United States
Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-K

(Mark One)

þ		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, 2009,

o		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                     .

Commission file number: 001-16533

ProAssurance Corporation

(Exact name of registrant as specified in its charter)

Delaware		63-1261433
(State of incorporation or organization)		(I.R.S. Employer Identification No.)
100 Brookwood Place, Birmingham, AL		35209
(Address of principal executive offices)		(Zip Code)

(205) 877-4400

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Name of Each Exchange On Which Registered
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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.      Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.      Yes o No þ

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter), during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     
Yes o No o

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 þ No o

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.      o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The aggregate market value of voting stock held by non-affiliates of the registrant at June 30, 2009 was $1,496,129,618.

As of February 15, 2010, the registrant had outstanding approximately 32,411,990 shares of its common stock.

 

 

Documents incorporated by reference in this Form 10-K

(i)		The definitive proxy statement for the 2010 Annual Meeting of the Stockholders of ProAssurance Corporation (File No. 001-16533) is incorporated by reference into Part III of this report.
(ii)		The MAIC Holdings, Inc. Registration Statement on Form S-4 (File No. 33-91508) is incorporated by reference into Part IV of this report.
(iii)		The MAIC Holdings, Inc. Definitive Proxy Statement for the 1996 Annual Meeting (File No. 0-19439 is incorporated by reference into Part IV of this report.
(iv)		The ProAssurance Corporation Registration Statement on Form S-4 (File No. 333-49378) is incorporated by reference into Party IV of this report.
(v)		The ProAssurance Corporation Annual Report on Form 10-K for the year ended December 31, 2001 (Commission File No. 001-16533) is incorporated by reference into Part IV of this report.
(vi)		The ProAssurance Corporation Annual Report on the Form 10-K for the year ended December 31, 2002 (File No. 001-16533) is incorporated by reference in Part IV of this report.
(vii)		The ProAssurance Corporation Definitive Proxy Statement filed on April 16, 2004 (File No. 001-16533) is incorporated by reference into Part IV of this report.
(viii)		The ProAssurance Corporation Registration Statement of Form S-4 (File No. 333-124156) is incorporated by reference in Part IV of this report.
(ix)		The ProAssurance Corporation Current Report on Form 8-K for event occurring on November 4. 2005 (File No. 001-16533) is incorporated by reference into Part IV of this report
(x)		The ProAssurance Corporation Registration Statement of Form S-4 (File No. 333-131874) is incorporated by reference in Part IV of this report.
(xi)		The ProAssurance Corporation Current Report on Form 8-K for event occurring on September 13, 2006 (File No. 001-16533) is incorporated by reference into Part IV of this report.
(xii)		The ProAssurance Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 (File No. 001-16533) is incorporated by reference into Part IV of this report.
(xiii)		The ProAssurance Corporation Current Report on Form 8-K for event occurring on May 12, 2007 (File No. 001-16533) is incorporated by reference into Part IV of this report.
(xiv)		The ProAssurance Corporation Annual Report on Form 10-K for the year ended December 31, 2007 (File No. 001-16533) is incorporated by reference into Part IV of this report.
(xv)		The ProAssurance Corporation Registration Statement on Form S-8 (File No. 333-156645) is incorporated by reference into Part IV of this report.
(xvi)		The ProAssurance Corporation Definitive Proxy Statement filed on April 11, 2008 (File No. 001-16533) is incorporated by reference into Part IV of this report.
(xvii)		The ProAssurance Corporation Current Report on Form 8-K for the event occurring May 21, 2008 (File No. 001-16533) is incorporated by reference into Part IV of this report.

(xviii)

The ProAssurance Corporation Current Report on Form 8-K for event occurring November 13, 2008 as filed on November 17, 2008 and amended on December 24, 2008 (File No. 001-16533) is incorporated by reference into Part IV of this report.

PART I

ITEM 1. BUSINESS.

General / Corporate Overview

          ProAssurance Corporation is a holding company for property and casualty insurance companies focused on professional liability insurance. Throughout this report, references to ProAssurance, “we”, “us” and “our” refer to ProAssurance Corporation and its consolidated subsidiaries. Our executive offices are located at 100 Brookwood Place, Birmingham, Alabama 35209 and our telephone number is (205) 877-4400. Our stock trades on the New York Stock Exchange under the symbol “PRA.” Our website is www.ProAssurance.com. Because the insurance business uses certain terms and phrases that carry special and specific meanings, we encourage you to read the Glossary that is posted on the investor section of our website.

          The Investor Home Page on our website provides many resources for investors seeking to learn more about us. Our annual report on Form 10K, our quarterly reports on Form 10Q, and our current reports on Form 8K are available on our website as soon as reasonably practical after filing with the Securities and Exchange Commission (the SEC) on its EDGAR system. We show details about stock trading by corporate insiders by providing access to SEC Forms 3, 4 and 5 when they are filed with the SEC. We maintain access to these reports for at least one year after their filing.

          In addition to federal filings on our website, we make available the financial statements we file with state regulators (compiled under Statutory Accounting Principles as required by regulation), news releases that we issue, a listing of our investment holdings, and certain investor presentations. We believe these documents provide important additional information about our financial condition and operations.

          The Governance section of our website provides copies of the Charters for our Audit Committee, Internal Audit department, Compensation Committee and Nominating/Corporate Governance Committee. In addition you will find our Code of Ethics and Conduct, Corporate Governance Principles, Policy Regarding Determination of Director Independence and Share Ownership Guidelines for Management and Directors. We also provide the Pre-Approval Policy and Procedures for our Audit Committee and our Policy Regarding Stockholder-Nominated Director Candidates. Printed copies of these documents may be obtained from Frank O’Neil, Senior Vice President, ProAssurance Corporation, either by mail at P.O. Box 590009, Birmingham, Alabama 35259-0009, or by telephone at (205) 877-4400 or (800) 282-6242.

Caution Regarding Forward-Looking Statements

          Any statements in this Form 10K that are not historical facts are specifically identified as forward-looking statements. These statements are based upon our estimates and anticipation of future events and are subject to certain risks and uncertainties that could cause actual results to vary materially from the expected results described in the forward-looking statements. Forward-looking statements are identified by words such as, but not limited to, “anticipate”, “believe”, “estimate”, “expect”, “hope”, “hopeful”, “intend”, “may”, “optimistic”, “preliminary”, “potential”, “project”, “should”, “will” and other analogous expressions. There are numerous factors that could cause our actual results to differ materially from those in the forward-looking statements. Thus, sentences and phrases that we use to convey our view of future events and trends are expressly designated as forward-looking statements as are sections of this Form 10K that are identified as giving our outlook on future business.

          Forward-looking statements relating to our business include among other things: statements concerning liquidity and capital requirements, investment valuation and performance, return on equity, financial ratios, net income, premiums, losses and loss reserves, premium rates and retention of current business, competition and market conditions, the expansion of product lines, the development or acquisition of business in new geographical areas, the availability of acceptable reinsurance, actions by

regulators and rating agencies, court actions, legislative actions, payment or performance of obligations under indebtedness, payment of dividends, and other matters.

