Retroactive Insurance Contracts

12 Months Ended

Dec. 31, 2019

ProAssurance offers custom alternative risk solutions including loss portfolio transfers for healthcare entities that, most commonly, are exiting a line of business, changing an insurance approach or simply preferring to transfer risk. A loss portfolio transfer is a form of retroactive insurance coverage as the Company is assuming and accepting an entity’s existing open and future claim liabilities through the transfer of the entity’s loss reserves. If the contract includes both prospective (tail) coverage and retroactive coverage, ProAssurance bifurcates the provisions of the contract and accounts for each component separately. Retroactive and prospective (tail) coverages are fully written and earned as of the contract effective date. For additional information regarding ProAssurance's accounting policy for retroactive insurance contracts, see Note 1.

During 2019, ProAssurance entered into a loss portfolio transfer with a regional hospital group to cover a specific inventory of existing claims as well as provide tail coverage. During 2018, ProAssurance entered into a loss portfolio transfer with a large healthcare organization to also cover a specific inventory of existing claims as well as provide tail coverage. The impact of each of these loss portfolio transfers on the Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2019 and 2018 is as follows:



	Year Ended December 31
(In millions)	2019		2018
Retroactive coverage	$	0.9	$	18.7
Prospective (tail) coverage	1.8		7.9
Net premiums earned	$	2.7	$	26.6

Net losses and loss adjustment expenses	$	2.1	$	25.4

For the loss portfolio transfer entered into during 2018, ProAssurance recorded a deferred gain of $0.6 million which is included as a component of the reserve for losses and loss adjustment expenses on the Consolidated Balance Sheet. This deferred gain represented the excess of premiums received over losses assumed related to the retroactive coverage which is amortized into earnings over the estimated claim payment period. Amortization of this deferred gain was insignificant during each of the years ended December 31, 2019 and 2018.

Statutory Accounting and Dividend Restrictions

ProAssurance’s domestic U.S. insurance subsidiaries are required to file statutory financial statements with state insurance regulatory authorities, prepared based upon SAP prescribed or permitted by regulatory authorities. ProAssurance did not use any prescribed or permitted SAP that differed from the NAIC's SAP at December 31, 2019, 2018 or 2017. Differences between net income (loss) prepared in accordance with GAAP and statutory net income (loss) are principally due to: (a) policy acquisition and certain software and equipment costs which are deferred under GAAP but expensed for statutory purposes and (b) certain deferred income taxes which are recognized under GAAP but are not recognized for statutory purposes.

The NAIC specifies risk-based capital requirements for property and casualty insurance providers. At December 31, 2019, actual statutory capital and surplus for each of ProAssurance’s insurance subsidiaries exceeded the minimum regulatory requirements. Net income (loss) and capital and surplus of ProAssurance’s insurance subsidiaries on a statutory basis are shown in the following table.



(In millions)
Statutory Net Income (Loss)			Statutory Capital and Surplus
2019	2018	2017	2019	2018
($22)	$135	$139	$878	$1,041

At December 31, 2019, $1.2 billion of ProAssurance's consolidated net assets were held at its domestic insurance subsidiaries, of which approximately $88 million are permitted to be paid as dividends over the course of 2020 without prior approval of state insurance regulators. However, the payment of any dividend requires prior notice to the insurance regulator in the state of domicile and the regulator may prevent the dividend if, in its judgment, payment of the dividend would have an adverse effect on the capital and surplus of the insurance subsidiary.