in looking at both the absolute amount of reserve development recognized for the less developed accident years as well as the size of such development when compared to established ultimates for those same accident years at the end of the preceding calendar year. The following table provides this information for years endedDecember 31, 2022 , 2021 and 2020 with respect to the three then most recent prior accident years: ($ in millions) 2022 2021 2020 Prior accident years 2019-2021 2018-2020 2017-2019
Net favorable (unfavorable) development
recognized for the specified years $ 3.1 $ 16.0 $
0.2
Development as a % of established
ultimates, prior calendar year end 0.1 % 1.1 % - %
Medical Technology Liability
Our Medical Technology Liability line of business has not experienced the change
in claims frequency previously described for HCPL. However, the nature of the
risks insured and volatility of the loss experience in this line of business has
produced more variable loss development, as presented in the following table:
($ in thousands) 2022 2021 2020
Estimated
Ultimate Losses,
Net of
Reinsurance, Reserve Development Reserve Development Reserve Development
December 31, (favorable) % of Known (favorable) % of Known (favorable) % of Known
Accident Years 2022 unfavorable Claims Closed unfavorable Claims Closed unfavorable Claims Closed
2022 $ 17,683 N/A 16.8 % N/A N/A N/A N/A
2021 $ 14,145 $ (2,759) 53.3 % N/A 32.0 % N/A N/A
2020 $ 12,568 $ (1,921) 70.6 % $ (248) 59.2 % N/A 41.0 %
2019 $ 12,247 $ (1,337) 55.3 % $ 722 47.5 % $ (1,047) 41.8 %
2018 $ 8,554 $ (252) 86.4 % $ (3,091) 85.1 % $ (352) 75.2 %
2017 $ 7,967 $ 1,950 97.1 % $ (2,192) 94.1 % $ (3,854) 90.1 %
2016 $ 9,146 $ 535 98.4 % $ (2,126) 97.3 % $ (486) 96.7 %
2015 $ 7,216 $ (767) 97.6 % $ (638) 97.0 % $ (663) 96.3 %
2014 $ 9,130 $ (244) 99.6 % $ (317) 99.6 % $ (458) 98.9 %
2013 $ 4,550 $ (49) 100.0 % $ (128) 100.0 % $ (294) 100.0 %
Prior to 2013 $ 593,349 $ (156) $ (106) $ (1,439)
•Approximately
recognized in 2022 related to the 2018 through 2021 accident years. The
development for the 2018 through 2021 accident years represents a 11.7%
reduction to the ultimates established for those reserves at
•Approximately
recognized in 2021 related to the 2015 through 2020 accident years. The
development for the 2015 through 2020 accident years represents a 11.3%
reduction to the ultimates established for those reserves at
•Approximately
recognized in 2020 related to the 2017 through 2019 accident years. The
development for the 2017 through 2019 accident years represents a 13.7%
reduction to the ultimates established for those reserves at
•In 2022, 2021 and 2020 the development was largely attributable to favorable
results from claims closed during the year. As time has elapsed we have
recognized that actual loss experience has on average been better than
estimated. We have been cautious in recognizing the improvement, but as claims
have matured and claims are closed or have become more certain for the remaining
open claims, we have revised reserve estimates. We believe the need for a
cautious approach is required as outcomes are uncertain and results can be
significantly affected by outcomes for a small number of cases.
43
--------------------------------------------------------------------------------
Table of Contents
Workers' Compensation
Claims in our workers' compensation line of business have historically closed at
a faster rate than in our HCPL or Medical Technology Liability lines of
business. This faster disposition rate, along with a lower net retention after
the application of reinsurance, has resulted in less volatility in loss
estimates on a net basis. However, a change in the number of individually-severe
claims can create volatility in a given accident year. The following table
presents additional information about the loss development for our workers'
compensation line of business:
($ in thousands) 2022 2021 2020
Estimated
Ultimate Losses,
Net of
Reinsurance, Reserve Development Reserve Development Reserve Development
December 31, (favorable) % of Known (favorable) % of Known (favorable) % of Known
Accident Years 2022 unfavorable Claims Closed unfavorable Claims Closed unfavorable Claims Closed
2022 $ 142,653 N/A 39.8 % N/A N/A N/A N/A
2021 $ 145,907 $ 675 82.6 % N/A 45.4 % N/A N/A
2020 $ 137,728 $ (3,348) 93.8 % $ (1,493) 85.1 % N/A 41.6 %
2019 $ 150,023 $ (4,143) 96.2 % $ (4,030) 92.1 % $ (6,160) 81.6 %
2018 $ 159,152 $ (410) 97.2 % $ (1,503) 95.2 % $ 584 91.7 %
2017 $ 126,325 $ (3,209) 98.2 % $ (2,375) 97.3 % $ (3,372) 96.0 %
2016 $ 107,606 $ (2,179) 98.5 % $ (1,230) 97.8 % $ (3,048) 97.1 %
2015 $ 116,277 $ (1,285) 98.9 % $ (1,538) 98.4 % $ (3,919) 98.0 %
2014 $ 117,001 $ (891) 99.4 % $ (873) 99.3 % $ (2,136) 98.9 %
2013 $ 114,003 $ (377) 99.6 % $ (646) 99.5 % $ (592) 99.5 %
Prior to 2013 $ 657,225 $ 161 $ (1,032) $ (529)
•In 2022, we recognized
development in our Segregated Portfolio Cell Reinsurance segment related to
workers' compensation business.
•In 2021, we recognized
Segregated Portfolio Cell Reinsurance segment related to workers' compensation
business and
Compensation Insurance
•In 2020, we recognized
Segregated Portfolio Cell Reinsurance segment related to workers' compensation
business, and
Compensation Insurance
Variability of Loss Reserves
As previously noted, the number of data points and variables considered and the
subjective process followed in establishing our loss reserve makes it
impractical to isolate individual variables and demonstrate their impact on our
estimate of loss reserves. However, to provide a better understanding of the
potential variability in our reserves, we have modeled implied reserve ranges
around our single point net reserve estimates for our various lines of business
assuming different confidence levels. The ranges have been developed by
aggregating the expected volatility of losses across partitions of our business
to obtain a consolidated distribution of potential reserve outcomes. The
aggregation of this data takes into consideration correlations among our
geographic and specialty mix of business. The result of the correlation approach
to aggregation is that the ranges are narrower than the sum of the ranges
determined for each partition.
We have used this modeled statistical distribution to calculate an 80% and 60%
confidence interval for the potential outcome of our consolidated net reserve
for losses. The high and low end points of the distributions are as follows:
Low End Point Carried Net Reserve
80% Confidence Level
60% Confidence Level
Any change in our estimate of net ultimate losses for prior years is reflected
in net income (loss) in the period in which such changes are made.
Due to the size of our consolidated reserve for losses and the large number of
claims outstanding at any point in time, even a small percentage adjustment to
our total reserve estimate could have a material effect on our results of
operations for the period in which the adjustment is made, as was the case in
2022, 2021 and 2020.
44
--------------------------------------------------------------------------------
Table of Contents
Reinsurance
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, to provide protection against losses in excess of policy limits and, in the case of 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 purchase of reinsurance does not relieve us from the ultimate risk on our policies; however, it does provide reimbursement for certain losses we pay. We make a determination of the amount of insurance risk we choose to retain based upon numerous factors, including our risk tolerance and the capital we have to support it, the price and availability of reinsurance, the volume of business, our level of experience with a particular set of exposures and our analysis of the potential underwriting results. We purchase excess of loss reinsurance to limit the amount of risk we retain and we do so from a number of companies to mitigate concentrations of credit risk. As ofDecember 31, 2022 , there is no reinsurer, on an individual basis, for which our recoverables for both paid and unpaid claims (net of amounts due to the reinsurer) and our prepaid balances are more than$55 million , in the aggregate. We utilize reinsurance brokers to assist us in the placement of these reinsurance programs and in the analysis of the credit quality of our reinsurers. The determination of which reinsurers we choose to do business with is based upon an evaluation of their then current financial strength, rating, stability and claims payment practices. We evaluate each of our ceded reinsurance contracts at inception to confirm that there is sufficient risk transfer to allow the contract to be accounted for as reinsurance under current accounting guidance. AtDecember 31, 2022 , all ceded contracts were accounted for as risk transferring contracts. Our receivable from reinsurers on unpaid losses and loss adjustment expenses represents our estimate of the amount of our reserve for losses that will be recoverable under our reinsurance programs. We base our estimate of funds recoverable upon our expectation of ultimate losses and the portion of those losses that we estimate to be allocable to reinsurers based upon the terms and conditions of our reinsurance agreements. Our assessment of the collectability of the recorded amounts receivable from reinsurers considers the payment history of the reinsurer, publicly available financial and rating agency data, our interpretation of the underlying contracts and policies and responses by reinsurers. Given the uncertainty inherent in our estimates of losses and related amounts recoverable from reinsurers, these estimates may vary significantly from the ultimate outcome. Under the terms of certain of our reinsurance agreements, the amount of premium that we cede to our reinsurers is based in part on the losses we recover under the agreements. Therefore, we make an estimate of premiums ceded under these reinsurance agreements subject to certain minimums and maximums. Any adjustments to our estimates of losses recoverable under our reinsurance agreements or the premiums owed under our agreements are reflected in current operations. Due to the size of our reinsurance balances, an adjustment to these estimates could have a material effect on our results of operations for the period in which the adjustment is made. Our reinsurance receivables are exposed to credit losses but to date have not experienced any significant amount of credit losses. To partially mitigate our exposure to credit losses, reinsurance receivables totaling approximately$90.6 million were collateralized by letters of credit or funds withheld as ofDecember 31, 2022 . We measure expected credit losses on our reinsurance receivables on a collective basis when similar risk characteristics exist or on an individual basis if we determine a receivable does not share similar risk characteristics. We measure expected credit losses associated with our reinsurance receivables (related to both paid and unpaid losses) at the consolidated level as our reinsurance receivables share similar risk characteristics including type of financial asset, type of industry and similar historical and expected credit loss patterns. We measure expected credit losses over the average contractual term of our reinsurance receivables utilizing a loss rate method. Historical internal credit loss experience is the basis for our assessment of expected credit losses; however, we may also consider historical credit loss information from external sources. We also consider reasonable and supportable forecasts of future economic conditions in our estimate of expected credit losses. Expected credit losses associated with our reinsurance receivables (related to both paid and unpaid losses) were nominal in amount as ofDecember 31, 2022 and 2021. No reinsurance balances were written off for credit reasons during the years endedDecember 31, 2022 or 2021. Should our expected credit loss analysis or other facts or circumstances lead us to believe that any reinsurer may not meet its obligations to us, adjustments to the allowance for expected credit losses or to reinsurance receivables would be reflected in current operations. Such an adjustment has the potential to be material to the results of operations in the period in which it is recorded; however, we would not expect such an adjustment to have a material effect on our capital position or our liquidity. For further information on our allowance for expected credit losses related to our receivables from reinsurers see Note 1 of the Notes to Consolidated Financial Statements. 45
--------------------------------------------------------------------------------
Table of Contents
Investment Valuations
We record the majority of our investments at fair value as shown in the table below. AtDecember 31, 2022 , the distribution of our investments based on GAAP fair value hierarchies (levels) was as follows: Distribution by GAAP Fair Value Hierarchy Total Level 1 Level 2 Level 3 Not Categorized Investments Investments recorded at: Fair value 7% 82% 2% 6% 97% Other valuations 3% Total Investments 100%
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. All of our fixed maturity and equity
investments are carried at fair value. The fair value of our short-term
securities approximates the cost of the securities due to their short-term
nature.
Because of the number of securities we own and the complexity of developing accurate fair values, we utilize multiple independent pricing services to assist us in establishing the fair value of individual securities. The pricing services provide fair values based on exchange-traded prices, if available. If an exchange-traded price is not available, the pricing services, if possible, provide a fair value that is based on multiple broker/dealer quotes or that has been developed using pricing models. Pricing models vary by asset class and utilize currently available market data for securities comparable to ours to estimate a fair value for our securities. The pricing services scrutinize market data for consistency with other relevant market information before including the data in the pricing models. The pricing services disclose the types of pricing models used and the inputs used for each asset class. Determining fair values using these pricing models requires the use of judgment to identify appropriate comparable securities and to choose a valuation methodology that is appropriate for the asset class and available data. The pricing services provide a single value per instrument quoted. We review the values provided for reasonableness each quarter by comparing market yields generated by the supplied value versus market yields observed in the marketplace. We also compare yields indicated by the provided values to appropriate benchmark yields and review for values that are unchanged or that reflect an unanticipated variation as compared to prior period values. We utilize a primary pricing service for each security type and compare provided information for consistency with alternate pricing services, known market data and information from our own trades, considering both values and valuation trends. We also review weekly trades versus the prices supplied by the services. If a supplied value appears unreasonable, we discuss the valuation in question with the pricing service and make adjustments if deemed necessary. Historically our review has not resulted in any material changes to the values supplied by the pricing services. The pricing services do not provide a fair value unless an exchange-traded price or multiple observable inputs are available. As a result, the pricing services may provide a fair value for a security in some periods but not others, depending upon the level of recent market activity for the security or comparable securities. Level 1 Investments Fair values for a majority of our equity securities and portions of our short-term and convertible securities are determined using exchange-traded prices. There is little judgment involved when fair value is determined using an exchange-traded price. In accordance with GAAP, we classify securities valued using an exchange-traded price as Level 1 securities.
Level 2 Investments
Most fixed income securities do not trade daily; thus, exchange-traded prices are generally not available for these securities. However, market information (often referred to as observable inputs or market data, including but not limited to, last reported trade, non-binding broker quotes, bids, benchmark yield curves, issuer spreads, two-sided markets, benchmark securities, offers and recent data regarding assumed prepayment speeds, cash flow and loan performance data) is available for most of our fixed income securities. We determine fair value for a large portion of our fixed income securities using available market information. In accordance with GAAP, we classify securities valued based on multiple market observable inputs as Level 2 securities.
When a pricing service does not provide a value for one of our fixed maturity
securities, management estimates fair value using either a single non-binding
broker quote or pricing models that utilize market based assumptions which have
limited observable inputs. The process involves significant judgment in
selecting the appropriate data and modeling techniques to use in the valuation
process. In accordance with GAAP, we classify securities valued using limited
observable inputs as Level 3 securities.
46
--------------------------------------------------------------------------------
Table of Contents
Fair Values Not Categorized
We hold interests in certain investment funds, primarily LPs/LLCs, which measure fund assets at fair value on a recurring basis and provide us with a NAV for our interest. As a practical expedient, we consider the NAV provided to approximate the fair value of the interest. In accordance with GAAP, we do not categorize these investments within the fair value hierarchy.
Nonrecurring Fair Value Measurements
We measure the fair value of certain assets on a nonrecurring basis when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. These assets include investments carried principally at cost, investments in tax credit partnerships, fixed assets, goodwill and other intangible assets. These assets would also include any equity method investments that do not provide a NAV. We did not have any assets or liabilities that were measured at fair value on a nonrecurring basis atDecember 31, 2022 orDecember 31, 2021 .
Investments - Other Valuation Methodologies
Certain of our investments, in accordance with GAAP for the type of investment, are measured using methodologies other than fair value. AtDecember 31, 2022 , these investments represented approximately 3% of total investments, and are detailed in the following table. Additional information about these investments is provided in Note 3 and Note 4 of the Notes to Consolidated Financial Statements. (In millions) Carrying Value GAAP Measurement Method Other investments: Other, principally FHLB capital stock $ 3.3 Principally Cost Investment in unconsolidated subsidiaries: Investments in tax credit partnerships 4.1 Equity Equity method investments, primarily LPs/LLCs 38.6 Equity 42.7 BOLI 81.7 Cash surrender value
Total investments - Other valuation methodologies
Impairments
We evaluate our available-for-sale investment securities, which atDecember 31, 2022 andDecember 31, 2021 consisted entirely of fixed maturity securities, on at least a quarterly basis for the purpose of determining whether declines in fair value below recorded cost basis represent an impairment loss. We consider a credit-related impairment loss to have occurred: •if there is intent to sell the security; •if it is more likely than not that the security will be required to be sold before full recovery of its amortized cost basis; or •if the entire amortized basis of the security is not expected to be recovered. The assessment of whether the amortized cost basis of a security is expected to be recovered requires management to make assumptions regarding various matters affecting future cash flows. The choice of assumptions is subjective and requires the use of judgment. Actual credit losses experienced in future periods may differ from management's current estimates of those credit losses. Methodologies used to estimate the present value of expected cash flows are: The estimate of expected cash flows is determined by projecting a recovery value and a recovery time frame and assessing whether further principal and interest will be received. We consider various factors in projecting recovery values and recovery time frames, including the following: •third-party research and credit rating reports; •the current credit standing of the issuer, including credit rating downgrades, whether before or after the balance sheet date; •the extent to which the decline in fair value is attributable to credit risk specifically associated with the security or its issuer; •internal assessments and the assessments of external portfolio managers regarding specific circumstances surrounding an investment, which indicate the investment is more or less likely to recover its amortized cost than other investments with a similar structure; 47
--------------------------------------------------------------------------------
Table of Contents •for asset-backed securities, the origination date of the underlying loans, the remaining average life, the probability that credit performance of the underlying loans will deteriorate in the future and our assessment of the quality of the collateral underlying the loan; •failure of the issuer of the security to make scheduled interest or principal payments; •any changes to the rating of the security by a rating agency; •recoveries or additional declines in fair value subsequent to the balance sheet date; •adverse legal or regulatory events; •significant deterioration in the market environment that may affect the value of collateral (e.g., decline in real estate prices); •significant deterioration in economic conditions; and •disruption in the business model resulting from changes in technology or new entrants to the industry. If deemed appropriate and necessary, a discounted cash flow analysis is performed to confirm whether a credit loss exists and, if so, the amount of the credit loss. We use the single best estimate approach for available-for-sale debt securities and consider all reasonably available data points, including industry analyses, credit ratings, expected defaults and the remaining payment terms of the debt security. For fixed rate available-for-sale debt securities, cash flows are discounted at the security's effective interest rate implicit in the security at the date of acquisition. If the available-for-sale debt security's contractual interest rate varies based on subsequent changes in an independent factor, such as an index or rate, for example, the prime rate, the LIBOR, or theU.S. Treasury bill weekly average, that security's effective interest rate is calculated based on the factor as it changes over the life of the security. If we intend to sell a debt security or believe we will more likely than not be required to sell a debt security before the amortized cost basis is recovered, any existing allowance will be written off against the security's amortized cost basis, with any remaining difference between the debt security's amortized cost basis and fair value recognized as an impairment loss in earnings. Exclusive of securities where there is an intent to sell or where it is not more likely than not that the security will be required to be sold before recovery of its amortized cost basis, impairment for debt securities is separated into a credit component and a non-credit component. The credit component of an impairment is the difference between the security's amortized cost basis and the present value of its expected future cash flows, while the non-credit component is the remaining difference between the security's fair value and the present value of expected future cash flows. An allowance for expected credit losses will be recorded for the expected credit losses through income and the non-credit component is recognized in OCI. The amount of impairment recognized is limited to the excess of the amortized cost over the fair value of the available-for-sale debt security.