          These forward-looking statements are subject to significant risks, assumptions and uncertainties, including, among other things, the following factors that could affect the actual outcome of future events:

	–		general economic conditions, either nationally or in our market areas, that are different than anticipated;
	–		regulatory, legislative and judicial actions or decisions that could affect our business plans or operations;
	–		the enactment or repeal of tort reforms;
	–		formation or dissolution of state-sponsored malpractice insurance entities that could remove or add sizable groups of physicians from the private insurance market;
	–		the impact of deflation or inflation;
	–		changes in the interest rate environment;
	–		the effect that changes in laws or government regulations affecting the U.S. economy or financial institutions, including the Emergency Economic Stabilization Act of 2008 and the American Recovery and Reinvestment Act of 2009, may have on the U.S. economy and our business;
	–		performance of financial markets affecting the fair value of our investments or making it difficult to determine the value of our investments;
	–		changes in accounting policies and practices that may be adopted by our regulatory agencies and the Financial Accounting Standards Board, or the Securities and Exchange Commission;
	–		changes in laws or government regulations affecting medical professional liability insurance or the financial community;
	–		the effects of changes in the health care delivery system;
	–		uncertainties inherent in the estimate of loss and loss adjustment expense reserves and reinsurance, and changes in the availability, cost, quality, or collectability of insurance/reinsurance;
	–		the results of litigation, including pre-or-post-trial motions, trials and/or appeals we undertake;
	–		bad faith litigation which may arise from our handling of any particular claim, including failure to settle;
	–		loss of independent agents;
	–		changes in our organization, compensation and benefit plans;
	–		our ability to retain and recruit senior management;
	–		our ability to purchase reinsurance and collect payments from our reinsurers;
	–		increases in guaranty fund assessments;
	–		our ability to achieve continued growth through expansion into other states or through acquisitions or business combinations;
	–		changes to the ratings assigned by rating agencies to our insurance subsidiaries, individually or as a group;
	–		changes in competition among insurance providers and related pricing weaknesses in our markets; and
	–		the expected benefits from completed and proposed acquisitions may not be achieved or may be delayed longer than expected due to business disruption, loss of customers and employees, increased operating costs or inability to achieve cost savings, and assumption of greater than expected liabilities, among other reasons.

          Our results may differ materially from those we expect and discuss in any forward-looking statements. The principal risk factors that may cause these differences are described in “Item 1A, Risk

Factors” in this report and other documents we file with the Securities and Exchange Commission, such as our current reports on Form 8-K, and our regular reports on Forms 10-Q and 10-K.

          We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and advise readers that the factors listed above could affect our financial performance and could cause actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. Except as required by law or regulations, we do not undertake and specifically decline any obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Business Overview

          We operate in a single business segment in the United States. We sell professional liability insurance primarily to physicians, dentists, other healthcare providers and healthcare facilities. We also have a small book of other professional liability business.

          Our top five states represented 48% of our gross premiums written for the year ended December 31, 2009. The following table shows our gross premiums written in these states for each of the periods indicated.

		Gross Premiums Written–Years Ended December 31
		($ in thousands)
		2009								2008								2007
Alabama(1)		$	96,307				17	%		$	91,116				19	%		$	95,641				17	%
Ohio			69,300				13	%			75,859				16	%			89,607				16	%
Florida(2)			35,428				6	%			31,914				7	%			41,291				8	%
Indiana(3)			33,304				6	%			33,822				7	%			38,188				7	%
Michigan			32,842				6	%			31,946				7	%			41,092				7	%
All other states			286,741				52	%			206,825				44	%			243,255				45	%
Total		$	553,922				100	%		$	471,482				100	%		$	549,074				100	%

          We believe we differentiate ourselves from our competitors in several ways. Our financial strength, commitment to local market knowledge, and dedication to meeting the needs of our insureds have allowed us to establish what we believe is a leading position in many of our markets, thus enabling us to effectively compete on a basis other than just price.

          During 2008 we introduced “Treated Fairly” a branding strategy that is used along with our logo to reinforce our public pledge that all of our actions will deliver fair treatment, informed by the core values that guide our organization: integrity, respect, doctor involvement in our healthcare insurance activities, collaboration, communication, and enthusiasm. These values, along with our enduring commitment to financial strength, the defense of non-meritorious claims and the prompt, fair settlement of those claims with merit, have been at the heart of our existence since we were founded.

          We believe our local market knowledge also allows us to be more effective in evaluating claims because we have a detailed understanding of the medical and legal climates of each market. We also believe our insureds value our willingness and ability to defend non-meritorious claims.

          We maintain multiple claims and underwriting offices, each primarily focused on a specific market, which allows us to maintain active relationships with our customers and be more responsive to their needs. Using our local market knowledge and our experienced underwriting staff, we rigorously underwrite each application for coverage to ensure that we understand the risks we accept, and develop an adequate price for that risk. By charging rates we believe to be adequate, we seek to maintain the strong financial position that allows us to protect our customers in the long-term.

Corporate Organization and History

          We were incorporated in Delaware as the successor to Medical Assurance, Inc. in connection with its merger with Professionals Group, Inc. (Professionals Group) in June 2001.

          We are the successor to fifteen insurance organizations and much of our growth has come through mergers and acquisitions. In each, we retained key personnel, allowing us to maintain market knowledge and preserve important institutional knowledge in underwriting, claims, risk management and marketing. We believe that our ability to utilize this knowledge is a critical factor in the operation of our companies. Our successful integration of each organization demonstrates our ability to grow effectively through acquisitions.

Recent Developments

          The Board of Directors of ProAssurance authorized $100 million in September 2009 to be used for the repurchase of our common stock or debt securities, which was in addition to previous authorizations of $150 million in April 2007 and $100 million in August 2008. As of December 31, 2009 approximately $115.4 million of the total amount authorized by the Board remains available for use.

          On April 1, 2009 we acquired Podiatry Insurance Company of America and subsidiaries (PICA) through a cash sponsored demutualization as a means of expanding our professional liability insurance operations. PICA provides professional liability insurance primarily to podiatric physicians, chiropractors and other healthcare providers throughout the United States and had gross written premium of approximately $96.7 million for the calendar year of 2009. We completed our purchases of Georgia Lawyers Insurance Company (Georgia Lawyers), now a part of ProAssurance Casualty Company, and Mid-Continent General Agency, Inc. (Mid-Continent), now ProAssurance Mid-Continent Underwriters, Inc., in the first quarter of 2009. Georgia Lawyers provides professional liability insurance for lawyers in the state of Georgia and reported premiums written of approximately $4.0 million in 2009. Mid-Continent is a general agency that provides professional liability insurance to ancillary healthcare providers as well as other professional liability coverages. In 2009 Mid-Continent produced $16.6 million of premium for ProAssurance. See Note 3 to the Consolidated Financial Statements included herein for additional information regarding acquisitions.

          In December 2008 we repurchased $23.0 million of our outstanding trust preferred securities for approximately $18.4 million. We recognized a gain of approximately $4.6 million on the extinguishment of debt which is discussed in more detail in Note 10 to the Consolidated Financial Statements. The repurchased securities had been issued in April and May, 2004 as a part of a larger transaction wherein we issued $45.0 million of trust preferred securities, having a 30-year maturity and callable at par beginning in May 2009. The proceeds from the sale of the trust preferred securities were used for general corporate purposes, including contributions to the capital of our insurance subsidiaries to support growth in our insurance operations.

          In July 2008, we converted all our outstanding Convertible Debentures (aggregate principal of $107.6 million) into approximately 2,572,000 shares of ProAssurance common stock. No gain or loss was recorded related to the conversion, which is discussed in more detail in Notes 10 and 11 to the Consolidated Financial Statements, included herein.

          In December 2007 we redeemed, at face value, for cash, outstanding subordinated debentures of $15.5 million that became our obligation when we acquired NCRIC Corporation (NCRIC).

          Effective August 1, 2006 we completed our acquisition of Physicians Insurance Company of Wisconsin, Inc., now ProAssurance Wisconsin Insurance Company (PRA Wisconsin), in an all stock merger. PRA Wisconsin is a stock insurance company that sells professional liability insurance to physicians, groups of physicians, dentists, and hospitals principally in the state of Wisconsin as well as other Midwestern states.

