Fair Value Measurement

12 Months Ended

Dec. 31, 2024

Fair Value Disclosures [Abstract]

Fair Value Measurement

Fair Value Measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three level hierarchy has been established for valuing assets and liabilities based on how transparent (observable) the inputs are that are used to determine fair value, with the inputs considered most observable categorized as Level 1 and those that are the least observable categorized as Level 3. Hierarchy levels are defined as follows:

Level 1: quoted (unadjusted) market prices in active markets for identical assets and liabilities. For ProAssurance, Level 1 inputs are generally quotes for securities actively traded in exchange or over-the-counter markets.

Level 2: market data obtained from sources independent of the reporting entity (observable inputs). For ProAssurance, Level 2 inputs generally include quoted prices in markets that are not active, quoted prices for similar assets or liabilities, and results from pricing models that use observable inputs such as interest rates and yield curves that are generally available at commonly quoted intervals.

Level 3: the reporting entity’s own assumptions about market participant assumptions based on the best information available in the circumstances (non-observable inputs). For ProAssurance, Level 3 inputs are used in situations where little or no Level 1 or 2 inputs are available or are inappropriate given the particular circumstances. Level 3 inputs include results from pricing models for which some or all of the inputs are not observable, discounted cash flow methodologies, single non-binding broker quotes and adjustments to externally quoted prices that are based on management judgment or estimation.

Fair values of assets measured at fair value on a recurring basis as of December 31, 2024 and December 31, 2023 are shown in the following tables. Where applicable, the tables also indicate the fair value hierarchy of the valuation techniques utilized to determine those fair values. For some assets, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. When this is the case, the asset is categorized based on the level of the most significant input to the fair value measurement. Assessments of the significance of a particular input to the fair value measurement require judgment and consideration of factors specific to the assets being valued.

	December 31, 2024
	Fair Value Measurements Using						Total
(In thousands)	Level 1		Level 2		Level 3		Fair Value
Assets:
Fixed maturities, available-for-sale
U.S. Treasury obligations	$	—	$	243,903	$	—	$	243,903
U.S. Government-sponsored enterprise obligations	—		14,894		—		14,894
State and municipal bonds	—		446,601		—		446,601
Corporate debt, multiple observable inputs	—		1,646,713		—		1,646,713
Corporate debt, limited observable inputs	—		—		81,062		81,062
Residential mortgage-backed securities	—		478,799		—		478,799
Agency commercial mortgage-backed securities	—		6,727		—		6,727
Other commercial mortgage-backed securities	—		201,786		—		201,786
Other asset-backed securities	—		457,948		3,774		461,722
Fixed maturities, trading	—		53,157		—		53,157
Equity investments
Financial	9,006		2,310		273		11,589
Utilities/Energy	724		—		—		724
Industrial	—		—		5,233		5,233
Bond funds	101,243		—		—		101,243
All other	11,369		—		—		11,369
Short-term investments	185,492		69,430		—		254,922
Other investments	—		1,577		500		2,077
Other assets	—		6,094		—		6,094
Total assets categorized within the fair value hierarchy	$	307,834	$	3,629,939	$	90,842	4,028,615
Assets carried at NAV, which approximates fair value and which are not categorized within the fair value hierarchy, reported as a part of:
Investment in unconsolidated subsidiaries							226,269
Total assets at fair value							$	4,254,884
Liabilities:
Other liabilities	$	6,680	$	—	$	—	$	6,680
Total liabilities categorized within the fair value hierarchy	$	6,680	$	—	$	—	$	6,680

	December 31, 2023
	Fair Value Measurements Using						Total
(In thousands)	Level 1		Level 2		Level 3		Fair Value
Assets:
Fixed maturities, available-for-sale
U.S. Treasury obligations	$	—	$	243,525	$	—	$	243,525
U.S. Government-sponsored enterprise obligations	—		18,724		—		18,724
State and municipal bonds	—		454,381		—		454,381
Corporate debt, multiple observable inputs	—		1,668,197		—		1,668,197
Corporate debt, limited observable inputs	—		—		82,377		82,377
Residential mortgage-backed securities	—		429,883		254		430,137
Agency commercial mortgage-backed securities	—		8,387		—		8,387
Other commercial mortgage-backed securities	—		188,464		1,010		189,474
Other asset-backed securities	—		395,245		3,150		398,395
Fixed maturities, trading	—		48,324		—		48,324
Equity investments
Financial	9,464		2,287		291		12,042
Utilities/Energy	1,256		—		—		1,256
Industrial	—		—		4,946		4,946
Bond funds	114,901		—		—		114,901
All other	18,150		—		—		18,150
Short-term investments	163,499		72,286		—		235,785
Other investments	—		57,478		5,126		62,604
Other assets	—		3,876		—		3,876
Total assets categorized within the fair value hierarchy	$	307,270	$	3,591,057	$	97,154	3,995,481
Assets carried at NAV, which approximates fair value and which are not categorized within the fair value hierarchy, reported as a part of:
Investment in unconsolidated subsidiaries							245,455
Total assets at fair value							$	4,240,936
Liabilities:
Other liabilities	$	4,030	$	—	$	6,500	$	10,530
Total liabilities categorized within the fair value hierarchy	$	4,030	$	—	$	6,500	$	10,530