Pension
As a result of our NORCAL acquisition, we sponsor a frozen qualified defined benefit pension plan which covers substantially all NORCAL employees (except those that were previous employees ofMedicus Insurance Company andFD Insurance Company , employees of PPM RRG as well as new hires afterDecember 31, 2013 ). Accounting for pension benefits requires the use of assumptions for the valuation of the PBO and the expected performance of the plan assets. We useDecember 31 as the measurement date for calculating our obligation related to this defined benefit pension plan and for estimating net periodic benefit cost (income) for the subsequent year. The PBO for pension benefits represents the present value of all future benefits earned as of the measurement date for vested and non-vested employees. At each measurement date, we review the various assumptions impacting the amounts recorded for the pension plan including the discount rates, which impacts the recorded value of the PBO and interest costs, and the expected return on plan assets. To estimate the discount rate at the measurement date, we use a bond yield curve model, developed based on pricing and yield information for high quality corporate bonds. The assumption for the expected return on plan assets is based on the anticipated returns that will be earned by the portfolio over the long-term. The expected return on plan assets is influenced, but not determined, by historical portfolio performance. We assumed a 4.0% expected return on plan assets on our pension plan assets for the year endedDecember 31, 2022 . For 2023, we increased our expected return on plan assets assumption to 5.3% based on our long-term outlook for the capital markets. 48
--------------------------------------------------------------------------------
Table of Contents
The following table summarizes the estimated changes in our projected benefit
obligation and net periodic benefit cost (income) for a hypothetical change in
our discount rate and expected return on plan assets:
Shift in Basis Points
December 31, 2022
($ in millions) (100) Current 100
Change in Discount Rate:
Benefit Obligation $ 83.8 $ 74.2 $ 66.3
Net periodic benefit cost (income) $ 0.3 $ 0.1 $ 0.4
Change in Expected Return on Plan Assets:
Net periodic benefit cost (income) $ 0.8 $ 0.1 $ (0.6)
Accounting standards provide for the delayed recognition of differences between
actual results and expected or estimated results. This delayed recognition of
the differences is amortized into earnings over time. The differences between
actual results and expected or estimated results are recognized in full in AOCI.
Amounts recognized in AOCI are reclassified to earnings in a systematic manner
over the average future service period of participants. During 2023, we expect
to recognize nominal net pension expense and we do not expect that contributions
to the pension plan will be required during 2023 nor do we anticipate making any
discretionary contributions.
Deferred Taxes
Deferred federal income taxes arise from the recognition of temporary differences between the basis of assets and liabilities determined for financial reporting purposes and the basis determined for income tax purposes. Our temporary differences principally relate to our loss reserves, unearned and advanced premiums, DPAC, NOL and tax credit carryforwards, compensation related items, unrealized investment gains (losses) and basis differences on fixed assets, intangible assets and operating leases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to be in effect when such benefits are realized. We review our deferred tax assets quarterly for impairment. If we determine that it is more likely than not that some or all of a deferred tax asset will not be realized, a valuation allowance is recorded to reduce the carrying value of the asset. In assessing the need for a valuation allowance, management is required to make certain judgments and assumptions about our future operations based on historical experience and information as of the measurement period regarding reversal of existing temporary differences, carryback capacity, future taxable income of the appropriate character (including its capital and operating characteristics) and tax planning strategies. A significant portion of our deferred tax asset is related to unrealized losses on our fixed maturities due to the significant rise in interest rates in 2022. Any loss realized prior to recovery would require sufficient income of the appropriate character (i.e., capital gains), and in the appropriate timeframe, to realize the tax benefit. We believe that we have the intent and ability to hold these securities until their recovery. Our projected positive operating income, including the investment income generated from holding our debt securities until maturity, support our ability to implement this tax planning strategy. A valuation allowance has been established against the deferred tax asset related to the NOL carryforwards for ourU.K. operations and against a portion of the deferred tax asset related to a portion of ourU.S. state NOL carryforwards. In addition, a valuation allowance was established in 2021 against the net deferred tax asset of ProAssurance American Mutual, aRisk Retention Group . As a taxpayer separate from the consolidated group, this entity has experienced cumulative losses in recent years. Management concluded that it was more likely than not that these deferred tax assets will not be realized. We also established a valuation allowance in a prior year against the deferred tax assets of certain SPCs at our wholly ownedCayman Islands reinsurance subsidiary, Inova Re. Due to the cumulative losses incurred in recent years by these SPCs, management concluded that a valuation allowance was required. As ofDecember 31, 2022 , management concluded that the previously recorded valuation allowances were still required against the deferred tax assets related to the NOL carryforwards for ourU.K. entities, against the deferred tax assets related to ourU.S. state NOL carryforwards and against the deferred tax assets of certain SPCs at Inova Re. Management's assessment of the need for these valuation allowances atDecember 31, 2022 included an analysis of the available sources of income. See further discussion onProAssurance's deferred tax assets in Note 6 of the Notes to Consolidated Financial Statements. 49
--------------------------------------------------------------------------------
Table of Contents
Coronavirus Aid, Relief and Economic Security Act
In response to COVID-19, the CARES Act was signed into law onMarch 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. Temporary changes regarding NOL carryback provisions included in the CARES Act had a favorable impact on our liquidity, as we were able to carryback our 2019 and 2020 net operating losses to claim refunds (see discussion that follows in the Liquidity and Capital Resources and Financial Condition section under the heading "Taxes"). See further discussion in Note 6 of the Notes to Consolidated Financial Statements.
Unrecognized Tax Benefits
We evaluate tax positions taken on tax returns and recognize positions in our financial statements when it is more likely than not that we will sustain the position upon resolution with a taxing authority. If recognized, the benefit is measured as the largest amount of benefit that has a greater than 50% probability of being realized. We review uncertain tax positions each quarter, considering changes in facts and circumstances, such as changes in tax law, interactions with taxing authorities and developments in case law, and make adjustments as we consider necessary. Adjustments to our unrecognized tax benefits may affect our income tax expense, and settlement of uncertain tax positions may require the use of cash. Other than differences related to timing, no significant adjustments were considered necessary during 2022 or 2021. AtDecember 31, 2022 , our liability for unrecognized tax benefits approximated$3.6 million .Goodwill / IntangiblesGoodwill 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 isOctober 1 . Impairment of goodwill is tested at the reporting unit level, which is consistent with our reportable segments identified in Note 16 of the Notes to Consolidated Financial Statements. When testing goodwill for impairment on our annual test date, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of a reporting unit is less than its carrying amount. If we elect to perform a qualitative assessment and determine that an impairment is more likely than not, we are then required to perform a quantitative impairment test; otherwise, no further analysis is required. We also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test. Performance of the qualitative goodwill impairment assessment requires judgment in identifying and considering the significance of relevant key factors, events and circumstances that affect the fair values of our reporting units. This requires consideration and assessment of external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as our actual and planned financial performance. We also give consideration to the difference between each reporting unit's fair value and carrying value as of the most recent date that a fair value measurement was performed. If the results of the qualitative assessment conclude that it is not more likely than not that the fair value of a reporting unit exceeds its carrying value, additional quantitative impairment testing is performed. The quantitative goodwill impairment test involves comparing the fair value of a reporting unit with its carrying value including goodwill. If the fair value of a reporting unit exceeds its carrying value, the reporting unit's goodwill is considered not to be impaired. However, if the carrying value of a reporting unit exceeds its fair value, an impairment loss is recorded in an amount equal to that excess. Any impairment charge recognized is limited to the amount of the respective reporting unit's allocated goodwill. Determining the fair value of a reporting unit under the quantitative goodwill impairment test requires judgment and often involves the use of significant estimates and assumptions, including an assessment of external factors such as macroeconomic, industry and market conditions, as well as entity-specific factors, such as actual and planned financial performance. These estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and the magnitude of any such charge. To assist management in the process of determining any potential goodwill impairment, we may review and consider appraisals from accredited independent valuation firms. Estimates of fair value are primarily determined using discounted cash flows and market comparisons. These approaches involve significant estimates and assumptions, including projected future cash flows (including timing), discount rates reflecting the risks inherent in those future cash flows, perpetual growth rates, and selection of appropriate market comparable metrics and transactions. For the most recent goodwill impairment test performed onOctober 1, 2022 , management elected to bypass the optional qualitative impairment test and proceed directly to the quantitative impairment test for both theWorkers' Compensation Insurance and Segregated Portfolio Cell Reinsurance reporting units . In applying the quantitative approach, management estimated the fair value of theWorkers' Compensation Insurance and Segregated Portfolio Cell Reinsurance reporting units 50
--------------------------------------------------------------------------------
Table of Contents
using both an income approach and market approach based on the aforementioned valuation methodologies and process for developing assumptions. To corroborate the reporting units' valuation, a reconciliation of the estimate of the aggregate fair value of the reporting units toProAssurance's market capitalization was performed, including consideration of a control premium. As a result of the quantitative assessments, management concluded that the fair value of each of theWorkers Compensation Insurance and Segregated Portfolio Cell Reinsurance reporting units exceeded the carrying value as of the testing date; therefore, goodwill was not impaired and no further goodwill impairment testing was required. No goodwill impairment was recorded during the year endedDecember 31, 2022 . Furthermore, the analysis of our definite and indefinite lived intangible assets indicated no impairment atDecember 31, 2022 . Additional information regarding our goodwill and intangible assets is included in Note 1 and Note 7 of the Notes to Consolidated Financial Statements.
Accounting Changes
Beginning in 2022, we revised our process for estimating ULAE as a result of substantially integrating NORCAL into our Specialty P&C segment operations. ULAE are costs that cannot be attributed to processing a specific claim and are allocated to net losses and loss adjustment expenses on the Consolidated Statement of Income and Comprehensive Income. We have accounted for this change prospectively as a change in accounting estimate. Changes in accounting estimate are reflected prospectively beginning in the period the change in estimate occurs. The change in our estimate of ULAE resulted in an increase to underwriting, policy acquisition and operating expenses with an offsetting decrease to net losses and loss adjustment expenses in our Specialty P&C segment; there was no impact on total expenses or net income (loss) in our Consolidated Statement of Income and Comprehensive Income for the year endedDecember 31, 2022 . See further discussion on this change in estimate in the Segment Results - Specialty Property & Casualty section that follows and in Note 1 of the Notes to Consolidated Financial Statements. We did not have any other change in accounting estimate or policy that had a material effect on our results of operations or financial position during 2022. We are not aware of any accounting changes not yet adopted as ofDecember 31, 2022 that could have a material impact on our results of operations, financial position or cash flows. Note 1 of the Notes to Consolidated Financial Statements provides additional detail regarding accounting changes not yet adopted. 51
--------------------------------------------------------------------------------
Table of Contents 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. We also charge our operating subsidiaries within our Specialty P&C (including the acquired wholly owned operating subsidiaries of NORCAL effectiveJanuary 1, 2022 ) andWorkers' 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. AtDecember 31, 2022 , we held cash and liquid investments of approximately$83 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. As ofFebruary 22, 2023 , no borrowings were outstanding under our Revolving Credit Agreement. During 2022, our operating subsidiaries paid dividends to us of approximately$51 million . In the aggregate, our insurance subsidiaries are permitted to pay dividends of approximately$133 million over the course 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). Cash Flows
Cash flows between periods compare as follows:
Year Ended
(In thousands) 2022 2021 Change
Net cash provided (used) by:
Operating activities $ (29,841) $ 73,970 $ (103,811)
Investing activities (61,997) (85,526) 23,529
Financing activities (21,805) (60,624) 38,819
Increase (decrease) in cash and cash equivalents
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
2021 was primarily due to:
•An increase in paid losses of
segment primarily due to NORCAL paid losses and the payment of three large
claims totaling
•An increase in cash paid for operating expenses of$131.5 million driven by our Specialty P&C and Corporate segments, partially offset by lower transaction-related costs associated with our acquisition of NORCAL as compared to the prior year period. The increase in cash paid for operating expenses in our Specialty P&C and Corporate segments was driven by an increase in compensation-related costs primarily attributable to an increase in headcount due to the addition of NORCAL employees. Furthermore, the increase in our Specialty P&C segment reflected an increase in commissions paid driven by additional premiums from our acquisition of NORCAL and one-time expenses of$3.9 million in 2022. One-time expenses in 2022 were mainly comprised of one-time bonuses, employee severance charges and lease exit costs. Additionally, the increase reflected the termination of deferred compensation arrangements assumed in the NORCAL acquisition during the first quarter of 2022 totaling approximately$13.2 million . See further discussion of NORCAL's deferred compensation arrangements in Note 3 to the Notes to Consolidated Financial Statements. •The effect of a tax refund of approximately$9.0 million which we received inFebruary 2021 and an income tax extension payment of$1.1 million for the 2021 tax year during the second quarter of 2022. See additional discussion 52
--------------------------------------------------------------------------------
Table of Contents
on this refund in our Liquidity section under the heading "Taxes" in Item 7 of
our
The decrease in operating cash flows was partially offset by:
•An increase in net premium receipts of$273.0 million primarily driven by our Specialty P&C segment, partially offset by a decrease in our Lloyd's Syndicates segment. The increase in our Specialty P&C segment was due to additional premiums from our acquisition of NORCAL and our focus on rate adequacy. The decrease in premium receipts in our Lloyd's Syndicates segment reflected our ceased participation in Syndicate 6131 for the 2022 underwriting year and the impact of our decreased participation in the results of Syndicates 1729 and 6131 for the 2021 underwriting year.
•An increase in cash received from investment income of
an increase in our investment balances due to the acquisition of NORCAL.
The remaining variance in operating cash flows in 2022 as compared to 2021 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 dividend payments. See
further discussion of our financing activities in this section under the heading
"Financing Activities and Related Cash Flows."
53
--------------------------------------------------------------------------------
Table of Contents
Operating Activities and Related Cash Flows
Losses
The following table, known as the Analysis ofReserve Development , presents information over the preceding ten years regarding the payment of our losses as well as changes to (the development of) our estimates of losses during that time period. As noted in the table, we have completed various acquisitions over the ten year period which have affected original and re-estimated gross and net reserve balances as well as loss payments. The table includes losses on both a direct and an assumed basis and is net of anticipated reinsurance recoverables. The gross liability for losses before reinsurance, as shown on the balance sheet, and the reconciliation of that gross liability to amounts net of reinsurance are reflected below the table. We do not discount our reserve for losses to present value. Information presented in the table is cumulative and, accordingly, each amount includes the effects of all changes in amounts for prior years. The table presents the development of our balance sheet reserve for losses; it does not present accident year or policy year development data. Conditions and trends that have affected the development of liabilities in the past may not necessarily occur in the future. Accordingly, it is not appropriate to extrapolate future redundancies or deficiencies based on this table.
The following may be helpful in understanding the Analysis of
Development
•The line entitled "Reserve for losses, undiscounted and net of reinsurance
recoverables" reflects our reserve for losses and loss adjustment expense, less
the receivables from reinsurers, each as reported in our Consolidated Balance
Sheets at the end of each year (the Balance Sheet Reserves).
•The section entitled "Cumulative net paid, as of" reflects the cumulative
amounts paid as of the end of each succeeding year with respect to the
previously recorded Balance Sheet Reserves.
•The section entitled "Re-estimated net liability as of" reflects the
re-estimated amount of the liability previously recorded as Balance Sheet
Reserves that includes the cumulative amounts paid and an estimate of the
remaining net liability based upon claims experience as of the end of each
succeeding year (the Net Re-estimated Liability).
•The line entitled "Net cumulative redundancy (deficiency)" reflects the
difference between the previously recorded Balance Sheet Reserve for each
applicable year and the Net Re-estimated Liability relating thereto as of the
end of the most recent fiscal year.
54
--------------------------------------------------------------------------------
Table of Contents
Analysis of Reserve Development
December 31
(In thousands) 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Reserve for losses, undiscounted
and net of reinsurance
recoverables $ 1,860,076 $ 1,825,304
$ 1,709,129 $ 1,878,140 $ 1,945,099 $ 3,059,328 $ 2,973,196 Cumulative net paid, as of: One Year Later 311,835 343,197 380,508 370,973 354,526 387,389 428,940 466,904 454,902 756,601 Two Years Later 563,805 571,690 640,655 616,016 621,783 668,340 734,638 790,989 813,768 Three Years Later 704,795 732,892 798,636 799,689 800,331 857,177 952,309 1,046,573 Four Years Later 800,189 826,384 910,998 898,844 930,769 990,023 1,133,462 Five Years Later 852,873 891,615 964,897 974,104 1,004,951 1,085,267 Six Years Later 893,529 924,334 1,006,215 1,018,148 1,061,488 Seven Years Later 915,730 952,118 1,030,782 1,051,495 Eight Years Later 930,375 967,945 1,045,980 Nine Years Later 941,468 976,074 Ten Years Later 946,993 Re-estimated net liability as of: End of Year 1,860,076 1,825,304 1,812,299 1,730,308 1,681,423 1,659,971 1,709,129 1,878,140 1,945,099 3,059,328 One Year Later 1,644,203 1,644,516 1,651,117 1,587,029 1,547,876 1,565,867 1,696,893 1,827,153 1,902,813 3,015,241 Two Years Later 1,472,259 1,483,378 1,511,542 1,460,660 1,444,619 1,487,905 1,656,615 1,805,433 1,885,456 Three Years Later 1,331,828 1,358,560 1,388,682 1,356,075 1,337,571 1,446,571 1,647,283 1,792,202 Four Years Later 1,231,337 1,252,605 1,288,564 1,257,650 1,306,274 1,432,477 1,632,836 Five Years Later 1,157,493 1,173,975 1,221,463 1,231,713 1,299,032 1,415,077 Six Years Later 1,108,716 1,126,308 1,204,642 1,230,562 1,287,731 Seven Years Later 1,078,057 1,121,087 1,199,654 1,217,713 Eight Years Later 1,075,277 1,119,984 1,183,973 Nine Years Later 1,070,161 1,110,216 Ten Years Later 1,064,057 Net cumulative redundancy (deficiency)$ 796,019 $ 715,088
$ 76,293 $ 85,938 $ 59,643 $ 44,087 Original gross liability - end of year$ 2,051,428 $ 2,072,822
Reinsurance recoverables
(191,352) (247,518) (240,469) (259,958) (280,013) (311,332) (328,145) (364,993) (350,180)
(410,089)
Original net liability - end of year$ 1,860,076 $ 1,825,304
$ 1,709,129 $ 1,878,140 $ 1,945,099 $ 3,059,328 Gross re-estimated liability - latest$ 1,186,101 $ 1,252,152
$ 1,914,194 $ 2,098,742 $ 2,197,211 $ 3,425,358 Re-estimated reinsurance recoverables (122,044) (141,936) (160,663) (205,051) (234,351) (257,664) (281,358) (306,540) (311,755)
(410,117)
Net re-estimated liability - latest$ 1,064,057 $ 1,110,216
$ 1,632,836 $ 1,792,202 $ 1,885,456 $ 3,015,241 Gross cumulative redundancy (deficiency)$ 865,327 $ 820,670 $ 708,132 $ 567,502 $ 439,354 $ 298,562 $ 123,080 $ 144,391 $ 98,068 $ 44,059
See table notes on following page.
55
--------------------------------------------------------------------------------
Table of Contents
Table Notes
•We have elected to present reserve history for acquired entities on a
prospective basis in the table above; therefore, certain items will not agree to
the following table which details activity in our net reserve for losses.
•Given the Lloyd's Syndicates segment reserve is relatively small on a standalone basis as compared to our consolidated reserve, we have elected to exclude the segment's reserve history for all periods presented in the table above; therefore, certain items will not agree to the following table which details activity in our net reserve for losses. •Reserves for 2012 and thereafter include gross and net reserves acquired in 2012 business combinations of$21.8 million and$19.2 million , respectively, which considers reductions of$3.6 million and$3.3 million , respectively, recorded in 2013 due to the re-estimation of the fair value of the acquired reserves.