          Effective January 1, 2006 we sold the operating subsidiaries that comprised our personal lines operations, MEEMIC Insurance Company and MEEMIC Insurance Services (collectively, the MEEMIC

companies), for $400 million before taxes and transaction expenses. We recognized a gain on the sale in the first quarter of 2006 of $109.4 million after consideration of sales expenses and estimated taxes. We used the sale proceeds to support the capital requirements of our professional liability insurance subsidiaries and other general corporate purposes.

          On August 3, 2005 we acquired all of the outstanding common stock of NCRIC Corporation and its subsidiaries in an all stock merger. At the time of acquisition, NCRIC was a holding company that owned a single insurance company providing medical professional liability insurance in the vicinity of the District of Columbia.

Products and Services

          We sell medical professional liability insurance primarily to physicians, other healthcare providers and healthcare facilities. We also have a small, but growing, book of other professional liability business. We are licensed to do business in every state.

          We generate the majority of our medical professional liability premiums from individual and small group practices, but also insure large physician groups as well as hospitals. While most of our business is written in the standard market, we also offer professional liability insurance on an excess and surplus lines basis.

Marketing

          We utilize both direct marketing and independent agents to write our business. For the year ended December 31, 2009, we estimate that approximately 65% of our gross premiums written were produced through independent insurance agencies. These local agencies usually have producers who specialize in professional liability insurance and who we believe are able to convey the factors that differentiate our professional liability insurance products. No single agent or agency accounts for more than 10% of our total direct premiums written.

          Our marketing of medical professional liability insurance is primarily directed to individual physicians, and those in smaller groups. We generally do not target large physician groups or facilities because of the difficulty in underwriting the individual risks within those groups and because their purchasing decisions are more focused on price. Through “Treated Fairly” we emphasize:

	–		excellent claims service,
	–		the sponsorship of risk management education seminars as an accredited provider of continuing medical education,
	–		risk management consultation, loss prevention seminars and other educational programs,
	–		legislative oversight and active support of proposed legislation we believe will have a positive effect on liability issues affecting the healthcare industry,
	–		the dissemination of newsletters and other printed material with information of interest to the healthcare industry, and
	–		endorsements by, and attendance at meetings of, medical societies and related organizations.

          These communications and services demonstrate our understanding of the insurance needs of the healthcare industry and promote a commonality of interest among us and our insureds. We believe that a local knowledge of our markets enables us to effectively provide these communications and services, all of which have helped us gain exposure among potential insureds.

Underwriting

          Our underwriting process is driven by individual risk selection. Our pricing decisions are focused on achieving rate adequacy. We assess the quality and pricing of the risk, emphasizing loss history, areas of practice and location in making our underwriting decision. In performing their assessment, our

underwriters may also consult with internal actuaries regarding loss trends and pricing and utilize loss-rating models to assess the projected underwriting results of certain insured risks.

          Our underwriting concentrates on knowledge of local market conditions and legal environments through nine market-focused underwriting offices located in Alabama, Georgia, Indiana, Missouri, Michigan, Tennessee, Texas, the District of Columbia, and Wisconsin. Our underwriters work closely with our claims departments. This includes consulting with staff about claims histories and patterns of practice in a particular locale as well as monitoring claims activity.

          Our underwriters are also assisted by our medical advisory committees that operate in our key markets. These committees are comprised of physicians, other healthcare providers and representatives of hospitals and healthcare entities and help us maintain close ties to the medical communities in these markets, provide information on the practice of medicine in each market and provide guidance on critical underwriting issues.

Claims Management

          We have 17 claims offices located in Alabama (2), Delaware, Florida (2), Illinois, Indiana, Kentucky, Michigan, Missouri, Ohio (2), Tennessee, Texas, Virginia, the District of Columbia, and Wisconsin so that we can provide specialized and timely attention to claims. We offer our insureds a strong defense of claims that we believe are non-meritorious or those we believe cannot be settled by reasonable, good faith negotiations. Many of these claims are resolved by jury verdict, and we engage experienced trial attorneys in each venue to handle the litigation in defense of our policyholders.

          Our claims department promptly and thoroughly investigates the circumstances surrounding a reported claim against an insured. As this investigation progresses, our claims department develops an estimate of the case reserves for each claim. Thereafter, we monitor development of new information about the claim and adjust the case reserve as loss cost estimates are revised.

          Through our investigation, and in consultation with the insured and appropriate experts, we evaluate the merit of the claim and either seek reasonable good faith settlement or aggressively defend the claim. If the claim is defended, our claims department carefully manages the case, including selecting defense attorneys who specialize in professional liability defense and obtaining medical, legal and/or other expert professionals to assist in the analysis and defense of the claim. As part of the evaluation and preparation process for medical professional liability claims, we meet regularly with medical advisory committees in our key markets to examine claims, attempt to identify potentially troubling practice patterns and make recommendations to our staff.

          We believe that our claims philosophy contributes to lower overall loss costs and results in greater customer loyalty. The success of this claims philosophy is based on our access to attorneys who have significant experience in the defense of professional liability claims and who are able to defend claims in an aggressive, cost-efficient manner.

Investments

          Although the majority of our assets are held in our operating insurance companies, we apply a consistent management strategy to the entire portfolio.

          Our overall investment strategy is to focus on maximizing current income from our investment portfolio while maintaining safety, liquidity, duration targets and portfolio diversification. The portfolio is generally managed by professional third party asset managers whose results we monitor and evaluate. The asset managers typically have the authority to make investment decisions within the asset class they are responsible for managing, subject to our investment policy and oversight, including a requirement that securities in a loss position cannot be sold without specific authorization from us. See Note 4 to the Consolidated Financial Statements for more information on our investments.

Rating Agencies

          Our claims-paying ability and financial strength are regularly evaluated and rated by two major rating agencies, A. M. Best and Fitch. In developing their claims-paying ratings, these agencies evaluate an insurer’s ability to meet its obligations to policyholders. While these ratings may be of interest to investors, these are not ratings of our securities nor a recommendation to buy, hold or sell any of our securities.

          The following table presents the claims paying ratings of our group and our core subsidiaries as of February 10, 2010:

ProAssurance

Podiatry

ProAssurance

ProAssurance

ProAssurance

Specialty

Insurance

PACO

ProAssurance

Indemnity

National Capital

Wisconsin

ProAssurance

Insurance

Company of

Assurance

Rating Agency

Group

Company, Inc.

Insurance Co.

Insurance Co.

Casualty Co.

Company, Inc.

America

Company, Inc.

A. M. Best

A

A

B++

A-

A

A

A-

A-

(www.ambest.com)

(Excellent)

(Excellent)

(Good)

(Excellent)

(Excellent)

(Excellent)

(Excellent)

(Excellent)

Fitch

A

A

A

A

A

A

A

A

(www.fitchratings.com)

(Strong)

(Strong)

(Strong)

(Strong)

(Strong)

(Strong)

(Strong)

(Strong)

          The rating process is dynamic and ratings can change. If you are seeking updated information about our ratings, please visit the rating agency websites listed in the table.

Competition

          Competition depends on a number of factors including pricing, size, name recognition, service quality, market commitment, market conditions, breadth and flexibility of coverage, method of sale, financial stability, ratings assigned by rating agencies and regulatory conditions. Many of these factors, such as market conditions and regulatory conditions are beyond our control.