The fair values for securities included in the Level 2 category, with the few exceptions described below, were developed by one of several third-party, nationally recognized pricing services, including services that price only certain types of securities. Each service uses complex methodologies to determine values for securities and subject the values they develop to quality control reviews. Management selected a primary source for each type of security in the portfolio and reviewed the values provided for reasonableness by comparing data to alternate pricing services and to available market and trade data. Values that appeared inconsistent were further reviewed for appropriateness. Any value that did not appear reasonable was discussed with the service that provided the value and adjusted, if necessary. There were no material changes to the values supplied by the pricing services during the years ended December 31, 2024 and 2023.

Level 2 Valuations

Below is a summary description of the valuation methodologies primarily used by the pricing services for securities in the Level 2 category, by security type:

U.S. Treasury obligations were valued based on quoted prices for identical assets, or, in markets that are not active, quotes for similar assets, taking into consideration adjustments for variations in contractual cash flows and yields to maturity.

U.S. Government-sponsored enterprise obligations were valued using pricing models that consider current and historical market data, normal trading conventions, credit ratings and the particular structure and characteristics of the security being valued, such as yield to maturity, redemption options, and contractual cash flows. Adjustments to model inputs or model results were included in the valuation process when necessary to reflect recent regulatory, government or corporate actions or significant economic, industry or geographic events affecting the security’s fair value.

State and municipal bonds were valued using a series of matrices that considered credit ratings, the structure of the security, the sector in which the security falls, yields and contractual cash flows. Valuations were further adjusted, when necessary, to reflect the expected effect on fair value of recent significant economic or geographic events or ratings changes.

Corporate debt, multiple observable inputs consisted primarily of corporate bonds. The methodology used to value Level 2 corporate bonds was the same as the methodology previously described for U.S. Government-sponsored enterprise obligations. Bank loans were valued based on an average of broker quotes for the loans in question, if available. If quotes were not available, the loans were valued based on quoted prices for comparable loans or, if the loan was newly issued, by comparison to similar seasoned issues. Broker quotes were compared to actual trade prices to permit assessment of the reliability of the quotes; unreliable quotes were not considered in quoted averages.

Residential and commercial mortgage-backed securities were valued using a pricing matrix which considers the issuer type, coupon rate and longest cash flows outstanding. The matrix used was based on the most recently available market information. Agency and non-agency collateralized mortgage obligations were both valued using models that consider the structure of the security, current and historical information regarding prepayment speeds, ratings and ratings updates, current and historical interest rates and interest rate spread data.

Other asset-backed securities were valued using models that consider the structure of the security, monthly payment information, current and historical information regarding prepayment speeds, ratings and ratings updates, current and historical interest rates and interest rate spread data. Spreads and prepayment speeds consider collateral type.

Fixed maturities, trading are held by the Lloyd's Syndicates corporate member subsidiary and include U.S. Treasury obligations, corporate debt with multiple observable inputs and other asset-backed securities. These securities were valued using the respective valuation methodologies discussed above for each security type.

Equity investments were securities not traded on an exchange on the valuation date. The securities were valued using the most recently available quotes for the securities.

Short-term investments were securities maturing within one year, carried at fair value which approximated the cost of the securities due to their short-term nature.

 Other investments consisted primarily of convertible bonds valued using a pricing model that incorporated selected dealer quotes as well as current market data regarding equity prices and risk free rates. If dealer quotes were unavailable for the security being valued, quotes for securities with similar terms and credit status were used in the pricing model. Dealer quotes selected for use were those considered most accurate based on parameters such as underwriter status and historical reliability.

Other assets consisted of interest rate swap and foreign currency forward contract derivative instruments, which are discussed in Note 11, valued using a model which considers the forward yield curves and volatilities from other instruments with similar maturities, strike prices and durations.

