WASHINGTON, D.C. 20549
FORM 10-K/A
Amendment No. 1
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required] for the fiscal year ended December
31, 2001, or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
to .
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Commission file number: 001-16533
ProAssurance Corporation*
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(Exact name of registrant as specified in its charter)
Delaware 63-1261433
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(State of incorporation (I.R.S. Employer Identification No.)
or organization)
100 Brookwood Place, Birmingham, AL 35209
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(Address of principal executive offices) (Zip Code)
(205) 877-4400
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
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Common Stock, par value $0.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant at March 15, 2002 was $435,428,483.
As of March 15, 2002, the registrant had outstanding approximately 25,841,453
shares of its common stock.
*On June 27, 2001 Medical Assurance, Inc. (Commission file number 001-19439) and
Professionals Group, Inc. (Commission file number 001-21223) became wholly owned
subsidiaries of ProAssurance as more fully described herein.
Page 1 of 6 pages
This amendment to the Annual Report on Form 10K of ProAssurance, Corp. (the
"Registrant") for the year ended December 31, 2001 is filed to correct
typographical errors in the table included under the caption "Analysis of
Losses and Loss Adjustment Expense Reserve Development" in Item 1 of Part 1.
The "Cumulative net paid as of: Eight years later" amount for 1993 was reported
as $86,821; however, it should be $76,821.
The "Re-estimated net liability as of: One year later" amount for 1995 was
reported as $352,212; however, it should be $325,212.
The "Net re-estimated liability - latest" for 1997 was reported as $313,202;
however, it should be $323,202.
The "Gross cumulative redundancy" for 1996 was reported as $538,720; however,
it should be $238,720.
The "Gross cumulative redundancy" for 1999 was reported as $38,064; however, it
should be $48,097.
The section in Part 1, Item 1 entitled "Loss Reserve Development Table" is
restated in its entirety on the following pages.
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LOSS RESERVE DEVELOPMENT TABLE
The following table includes information regarding the development of
the liability for unpaid losses and LAE of ProAssurance for the years ended
December 31, 1991 through 2001. The table includes losses and LAE on both a
direct and an assumed basis and is net of reinsurance recoverables:
- the line entitled "Losses and LAE Reserves, undiscounted and net of
reinsurance recoverables" reflects the amount recorded as the reserve
for liability for unpaid losses and LAE in the consolidated balance
sheet at the end of each year (the "Balance Sheet Reserves");
- the section entitled "Cumulative net paid, as of" reflects the
cumulative amounts paid as of the end of each succeeding year with
respect to the previously recorded Balance Sheet Reserves;
- the section entitled "Re-estimated net liability as of" reflects the
re-estimated amount of the liability previously recorded as Balance
Sheet Reserves that includes the cumulative amounts paid and an
estimate of additional liability based upon claims experience as of the
end of each succeeding year (the "Net Re-estimated Liability");
- the line entitled "Net cumulative redundancy, (deficiency)" reflects
the difference between the previously recorded Balance Sheet Reserve
for each applicable year and the Net Re-estimated Liability relating
thereto as of the end of the most recent fiscal year.
The gross liability for losses and LAE before reinsurance, as reflected
on the balance sheet and re-estimated in each of the years since 1993, and the
reconciliation of the gross liability to amounts net of reinsurance are
reflected below the table.
Information presented in the following table is cumulative and,
accordingly, each amount includes the effects of all changes in amounts for
prior years. The table presents the development of ProAssurance's Balance Sheet
Reserves; it does not present accident year or policy year development data.
Conditions and trends that have affected the development of liabilities in the
past may not necessarily occur in the future. Accordingly, it may not be
appropriate to extrapolate future redundancies or deficiencies based on this
table. The information relating to subsidiaries other than MA-Alabama is limited
to the property and casualty reserves from their respective dates of
acquisition. ProAssurance does not discount its reserves.