•Reserves for 2013 include gross and net reserves acquired in 2013 business
combinations of
•Reserves for 2014 include gross and net reserves acquired in 2014 business
combinations of
•Reserves for 2021 include gross and net reserves acquired in 2021 business
combinations of
In each year reflected in the table, we have estimated our reserve for losses
utilizing the management and actuarial processes discussed under the heading
"Reserve for Losses and Loss Adjustment Expenses" in the Critical Accounting
Estimates section. Factors that have contributed to the variation in loss
development are primarily related to the extended period of time required to
resolve professional liability claims and include the following:
•The HCPL legal environment deteriorated in the late 1990's and severity began
to increase at a greater pace than anticipated in our rates and reserve
estimates. We addressed the adverse severity trends through increased rates,
stricter underwriting and modifications to claims handling procedures, and
reflected this adverse severity trend when we established our initial reserves
for subsequent years.
•These adverse severity trends later moderated, with that moderation becoming
more pronounced beginning in 2009. We were cautious in giving full recognition
to indications that the pace of severity increase had slowed, however we gave
measured recognition of the improved trend in our reserve estimates. The
favorable development was most pronounced for years 2004 to 2008, as the initial
reserves for these accident years were established prior to substantial
indication that severity trends were moderating. We gave stronger recognition to
the lower severity trend as time elapsed and a greater percentage of claims were
closed.
•A general decline in claims frequency has also been a contributor to favorable
loss development. A significant portion of our policies through 2003 were issued
on an occurrence basis, and a smaller portion of our ongoing business results
from the issuance of extended reporting endorsements which have occurrence-like
exposure. As claims frequency declined, the number of reported claims related to
these coverages was less than originally expected.
•Beginning in 2017, we identified potential higher severity trends in the
broader HCPL industry. These trends were also reflected in increases in
estimates of ultimate losses for open HCPL claims for earlier accident years,
which resulted in a lower amount of favorable development recognized in 2018 and
2017 as compared to prior years.
•During 2019 the loss experience in our Specialty line of business in our
Specialty P&C segment deteriorated further, particularly in regard to the
reserves we established for a large national healthcare account that experienced
losses far exceeding the assumptions we made when underwriting the account,
beginning in 2016. As a result, we strengthened our Specialty reserves through
the recognition of net unfavorable development on prior accident years and a
higher current accident year net loss ratio in our Specialty P&C segment in
2019.
56
--------------------------------------------------------------------------------
Table of Contents
Activity in our net reserve for losses during 2022, 2021 and 2020 is summarized
below:
Year Ended December 31
(In thousands) 2022 2021 2020
Balance, beginning of year $ 3,579,940 $
2,417,179
Less reinsurance recoverables on unpaid losses and
loss adjustment expenses
451,741 385,087 390,708 Net balance, beginning of year 3,128,199 2,032,092 1,955,818 Net reserves acquired from acquisitions - 1,089,103 - Net losses: Current year(1)(2) 813,515 797,732 711,846 Favorable development of reserves established in prior years, net(2) (36,753) (45,483) (50,399) Total 776,762 752,249 661,447 Paid related to: Current year (108,139) (109,925) (83,204) Prior years (757,564) (635,320) (501,969) Total paid (865,703) (745,245) (585,173) Net balance, end of year 3,039,258 3,128,199 2,032,092
Plus reinsurance recoverables on unpaid losses and
loss adjustment expenses
431,889 451,741 385,087 Balance, end of year$ 3,471,147 $
3,579,940
(1) During 2020, the aforementioned large national healthcare account did not renew on terms offered by the Company and exercised its contractual option to purchase extended reporting endorsement or "tail" coverage. As a result, we recognized total current year losses of$60.0 million (assumes a full limit loss) within the Specialty P&C segment for the year endedDecember 31, 2020 . (2) Current year net losses and prior accident year development for the years endedDecember 31, 2022 and 2021 includes certain purchase accounting adjustments associated with our acquisition of NORCAL. See Note 8 of the Notes to Consolidated Financial Statements for additional information. AtDecember 31, 2022 our gross reserve for losses included case reserves of approximately$2.3 billion and IBNR reserves of approximately$1.2 billion . Our consolidated gross reserve for losses on a GAAP basis exceeds the combined gross reserves of our insurance subsidiaries on a statutory basis by approximately$0.2 billion , which is principally due to the portion of the GAAP reserve for losses that is reflected for statutory accounting purposes as unearned premiums. These unearned premiums are applicable to extended reporting endorsements ("tail" coverage) issued without a premium charge upon death, disability or retirement of an insured who meets certain qualifications.
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 ourWorkers' 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 ourSpecialty 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. Within our Lloyd's Syndicates segment, Syndicate 1729 utilizes reinsurance to provide capacity to write larger limits of liability on individual risks, to provide protection against catastrophic loss and to provide protection against losses in excess of policy limits. The purchase of reinsurance does not relieve us from the ultimate risk on our policies; however, it does provide reimbursement for certain losses we pay. We pay our reinsurers a premium in exchange for reinsurance of the risk. In certain of our excess of loss arrangements, the premium due to the reinsurer is determined by the loss experience of the business reinsured, subject to certain minimum and maximum amounts. Until all loss amounts are known, we estimate the premium due to the reinsurer. Changes to the estimate of premium owed under reinsurance agreements related to prior periods are recorded in the period in which the change in estimate occurs and can have a significant effect on net premiums earned. We offer alternative market solutions whereby we cede certain premiums from ourWorkers' Compensation Insurance and Specialty P&C segments to either the SPCs at Inova Re or Eastern Re, ourCayman Islands reinsurance subsidiaries which are 57
--------------------------------------------------------------------------------
Table of Contents
reported in our Segregated Portfolio Cell Reinsurance segment or captive insurers unaffiliated withProAssurance for two programs. The majority of these policies are reinsured to the SPCs at Inova Re or Eastern Re, net of a ceding commission. See further discussion on our SPC operations in the Segment Results - Segregated Portfolio Cell Reinsurance section that follows. The alternative market workers' compensation policies are ceded from ourWorkers' Compensation Insurance segment to the SPCs under 100% quota share reinsurance agreements. The alternative market healthcare professional liability policies are ceded from our Specialty P&C segment to the SPCs under either excess of loss or quota share reinsurance agreements, depending on the structure of the individual program. The portion of the risk that is not ceded to an SPC is retained in our Specialty P&C segment and may also be reinsured under our standard healthcare professional liability reinsurance program, depending on the policy limits provided. The remaining premium written in our alternative market business is 100% ceded to unaffiliated captive insurers.
Excess of Loss Reinsurance Agreements
We generally reinsure risks under treaties (our excess of loss reinsurance agreements) pursuant to which the reinsurers agree to assume all or a portion of all risks that we insure above our individual risk retention levels, up to the maximum individual limits offered. Generally, these agreements are negotiated and renewed annually. Our HCPL and Medical Technology Liability treaties renew annually onOctober 1 and our Workers' Compensation treaty renews annually onMay 1 . Our HCPL and Medical Technology Liability treaties renewed October 1, 2022 at a slightly higher rate than the previous treaties; all other material terms were consistent with the expiring treaties. Our traditional workers' compensation treaty renewed May 1, 2022 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. Excess of Loss Reinsurance Agreements [[Image Removed: pra-20221231_g1.jpg]] Healthcare Medical Technology & Workers'
Professional Liability Life Sciences Products Compensation - Traditional
(1) EffectiveOctober 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. EffectiveOctober 1, 2021 , limits can be reinstated a maximum of four times.
(2) Prior to
(3) Historically, retention has ranged from 0% to 32.5%.
(4) Historically, retention has ranged from
58
--------------------------------------------------------------------------------
Table of Contents
(5) Subject to a limit of
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
occurrence.
Large HCPL risks that are above the limits of our basic reinsurance treaties may be reinsured on a facultative basis, whereby the reinsurer agrees to insure a particular risk up to a designated limit. We also have in place a number of risk sharing arrangements that apply to the first$1 million of losses for certain large healthcare systems and other insurance entities, as well as with certain insurance agencies that produce business for us.
Other Reinsurance Arrangements
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
[[Image Removed: pra-20221231_g2.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.
Each SPC has participants and the profit or loss of each cell accrues fully to
these cell participants. As previously discussed, we participate in certain SPCs
to a varying degree. Each SPC maintains a loss fund initially equal to the
difference between premium assumed by the cell and the ceding commission. The
external participants of each cell provide collateral to us, typically in the
form of a letter of credit that is initially equal to the difference between the
loss fund of the SPC (amount of funds available to pay losses after deduction of
ceding commission) and the aggregate attachment point of the reinsurance. Over
time, an SPC's retained profits are considered in the determination of the
collateral amount required to be provided by the cell's external participants.
59
--------------------------------------------------------------------------------
Table of Contents
The level of reinsurance that Syndicate 1729 purchases is dependent on a number of factors, including its underwriting risk appetite for catastrophic exposure, the specific risks inherent in each line or class of business written and the pricing, coverage and terms and conditions available from the reinsurance market. Reinsurance protection by line of business is as follows: •Reinsurance is utilized on a per risk basis for the property insurance and casualty coverages in order to mitigate risk volatility. •Catastrophic protection is utilized on both our property insurance and casualty coverages to protect against losses in excess of policy limits as well as natural catastrophes. •Both quota share reinsurance and excess of loss reinsurance are utilized to manage the net loss exposure on our property reinsurance coverages. •Property umbrella excess of loss reinsurance is utilized for peak catastrophe and frequency of catastrophe exposures. Syndicate 1729 may still be exposed to losses that exceed the level of reinsurance purchased as well as to reinstatement premiums triggered by losses exceeding specified levels. Cash demands on Syndicate 1729 can vary significantly depending on the nature and intensity of a loss event. For significant reinsured catastrophe losses, the inability or unwillingness of the reinsurer to make timely payments under the terms of the reinsurance agreement could have an adverse effect on Syndicate 1729's liquidity.
Taxes
We are subject to the tax laws and regulations of theU.S. ,Cayman Islands andU.K. We file a consolidatedU.S. Federal income tax return that includes the parent company and itsU.S. subsidiaries, except for ProAssurance American Mutual, aRisk Retention Group . Our filing obligations include a requirement to make quarterly payments of estimated taxes to theIRS using the corporate tax rate effective for the tax year. During the second quarter of 2022, we made a nominal safe harbor quarterly estimated tax payment and also made an income tax extension payment of$1.1 million for the 2021 tax year; we did not make any payments during the year endedDecember 31, 2021 , as we expected NOL carryforwards to offset any income taxes due. As a result of the CARES Act that was signed into law onMarch 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. 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 received inFebruary 2023 . As a result of our acquisition of NORCAL, we recorded$46.8 million of net deferred tax assets reflecting the remeasurement of NORCAL's historical net deferred tax assets at the acquisition date ofMay 5, 2021 . The net deferred tax assets acquired from NORCAL were subject to recalculation following application of all purchase accounting adjustments and our assessment of the realizability of NORCAL's deferred tax assets. As a result of the NORCAL acquisition, we haveU.S. Federal NOL carryforwards, which were approximately$36.1 million as ofDecember 31, 2022 . These NOL carryforwards are subject to limitation by Internal Revenue Code Section 382 and will begin to expire in 2035. 60
--------------------------------------------------------------------------------
Table of Contents
Investing Activities and Related Cash Flows
Our investments atDecember 31, 2022 andDecember 31, 2021 are comprised as follows: December 31, 2022 December 31, 2021 Carrying % of Total Carrying % of Total ($ in thousands) Value Investment Value Investment Fixed maturities, available for sale: U.S. Treasury obligations $ 221,608 5 % $ 238,507 5 % U.S. Government-sponsored enterprise obligations 19,934 1 % 20,234 1
%
State and municipal bonds 439,450 10 % 519,196 11 % Corporate debt 1,781,452 41 % 1,898,556 39 % Residential mortgage-backed securities 389,540 8 % 453,941 9 % Commercial mortgage-backed securities 203,794 5 % 245,624 5 % Other asset-backed securities 416,694 9 % 457,664 9 % Total fixed maturities, available-for-sale 3,472,472 79 % 3,833,722 79 % Fixed maturities, trading 43,434 1 % 43,670 1 % Total fixed maturities 3,515,906 80 % 3,877,392 80 % Equity investments(1) 143,738 3 % 214,807 4 % Short-term investments 245,313 6 % 216,987 4 % BOLI 81,746 2 % 81,767 2 % Investment in unconsolidated subsidiaries 305,210 7 % 335,576 7 % Other investments 95,770 2 % 101,794 3 % Total investments$ 4,387,683 100 %$ 4,828,323
100 %
(1)Includes
to significant equity price risk.
AtDecember 31, 2022 , 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: December 31, 2022 December 31, 2021 Carrying % of Total Carrying % of Total ($ in thousands) Value Investment Value Investment Rating* AAA$ 1,008,230 29 %$ 1,129,136 29 % AA+ 113,659 3 % 130,077 3 % AA 210,247 6 % 254,570 7 % AA- 190,106 5 % 194,661 5 % A+ 264,950 8 % 221,473 6 % A 432,442 12 % 521,598 14 % A- 345,671 10 % 364,147 9 % BBB+ 213,794 6 % 292,984 8 % BBB 305,987 9 % 300,650 8 % BBB- 137,596 4 % 127,982 3 % Below investment grade 249,400 7 % 296,444 8 % Not rated 390 1 % - - % Total$ 3,472,472 100 %$ 3,833,722 100 %
*Average of three NRSRO sources, presented as an S&P equivalent. Source: S&P, Copyright ©2023, S&P Global Market Intelligence
61
--------------------------------------------------------------------------------
Table of Contents
A detailed listing of our investment holdings as ofDecember 31, 2022 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 by our operations. In addition to the interest and dividends we will receive from our investments, we anticipate that between$90 million and$160 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. 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 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. 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 11 of the Notes to Consolidated Financial Statements. AtDecember 31, 2022 , our FAL was comprised of fixed maturity securities with a fair value of$23.8 million and cash and cash equivalents of$1.0 million deposited with Lloyd's. See further discussion in Note 4 of the Notes to Consolidated Financial Statements. During the second quarter of 2022, we received a return of approximately$5.5 million of cash from our FAL balances given Syndicate 6131 ceased underwriting on a quota share basis with Syndicate 1729 beginning with the 2022 underwriting year as well as the settlement of our participation in the results of Syndicate 1729 and Syndicate 6131 for the 2019 underwriting year. Further, during the fourth quarter of 2022, we received a return of approximately$5.6 million of cash from our FAL balances due to lower capital requirements for the 2023 underwriting year followingLloyd's of London's review of the 2023 business plan. Our investment portfolio continues to be primarily composed of high quality fixed income securities with approximately 92% of our fixed maturities being investment grade securities as determined by national rating agencies. The weighted average effective duration of our fixed maturity securities atDecember 31, 2022 was 3.50 years; the weighted average effective duration of our fixed maturity securities combined with our short-term securities was 3.27 years. The carrying value and unfunded commitments for certain of our investments were as follows: Carrying Value December 31, 2022 ($ in thousands, except expected funding December 31, Unfunded Expected funding period) December 31, 2022 2021 Commitment period in years Qualified affordable housing project tax credit partnerships (1)$ 4,088 $ 12,424 $ 253 4 All other investments, primarily investment fund LPs/LLCs 301,122 323,152 120,043 4 Total$ 305,210 $ 335,576 $ 120,296 (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. AtDecember 31, 2022 , we had investments in 35 separate investment funds with a total carrying value of$301.1 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. 62
--------------------------------------------------------------------------------
Table of Contents
Financing Activities and Related Cash Flows
Treasury Shares
(In thousands) 2022
2021 2020
Shares reacquired, at cost of
-
Treasury shares at the end of the period 9,464
9,325 9,325
We did not repurchase any common shares subsequent toDecember 31, 2022 and as ofFebruary 22, 2023 our remaining Board authorization was approximately$106.4 million .
ProAssurance Shareholder Dividends
Our Board declared cash dividends during 2022, 2021 and 2020 as follows:
Quarterly Cash Dividends Declared, per Share
2022 2021 2020
First Quarter $ 0.05 $ 0.05 $ 0.31
Second Quarter $ 0.05 $ 0.05 $ 0.05
Third Quarter $ 0.05 $ 0.05 $ 0.05
Fourth Quarter $ 0.05 $ 0.05 $ 0.05
Each dividend was paid in the month following the quarter in which it was
declared. Cash dividends totaling $11 million were paid during each of the years
ended December 31, 2022 and 2021 and cash dividends totaling $39 million were
paid during the year ended December 31, 2020 . 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
At December 31, 2022 , 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 first annual interest payment
which was paid in April 2022 . See Note 2 and Note 11 of the Notes to
Consolidated Financial Statements for additional information on the Contribution
Certificates issued in the NORCAL acquisition. There are no financial covenants
associated with these certificates.
We have a Revolving Credit Agreement, which expires in November 2024 , that 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 Revolving Credit Agreement permits borrowings
of up to $250 million as well as the possibility of a $50 million accordion
feature, if successfully subscribed. At December 31, 2022 , there were no
outstanding borrowings on our Revolving Credit Agreement; we are in compliance
with the financial covenants of the Revolving Credit Agreement.
Additional information regarding our debt is provided in Note 11 of the Notes to
Consolidated Financial Statements.
We utilized an interest rate cap agreement with a notional amount of$35 million to manage our exposure to increases in LIBOR. Per the interest rate cap agreement, we were entitled to receive cash payments if and when the three-month LIBOR exceeds 2.35%. InApril 2022 , we terminated our interest rate cap agreement that was previously utilized to manage our exposure to increases in LIBOR on Mortgage Loans that were fully repaid in 2021. As a result of the termination, we received$2.1 million in proceeds during the second quarter of 2022. 63
--------------------------------------------------------------------------------
Table of Contents
Three of our insurance subsidiaries are members of an FHLB. Through membership, those subsidiaries have access to secured cash advances which can be used for liquidity purposes or other operational needs. In order for us to use FHLB proceeds, regulatory approvals may be required depending on the nature of the transaction. To date, those subsidiaries have not materially utilized their membership for borrowing purposes.
Results of Operations - Year Ended
Selected consolidated financial data for each period is summarized in the table
below.
Year Ended December 31
($ in thousands, except per share data) 2022 2021 Change
Revenues:
Net premiums written $ 1,014,137 $ 882,721 $ 131,416
Net premiums earned $ 1,029,581 $ 971,668 $ 57,913
Net investment result 100,860 119,496 (18,636)
Net investment gains (losses) (33,157) 24,310 (57,467)
Other income 9,404 8,936 468
Total revenues 1,106,688 1,124,410 (17,722)
Expenses:
Net losses and loss adjustment expenses 776,762 752,249 24,513
Underwriting, policy acquisition and operating
expenses 307,338 268,246 39,092
SPC U.S. federal income tax expense 1,759 1,947 (188)
SPC dividend expense (income) 6,673 10,050 (3,377)
Interest expense 20,372 19,719 653
Total expenses 1,112,904 1,052,211 60,693
Gain on bargain purchase - 74,408 (74,408)
Income (loss) before income taxes (6,216) 146,607 (152,823)
Income tax expense (benefit) (5,814) 2,483 (8,297)
Net income (loss) $ (402) $ 144,124 $ (144,526)
Non-GAAP operating income (loss) $ 24,509 $ 75,892 $ (51,383)
Earnings (loss) per share:
Basic $ (0.01) $ 2.67 $ (2.68)
Diluted $ (0.01) $ 2.67 $ (2.68)
Non-GAAP operating income (loss) per share:
Basic $ 0.45 $ 1.41 $ (0.96)
Diluted $ 0.45 $ 1.40 $ (0.95)
Net loss ratio 75.4 % 77.4 % (2.0 pts)
Underwriting expense ratio 29.9 % 27.6 % 2.3 pts
Combined ratio 105.3 % 105.0 % 0.3 pts
Operating ratio 96.0 % 97.7 % (1.7 pts)
Effective tax rate 93.5 % 1.7 % 91.8 pts
Return on equity* - % 5.3 % (5.3 pts)
Non-GAAP operating return on equity* 1.9 % 5.6 % (3.7 pts)
*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.
