PROASSURANCE CORPPRA
PROASSURANCE CORP Income Taxes Disclosure
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) | 2025 | 2024 | |||||||||
| Deferred tax assets | |||||||||||
| Unpaid loss discount | $ | 42,478 | $ | 45,733 | |||||||
| Unearned premium adjustment | 20,375 | 21,319 | |||||||||
| Compensation related | 12,239 | 15,209 | |||||||||
| Unrealized losses on investments, net | 22,096 | 47,679 | |||||||||
| Basis differentials-investments | 346 | 3,578 | |||||||||
| Intangibles | 4,078 | 5,340 | |||||||||
| Operating lease liabilities | 3,025 | 3,592 | |||||||||
| Tax credit carryforward | 34,609 | 47,187 | |||||||||
| Net operating loss carryforward | 28,819 | 22,792 | |||||||||
| Other | 3,324 | — | |||||||||
| Total gross deferred tax assets | 171,389 | 212,429 | |||||||||
| Valuation allowance | (24,806) | (20,754) | |||||||||
| Total deferred tax assets, net of valuation allowance | 146,583 | 191,675 | |||||||||
| Deferred tax liabilities | |||||||||||
| Deferred policy acquisition costs | (13,007) | (13,064) | |||||||||
| Unpaid loss discount-transition | — | (1,259) | |||||||||
| Fixed assets | (1,760) | (1,804) | |||||||||
| Operating lease ROU assets | (2,852) | (3,409) | |||||||||
| Basis differentials-foreign operations | (2,464) | (1,690) | |||||||||
| Intangibles | (4,632) | (5,693) | |||||||||
| Other | — | (828) | |||||||||
| Total deferred tax liabilities | (24,715) | (27,747) | |||||||||
| Net deferred tax assets (liabilities) | $ | 121,868 | $ | 163,928 | |||||||
As of December 31, 2025, ProAssurance had U.S. federal, U.S. state and U.K. income tax NOL carryforwards of approximately $40.9 million, $203.5 million and $33.9 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, 2025 were approximately $14.5 million. These NOL carryforwards are subject to limitation by Internal Revenue Code Section 382 and will begin to expire in 2035.
ProAssurance had $33.8 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, 2025, ProAssurance utilized approximately $13.5 million of tax credits carried forward from 2019 and 2020.
The Company's total valuation allowance increased by $4.1 million and $0.7 million for the years ended December 31, 2025 and 2024, respectively.
In 2025 and 2024, 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 2025 and 2024 of $14.0 million and $11.3 million, respectively. The increase in
the valuation allowance related to the U.S. federal and U.K. NOL carryforwards in 2025 as compared to 2024 was primarily due to current year activity.
In 2025 and 2024, 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 2025 and 2024 of $9.3 million and $8.1 million, respectively. The increase in the valuation allowance related to the U.S. state NOL carryforwards in 2025 as compared to 2024 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 $1.5 million and $1.4 million at December 31, 2025 and 2024, 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, 2025 and 2024.
ProAssurance files income tax returns in various states, the U.S. federal jurisdiction and the U.K. ProAssurance had a payable for U.S. federal and U.K. income taxes carried as part of other liabilities of $2.4 million and $1.0 million at December 31, 2025 and December 31, 2024, respectively.
The statute of limitations is now closed for all tax years prior to 2022.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits for 2025, 2024 and 2023, were as follows:
| (In thousands) | 2025 | 2024 | 2023 | |||||||||||||||||
| Balance at January 1 | $ | 179 | $ | 4,791 | $ | 3,623 | ||||||||||||||
| Decreases for tax positions taken during the current year | — | (487) | — | |||||||||||||||||
| Increases for tax positions taken during prior years | — | 23 | 1,391 | |||||||||||||||||
| Decreases for tax positions taken during prior years | (179) | — | — | |||||||||||||||||
| Decreases relating to a lapse of the applicable statute of limitations | — | (4,148) | (223) | |||||||||||||||||
| Balance at December 31 | $ | — | $ | 179 | $ | 4,791 | ||||||||||||||
Income tax expense (benefit) for each of the years ended December 31, 2025, 2024 and 2023 consisted of the following:
| (In thousands) | 2025 | 2024 | 2023 | |||||||||||||||||
| Provision for income taxes: | ||||||||||||||||||||
| Current expense (benefit) | ||||||||||||||||||||
| Federal | $ | 4,061 | $ | (2,993) | $ | 716 | ||||||||||||||
| State | 305 | 506 | 507 | |||||||||||||||||
| Total current expense (benefit) | 4,366 | (2,487) | 1,223 | |||||||||||||||||
| Deferred expense (benefit) | ||||||||||||||||||||
| Federal | 16,736 | 12,581 | (1,410) | |||||||||||||||||
| State | 52 | 240 | (358) | |||||||||||||||||
| Total deferred expense (benefit) | 16,788 | 12,821 | (1,768) | |||||||||||||||||
| Total income tax expense (benefit) | $ | 21,154 | $ | 10,334 | $ | (545) | ||||||||||||||
Income tax payments (refunds) for each of the years ended December 31, 2025, 2024 and 2023 consisted of the following:
| (In thousands) | 2025 | 2024 | 2023 | |||||||||||||||||
Income tax paid (refunded): | ||||||||||||||||||||
Federal | $ | 2,998 | $ | 158 | $ | (11,796) | ||||||||||||||
State: | ||||||||||||||||||||
Florida | 272 | 174 | 200 | |||||||||||||||||
New York | — | 44 | 217 | |||||||||||||||||
Other | 189 | 43 | (18) | |||||||||||||||||
