ProAssurance(PRA) - 2025 Q2 - Quarterly Report

FORM 10-Q General Information ProAssurance Corporation filed its Q2 2025 Form 10-Q, detailing its large accelerated filer status and key registrant information - ProAssurance Corporation filed its Form 10-Q for the quarterly period ended June 30, 2025. The company is a large accelerated filer and is not a shell company[1][4][5] Registrant Information | Field | Value | | :--- | :--- | | Commission File Number | 0-16533 | | Exact Name of Registrant | ProAssurance Corporation | | State of Incorporation | Delaware | | I.R.S. Employer Identification No. | 63-1261433 | | Principal Executive Offices Address | 100 Brookwood Place, Birmingham, AL 35209 | | Telephone Number | (205) 877-4400 | | Trading Symbol | PRA | | Exchange Registered On | New York Stock Exchange | | Common Stock Outstanding (July 31, 2025) | 51,413,643 shares | Glossary of Terms and Acronyms This section provides a glossary defining key terms and acronyms used throughout the report for enhanced clarity - The report includes a glossary defining various terms and acronyms used throughout the document, such as AAD (Annual aggregate deductible), AOCI (Accumulated other comprehensive income (loss)), MPL (Medical Professional Liability), and SEC (Securities and Exchange Commission), to ensure clarity and understanding for readers[7][8][9] Caution Regarding Forward-Looking Statements This section cautions that forward-looking statements are subject to significant risks and uncertainties, with no obligation for revisions - The document contains forward-looking statements based on estimates and anticipations of future events, which are subject to significant risks, assumptions, and uncertainties that could cause actual results to differ materially. These statements are identified by specific words and cover various aspects of the business, including liquidity, capital requirements, investment performance, and regulatory actions[12][13][16] - Readers are cautioned not to place undue reliance on these statements, which are valid only as of the date made. The company explicitly declines any obligation to publicly release revisions to these statements unless required by law[16] Risk Factors (General) The company faces various general risk factors, including economic, regulatory, and operational challenges, detailed in its 2024 Form 10-K - Numerous factors could cause actual results to differ materially from forward-looking statements, including changes in economic conditions (inflation, unemployment), regulatory and legislative actions, tort reforms, interest and tax rate changes, financial market performance, and changes in accounting policies[14] - Other significant risks include the impact of healthcare system changes, consolidation of insureds, cyclical insurance industry trends, uncertainties in loss reserve estimates, availability and cost of reinsurance, litigation outcomes, and the availability and security of technology infrastructure, including cyber-attack susceptibility[14][17] - The principal risk factors are detailed in the company's December 31, 2024 Form 10-K report, with no material changes noted other than those specifically disclosed in this 10-Q[15] PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's analysis ITEM 1. FINANCIAL STATEMENTS This section presents ProAssurance's unaudited condensed consolidated financial statements and detailed notes for Q2 2025 Condensed Consolidated Balance Sheets (Unaudited) This section presents the unaudited condensed consolidated balance sheets, detailing changes in assets, liabilities, and equity Condensed Consolidated Balance Sheets (Unaudited) (In thousands) | Item | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Total Investments | $4,379,327 | $4,367,427 | | Cash and cash equivalents | $41,605 | $54,881 | | Premiums receivable, net | $252,473 | $228,900 | | Receivable from reinsurers on unpaid losses and loss adjustment expenses | $361,278 | $409,069 | | Deferred tax asset, net | $142,694 | $163,928 | | Total Assets | $5,485,603 | $5,574,273 | | Liabilities | | | | Reserve for losses and loss adjustment expenses | $3,134,904 | $3,257,696 | | Unearned premiums | $425,551 | $418,756 | | Debt less unamortized debt issuance costs | $422,633 | $424,873 | | Total Liabilities | $4,210,353 | $4,372,524 | | Shareholders' Equity | | | | Total Shareholders' Equity | $1,275,250 | $1,201,749 | | Total Liabilities and Shareholders' Equity | $5,485,603 | $5,574,273 | - Total assets decreased by $88.67 million from December 31, 2024, to June 30, 2025, primarily due to a decrease in cash and cash equivalents, receivables from reinsurers, and deferred tax assets[21] - Total liabilities decreased by $162.17 million, mainly driven by a reduction in the reserve for losses and loss adjustment expenses and other liabilities[21] - Shareholders' equity increased by $73.5 million, primarily due to an increase in retained earnings and accumulated other comprehensive income (loss)[21] Condensed Consolidated Statements of Changes in Capital (Unaudited) This section details changes in shareholders' equity, including common stock, paid-in capital, and retained earnings Condensed Consolidated Statements of Changes in Capital (Unaudited) (In thousands) | Item | Balance at Dec 31, 2024 | 3 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2025 | Balance at Jun 30, 2025 | | :--- | :--- | :--- | :--- | :--- | | Common Stock | $638 | $1 | $2 | $640 | | Additional Paid-in Capital | $408,471 | $1,406 | $1,565 | $410,036 | | Accumulated Other Comprehensive Income (Loss) | $(172,391) | $18,302 | $55,835 | $(116,556) | | Retained Earnings | $1,434,725 | $21,921 | $16,099 | $1,450,824 | | Treasury Stock | $(469,694) | $0 | $0 | $(469,694) | | Total Shareholders' Equity | $1,201,749 | $40,260 | $73,501 | $1,275,250 | - Total shareholders' equity increased by $73.5 million for the six months ended June 30, 2025, primarily driven by a significant increase in accumulated other comprehensive income (loss) and retained earnings[23] - Accumulated other comprehensive income (loss) improved from $(172.39) million at December 31, 2024, to $(116.56) million at June 30, 2025, reflecting positive other comprehensive income (loss) of $55.84 million during the six-month period[23] - Net income contributed $21.92 million for the three months and $16.10 million for the six months ended June 30, 2025, to retained earnings[23] Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited) This section presents the unaudited condensed consolidated statements of income and comprehensive income Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited) (In thousands, except per share data) | Item | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenues | | | | | | Net premiums earned | $232,407 | $239,867 | $468,682 | $484,017 | | Net investment income | $38,933 | $36,558 | $75,883 | $70,455 | | Total revenues | $276,753 | $290,355 | $548,831 | $575,053 | | Expenses | | | | | | Net losses and loss adjustment expenses | $159,937 | $186,000 | $349,898 | $380,694 | | Total expenses | $249,318 | $272,426 | $527,728 | $551,807 | | Income (loss) before income taxes | $27,435 | $17,929 | $21,103 | $23,246 | | Total income tax expense (benefit) | $5,514 | $2,421 | $5,004 | $3,112 | | Net income (loss) | $21,921 | $15,508 | $16,099 | $20,134 | | Other comprehensive income (loss), after tax | $18,302 | $924 | $55,835 | $(1,548) | | Comprehensive income (loss) | $40,223 | $16,432 | $71,934 | $18,586 | | Basic EPS | $0.43 | $0.30 | $0.31 | $0.39 | | Diluted EPS | $0.42 | $0.30 | $0.31 | $0.39 | - Net income for the three months ended June 30, 2025, increased by $6.41 million (41.35%) to $21.92 million, compared to $15.51 million in the prior year period. For the six months, net income decreased by $4.04 million (20.04%) to $16.10 million[24] - Total revenues decreased by $13.60 million (4.68%) for the three months and $26.22 million (4.56%) for the six months ended June 30, 2025, primarily due to lower net premiums earned[24] - Net losses and loss adjustment expenses decreased by $26.06 million (14.01%) for the three months and $30.80 million (8.09%) for the six months ended June 30, 2025, contributing to improved profitability[24] - Other comprehensive income (loss) significantly increased to $18.30 million for the three months and $55.84 million for the six months ended June 30, 2025, compared to $0.92 million and $(1.55) million, respectively, in the prior year, largely due to investment performance[24] Condensed Consolidated Statements of Cash Flows (Unaudited) This section presents the unaudited condensed consolidated statements of cash flows, detailing operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) | Activity | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | Change | | :--- | :--- | :--- | :--- | | Net cash provided (used) by operating activities | $(39,674) | $(24,499) | $(15,175) | | Net cash provided (used) by investing activities | $34,233 | $(1,970) | $36,203 | | Net cash provided (used) by financing activities | $(7,835) | $(2,552) | $(5,283) | | Increase (decrease) in cash and cash equivalents | $(13,276) | $(29,021) | $15,745 | | Cash and cash equivalents at end of period | $41,605 | $36,877 | $4,728 | - Net cash used in operating activities increased by $15.18 million to $(39.67) million for the six months ended June 30, 2025, primarily due to higher operating expenses and lower net premium receipts[27][174] - Net cash provided by investing activities significantly improved by $36.20 million, moving from $(1.97) million used in 2024 to $34.23 million provided in 2025, largely driven by proceeds from the sale of capital assets and higher proceeds from sales/maturities of fixed maturities[27][173] - Net cash used in financing activities increased by $5.28 million to $(7.84) million, mainly due to higher repayments under the Revolving Credit Agreement and capital contributions received from external segregated portfolio cell participants[27][28] Notes to Condensed Consolidated Financial Statements (Unaudited) This section provides an overview of Notes to Condensed Consolidated Financial Statements Basis of Presentation The financial statements are prepared under GAAP, with segment reorganization and merger-related disclosures - ProAssurance operates in four reportable segments: Specialty P&C, Workers' Compensation Insurance, Segregated Portfolio Cell Reinsurance, and Corporate. A segment reorganization in Q1 2025 recast prior period segment information to align with current CODM oversight[32][33] - The company entered into a Merger Agreement with The Doctors Company on March 19, 2025, for $25.00 cash per share. Stockholders approved the