Core Viewpoint - ProAssurance Corporation reported weaker-than-expected first-quarter 2025 results, primarily due to lower premiums in the Specialty P&C segment and Segregated Portfolio Cell Reinsurance unit, although rising investment income and reduced expenses provided some offset [1][2]. Financial Performance - Adjusted operating income for Q1 2025 was 13 cents per share, missing the Zacks Consensus Estimate of 19 cents, but an increase from 6 cents in the prior year [2]. - Operating revenues decreased by 4.3% year over year to $269.8 million, slightly below the consensus mark by 0.3% [2]. - Gross premiums written were $303.8 million, down 2.4% year over year, with net premiums earned falling 3.2% to $236.3 million, missing the consensus estimate of $244.2 million [3]. Investment Income and Expenses - Net investment income rose by 9% year over year to $37 million, exceeding the consensus estimate of $36.9 million [4]. - Total expenses decreased by 0.3% year over year to $278.4 million, although this was higher than the estimate of $265.4 million [4]. Segment Performance - Specialty P&C segment revenues declined by 2.1% year over year to $187 million, but exceeded the Zacks Consensus Estimate of $182.2 million [5]. - Workers' Compensation Insurance segment revenues increased by 0.8% year over year to $41.9 million, surpassing the consensus estimate of $41.8 million [7]. - Segregated Portfolio Cell Reinsurance segment gross premiums written fell by 20% year over year to $12.7 million, missing the estimate of $13.9 million [9]. Financial Position - As of March 31, 2025, ProAssurance had cash and cash equivalents of $43.5 million, down from $54.9 million at the end of 2024 [12]. - Total investments increased by 0.5% to $4.4 billion, while total assets decreased to $5.5 billion from $5.6 billion at the end of 2024 [12]. - Total shareholders' equity rose by 2.6% to $1.2 billion, with book value per share increasing to $24.05 from $23.49 [13]. Share Repurchase Update - No common shares were repurchased in the first quarter of 2025, with a remaining capacity of $55.9 million available for future repurchases or debt retirement [14].

Core Insights - ProAssurance reported quarterly earnings of $0.13 per share, missing the Zacks Consensus Estimate of $0.19 per share, but showing an improvement from $0.08 per share a year ago, resulting in an earnings surprise of -31.58% [1] - The company posted revenues of $269.76 million for the quarter, which was 0.33% below the Zacks Consensus Estimate and down from $282 million year-over-year [2] - ProAssurance shares have increased by approximately 44.4% since the beginning of the year, contrasting with a -3.9% decline in the S&P 500 [3] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.20, with expected revenues of $270.08 million, and for the current fiscal year, the EPS estimate is $0.92 on revenues of $1.08 billion [7] - The estimate revisions trend for ProAssurance is currently favorable, leading to a Zacks Rank 1 (Strong Buy) for the stock, indicating expected outperformance in the near future [6] Industry Context - The Insurance - Property and Casualty industry is ranked in the top 17% of over 250 Zacks industries, suggesting a positive outlook for stocks within this sector [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5]

Preliminary Information [Cover Page & Filing Information](index=1&type=section&id=Cover%20Page%20%26%20Filing%20Information) Identifies ProAssurance Corporation's Form 10-Q filing for Q1 2025, status as a large accelerated filer on NYSE - The registrant is **ProAssurance Corporation**, filing a **Form 10-Q** for the quarterly period ended **March 31, 2025**[2](index=2&type=chunk)[6](index=6&type=chunk) - The company's common stock is registered on the **New York Stock Exchange** under the trading symbol **PRA**[4](index=4&type=chunk) - ProAssurance Corporation is classified as a **large accelerated filer** and is not a shell company[5](index=5&type=chunk) Common Stock Outstanding as of May 1, 2025 | Shares Outstanding | | :----------------- | | 51,292,333 | [Glossary of Terms and Acronyms](index=2&type=section&id=Glossary%20of%20Terms%20and%20Acronyms) Defines key financial, regulatory, and insurance-specific terms and acronyms used throughout the report for clarity - The glossary defines various terms and acronyms, including financial (e.g., **AOCI, GAAP, ROE**), regulatory (e.g., **SEC, FASB, PCAOB**), and insurance-specific (e.g., **MPL, Specialty P&C, ULAE**) terminology[9](index=9&type=chunk)[10](index=10&type=chunk) [Caution Regarding Forward-Looking Statements](index=4&type=section&id=Caution%20Regarding%20Forward-Looking%20Statements) Disclaims forward-looking statements, outlining risks and uncertainties that could cause actual results to differ materially - Forward-looking statements are based on estimates and anticipation of future events and are subject to **significant risks, assumptions, and uncertainties**[11](index=11&type=chunk) - Key factors that could cause material differences include **changes in economic conditions, regulatory actions, tort reforms, interest/tax rates, financial market performance, and the proposed merger with The Doctors Company**[13](index=13&type=chunk)[16](index=16&type=chunk) - The company cautions readers **not to place undue reliance** on forward-looking statements and does not undertake to publicly release revisions unless required by law[15](index=15&type=chunk) PART I. FINANCIAL INFORMATION [ITEM 1. FINANCIAL STATEMENTS](index=7&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) [Condensed Consolidated Balance Sheets (Unaudited)](index=7&type=section&id=CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS%20(UNAUDITED)%20-%20MARCH%2031%2C%202025%20AND%20DECEMBER%2031%2C%202024) Presents the company's financial position, showing slight asset/liability decreases and increased shareholders' equity in Q1 2025 Consolidated Balance Sheet Highlights (in thousands) | Item | March 31, 2025 | December 31, 2024 | | :------------------------------------ | :------------- | :---------------- | | Total Assets | $5,526,020 | $5,574,273 | | Total Liabilities | $4,292,400 | $4,372,524 | | Total Shareholders' Equity | $1,233,620 | $1,201,749 | | Reserve for Losses and Loss Adjustment Expenses | $3,180,767 | $3,257,696 | | Unearned Premiums | $463,694 | $418,756 | [Condensed Consolidated Statements of Changes in Capital (Unaudited)](index=8&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CHANGES%20IN%20CAPITAL%20(UNAUDITED)%20-%20THREE%20MONTHS%20ENDED%20MARCH%2031%2C%202025%20AND%202024) Outlines changes in shareholders' equity, reflecting a Q1 2025 net loss but an overall increase due to comprehensive income Changes in Capital Highlights (in thousands) | Item | March 31, 2025 | December 31, 2024 | | :--------------------------------- | :------------- | :---------------- | | Balance, Beginning of Period | $1,201,749 | $1,111,980 | | Net Income (Loss) | $(5,822) | $4,626 | | Other Comprehensive Income (Loss) | $37,533 | $(2,472) | | Balance, End of Period | $1,233,620 | $1,113,065 | [Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited)](index=9&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20INCOME%20AND%20COMPREHENSIVE%20INCOME%20(UNAUDITED)%20-%20THREE%20MONTHS%20ENDED%20MARCH%2031%2C%202025%20AND%202024) Reports a Q1 2025 net loss, a decline from Q1 2024, driven by lower revenues and higher expenses despite reduced loss costs Consolidated Income Statement Highlights (in thousands, except per share data) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Net