Level 3 Valuations

Below is a summary description of the valuation methodologies used as well as quantitative information regarding securities in the Level 3 category, by security type:

Level 3 Valuation Methodologies

Corporate debt, limited observable inputs consisted of corporate bonds valued using dealer quotes for similar securities or discounted cash flow models using yields currently available for similar securities. Similar securities are defined as securities of comparable credit quality that have like terms and payment features. Assessments of credit quality were based on NRSRO ratings, if available, or were determined by management if not available. At December 31, 2024, 100% of the securities were rated and the average rating was BBB+. At December 31, 2023, 98% of the securities were rated and the average rating was BBB+.

Residential mortgage-backed, other commercial mortgage-backed and other asset-backed securities consisted of securitizations of receivables valued using dealer quotes for similar securities or discounted cash flow models using yields currently available for similar securities. Similar securities are defined as securities of comparable credit quality that have like

terms and payment features. Assessments of credit quality were based on NRSRO ratings, if available, or were subjectively determined by management if not available. At December 31, 2024, 81% of the securities were rated and the average rating was A-. At December 31, 2023, 79% of the securities were rated and the average rating was AA.

Equity investments consisted of preferred stock for which limited observable inputs were available at December 31, 2024 and December 31, 2023. The equity securities were primarily priced using broker/dealer quotes and internal models with some inputs that are unobservable.

Other investments consisted of convertible securities for which limited observable inputs were available at December 31, 2024 and December 31, 2023. The securities were valued internally based on expected cash flows, including the expected final recovery, discounted at a yield that considered the lack of liquidity and the financial status of the issuer.

Other liabilities consisted of contingent consideration associated with the NORCAL acquisition and was recorded at fair value at December 31, 2023. The ultimate payout under the contingent consideration was dependent upon the after-tax development of NORCAL's ultimate net losses over a three-year period beginning December 31, 2020 determined as of December 31, 2023 by a mutually agreed upon independent actuarial consultant. In June 2024, the independent actuarial consulting firm completed its estimate, and based on that estimate no additional consideration was due. The Committee appointed by NORCAL prior to the close of the acquisition reviewed the work of the independent actuarial consultant and accepted the conclusion that no additional consideration was due; therefore, the liability was reduced to zero as of June 30, 2024. As of December 31, 2023, the remaining uncertainty was a significant component in the determination of the fair value of the liability. See further discussion around the contingent consideration in Note 8.

Quantitative Information Regarding Level 3 Valuations

Below is quantitative information regarding securities in the Level 3 category, by security type:

	Fair Value at
($ in thousands)	December 31, 2024	December 31, 2023	Valuation Technique	Unobservable Input	Range (Weighted Average)
Assets:
Corporate debt, limited observable inputs	$81,062	$82,377	Market Comparable Securities	Comparability Adjustment	0% - 5% (2.5%)
			Discounted Cash Flows	Comparability Adjustment	0% - 5% (2.5%)
Residential mortgage-backed, other commercial mortgage-backed and other asset-backed securities	$3,774	$4,414	Market Comparable Securities	Comparability Adjustment	0% - 5% (2.5%)
			Discounted Cash Flows	Comparability Adjustment	0% - 5% (2.5%)
Equity investments	$5,506	$5,237	Discounted Cash Flows	Comparability Adjustment	0% - 10% (5%)
Other investments	$500	$5,126	Discounted Cash Flows	Comparability Adjustment	0% - 10% (5%)
Liabilities:
Other liabilities	$—	$6,500	Stochastic Model/Discounted Cash Flows	Weighted Average Cost of Capital	0% - 10% (8%)

The significant unobservable inputs used in the fair value measurement of the above listed securities were the valuations of comparable securities with similar issuers, credit quality and maturity. Changes in the availability of comparable securities could result in changes in the fair value measurements.

Fair Value Measurements - Level 3 Assets & Liabilities

The following tables present summary information regarding changes in the fair value of assets and liabilities measured using Level 3 inputs.