          We believe that we have a competitive advantage due to our financial stability, local market knowledge, service quality, size, geographic scope and name recognition, as well as our heritage as a policyholder-founded company with a long-term commitment to the professional liability insurance industry. We have achieved these advantages through our balance sheet strength, claims defense expertise, strong ratings and ability to deliver a high level of service to our insureds and agents.

          We compete in a fragmented market with many insurance companies and alternative insurance mechanisms such as risk retention groups or self-insuring entities. Many of our competitors concentrate on a single state and have an extensive knowledge of the local markets. We also compete with several large national insurers whose financial strength and resources may be greater than ours. We believe that the largest competitors in our market area are The Medical Protective Company (Berkshire Hathaway) and The Doctors Company.

          Improvements in loss cost trends have allowed us to reduce rates in many markets and offer targeted new business and renewal retention programs in selected markets. This improves policyholder retention but decreases our average premiums. While we reflect loss cost trends in our pricing, we have chosen not to aggressively compete on price alone, and we have not compromised our commitment to strict underwriting.

          Thus, we have lost some insureds due to aggressive, price-based competition which we face in virtually all of our markets. This competition comes mostly from established insurers that are willing to write coverage at rates that we believe do not meet our long-term profitability goals. We believe many competitors are also employing less-stringent underwriting standards than they have in the past and they appear to be offering more liberal coverage options.

          We have also lost insureds as some physicians and hospitals have entered into alternative risk transfer mechanisms. Historically, these alternatives have been less attractive when prices soften in the traditional insurance markets.

          If competitors continue to be less disciplined in their pricing, or become more permissive in their coverage terms, we could lose business because our ongoing commitment to adequate rates and strong underwriting standards affects our willingness to write new business and to renew existing business in the face of this price-based competition.

Insurance Regulatory Matters

          We are subject to regulation under the insurance and insurance holding company statutes of various jurisdictions including the domiciliary states of our insurance subsidiaries and other states in which our insurance subsidiaries do business. Our operating insurance subsidiaries are domiciled in Alabama, Michigan, the District of Columbia, Illinois, and Wisconsin.

          Insurance companies are also affected by a variety of state and federal legislative and regulatory measures and judicial decisions. These could include new or updated definitions of risk exposure and limitations on business practices. In addition, individual state insurance departments may prevent premium rates for some classes of insureds from reflecting the level of risk assumed by the insurer for those classes.

          There is currently limited federal regulation of the insurance business, but each state has a comprehensive system for regulating insurers operating in that state. In addition, these insurance regulators periodically examine each insurer’s financial condition, adherence to statutory accounting practices, and compliance with insurance department rules and regulations.

          Our operating subsidiaries are required to file detailed annual reports with the state insurance regulators in each of the states in which they do business. The laws of the various states establish agencies with broad authority to regulate, among other things, licenses to transact business, premium rates for certain types of coverage, trade practices, agent licensing, policy forms, underwriting and claims practices, reserve adequacy, transactions with affiliates, and insurer solvency. Many states also regulate investment activities on the basis of quality, distribution and other quantitative criteria. States have also enacted legislation regulating insurance holding company systems, including acquisitions, the payment of dividends, the terms of affiliate transactions, and other related matters.

          Applicable state insurance laws, rather than federal bankruptcy laws, apply to the liquidation or reorganization of insurance companies.

Insurance Regulation Concerning Change or Acquisition of Control

          The insurance regulatory codes in our operating subsidiaries’ respective domiciliary states each contain provisions (subject to certain variations) to the effect that the acquisition of “control” of a domestic insurer or of any person that directly or indirectly controls a domestic insurer cannot be consummated without the prior approval of the domiciliary insurance regulator. In general, a presumption of “control” arises from the direct or indirect ownership, control or possession with the power to vote or possession of proxies with respect to 10% (5% in Alabama) or more of the voting securities of a domestic insurer or of a person that controls a domestic insurer. A person seeking to acquire control, directly or indirectly, of a domestic insurance company or of any person controlling a domestic insurance company must generally file an application for approval of the proposed change of control with the relevant insurance regulatory authority.

          In addition, certain state insurance laws contain provisions that require pre-acquisition notification to state agencies of a change in control of a non-domestic insurance company admitted in that state. While such pre-acquisition notification statutes do not authorize the state agency to disapprove the change of control, such statutes do authorize certain remedies, including the issuance of a cease and desist

order with respect to the non-domestic admitted insurers doing business in the state if certain conditions exist, such as undue market concentration.

Statutory Accounting and Reporting

          Insurance companies are required to file detailed quarterly and annual reports with the state insurance regulators in each of the states in which they do business, and their business and accounts are subject to examination by such regulators at any time. The financial information in these reports is prepared in accordance with Statutory Accounting Principles (SAP). Insurance regulators periodically examine each insurer’s financial condition, adherence to SAP, and compliance with insurance department rules and regulations.

Regulation of Dividends and Other Payments from Our Operating Subsidiaries

          Our operating subsidiaries are subject to various state statutory and regulatory restrictions which limit the amount of dividends or distributions an insurance company may pay to its shareholders without prior regulatory approval. Generally, dividends may be paid only out of earned surplus. In every case, surplus subsequent to the payment of any dividends must be reasonable in relation to an insurance company’s outstanding liabilities and must be adequate to meet its financial needs.

          State insurance holding company regulations generally require domestic insurers to obtain prior approval of extraordinary dividends. Insurance holding company regulations that govern our principal operating subsidiaries, except PRA National and PRA Wisconsin, deem a dividend as extraordinary if the combined dividends and distributions to the parent holding company in any 12 month period are more than the greater of either the insurer’s net income for the prior fiscal year or 10% of its surplus at the end of the prior fiscal year.

          The regulations governing District of Columbia insurers, which have jurisdiction over PRA National, deem a dividend to be extraordinary if the combined dividends and distributions made in any 12 month period exceeds the lesser of:

	•		net income less capital gains; or
	•		10% surplus at the prior calendar year end.

          The regulations governing Wisconsin insurers, which have jurisdiction over PRA Wisconsin, deems a dividend to be extraordinary if the amount exceeds the lesser of:

	•		10% of a company’s capital and surplus as of December 31 of the preceding year; or
	•		the greater of:

	•		Statutory net income for the preceding calendar year, minus realized capital gains for that calendar year; or
	•		The aggregate of statutory net income for the three previous calendar years minus realized capital gains for those calendar years, minus dividends paid or credited and distributions made within the first two of the preceding three calendar years.

          If insurance regulators determine that payment of a dividend or any other payments to an affiliate (such as payments under a tax-sharing agreement or payments for employee or other services) would, because of the financial condition of the paying insurance company or otherwise, be a detriment to such insurance company’s policyholders, the regulators may prohibit such payments that would otherwise be permitted.

Risk-Based Capital

          In order to enhance the regulation of insurer solvency, the National Association of Insurance Commissioners specifies risk-based capital requirements for property and casualty insurance companies. At December 31, 2009, all of ProAssurance’s insurance subsidiaries exceeded the minimum RBC levels.

Investment Regulation

          Our operating subsidiaries are subject to state laws and regulations that require diversification of investment portfolios and that limit the amount of investments in certain investment categories. Failure to comply with these laws and regulations may cause non-conforming investments to be treated as non-admitted assets for purposes of measuring statutory surplus and, in some instances, would require divestiture. We believe that our operating subsidiaries are in compliance with applicable state investment regulations.

Guaranty Funds

          Admitted insurance companies are required to be members of guaranty associations which administer state Guaranty Funds. These associations levy assessments (up to prescribed limits) on all member insurers in a particular state on the basis of the proportionate share of the premiums written by member insurers in the covered lines of business in that state. Maximum assessments permitted by law in any one year generally vary between 1% and 2% of annual premiums written by a member in that state. Some states permit member insurers to recover assessments paid through surcharges on policyholders or through full or partial premium tax offsets, while other states permit recovery of assessments through the rate filing process.