Premiums Earned | $236,275 | $244,150 | | Net Investment Income | $36,951 | $33,897 | | Total Revenues | $272,079 | $284,697 | | Net Losses and Loss Adjustment Expenses | $189,960 | $194,694 | | Total Expenses | $278,411 | $279,379 | | Net Income (Loss) | $(5,822) | $4,626 | | Basic Earnings (Loss) Per Share | $(0.11) | $0.09 | [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=10&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS%20(UNAUDITED)%20-%20THREE%20MONTHS%20ENDED%20MARCH%2031%2C%202025%20AND%202024) Details cash flows: stable operations, decreased investing, increased financing usage, leading to lower cash equivalents in Q1 2025 Consolidated Cash Flow Highlights (in thousands) | Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | | Net Cash Provided (Used) by Operating Activities | $(11,609) | $(11,649) | | Net Cash Provided (Used) by Investing Activities | $4,110 | $12,120 | | Net Cash Provided (Used) by Financing Activities | $(3,841) | $(969) | | Increase (Decrease) in Cash and Cash Equivalents | $(11,340) | $(498) | | Cash and Cash Equivalents at End of Period | $43,541 | $65,400 | [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=12&type=section&id=NOTES%20TO%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS%20(UNAUDITED)) [Basis of Presentation](index=12&type=section&id=BASIS%20OF%20PRESENTATION) Details GAAP-compliant financial statement preparation, consolidation principles, segment reorganization, proposed merger, and asset disposal - The financial statements are prepared in accordance with **GAAP** for interim information and include ProAssurance Corporation, its wholly-owned subsidiaries, and VIEs where it is the primary beneficiary[30](index=30&type=chunk) - A segment reorganization occurred in Q1 2025, recasting prior period segment information to conform to the current reporting structure, with **no impact on consolidated financial results**[32](index=32&type=chunk)[143](index=143&type=chunk) - ProAssurance entered into a Merger Agreement with The Doctors Company on March 19, 2025, under which ProAssurance will become a wholly-owned subsidiary, with each common stock share converting to **$25.00 cash**. The merger is expected to close in the **first half of 2026**[41](index=41&type=chunk)[42](index=42&type=chunk)[45](index=45&type=chunk) - Pre-tax transaction-related costs of approximately **$7.1 million** were incurred in Q1 2025 due to the proposed merger[44](index=44&type=chunk) - The company sold its Franklin, TN property in Q1 2025, recognizing a gain of **$2.2 million**[46](index=46&type=chunk) [Fair Value Measurement](index=14&type=section&id=FAIR%20VALUE%20MEASUREMENT) Details fair value measurements for assets/liabilities using a three-level hierarchy, including Level 3 valuations and unfunded commitments - Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction, categorized into **Level 1** (quoted prices), **Level 2** (observable inputs), and **Level 3** (unobservable inputs)[48](index=48&type=chunk)[50](index=50&type=chunk) Total Assets at Fair Value (in thousands) | Period | Total Assets at Fair Value | | :---------------- | :------------------------- | | March 31, 2025 | $4,272,689 | | December 31, 2024 | $4,254,884 | Level 3 Fair Value Measurements - Assets (in thousands) | Item | March 31, 2025 | December 31, 2024 | | :--------------------------------- | :------------- | :---------------- | | Corporate debt, limited observable inputs | $68,947 | $81,062 | | Asset-backed Securities | $4,573 | $3,774 | | Equity investments | $4,817 | $5,506 | | Other investments | $1,021 | $500 | | Total Level 3 Assets | $79,358 | $90,842 | Unfunded Contractual Commitments for Investments Carried at NAV (in thousands) | Investment Type | March 31, 2025 Unfunded Commitment | | :-------------------------------- | :--------------------------------- | | Private debt funds | $3,911 | | Non-public equity funds | $32,074 | | Credit funds | $30,093 | | Strategy focused funds | $65,783 | | Total investments carried at NAV | $223,317 | [Investments](index=20&type=section&id=INVESTMENTS) Breaks down the investment portfolio, highlighting unrealized losses, credit loss allowances, and components of investment income/gains Total Investments (in thousands) | Period | Total Investments | | :---------------- | :---------------- | | March 31, 2025 | $4,388,982 | | December 31, 2024 | $4,367,427 | Available-for-Sale Fixed Maturities (in thousands) as of March 31, 2025 | Item | Amortized Cost | Estimated Fair Value | Gross Unrealized Losses | | :--------------------------------- | :------------- | :------------------- | :---------------------- | | U.S. Treasury obligations | $259,819 | $250,362 | $9,987 | | Corporate debt | $1,846,009 | $1,759,254 | $89,920 | | Total Fixed Maturities, Available-for-Sale | $3,840,973 | $3,663,483 | $190,574 | Net Investment Income (in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Fixed maturities | $35,033 | $31,451 | | Short-term investments | $2,574 | $3,411 | | Net Investment Income | $36,951 | $33,897 | Net Investment Gains (Losses) (in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Net impairment losses recognized in earnings | $(257) | $(934) | | Other net investment gains (losses) | $(1,436) | $666 | | Net Investment Gains (Losses) | $(1,693) | $(268) | - The allowance for expected credit losses on available-for-sale fixed maturities increased to **$3,656 thousand** as of March 31, 2025, from $3,399 thousand at December 31, 2024[94](index=94&type=chunk) - Credit-related impairment losses of **$0.3 million** were recognized in Q1 2025, primarily from four corporate bonds in the real estate sector[102](index=102&type=chunk) [Income Taxes](index=26&type=section&id=INCOME%20TAXES) Explains income tax provision using the effective tax rate method and factors causing deviations from the statutory rate - The company utilizes the estimated annual effective tax rate method for interim periods, considering unusual or infrequent items as discrete[106](index=106&type=chunk) Total Income Tax Expense (Benefit) (in thousands) | Period | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------------- | :-------------------------------- | :-------------------------------- | | Income Tax Expense (Benefit) | $(510) | $692 | - The difference from the statutory federal income tax rate in Q1 2025 was primarily due to **executive compensation exceeding statutory limitations**, while in Q1 2024 it was due to the estimated tax rate differential[107](index=107&type=chunk) [Reserve for Losses and Loss Adjustment Expenses](index=26&type=section&id=RESERVE%20FOR%20LOSSES%20AND%20LOSS%20ADJUSTMENT%20EXPENSES) Details loss reserve estimation methodology, claim resolution periods, and reserve activity, including favorable prior year development - Loss reserves are established based on estimates of individual claims and actuarially determined future losses, considering past experience, industry data, and trends[109](index=109&type=chunk) Reserve for Losses and Loss Adjustment Expenses Activity (in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Balance, Beginning of Year | $3,257,696 | $3,401,281 | | Net Losses and Loss Adjustment Expenses | $189,960 | $194,694 | | Net Favorable Prior Year Reserve Development | $(892) | $(416) | | Balance, End of Period | $3,180,767 | $3,382,512 | - Consolidated net favorable prior year reserve development of **$1.0 million** in Workers' Compensation and **$0.4 million** in Segregated Portfolio Cell Reinsurance was partially offset by **$0.5 million** unfavorable development in Specialty P&C (Lloyd's