	December 31, 2024
	Level 3 Fair Value Measurements
	Assets										Liabilities
(In thousands)	Corporate Debt		Asset-backed Securities		Equity Investments		Other Investments		Total Assets		Other Liabilities		Total Liabilities
Balance, December 31, 2023	$	82,377	$	4,414	$	5,237	$	5,126	$	97,154	$	(6,500)	$	(6,500)
Total gains (losses) realized and unrealized:
Included in earnings, as a part of:
Net investment income (loss)	—		2		—		—		2		—		—
Net investment gains (losses)	—		—		(51)		98		47		6,500		6,500
Included in other comprehensive income (loss)	(85)		(53)		—		—		(138)		—		—
Purchases	18,508		6,248		320		—		25,076		—		—
Sales	(2,814)		(286)		—		(252)		(3,352)		—		—
Transfers in	3,587		—		—		—		3,587		—		—
Transfers out	(20,511)		(6,551)		—		(4,472)		(31,534)		—		—
Balance, December 31, 2024	$	81,062	$	3,774	$	5,506	$	500	$	90,842	$	—	$	—
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets and liabilities held at period-end	$	—	$	—	$	(51)	$	88	$	37	$	—	$	—

	December 31, 2023
	Level 3 Fair Value Measurements
	Assets										Liabilities
(In thousands)	Corporate Debt		Asset-backed Securities		Equity Investments		Other Investments		Total Assets		Other Liabilities		Total Liabilities
Balance, December 31, 2022	$	63,973	$	2,954	$	2,803	$	1,783	$	71,513	$	(15,000)	$	(15,000)
Total gains (losses) realized and unrealized:
Included in earnings, as a part of:
Net investment income (loss)	(23)		—		—		—		(23)		—		—
Net investment gains (losses)	212		—		(737)		113		(412)		5,000		5,000
Operating expense	—		—		—		—		—		3,500		3,500
Included in other comprehensive income (loss)	165		(357)		—		—		(192)		—		—
Purchases	34,311		3,253		3,171		4,294		45,029		—		—
Sales	(9,534)		(398)		—		—		(9,932)		—		—
Transfers in	14,666		3,988		—		2,108		20,762		—		—
Transfers out	(21,393)		(5,026)		—		(3,172)		(29,591)		—		—
Balance, December 31, 2023	$	82,377	$	4,414	$	5,237	$	5,126	$	97,154	$	(6,500)	$	(6,500)
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets and liabilities held at period-end	$	—	$	—	$	(737)	$	113	$	(624)	$	—	$	—

Transfers

Transfers shown in the preceding Level 3 tables were as of the end of the period in which the transfer occurred. All transfers were to or from Level 2.

All transfers in and out of Level 3 during 2024 and 2023 related to securities held for which the level of market activity for identical or nearly identical securities varies from period to period. The securities were valued using multiple observable inputs when those inputs were available; otherwise the securities were valued using limited observable inputs.

Fair Values Not Categorized

At December 31, 2024 and 2023, certain LPs/LLCs and investment funds measure fund assets at fair value on a recurring basis and provide a NAV for ProAssurance's interest. The carrying value of these interests is based on the NAV provided and was considered to approximate the fair value of the interests. For investment in unconsolidated subsidiaries, ProAssurance recognizes any changes in the NAV of its interests in equity in earnings (loss) of unconsolidated subsidiaries during the period of change. In accordance with GAAP, the fair value of these investments was not classified within the fair value hierarchy. The amount of ProAssurance's unfunded contractual commitments related to these investments as of December 31, 2024 and fair values of these investments as of December 31, 2024 and 2023 were as follows:

	Unfunded Contractual Commitments	Fair Value
(In thousands)	December 31, 2024	December 31, 2024		December 31, 2023
Investment in unconsolidated subsidiaries:
Private debt funds (1)	$4,386	$	14,190	$	19,886
Long/short equity funds (2)	None	4,246		4,497
Non-public equity funds (3)	$31,935	111,441		111,251
Credit funds (4)	$33,632	45,134		55,740
Strategy focused funds (5)	$68,072	51,258		54,081
Total investments carried at NAV		$	226,269	$	245,455

Below is additional information regarding each of the investments listed in the table above as of December 31, 2024.

(1)This investment is comprised of interests in two unrelated LP funds that are structured to provide interest distributions primarily through diversified portfolios of private debt instruments. One LP allows redemption by special consent, while the other does not permit redemption. Income and capital are to be periodically distributed at the discretion of the LPs over an anticipated time frame that spans from three to eight years.

(2)This investment is comprised of one LP fund which holds long and short publicly traded securities that will passively generate income. Redemptions are permitted with 30 days written notice if outside of a lock-up period.

(3)This investment is comprised of interests in multiple unrelated LP funds, each structured to provide capital appreciation through diversified investments in private equity, which can include investments in buyout, venture capital, debt including senior, second lien and mezzanine, distressed debt, collateralized loan obligations and other private equity-oriented LPs. Two of the LPs allow redemption by terms set forth in the LP agreements; the others do not permit redemption. Income and capital are to be periodically distributed at the discretion of the LP over time frames that are anticipated to span up to ten years.