Shared Markets

          State insurance regulations may force us to participate in mandatory property and casualty shared market mechanisms or pooling arrangements that provide certain insurance coverage to individuals or other entities that are otherwise unable to purchase such coverage in the commercial insurance marketplace. Our operating subsidiaries’ participation in such shared markets or pooling mechanisms is not material to our business at this time.

Changes in Legislation and Regulation

          In recent years, the insurance industry has been subject to increased scrutiny by regulators and legislators. The NAIC and a number of state legislatures have considered or adopted legislative proposals that alter and, in many cases, increase the authority of state agencies to regulate insurance companies and insurance holding company systems.

          Tort reforms generally restrict the ability of a plaintiff to recover damages by, among other limitations, eliminating certain claims that may be heard in a court, limiting the amount or types of damages, changing statutes of limitation or the period of time to make a claim, and limiting venue or court selection. A number of states in which we do business, notably Georgia, Florida, Illinois, Missouri, Ohio, Texas, and West Virginia, enacted tort reform legislation in the previous decade as a response to a rapid deterioration in loss trends. These reforms are generally thought to have contributed to the improvement in the overall loss trends in those states, although loss trends have also been favorable in states that did not pass any type of tort reform. In states where these reforms are perceived to have improved the medical professional liability climate, we have noted an increase in competition.

          Appeals are underway in most states where tort reforms were enacted. The Illinois statute was overturned in early 2010. We believe some of the other state reforms may also be overturned, although we cannot predict with any certainty how appellate courts will rule. We continue to monitor developments

on a state-by-state basis, and make business decisions accordingly.

          Tort reform proposals are considered from time-to-time at the Federal level. As in the states, passage of a Federal tort reform package would likely be subject to judicial challenge and we cannot be certain that it would be upheld by the courts.

          Healthcare reform is a stated priority of the current presidential administration, but the future of healthcare reform is unclear. Conflicting healthcare reform bills have been passed by the House and the Senate and work is underway on compromise legislation, but there is no certainty that such efforts will be successful or what reform measures will be included in the final bill, if one is passed. The earliest date for implementation of major proposed healthcare reforms in the current legislation is 2013, which does give us time to assess the likely effect of the proposals on our business and develop new products, or revise existing policies to compete effectively in a changed market place.

          If passed, reforms would alter the healthcare delivery system or reimbursement plans, which could raise the cost sensitivity of our insureds. Neither bill, as written, would implement Tort Reforms that would directly affect the filing or outcome of lawsuits against our insureds. The current proposed legislation provides incentives and funding for a limited number of demonstration projects intended to develop alternatives to our current tort system for managing medical malpractice disputes.

          In addition to regulatory and legislative efforts, there have been significant market-driven changes in the healthcare environment that have negatively affected, or threaten to affect, the practices and economic independence of our insureds. Medical professionals have found it more difficult to conduct a traditional fee-for-service practice and many have joined or contractually affiliated with larger organizations.

          The sum of these changes may result in a significant decrease in the number of physicians in private practice and the role of the insured in the medical professional liability insurance purchasing decision. Under economic pressure, practices may employ professional managers, who may seek to purchase insurance on a price competitive basis, and who may favor insurance companies that are larger and more highly rated than we are. Such change and consolidation could reduce our medical professional liability premiums as groups of insurance purchasers generally seek to control costs by retaining more risk or moving to self insurance arrangements.

          Other federal legislation has been proposed that would bring about federal regulation of insurance companies, which could replace state regulation, or work beside state regulation. Legislation to repeal the anti-trust exemptions granted to insurance companies under the provisions of the McCarran-Ferguson Act was proposed in conjunction with healthcare reforms, but that legislation no longer contains language applying to medical professional liabilities insurers.

          Other federal initiatives, including additional pro-patient protection legislation that would ultimately affect our business, may also be proposed, although we believe such legislation would most likely have a more direct effect on healthcare insurers and providers. New legislation could indirectly affect our business if our insureds face different risk and cost environments. We are unable to predict the likelihood of any particular type of legislation becoming effective or the likely ramifications to our business.

Employees

          At December 31, 2009, we had 689 employees, none of whom are represented by a labor union. We consider our employee relations to be good.

ITEM 1A. RISK FACTORS.

          There are a number of factors, many beyond our control, which may cause results to differ significantly from our expectations. Some of these factors are described below. Any factor described in this report could by itself, or together with one or more factors, have a negative effect on our business, results of operations and/or financial condition. There may be factors not described in this report that could also cause results to differ from our expectations.

Our revenues may fluctuate with insurance market conditions.

          The property and casualty insurance business is highly competitive. We compete with large national property and casualty insurance companies, locally-based specialty companies, strong mutuals, reciprocals, self-insured entities and alternative risk transfer mechanisms (such as captive insurers and risk retention groups) whose activities are directed to limited markets in which they have extensive knowledge. Competitors include companies that have substantially greater financial resources than we do, as well as mutual companies and similar companies not owned by shareholders whose return on equity objectives may be lower than ours.

          Competition in the property and casualty insurance business is based on many factors, including premiums charged and other terms and conditions of coverage, services provided, financial ratings assigned by independent rating agencies, claims services, reputation, geographic scope, local presence, agent and client relationships, financial strength and the experience of the insurance company in the line of insurance to be written. Increased competition could adversely affect our ability to attract and retain business at current premium levels, impact our market share and reduce the profits that would otherwise arise from operations.

Our operating results and financial condition may be affected if actual insured losses differ from our loss reserves.

          To recognize liabilities for unpaid losses, we establish reserves as balance sheet liabilities representing estimates of amounts needed to pay reported and unreported losses and the related loss adjustment expense. Our largest liability is our reserve for loss and loss adjustment expenses. Due to the size of our reserve for loss and loss adjustment expenses, even a small percentage adjustment to the assumptions we make in establishing our reserve can have a material effect on our results of operations for the period in which the change is made.

          The process of estimating loss reserves is complex. Significant periods of time often elapse between the occurrence of an insured loss, the reporting of the loss by the insured and payment of that loss. Ultimate loss costs, even for claims with similar characteristics, can vary significantly depending upon many factors, including but not limited to, the nature of the claim and the personal situation of the claimant or the claimant’s family, the outcome of jury trials, the legislative and judicial climate where the insured event occurred, general economic conditions and, for medical professional liability, the trend of health care costs. Consequently, the loss cost estimation process requires actuarial skill and the application of judgment, and such estimates require periodic revision. As part of the reserving process, we review the known facts surrounding reported claims as well as historical claims data and consider the impact of various factors such as:

	–		for reported claims, the nature of the claim and the jurisdiction in which the claim occurred;
	–		trends in paid and incurred loss development;
	–		trends in claim frequency and severity;
	–		emerging economic and social trends;
	–		trend of health care costs for medical professional liability;
	–		inflation; and
	–		changes in the regulatory legal and political environment.

          This process assumes that past experience, adjusted for the effects of current developments and anticipated trends, is an appropriate, but not necessarily accurate, basis for predicting future events. There is no precise method for evaluating the impact of any specific factor on the adequacy of reserves, and actual results are likely to differ from original estimates. Our loss reserves also may be affected by court decisions that expand liability on our policies after they have been issued and priced. In addition, a significant jury award, or series of awards, against one or more of our insureds could require us to pay large sums of money in excess of our reserved amounts. Due to uncertainties inherent in the jury system, each case that is litigated to a jury verdict increases our risk of incurring a loss that has a material adverse affect on reserves. To the extent loss reserves prove to be inadequate to meet future claim payments, we would incur a charge to earnings in the period the reserves are increased.