Syndicates) in Q1 2025[113](index=113&type=chunk) [Commitments and Contingencies](index=28&type=section&id=COMMITMENTS%20AND%20CONTINGENCIES) Outlines legal actions considered in loss reserving and discloses significant funding commitments for non-public investment entities - ProAssurance is involved in various legal actions related to insurance policies and claims handling, which are considered in the loss reserving process[115](index=115&type=chunk) - As of March 31, 2025, there were **no material reserves** established for corporate legal actions[115](index=115&type=chunk) Funding Commitments (in thousands) | Item | March 31, 2025 | | :------------------------------------ | :------------- | | Funding commitments to non-public investment entities | $222,400 | [Debt](index=28&type=section&id=DEBT) Details outstanding debt (Contribution Certificates, Revolving Credit, Term Loan) and confirms compliance with all debt covenants Outstanding Debt (in thousands) | Item | March 31, 2025 | December 31, 2024 | | :------------------------ | :------------- | :---------------- | | Contribution Certificates | $181,488 | $181,163 | | Revolving Credit Agreement| $125,000 | $125,000 | | Term Loan | $118,750 | $120,313 | | Total Principal | $425,238 | $426,476 | - The company was in compliance with all covenants of the Revolving Credit Agreement as of March 31, 2025[118](index=118&type=chunk) [Derivatives](index=28&type=section&id=DERIVATIVES) Describes derivative use: interest rate swaps for debt risk and foreign currency forwards for exchange exposure on loss reserves - ProAssurance uses two forward-starting interest rate swap agreements to fix the base rate on borrowings under its Revolving Credit Agreement (**3.187%**) and Term Loan (**3.207%**)[121](index=121&type=chunk)[123](index=123&type=chunk) - Foreign currency forward contracts are utilized as economic hedges to offset fluctuations in exchange rates related to foreign currency denominated loss reserves[125](index=125&type=chunk) Derivative Instruments Fair Value (in thousands) | Derivative Instrument | March 31, 2025 Estimated Fair Value | December 31, 2024 Estimated Fair Value | | :-------------------- | :---------------------------------- | :----------------------------------- | | Interest Rate Swaps | $3,035 | $5,801 | | Foreign Currency Forwards | $(1,446) | $293 | - A gain of **$548 thousand** on Interest Rate Swaps was reclassified from AOCI to earnings in Q1 2025[127](index=127&type=chunk) [Shareholders' Equity](index=30&type=section&id=SHAREHOLDERS'%20EQUITY) Provides details on common/preferred stock, share repurchase authorizations, and a breakdown of AOCI and its changes - As of March 31, 2025, **$55.9 million** remained available for common share repurchases or debt retirement under Board authorizations; no common shares were repurchased in Q1 2025 or Q1 2024[132](index=132&type=chunk) Accumulated Other Comprehensive Income (Loss) (AOCI) (in thousands) | Item | March 31, 2025 | December 31, 2024 | | :------------------------------------ | :------------- | :---------------- | | Balance, End of Period | $(134,858) | $(172,391) | | Net OCI, Current Period | $37,533 | $(2,472) | [Variable Interest Entities](index=31&type=section&id=VARIABLE%20INTEREST%20ENTITIES) Discusses passive interests in VIEs and ProAssurance's consolidation of PPM RRG as its primary beneficiary - ProAssurance holds passive interests in VIEs, primarily LPs/LLCs, totaling **$231.8 million** at March 31, 2025, where it is not the primary beneficiary and thus does not consolidate them[137](index=137&type=chunk) - ProAssurance is the primary beneficiary of **PPM RRG**, managing its business operations and controlling its Board, leading to its consolidation[138](index=138&type=chunk) - Approximately **$139 million** of ProAssurance's assets and liabilities on the Condensed Consolidated Balance Sheet were related to PPM RRG as of March 31, 2025[138](index=138&type=chunk) [Earnings (Loss) Per Share](index=31&type=section&id=EARNINGS%20(LOSS)%20PER%20SHARE) Reconciles basic and diluted weighted average common shares, noting antidilutive incremental share equivalents in Q1 2025 Earnings (Loss) Per Share (in thousands, except per share data) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Basic Earnings (Loss) Per Share | $(0.11) | $0.09 | | Diluted Earnings (Loss) Per Share | $(0.11) | $0.09 | | Weighted Average Number of Common Shares Outstanding, Basic | 51,188 | 51,013 | - All incremental common share equivalents were excluded from the computation of diluted loss per share for Q1 2025 because their effect would have been **antidilutive**[141](index=141&type=chunk) [Segment Information](index=32&type=section&id=SEGMENT%20INFORMATION) Describes four reportable segments, details a Q1 2025 reorganization, and explains performance evaluation for each segment - ProAssurance operates in four reportable segments: **Specialty P&C, Workers' Compensation Insurance, Segregated Portfolio Cell Reinsurance, and Corporate**[144](index=144&type=chunk) - A segment reorganization in Q1 2025 moved results of coverage processed through IAO, Inc. d/b/a ProAssurance Agency to the **Specialty P&C segment** from Corporate, with prior periods recast[143](index=143&type=chunk) - Performance of Specialty P&C and Workers' Compensation is evaluated based on before-tax underwriting profit/loss and net loss/underwriting expense ratios[145](index=145&type=chunk) Segment Net Premiums Earned (in thousands) | Segment | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Specialty P&C | $183,254 | $188,888 | | Workers' Compensation Insurance | $41,524 | $41,094 | | Segregated Portfolio Cell Reinsurance | $11,497 | $14,168 | | Consolidated Total | $236,275 | $244,150 | [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=35&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) [ProAssurance Overview](index=35&type=section&id=ProAssurance%20Overview) Introduces ProAssurance as a P&C insurance holding company operating in four segments, reiterating the Q1 2025 reorganization - ProAssurance Corporation is a holding company for property and casualty insurance companies, providing **medical professional liability, medical technology liability, and workers' compensation insurance**[154](index=154&type=chunk) - The company operates in four segments: **Specialty P&C, Workers' Compensation Insurance, Segregated Portfolio Cell Reinsurance, and Corporate**[155](index=155&type=chunk) - A segment reorganization in Q1 2025 moved IAO, Inc. d/b/a ProAssurance Agency results to the **Specialty P&C segment** from Corporate, with prior periods recast and **no impact on consolidated financial results**[155](index=155&type=chunk) [Critical Accounting Estimates](index=35&type=section&id=Critical%20Accounting%20Estimates) Identifies critical accounting estimates (reserves, reinsurance, investments, income taxes) requiring significant management judgment - Management considers the estimation of **reserves for losses and loss adjustment expenses, reinsurance, valuation of investments and impairment of securities, and income taxes** as critical accounting estimates[159](index=159&type=chunk) - These estimates are evaluated on an ongoing basis, considering current and historical developments, market conditions, and industry trends[157](index=157&type=chunk) [Liquidity and Capital Resources and Financial Condition](index=35&type=section&id=Liquidity%20and%20Capital%20Resources%20and%20Financial%20Condition) [Overview](index=35&type=section&id=Overview) Details liquidity sources (investment revenues, subsidiary dividends), borrowing