(4)This investment is comprised of multiple unrelated LP funds. Three funds seek to obtain superior risk-adjusted absolute returns through a diversified portfolio of debt securities, including bonds, loans and other asset-backed instruments. The remaining funds focus on private middle market company mezzanine and senior secured loans, opportunities across the credit spectrum, mortgage backed-loans, as well as various types of loan-backed investments. One fund allows redemptions at any quarter-end with prior notice requirements of 180 days, while two other funds allow for redemptions with consent of the General Partner. The remaining funds do not allow redemptions. For the funds that do not allow redemptions, income and capital are to be periodically distributed at the discretion of the LP over time frames throughout the remaining life of the funds.

(5)This investment is comprised of multiple unrelated LPs/LLCs funds. One fund is an LLC focused on investing in North American consumer products companies, comprised of equity and equity-related securities, as well as debt instruments. A second fund is focused on aircraft investments, along with components and assets related to aircrafts. A third fund is an LLC focused on acquiring ownership stakes in insurance agencies. For all three

funds, redemptions are not permitted. The remaining funds are real estate focused LPs, three of which allow for redemption with prior notice.

ProAssurance may not sell, transfer or assign its interest in any of the above LPs/LLCs without special consent from the LPs/LLCs.

Nonrecurring Fair Value Measurement

During the third quarter of 2023, ProAssurance recognized a nonrecurring fair value measurement related to the goodwill in its Workers' Compensation Insurance reporting unit with a carrying value of $44.1 million prior to the fair value measurement. This nonrecurring fair value measurement resulted in the goodwill being written down to its implied fair value of zero resulting in an impairment of goodwill of $44.1 million. The inputs used in the fair value measurement were non-observable and, as such, were categorized as a Level 3 valuation. ProAssurance did not have any other assets or liabilities that were measured at fair value on a nonrecurring basis at December 31, 2024 or 2023.

Financial Instruments - Methodologies Other Than Fair Value

The following table provides the estimated fair value of the Company's financial instruments that, in accordance with GAAP for the type of investment, are measured using a methodology other than fair value. Fair values provided primarily fall within the Level 3 fair value category.

	December 31, 2024				December 31, 2023
(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets:
BOLI	$	80,179	$	80,179	$	78,205	$	78,205
Other investments	$	5,189	$	5,189	$	3,215	$	3,215
Other assets	$	34,793	$	34,793	$	33,231	$	33,221
Financial liabilities:
Revolving Credit Agreement*	$	125,000	$	125,000	$	125,000	$	125,000
Term Loan*	$	120,313	$	120,313	$	125,000	$	125,000
Contribution Certificates	$	181,163	$	152,564	$	179,387	$	149,782
Other liabilities	$	33,793	$	33,793	$	32,043	$	32,043
* Carrying value excludes unamortized debt issuance costs.

The fair value of the BOLI was equal to the cash surrender value associated with the policies on the valuation date.

Other investments listed in the table above include FHLB common stock carried at cost and an annuity investment carried at amortized cost. Two of ProAssurance's insurance subsidiaries are members of an FHLB. The estimated fair value of the FHLB common stock was based on the amount the subsidiaries would receive if their memberships were canceled, as the memberships cannot be sold. The fair value of the annuity represents the present value of the expected future cash flows discounted using a rate available in active markets for similarly structured instruments.

Other assets and other liabilities primarily consisted of related investment assets and liabilities associated with funded deferred compensation agreements. The fair value of the funded deferred compensation assets was based upon quoted market prices, which is categorized as a Level 1 valuation, and had a fair value of $34.1 million and $32.3 million at December 31, 2024 and 2023, respectively. Other assets also included an unsecured note receivable. The fair value of the note receivable was based on the present value of expected cash flows from the note receivable, discounted at market rates on the valuation date for receivables with similar credit standings and similar payment structures. Other liabilities primarily consisted of liabilities associated with funded deferred compensation agreements. The reported balance is determined based on the amount of elective deferrals and employer contributions adjusted for periodic changes in the fair value of the participant balances based on the performance of the funds selected by the participants and had a fair value of $33.8 million and $32.0 million at December 31, 2024 and December 31, 2023, respectively.

The fair value of the debt was estimated based on the present value of expected future cash outflows, discounted at rates available on the valuation date for similar debt issued by entities with a similar credit standing to ProAssurance.