64
--------------------------------------------------------------------------------
Table of Contents Executive Summary of Operations The following sections provide an overview of our consolidated and segment results of operations for the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 . See the Segment Results sections that follow for additional information regarding each segment's results. For a full discussion of the changes in the financial condition, results of operations and cash flows for the year endedDecember 31, 2021 as compared to the year endedDecember 31, 2020 , please refer to Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" section ofProAssurance's December 31, 2021 report on Form 10-K. Revenues
The following table shows our consolidated and segment net premiums earned:
Year Ended
($ in thousands) 2022 2021
Change
Net premiums earned
Specialty P&C$ 769,773 $ 695,008
Workers' Compensation Insurance 166,371 164,600
1,771 1.1 %
Segregated Portfolio Cell Reinsurance 69,810 63,688
6,122 9.6 % Lloyd's Syndicates 23,627 48,372 (24,745) (51.2 %) Consolidated total$ 1,029,581 $ 971,668 $ 57,913 6.0 % For the year endedDecember 31, 2022 , consolidated net premiums earned included earned premium from our acquisition of NORCAL of$289.0 million as compared to$214.6 million in 2021. Excluding NORCAL premiums, our consolidated net premiums earned decreased$16.5 million in 2022 as compared to 2021. •The decrease in our Lloyd's Syndicates segment for the year endedDecember 31, 2022 was due to our decreased participation in the results of Syndicate 1729 and Syndicate 6131 for the 2021 underwriting year and, to a lesser extent, our ceased participation in Syndicate 6131 for the 2022 underwriting year.
•Net premiums earned in our Segregated Portfolio Cell Reinsurance segment
increased during 2022 driven by tail coverage premiums primarily related to one
program in which we do not participate, which resulted in
one-time premium written and fully earned as well as an increase in audit
premium billed to policyholders in 2022.
•For ourWorkers' Compensation Insurance segment, net premiums earned increased for 2022 due to an increase in audit premiums billed to policyholders in 2022 as well as the change in the carried EBUB estimate, which increased$1.5 million in 2022 as compared to a reduction of$1.2 million in 2021, partially offset by the competitive workers' compensation market conditions.
•Net premiums earned in our Specialty P&C segment, excluding NORCAL premiums,
remained relatively unchanged during 2022 as compared to 2021.
The following table shows our consolidated net investment result:
Year Ended
($ in thousands) 2022 2021 Change
Net investment income $ 95,972 $ 70,522 $ 25,450 36.1 %
Equity in earnings (loss) of unconsolidated
subsidiaries* 4,888 48,974 (44,086) (90.0 %)
Net investment result $ 100,860 $ 119,496 $ (18,636) (15.6 %)
*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.
The increase in our consolidated net investment income for the year endedDecember 31, 2022 as compared to 2021 reflected higher average book yields as we continue to reinvest at higher rates as our portfolio matures and the addition of NORCAL's investment portfolio. Furthermore, the increase in net investment income during 2022 reflected the prior year impact of capital planning in anticipation of closing the NORCAL acquisition. Equity in earnings of unconsolidated subsidiaries decreased in 2022 primarily due to the performance of certain LP/LLCs, which are primarily reported to us on a one-quarter lag, and reflected lower market valuations during 2022, partially offset by lower amortization of tax credit partnership operating losses. 65
--------------------------------------------------------------------------------
Table of Contents
The following table shows our total consolidated net investment gains (losses):
Year Ended
($ in thousands) 2022 2021 Change
Net impairment losses recognized in earnings
-$ (1,758) nm Other net investment gains (losses)(1) (31,399) 24,310 (55,709) (229.2 %) Net investment gains (losses)$ (33,157) $ 24,310 $ (57,467) (236.4 %) (1) Consolidated other net investment gains (losses) in 2022 include a gain of$9.0 million recognized during the fourth quarter of 2022 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). We do not consider this adjustment in assessing the financial performance of any of our operating or reportable segments and therefore, we have excluded it from the Segment Results sections that follow. See Note 16 of the Notes to Consolidated Financial Statements for a reconciliation of our segment results to our consolidated results. We recognized$33.2 million of net investment losses for the year endedDecember 31, 2022 driven by unrealized holding losses resulting from changes in the fair value of our equity investments and convertible securities. We recognized$24.3 million of net investment gains for the year endedDecember 31, 2021 , driven primarily by realized gains on the sale of certain available-for-sale fixed maturities and other investments, partially offset by unrealized holding losses resulting from decreases in the fair value on our equity portfolio.
Expenses
The following table shows our consolidated and segment net loss ratios and net
prior accident year reserve development.
Year Ended
($ in millions) 2022 2021 Change
Current accident year net loss ratio
Consolidated ratio 79.0 % 82.1 % (3.1 pts)
Specialty P&C 83.1 % 87.5 % (4.4 pts)
Workers' Compensation Insurance 71.8 % 74.0 % (2.2 pts)
Segregated Portfolio Cell Reinsurance 65.3 % 67.1 % (1.8 pts)
Lloyd's Syndicates 37.2 % 51.9 % (14.7 pts)
Calendar year net loss ratio
Consolidated ratio 75.4 % 77.4 % (2.0 pts)
Specialty P&C 79.2 % 82.8 % (3.6 pts)
Workers' Compensation Insurance 67.0 % 69.7 % (2.7 pts)
Segregated Portfolio Cell Reinsurance 56.3 % 51.1 % 5.2 pts
Lloyd's Syndicates 68.3 % 61.6 % 6.7 pts
Favorable (unfavorable) reserve development, prior
accident years
Consolidated $ 36.8 $ 45.5 $ (8.7)
Specialty P&C $ 29.8 $ 32.9 $ (3.1)
Workers' Compensation Insurance $ 8.0 $ 7.1 $ 0.9
Segregated Portfolio Cell Reinsurance $ 6.3 $ 10.2 $ (3.9)
Lloyd's Syndicates $ (7.3) $ (4.7) $ (2.6)
66
--------------------------------------------------------------------------------
Table of Contents
The primary drivers of the change in our consolidated current accident year net
loss ratio for the year ended
follows:
Increase (Decrease)
(In percentage points) 2022 versus 2021
Estimated ratio increase (decrease) attributable to:
NORCAL Operations (1.4 pts)
NORCAL Acquisition - Purchase Accounting Adjustment 0.2 pts
Change in Estimate of ULAE (2.5 pts)
All other, net 0.6 pts
Decrease in the consolidated current accident year net loss ratio
(3.1 pts)
•Excluding the impact of the items specifically identified in the table above, our consolidated current accident year net loss ratio increased 0.6 percentage points for the year endedDecember 31, 2022 driven by our Specialty P&C segment, partially offset by ourWorkers' Compensation Insurance , Segregated Portfolio Cell Reinsurance and Lloyd's Syndicates segments. As a result of actuarial analyses performed by both internal and consulting actuaries during 2022, we increased our current accident year net loss ratio in our Specialty P&C segment, excluding NORCAL, driven by an increase to certain expected loss ratios in our Standard Physician line of business due to higher than anticipated loss severity trends in select jurisdictions, which emerged primarily in the fourth quarter of 2022. See additional information in the Segment Results - Specialty Property and Casualty section that follows. In ourWorkers' Compensation Insurance segment, the lower current accident year net loss ratio for 2022 reflected an improvement in loss frequency and severity trends, partially offset by the continuation of intense price competition and the resulting renewal rate decreases. Further, the current accident year net loss ratio in ourWorkers' Compensation Insurance segment for 2021 reflects workers returning to full employment after the lifting of pandemic-related restrictions and the labor shortage. In our Segregated Portfolio Cell Reinsurance segment, the improvement in the current accident year net loss ratio for 2022 primarily reflects favorable trends in prior accident year workers' compensation claim results and their impact on our analysis of the current year loss estimate. For our Lloyd's Syndicates segment, the lower current accident year net loss ratio was driven by decreases to certain loss estimates during the first quarter of 2022, partially offset by lower reinsurance recoveries as a proportion of gross losses as compared to the prior year period. •Initial expected loss ratios associated with NORCAL policies are higher than the average for the other books of business in our Specialty P&C segment; however, we reduced certain expected NORCAL loss ratios during the fourth quarter of 2021 and also in the third and fourth quarters of 2022 due to favorable frequency trends some of which, we believe, are primarily attributable to our re-underwriting efforts, leading to a 1.4 percentage point improvement in our consolidated current accident year net loss ratio in 2022. We completed the process of evaluating the NORCAL book of business and implementingProAssurance's underwriting strategies during the second quarter of 2022. Furthermore, the 1.4 percentage point improvement also reflected a reduction to our reserve related to NORCAL's DDR coverage endorsements in the fourth quarter of 2022. •Also as a result of our acquisition of NORCAL, our consolidated current accident year net loss ratio in 2022 and 2021 was impacted by the purchase accounting amortization of the negative VOBA associated with NORCAL's assumed unearned premium of$4.9 million and$6.7 million , respectively, which was recorded as a reduction to current accident year net losses. As ofJune 30, 2022 , the negative VOBA was fully amortized which resulted in a 0.2 percentage point increase in 2022. •Beginning in 2022, we revised our process of estimating ULAE in our Specialty P&C segment as a result of substantially integrating NORCAL into our operations, which accounted for a 2.5 percentage point decrease in our consolidated current accident year net loss ratio for the year endedDecember 31, 2022 with an offsetting 2.5 percentage point increase in our consolidated expense ratio for the same current period with no impact to our consolidated combined ratio, total expenses or net income (loss). See additional information on this change in ULAE estimate in the Segment Results - Specialty Property and Casualty section that follows. 67
--------------------------------------------------------------------------------
Table of Contents
In both 2022 and 2021, our consolidated calendar year net loss ratio was lower
than our consolidated current accident year net loss ratio due to the
recognition of net favorable prior year reserve development, as shown in the
previous table. The following table shows the components of our consolidated net
prior accident year reserve development:
Year Ended
($ in thousands) 2022 2021 Change
Net favorable reserve development $ 25,934 $ 37,576 $ (11,642) (31.0 %)
NORCAL Acquisition - Purchase Accounting
Amortization* 10,819 7,907 2,912 36.8 %
Total net favorable reserve development $ 36,753 $ 45,483 $ (8,730) (19.2 %)
*See Note 2 of the Notes to Consolidated Financial Statements for additional information on the purchase accounting
adjustments.
•Development recognized in our Specialty P&C segment during 2022 principally related to accident years 2017 and 2020 through 2021. Net favorable prior accident year reserve development recognized in our Specialty P&C segment included favorable development related to NORCAL's 2021 accident year and, to a lesser extent, our Medical Technology Liability line of business. Net favorable prior accident year reserve development recognized in 2022 was partially offset by unfavorable reserve development in our HCPL line of business, excluding NORCAL, driven by higher than anticipated loss severity trends in select jurisdictions, which emerged primarily in the fourth quarter of 2022. We have not recognized any development related to NORCAL's accident years 2020 or prior since the date of acquisition onMay 5, 2021 . •We reduced our prior accident year IBNR reserve for COVID-19 by$9.0 million and$1.0 million during 2022 and 2021, respectively, as early first notices of potential claims related to anticipated COVID losses have not turned into claims. As ofDecember 31, 2022 , we no longer carry a specific IBNR reserve for potential COVID-19 related losses. 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."
•For our
Reinsurance segments, the net favorable development in 2022 reflected overall
favorable trends in claim closing patterns.
•We recognized$7.3 million of unfavorable prior year development in our Lloyd's Syndicates segment during the year endedDecember 31, 2022 driven by higher than expected losses and development on certain large claims, primarily catastrophe related losses.
Our consolidated and segment underwriting expense ratios were as follows:
Year Ended December 31
2022 2021 Change
Underwriting Expense Ratio
Consolidated (1) 29.9 % 27.6 % 2.3 pts
Specialty P&C 25.0 % 18.4 % 6.6 pts
Workers' Compensation Insurance 32.9 % 31.8 % 1.1 pts
Segregated Portfolio Cell Reinsurance 29.1 % 34.0 % (4.9 pts)
Lloyd's Syndicates 31.4 % 37.1 % (5.7 pts)
Corporate (2) 3.4 % 2.7 % 0.7 pts
(1) Consolidated underwriting expenses include transaction-related costs for 2022 and 2021 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 operating or reportable segments. See Note 16 of the Notes to 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).
68
--------------------------------------------------------------------------------
Table of Contents
The change in our consolidated underwriting expense ratio for the year endedDecember 31, 2022 as compared to 2021 was primarily attributable to the following: Increase (Decrease) (In percentage points)
2022 versus 2021
Estimated ratio increase (decrease) attributable to:
Change in Net Premiums Earned and DPAC amortization
0.5 pts
NORCAL DPAC Amortization - Prior Period Purchase Accounting Impact
1.4 pts Change in Estimate of ULAE 2.5 pts Transaction-related Costs(1) (2.4 pts) One-Time Expenses(2) 0.4 pts All other, net (0.1 pts) Increase in the underwriting expense ratio 2.3 pts (1) Represents transaction-related costs associated with our acquisition of NORCAL of$1.9 million and$25.0 million for 2022 and 2021, respectively. While these costs are included in our consolidated results, they are not allocated to an individual segment as we do not consider these costs in assessing the financial performance of any or our operating of reportable segments. See Note 16 of the Notes to Consolidated Financial Statements for a reconciliation of our segment results to our consolidated results. (2) Represents one-time expenses of$3.9 million for 2022 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. •Excluding the impact of items specifically identified in the table above, our consolidated underwriting expense ratio for 2022 remained relatively unchanged as compared to 2021. •As shown in the previous table, our consolidated underwriting expense ratio for 2022 is higher as compared to 2021 reflecting the impact of lower DPAC amortization than would have otherwise been recognized during 2021 associated with NORCAL policies 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 onMay 5, 2021 rather than being expensed pro rata over the remaining term of the associated policies (see Note 2 of the Notes to Consolidated Financial Statements in ourDecember 31, 2021 report on Form 10-K for more information). DPAC amortization in our Specialty P&C segment for 2022 was approximately$1.0 million lower than would have otherwise been recognized. Normalizing the prior year amortization would have increased our consolidated underwriting expense ratio for 2021 by 1.4 percentage points. •As shown in the previous table, the consolidated underwriting expense ratio for 2022 reflected a revision to our process of estimating ULAE in our Specialty P&C segment, as previously discussed, which resulted in approximately$25.4 million of expenses remaining in operating expenses instead of being allocated to net losses and loss adjustment expenses. As a result, this change in ULAE estimate accounted for a 2.5 percentage point increase in our consolidated underwriting expense ratio with an offsetting 2.5 percentage point decrease to our consolidated net loss ratio during the same period with no impact to our consolidated combined ratio, total expenses or net income (loss). See additional discussion on this change in ULAE estimate in the Segment Results - Specialty Property and Casualty section that follows.
Gain on Bargain Purchase
As a result of the NORCAL acquisition, we recognized a gain on bargain purchase of$74.4 million during the second quarter of 2021 representing the excess of the fair value of the identifiable assets acquired and liabilities assumed over the purchase consideration. We do not consider this gain in assessing the financial performance of any of our operating or reportable segments and therefore, we have excluded it from the Segment Results sections that follow. See further discussion around the gain on bargain purchase recognized from the NORCAL acquisition in Note 2 of the Notes to Consolidated Financial Statements. 69
--------------------------------------------------------------------------------
Table of Contents
Taxes
Our consolidated effective tax rates for the years endedDecember 31, 2022 and 2021 were as follows: Year Ended December 31 ($ in thousands) 2022 2021
Change
Income (loss) before income taxes
Income tax expense (benefit) (5,814) 2,483 (8,297) (334.2%)
Net income (loss) $ (402) $ 144,124 $ (144,526) (100.3%)
Effective tax rate 93.5% 1.7% 91.8 pts
We recognized an income tax benefit in 2022 of $5.8 million and income tax
expense of $2.5 million in 2021. Our effective tax rates for the years ended
December 31, 2022 and 2021 were different from the statutory federal income tax
rate of 21% typically due to the benefit recognized from the tax credits
transferred to us from our tax credit partnership investments. Additionally, our
effective tax rate for 2022 was impacted by a gain of $9.0 million related to
the change in fair value of contingent consideration issued in connection with
the NORCAL acquisition, all of which was non-taxable. For 2021, our effective
tax rate was also affected by the non-taxable $74.4 million gain on bargain
purchase related to the NORCAL acquisition. See further information on other
notable items impacting our effective tax rate for the years ended December 31,
2022 and 2021 in the Segment 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 years ended December 31, 2022 and
2021 was as follows:
Year Ended December 31
2022 2021 Change
Combined ratio 105.3 % 105.0 % 0.3 pts
Less: investment income ratio 9.3 % 7.3 % 2.0 pts
Operating ratio 96.0 % 97.7 % (1.7 pts)
Combined ratio, excluding transaction-related costs* 105.1 % 102.4 % 2.7 pts
*Excludes transaction-related costs of $1.9 million and $25.0 million in 2022 and 2021, respectively, associated with our
acquisition of NORCAL which are included in consolidated results and do not reflect normal operating expenses. See previous
discussion under the heading "Expenses."
The primary drivers of the change in our operating ratio were as follows:
Increase (Decrease)
(In percentage points) 2022 versus 2021
Estimated ratio increase (decrease) attributable to:
Investment Results (2.0 pts) Transaction-related Costs (2.4 pts)
NORCAL DPAC Amortization - Prior Period Purchase Accounting Impact
1.4 pts
All other, net 1.3 pts
Decrease in the operating ratio (1.7 pts)
Excluding the impact of the items specifically identified in the table above,
our operating ratio for 2022 increased as compared to 2021 driven by lower
favorable prior year development, partially offset by an improvement in our
Specialty P&C segment's current accident year net loss ratio. The improvement in
our Specialty P&C segment's current accident year net loss ratio in 2022 was
primarily attributable to a decrease to certain expected NORCAL loss ratios
during the third and fourth quarters of 2022 due to favorable frequency trends,
partially offset by an increase to certain expected loss ratios in our Standard
Physician line of business due to higher than anticipated loss emergence in
select jurisdictions. See previous discussion in this section under the heading
"Expenses" and further discussion in our Segment Operating Results sections that
follow.