capacity, and regulatory dividend payment considerations - The company's principal sources of external revenue are **investment revenues and dividends from operating subsidiaries**[159](index=159&type=chunk) Liquidity and Capital Resources (in millions) | Item | March 31, 2025 | | :------------------------------------ | :------------- | | Cash and liquid investments outside insurance subsidiaries | $86 | | Permitted dividends from insurance subsidiaries (remainder of 2025) | $145 | | Available borrowings under Revolving Credit Agreement | $125 | - Payment of dividends from insurance subsidiaries requires prior notice to state insurance regulators, who may reduce or prevent payments if adverse to surplus[160](index=160&type=chunk) [Cash Flows](index=36&type=section&id=Cash%20Flows) Compares cash flows, showing stable operating, decreased investing, and increased financing usage in Q1 2025 Net Cash Provided (Used) by Activities (in thousands) | Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :------- | | Operating activities | $(11,609) | $(11,649) | $40 | | Investing activities | $4,110 | $12,120 | $(8,010) | | Financing activities | $(3,841) | $(969) | $(2,872) | - Operating cash flows remained relatively unchanged, driven by increased net premium receipts (**$12.2 million**) and investment income (**$4.3 million**), partially offset by higher operating expenses (**$27.9 million**)[162](index=162&type=chunk)[163](index=163&type=chunk) [Operating Activities and Related Cash Flows](index=36&type=section&id=Operating%20Activities%20and%20Related%20Cash%20Flows) Details reinsurance use for risk management and updates on tax matters, including an ERC refund and NOL carryforwards - Reinsurance is used in Specialty P&C and Workers' Compensation segments to provide capacity, reimburse for losses, protect against excess losses, stabilize underwriting results, and increase underwriting capacity[164](index=164&type=chunk) - NORCAL received a **$4.4 million** payroll tax refund (including **$0.6 million** interest) in April 2025, related to the Employee Retention Credit (ERC) for eligible wages paid in 2020[173](index=173&type=chunk) - The company has approximately **$18.9 million** in U.S. federal Net Operating Loss (NOL) carryforwards as of March 31, 2025, subject to Internal Revenue Code Section 382 limitations[175](index=175&type=chunk) [Investing Activities and Related Cash Flows](index=40&type=section&id=Investing%20Activities%20and%20Related%20Cash%20Flows) Outlines investment portfolio composition, credit quality, liquidity strategies, and unfunded commitments for investment funds Investment Portfolio Composition (in thousands) as of March 31, 2025 | Investment Type | Carrying Value | % of Total Investment | | :-------------------------------- | :------------- | :-------------------- | | Fixed maturities, available-for-sale | $3,663,483 | 83% | | Fixed maturities, trading | $16,182 | 1% | | Equity investments | $120,072 | 2% | | Short-term investments | $244,041 | 5% | | Investment in unconsolidated subsidiaries | $256,606 | 6% | | Total Investments | $4,388,982 | 100% | - Approximately **93%** of the company's fixed maturities were investment grade securities as of March 31, 2025, with an average rating of **A+**[177](index=177&type=chunk)[181](index=181&type=chunk) - The weighted average effective duration of fixed maturity securities was **3.35 years** at March 31, 2025[181](index=181&type=chunk) - Funds at Lloyd's (FAL) had a fair value of **$14.3 million** at March 31, 2025, increased in Q1 2025 to support accumulated losses[180](index=180&type=chunk) Unfunded Commitments for Investments (in thousands) as of March 31, 2025 | Investment Type | Unfunded Commitment | | :-------------------------------------------- | :------------------ | | Qualified affordable housing project tax credit partnerships | $67 | | All other investments, primarily investment fund LPs/LLCs | $222,297 | | Total | $222,364 | [Financing Activities and Related Cash Flows](index=42&type=section&id=Financing%20Activities%20and%20Related%20Cash%20Flows) Reviews outstanding debt, interest rate risk management via swaps, and FHLB membership for liquidity access Outstanding Debt Principal (in thousands) | Item | March 31, 2025 | December 31, 2024 | | :------------------------ | :------------- | :---------------- | | Contribution Certificates | $181,488 | $181,163 | | Revolving Credit Agreement| $125,000 | $125,000 | | Term Loan | $118,750 | $120,313 | | Total Principal | $425,238 | $426,476 | - The company uses two forward-starting interest rate swap agreements to manage interest rate risk on borrowings under its Revolving Credit Agreement and Term Loan[184](index=184&type=chunk) - Membership in the Federal Home Loan Bank (FHLB) provides access to secured cash advances for liquidity, though not materially utilized for borrowing to date[185](index=185&type=chunk) [Results of Operations – Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024](index=43&type=section&id=Results%20of%20Operations%20%E2%80%93%20Three%20Months%20Ended%20March%2031%2C%202025%20Compared%20to%20Three%20Months%20Ended%20March%2031%2C%202024) [Executive Summary of Operations](index=44&type=section&id=Executive%20Summary%20of%20Operations) Consolidated overview of Q1 2025 financial performance, highlighting key revenue, expense, and profitability metrics Consolidated Financial Highlights (in thousands, except per share data) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :-------- | | Net Premiums Earned | $236,275 | $244,150 | $(7,875) | | Net Income (Loss) | $(5,822) | $4,626 | $(10,448) | | Basic Earnings (Loss) Per Share | $(0.11) | $0.09 | $(0.20) | | Combined Ratio | 115.6% | 111.6% | 4.0 pts | | Operating Ratio | 100.0% | 97.7% | 2.3 pts | | Effective Tax Rate | 8.1% | 13.0% | (4.9 pts) | [Revenues](index=44&type=section&id=Revenues) Consolidated revenues decreased in Q1 2025, driven by lower net premiums and foreign currency losses, partially offset by investment income Consolidated Net Premiums Earned (in thousands) | Segment | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :------- | | Specialty P&C | $183,254 | $188,888 | $(5,634) | | Workers' Compensation Insurance | $41,524 | $41,094 | $430 | | Segregated Portfolio Cell Reinsurance | $11,497 | $14,168 | $(2,671) | | Consolidated total | $236,275 | $244,150 | $(7,875) | - Consolidated net premiums earned decreased by **$7.9 million (3.2%)** in Q1 2025, driven by ceased participation in Lloyd's Syndicate 1729 and non-renewals in the Segregated Portfolio Cell Reinsurance segment[190](index=190&type=chunk)[194](index=194&type=chunk) Consolidated Net Investment Result (in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----- | | Net Investment Income | $36,951 | $33,897 | $3,054 | | Equity in earnings (loss) of unconsolidated subsidiaries | $4,015 | $2,963 | $1,052 | | Net Investment Result | $40,966 | $36,860 | $4,106 | - Consolidated net investment income increased by **$3.1 million (9.0%)** in Q1 2025, reflecting higher average book yields and increased average investment balances[192](index=192&type=chunk) Consolidated Other Income (Expense) (in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :-------- | | Foreign currency exchange rate gains (losses) | $(7,283) | $1,929 | $(9,212) | | Other | $3,814 | $2,026 | $1,788 | | Other Income (Expense) | $(3,469) | $3,955 | $(7,424) | - Other income (expense) was significantly impacted by foreign currency exchange rate losses of **$7.3 million** in Q1 2025, partially offset by a **$2.2 million** gain from the sale of the