3
ANALYSIS OF LOSSES AND LOSS ADJUSTMENT EXPENSE RESERVE DEVELOPMENT
(IN THOUSANDS)
December 31,
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1991(a) 1992(a) 1993(a) 1994(a) 1995(a) 1996(a) 1997(a) 1998(a) 1999(a) 2000(a) 2001(b)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- ----------
Losses and LAE
reserves,
undiscounted
and net
of reinsurance
recoverables $228,119 $252,739 $272,392 $295,541 $352,521 $440,040 $464,122 $480,741 $486,279 $493,457 $1,068,285
Cumulative net
paid as of:
One year later 19,560 19,752 21,296 24,102 27,532 48,390 67,383 89,864 133,832 143,892
Two years later 35,461 36,185 40,988 42,115 58,769 98,864 128,758 192,716 239,872
Three years later 46,417 52,550 53,186 58,793 80,061 136,992 194,139 257,913
Four years later 58,124 58,526 61,153 65,520 107,005 173,352 227,597
Five years later 62,573 63,325 66,419 76,291 120,592 191,974
Six years later 65,090 68,021 73,308 81,722 129,043
Seven years later 68,719 71,466 76,716 82,605
Eight years later 71,305 72,352 76,821
Nine years later 71,802 79,788
Ten years later 71,994
Re-estimated net
liability as of:
End of Year $228,119 $252,739 $272,392 $295,541 $352,521 $440,040 $464,122 $480,741 $486,279 $493,457 $1,068,285
One year later 217,558 241,655 251,445 268,154 325,212 393,363 416,814 427,095 463,779 507,275
Two years later 205,277 221,236 220,385 239,243 280,518 347,258 364,196 398,308 469,934
Three years later 185,349 190,744 194,213 200,311 237,280 294,675 333,530 400,333
Four years later 159,301 167,062 159,096 157,836 190,110 264,714 323,202
Five years later 139,570 136,996 126,379 122,570 173,148 259,195
Six years later 114,407 108,862 106,403 105,779 168,828
Seven years later 97,177 94,908 92,954 99,787
Eight years later 89,271 84,719 88,828
Nine years later 79,734 79,788
Ten years later 76,042
Net cumulative
redundancy
(deficiency) 152,077 172,951 183,564 195,754 183,693 180,845 140,920 80,408 16,345 (13,818)
======= ======= ======= ======= ======= ======= ======= ====== ====== =======
Original gross
liability -
end of year 311,394 355,735 432,937 548,732 614,720 660,631 665,786 659,659
Less: reinsurance
recoverables (39,002) (60,194) (80,416) (108,692) (150,598) (179,890) (179,507) (166,202)
------- ------- ------- -------- -------- -------- -------- --------
Original net
liability
- end of year 272,392 295,541 352,521 440,040 464,122 480,741 486,279 493,457
======= ======= ======= ======= ======= ======= ======= =======
Gross re-estimated
liability - latest 98,152 130,718 197,555 310,012 424,519 542,396 617,689 651,359
Re-estimated
reinsurance
recoverables (9,324) (30,931) (28,727) (50,817) (101,317) (142,063) (147,755) (144,084)
------ ------- ------- ------- -------- -------- -------- -------
Net re-estimated
liability - latest 88,828 99,787 168,828 259,195 323,202 400,333 469,934 507,275
====== ====== ======= ======= ======= ======= ======= =======
Gross cumulative
redundancy 213,242 225,017 235,382 238,720 190,201 118,235 48,097 8,300
======= ======= ======= ======= ======= ======= ====== =====
(a) Reflects reserves of Medical Assurance excluding Professionals Group
reserves, which were acquired on June 27, 2001. Accordingly, the gross
and net reserve development (reserves recorded at the end of the year,
as originally estimated, less reserves re-estimated as of subsequent
years) relates only to the operations of Medical Assurance and does
not include Professionals Group.
(b) Reflects combined reserves of Medical Assurance and Professionals
Group as December 31, 2001.
4
Medical professional liability loss experience is volatile and
cyclical. Over the past twenty-five years, the industry has experienced several
periods of increasing claim frequency and severity, followed by periods of
relative stability. At other times, due to tort reform, favorable judicial
decisions, favorable economic conditions or other unknown factors, claim
frequency and/or severity have decreased. Malpractice claims generally require
an extended period of time to resolve, and in many jurisdictions, the average
life of a claim is five years or longer. The combination of changing conditions
and the extended time required for claim resolution result in a loss cost
estimation process that requires actuarial skill and good judgment, and such
estimates require periodic revision. Management believes it is prudent to
establish initial loss and loss expense reserves that are reasonable and are
based on historical experience as well as on facts and circumstances known at
the balance sheet date. To the extent that actual results deviate from
expectations, reserve estimates are subsequently adjusted and ultimate paid
losses and loss expenses are more or less than the original estimates.
ProAssurance's loss and loss expense reserves developed favorably in
many prior years for several reasons. First, ProAssurance utilizes a rigorous
and disciplined approach to investigating, managing and defending claims. This
philosophy, especially in Alabama, has generally produced results that are
better than industry averages in terms of loss payments and the proportion of
claims closed without indemnity payment. Second, ProAssurance's volume of
business, while substantial, is not of a sufficient size to fully support the
projection process, thus ProAssurance's data is supplemented with
industry-based data. Ultimately, actual payments on these reserves have often
been less than originally projected, creating redundancies.
Third, reserves established in the late 1980's and early 1990's were
strongly influenced by the dramatically increased frequency and severity
experienced by ProAssurance, and the industry as a whole, during the
mid-1980's. Some of these trends moderated, and in some cases, reversed, by the
late 1980's or early 1990's. However, the ability to recognize the improved
environment was delayed due to the extended time required for claims
resolution. When these trends moderated, the reserves established during those
periods proved to be redundant.
Finally, ProAssurance believed that its overall loss experience would
be worse than that which was anticipated by many of its competitors. As a
result, ProAssurance prudently established accident year reserves, resulting in
accident year loss ratios in excess of 100% of earned premium. In some
instances, these loss ratios proved to be accurate, while in other cases,
experience has been better than expected and redundancies have developed.
The professional liability legal environment has deteriorated once
again during the past several years. Beginning in 2000, ProAssurance recognized
adverse trends in claim severity, causing increased estimates of certain loss
liabilities. As a result, favorable development of prior year loss reserves
slowed during 2000 and some amount of adverse development occurred during 2001.
ProAssurance has addressed these trends through increased rates, stricter
underwriting and modifications to claims-handling procedures.
In each year, ProAssurance has utilized a consistent approach in
establishing reserve levels. The actuarial methodologies utilized include
incurred loss development, paid loss development and frequency-severity
projections. These techniques are applied to the data and the resulting
projections are evaluated by management to establish a best estimate of
reserves.
5
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused Amendment No. 1 to this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on this the
4th day of April 2002.
PROASSURANCE CORPORATION
By: /s/ James J. Morello
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James J. Morello
Sr. Vice President and
Chief Accounting Officer
6