70
--------------------------------------------------------------------------------
Table of Contents
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):
Year Ended
(In thousands, except per share data) 2022 2021
Net income (loss) $ (402) $ 144,124
Items excluded in the calculation of Non-GAAP operating income
(loss):
Net investment (gains) losses(1) 33,157 (24,310)
Net investment gains (losses) attributable to SPCs which no
profit/loss is retained (2)
(2,138) 3,253 Transaction-related costs (3) 1,862 24,977 Guaranty fund assessments (recoupments) 541 228 Gain on bargain purchase (4) - (74,408) Pre-tax effect of exclusions 33,422 (70,260) Tax effect, at 21% (5) (8,511) 2,028 After-tax effect of exclusions 24,911 (68,232) Non-GAAP operating income (loss)$ 24,509 $ 75,892 Per diluted common share: Net income (loss)$ (0.01) $ 2.67 Effect of exclusions 0.46 (1.27)
Non-GAAP operating income (loss) per diluted common share
$ 1.40 (1) Net investment gains (losses) in 2022 include a gain of$9.0 million related to the change in the fair value of contingent consideration issued in connection with the NORCAL acquisition. We have excluded this adjustment as it does not reflect normal operating results. See further discussion around the contingent consideration in Note 2 and Note 4 of the Notes to Consolidated Financial Statements. (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) Gain on bargain purchase associated with our acquisition of NORCAL which is considered unusual, infrequent and non-recurring in nature. As such, we have excluded the gain on bargain purchase as it does not reflect normal operating results. (5) The 21% rate is the statutory tax rate associated with the taxable or tax deductible items listed above. 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. The 2021 gain on bargain purchase and the 2022 gain related to the change in the fair value of contingent consideration are non-taxable and therefore had no associated income tax impact. 71
--------------------------------------------------------------------------------
Table of Contents
Non-GAAP Operating ROE
Non-GAAP operating ROE is a financial measure that is calculated as 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 years endedDecember 31, 2022 and 2021: Year Ended December 31 2022 2021 Change ROE(1) - % 5.3 % (5.3 pts) Pre-tax effect of items excluded in the calculation of Non-GAAP operating ROE 2.6 % 0.2 % 2.4 pts Tax effect, at 21%(2) (0.7 %) 0.1 % (0.8 pts) Non-GAAP operating ROE 1.9 % 5.6 % (3.7 pts) (1) The$74.4 million gain on bargain purchase recognized during the second quarter of 2021 was excluded in our calculation of ROE for the year endedDecember 31, 2021 consistent with our treatment of gains on bargain purchases from previous acquisitions. (2) The 21% rate is the statutory tax rate associated with the taxable or tax deductible items. See further discussion in footnote 5 in this section under the heading "Non-GAAP Operating Income." Non-GAAP operating ROE for 2022 decreased by 3.7 percentage points largely due to a decrease in our investment results from our portfolio of investments in LPs/LLCs (see previous discussion under the heading "Revenues"). Furthermore, the decrease in ROE for 2022 reflected a lower amount of prior year DPAC amortization associated with NORCAL policies than would have otherwise been recognized during 2021 due to the application of GAAP purchase accounting rules and a lower amount of favorable development as compared to 2021. See previous discussion in this section under the heading "Expenses" and further discussion in our Segment Operating Results sections that follow.
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 during 2022 lead to significant unrealized holding losses on our available-for-sale fixed maturity investments resulting in volatility in AOCI. See Note 12 of the Notes to 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
Book Value Per Share
Book Value Per Share at December 31, 2021 $ 26.46
Less: AOCI Per Share(1) 0.30
Non-GAAP Adjusted Book Value Per Share at December 31, 2021 26.16
Increase (decrease) to Non-GAAP Adjusted Book Value Per Share during the
year ended December 31, 2022 attributable to:
Dividends declared (0.20)
Net income (loss) (0.01)
Other(2) 0.04
Non-GAAP Adjusted Book Value Per Share at December 31, 2022 25.99
Add: AOCI Per Share(1) (5.53)
Book Value Per Share at December 31, 2022 $ 20.46
(1)Primarily the impact of accumulated unrealized investment gains (losses) on our
available-for-sale fixed maturity investments. See Note 12 of the Notes to Consolidated
Financial Statements for additional information.
(2) Includes the impact of share-based compensation and shares repurchased conducted through a
10b5-1 stock repurchase plan.
72
--------------------------------------------------------------------------------
Table of Contents
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. OnMay 5, 2021 , we completed our acquisition of NORCAL, an underwriter of healthcare professional liability insurance (Note 2 of the Notes to Consolidated Financial Statements provides additional information regarding this acquisition). 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 years endedDecember 31, 2022 and 2021 exclude transaction-related costs and, for 2021, a$74.4 million gain on bargain purchase associated with our acquisition of NORCAL as we do not consider these items in assessing the financial performance of the segment. Segment results included the following:
Year Ended
($ in thousands) 2022 2021 Change
Net premiums written $ 765,444 $ 626,147 $ 139,297 22.2 %
Net premiums earned $ 769,773 $ 695,008 $ 74,765 10.8 %
Other income 5,003 3,370 1,633 48.5 %
Net losses and loss adjustment expenses (609,915) (575,164)
(34,751) 6.0 % Underwriting, policy acquisition and operating expenses (192,397) (127,709) (64,688) 50.7 % Segment results$ (27,536) $ (4,495) $ (23,041) (512.6 %) Net loss ratio 79.2 % 82.8 % (3.6 pts) Underwriting expense ratio 25.0 % 18.4 % 6.6 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. For the year endedDecember 31, 2022 , our premium volume was primarily affected by our acquisition of NORCAL. 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:
Year Ended December
31
($ in thousands) 2022 2021
Change
Gross premiums written$ 836,628 $ 681,509 $ 155,119 22.8 % Less: Ceded premiums written 71,184 55,362 15,822 28.6 % Net premiums written$ 765,444 $ 626,147 $ 139,297 22.2 % 73
--------------------------------------------------------------------------------
Table of Contents
Gross Premiums Written
Gross premiums written by component were as follows:
Year Ended
($ in thousands) 2022 2021 Change
Professional Liability
HCPL
Standard Physician(1)(12) $ 205,271 $ 209,938 $
(4,667) (2.2 %)
NORCAL Standard Physician(2) 240,391 111,673 128,718 115.3 %
Total Standard Physician 445,662 321,611 124,051 38.6 %
Specialty
Custom Physician(3)(12) 49,931 46,210 3,721 8.1 %
NORCAL Custom Physician(4) 30,146 16,394
13,752 83.9 %
Hospitals and Facilities(5)(12) 56,121 51,310 4,811 9.4 %
NORCAL Hospitals and Facilities(6) 12,860 9,955 2,905 29.2 %
Senior Care(7)(12) 6,354 6,708 (354) (5.3 %)
Reinsurance assumed(8) 43,449 37,755 5,694 15.1 %
Total Specialty 198,861 168,332 30,529 18.1 %
Total HCPL 644,523 489,943 154,580 31.6 %
Small Business Unit(9) 102,524 103,083 (559) (0.5 %)
Tail Coverages(10)(12) 29,009 30,637 (1,628) (5.3 %)
NORCAL Tail Coverages(10) 18,646 16,092
2,554 15.9 %
Total Professional Liability 794,702 639,755
154,947 24.2 %
Medical Technology Liability(11) 41,065 40,997 68 0.2 %
Other 861 757 104 13.7 %
Total Gross Premiums Written
(1) Standard Physician premium, exclusive of NORCAL, decreased in 2022 as compared to 2021 driven by retention losses and, to a lesser extent, the shifting of certain policies totaling$4.2 million from our Standard Physician line to our Custom Physician line of business during the second quarter of 2022. Partially offsetting these factors during 2022 was an increase in renewal pricing and, to a lesser extent, new business written. Retention losses during 2022 generally reflect our underwriting strategy as we emphasize careful risk selection, rate adequacy, improved contract terms and a willingness to walk away from business that does not fit our goal of achieving a long-term underwriting profit. Our underwriting and strategic planning process includes a continual evaluation of venues, specialties and other areas to improve our underwriting results. Renewal pricing increases during 2022 reflect the rising loss cost environment and new business written reflects the competitive market conditions. (2) NORCAL Standard Physician premium represents premium contributed by NORCAL since the date of acquisition and is comprised of twelve month term policies and, to a lesser extent, three month term policies. NORCAL Standard Physician premium increased during 2022 driven by approximately four months of additional premium in 2022 as compared to 2021 due to the timing of our acquisition of NORCAL onMay 5, 2021 . The remaining increase in NORCAL Standard Physician premium during 2022 was due to an increase in renewal pricing, the conversion of a majority of the three month term policies to twelve month term policies and, to a lesser extent, new business written, partially offset by retention losses. Retention losses in 2022 were primarily attributable to price competition and the process of evaluating the NORCAL book of business and implementingProAssurance's underwriting strategies. (3) 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. Exclusive of NORCAL, the increase in Custom Physician premium in 2022 as compared to 2021 primarily reflected the shifting of certain policies totaling$4.2 million from our Standard Physician line of business. In addition, the increase reflected new business written, an increase in renewal pricing and, to a lesser extent, net timing differences of$1.3 million primarily related to the prior year renewal of a few policies, partially offset by retention losses. Renewal pricing increases for 2022 reflect pricing actions taken in response to a rising loss cost environment and new business written 74
--------------------------------------------------------------------------------
Table of Contents
reflects the competitive market conditions. The retention rate in our Custom Physician book in 2022 reflects the impact of the loss of two large policies totaling$9.0 million due to the willingness of competitors to offer pricing and terms that did not meet our underwriting criteria during the first quarter of 2022, which resulted in a decrease to our Specialty retention rate of 5.4 percentage points. (4) NORCAL Custom Physician premium represents premium contributed by NORCAL since the date of acquisition and includes large physician groups, multi-state physician groups and non-standard physicians and is written primarily on an excess and surplus lines basis. NORCAL Custom Physician premium increased during 2022 as compared to 2021 driven by approximately four months of additional premium during 2022 as compared to 2021 due to the timing of our acquisition of NORCAL onMay 5, 2021 . In addition, the increase in NORCAL Custom Physician premium during 2022 reflected an increase in renewal pricing and, to a lesser extent, new business written, partially offset by retention losses. Retention losses during 2022 reflect the loss of a$2.2 million policy during the second quarter of 2022 due to price competition as well as our evaluation of the NORCAL book of business and implementingProAssurance's underwriting strategies. (5) Hospitals and Facilities premium, exclusive of NORCAL, (which includes hospitals, surgery centers and miscellaneous medical facilities) increased in 2022 as compared to 2021 driven by new business written, primarily miscellaneous medical facilities, and, to a lesser extent, an increase in renewal pricing, partially offset by retention losses. Retention losses in 2022 were largely attributable to the loss of a$1.4 million policy due to the insured entering into a captive arrangement and our non-renewal of a$1.2 million policy during the first quarter of 2022 due to our focus on underwriting discipline. Renewal pricing increases in 2022 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. (6) NORCAL Hospitals and Facilities premium represents premium contributed by NORCAL since the date of acquisition and includes hospitals, surgery centers and miscellaneous medical facilities. NORCAL Hospitals and Facilities premium increased in 2022 as compared to 2021 driven by approximately four months of additional premium during 2022 as compared to 2021 due to the timing of our acquisition of NORCAL onMay 5, 2021 . In addition, the increase in NORCAL Hospitals and Facilities premium in 2022 as compared to 2021 reflected new business written and, to a lesser extent, an increase in renewal pricing, partially offset by retention losses. Retention losses in 2022 are largely attributable to the process of evaluating the NORCAL book of business and implementingProAssurance's underwriting strategies. (7) 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 remained relatively unchanged in 2022 as compared to 2021 as retention losses were offset by new business written and, to a lesser extent, an increase in renewal pricing. The lower premium retention in 2022 was primarily due to a large account renewing with a meaningful reduction in exposure driven by a reduction in the number of facilities. (8) We offer custom alternative risk solutions including assumed reinsurance. The increase in premium in 2022 reflected 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. In 2021, we increased our participation in the original program and entered into another program with this insurer in a new international territory. We anticipate the volume of premium assumed through this partnership will continue to grow going forward. In addition, the increase in 2022 reflected an assumed reinsurance arrangement with a regional hospital group entered into during the third quarter of 2022 totaling$1.3 million . The increase in premium in 2022 as compared to 2021 was partially offset by the impact of a prior year assumed reinsurance arrangement with a regional hospital group which resulted in$4.5 million of premium written, comprised of$2.3 million of retroactive premium written and fully earned and$2.2 million of prospective premium written. Furthermore, premium in both 2022 and 2021 reflected the annual renewal of this arrangement during the third quarter. (9) Our Small Business Unit is comprised of premium associated with podiatrists, legal professionals, dentists and chiropractors. Our Small Business Unit premium remained relatively unchanged in 2022 as compared to 2021 as an increase in renewal pricing and new business written were offset by retention losses. The increase in renewal pricing in 2022 was primarily the result of an increase in the rate charged for certain renewed policies in select states. (10) 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 are not cancellable. The amount of tail coverage premium written can vary significantly from period to period. 75
--------------------------------------------------------------------------------
Table of Contents
(11) Our Medical Technology Liability business is marketed throughout theU.S. ; coverage is typically offered on a primary 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 remained relatively unchanged in 2022 as compared to 2021 as retention losses were more than offset by new business written and an increase in renewal pricing. Renewal pricing increases in 2022 are primarily due to changes in the sales volume and changes in exposure of certain insureds. Retention losses in 2022 are primarily attributable to insureds no longer needing coverage, an increase in competition on terms and pricing, as well as merger activity within the industry. (12) 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 ownedCayman 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. Year Ended December 31 ($ in millions) 2022 2021 Change Standard Physician $ -$ 2.0 $ (2.0) nm Custom Physician 2.0 - 2.0 nm Hospitals and Facilities 0.1 0.1 - - % Senior Care 4.8 5.2 (0.4) (7.7 %) Tail Coverages 4.9 0.8 4.1 512.5 % Total$ 11.8 $ 8.1 $ 3.7 45.7 % Alternative market gross premiums written increased in 2022 as compared to 2021 driven by an increase in tail coverage premium, primarily related to one program. Additionally, alternative market gross premiums during 2022 reflected a$2.0 million expiring Standard Physician policy in one program renewed as a Custom Physician policy during the second quarter of 2022. 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:
Year Ended December 31
2022
Specialty P&C segment 7 %
HCPL
Standard Physician 7 %
Specialty 10 %
Total HCPL 8 %
Small Business Unit 6 %
Medical Technology Liability 3 %
76
--------------------------------------------------------------------------------
Table of Contents
New business written by major component on a direct basis was as follows:
Year Ended December 31
(In millions) 2022 2021
HCPL
Standard Physician $ 9.8 $ 4.7
Specialty 19.1 28.2
Total HCPL 28.9 32.9
Small Business Unit 3.8 3.9
Medical Technology Liability 4.6 6.5
Total $ 37.3 $ 43.3
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:
Year Ended December 31
2022 2021
Specialty P&C segment 84 % 80 %
HCPL
Standard Physician 88 % 86 %
Specialty 69 % 58 %
Total HCPL 82 % 77 %
Small Business Unit 91 % 91 %
Medical Technology Liability 90 % 90 %
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 . Through our current
excess of loss reinsurance arrangements which renewed effective October 1, 2022 ,
we 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 0% to 5% of the next $24 million of risk.
There were no significant changes in the cost or structure of our HCPL treaty
upon the October 2022 renewal. Our HCPL excess of loss reinsurance arrangement
that renewed on October 1, 2021 renewed at a lower gross rate and prospectively
incorporated NORCAL policies. Prior to October 1, 2021 , NORCAL policies were
reinsured under separate reinsurance agreements, primarily excess of loss, which
have historically renewed annually on January 1 . For the NORCAL excess of loss
reinsurance arrangement that renewed on January 1, 2021 , retention was generally
the first $2 million in risk and coverages in excess of this amount were ceded
up to $24 million . For our Medical Technology Liability treaty which also
renewed effective October 1, 2022 , we do not retain any of the next $8 million
of risk for coverages in excess of $2 million .
We pay our reinsurers a ceding premium in exchange for their accepting the risk,
and in certain of our excess of loss arrangements, the ultimate amount of which
is determined by the loss experience of the business ceded, subject to certain
minimum and maximum amounts. Given the length of time that it takes to resolve
our claims, many years may elapse before all losses recoverable under a
reinsurance arrangement are known. As a part of the process of estimating our
loss reserve we also make estimates regarding the amounts recoverable under our
reinsurance arrangements. As a result, we may have an adjustment to our estimate
of expected losses and associated recoveries for prior year ceded losses under
certain loss sensitive reinsurance agreements. Any changes to estimates of
premiums ceded related to prior accident years are fully earned in the period
the changes in estimates occur.
77
--------------------------------------------------------------------------------
Table of Contents
Ceded premiums written were as follows:
Year Ended
($ in thousands) 2022 2021 Change
Excess of loss reinsurance arrangements (1)
24.1 % Other shared risk arrangements (2) 19,049 16,112 2,937 18.2 % Premium ceded to SPCs (3) 10,902 7,211 3,691 51.2 % NORCAL premiums ceded since acquisition (4) - 2,253 (2,253) nm Other ceded premiums written (5) 6,056 3,100 2,956 95.4 % Adjustment to premiums owed under reinsurance agreements, prior accident years, net (6) (2,828) (3,936) 1,108 (28.2 %) Total ceded premiums written$ 71,184 $ 55,362 $ 15,822 28.6 % (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. The increase in ceded premiums written under our excess of loss reinsurance arrangements was driven by the incorporation of NORCAL policies into our existing HCPL excess of loss reinsurance arrangements with theOctober 1, 2021 renewal, as previously discussed, which contributed$11.2 million of ceded premiums in 2022 as compared to$1.9 million in 2021. Excluding NORCAL, ceded premiums written under our excess of loss reinsurance arrangements decreased by approximately$1.9 million in 2022 as compared to 2021 primarily due to a decrease in the overall volume of gross premiums written subject to cession and, to a lesser extent, the higher retention and reduced rate on the treaty year effectiveOctober 1, 2021 . (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. These arrangements primarily include ourAscension Health program. The increase in ceded premiums written under our shared risk arrangements in 2022 as compared to 2021 was primarily due to an increase in premium ceded to our Ascension Health Program. (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 in 2022 increased as compared to 2021 driven by the impact of tail coverages, primarily related to one program (see previous discussion in footnote 12 under the heading "Gross Premiums Written"). (4)NORCAL policies written prior toOctober 1, 2021 were reinsured under separate reinsurance agreements, primarily excess of loss; however, these policies were incorporated into our existing HCPL excess of loss reinsurance arrangements with theOctober 1, 2021 renewal, as previously discussed. For NORCAL's previous excess of loss agreement, deposit ceded premium, as defined in the contract, was initially estimated and recorded at the inception date of the treaty, generallyJanuary 1 , as an estimate of ceded premiums written for the full contract year based on information provided by brokers and reinsurers. As a result, the majority of ceded premiums for NORCAL's excess of loss reinsurance arrangement were recorded by NORCAL before the acquisition in their first quarter 2021 results and were expensed pro rata throughout the contract year. However, these initial estimates of ceded premiums were periodically adjusted as new information was received and were fully earned in the period the changes in estimates occurred. NORCAL's ceded premiums written in 2021 related almost entirely to an increase in the estimate of premiums owed in excess of the deposit ceded premium initially recorded by NORCAL prior to acquisition and, to a lesser extent, premium related to cyber liability coverages. (5)The increase in other ceded premiums written in 2022 as compared to 2021 was primarily driven by the incorporation of NORCAL's cyber liability coverages into our existing HCPL cyber liability arrangement with theJanuary 1, 2022 renewal. 78
--------------------------------------------------------------------------------
Table of Contents
(6)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 the review of our reserves for 2022 and 2021,
we recorded a net decrease in our estimate of expected losses and associated
recoveries for prior year ceded losses, as well as our estimate of ceded
premiums owed to reinsurers. 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 ratio was affected in both 2022
and 2021 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:
Year Ended December 31
2022 2021 Change
Ceded premiums ratio 8.5 % 8.1 % 0.4 pts
Less the effect of adjustments in premiums owed under
reinsurance agreements, prior accident years (as previously
discussed)
(0.3 %) (0.6 %) 0.3 pts Ratio, current accident year 8.8 % 8.7 % 0.1 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 ceded premiums ratio remained relatively unchanged for 2022 as compared to 2021. 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 NORCAL Standard Physician policies have a three-month term. In addition, prior to the third quarter of 2020, we wrote certain Standard Physician policies with a twenty-four 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:
Year Ended December 31
($ in thousands) 2022 2021 Change
Gross premiums earned $ 834,500 $ 761,411 $ 73,089 9.6 %
Less: Ceded premiums earned 64,727 66,403 (1,676) (2.5 %)
Net premiums earned $ 769,773 $ 695,008 $ 74,765 10.8 %
Gross premiums earned included earned premium from our acquisition of NORCAL of
approximately $296.5 million in 2022 as compared to $226.0 million in 2021.