          We purchase reinsurance to mitigate the effect of losses under higher coverage limits policies and for a portion of all losses on certain types of policies. Our receivable from reinsurers on unpaid losses and loss adjustment expenses represents our estimate of the amount of our reserve for losses that will be recoverable under our reinsurance programs. We base our estimate of funds recoverable upon our expectation of ultimate losses and the portion of those losses that we estimate to be allocable to reinsurers based upon the terms of our reinsurance agreements.

          Given the uncertainty of the ultimate amounts of our losses, our estimates of losses and related amounts recoverable may vary significantly from the eventual outcome. Also, we estimate premiums ceded under reinsurance agreements wherein the premium due to the reinsurer, subject to certain maximums and minimums, is based in part on losses reimbursed or to be reimbursed under the agreement. Due to the size of our reinsurance balances, an adjustment to these estimates could have a material effect on our results of operations for the period in which the adjustment is made. Any adjustments are reflected in then-current operations.

If market conditions cause reinsurance to be more costly or unavailable, we may be required to bear increased risks or reduce the level of our underwriting commitments.

          As part of our overall risk and capacity management strategy, we purchase reinsurance for significant amounts of risk underwritten by our insurance company subsidiaries. Market conditions beyond our control determine the availability and cost of the reinsurance, which may affect the level of our business and profitability. We may be unable to maintain current reinsurance coverage or to obtain other reinsurance coverage in adequate amounts and at favorable rates. If we are unable to renew our expiring coverage or to obtain new reinsurance coverage, either our net exposure to risk would increase or, if we are unwilling to bear an increase in net risk exposures, we would have to reduce the amount of our underwritten risk.

We cannot guarantee that our reinsurers will pay in a timely fashion or if at all, and, as a result, we could experience losses.

          We transfer some of our risks to reinsurance companies in exchange for part of the premium we receive in connection with the risk. Although our reinsurance agreements make the reinsurer liable to us to the extent the risk is transferred, the liability to our policyholders remains our responsibility. If reinsurers fail to pay us or fail to pay on a timely basis, our financial results and/or cash flows would be adversely affected. At December 31, 2009 our Receivable from Reinsurers on Unpaid Losses is $262.7 million and our Receivable from Reinsurers on Paid Losses is $16.8 million.

Our claims handling practices could result in a bad faith claim against us.

          We could be sued for allegedly acting in bad faith during our handling of a claim. The damages in actions for bad faith may include amounts owed by the insured in excess of the policy limits as well as consequential and punitive damages. Awards above policy limits are possible whenever a case is taken to trial, and they have been more common in recent years. These actions have

the potential to have a material adverse effect on our financial condition and results of operations. Historically, we have been successful in resolving actions alleging bad faith on terms that have no material adverse effect on our financial condition and results of operations.

Changes in healthcare policy could have a material effect on our operations.

          Healthcare reform is a stated priority of the current presidential administration and healthcare reform is currently under consideration by Congress. The proposed legislation, which remains subject to substantial revision and may or may not become law, focuses primarily on expanding health insurance coverage in the U.S., but also includes measures designed to promote additional competition among health insurers, and measures that might increase Federal oversight of insurers. There is much speculation as to what would be the indirect effects of the legislation as now proposed, including the economic effects on physicians, other health care workers, hospitals, and other types of healthcare facilities. If passed, reforms could result in significant changes in the demand for and profitability of our current insurance products as well as significant changes to the competitive environment in which we operate. It may be difficult to successfully change our insurance products and current business model quickly enough to maintain profitable operations. It does seem likely that there will be several years between the passage of any reforms and the effective date of the reforms. We hope it will allow us to make the adjustments needed to our products and business model, but there is no certainty that we will be successful in our efforts.

The passage of tort reform or other legislation, and the subsequent review of such laws by the courts could have a material impact on our operations.

          Tort reforms generally restrict the ability of a plaintiff to recover damages by, among other limitations, eliminating certain claims that may be heard in a court, limiting the amount or types of damages, changing statutes of limitation or the period of time to make a claim, and limiting venue or court selection. A number of states in which we do business, notably Georgia, Florida, Illinois, Missouri, Ohio, Texas, and West Virginia, enacted tort reform legislation in the previous decade as a response to a rapid deterioration in loss trends. The Illinois statute was overturned in early 2010. We cannot predict with any certainty how other state appellate courts will rule on these laws. While the effects of tort reform have been generally beneficial to our business in states where these laws have been enacted, there can be no assurance that such reforms will be ultimately upheld by the courts. Further, if tort reforms are effective, the business of providing professional liability insurance may become more attractive, thereby causing an increase in competition. In addition, the enactment of tort reforms could be accompanied by legislation or regulatory actions that may be detrimental to our business because of expected benefits which may or may not be realized. These expectations could result in regulatory or legislative action limiting the ability of professional liability insurers to maintain rates at adequate levels. Coverage mandates or other expanded insurance requirements could also be imposed. States may also consider state sponsored malpractice insurance entities that could remove some physicians from the private insurance market.

          We continue to monitor developments on a state-by-state basis, and make business decisions accordingly.

A significant amount of our business is concentrated in certain states so that our performance is dependent on the business, economic, regulatory and legislative conditions in those states.

          Our top five states, Alabama, Ohio, Florida, Indiana and Michigan, represented 48% of our gross premiums written for the year ended December 31, 2009. Moreover, during the three years ended December 31, 2009, Alabama and Ohio accounted for 30%, 35%, and 33%, respectively, of our gross premiums written in each year during that time period. Because of this concentration,

unfavorable business, economic or regulatory conditions in any of these states could have a disproportionately greater effect on us than they would if we were less geographically concentrated.

We may be unable to identify future strategic acquisitions or expected benefits from completed and proposed acquisitions may not be achieved or may be delayed longer than expected.

          Our corporate strategy anticipates growth through the acquisition of other companies or books of business. However, such expansion is opportunistic and there is no guarantee that we will be able to identify strategic acquisition targets in the future. Additionally, if we are able to identify a strategic target for acquisition, state insurance regulation concerning change or acquisition of control could delay or prevent us from growing through acquisitions. Many states’ insurance regulatory codes provide that the acquisition of “control” of a domestic insurer or of any person that directly or indirectly controls a domestic insurer cannot be consummated without the prior approval of the domiciliary insurance regulator. There is no assurance that we will receive such approval from the respective insurance regulator.

          In the event we are able to complete an acquisition, there is no guarantee that the expected benefits will be achieved as planned. The process of integrating an acquired company or business can be complex and costly, and may create unforeseen operating difficulties and expenditures. This can be due to, among other reasons, business disruption, loss of customers and employees, the ineffective integration of underwriting, claims handling and actuarial practices, the increase in the inherent uncertainty of reserve estimates for a period of time until stable trends reestablish themselves within the combined organization, diversion of management time and resources to acquisition integration challenges, the cultural challenges associated with integrating employees, increased operating costs or inability to achieve cost savings, and the assumption of greater than expected liabilities. There is no guarantee that any businesses acquired in the future will be successfully integrated, and the ineffective integration of our businesses and processes may result in substantial costs or delays and adversely affect our ability to compete.

If we are unable to maintain a favorable financial strength rating, it may be more difficult for us to write new business or renew our existing business.

