v3.26.1
Derivatives
 3 Months Ended
Mar. 31, 2026
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives Derivatives
ProAssurance is exposed to certain risks relating to its ongoing business and investment activities. ProAssurance utilizes derivative instruments as part of its risk management strategy to reduce the market risk related to fluctuations in future interest rates associated with a portion of its variable-rate debt. ProAssurance also uses derivative instruments to mitigate foreign exchange exposure related to fluctuations in exchange rates associated with foreign currency denominated loss reserves. See Note 1 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2025 report on Form 10-K for the Company's accounting policy regarding derivative instruments.
To manage the Company's exposure to variability in cash flows of forecasted interest payments attributable to variability in the selected base rates on borrowings under both the Revolving Credit Agreement and Term Loan, ProAssurance entered into two forward-starting interest rate swap agreements ("Interest Rate Swaps"), each with an effective date of December 29, 2023 and a maturity date of March 31, 2028. As ProAssurance's Interest Rate Swaps are designated and qualify as highly effective cash flow hedges, changes in the fair value of the Interest Rate Swaps are recorded in AOCI, net of tax, and are reclassified into earnings when the hedged cash flows impact earnings. The Interest Rate Swap hedging the variability in cash flows associated with interest payments on the Revolving Credit Agreement will have a constant $125 million notional amount throughout the term of the swap, while the Interest Rate Swap hedging the variability in cash flows associated with interest payments on the Term Loan will have an amortizing $125 million notional amount, which is designed to match the outstanding principal on the Term Loan throughout the term of the swap. Borrowings under the Revolving Credit Agreement and Term Loan will accrue interest at a selected base rate, adjusted by a margin. The Interest Rate Swaps effectively fix the base rate on borrowings under the Revolving Credit Agreement and Term Loan to 3.187% and 3.207%, respectively. The margin component of the interest rate, which can vary from 0% to 2.375%, will remain variable and is based on ProAssurance’s debt to capitalization ratio. As of March 31, 2026, the margin component of the interest rate on the outstanding borrowings under the Revolving Credit Agreement and Term Loan was 1.98% and 2.10%, respectively, based on ProAssurance's debt to capitalization ratio as of December 31, 2025 resulting in a total interest rate of 5.17% and 5.31%, respectively, including the effect of the Interest Rate Swaps on the base rate. Additional information regarding the Company's Revolving Credit Agreement and Term Loan is provided in Note 9 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2025 report on Form 10-K.
ProAssurance received cash collateral from the counterparty to secure the net present value of future cash flows associated with the Interest Rate Swaps which is reflected as a component of other liabilities on the Condensed Consolidated Balance Sheet. Those cash collateral balances were $2.1 million and $0.8 million at March 31, 2026 and December 31, 2025, respectively.
ProAssurance utilizes foreign currency forward contracts with the objective of offsetting fluctuations in exchange rates related to foreign currency denominated balances associated with the Company's strategic partnership with an international medical professional liability insurer. ProAssurance enters into short-term forward contracts with a maturity at inception of less than three months to mitigate these foreign exchange exposures. ProAssurance has designated these foreign currency forwards as an economic hedge (non-hedging instrument) of foreign currency exchange rate risk and any change in fair value of these derivatives is recognized in earnings during the period of change.
ProAssurance deposited cash collateral with the counterparty to secure the net present value of future cash flows associated with the foreign currency forward contracts which was reflected as a component of other assets on the Condensed Consolidated Balance Sheet. This cash collateral balance was $0.4 million at December 31, 2025. Amounts deposited as collateral with the counterparty were returned to the Company by March 31, 2026. ProAssurance was not required to deposit cash collateral with the counterparties as of March 31, 2026.
The following table provides a summary of the volume and fair value position of the Company's derivative instruments as well as the reporting location in the Condensed Consolidated Balance Sheet as of March 31, 2026 and December 31, 2025.
($ in thousands)March 31, 2026December 31, 2025
Derivative Instruments
Location in the Condensed Consolidated Balance SheetsNumber of Instruments
Aggregate Notional Amount(1)
Estimated Fair Value(2)
Number of Instruments
Aggregate Notional Amount(1)
Estimated Fair Value(2)
Cash Flow Hedge- Interest Rate SwapsOther Assets2$237,500$1,7652$239,063$399
Foreign Currency Forwards
Other Liabilities
6$141,926$(286)1$133,204$(475)
(1) Volume is represented by the derivative instruments' notional amount.
(2) Additional information regarding the fair value of the Company's Interest Rate Swaps and foreign currency forwards is provided in Note 2.
For the three months ended March 31, 2026 and 2025, ProAssurance reclassified a gain on the Interest Rate Swaps from AOCI, net of tax, into earnings as shown in the table below:
Qualifying Cash Flow Hedges - Gains (Losses) Reclassified from AOCI, net of tax, to Earnings
(In thousands)Three Months Ended March 31
Derivatives Designated as Hedging Instruments
Location in the Condensed Consolidated Statements of Income and Comprehensive Income
20262025
Cash Flow Hedge- Interest Rate SwapsInterest Expense$224$548

At March 31, 2026, management estimates that it will reclassify approximately $1.1 million of pre-tax net gains on the Interest Rate Swaps from AOCI to earnings over the next twelve months, which will be recorded to interest expense. See additional information on gains or losses related to the Interest Rate Swaps reported as a component of AOCI in Note 9.
The following table presents the pre-tax impact of the change in the fair value of the foreign currency forwards and the reporting location in the Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2026 and 2025.
(In thousands)Three Months Ended March 31
Derivatives not Designated as Hedging Instruments
Location in the Consolidated Statements of Income and Comprehensive Income
20262025
Foreign Currency Forwards
Other Income (Expense)
$3,476 $(1,426)
As a result of the utilization of derivative instruments, ProAssurance is exposed to risk that the counterparties will fail to meet their contractual obligations. To mitigate this counterparty credit risk, ProAssurance only enters into derivative contracts with carefully selected major financial institutions based upon their credit ratings and monitors their creditworthiness. As of March 31, 2026, the counterparty involved with the Interest Rate Swaps had an investment grade rating of A and the counterparties involved with the foreign currency forwards had an investment grade rating of A or BBB. Each counterparty has performed in accordance with their contractual obligations.