Total state | 461 | 261 | 399 | |||||||||||||||||
| Total income tax paid (refunded) | $ | 3,459 | $ | 419 | $ | (11,397) | ||||||||||||||
A reconciliation of “expected” federal income tax expense (benefit) to actual income tax expense (benefit) and the effects on the Company's effective tax rate for each of the years ended December 31, 2025, 2024 and 2023. The comparability of each factor's impact on ProAssurance's effective tax rate is affected by the consolidated pre-tax income recognized during the years ended December 31, 2025 and 2024 as compared to the consolidated pre-tax loss recognized in 2023. Factors that have the same directional impact on income tax expense in each period have an opposite impact on the Company's effective tax rate due to the effective tax rate being calculated based upon a pre-tax income during the year ended December 31, 2024 as compared to the pre-tax loss during 2023. These factors include the following:
| ($ in thousands) | 2025 | 2024 | 2023 | ||||||||||||||||||||||||||
| Income tax (benefit) expense | Rate Impact | Income tax (benefit) expense | Rate Impact | Income tax (benefit) expense | Rate Impact | ||||||||||||||||||||||||
| U.S. federal statutory tax rate | $ | 15,134 | 21.0 | % | $ | 13,247 | 21.0 | % | $ | (8,221) | 21.0 | % | |||||||||||||||||
State and local income tax, net of federal tax effect(1) | 79 | 0.1 | % | 911 | 1.4 | % | 65 | (0.2 | %) | ||||||||||||||||||||
| Foreign tax effects: | |||||||||||||||||||||||||||||
| United Kingdom | |||||||||||||||||||||||||||||
| Change in valuation allowance | 743 | 1.0 | % | 800 | 1.3 | % | (636) | 1.6 | % | ||||||||||||||||||||
| Other | 732 | 1.0 | % | (186) | (0.3 | %) | 292 | (0.7 | %) | ||||||||||||||||||||
| Effect of cross-border tax laws | 229 | 0.3 | % | 292 | 0.5 | % | 412 | (1.0 | %) | ||||||||||||||||||||
Change in unrecognized tax benefits(2) | (783) | (1.1 | %) | (3,004) | (4.8 | %) | 1,546 | (3.9 | %) | ||||||||||||||||||||
| Tax credits | (15) | — | % | (32) | (0.1 | %) | (631) | 1.6 | % | ||||||||||||||||||||
| Non-taxable or non-deductible items: | |||||||||||||||||||||||||||||
| Change in limitation of future deductibility of certain executive compensation | 3,316 | 4.5 | % | (198) | (0.3 | %) | 932 | (2.4 | %) | ||||||||||||||||||||
Transaction-related costs(3) | 1,496 | 2.1 | % | — | — | % | — | — | % | ||||||||||||||||||||
Tax-exempt income(4) | (984) | (1.4 | %) | (1,062) | (1.7 | %) | (1,192) | 3.0 | % | ||||||||||||||||||||
Acceleration of tax credit partnership income(5) | 902 | 1.3 | % | 408 | 0.7 | % | 35 | (0.1 | %) | ||||||||||||||||||||
| Tax deficiency (excess tax benefit) on share-based compensation | 57 | 0.1 | % | 708 | 1.1 | % | 191 | (0.5 | %) | ||||||||||||||||||||
Goodwill impairment(6) | — | — | % | — | — | % | 9,263 | (23.7 | %) | ||||||||||||||||||||
Non-taxable contingent consideration(7) | — | — | % | (1,415) | (2.2 | %) | (1,785) | 4.6 | % | ||||||||||||||||||||
| Non-taxable gain from life insurance proceeds | — | — | % | (42) | (0.1 | %) | (682) | 1.7 | % | ||||||||||||||||||||
| Other | 104 | 0.1 | % | (354) | (0.6 | %) | (106) | 0.3 | % | ||||||||||||||||||||
| Other adjustments | 144 | 0.4 | % | 261 | 0.5 | % | (28) | 0.1 | % | ||||||||||||||||||||
| Total income tax expense (benefit) | $ | 21,154 | 29.4 | % | $ | 10,334 | 16.4 | % | $ | (545) | 1.4 | % | |||||||||||||||||
(1) Primarily includes state income taxes, net of federal tax effect, in Florida, Illinois and New York for the years ended December 31, 2025, 2024 and 2023.
(2) We evaluate tax positions taken on tax returns and recognize positions in the financial statements when it is more likely than not that the position will be sustained upon resolution with a taxing authority. We review uncertain tax positions each quarter considering changes in facts and circumstances and make adjustments as we consider necessary. As a result of this review, we remeasured the tax benefit related to uncertain tax positions during 2025. For 2024, the change represents the benefit for tax positions whose statute of limitations has expired. For 2023, the change primarily represents an increase in unrecognized tax benefits related to tax positions taken in a prior year.
(3) Represents the tax impact of the non-deductible portion of transaction-related costs incurred during 2025 associated with the proposed merger transaction with The Doctors Company (see Note 1).
(4) Includes tax-exempt interest, dividends received deduction and change in cash surrender value of BOLI.
(5) Represents the acceleration of the Company's allocable portion of income arising from a historic tax credit partnership exiting certain properties.
(6) 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 1).
(7) 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 for the year ended December 31, 2023, all of which are non-taxable. See further discussion on the contingent consideration in Note 1.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 23, 2026 | Showing above |
| 2024 | Feb 24, 2025 | |
| 2023 | Feb 27, 2024 | |
| 2022 | Feb 27, 2023 | |
| 2021 | Feb 22, 2022 | |
| 2020 | Feb 26, 2021 | |
| 2019 | Feb 20, 2020 | |
| 2018 | Feb 21, 2019 | |
| 2017 | Feb 21, 2018 | |
| 2016 | Feb 23, 2017 | |
| 2015 | Feb 23, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.