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Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of ProAssurance’s deferred tax assets and liabilities were as follows:
December 31
(In thousands)20242023
Deferred tax assets
Unpaid loss discount$45,733 $49,189 
Unearned premium adjustment21,319 22,031 
Compensation related15,209 11,505 
Unrealized losses on investments, net47,679 56,229 
Basis differentials-investments3,578 2,018 
Intangibles5,340 7,158 
Operating lease liabilities3,592 3,539 
Tax credit carryforward47,187 53,154 
Net operating loss carryforward22,792 30,488 
Other— 1,547 
Total gross deferred tax assets212,429 236,858 
Valuation allowance(20,754)(20,078)
Total deferred tax assets, net of valuation allowance191,675 216,780 
Deferred tax liabilities
Deferred policy acquisition costs(13,064)(13,051)
Unpaid loss discount-transition(1,259)(3,265)
Fixed assets(1,804)(2,720)
Operating lease ROU assets(3,409)(3,350)
Basis differentials-foreign operations(1,690)(1,386)
Intangibles(5,693)(6,844)
Other(828)— 
Total deferred tax liabilities(27,747)(30,616)
Net deferred tax assets (liabilities)$163,928 $186,164 
As of December 31, 2024, ProAssurance had U.S. Federal, U.S. state and U.K. income tax NOL carryforwards of approximately $42.4 million, $173.1 million and $25.4 million, respectively. The U.K. NOL carryforwards do not expire while the U.S. Federal and state NOL carryforwards will begin to expire in 2035 and 2031, respectively.
As a result of the NORCAL acquisition, the Company has U.S. federal NOL carryforwards which as of December 31, 2024 were approximately $18.9 million. These NOL carryforwards are subject to limitation by Internal Revenue Code Section 382 and will begin to expire in 2035.
ProAssurance had $46.9 million of available tax credit carryforwards generated from the Company's investments in tax credit partnerships all of which may be carried forward until they begin to expire on December 31, 2039. For the year ended December 31, 2024, ProAssurance utilized approximately $5.9 million of tax credits carried forward from 2019.
The Company's total valuation allowance increased by $0.7 million and $1.7 million for the years ended December 31, 2024 and 2023, respectively.
In 2024 and 2023, management evaluated the realizability of the deferred tax assets related to the NOL carryforwards of the Company's Lloyd's corporate member subsidiary and concluded that it was more likely than not that the deferred tax assets will not be realized; therefore, a valuation allowance was recorded against the full value of the deferred tax assets related to the U.S. Federal and U.K. NOL carryforwards in 2024 and 2023 of $11.3 million and $12.5 million, respectively. The decrease in the valuation allowance related to the U.S. Federal and U.K. NOL carryforwards in 2024 as compared to 2023 was partially due to current year activity.
In 2024 and 2023, management evaluated the realizability of the deferred tax asset related to the U.S. state NOL carryforwards and concluded that it was more likely than not that a portion of the deferred tax asset will not be realized; therefore, a valuation allowance was recorded against a portion of the deferred tax asset related to the U.S. state NOL carryforwards in 2024 and 2023 of $8.1 million and $6.8 million, respectively. The increase in the valuation allowance related to the U.S. state NOL carryforwards in 2024 as compared to 2023 was primarily due to current year activity.
Deferred tax assets and liabilities include SPCs the Company participates in at Inova Re, net of a valuation allowance $1.4 million and $0.7 million at December 31, 2024 and 2023, respectively. Due to the cumulative losses in recent years , management concluded that a valuation allowance was required against the DTAs of certain SPCs as of December 31, 2024 and 2023.
ProAssurance files income tax returns in various states, the U.S. federal jurisdiction and the U.K. ProAssurance had a liability for U.S. federal and U.K. income taxes carried as part of other liabilities of $1.0 million and $4.0 million at December 31, 2024 and 2023, respectively.