Excluding NORCAL premiums, gross premiums earned increased $2.6 million in 2022
as compared to 2021 driven by our focus on rate adequacy.
Ceded premiums earned during both 2022 and 2021 included prior accident year
ceded premium adjustments under swing rated reinsurance agreements (see previous
discussion in footnote 6 under the heading "Ceded Premiums Written"). After
removing the effect of prior accident year ceded premium adjustments from both
years, ceded premiums earned decreased $2.8 million in 2022 as compared to 2021
driven by a decrease in premium ceded under our shared risk arrangements during
the preceding twelve months, partially offset by the pro rata effect of an
increase in premium ceded under our excess of loss arrangements during the
preceding twelve months.
79
--------------------------------------------------------------------------------
Table of Contents
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)
Year Ended December 31
2022 2021 Change
Calendar year net loss ratio 79.2 % 82.8 % (3.6 pts)
Less impact of prior accident years on the net loss ratio (3.9 %)
(4.7 %) 0.8 pts Current accident year net loss ratio(2) 83.1 % 87.5 % (4.4 pts)
(1)Net losses, as specified, divided by net premiums earned.
(2)For the year endedDecember 31, 2022 , our current accident year net loss ratio (as shown in the table above), improved 4.4 percentage points as compared to 2021. The change in our current accident year net loss ratio was primarily attributable to the following:
Increase (Decrease) 2022
(In percentage points) versus 2021
Estimated ratio increase (decrease) attributable to:
NORCAL Operations (2.2 pts)
NORCAL Acquisition - Purchase Accounting Amortization 0.3 pts
Change in Estimate of ULAE (3.3 pts)
Ceded Premium Adjustments, Prior Accident Years 0.2 pts
All other, net 0.6 pts
Decrease in current accident year net loss ratio
(4.4 pts)
•Excluding the impact of the items specifically identified in the table above, our current accident year net loss ratio increased 0.6 percentage points during 2022 as compared to 2021 driven by actuarial analyses performed by both internal and consulting actuaries during 2022. We update and review the data underlying the estimation of our current accident year reserve each reporting period and make adjustments to current accident year net loss ratios that we believe best reflect emerging data. Both our internal and consulting actuaries perform an in-depth review of our current accident year reserve on at least a semiannual basis. As a result of these analyses in 2022, we increased our current accident year net loss ratio, excluding NORCAL, driven by an increase to certain expected loss ratios in our Standard Physician line of business due to higher than anticipated loss severity trends in select jurisdictions, which emerged primarily in the fourth quarter of 2022. The increase in our current accident year net loss ratio was partially offset by our reduction to certain expected loss ratios during the first quarter of 2022 in our Standard Physician and Specialty lines of business primarily reflecting the improvement in pricing and terms that we have obtained in our estimate of expected losses. •Initial expected loss ratios associated with NORCAL policies are higher than the average for our other books of business in this segment; however, we reduced certain expected NORCAL loss ratios during the fourth quarter of 2021 and also in the third and fourth quarters of 2022 due to favorable frequency trends, some of which, we believe, are attributable to our re-underwriting efforts, leading to a 2.2 percentage point improvement in our segment current accident year net loss ratio in 2022. We completed the process of evaluating the NORCAL book of business and implementingProAssurance's underwriting strategies during the second quarter of 2022. Furthermore, the 2.2 80
--------------------------------------------------------------------------------
Table of Contents
percentage point improvement also reflected a reduction to our reserve related
to NORCAL's DDR coverage endorsements in the fourth quarter of 2022.
•Also as a result of our acquisition of NORCAL, our current accident year net loss ratio in 2022 and 2021 was impacted by the purchase accounting amortization of the negative VOBA associated with NORCAL's assumed unearned premium of$4.9 million and$6.7 million , respectively, which is recorded as a reduction to current accident year net losses. As ofJune 30, 2022 , the negative VOBA was fully amortized which resulted in a 0.3 percentage point increase in our current period ratio as compared to the prior year period. •Beginning in 2022, we revised our process of estimating ULAE as a result of substantially integrating NORCAL into our Specialty P&C segment operations, which accounted for a 3.3 percentage point decrease in our current accident year net loss ratio in 2022 with an offsetting 3.3 percentage point increase in our current period expense ratio with no impact to our combined ratio or segment results during the year endedDecember 31, 2022 (see discussion on our expense ratio in the following section under the heading "Underwriting, Policy Acquisition and Operating Expenses"). •In 2022 and 2021, we decreased our estimate of premiums owed under reinsurance agreements related to prior accident years which increased net premium earned (the denominator of the current accident year net loss ratio) and accounted for a 0.2 percentage point increase in our current period ratio. See the previous discussion under the heading "Ceded Premiums Written" for additional information. We re-evaluate our previously established reserve each quarter based upon the most recently completed actuarial analysis supplemented by any new analysis, information or trends that have emerged since the date of that study. We also take into account currently available industry trend information. The following table shows the components of our net prior accident year reserve development: Year Ended December 31 ($ in thousands) 2022 2021 Change Net favorable reserve development $ 19,000 $ 25,035$ (6,035) (24.1 %) NORCAL Acquisition - Purchase Accounting Amortization* 10,819 7,907 2,912 36.8 %
Total net favorable reserve development $ 29,819 $
32,942$ (3,123) (9.5 %)
*See Note 2 of the Notes to Consolidated Financial Statements for additional information on the amortization of the NORCAL
acquisition purchase accounting adjustments.
•Development recognized during 2022 principally related to accident years 2017 and 2020 through 2021. Net favorable prior accident year reserve development recognized in 2022 included favorable development related to NORCAL's 2021 accident year and, to a lesser extent, our Medical Technology Liability line of business. Net favorable prior accident year reserve development recognized in 2022 was partially offset by unfavorable reserve development in our HCPL line of business, excluding NORCAL, driven by higher than anticipated loss severity trends in select jurisdictions, which emerged primarily in the fourth quarter of 2022. We have not recognized any development related to NORCAL's accident years 2020 or prior since the date of acquisition onMay 5, 2021 based on our comparison of expected loss emergence to actual loss emergence.
•Development recognized in 2021 primarily reflected lower than anticipated loss
emergence, principally related to accident years 2015 through 2020.
•We reduced our prior accident year IBNR reserve for COVID-19 by$9.0 million and$1.0 million during 2022 and 2021, respectively, as early first notices of potential claims related to anticipated COVID losses have not turned into claims. As ofDecember 31, 2022 , we no longer carry a specific IBNR reserve for potential COVID-19 related losses. 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." •Net favorable development recognized in 2022 included an increase of$4.0 million and$1.0 million in our reserve for potential ECO/XPL claims in 2022 and 2021, respectively. A detailed discussion of factors influencing our recognition of loss development is included in our Critical Accounting Estimates section under the heading "Reserve for Losses and Loss Adjustment Expenses." Assumptions used in establishing our reserve are regularly reviewed and updated by management as new data becomes available. Any adjustments necessary are reflected in the then current operations. Due to the size of our reserve, even a small percentage adjustment to the assumptions can have a material effect on our results of operations for the period in which the change is made, as was the case in both 2022 and 2021. 81
--------------------------------------------------------------------------------
Table of Contents
Underwriting, Policy Acquisition and Operating Expenses
Our Specialty P&C segment underwriting, policy acquisition and operating
expenses were comprised as follows:
Year Ended
($ in thousands) 2022 2021 Change
DPAC amortization $ 91,660 $ 61,662 $ 29,998 48.6 %
Management fees 4,763 3,781 982 26.0 %
Other underwriting and operating expenses 95,974 62,266
33,708 54.1 % Total$ 192,397 $ 127,709 $ 64,688 50.7 % DPAC amortization for 2022 increased due to a higher amount of premiums written driven by our 2021 acquisition of NORCAL. Due to the NORCAL acquisition and application of GAAP purchase accounting rules, the level of DPAC amortization in 2021 was approximately$13.4 million lower than would have otherwise been recognized. Under these purchase accounting rules, the capitalized policy acquisition costs for policies written prior to the acquisition date were written off through purchase accounting onMay 5, 2021 rather than being expensed pro rata over the remaining term of the associated policies. DPAC amortization associated with NORCAL policies in 2022 is approximately$1.0 million lower than would have otherwise been recognized for the period. The remaining increase in DPAC amortization for 2022 as compared to 2021 reflected an increase in agency commissions due to a higher volume of commissionable premium driven by NORCAL and an increase in compensation-related expenses driven by an increase in headcount due to the addition of NORCAL employees. Management fees are charged pursuant to a management agreement by the Corporate segment to the 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. 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. Due to continued organizational structure enhancements in our Specialty P&C segment during 2021 as well as operational alignments as a result of the integration of NORCAL, the extent to which services are provided exclusively by the Corporate segment to the operating subsidiaries within the segment decreased further effectiveJanuary 1, 2022 . Accordingly, we reduced the fee charged to the operating subsidiaries in 2022. Also effectiveJanuary 1, 2022 , the management agreement included the wholly owned operating subsidiaries of NORCAL contributing to$1.3 million of additional management fees in 2022. Other underwriting and operating expenses increased in 2022 primarily due to a revision to our process of estimating ULAE which resulted in approximately$25.4 million of expenses remaining in operating expenses instead of being allocated to net losses and loss adjustment expenses. As a result, this change in ULAE estimate had offsetting impacts to our loss and expense ratios during 2022 with no impact to our combined ratio or segment results. See additional discussion on this change in ULAE estimate in the previous section under the heading "Losses and Loss Adjustment Expenses." Excluding the impact of the change in ULAE, other underwriting and operating expenses increased in 2022 as compared to 2021. The increase in 2022 was primarily attributable to higher amounts accrued for performance-related incentive plans due to our improved performance metrics, an increase in professional fees, as well as certain one-time expenses of$3.9 million , partially offset by the benefits from prior organizational restructurings and proactive expense management as well as expense synergies recognized from the NORCAL acquisition. The increase in professional fees in 2022 was primarily attributable to an increase in IT consulting fees. One-time expenses in 2022 were mainly comprised of one-time bonuses, accelerated depreciation associated with a decommissioned IT system, employee severance charges and lease exit costs. 82
--------------------------------------------------------------------------------
Table of Contents
Underwriting Expense Ratio (the Expense Ratio)
Our expense ratio for the Specialty P&C segment was as follows:
Year Ended December 31
2022 2021
Change
Underwriting expense ratio 25.0 % 18.4 %
6.6 pts
The change in our expense ratio in 2022 as compared to 2021 was primarily
attributable to the following:
Increase (Decrease)
(In percentage points)
2022 versus 2021
Estimated ratio increase (decrease) attributable to:
Change in Net Premiums Earned and DPAC amortization
1.5 pts NORCAL DPAC Amortization - Prior Period Purchase Accounting Impact 1.9 pts Change in Estimate of ULAE 3.3 pts One-Time Expenses 0.5 pts All other, net (0.6 pts) Increase in the underwriting expense ratio
6.6 pts
Excluding the impact of the items specifically identified in the table above,
our expense ratio improved in 2022 by 0.6 percentage points primarily due to the
benefits from prior organizational restructurings and proactive expense
management as well as expense synergies recognized from the NORCAL acquisition,
partially offset by higher amounts accrued for performance-related incentive
plans and, to a lesser extent, an increase in professional fees, as previously
discussed. As shown in the table above, the higher expense ratio for 2022 as
compared to 2021 reflects the impact of purchase accounting on prior year DPAC
amortization, the current year change in estimate of ULAE and the impact of
one-time expenses, as previously discussed. The increase in the expense ratio
from higher DPAC amortization, excluding the prior year purchase accounting
impact, in relation to net premiums earned for 2022 of 1.5 percentage points
primarily reflects an increase in agency commissions due to a higher volume of
commissionable premium driven by NORCAL.
83
--------------------------------------------------------------------------------
Table of Contents Segment Results -Workers' Compensation Insurance OurWorkers' 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. 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 withProAssurance for two programs. OurWorkers' 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:
Year Ended
($ in thousands) 2022 2021 Change
Net premiums written $ 160,760 $ 161,865 $ (1,105) (0.7 %)
Net premiums earned $ 166,371 $ 164,600 $ 1,771 1.1 %
Other income 2,201 2,211 (10) (0.5 %)
Net losses and loss adjustment expenses (111,407) (114,704)
3,297 (2.9 %) Underwriting, policy acquisition and operating expenses (54,737) (52,418) (2,319) 4.4 % Segment results$ 2,428 $ (311) $ 2,739 (880.7 %) Net loss ratio 67.0% 69.7% (2.7 pts) Underwriting expense ratio 32.9% 31.8% 1.1 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:
Year Ended December
31
($ in thousands) 2022 2021
Change
Gross premiums written$ 247,132 $ 240,546 $ 6,586 2.7 % Less: Ceded premiums written 86,372 78,681 7,691 9.8 % Net premiums written$ 160,760 $ 161,865 $
(1,105) (0.7 %)
84
--------------------------------------------------------------------------------
Table of Contents
Gross Premiums Written
Gross premiums written by product were as follows:
Year Ended
($ in thousands) 2022 2021 Change
Traditional business:
Guaranteed cost $ 135,847 $ 138,756 $ (2,909) (2.1 %)
Policyholder dividend 21,547 21,468 79 0.4 %
Deductible 4,705 4,613 92 2.0 %
Retrospective(1) 3,123 2,741 382 13.9 %
Other 7,286 6,357 929 14.6 %
Change in EBUB estimate 1,450 (1,210) 2,660 219.8 %
Total traditional business 173,958 172,725 1,233 0.7 %
Alternative market business(2) 73,174 67,821 5,353 7.9 %
Total $ 247,132 $ 240,546 $ 6,586 2.7 %
(1) The change in retrospectively-rated policies included an adjustment that
decreased premium by $1.7 million and $1.1 million during the years ended
December 31, 2022 and 2021, respectively.
(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.
Gross premiums written increased during the year ended December 31, 2022 as
compared to 2021, primarily reflecting higher audit premium and changes in the
carried EBUB estimate, partially offset by lower renewal and new business
premium. Policy audits processed in 2022 resulted in audit premium billed to
policyholders totaling $13.6 million as compared to audit premium returned to
policyholders totaling $0.8 million in 2021. The 2022 audit premium results
reflect higher payrolls related to an increased workforce, as well as wage
inflation, in our policyholders' businesses. Additionally, the carried EBUB
estimate was increased $1.5 million in 2022 as compared to a reduction of $1.2
million in 2021. The increase in the carried EBUB estimate during 2022 reflects
management's expectation of higher audited payrolls related to wage inflation.
Our new business premium, renewal retention and rate change results in 2022 were
reflective of the competitive workers' compensation market conditions. Renewal
retention in our traditional business was impacted by the loss of a large
account with expiring premium totaling $3.8 million, which decreased the renewal
retention 2.2 percentage points.
We retained 100% of the twenty-three workers' compensation alternative market
programs that were up for renewal during the year ended December 31, 2022. We
wrote one new workers' compensation alternative market program with an
unaffiliated captive insurer during 2022 with premiums written totaling $1.9
million. The policies in this program were written in our traditional book of
business during 2021; therefore, there was no impact to gross premiums written
in 2022.
New business, audit premium, renewal retention and renewal price changes for our
traditional business and the alternative market business are shown in the table
below:
Year Ended December 31
2022 2021
Alternative
Traditional Market Segment Traditional Alternative Segment
($ in millions) Business Business Results Business Market Business Results
New business $ 14.1 $ 3.6 $ 17.7 $ 17.8 $ 3.3 $ 21.1
Audit premium (excluding EBUB) $ 8.2 $ 5.4 $ 13.6
$ (1.9) $ 1.1 $ (0.8) Retention rate (1) 82 % 87 % 83 % 86 % 89 % 87 % Change in renewal pricing (2) (5 %) (4 %) (5 %) (1 %) (4 %) (2 %)
(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.
85
--------------------------------------------------------------------------------
Table of Contents
Ceded Premiums Written
Ceded premiums written were as follows:
Year Ended December 31
($ in thousands) 2022 2021 Change
Premiums ceded to SPCs(1) $ 68,035 $ 64,639 $ 3,396 5.3 %
Premiums ceded to external reinsurers(2) 14,177 12,768 1,409 11.0 %
Premiums ceded to unaffiliated captive
insurers(1) 5,139 3,182 1,957 61.5 %
Change in return premium estimate under
external reinsurance(3) 297 (605) 902 (149.1 %)
Estimated revenue share under external
reinsurance(4) (1,276) (1,303) 27 (2.1 %)
Total ceded premiums written $ 86,372 $ 78,681 $ 7,691 9.8 %
(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 year effective May 1, 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 increased during the year ended December 31, 2022 as
compared to the year ended December 31, 2021, primarily reflecting higher
alternative market premiums ceded to the Segregated Portfolio Cell Reinsurance
segment and unaffiliated captive insurers as well as an increase in reinsurance
rates under our external reinsurance treaty. The increase in premiums ceded to
unaffiliated captive insurers in 2022 as compared to 2021 reflects the new
alternative market program written in 2022 (see previous discussion under the
heading "Gross Premiums Written").
Ceded Premiums Ratio
Ceded premiums ratio was as follows:
Year Ended December 31
2022 2021 Change
Ceded premiums ratio, as reported 34.1 % 32.4 % 1.7 pts
Less the effect of:
Premiums ceded to SPCs (100%) 24.6 % 24.6 % - pts
Premiums ceded to unaffiliated captive insurers (100%) 2.2 % 1.7 % 0.5 pts
Estimated revenue share (0.7 %) (0.7 %) - pts
Assumed premiums earned (not ceded to external
reinsurers) (0.3 %) (0.2 %) (0.1 pts)
Ceded premiums ratio (related to external reinsurance),
less the effects of above
8.3 % 7.0 % 1.3 pts
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 ratio in 2022 as compared to 2021
primarily reflected the higher reinsurance rates and a decrease in the estimated
return premium.
86
--------------------------------------------------------------------------------
Table of Contents
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 and 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 processed 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:
Year Ended December 31
($ in thousands) 2022 2021 Change
Gross premiums earned $ 252,452 $ 243,665 $ 8,787 3.6 %
Less: Ceded premiums earned 86,081 79,065 7,016 8.9 %
Net premiums earned $ 166,371 $ 164,600 $ 1,771 1.1 %
Net premiums earned increased during the year ended December 31, 2022 as
compared to 2021 primarily reflecting higher audit premium and the change in the
carried EBUB estimate, partially offset by the continuation of competitive
market conditions.