Franklin, TN property[197](index=197&type=chunk)[198](index=198&type=chunk) - The company changed its hedging strategy for foreign currency exchange exposures from foreign currency denominated investments to foreign currency forward contracts in Q1 2025[200](index=200&type=chunk) [Expenses](index=46&type=section&id=Expenses) Consolidated expenses increased in Q1 2025, with a higher underwriting expense ratio and slight rise in net loss ratio Consolidated Net Loss Ratios | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :------ | | Current accident year net loss ratio | 80.8% | 79.9% | 0.9 pts | | Calendar year net loss ratio | 80.4% | 79.7% | 0.7 pts | Consolidated Favorable (Unfavorable) Reserve Development, Prior Accident Years (in millions) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----- | | Consolidated | $0.9 | $0.4 | $0.5 | Consolidated Underwriting Expense Ratio | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :------ | | Consolidated | 35.2% | 31.9% | 3.3 pts | - The **3.3 percentage point** increase in the consolidated underwriting expense ratio was primarily driven by **$7.1 million** in transaction-related costs associated with the proposed merger and higher incentive-based compensation[206](index=206&type=chunk) [Taxes](index=48&type=section&id=Taxes) Recognized an income tax benefit in Q1 2025, contrasting with an expense in Q1 2024, impacted by a pre-tax loss Consolidated Income Tax Expense (Benefit) (in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :-------- | | Income (loss) before income taxes | $(6,332) | $5,318 | $(11,650) | | Income tax expense (benefit) | $(510) | $692 | $(1,202) | | Effective tax rate | 8.1% | 13.0% | (4.9 pts) | - The effective tax rate was **8.1%** in Q1 2025, down from **13.0%** in Q1 2024, primarily due to the consolidated pre-tax loss in the current period[207](index=207&type=chunk) - Projected annual effective tax rates were **22.0%** for Q1 2025 and **17.3%** for Q1 2024, before considering discrete items[207](index=207&type=chunk) [Operating Ratio](index=48&type=section&id=Operating%20Ratio) Consolidated operating ratio increased in Q1 2025, reflecting underwriting profitability and investment income, driven by transaction costs Consolidated Operating Ratio | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :------ | | Combined ratio | 115.6% | 111.6% | 4.0 pts | | Less: investment income ratio | 15.6% | 13.9% | 1.7 pts | | Operating ratio | 100.0% | 97.7% | 2.3 pts | - The **2.3 percentage point** increase in the operating ratio was primarily attributable to transaction-related costs (**3.0 pts**) and non-core operations (**1.2 pts**), partially offset by investment income (**1.7 pts**)[211](index=211&type=chunk) [Non-GAAP Financial Measures](index=49&type=section&id=Non-GAAP%20Financial%20Measures) Defines Non-GAAP operating income, excluding non-normal items like investment gains/losses and transaction costs, for core operations Reconciliation of Net Income (Loss) to Non-GAAP Operating Income (Loss) (in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Net Income (Loss) | $(5,822) | $4,626 | | Pre-tax effect of exclusions | $14,711 | $(1,566) | | Non-GAAP Operating Income (Loss) | $6,812 | $3,034 | - Key exclusions from Non-GAAP operating income in Q1 2025 included net investment gains (losses) (**$1.7 million**), transaction-related costs (**$7.1 million**), foreign currency exchange rate losses (**$7.3 million**), and non-operating income (gain on property sale of **$2.2 million**)[213](index=213&type=chunk) [Non-GAAP Adjusted Key Ratios](index=51&type=section&id=Non-GAAP%20Adjusted%20Key%20Ratios) Presents consolidated and Specialty P&C adjusted ratios, offering a clearer view of core insurance operations performance Consolidated Non-GAAP Adjusted Key Ratios | Ratio | Q1 2025 As Reported | Q1 2025 Non-GAAP Adjusted | Q1 2024 As Reported | Q1 2024 Non-GAAP Adjusted | | :------------------------------------ | :------------------ | :------------------------ | :------------------ | :------------------------ | | Combined ratio | 115.6% | 112.2% | 111.6% | 112.5% | | Operating ratio | 100.0% | 96.4% | 97.7% | 98.2% | - Non-core operations, including Lloyd's Syndicates, contributed an underwriting loss of **$1.4 million** in Q1 2025, compared to underwriting income of **$0.9 million** in Q1 2024[215](index=215&type=chunk) [Non-GAAP Operating ROE](index=51&type=section&id=Non-GAAP%20Operating%20ROE) Non-GAAP operating ROE increased in Q1 2025, indicating improved after-tax profitability and capital efficiency of core operations Non-GAAP Operating ROE | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :-------- | | ROE | (1.9%) | 1.7% | (3.6 pts) | | Non-GAAP Operating ROE | 2.2% | 1.1% | 1.1 pts | - The **1.1 percentage point** increase in Non-GAAP operating ROE was driven by a higher net investment result and an improvement in the current accident year net loss ratio in the Workers' Compensation Insurance segment[219](index=219&type=chunk) [Non-GAAP Adjusted Book Value per Share](index=52&type=section&id=Non-GAAP%20Adjusted%20Book%20Value%20per%20Share) Non-GAAP adjusted book value per share, which excludes AOCI to remove interest rate volatility, decreased slightly in Q1 2025, while GAAP book value per share increased due to unrealized holding gains on fixed income investments Book Value Per Share (GAAP and Non-GAAP) | Item | March 31, 2025 | December 31, 2024 | | :------------------------------------ | :------------- | :---------------- | | Book Value Per Share | $24.05 | $23.49 | | Non-GAAP Adjusted Book Value Per Share| $26.68 | $26.86 | - Book value per share increased by **$0.56**, primarily due to a **$0.74 per share** change in AOCI from unrealized holding gains on the fixed income investment portfolio[222](index=222&type=chunk) - Non-GAAP adjusted book value per share decreased by **$0.18**, reflecting the net loss recognized in Q1 2025 and the impact of share-based compensation[223](index=223&type=chunk) [Segment Results - Specialty Property & Casualty](index=53&type=section&id=Segment%20Results%20-%20Specialty%20Property%20%26%20Casualty) Specialty P&C saw decreased net premiums and higher net loss ratio in Q1 2025, due to Lloyd's exit and catastrophe losses Specialty P&C Segment Financial Highlights (in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :------ | | Net Premiums Written | $213,656 | $218,699 | (2.3%) | | Net Premiums Earned | $183,254 | $188,888 | (3.0%) | | Net Loss Ratio | 83.1% | 81.0% | 2.1 pts | | Underwriting Expense Ratio | 26.5% | 27.2% | (0.7 pts) | [Premiums Written](index=53&type=section&id=Premiums%20Written) Gross premiums written decreased due to Lloyd's exit and Medical Technology Liability decline, offset by MPL growth Specialty P&C Gross Premiums Written by Component (in thousands) | Component | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :---------------------------- | :-------------------------------- | :-------------------------------- | :------ | | Medical Professional Liability| $221,533 | $218,966 | 1.2% | | Medical Technology Liability | $8,217 | $9,419 | (12.8%) | | Lloyd's Syndicates | $129 | $3,710 | (96.5%) | | Total Gross Premiums Written | $234,012 | $238,718 | (2.0%) | - The increase in Medical Professional Liability premium was driven by **renewal pricing increases** and **new business**, partially offset by retention losses in a competitive market[229](index=229&type=chunk) - Lloyd's Syndicates premium decreased significantly due to the company's ceased participation in Syndicate 1729 for the 2024 underwriting year[229](index=229&type=chunk) - The