Reserve for Losses and Loss Adjustment Expenses

3 Months Ended

Mar. 31, 2025

Reserve for Losses and Loss Adjustment Expenses

The reserve for losses is established based on estimates of individual claims and actuarially determined estimates of future losses based on ProAssurance’s past loss experience, available industry data and projections as to future claims frequency, severity, inflationary trends and settlement patterns. Estimating the reserve, particularly the reserve appropriate for liability exposures, is a complex process. For a high proportion of the risks insured or reinsured by ProAssurance, claims may be resolved over an extended period of time, often five years or more, and may be subject to litigation. Estimating losses requires ProAssurance to make and revise judgments and assessments regarding multiple uncertainties over an extended period of time. As a result, the reserve estimate may vary considerably from the eventual outcome. The assumptions used in establishing ProAssurance’s reserve are regularly reviewed and updated by management as new data becomes available. Changes to estimates of previously established reserves are included in earnings in the period in which the estimate is changed. For additional information regarding ProAssurance's reserve for losses, see Note 1 and Note 7 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2024 report on Form 10-K.

Activity in the reserve for losses and loss adjustment expenses is summarized as follows:


(In thousands)	Three Months Ended March 31, 2025		Three Months Ended March 31, 2024		Year Ended December 31, 2024
Balance, beginning of year	$	3,257,696	$	3,401,281	$	3,401,281
Less reinsurance recoverables on unpaid losses and loss adjustment expenses	409,069		445,573		445,573
Net balance, beginning of year	2,848,627		2,955,708		2,955,708

Net losses:
Current year	190,852		195,110		779,650
(Favorable) unfavorable development of reserves established in prior years, net(1)	(892)		(416)		(40,215)
Total	189,960		194,694		739,435
Paid related to:
Current year	(5,253)		(12,867)		(113,268)
Prior years	(221,980)		(202,180)		(733,248)
Total paid	(227,233)		(215,047)		(846,516)
Net balance, end of period	2,811,354		2,935,355		2,848,627
Plus reinsurance recoverables on unpaid losses and loss adjustment expenses	369,413		447,157		409,069
Balance, end of period	$	3,180,767	$	3,382,512	$	3,257,696

(1) Net prior year reserve development recognized for the three months ended March 31, 2025 and 2024 as well as the year ended December 31, 2024 included $1.0 million, $1.7 million and $5.3 million, respectively, of amortization of the purchase accounting fair value adjustment on NORCAL's assumed net reserve and amortization of the negative VOBA associated with NORCAL's DDR reserve which is recorded as a reduction to prior accident year net losses and loss adjustment expenses.

Estimating liability reserves is complex and requires the use of many assumptions. As time passes and ultimate losses for prior years are either known or become subject to a more precise estimation, ProAssurance increases or decreases the reserve estimates established in prior periods.

The consolidated net favorable prior year reserve development recognized for the three months ended March 31, 2025 primarily reflected:

•Net favorable development of $1.0 million in the Workers' Compensation Insurance segment reflecting a large claim reserve reduction from the 2021 accident year, which had previously exceeded the per person maximum limit under the reinsurance contract.

•Consolidated net favorable loss development recognized during the three months ended March 31, 2025 also included net favorable development of $0.4 million in the Segregated Portfolio Cell Reinsurance segment related to workers' compensation business of $0.5 million, reflecting favorable trends in claim closing patterns primarily in accident years 2022 through 2024. Partially offsetting the favorable development is a nominal amount of net unfavorable development related to medical professional liability business related to one program in which the Company does not participate in the underwriting results.

•Consolidated net favorable loss development recognized during the three months ended March 31, 2025 was partially offset by net unfavorable prior year reserve development recognized in the Specialty P&C segment of $0.5 million driven by $1.5 million of net unfavorable development attributable to the Company's Lloyd’s Syndicates operations, primarily catastrophe related losses, partially offset by net favorable development of $1.0 million related to purchase accounting amortization (see previous discussion in footnote 1 in the table above).

For additional information regarding ProAssurance's prior year reserve development recognized for the three months ended March 31, 2024 and the year ended December 31, 2024, see Note 5 of the Notes to Condensed Consolidated Financial Statements included in ProAssurance's March 31, 2024 report on Form 10-Q and Note 7 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2024 report on Form 10-K, respectively.