          Independent rating agencies assess and rate the claims-paying ability of insurers based upon criteria established by the agencies. Periodically the rating agencies evaluate us to confirm that we continue to meet the criteria of previously assigned ratings. The financial strength ratings assigned by rating agencies to insurance companies represent independent opinions of financial strength and ability to meet policyholder obligations and are not directed toward the protection of investors. Ratings by rating agencies are not ratings of securities or recommendations to buy, hold or sell any security.

          Our principal operating subsidiaries hold favorable financial strength ratings with Fitch and A.M. Best. Financial strength ratings are used by agents and customers as an important means of assessing the financial strength and quality of insurers. If our financial position deteriorates or the rating agencies significantly change the rating criteria that are used to determine ratings, we may not maintain our favorable financial strength ratings from the rating agencies. A downgrade or involuntary withdrawal of any such rating could limit or prevent us from writing desirable business.

          The following table presents the claims paying ratings of our group and our core subsidiaries as of February 10, 2010:

ProAssurance

Podiatry

ProAssurance

ProAssurance

ProAssurance

Specialty

Insurance

PACO

ProAssurance

Indemnity

National Capital

Wisconsin

ProAssurance

Insurance

Company of

Assurance

Rating Agency

Group

Company, Inc.

Insurance Co.

Insurance Co.

Casualty Co.

Company, Inc.

America

Company, Inc.

A. M. Best

A

A

B++

A-

A

A

A-

A-

(www.ambest.com)

(Excellent)

(Excellent)

(Good)

(Excellent)

(Excellent)

(Excellent)

(Excellent)

(Excellent)

Fitch

A

A

A

A

A

A

A

A

(www.fitchratings.com)

(Strong)

(Strong)

(Strong)

(Strong)

(Strong)

(Strong)

(Strong)

(Strong)

          The rating process is dynamic and ratings can change. If you are seeking updated information about our ratings, please visit the rating agency websites listed in the table.

Our business could be adversely affected by the loss of independent agents.

          We depend in part on the services of independent agents in the marketing of our insurance products. We face competition from other insurance companies for the services and allegiance of independent agents. These agents may choose to direct business to competing insurance companies.

Our business could be adversely affected by the loss of one or more key employees.

          We are heavily dependent upon our senior management and the loss of services of our senior executives could adversely affect our business. Our success has been, and will continue to be, dependent on our ability to retain the services of existing key employees and to attract and retain additional qualified personnel in the future. The loss of the services of key employees or senior managers, or the inability to identify, hire and retain other highly qualified personnel in the future, could adversely affect the quality and profitability of our business operations.

          Our board of directors regularly reviews succession planning relating to our Chief Executive Officer as well as other senior officers. Mr. Starnes, our Chief Executive Officer, has indicated to the board that he has no immediate plans for retirement.

Provisions in our charter documents, Delaware law and state insurance law may impede attempts to replace or remove management or impede a takeover, which could adversely affect the value of our common stock.

          Our certificate of incorporation, bylaws and Delaware law contain provisions that may have the effect of inhibiting a non-negotiated merger or other business combination. Additionally, the board of directors may issue preferred stock, which could be used as an anti-takeover device, without a further vote of our stockholders. We currently have no preferred stock outstanding, and no present intention to issue any shares of preferred stock. However, because the rights and preferences of any series of preferred stock may be set by the board of directors in its sole discretion, the rights and preferences of any such preferred stock may be superior to those of our common stock and thus may adversely affect the rights of the holders of common stock.

          The voting structure of common stock and other provisions of our certificate of incorporation are intended to encourage a person interested in acquiring us to negotiate with, and to obtain the approval of, the board of directors in connection with a transaction. However, certain of these provisions may discourage our future acquisition, including an acquisition in which stockholders might otherwise receive a premium for their shares. As a result, stockholders who might desire to participate in such a transaction may not have the opportunity to do so.

          In addition, state insurance laws provide that no person or entity may directly or indirectly

acquire control of an insurance company unless that person or entity has received approval from the insurance regulator. An acquisition of control would be presumed if any person or entity acquires 10% (5% in Alabama) or more of our outstanding common stock, unless the applicable insurance regulator determines otherwise.

          These provisions apply even if the offer may be considered beneficial by stockholders.

          If a change in management or a change of control is delayed or prevented, the market price of our common stock could decline.

We are a holding company and are dependent on dividends and other payments from our operating subsidiaries, which are subject to dividend restrictions.

          We are a holding company whose principal source of funds is cash dividends and other permitted payments from operating subsidiaries. If our subsidiaries are unable to make payments to us, or are able to pay only limited amounts, we may be unable to make payments on our indebtedness. The payment of dividends by these operating subsidiaries is subject to restrictions set forth in the insurance laws and regulations of their respective states of domicile, as discussed in Item 1 Insurance Regulatory Matters.

Regulatory requirements could have a material effect on our operations.

          Our insurance businesses are subject to extensive regulation by state insurance authorities in each state in which they operate. Regulation is intended for the benefit of policyholders rather than shareholders. In addition to the amount of dividends and other payments that can be made to a holding company by insurance subsidiaries, these regulatory authorities have broad administrative and supervisory power relating to:

	–		licensing requirements;
	–		trade practices;
	–		capital and surplus requirements;
	–		investment practices; and
	–		rates charged to insurance customers.

          These regulations may impede or impose burdensome conditions on rate changes or other actions that we may want to take to enhance our operating results. In addition, we may incur significant costs in the course of complying with regulatory requirements. Most states also regulate insurance holding companies like us in a variety of matters such as acquisitions, changes of control and the terms of affiliated transactions.

          Future legislative or regulatory changes may also adversely affect our business operations.

The guaranty fund assessments that we are required to pay to state guaranty associations may increase and results of operations and financial condition could suffer as a result.

          Each state in which we operate has separate insurance guaranty fund laws requiring admitted property and casualty insurance companies doing business within their respective jurisdictions to be members of their guaranty associations. These associations are organized to pay covered claims (as defined and limited by the various guaranty association statutes) under insurance policies issued by insolvent insurance companies. Most guaranty association laws enable the associations to make assessments against member insurers to obtain funds to pay covered claims after a member insurer becomes insolvent. These associations levy assessments (up to prescribed limits) on all member insurers in a particular state on the basis of the proportionate share of the premiums written by member insurers in the covered lines of business in that state. Maximum assessments permitted by law in any one year generally vary between 1% and 2% of annual premiums written by a member in that state, although one notable exception occurred in Florida in 2006, when the state assessed all property casualty insurers a total of 4% of their non-property premiums to offset bankruptcies caused by hurricane claims. Some

states permit member insurers to recover assessments paid through surcharges on policyholders or through full or partial premium tax offsets, while other states permit recovery of assessments through the rate filing process.

          In 2009 and 2008, guaranty fund refunds/recoupments exceeded current year assessments by $533,000 and $1.3 million, respectively, which reduced total acquisition expenses. Our policy is to accrue for the insurance insolvencies when notified of assessments. We are not able to reasonably estimate the liabilities of an insolvent insurer or develop a meaningful range of the insolvent insurer’s liabilities because the guaranty funds do not provide sufficient information for development of such ranges.

Our investment results will fluctuate as interest rates change.

          Our investment portfolio is primarily comprised of interest-earning assets. Thus, prevailing economic conditions, particularly changes in market interest rates, may significantly affect our operating results. Significant movements in interest rates potentially expose us to lower yields or lower asset values. Changes in market interest rate levels generally affect our net income to the extent that reinvestment yields are different than the yields on maturing securities. Changes in interest rates also can affect the value of our interest-earning assets, which are principally comprised of fixed and adjustable-rate investment securities. Generally, the values of fixed-rate investment securities fluctuate inversely with changes in interest rates. Interest rate fluctuations could adversely affect our stockholders’ equity, income and/or cash flows.