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:
Year Ended December 31
2022 2021 Change
Calendar year net loss ratio 67.0 % 69.7 % (2.7 pts)
Less impact of prior accident years on the net loss
ratio
(4.8 %) (4.3 %) (0.5 pts)
Current accident year net loss ratio 71.8 % 74.0 % (2.2 pts)
The current accident year net loss ratio decreased in 2022 as compared to 2021
primarily reflecting an improvement in loss frequency and severity trends,
partially offset by the continuation of intense price competition and the
resulting renewal rate decreases. The current accident year net loss ratio in
2021 reflected higher claim activity as workers returned to employment with the
easing of pandemic-related restrictions in our operating territories, including
the impact of labor shortages on the existing workforce.
Calendar year incurred losses (excluding IBNR) in excess of our per occurrence
reinsurance retention, before consideration of the AAD (see previous discussion
under the heading "Ceded Premiums Written"), decreased $8.5 million in 2022 as
compared to 2021. We retained losses in excess of our per occurrence retention
totaling $5.0 million for the year ended December 31, 2022 as compared to $6.6
million in 2021 which reflected losses within the AAD.
We recognized net favorable prior year development of $8.0 million for the year
ended December 31, 2022 as compared to $7.1 million for 2021. The net favorable
prior year reserve development for the years ended December 31, 2022 and 2021
reflected overall favorable trends in claim closing patterns. Net favorable
development for the year ended December 31, 2022 primarily related to accident
years 2017 through 2020. Net favorable development for the year ended December
31, 2021 primarily related to accident years 2012 through 2017.
87
--------------------------------------------------------------------------------
Table of Contents
Underwriting, Policy Acquisition and Operating Expenses
Underwriting, policy acquisition and operating expenses include the amortization of commissions, premium taxes and underwriting salaries, which are capitalized and deferred over the related workers' compensation policy period, net of ceding commissions earned. The capitalization of underwriting salaries can vary as they are subject to the success rate of our contract acquisition efforts. These expenses also include a management fee charged by our Corporate segment, which represents intercompany charges pursuant to a management agreement, and the amortization of intangible assets, primarily related to the acquisition of Eastern byProAssurance . The management fee is based on the extent to which services are provided to the subsidiary and the amount of premium written by the subsidiary.
Our Workers' Compensation Insurance segment underwriting, policy acquisition and
operating expenses were comprised as follows:
Year Ended
December 31
($ in thousands) 2022 2021 Change
DPAC amortization $ 29,585 $ 29,092 $ 493 1.7 %
Management fees 1,853 1,804 49 2.7 %
Other underwriting and operating expenses 37,146 34,359
2,787 8.1 %
Policyholder dividend expense 902 1,155
(253) (21.9 %)
SPC ceding commission offset (14,749) (13,992) (757) 5.4 % Total $ 54,737 $ 52,418 $ 2,319 4.4 %
The increase in DPAC amortization for the year ended December 31, 2022 as
compared to 2021 primarily reflected the increase in gross premiums earned.
The increase in other underwriting and operating expenses for the year ended December 31, 2022 as compared to 2021 primarily reflected an increase in costs related to compensation and business-related travel as well as planned higher marketing costs related to advertising and website-related activities in 2022. The increase in compensation-related costs primarily reflected a higher headcount. The increase in travel-related costs reflected the easing of pandemic-related restrictions and the return to more normal business activity. 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 year ended December 31, 2022 as compared to 2021, primarily reflected the increase in alternative market ceded earned premium.
Underwriting Expense Ratio (the Expense Ratio)
The underwriting expense ratio included the impact of the following:
Year Ended December 31
2022 2021 Change
Underwriting expense ratio, as reported 32.9 % 31.8 % 1.1 pts
Less estimated ratio increase (decrease) attributable
to:
Impact of ceding commissions received from SPCs
3.9 % 3.3 % 0.6 pts
Impact of audit premium (1.2 %) 0.4 % (1.6 pts)
Underwriting expense ratio, less listed effects 30.2 % 28.1 % 2.1 pts
Excluding the items noted in the table above, the expense ratio increased for
the year ended December 31, 2022, primarily reflecting the increase in other
underwriting and operating expenses, as previously discussed.
88
--------------------------------------------------------------------------------
Table of Contents Segment Results - Segregated Portfolio Cell Reinsurance The Segregated Portfolio Cell Reinsurance segment includes the results (underwriting profit or loss, plus investment results, net ofU.S. federal income taxes) of SPCs at Inova Re and Eastern Re, our Cayman Islands SPC operations, as discussed in Note 17 of the Notes to Consolidated Financial Statements. 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 December 31, 2022, 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 December 31, 2022, 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:
Year Ended
December 31
($ in thousands) 2022 2021 Change
Net premiums written $ 69,357 $ 63,042 $ 6,315 10.0 %
Net premiums earned $ 69,810 $ 63,688 $ 6,122 9.6 %
Net investment income 1,029 814 215 26.4 %
Net investment gains (losses) (3,067) 4,080 (7,147) (175.2 %)
Other income 2 3 (1) (33.3 %)
Net losses and loss adjustment expenses (39,310) (32,569) (6,741) 20.7 %
Underwriting, policy acquisition and operating
expenses
(20,316) (21,635) 1,319 (6.1 %)
SPC
(1,759) (1,947) 188 (9.7 %) SPC net results 6,389 12,434 (6,045) (48.6 %) SPC dividend (expense) income (2) (6,673) (10,050) 3,377 (33.6 %) Segment results (3) $
(284) $ 2,384 $ (2,668) (111.9 %)
Net loss ratio 56.3% 51.1% 5.2 pts Underwriting expense ratio 29.1% 34.0% (4.9 pts) (1) Represents the provision forU.S. federal income taxes for SPCs at Inova Re, which have elected to be taxed as aU.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. 89
--------------------------------------------------------------------------------
Table of Contents
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:
Year Ended December 31
($ in thousands) 2022 2021 Change
Gross premiums written $ 78,937 $ 71,850 $ 7,087 9.9 %
Less: Ceded premiums written 9,580 8,808 772 8.8 %
Net premiums written $ 69,357 $ 63,042 $ 6,315 10.0 %
Gross Premiums Written
Gross premiums written reflected reinsurance premiums assumed by component as
follows:
Year Ended December 31
($ in thousands) 2022 2021 Change
Workers' compensation $ 68,035 $ 64,639 $ 3,396 5.3 %
Healthcare professional liability 10,902 7,211 3,691 51.2 %
Gross Premiums Written $ 78,937 $ 71,850 $ 7,087 9.9 %
Gross premiums written for the years ended December 31, 2022 and 2021 were
primarily comprised of workers' compensation coverages assumed from our Workers'
Compensation Insurance segment. Workers' compensation gross premiums written
increased during the year ended December 31, 2022 as compared to 2021 reflecting
higher audit premium, partially offset by a decrease in renewal premium. The
increase in healthcare professional liability gross premiums written in 2022 as
compared to 2021 primarily reflected the impact of tail coverage premium related
to one program in which we do not participate. See further discussion in our
Segment Results - Specialty Property & Casualty section under the heading
"Premiums Written." We retained 100% of the twenty-two workers' compensation and
three healthcare professional liability alternative market programs up for
renewal for the year ended December 31, 2022.
New business, audit premium, retention and renewal price changes for the assumed
workers' compensation premium is shown in the table below:
Year Ended December 31
($ in millions) 2022 2021
New business $ 3.6 $ 3.3
Audit premium $ 5.4 $ 1.1
Retention rate (1) 87 % 89 %
Change in renewal pricing (2) (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.
90
--------------------------------------------------------------------------------
Table of Contents
Ceded Premiums Written
Ceded premiums written were as follows:
Year Ended December 31
($ in thousands) 2022 2021 Change
Ceded premiums written $ 9,580 $ 8,808 $ 772 8.8 %
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 $2.1 million on a
program year basis. Premiums ceded under our SPC reinsurance treaty are based on
premiums written during the treaty period. The change in ceded premiums written
in 2022 as compared to 2021 primarily reflected the increase in workers'
compensation gross premiums written and the impact of rate increases under the
external reinsurance treaty. External reinsurance rates vary based on the
alternative market program.
Ceded Premiums Ratio
Ceded premiums ratio was as follows:
Year Ended December 31
2022 2021 Change
Ceded premiums ratio 14.1 % 13.6 % 0.5 pts
The above table reflects ceded premiums as a percent of gross premiums written
for the workers' compensation business only; healthcare professional liability
business is assumed net of reinsurance, as discussed above. The ceded premiums
ratio reflects the weighted average reinsurance rates of all SPC programs. The
increase in the ceded premiums ratio for the year ended December 31, 2022
reflects an increase in reinsurance rates.
Net Premiums Earned
Net premiums earned consist of gross premiums earned less the portion of earned premiums that the SPCs cede to external reinsurers. Because premiums are generally earned pro rata over the entire policy period, fluctuations in premiums earned tend to lag those of premiums written. Policies ceded to the SPCs are twelve month term policies and premiums are earned on a pro rata basis over the policy period. Net premiums earned also include premium adjustments related to the audit of workers' compensation insureds' payrolls. Payroll audits are conducted subsequent to the end of the policy period and any related adjustments are recorded as fully earned in the current period.
Gross, ceded and net premiums earned were as follows:
Year Ended December 31
($ in thousands) 2022 2021 Change
Gross premiums earned $ 79,347 $ 72,359 $ 6,988 9.7 %
Less: Ceded premiums earned 9,537 8,671 866 10.0 %
Net premiums earned $ 69,810 $ 63,688 $ 6,122 9.6 %
The increase in net premiums earned during the year ended December 31, 2022 as
compared to 2021, primarily reflected the aforementioned impact of healthcare
professional liability tail premium written and fully earned and the increase in
workers' compensation audit premium billed to policyholders.
91
--------------------------------------------------------------------------------
Table of Contents
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 years ended
December 31, 2022 and 2021 were as follows:
Year Ended December 31
2022 2021 Change
Calendar year net loss ratio 56.3 % 51.1 % 5.2 pts
Less impact of prior accident years on the net loss
ratio
(9.0 %) (16.0 %) 7.0 pts Current accident year net loss ratio 65.3 % 67.1 % (1.8 pts)
Less estimated ratio increase (decrease) attributable
to:
Change in estimated aggregate reinsurance
0.9 % (2.2 %) 3.1 pts
Current accident year net loss ratio, excluding the
effect of the change in estimated aggregate
reinsurance
64.4 % 69.3 % (4.9 pts) During the year ended December 31, 2022, we decreased our estimate of aggregate reinsurance which increased our current accident year net loss ratios as compared to 2021. The decrease in the estimated aggregate reinsurance reflected an improvement in expected ultimate program year losses in certain programs. 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 ratio, excluding the effect of changes in estimated aggregate reinsurance, decreased in 2022 as compared to 2021, reflecting a lower workers' compensation current accident year net loss ratio, partially offset by a higher healthcare professional liability current accident year net loss ratio. The improvement in the workers' compensation current accident year net loss ratio for 2022 primarily reflects favorable trends in prior accident year workers' compensation claim results and their impact on our analysis of the current year loss estimate, and the impact of audit premium, partially offset by the continuation of intense price competition and the resulting renewal rate decreases in the workers' compensation business. The increase in the healthcare professional liability current accident year loss ratio for 2022 primarily reflected an increase in expected claim frequency related to one program in which we do not participate. Calendar year incurred losses (excluding IBNR) ceded to our external reinsurers increased $2.9 million for the year ended December 31, 2022 as compared to 2021. Current accident year ceded incurred losses (excluding IBNR) increased $5.1 million for the year ended December 31, 2022 as compared to 2021.
We recognized net favorable prior year reserve development of $6.3 million and
$10.2 million for the years ended December 31, 2022 and 2021, respectively.
Net favorable prior year reserve development in the workers' compensation
business totaled $7.0 million in 2022 as compared to $7.6 million in 2021. The
2022 net favorable prior year reserve development in the workers' compensation
business reflected overall favorable trends in claim closing patterns primarily
in accident years 2016 through 2021. The 2021 net favorable development related
primarily to accident year 2015 and accident years 2018 through 2020.
Net unfavorable prior year reserve development in the healthcare professional
liability business totaled $0.7 million in 2022 as compared to $2.5 million of
favorable development in 2021. The 2022 net unfavorable prior year reserve
development primarily reflected higher than expected claim frequency in one
program in which we do not participate. The 2021 net favorable prior year
reserve development related primarily to accident years 2018 through 2020.
92
--------------------------------------------------------------------------------
Table of Contents
Underwriting, Policy Acquisition and Operating Expenses
Our Segregated Portfolio Cell Reinsurance segment underwriting, policy
acquisition and operating expenses were comprised as follows:
Year Ended
December 31
($ in thousands) 2022 2021
Change
DPAC amortization $ 20,068 $ 18,730
$ 1,338 7.1 %
Policyholder dividend expense 167 508
(341) (67.1 %)
Other underwriting and operating expenses 81 2,397
(2,316) (96.6 %) Total $ 20,316 $ 21,635 $ (1,319) (6.1 %) 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.
Other underwriting and operating expenses primarily include bank fees,
professional fees and changes in the allowance for expected credit losses. The
decrease in other underwriting and operating expenses for the year ended
December 31, 2022 as compared to 2021 primarily reflects changes in the
allowance for expected credit losses related to the collection of customer
accounts that were previously written off.
The decrease in policyholder dividend expense for the year ended December 31, 2022 as compared to 2021, primarily reflects changes in estimated dividends for one SPC program, in which we do not participate.
Underwriting Expense Ratio (the Expense Ratio)
The underwriting expense ratio included the impact of the following:
Year Ended December 31
2022 2021 Change
Underwriting expense ratio, as reported 29.1 % 34.0 % (4.9 pts)
Less: impact of audit premium on expense ratio (2.3 %) (0.5 %) (1.8 pts)
Underwriting expense ratio, excluding the effect of
audit premium
31.4 % 34.5 % (3.1 pts)
Excluding the effect of audit premium, the underwriting expense ratio decreased
for the year ended December 31, 2022. The decrease in the underwriting expense
ratio in 2022 primarily reflected the change in the allowance for expected
credit losses and policyholder dividend expense, as discussed above.
93
--------------------------------------------------------------------------------
Table of Contents
Segment Results - Lloyd's Syndicates Our Lloyd's Syndicates segment includes the results from our participation in Syndicate 1729 and Syndicate 6131 atLloyd's of London . In addition to our participation in Syndicate results, we have investments in and other obligations to our Lloyd's Syndicates consisting of a Syndicate Credit Agreement and FAL requirements. For the 2022 underwriting year, our FAL was comprised of investment securities and cash and cash equivalents deposited with Lloyd's which at December 31, 2022 had a fair value of approximately $24.8 million, as discussed in Note 4 of the Notes to Consolidated Financial Statements. During the second quarter of 2022 we received a return of approximately $5.5 million of cash from our FAL balances given Syndicate 6131 ceased underwriting on a quota share basis with Syndicate 1729 as Syndicate 6131's business is retained within Syndicate 1729 beginning with the 2022 underwriting year. The return of FAL during the second quarter of 2022 also related to the settlement of our participation in the results of Syndicate 1729 and Syndicate 6131 for the 2019 underwriting year. Further, during the fourth quarter of 2022, we received a return of approximately $5.6 million of cash from our FAL balances due to lower capital requirements for the 2023 underwriting year followingLloyd's of London's review of Syndicate 1729's 2023 business plan.
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. Furthermore, the investment results associated with our FAL
investments and certain
concurrently as that information is available on an earlier time frame.
We provide capital to Syndicate 1729, which covers a range of property and casualty insurance and reinsurance lines in both theU.S. and international markets. The remaining capital for Syndicate 1729 is provided by unrelated third parties, including private names and other corporate members. For each of the 2023 and 2022 underwriting years our participation in the results of Syndicate 1729 is approximately 5%. Syndicate 1729 had a maximum underwriting capacity of £210 million (approximately $254 million at December 31, 2022) for the 2022 underwriting year, of which £11 million (approximately $14 million at December 31, 2022) is our allocated underwriting capacity. Effective January 1, 2022, Syndicate 6131 ceased underwriting on a quota share basis with Syndicate 1729, as previously discussed; the results from our participation in Syndicate 6131 from open underwriting years prior to 2022 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 6131 was not reflected in our results until the second quarter of 2022. Syndicate 1729's maximum underwriting capacity for the 2023 underwriting year is £280 million (approximately $338 million at December 31, 2022), of which £15 million (approximately $18 million at December 31, 2022) is our allocated underwriting capacity.
In addition to the results of our participation in Lloyd's Syndicates, as
discussed above, our Lloyd's Syndicates segment also includes 100% of the
results of our wholly owned subsidiaries that support our operations at Lloyd's.
For the years ended December 31, 2022 and 2021, the results of our Lloyd's
Syndicates segment were as follows:
Year
Ended December 31
($ in thousands) 2022 2021 Change
Gross premiums written $ 20,233 $ 37,969 $ (17,736) (46.7 %)
Less: Ceded premiums written (1,657) (6,302) 4,645 (73.7 %)
Net premiums written $ 18,576 $ 31,667 $ (13,091) (41.3 %)
Net premiums earned $ 23,627 $ 48,372 $ (24,745) (51.2 %)
Net investment income 568 1,961 (1,393) (71.0 %)
Net investment gains (losses) (964) 249 (1,213) (487.1 %)
Other income 119 912 (793) (87.0 %)
Net losses and loss adjustment expenses (16,130) (29,812) 13,682 (45.9 %)
Underwriting, policy acquisition and operating
expenses (7,412) (17,957) 10,545 (58.7 %)
Segment results $ (192) $ 3,725 $ (3,917) (105.2 %)
Net loss ratio 68.3 % 61.6 % 6.7 pts
Underwriting expense ratio 31.4 % 37.1 % (5.7 pts)
Premiums
Changes in premium volume within our Lloyd's Syndicates segment are driven by
five primary factors: (1) changes in our participation in the Syndicates, (2)
the amount of new business and the channels in which the business is written,
(3) the retention of existing business, (4) 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 and (5) the timing of premium written
through multi-period policies. Gross premiums written in 2022 consisted of
property insurance coverages (30% of total gross premiums written), casualty
coverages (24%), catastrophe reinsurance coverages (16%), contingency coverages
(14%), specialty property
94
--------------------------------------------------------------------------------
Table of Contents
coverages (13%) and property reinsurance coverages (3%). The decrease in net premiums written in 2022 as compared to 2021 was primarily driven by the impact of our decreased participation in the results of Syndicates 1729 and 6131 for the 2021 underwriting year and our ceased participation in Syndicate 6131 for the 2022 underwriting year. The decrease in net premiums written in 2022 was partially offset by volume increases on renewal business and renewal pricing increases, primarily on property and specialty insurance coverages, as well as new business written, primarily on property insurance and casualty coverages. Net premiums earned consist of gross premiums earned less the portion of earned premiums that the Syndicates cede to reinsurers for their assumption of a portion of losses. Premiums written through open-market channels are generally earned pro rata over the entire policy period, which is predominantly twelve months, whereas premiums written through delegated underwriting authority arrangements are generally earned over the policy period plus twelve months. Therefore, net premiums earned is affected by shifts in the mix of policies written between the open-market and delegated underwriting authority arrangements. Additionally, net premiums earned consists of a mix of policies earned from different open underwriting years. As previously discussed, we participate to a varying degree in each open underwriting year which may cause fluctuations in premiums earned. Furthermore, fluctuations in premiums earned tend to lag those of premiums written. Premiums for certain policies and assumed reinsurance contracts are reported subsequent to the coverage period and/or may be subject to adjustment based on loss experience. These premium adjustments are earned when reported, which can result in further fluctuation in earned premium. Net premiums earned decreased during the year ended December 31, 2022 as compared to 2021 primarily attributable to the pro rata effect of a reduction in net premiums written during the preceding twelve months.