merger on June 24, 2025, and FTC granted early termination of the waiting period on July 2, 2025. The merger is expected to close in the first half of 2026, subject to remaining regulatory approvals[42][43][46] - Pre-tax transaction-related costs of approximately $4.5 million and $11.6 million were incurred for the three and six months ended June 30, 2025, respectively, related to the proposed merger[45] - In Q1 2025, ProAssurance sold its Franklin, TN property, recognizing a $2.2 million gain in other income (expense) and generating $19.3 million in proceeds from investing activities[47] Fair Value Measurement Fair value is measured using a three-level hierarchy, primarily for investments, with specific methodologies detailed - Fair value measurements are categorized into a three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable market data), and Level 3 (non-observable inputs and entity's own assumptions)[50][52] Total Assets at Fair Value (In thousands) | Category | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total assets categorized within the fair value hierarchy | $4,044,200 | $4,028,615 | | Assets carried at NAV (Investment in unconsolidated subsidiaries) | $218,452 | $226,269 | | Total assets at fair value | $4,262,652 | $4,254,884 | Level 3 Fair Value Measurements – Assets (In thousands) | Asset Type | June 30, 2025 Fair Value | December 31, 2024 Fair Value | | :--- | :--- | :--- | | Corporate debt, limited observable inputs | $80,344 | $81,062 | | Residential mortgage backed, other commercial mortgage backed and other asset-backed securities | $9,449 | $3,774 | | Equity investments | $4,526 | $5,506 | | Other investments | $1,021 | $500 | | Total Level 3 Assets | $95,340 | $90,842 | - Unfunded contractual commitments related to investments carried at NAV totaled approximately $213.6 million as of June 30, 2025, primarily for non-public equity funds and credit funds[70] Investments The investment portfolio consists primarily of available-for-sale fixed maturities, with detailed income and gain/loss analysis Available-for-sale fixed maturities (In thousands) | Category | Amortized Cost (Jun 30, 2025) | Estimated Fair Value (Jun 30, 2025) | Gross Unrealized Losses (Jun 30, 2025) | | :--- | :--- | :--- | :--- | | U.S. Treasury obligations | $253,693 | $246,070 | $8,343 | | State and municipal bonds | $484,985 | $470,552 | $18,211 | | Corporate debt | $1,817,137 | $1,749,456 | $75,742 | | Residential mortgage-backed securities | $565,604 | $517,973 | $50,609 | | Other asset-backed securities | $455,923 | $451,961 | $6,764 | | Total | $3,810,930 | $3,659,830 | $170,082 | - As of June 30, 2025, 1,961 debt securities (48.4% of available-for-sale fixed maturities) were in an unrealized loss position, totaling $170.08 million in unrealized losses. The company does not intend to sell these securities and expects to recover their amortized cost[92][95] Net Investment Income (In thousands) | Item | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Fixed maturities | $36,594 | $33,607 | $71,627 | $65,058 | | Equities | $1,237 | $1,164 | $2,115 | $2,056 | | Short-term investments, including Other | $2,482 | $3,140 | $5,056 | $6,551 | | BOLI | $621 | $534 | $1,239 | $986 | | Investment fees and expenses | $(2,001) | $(1,887) | $(4,154) | $(4,196) | | Net investment income | $38,933 | $36,558 | $75,883 | $70,455 | - Net investment income increased by $2.38 million (6.5%) for the three months and $5.43 million (7.7%) for the six months ended June 30, 2025, primarily due to higher average book yields and increased average investment balances[101][205] - Equity in earnings of unconsolidated subsidiaries decreased by $4.07 million (47.0%) for the three months and $3.02 million (26.0%) for the six months ended June 30, 2025, reflecting lower market valuations in prior quarters[102][205] Net Investment Gains (Losses) (In thousands) | Item | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net impairment losses recognized in earnings | $882 | $(465) | $625 | $(1,399) | | Other net investment gains (losses) | $(655) | $3,628 | $(2,091) | $4,294 | | Total net investment gains (losses) | $227 | $3,163 | $(1,466) | $2,895 | - The company recognized a reversal of $0.9 million and $0.6 million in credit-related impairment losses for the three and six months ended June 30, 2025, respectively, primarily from the sale of corporate bonds[108] Income Taxes Income tax provisions are based on the estimated annual effective tax rate, with discrete items impacting the rate - ProAssurance uses the estimated annual effective tax rate method for interim periods, with unusual or infrequent items treated as discrete[112] - For the three and six months ended June 30, 2025, the income tax provision was impacted by executive compensation exceeding statutory limits, non-deductible merger transaction costs, and changes in uncertain tax positions[113] - As of June 30, 2025, the company had a receivable for U.S. federal and U.K. income taxes of $2.4 million[114] Reserve for Losses and Loss Adjustment Expenses Loss reserves are based on complex estimates, with significant net favorable prior year reserve development noted - Estimating the reserve for losses and loss adjustment expenses is a complex process involving actuarial estimates and judgments, which are regularly reviewed and updated[115] Activity