company sold the renewal rights related to its legal professional liability book of business in April 2025 for approximately **$1.0 million**[229](index=229&type=chunk) Specialty P&C New Business, Retention, and Renewal Pricing | Item | Q1 2025 MPL | Q1 2025 Med Tech Liability | Q1 2025 Other | Q1 2025 Segment | Q1 2024 MPL | Q1 2024 Med Tech Liability | Q1 2024 Other | Q1 2024 Segment | | :------------------------ | :---------- | :------------------------- | :------------ | :-------------- | :---------- | :------------------------- | :------------ | :-------------- | | New business (in millions)| $6.0 | $0.4 | $0.1 | $6.5 | $9.3 | $0.9 | $0.2 | $10.4 | | Retention rate | 85% | 86% | 58% | 84% | 86% | 94% | 78% | 86% | | Change in renewal pricing | 9% | 5% | 3% | 8% | 8% | 1% | 2% | 7% | [Ceded Premiums Ratio](index=55&type=section&id=Ceded%20Premiums%20Ratio) Ceded premiums ratio increased in Q1 2025, driven by higher premiums ceded under excess of loss reinsurance arrangements Specialty P&C Ceded Premiums Ratio | Period | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :------------------------ | :-------------------------------- | :-------------------------------- | :------ | | Ceded premiums ratio | 8.7% | 8.4% | 0.3 pts | - The increase was driven by higher premiums ceded under excess of loss reinsurance arrangements, primarily due to the incorporation of **podiatric and chiropractic policies** into the MPL treaty[233](index=233&type=chunk) [Net Premiums Earned](index=55&type=section&id=Net%20Premiums%20Earned) Net premiums earned decreased in Q1 2025, mainly due to ceased participation in Syndicate 1729 and reduced written premium Specialty P&C Net Premiums Earned (in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :------------------------ | :-------------------------------- | :-------------------------------- | :------ | | Gross premiums earned | $200,926 | $206,627 | (2.8%) | | Less: Ceded premiums earned | $17,672 | $17,739 | (0.4%) | | Net premiums earned | $183,254 | $188,888 | (3.0%) | - The decrease was driven by ceased participation in Syndicate 1729 for the 2024 underwriting year and a pro rata effect of decreased written premium volume[235](index=235&type=chunk) [Losses and Loss Adjustment Expenses](index=56&type=section&id=Losses%20and%20Loss%20Adjustment%20Expenses) Calendar year net loss ratio increased in Q1 2025 due to Lloyd's operations and recognized net unfavorable prior year development Specialty P&C Net Loss Ratios | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :------ | | Calendar year net loss ratio | 83.1% | 81.0% | 2.1 pts | | Current accident year net loss ratio | 82.8% | 81.7% | 1.1 pts | Specialty P&C Net Favorable (Unfavorable) Prior Accident Year Reserve Development (in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :-------- | | Total net favorable (unfavorable) reserve development | $(452) | $1,251 | $(1,703) | - The increase in the current accident year net loss ratio was largely due to losses incurred from **Lloyd's Syndicates operations**, which is in run-off[241](index=241&type=chunk) - Net unfavorable reserve development was driven by higher than expected losses and development on certain large claims, primarily **catastrophe-related losses**, from discontinued Lloyd's Syndicates operations[244](index=244&type=chunk) [Underwriting, Policy Acquisition and Operating Expenses](index=58&type=section&id=Underwriting%2C%20Policy%20Acquisition%20and%20Operating%20Expenses) Underwriting, policy acquisition, and operating expenses for the Specialty P&C segment decreased in Q1 2025, primarily due to lower DPAC amortization and reduced professional fees, partially offset by higher incentive-based compensation Specialty P&C Underwriting, Policy Acquisition and Operating Expenses (in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :------ | | DPAC amortization | $24,533 | $25,843 | (5.1%) | | Other underwriting and operating expenses | $22,973 | $24,344 | (5.6%) | | Total | $48,635 | $51,332 | (5.3%) | - DPAC amortization decreased primarily due to lower agent commissions, while other underwriting and operating expenses decreased due to lower professional fees and reduced share of Syndicate 1729's operating expenses[245](index=245&type=chunk)[247](index=247&type=chunk) [Underwriting Expense Ratio (the Expense Ratio)](index=58&type=section&id=Underwriting%20Expense%20Ratio%20(the%20Expense%20Ratio)) Underwriting expense ratio decreased slightly in Q1 2025, influenced by tail premium and changes in net premiums earned Specialty P&C Underwriting Expense Ratio | Period | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :------------------------ | :-------------------------------- | :-------------------------------- | :-------- | | Underwriting expense ratio| 26.5% | 27.2% | (0.7 pts) | - The decrease was attributable to the impact of **tail premium (0.7 pts)** and changes in net premiums earned and DPAC amortization (**0.3 pts**)[248](index=248&type=chunk) [Segment Results - Workers' Compensation Insurance](index=59&type=section&id=Segment%20Results%20-%20Workers'%20Compensation%20Insurance) Workers' Comp segment reported increased net premiums written and earned, an improved net loss ratio, and favorable prior year development in Q1 2025 Workers' Compensation Insurance Segment Financial Highlights (in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :-------- | | Net Premiums Written | $51,606 | $50,353 | 2.5% | | Net Premiums Earned | $41,524 | $41,094 | 1.0% | | Net Loss Ratio | 72.6% | 77.0% | (4.4 pts) | | Underwriting Expense Ratio | 37.6% | 35.3% | 2.3 pts | | Segment Results | $(3,842) | $(4,555) | 15.7% | [Premiums Written](index=59&type=section&id=Premiums%20Written) Gross premiums written decreased due to lower new business and alternative market, despite increased renewal premium for traditional business Workers' Compensation Insurance Gross Premiums Written by Product (in thousands) | Product | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :---------------------------- | :-------------------------------- | :-------------------------------- | :------ | | Total traditional business | $53,724 | $53,640 | 0.2% | | Alternative market business | $16,085 | $18,975 | (15.2%) | | Total Gross Premiums Written | $69,809 | $72,615 | (3.9%) | - Gross premiums written remained relatively unchanged, as an increase in renewal premium (including **$1.3 million** from programs previously in Segregated Portfolio Cell Reinsurance) was offset by lower new business[251](index=251&type=chunk) - Two agency-owned alternative market programs were non-renewed and placed in run-off effective January 1, 2025[251](index=251&type=chunk) Workers' Compensation New Business, Audit Premium, Retention, and Renewal Pricing | Item | Q1 2025 Traditional | Q1 2025 Alternative Market | Q1 2024 Traditional | Q1 2024 Alternative Market | | :------------------------------------ | :------------------ | :------------------------- | :------------------ | :------------------------- | | New business (in millions) | $5.1 | $1.0 | $8.2 | $1.3 | | Audit premium (excluding EBUB) (in millions) | $2.0 | $0.7 | $1.9 | $1.4 | | Retention rate | 89% | 86% | 87% | 75% | | Change in renewal pricing | (3%) | —% | (5%) | (2%) | [Ceded Premiums Written](index=60&type=section&id=Ceded%20Premiums%20Written) Ceded premiums written in the Workers' Compensation Insurance segment decreased in Q1 2025, primarily due to lower premiums ceded to SPCs and external reinsurers, reflecting a reduction in reinstatement premium Workers' Compensation Insurance Ceded Premiums