Net Losses and Loss Adjustment Expenses
Losses for the year were primarily recorded using the loss assumptions by risk category incorporated into the business plan submitted to Lloyd's for Syndicate 1729 with consideration given to loss experience incurred to date. The assumptions used in the business plan were consistent with loss results reflected in Lloyd's historical data for similar risks. The loss ratios may fluctuate due to the mix of earned premium and the timing of earned premium adjustments (see discussion in this section under the heading "Premiums"). Premium and exposure for some of Syndicate 1729's insurance policies and reinsurance contracts are initially estimated and subsequently adjusted over an extended period of time as underlying premium reports are received from cedents and insureds. When reports are received, the premium, exposure and corresponding loss estimates are revised accordingly. Changes in loss estimates due to premium or exposure fluctuations are incurred in the accident year in which the premium is earned.
The following table summarizes calendar year net loss ratios by separating
losses between the current accident year and all prior accident years. Net loss
ratios for the period were as follows:
Year Ended December 31
2022 2021 Change
Calendar year net loss ratio 68.3 % 61.6 % 6.7 pts
Less: impact of prior accident years on the net
loss ratio 31.1 % 9.7 % 21.4 pts
Current accident year net loss ratio 37.2 % 51.9 % (14.7 pts)
The current accident year net loss ratio decreased in 2022 as compared to 2021
driven by decreases to certain loss estimates during the first quarter of 2022,
partially offset by lower reinsurance recoveries as a proportion of gross losses
as compared to the prior year period and, to a lesser extent, certain
catastrophe losses in the current period.
We recognized $7.3 million and $4.7 million of unfavorable prior year
development for the years ended December 31, 2022 and 2021, respectively. The
unfavorable prior year development for the year ended December 31, 2022 was
driven by higher than expected losses and development on certain large claims,
primarily catastrophe related losses.
Underwriting, Policy Acquisition and Operating Expenses
For the year ended December 31, 2022, the underwriting expense ratio decreased
by 5.7 percentage points as compared to 2021, which primarily reflected the
impact of our ceased participation in Syndicate 6131 for the 2022 underwriting
year. Syndicate 6131 incurred nominal operating expenses during 2022, whereas
the net premiums earned during the same period also includes premium from open
underwriting years prior to 2022. The decrease in the underwriting expense ratio
in 2022 also reflected the impact of our reduced participation in the results of
Syndicate 1729 and Syndicate 6131 for the 2021 underwriting year.
95
--------------------------------------------------------------------------------
Table of Contents
Segment Results - Corporate
Our Corporate segment includes our investment operations excluding those reported in our Segregated Portfolio Cell Reinsurance and Lloyd's Syndicates segments as discussed in Note 16 of the Notes to Consolidated Financial Statements. In addition, this segment includes corporate expenses, interest expense,U.S. income taxes and non-premium revenues generated outside of our insurance entities. Segment results for the year ended December 31, 2022 and 2021 exclude transaction-related costs as well as the associated income tax benefit and, for 2022, the change in fair value of contingent consideration related to the NORCAL acquisition as we do not consider these items in assessing the financial performance of the segment. For additional information on the NORCAL acquisition see Note 2 of the Notes to Consolidated Financial Statements. Segment results for our Corporate segment were net earnings of $17.7 million and $91.2 million for the years ended December 31, 2022 and 2021, respectively, and included the following: Year Ended December 31 ($ in thousands) 2022 2021 Change Net investment income $ 94,375 $ 67,747 $ 26,628 39.3 % Equity in earnings (loss) of unconsolidated subsidiaries $ 4,888 $ 48,974 $ (44,086) (90.0 %) Net investment gains (losses) $ (38,126) $ 19,981 $ (58,107) (290.8 %) Other income $ 6,198 $ 5,531 $ 667 12.1 % Operating expense $ 34,733 $ 26,641 $ 8,092 30.4 % Interest expense $ 20,372 $ 19,719 $ 653 3.3 % Income tax expense (benefit) $ (5,423) $ 4,651 $ (10,074) (216.6 %)
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 increases in the cash surrender value of BOLI contracts, net of investment fees and expenses.
Net investment income (loss) by investment category was as follows:
Year Ended
December 31
($ in thousands) 2022 2021 Change
Fixed maturities $ 92,034 $ 71,451 $ 20,583 28.8 %
Equities 3,706 2,539 1,167 46.0 %
Short-term investments, including Other 5,414 1,860
3,554 191.1 %
BOLI 1,141 2,699
(1,558) (57.7 %)
Investment fees and expenses (7,920) (10,802) 2,882 (26.7 %)
Net investment income $ 94,375 $ 67,747 $ 26,628 39.3 %
Fixed Maturities
Income from our fixed maturities increased in 2022 as compared to 2021 driven by
higher average book yields as we continue to reinvest at higher rates as our
portfolio matures. In addition, the increase in income from our fixed maturities
during 2022 reflected higher average investment balances primarily attributable
to the addition of fixed maturity securities valued at $1.1 billion to our
portfolio on May 5, 2021 as a result of the NORCAL acquisition. As a result of
the NORCAL acquisition, average investment balances over a twelve month period
were approximately 17% higher for 2022 as compared to 2021; excluding the impact
of the acquisition, average investment balances were approximately 2% higher.
Average yields for our fixed maturity portfolio were as follows:
Year Ended December 31
2022 2021
Average income yield 2.5% 2.3%
Average tax equivalent income yield 2.5% 2.3%
96
--------------------------------------------------------------------------------
Table of Contents
Equities
Income from our equity portfolio increased in 2022 as compared to 2021 which
reflected changes in the mix of equities owned.
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 inU.S. treasury obligations, commercial paper and money market funds. Income from our short-term and other investments increased during 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 ofProAssurance or NORCAL management at the time the policies were acquired. Income from our BOLI policies decreased in 2022 as compared to 2021 primarily attributable to a decrease in the cash surrender value of policies acquired from NORCAL.
Investment Fees and Expenses
Investment fees and expenses decreased in 2022 as compared to 2021 primarily due to no longer paying an incentive fee on convertibles and the renegotiation of our contract due to the addition of NORCAL.
Equity in Earnings (Loss) of Unconsolidated Subsidiaries
Equity in earnings (loss) of unconsolidated subsidiaries was comprised as
follows:
Year Ended December 31
($ in thousands) 2022 2021 Change
All other investments, primarily investment fund
LPs/LLCs $ 11,954 $ 64,031 $ (52,077) (81.3 %)
Tax credit partnerships (7,066) (15,057) 7,991 (53.1 %)
Equity in earnings (loss) of unconsolidated
subsidiaries $ 4,888 $ 48,974 $ (44,086) (90.0 %)
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 2022 as compared to 2021 decreased primarily due to the performance
of certain LP/LLCs which reflected lower market valuations during 2022.
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 benefit of credits and losses from our historic
tax credit partnership 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 year ended December 31, 2022 reflected
lower partnership operating losses as compared to 2021, partially offset by an
increase in our estimate of operating losses by $1.0 million and $1.9 million
for the years ended December 31, 2022 and 2021, respectively.
97
--------------------------------------------------------------------------------
Table of Contents
The tax benefits received from our tax credit partnerships, which are not
reflected in our investment results, reduced our tax expense in 2022 and 2021 as
follows:
Year Ended December 31
(In millions) 2022 2021
Tax credits recognized during the period $ 4.8 $ 13.2
Tax benefit of tax credit partnership operating losses $ 1.5
$ 3.2
The tax credits generated from our tax credit partnership investments of $4.8
million for 2022 were deferred for use in future periods due to our expected
consolidated loss calculated on a tax basis. For the year ended December 31,
2021, the tax credits generated from our tax credit partnership investments of
$13.2 million were deferred to be utilized in future periods. Not included in
the table above is $0.5 million of tax credits recaptured from the 2019 tax year
during the year ended December 31, 2022 due to the carryback of our estimated
NOL for the year ended December 31, 2022 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 December 31, 2022, we had approximately
$51.2 million of available tax credit carryforwards generated from our
investments in tax credit partnerships which we expect to utilize in future
years. See further discussion in Note 6 of the Notes to Consolidated Financial
Statements.
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.
Net Investment Gains (Losses)
The following table provides detailed information regarding our net investment
gains (losses).
Year Ended December 31
(In thousands) 2022 2021 Total impairment losses Corporate debt $ (1,331) $ - Asset-backed securities (441) -
Portion of impairment losses recognized in other comprehensive income
before taxes:
Asset-backed securities
14 - Net impairment losses recognized in earnings (1,758) - Gross realized gains, available-for-sale fixed maturities 1,649 13,047 Gross realized (losses), available-for-sale fixed maturities (3,041) (1,133) Net realized gains (losses), equity investments (5,928) 5,394 Net realized gains (losses), other investments (222) 8,660 Change in unrealized holding gains (losses), equity investments (18,483) (4,697)
Change in unrealized holding gains (losses), convertible securities,
carried at fair value as a part of other investments
(10,557) (1,701)
Other 214 411
Net investment gains (losses) $ (38,126) $ 19,981
For the year ended December 31, 2022, we recognized $1.8 million of
credit-related impairment losses in earnings and a nominal amount of non-credit
impairment losses in OCI. The credit-related impairment losses recognized during
the year ended December 31, 2022 related to a corporate bond in the consumer
sector as well as certain mortgage-backed and other asset-backed securities. We
did not recognize any credit-related impairment losses in earnings or non-credit
impairment losses in OCI for the year ended December 31, 2021.
We recognized $38.1 million of net investment losses for the year ended
December 31, 2022 driven by unrealized holding losses resulting from changes in
the fair value of our equity investments and convertible securities and, to a
lesser extent, realized losses from the sale of equity investments. We
recognized $20.0 million of net investment gains for the year ended December 31,
2021, driven primarily by realized gains on the sale of certain
available-for-sale fixed maturities and other investments, partially offset by
unrealized holding losses resulting from decreases in the fair value on our
equity portfolio.
98
--------------------------------------------------------------------------------
Table of Contents
Operating Expenses
Corporate segment operating expenses were comprised as follows:
Year Ended December 31
($ in thousands) 2022 2021 Change
Operating expenses $ 41,350 $ 36,007 $ 5,343 14.8 %
Management fee offset (6,617) (9,366) 2,749 (29.4 %)
Total $ 34,733 $ 26,641 $ 8,092 30.4 %
Operating expenses increased during the year ended December 31, 2022 as compared
to 2021 primarily due to an increase in compensation-related costs, professional
fees, business-related travel and share-based compensation expenses. The
increase in professional fees in 2022 was primarily driven by an increase in
consulting fees and, to a lesser extent, an increase in recruiting and employee
placement fees as a result of filling open positions across the organization.
Prior to 2022, recruiting and employee placement fees were allocated to the
operating segments. The increase in compensation-related costs during 2022 was
driven by an increase in segment headcount due to the addition of Corporate
NORCAL employees. Subsequent to acquisition on May 5, 2021, compensation-related
costs of all NORCAL employees were reported in our Specialty P&C segment.
Beginning in 2022, compensation-related costs for Corporate NORCAL employees are
reported in our Corporate segment. In addition, the increase in
compensation-related costs also reflected higher amounts accrued for
performance-related incentive plans due to our improved performance metrics. The
increase in share-based compensation expenses in 2022 was attributable to the
effect of the incorporation of certain NORCAL employees into our share-based
compensation plans beginning in 2022.
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. 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. Due to continued organizational structure
enhancements in our Specialty P&C segment during 2021 as well as operational
alignments as a result of the integration of NORCAL, the extent to which
services are provided exclusively by the Corporate segment to the operating
subsidiaries within the Specialty P&C segment decreased further effective
January 1, 2022. Accordingly, we reduced the fee charged to the operating
subsidiaries within the Specialty P&C segment during the first quarter of 2022.
Also effective January 1, 2022, the management agreement included the wholly
owned operating subsidiaries of NORCAL contributing to $1.3 million of
additional management fees during 2022. There were no changes to the extent to
which services are provided exclusively by the Corporate segment to the
operating subsidiaries within our Workers' Compensation Insurance segment in
2022.
99
--------------------------------------------------------------------------------
Table of Contents
Interest Expense
Consolidated interest expense for the years ended December 31, 2022 and 2021 was
comprised as follows:
Year Ended December 31
($ in thousands) 2022 2021 Change
Senior Notes due 2023 $ 13,429 $ 13,429 $ - - %
Contribution Certificates (including accretion)(1) 7,332 5,046 2,286 45.3 %
Revolving Credit Agreement (including fees and
amortization) (2) 1,016 1,120 (104) (9.3 %)
Mortgage Loans (including amortization) - 444 (444) nm
(Gain)/loss on interest rate cap (1,405) (320) (1,085) (339.1 %)
Interest expense $ 20,372 $ 19,719 $ 653 3.3 %
(1) Includes accretion of approximately $1.8 million and $1.2 million for the years ended December 31, 2022 and 2021,
respectively, 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 year ended December 31, 2022. During
the third quarter of 2021, we repaid the balance outstanding on the Revolving Credit Agreement of $15.0 million. Interest
expense in both 2022 and 2021 primarily reflected unused commitment fees.
Consolidated interest expense increased during 2022 as compared to 2021 driven
by the Contribution Certificates associated with our acquisition of NORCAL on
May 5, 2021 (see Note 2 and Note 11 of the Notes to Consolidated Financial
Statements), partially offset by the change in the fair value of our interest
rate cap which was terminated in the second quarter of 2022. See further
discussion of our interest rate cap agreement in Note 3 and further discussion
on our outstanding debt in Note 11 of the Notes to Consolidated Financial
Statements.
Taxes
Tax expense allocated to our Corporate segment includesU.S. tax only, which would includeU.S. tax expense incurred from our corporate membership inLloyd's of London . AnyU.K. tax expense incurred by theU.K. based subsidiaries of our Lloyd's Syndicates segment is allocated to that segment. The SPCs at Inova Re, one of ourCayman Islands reinsurance subsidiaries, have each made a 953(d) election under theU.S. Internal Revenue Code and are subject toU.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: Year Ended December 31 (In thousands) 2022 2021 Corporate segment income tax expense (benefit)
$ (5,423) $ 4,651
Income tax expense (benefit) - transaction-related costs* (391) (2,168)
Consolidated income tax expense (benefit) $ (5,814) $ 2,483
*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 16 of the Notes to
Consolidated Financial Statements for a reconciliation of our segment results
to our consolidated results.
100
--------------------------------------------------------------------------------
Table of Contents
Listed below are the primary factors affecting our consolidated effective tax
rate for the years ended December 31, 2022 and 2021. The comparability of each
factor's impact on our effective tax rate is affected by the consolidated
pre-tax loss recognized during 2022 as compared to the consolidated pre-tax
income recognized during 2021. Factors that have the same directional impact on
income tax expense (benefit) in each period have an opposite impact on our
effective tax rate due to the effective tax rate being calculated based upon a
pre-tax loss during the year ended December 31, 2022 versus the pre-tax income
during the year ended December 31, 2021. These factors include the following:
Year Ended December 31
2022 2021
Income tax
Income tax (benefit)
($ in thousands) (benefit) expense Rate Impact expense Rate Impact
Computed "expected" tax expense (benefit) at statutory
rate $ (1,305) 21.0 % $ 30,787 21.0 %
Tax-exempt income (1) (1,072) 17.2 % (1,298) (0.9 %)
Tax credits (4,805) 77.3 % (13,160) (9.0 %)
Non-U.S. operating results (411) 6.6 % (1,322) (0.9 %)
Tax deficiency (excess tax benefit) on share-based
compensation
309 (5.0 %) 286 0.2 % Non-taxable gain on bargain purchase (2) - - % (15,626) (10.7 %) Non-taxable contingent consideration(3) (1,890) 30.4 % - - % Provision-to-return and other differences 1,112 (17.9 %) 3,574 2.4 % Change in uncertain tax positions 780 (12.5 %) (1,909) (1.3 %) Change in limitation of future deductibility of certain executive compensation 708 (11.4 %) 303 0.3 % GILTI and subpart F income 556 (8.9 %) 721 0.6 % State income taxes 105 (1.7 %) 460 0.3 % Other 99 (1.6 %) (333) (0.3 %) Total income tax expense (benefit) $ (5,814) 93.5 % $ 2,483 1.7 %
(1) Includes tax-exempt interest, dividends received deduction and change in
cash surrender value of BOLI.
(2) Represents the tax impact of the non-taxable gain on bargain purchase as a
result of our acquisition of NORCAL on May 5, 2021. See further discussion on
the gain on bargain purchase in Note 2 of the Notes to Consolidated Financial
Statements.
(3) Represents the tax impact of the change in the fair value of contingent
consideration issued in connection with the NORCAL acquisition, all of which is
non-taxable. See further discussion on the contingent consideration in Note 2
and Note 3 of the Notes to Consolidated Financial Statements.
Our consolidated effective tax rates for 2022 and 2021, as shown in the table
above, differed from the statutory federal income tax rate of 21% in each
respective year typically due to the benefit recognized from the tax credits
transferred to us from our tax credit partnership investments. Tax credits
recognized for the year ended December 31, 2022 were $4.8 million as compared to
$13.2 million in 2021. While projected tax credits for 2022 are less than 2021,
they continue to have a significant impact on the effective tax rate for 2022.
Additionally, our effective tax rate for 2022 was impacted by a gain of $9.0
million related to the change in fair value of contingent consideration issued
in connection with the NORCAL acquisition, all of which was non-taxable. Our
effective tax rate for 2021 was also affected by the gain on bargain purchase of
$74.4 million related to the NORCAL acquisition, all of which was non-taxable.
See further discussion on the contingent consideration and the gain on bargain
purchase in Note 2 of the Notes to Consolidated Financial Statements. There were
no other individually significant items impacting our effective tax rates for
2022 or 2021.
101
--------------------------------------------------------------------------------
Table of Contents
Financial Analysts Briefing Supplement – Form 8-K
KBRA Assigns Ratings to Alaska USA Federal Credit Union
Advisor News
- Economy showing momentum despite uncertainty
- 7 ways financial advisors can benefit by giving back to nonprofits
- Emergency Preparedness: How advisors can prepare clients for hurricanes
- Federal employees: An emerging market for advisors
- The financial advisor’s guide to creating an effective value proposition
More Advisor NewsAnnuity News
Health/Employee Benefits News
- The Medicaid Asset Protection Trust (MAPT)
- Lawmaker seeks coverage for menopause
- Long-term care planning can help people retain independence
- Health insurance for millions could vanish as states put Medicaid expansion on chopping block
- Targeted by Trump, Medicaid funding stirs debate as CT changes rules for hospitals
More Health/Employee Benefits NewsLife Insurance News
- AM Best Places Credit Ratings of Banner Life Insurance Company and William Penn Life Insurance Company of New York Under Review With Developing Implications
- Best's Review Examines Value in Innovation Culture
- Initial Registration Statement for Employee Benefit Plan (Form S-8)
- Securian Financial Enhances Its Flagship Indexed Universal Life Insurance Product
- AM Best Affirms Credit Ratings of The Dai-ichi Life Insurance Company, Limited
More Life Insurance News