in the Reserve for Losses and Loss Adjustment Expenses (In thousands) | Item | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :--- | :--- | :--- | | Balance, beginning of year | $3,257,696 | $3,401,281 | | Net losses: Current year | $376,405 | $387,630 | | (Favorable) unfavorable development of reserves established in prior years, net | $(26,507) | $(6,936) | | Total Net Losses | $349,898 | $380,694 | | Total paid | $(440,708) | $(414,126) | | Foreign currency exchange rate (gains) losses | $15,809 | $(2,602) | | Balance, end of period | $3,134,904 | $3,367,540 | - Consolidated net favorable prior year reserve development of $26.51 million was recognized for the six months ended June 30, 2025, compared to $6.94 million in the prior year[117] - This favorable development was primarily driven by $22.8 million in the Specialty P&C segment (MPL and Medical Technology Liability), $1.0 million in Workers' Compensation Insurance, and $2.7 million in Segregated Portfolio Cell Reinsurance, partially offset by $1.2 million unfavorable development from Lloyd's Syndicates operations[118][119] Commitments and Contingencies The company is involved in legal actions and has funding commitments, with no material corporate legal reserves - ProAssurance is involved in legal actions related to insurance policies and claims handling, which are considered part of its loss reserving process[121] - As of June 30, 2025, there were no material reserves established for corporate legal actions[121] - The company has funding commitments totaling approximately $213.6 million, primarily related to non-public investment entities[122] Debt Outstanding debt includes Contribution Certificates, a Revolving Credit Agreement, and a Term Loan, with covenant compliance Outstanding Debt (In thousands) | Debt Instrument | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Contribution Certificates due 2031, interest at 3.0% | $181,820 | $181,163 | | Revolving Credit Agreement | $125,000 | $125,000 | | Term Loan | $117,188 | $120,313 | | Total principal | $424,008 | $426,476 | | Less unamortized debt issuance costs | $1,375 | $1,603 | | Debt less unamortized debt issuance costs | $422,633 | $424,873 | - As of June 30, 2025, ProAssurance was in compliance with all covenants of its Revolving Credit Agreement[124] - The effective interest rate for the Revolving Credit Agreement was 6.27% and for the Term Loan was 6.40% as of June 30, 2025[123] Derivatives Derivative instruments are used to manage interest rate and foreign exchange risks, with fair value changes recognized - ProAssurance uses two forward-starting interest rate swap agreements to hedge against variability in cash flows from its Revolving Credit Agreement and Term Loan, effectively fixing the base rates at 3.187% and 3.207%, respectively[128] - Foreign currency forward contracts are utilized as economic hedges to mitigate foreign exchange exposure related to foreign currency denominated loss reserves, with changes in fair value recognized in earnings[130][136] Derivative Instruments Summary (In thousands) | Derivative Type | Aggregate Notional Amount (Jun 30, 2025) | Estimated Fair Value (Jun 30, 2025) | Aggregate Notional Amount (Dec 31, 2024) | Estimated Fair Value (Dec 31, 2024) | | :--- | :--- | :--- | :--- | :--- | | Interest Rate Swaps | $242,188 | $1,214 | $245,313 | $5,801 | | Foreign Currency Forwards | $106,904 | $1,536 | $5,470 | $293 | - For the six months ended June 30, 2025, a gain of $1.09 million on Interest Rate Swaps was reclassified from AOCI to earnings, reducing interest expense[134] Shareholders' Equity Shareholders' equity details authorized shares, repurchase capacity, and changes in accumulated other comprehensive income - As of June 30, 2025, ProAssurance had 100 million authorized common shares and 50 million authorized preferred shares[137] - Board authorizations for common share repurchases or debt retirement totaled $55.9 million as of June 30, 2025. No common shares were repurchased during the three or six months ended June 30, 2025 or 2024[138] Changes in Accumulated Other Comprehensive Income (Loss) (AOCI) (In thousands) | Component | Balance, Dec 31, 2024 | Net OCI, 6 Months Ended Jun 30, 2025 | Balance, Jun 30, 2025 | | :--- | :--- | :--- | :--- | | Unrealized Investment Gains (Losses) | $(176,053) | $59,378 | $(116,675) | | Cash Flow Hedging Gains (Losses) | $4,576 | $(3,624) | $952 | | Non-credit Impairments | $(92) | $81 | $(11) | | Change in Defined Benefit Plan Liabilities | $(822) | $0 | $(822) | | Total AOCI | $(172,391) | $55,835 | $(116,556) | - AOCI improved by $55.84 million for the six months ended June 30, 2025, primarily due to an increase in unrealized investment gains (losses) on available-for-sale securities[141] Variable Interest Entities The company holds passive interests in VIEs and consolidates PPM RRG due to primary beneficiary status - ProAssurance holds passive interests in VIEs, mainly investment fund LPs/LLCs, with a carrying value of $228.3 million as of June 30, 2025. These are not consolidated as ProAssurance is not the primary beneficiary[142][144] - ProAssurance is the primary beneficiary of PPM RRG, consolidating its operations due to a management services agreement and effective control over its Board of Directors[145] - Approximately $139 million of ProAssurance's consolidated assets and