The statute of limitations is now closed for all tax years prior to 2021.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits for 2024, 2023 and 2022, were as follows:
(In thousands)202420232022
Balance at January 1$4,791 $3,623 $3,020 
Decreases for tax positions taken during the current year(487)— (99)
Increases for tax positions taken during prior years23 1,391 1,839 
Decreases relating to a lapse of the applicable statute of limitations(4,148)(223)(1,137)
Balance at December 31$179 $4,791 $3,623 
At December 31, 2024 and 2023, approximately $0.1 million and $0.9 million of ProAssurance's uncertain tax positions, if recognized, would affect the effective tax rate, respectively. As with any uncertain tax position, there is a possibility that the ultimate benefit realized could differ from the estimate management has established. Management believes that it is reasonably possible that a portion of unrecognized tax benefits at December 31, 2024 may change during the next twelve months. However, an estimate of the change cannot be made at this time.
ProAssurance recognizes interest and/or penalties related to income tax matters, if any, as a component of income tax expense. Interest and penalties recognized in the Consolidated Statements of Income and Comprehensive Income were nominal for each of the years ended December 31, 2024, 2023 and 2022. The accrued liability for interest was nominal at December 31, 2024 and approximately $0.5 million at December 31, 2023.
Income tax expense (benefit) for each of the years ended December 31, 2024, 2023 and 2022 consisted of the following:
(In thousands)202420232022
Provision for income taxes:
Current expense (benefit)
Federal and foreign$(2,993)$716 $793 
State506 507 14 
Total current expense (benefit)(2,487)1,223 807 
Deferred expense (benefit)
Federal and foreign12,581 (1,410)(6,826)
State240 (358)205 
Total deferred expense (benefit)12,821 (1,768)(6,621)
Total income tax expense (benefit)$10,334 $(545)$(5,814)
A reconciliation of “expected” federal income tax expense (benefit) to actual income tax expense (benefit) for each of the years ended December 31, 2024, 2023 and 2022 were as follows:
(In thousands)202420232022
Computed “expected” tax expense (benefit)$13,247 $(8,221)$(1,305)
Tax-exempt income (1)
(1,062)(1,192)(1,072)
Tax credits(32)(631)(4,805)
Non-U.S. operating results396 (625)(411)
Tax deficiency (excess tax benefit) on share-based compensation708 191 309 
Change in limitation of future deductibility of certain executive compensation(198)932 708 
Non-taxable contingent consideration(2)
(1,415)(1,785)(1,890)
Goodwill impairment(3)
— 9,263 — 
GILTI and subpart F income292 396 556 
Provision-to-return and other differences(42)327 1,112 
Change in uncertain tax positions(4)
(3,004)1,546 780 
State income taxes911 65 105 
Non-taxable gain from life insurance proceeds(42)(682)(142)
Other575 (129)241 
Total income tax expense (benefit)$10,334 $(545)$(5,814)
(1) Includes tax-exempt interest, dividends received deduction and change in cash surrender value of BOLI.
(2) Represents the tax impact of a decrease in the contingent consideration liability issued in connection with the NORCAL acquisition of $6.5 million and the reversal of a nominal amount of associated contingent investment banker fees accrued during purchase accounting year ended December 31, 2024 as compared to a decrease in the contingent consideration liability of $8.5 million and $9.0 million for the years ended December 31, 2023 and 2022, respectively, all of which are non-taxable. See further discussion on the contingent consideration in Note 2 and Note 8.
(3) Represents the tax impact of the impairment of non-deductible goodwill in relation to the Workers' Compensation Insurance reporting unit during the third quarter of 2023 (see further discussion on the impairment charge in Note 6).
(4) Represents the benefit for tax positions whose statute of limitations has expired.
Coronavirus Aid, Relief and Economic Security Act
In response to COVID-19, the CARES Act was signed into law on March 27, 2020 and contains several provisions for corporations and eased certain deduction limitations originally imposed by the TCJA. The CARES Act, among other things,
includes temporary changes regarding the prior and future utilization of NOLs, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes and the creation of certain refundable employee retention credits. As a result of the CARES Act, ProAssurance was permitted to carryback NOLs generated in tax years 2019 and 2020 for up to five years. ProAssurance generated an NOL of approximately $33.3 million from the 2020 tax year that was carried back to the 2015 tax year which resulted in a tax refund of approximately $11.7 million received in February 2023.