Written (in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :-------- | | Premiums ceded to SPCs | $12,714 | $15,997 | (20.5%) | | Premiums ceded to external reinsurers | $2,118 | $3,287 | (35.6%) | | Total ceded premiums written | $18,203 | $22,262 | (18.2%) | - The decrease in premiums ceded to external reinsurers reflected a **$1.4 million** reduction in reinstatement premium related to a large 2021 accident year claim reserve decrease[253](index=253&type=chunk) [Ceded Premiums Ratio](index=60&type=section&id=Ceded%20Premiums%20Ratio) Ceded premiums ratio decreased in Q1 2025, primarily due to a reduction in reinstatement premium, despite a higher average reinsurance rate Workers' Compensation Insurance Ceded Premiums Ratio | Period | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :-------- | | Ceded premiums ratio, as reported | 28.4% | 33.2% | (4.8 pts) | - The decrease was driven by lower ceded premium related to a **$1.4 million** reduction in reinstatement premium, partially offset by a higher average reinsurance rate[254](index=254&type=chunk) [Net Premiums Earned](index=61&type=section&id=Net%20Premiums%20Earned) Net premiums earned in the Workers' Compensation Insurance segment increased in Q1 2025, primarily due to lower ceded premiums earned, partially offset by a decrease in written premium volume Workers' Compensation Insurance Net Premiums Earned (in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :------------------------ | :-------------------------------- | :-------------------------------- | :------ | | Gross premiums earned | $57,976 | $61,539 | (5.8%) | | Less: Ceded premiums earned | $16,452 | $20,445 | (19.5%) | | Net premiums earned | $41,524 | $41,094 | 1.0% | - The increase was primarily driven by lower ceded premiums earned related to a **$1.4 million** reduction in reinstatement premium[256](index=256&type=chunk) [Losses and Loss Adjustment Expenses](index=61&type=section&id=Losses%20and%20Loss%20Adjustment%20Expenses) Current accident year net loss ratio improved in Q1 2025, reflecting cost control, and recognized $1.0 million favorable prior year development Workers' Compensation Insurance Net Loss Ratios | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :-------- | | Calendar year net loss ratio | 72.6% | 77.0% | (4.4 pts) | | Current accident year net loss ratio | 75.0% | 77.0% | (2.0 pts) | - The current accident year net loss ratio improved by **2.0 percentage points**, expected to be favorably impacted by cost control initiatives implemented in Q1 2025[257](index=257&type=chunk) - Net favorable prior accident year reserve development of **$1.0 million** was recognized, reflecting a large claim reserve reduction from the 2021 accident year[258](index=258&type=chunk) [Underwriting, Policy Acquisition and Operating Expenses](index=61&type=section&id=Underwriting%2C%20Policy%20Acquisition%20and%20Operating%20Expenses) Underwriting, policy acquisition, and operating expenses for the Workers' Compensation Insurance segment increased in Q1 2025, primarily due to higher premium write-offs and information technology costs, partially offset by a decrease in SPC ceding commissions Workers' Compensation Insurance Underwriting, Policy Acquisition and Operating Expenses (in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :-------- | | DPAC amortization | $7,387 | $7,380 | 0.1% | | Other underwriting and operating expenses | $10,557 | $10,051 | 5.0% | | SPC ceding commission offset | $(2,865) | $(3,486) | (17.8%) | | Total | $15,603 | $14,490 | 7.7% | - Other underwriting and operating expenses increased due to higher premium write-offs and information technology costs[260](index=260&type=chunk) - SPC ceding commissions earned decreased, reflecting a reduction in alternative market written premium[260](index=260&type=chunk) [Underwriting Expense Ratio (the Expense Ratio)](index=62&type=section&id=Underwriting%20Expense%20Ratio%20(the%20Expense%20Ratio)) The underwriting expense ratio for the Workers' Compensation Insurance segment increased in Q1 2025, primarily reflecting higher other underwriting and operating expenses Workers' Compensation Insurance Underwriting Expense Ratio | Period | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :------ | | Underwriting expense ratio, as reported | 37.6% | 35.3% | 2.3 pts | - Excluding the impact of ceding commissions and audit premium, the expense ratio increased by **2.5 percentage points**, reflecting higher other underwriting and operating expenses[262](index=262&type=chunk) [Segment Results - Segregated Portfolio Cell Reinsurance](index=63&type=section&id=Segment%20Results%20-%20Segregated%20Portfolio%20Cell%20Reinsurance) Segment saw decreased net premiums and results in Q1 2025, due to SPC non-renewals and higher lost-time claim frequency/severity Segregated Portfolio Cell Reinsurance Segment Financial Highlights (in thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :-------- | | Net Premiums Written | $10,789 | $13,621 | (20.8%) | | Net Premiums Earned | $11,497 | $14,168 | (18.9%) | | Segment Results | $182 | $531 | (65.7%) | | Net Loss Ratio | 65.8% | 71.0% | (5.2 pts) | | Underwriting Expense Ratio | 36.0% | 33.3% | 2.7 pts | - The segment includes results from **26 SPCs** (eight inactive) at Inova Re and Eastern Re, which are segregated pools of assets and liabilities[261](index=261&type=chunk) [Premiums Written](index=63&type=section&id=Premiums%20Written) Gross premiums written decreased significantly due to reduced workers' comp new business, lower audit premium, and the non-renewal of two agency-owned programs Segregated Portfolio Cell Reinsurance Gross Premiums Written by Component (in thousands) | Component | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :---------------------------- | :-------------------------------- | :-------------------------------- | :------ | | Workers' compensation | $12,714 | $15,997 | (20.5%) | | Medical professional liability| $34 | $(63)

Core Viewpoint - ProAssurance (PRA) is positioned as a strong investment opportunity due to its improving earnings outlook and analysts' increasing earnings estimates [1][2]. Earnings Estimate Revisions - The upward trend in earnings estimate revisions indicates growing analyst optimism regarding ProAssurance's earnings prospects, which is expected to positively impact its stock price [2]. - For the current quarter, ProAssurance is projected to earn $0.19 per share, reflecting a significant increase of +137.5% compared to the same period last year [6]. - The Zacks Consensus Estimate for the current quarter has risen by 6.32% over the last 30 days, with one estimate increasing and no negative revisions [6]. - For the full year, the earnings estimate stands at $0.92 per share, which is a decrease of -3.16% from the previous year [7]. - There has been a positive trend in estimate revisions for the current year, with two estimates moving up and no negative revisions [7]. Zacks Rank and Performance - ProAssurance currently holds a Zacks Rank 1 (Strong Buy), indicating strong agreement among analysts in raising earnings estimates [8]. - The Zacks Rank system has a proven track record, with Zacks 1 Ranked stocks averaging an annual return of +25% since 2008 [3]. - Stocks with Zacks Rank 1 and 2 are shown to significantly outperform the S&P 500 [8]. Stock Performance - ProAssurance's stock has increased by 51.1% over the past four weeks, driven by strong estimate revisions and investor interest [9]. - There is potential for further upside in the stock, suggesting it may be a good addition to investment portfolios [9].