liabilities are related to PPM RRG[145] Earnings (Loss) Per Share Earnings per share calculations include diluted weighted average shares, with no antidilutive equivalents noted Weighted Average Number of Common Shares Outstanding (In thousands, except per share data) | Item | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Basic | 51,345 | 51,060 | 51,267 | 51,036 | | Dilutive effect of securities: Restricted Share Units | 211 | 128 | 200 | 120 | | Dilutive effect of securities: Performance Share Units | 121 | 37 | 95 | 31 | | Diluted | 51,677 | 51,225 | 51,562 | 51,187 | | Basic EPS | $0.43 | $0.30 | $0.31 | $0.39 | | Diluted EPS | $0.42 | $0.30 | $0.31 | $0.39 | - Diluted EPS for the three months ended June 30, 2025, was $0.42, up from $0.30 in the prior year. For the six months, diluted EPS was $0.31, down from $0.39 in the prior year[146] - There were no antidilutive common share equivalents for the three and six months ended June 30, 2025[146] Segment Information ProAssurance operates in four segments, with performance evaluated based on underwriting profit/loss and operating profit/loss - ProAssurance reorganized its segment reporting structure in Q1 2025, now operating in four segments: Specialty P&C, Workers' Compensation Insurance, Segregated Portfolio Cell Reinsurance, and Corporate[149][151] - The CODM evaluates Specialty P&C and Workers' Compensation segments based on before-tax underwriting profit/loss and net loss/underwriting expense ratios. Segregated Portfolio Cell Reinsurance is evaluated on operating profit/loss (including investment results, net of taxes), and Corporate on its contribution to consolidated after-tax results[152] Consolidated Net Premiums Earned by Segment (In thousands) | Segment | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Specialty P&C | $179,308 | $184,546 | $362,564 | $373,433 | | Workers' Compensation Insurance | $41,543 | $41,770 | $83,066 | $82,864 | | Segregated Portfolio Cell Reinsurance | $11,556 | $13,551 | $23,052 | $27,720 | | Consolidated total | $232,407 | $239,867 | $468,682 | $484,017 | - Consolidated net premiums earned decreased by $7.46 million (3.1%) for the three months and $15.34 million (3.2%) for the six months ended June 30, 2025, primarily due to reduced participation in Lloyd's Syndicates and non-renewals in the Segregated Portfolio Cell Reinsurance segment[156][204][206] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section analyzes ProAssurance's financial condition and results for Q2 2025, including segment performance ProAssurance Overview ProAssurance is a holding company providing various P&C insurance, with a reorganized four-segment structure - ProAssurance Corporation is a holding company for property and casualty insurance companies, providing medical professional liability, medical technology and life sciences liability, and workers' compensation insurance[165] - The company reorganized its internal management reporting structure in Q1 2025, now operating in four segments: Specialty P&C, Workers' Compensation Insurance, Segregated Portfolio Cell Reinsurance, and Corporate. This change had no impact on previously reported consolidated financial results[166] Critical Accounting Estimates Critical accounting estimates involve significant judgment, including loss reserves, reinsurance, investments, and income taxes - Critical accounting estimates involve significant management judgment and include the reserve for losses and loss adjustment expenses, reinsurance, valuation of investments and impairment of securities, and income taxes[168][171] - The company utilizes the estimated annual effective tax rate method for interim periods, treating unusual or infrequent items as discrete. The OBBBA, signed July 4, 2025, will impact tax provisions starting Q3 2025[169][170] Liquidity and Capital Resources and Financial Condition This section provides an overview of Liquidity and Capital Resources and Financial Condition Overview (Liquidity) The company's liquidity is supported by investments, dividends from subsidiaries, and available credit facilities - ProAssurance's principal sources of external revenue are investment revenues and dividends from operating subsidiaries[172] - As of June 30, 2025, the company held approximately $83 million in cash and liquid investments outside its insurance subsidiaries, available without regulatory approval[172] - Operating subsidiaries paid approximately $12 million in dividends to the holding company in 2025. An additional $145 million in dividends is permitted over the remainder of 2025 without prior state insurance regulator approval[172] Cash Flows Cash flows from operating activities decreased, while investing activities significantly improved for the period Cash Flows (In thousands) | Activity | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | Change | | :--- | :--- | :--- | :--- | | Net cash provided (used) by operating activities | $(39,674) | $(24,499) | $(15,175) | | Net cash provided (used) by investing activities | $34,233 | $(1,970) | $36,203 | | Net cash provided (used) by financing activities | $(7,835) | $(2,552) | $(5,283) | | Increase (decrease) in cash and cash equivalents | $(13,276) | $(29,021) | $15,745 | - Operating cash flows decreased by $15.18 million, primarily due to a $20.2 million increase in cash paid for operating expenses (incentive compensation, merger-related costs) and an $11.9 million decrease in net premium receipts[174][175] - The decrease in operating cash flows was partially offset by a $7.9 million decrease in paid net losses (due to increased reinsurance recoveries and fewer large indemnity payments) and a $7.3 million increase in cash from investment income[175] Operating Activities and Related Cash Flows Operating activities involve reinsurance, tax laws, and a payroll tax refund, with federal NOL carryforwards - Reinsurance is used in Specialty P&C and Workers' Compensation segments for capacity, loss reimbursement, and risk mitigation[177] - The traditional workers' compensation treaty renewed on May 1, 2025, at a lower contract rate, with other material terms consistent with the previous treaty[178] - ProAssurance received a $4.4 million payroll tax refund (including $0.6 million interest) in April 2025, related to a CARES Act claim for wages paid in 2020[187][189] - As of June 30, 2025, the company had approximately $18.9 million in U.S. federal NOL carryforwards, subject to Section 382 limitations and expiring in 2035[189] Investing Activities and Related Cash Flows The investment portfolio is primarily high-quality fixed income, with anticipated maturities and unfunded commitments Investment Portfolio Composition (In thousands) | Investment Category | June 30, 2025 Carrying Value | % of Total Investment (Jun 30, 2025) | | :--- | :--- | :--- | | Fixed maturities, available-for-sale | $3,659,830 | 83% | | Fixed maturities, trading | $13,048 | 1% | | Equity investments | $108,758 | 2% | | Short-term investments | $257,268 | 6% | | BOLI | $81,418 | 1% | | Investment in unconsolidated subsidiaries | $251,198 | 6% | | Other investments | $7,807 | 1% | | Total investments | $4,379,327 | 100% | - At June 30, 2025, 92% of fixed maturities were investment grade, with an average rating of A+. The weighted average effective duration of fixed maturity securities was 3.38 years[192][196] - The company anticipates $70 million to $180 million of its portfolio to mature or be paid down quarterly over the next twelve months to meet cash flow requirements[194] - Funds at Lloyd's (FAL) had a fair value of $14.1 million at June 30, 2025, increased in Q1 2025 to support accumulated losses[195] - Total funding commitments for investment fund LPs/LLCs were approximately $213.6 million as of June 30, 2025, with an estimated $136 million expected to be drawn[197] Financing Activities and Related Cash Flows Financing activities involve debt instruments and interest rate swaps, with FHLB membership for liquidity Outstanding Debt (In thousands) | Debt Instrument | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Contribution Certificates | $181,820 | $181,163 | | Revolving Credit Agreement | $125,000 | $125,000 | | Term Loan | $117,188 | $120,313 | | Total principal | $424,008 | $426,476 | - Interest rate swaps are used to manage exposure to interest rate risk on borrowings under the Revolving Credit Agreement and Term Loan[199] - Two insurance subsidiaries are FHLB members, providing access to secured cash advances for liquidity, though not materially utilized for borrowing to date[200] Results of Operations – Three and Six Months Ended June 30, 2025 Compared to Three and Six Months Ended June 30, 2024 This section compares ProAssurance's Q2 2025 results to Q2 2024, detailing revenues, expenses, and key ratios Selected Consolidated Financial Data (In thousands, except per share data) | Item | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | Change (3M) | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | Change (6M) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net premiums earned | $232,407 | $239,867 | $(7,460) | $468,682 | $484,017 | $(15,335) | | Total revenues | $276,753 | $290,355 | $(13,602) | $548,831 | $575,053 | $(26,222) | | Net losses and loss adjustment expenses | $159,937 | $186,000 | $(26,063) | $349,898 | $380,694 | $(30,796) | | Total expenses | $249,318 | $272,426 | $(23,108) | $527,728 | $551,807 | $(24,079) | | Net income (loss) | $21,921 | $15,508 | $6,413 | $16,099 | $20,134 | $(4,035) | | Basic EPS | $0.43 | $0.30 | $0.13 | $0.31 | $0.39 | $(0.08) | | Diluted EPS | $0.42 | $0.30 | $0.12 | $0.31 | $0.39 | $(0.08) | | Net loss ratio | 68.8% | 77.5% | (8.7 pts) | 74.7% | 78.7% | (4.0 pts) | | Underwriting expense ratio | 34.8% | 33.4% | 1.4 pts | 35.0% | 32.6% | 2.4 pts | | Combined ratio | 103.6% | 110.9% | (7.3 pts) | 109.7% | 111.3% | (1.6 pts) | | Operating ratio | 86.8% | 95.7% | (8.9 pts) | 93.5% | 96.7% | (3.2 pts) | | Return on equity | 7.0% | 5.5% | 1.5 pts | 2.6% | 3.6% | (1.0 pts) | Executive Summary of Operations This summary highlights key operational trends, including changes in revenues, expenses, taxes, and operating ratios Revenues Consolidated net premiums earned decreased, while net investment income increased, and other income saw significant changes Consolidated Net Premiums Earned (In thousands) | Segment | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | Change (%) | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Specialty P&C | $179,308 | $184,546 | (2.8%) | $362,564 | $373,433 | (2.9%) | | Workers' Compensation Insurance | $41,543 | $41,770 | (0.5%) | $83,066 | $82,864 | 0.2% | | Segregated Portfolio Cell Reinsurance | $11,556 | $13,551 | (14.7%) | $23,052 | $27,720 | (16.8%) | | Consolidated total | $232,407 | $239,867 | (3.1%) | $468,682 | $484,017 | (3.2%) | - Net investment income increased by 6.5% for the three months and 7.7% for the six months ended June 30, 2025, driven by higher average book yields and investment balances[205] - Equity in earnings of unconsolidated subsidiaries decreased by 47.0% for the three months and 26.0% for the six months, reflecting lower market valuations in prior quarters[205] Consolidated Net Investment Gains (Losses) (In thousands) | Item | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | Change (%) | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net impairment losses recognized in earnings | $882 | $(465) | (289.7%) | $625 | $(1,399) | (144.7%) | | Contingent Consideration remeasurement gain | $0 | $6,500 | (100.0%) | $0 | $6,500 | (100.0%) | | Other net investment gains (losses) | $(655) | $(2,872) | (77.2%) | $(2,091) | $(2,206) | (5.2%) | | Net investment gains (losses) | $227 | $3,163 | (92.8%) | $(1,466) | $2,895 | (150.6%) | - Consolidated other income (expense) decreased by $1.51 million (71.5%) for the three months and $8.94 million (147.2%) for the six months, primarily due to foreign currency exchange rate losses, partially offset by a $2.2 million gain from the sale of Franklin, TN property and $1.0 million from the sale of legal professional liability renewal rights[209][50] Expenses The net loss ratio improved due to favorable reserve development, while the underwriting expense ratio increased Consolidated Net Loss Ratios and Prior Accident Year Reserve Development | Item | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | Change (pts) | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | Change (pts) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Current accident year net loss ratio | 79.8% | 80.3% | (0.5) | 80.3% | 80.1% | 0.2 | | Calendar year net loss ratio | 68.8% | 77.5% | (8.7) | 74.7% | 78.7% | (4.0) | | Favorable (unfavorable) reserve development, prior accident years (in millions) | $25.6 | $6.5 | $19.1 | $26.5 | $6.9 | $19.6 | - Consolidated net favorable reserve development, excluding purchase accounting amortization, was largely attributable to the MPL line of business in the Specialty P&C segment for accident years 2018-2022[216] Consolidated Underwriting Expense Ratios | Item | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | Change (pts) | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | Change (pts) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Consolidated underwriting expense ratio | 34.8% | 33.4% | 1.4 | 35.0% | 32.6% | 2.4 | | Corporate contribution | 3.8% | 3.6% | 0.2 | 3.6% | 3.5% | 0.1 | - The increase in consolidated underwriting expense ratios was primarily due to transaction-related costs associated with the proposed merger, which increased the ratios by 1.7 and 2.5 percentage points for the three and six months, respectively[217] Taxes The consolidated income tax provision increased, resulting in a higher effective tax rate due to discrete items Consolidated Income Taxes (In thousands) | Item | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Income (loss) before income taxes | $21,103 | $23,246 | (9.2%) | | Income tax expense (benefit) | $5,004 | $3,112 | 60.8% | | Net income (loss) | $16,099 | $20,134 | (20.0%) | | Effective tax rate | 23.7% | 13.4% | 10.3 pts | - The effective tax rate increased by 10.3 percentage points to 23.7% for the six months ended June 30, 2025, compared to 13.4% in the prior year[219] - Discrete items increased the effective tax rate by 0.9% for the 2025 six-month period, compared to a 0.7% decrease in 2024[219] Operating Ratio The consolidated operating ratio improved due to favorable reserve development and increased investment income Consolidated Operating Ratios | Item | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | Change (pts) | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | Change (pts) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Combined ratio | 103.6% | 110.9% | (7.3) | 109.7% | 111.3% | (1.6) | | Less: investment income ratio | 16.8% | 15.2% | 1.6 | 16.2% | 14.6% | 1.6 | | Operating ratio | 86.8% | 95.7% | (8.9) | 93.5% | 96.7% | (3.2) | - The decrease in the operating ratio was primarily attributable to a (8.2) percentage point impact from prior accident year reserve development and a (1.6) percentage point impact from investment income for the three-month period[220] - Excluding specific items, the operating ratios improved by approximately 1.1 and 0.7 percentage points for the three and six months, respectively, driven by improved current accident year net loss ratio in Workers' Compensation and a decrease in estimated ceded premiums in Specialty P&C[221] Non-GAAP Financial Measures Non-GAAP measures provide a clearer view of core operations by excluding non-recurring items, showing improved performance - Non-GAAP operating income (loss) excludes items not reflecting normal results, such as net investment gains/losses, transaction-related costs, and foreign currency exchange rate movements, to provide a useful view of core insurance operations[222][223] Reconciliation of Net Income (Loss) to Non-GAAP Operating Income (Loss) (In thousands, except per share data) | Item | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $21,921 | $15,508 | $16,099 | $20,134 | | After-tax effect of exclusions | $4,847 | $(4,569) | $17,478 | $(6,162) | | Non-GAAP operating income (loss) | $26,768 | $10,939 | $33,577 | $13,972 | | Non-GAAP operating income (loss) per diluted common share | $0.52 | $0.21 | $0.65 | $0.27 | - Non-GAAP operating ROE increased by 4.6 percentage points for the three months and 2.9 percentage points for the six months ended June 30, 2025, driven by higher favorable prior accident year reserve development[232] Non-GAAP Adjusted Book Value Per Share | Item | December 31, 2024 | June 30, 2025 | | :--- | :--- | :--- | | Book Value Per Share | $23.49 | $24.80 | | Less: AOCI Per Share | $(3.37) | $(2.27) | | Non-GAAP Adjusted Book Value Per Share | $26.86 | $27.07 | - Non-GAAP adjusted book value per share increased by $0.21 from December 31, 2024, to June 30, 2025, reflecting net income of $0.31 per share, partially offset by share-based compensation and changes in common shares outstanding[236] Segment Results - Specialty Property & Casualty The Specialty P&C segment saw decreased net premiums earned but improved results due to favorable loss development Premiums Written Specialty P&C gross and net premiums written decreased due to lower MPL and Medical Technology Liability premiums Specialty P&C Segment Premiums Written (In thousands) | Item | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | Change (%) | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Gross premiums written | $157,610 | $163,176 | (3.4%) | $391,620 | $401,894 | (2.6%) | | Net premiums written | $142,937 | $149,020 | (4.1%) | $356,593 | $367,719 | (3.0%) | - Gross premiums written decreased by 3.4% for the three months and 2.6% for the six months ended June 30, 2025, primarily due to lower Medical Professional Liability (MPL) and Medical Technology Liability premiums[241][242] - MPL premium decreased for the three-month period due to retention losses and underwriting discipline, partially offset by increased renewal pricing (11%) and new business. For the six-month period, MPL premium increased due to renewal pricing and new business, offset by retention losses[242] - Medical Technology Liability premium decreased due to retention losses and reduced renewal pricing. Lloyd's Syndicates premium decreased significantly due to ceased participation in Syndicate 1729 for the 2024 underwriting year[242] - The company sold renewal rights for its legal professional liability business for $1.0 million on April 15, 2025, entering a 100% quota share reinsurance agreement[242][243] Ceded Premiums Ratio The Specialty P&C ceded premiums ratio increased due to higher ceded premiums under reinsurance arrangements Specialty P&C Ceded Premiums Ratio | Item | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | Change (pts) | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | Change (pts) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Ceded premiums ratio | 9.3% | 8.7% | 0.6 | 8.9% | 8.5% | 0.4 | | Less the effect of adjustments in premiums owed under reinsurance agreements, prior accident years | (0.7%) | 0.0% | (0.7) | (0.3%) | 0.0% | (0.3) | | Ratio, current accident year | 10.0% | 8.7% | 1.3 | 9.2% | 8.5% | 0.7 | - The current accident year ceded premiums ratio increased due to higher premiums ceded under excess of loss reinsurance arrangements, incorporating podiatric and chiropractic policies into the MPL treaty, and the 100% quota share reinsurance agreement for legal professional liability policies[247] - A $1.2 million decrease in the estimate of ceded premiums owed related to prior accident years was recognized during the 2025 three- and six-month periods[246] Net Premiums Earned Specialty P&C net premiums earned decreased due to ceased Syndicate 1729 participation and lower written premium Specialty P&C Net Premiums Earned (In thousands) | Item | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | Change (%) | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Gross premiums earned | $195,172 | $201,693 | (3.2%) | $396,098 | $408,320 | (3.0%) | | Less: Ceded premiums earned | $15,864 | $17,147 | (7.5%) | $33,534 | $34,887 | (3.9%) | | Net premiums earned | $179,308 | $184,546 | (2.8%) | $362,564 | $373,433 | (2.9%) | - Gross premiums earned decreased due to ceased participation in Syndicate 1729 and lower written premium volume from proactive profitability actions[249] - Ceded premiums earned remained relatively unchanged after removing the $1.2 million prior accident year ceded premium adjustment[250] Losses and Loss Adjustment Expenses Specialty P&C net loss ratios improved due to significant net favorable prior accident year reserve development Specialty P&C Net Loss Ratios | Item | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | Change (pts) | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | Change (pts) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Calendar year net loss ratio | 69.0% | 78.7% | (9.7) | 76.1% | 79.9% | (3.8) | | Current accident year net loss ratio | 82.0% | 82.0% | 0.0 | 82.4% | 81.9% | 0.5 | | Current accident year net loss ratio, excluding prior year ceded premium adjustments | 82.5% | 82.0% | 0.5 | 82.7% | 81.9% | 0.8 | - The calendar year net loss ratio improved by 9.7 percentage points for the three months and 3.8 percentage points for the six months ended June 30, 2025[253] Specialty P&