Core Insights - ProAssurance shares have increased by approximately 44.3% over the past month, outperforming the S&P 500 [1] - Recent earnings estimates for ProAssurance have trended upward, indicating positive investor sentiment [2][4] Company Performance - ProAssurance currently holds a subpar Growth Score of D, but has a strong Momentum Score of A, while its Value Score is also rated D, placing it in the bottom 40% for value investment strategy [3] - The overall VGM Score for ProAssurance is D, suggesting a lack of focus on any single investment strategy [3] Industry Context - ProAssurance is part of the Zacks Insurance - Property and Casualty industry, where Kinsale Capital Group has seen a 14.8% increase in stock price over the past month [5] - Kinsale Capital Group reported revenues of $412.12 million for the last quarter, reflecting a year-over-year increase of 17.4%, with EPS rising from $3.87 to $4.62 [6] - Kinsale Capital Group is expected to post earnings of $3.16 per share for the current quarter, which represents a year-over-year decline of 9.7% [6] - Kinsale Capital Group has a Zacks Rank of 3 (Hold) and a VGM Score of D, indicating a more cautious outlook compared to ProAssurance [7]

Core Insights - ProAssurance (PRA) shares surged 48.1% to close at $23.02, significantly outperforming its previous 8.1% gain over the past four weeks, driven by high trading volume [1] - The stock's rally is primarily due to The Doctors Company's acquisition announcement at a premium price of $25.00 per share, indicating strong investor confidence in ProAssurance's value [2] - The acquisition aligns ProAssurance's expertise in medical liability, life sciences, and workers' compensation with The Doctors Company's mission, enhancing competitiveness [3] Financial Performance - ProAssurance is expected to report quarterly earnings of $0.18 per share, reflecting a year-over-year increase of 125%, while revenues are projected to be $270.66 million, a 4% decline from the previous year [4] - The consensus EPS estimate for ProAssurance has been revised 3.4% higher in the last 30 days, suggesting potential price appreciation in the near term [5] Industry Context - ProAssurance is categorized under the Zacks Insurance - Property and Casualty industry, where CNA Financial, another player, has seen a slight decline of 0.1% in its stock price [5] - CNA Financial's consensus EPS estimate has decreased by 8.6% over the past month, indicating a 10% drop compared to the previous year, and it currently holds a Zacks Rank of 4 (Sell) [6]

Group 1: Industry Overview - The U.S. insurance industry is expected to experience a surge in mergers and acquisitions (M&A) in 2025, driven by the need for greater scale, efficiency, and market expansion [1] - Global insurance M&A activity declined in 2024 due to economic uncertainty, geopolitical tensions, and higher regulatory scrutiny, but the U.S. market is anticipated to rebound [1] Group 2: Factors Driving M&A - Deregulation efforts and lower capital costs are likely to fuel both domestic and international acquisitions [2] - U.S. insurers, supported by a strong dollar, may target undervalued assets to enhance their portfolios amid increasing competition [2] Group 3: Recent Strategic Acquisitions - ProAssurance Corporation is set to be acquired by The Doctors Company for $1.3 billion, with shareholders receiving $25 per share, a 60% premium over its March 18 closing price [3] - The acquisition will result in ProAssurance becoming a wholly owned subsidiary of The Doctors Company, with combined assets of approximately $12 billion [4] - Arthur J. Gallagher & Co. acquired AssuredPartners for $13.45 billion, marking a significant transaction in the insurance brokerage sector [5] Group 4: Future Trends - The insurance sector is poised for further consolidation, particularly in niche markets such as medical liability, real estate, construction, and specialty coverage [7] - Rising claims costs are likely to drive companies toward mergers to enhance financial stability and expand service offerings [7] - The emphasis on digitization and advanced risk management solutions may lead insurers to acquire technology-focused firms and insurtech startups [8]

Core Viewpoint - ProAssurance is under investigation for potential breaches of fiduciary duty related to its transaction with The Doctors Company, which involves a cash payment of $25.00 per share, totaling approximately $1.3 billion [1][2]. Group 1: Transaction Details - ProAssurance shareholders will receive $25.00 in cash per share, with the total transaction value estimated at $1.3 billion [2]. - The transaction agreement includes provisions that significantly limit competing offers for ProAssurance, imposing penalties if a competing bid is accepted [3]. Group 2: Investigation Focus - The investigation is centered on the conduct of ProAssurance's board of directors and whether they are adequately fulfilling their fiduciary duties to all shareholders [3].

Group 1 - Monteverde & Associates PC has recovered millions for shareholders and is recognized as a Top 50 Firm in the 2024 ISS Securities Class Action Services Report [1] - The firm is investigating ProAssurance Corporation regarding its proposed merger with The Doctors Company, where ProAssurance stockholders will receive $25.00 per share in cash [1] - The firm operates from the Empire State Building in New York City and has a successful track record in trial and appellate courts, including the U.S. Supreme Court [2][3] Group 2 - The firm emphasizes that no company, director, or officer is above the law, and encourages shareholders with concerns to contact them for additional information [3] - Monteverde & Associates PC is a national class action securities firm with a focus on litigating and recovering money for shareholders [2][4]

Core Insights - ProAssurance Corporation (PRA) reported a fourth-quarter 2024 adjusted operating income of 36 cents per share, exceeding the Zacks Consensus Estimate of 15 cents, and a significant improvement from a loss of five cents per share in the same period last year [1][2] Financial Performance - Operating revenues increased by 0.9% year over year to $287.5 million, surpassing the consensus mark by 5.7% [2] - Net income surged 153.6% year over year to $16.2 million, with a combined ratio of 109.3%, improving by 270 basis points [5] - Total expenses decreased by 5.5% year over year to $271.4 million, although it was higher than the estimate of $267 million [4] Segment Analysis - Specialty P&C Segment: Revenues declined 4.3% year over year to $186.8 million but exceeded the Zacks Consensus Estimate of $184.1 million [6] - Workers' Compensation Insurance Segment: Revenues rose 12.2% year over year to $43.3 million, surpassing the consensus estimate of $40.3 million [8] - Segregated Portfolio Cell Reinsurance Segment: Gross premiums written fell 13.2% year over year to $12.4 million, missing the estimate of $15.6 million [10] Investment Income and Expenses - Net investment income was $36.8 million, a 9.2% increase year over year, but fell short of the consensus mark of $37.7 million [4] - Total expenses in the Workers' Compensation segment declined 2.2% year over year to $50.5 million, with a loss of $7.2 million, improved from a loss of $13 million in the prior year [9] Financial Position - As of December 31, 2024, cash and cash equivalents were $54.9 million, down 16.7% from the end of 2023 [13] - Total investments rose by 0.4% to $4.4 billion, while total assets decreased by 1% to $5.6 billion [13] - Total shareholders' equity increased by 8.1% to $1.2 billion, with a book value per share of $23.49, up 7.7% from the previous year [14] Share Repurchase Update - ProAssurance did not repurchase any common shares in 2024, with a remaining capacity of $55.9 million for future repurchases or debt retirement [15]