Our investments are subject to credit and prepayment risk.

          A significant portion of our assets ($3.8 billion or 83%) at December 31, 2009 are financial instruments whose value can be significantly affected by economic and market factors beyond our control including, among others, the unemployment rate, the strength of the domestic housing market, the price of oil, changes in interest rates and spreads, consumer confidence, investor confidence regarding the economic prospects of the entities in which we invest, corrective or remedial actions taken by the entities in which we invest, including mergers, spin-offs and bankruptcy filings, the actions of the U.S. government, and global perceptions regarding the stability of the U.S. economy. Adverse economic and market conditions could cause investment losses or other-than-temporary impairments of our securities, which could affect our financial condition, results of operations, or cash flows.

          Our portfolio holds asset-backed securities which consist of securitizations of underlying loans collateralized by homes, autos, credit card receivables, commercial properties, hotels, and multi-family housing. In addition to interest rate fluctuations, asset-backed security values are affected by the existence of U.S. Government or Government-Sponsored Enterprise guarantees, the value and cash flows of the underlying collateral, and the security’s seniority in the securitization’s capital structure. Approximately 20% of our fixed maturities are asset-backed securities, 97% of which are investment grade, (91% AAA, 3% AA, 5% BBB, 1% B) as determined by Nationally Recognized Statistical Rating Organizations (NRSROs) (Moody’s, Standard & Poor’s and Fitch). Ratings published by the NRSROs are among the tools used to evaluate the credit worthiness of our securities. The ratings are subject to error by the agencies; therefore, we may be subject to additional credit exposure should the rating be misstated.

          We have direct exposure to asset-backed securitizations that we classify as subprime (See “Investment Exposures” included in Item 7, page 45). We have no exposure to subprime loans through collateralized debt obligations (CDOs).

          Our asset-backed securities are also subject to prepayment risk. A prepayment is the unscheduled return of principal. When rates decline, the propensity for refinancing may increase and the period of time we hold our asset-backed securities may shorten due to prepayments. Prepayments may cause us to reinvest cash flows at lower yields than currently recognized. Conversely, as rates increase, and motivations for refinancing lessen, the period of time we hold our asset-backed securities may lengthen, causing us to not reinvest cash flows at then higher available yields.

In a period of market illiquidity and instability, the fair values of our investments are more difficult to assess and our assessments may prove to be greater or less than amounts received in actual transactions.

          In accordance with applicable GAAP, we value 97% of our investments at fair value and the remaining 3% at cost or the current cash surrender value (BOLI). See Notes 1, 2 and 4 to the Consolidated Financial Statements for additional information. Approximately 6% of our investments are traded in active markets and we use quoted market prices to value those investments. We estimate fair values for the remaining 91% of our investments, based on broker dealer quotes and various other valuation methodologies, which may require us to choose among various input assumptions and which requires us to utilize judgment. When markets exhibit much volatility, there is more risk that we may utilize a quoted market price, broker dealer quote, valuation technique or input assumption that results in a fair value estimate that is either over or understated as compared to actual amounts received upon disposition or maturity of the security.

The current economic environment may have a significant adverse effect on our financial condition and results of operations.

          The U.S. government has undertaken measures to stabilize the U.S. economy and financial markets, including the Emergency Economic Stabilization Act of 2008 and the American Recovery and Reinvestment Act of 2009, and measures are also being undertaken by the governments of other leading nations. In addition, the U.S. Treasury, the Federal Reserve, and FDIC began several programs to provide liquidity support to the financial system in 2008 and 2009: Commercial Paper Funding Facility (CPFF), Term-Asset Backed Loan Facility (TALF), the Temporary Guaranty Liquidity Program (TGLP), and the Public-Private Investment Program (PPIP), among others. Although the measures appear to have been positive for the economy and the financial markets, there is no assurance that the markets will further improve or maintain stability once these measures expire or are discontinued. In such an uncertain economy there is increased risk that the fair value of our investments may decline in the future. Additionally, the financial situation of our insureds may also decline significantly, which could result in an increase in non-renewals or reductions in the level of coverage purchased. A worsening economy could cause shifts in the frequency and severity of the claims filed against our insureds. Although we have not experienced such shifts to-date, a worsening economy could result in actual claims experience that is worse than that estimated by us in establishing our reserves and premium rates, making our operations less profitable or unprofitable. Our reinsurers are subject to the same uncertainties and risks. If the downturn is prolonged or if losses significantly increase, reinsurers may become less willing or unable to meet their obligations to us.

          Also, actions of the U.S. government undertaken to improve the overall economy may have a specific detrimental effect on the value of certain types of investments we own, particularly mortgage-backed securities. While future actions cannot be predicted, many observers in the financial community believe additional measures will be undertaken to reduce home mortgage foreclosures, some of which may benefit homeowners more than holders of mortgages. The fair value of our investments in non-agency mortgage-backed securities that might likely be affected by mortgage modification efforts approximates $36.2 million ($38.0 million recorded cost basis). We also hold agency mortgage-backed securities which are guaranteed by Ginnie Mae, Fannie Mae, or Freddie Mac, having a combined fair value of $504.5 million ($484.9 million recorded cost basis). Agency mortgage-backed securities may also be affected, although the guarantees provided are intended to protect bond holders from credit loss. The reduction of or discontinued purchases of agency mortgage-backed securities by the Federal Reserve could cause the fair value of our Fannie Mae and Freddie Mac mortgage-backed securities to decline if there is no other market support for those bonds. The continued lack of congressional action in determining the future structure of Fannie Mae and Freddie Mac could also impact the fair value of our holdings. While the two government-sponsored enterprises currently have U.S. Government support through 2012, there is no assurance that the support will continue thereafter.

          The economic downturn has lessened tax receipts and other revenues in many states and their municipalities and the frequency of credit downgrades of these entities has increased. At December 31, 2009 the fair value of our state/municipal portfolio is $1.45 billion (recorded cost basis of $1.40 billion). While our state/municipal portfolio has a high average credit rating (AA on average) which indicates a strong ability to pay, there is no assurance that there will not be a credit related event in our state and municipal bond portfolios which would cause fair values to decline.

          The company holds $92.6 million of Commercial Mortgage-Backed Securities (CMBS) which are affected by the general health of the economy. Commercial mortgage delinquencies have risen in the last 24 months as occupancy rates for commercial buildings and hotels have declined and fair values for many CMBS securities have declined. The recent PPIP program helped improve the fair values of the CMBS market, but there is no guarantee that it will continue. While we primarily hold high quality CMBS in our portfolio (average rating is AAA), there is no guarantee that fair values will be maintained in the future if delinquencies continue or increase or the economy does not maintain stability.

          We maintain banking deposits with banks that are subject to a variety of regulatory regimes. During late 2008 and all of 2009, all commercial deposits had unlimited FDIC insurance under the Transaction Account Guarantee (TAG) as part of the Temporary Liquidity Guarantee Program. The TAG program expired at the end of 2009, and became an optional election for banks thereafter. Three of our primary banks did not elect to continue participation in the TAG. We have $38.4 million of uninsured deposits at December 31, 2009. Absent the unlimited FDIC insurance, we assess the creditworthiness of our banks in determining how much exposure we have to each bank. While we believe we have reasonable exposures to each of the banks given their creditworthiness in excess of FDIC insurance, given the current economic conditions and the efforts of the FDIC to maintain a healthy banking system, there is no assurance that a bank with which we do business will not have difficulty in the future if economic conditions were to worsen.

Resolution of uncertain income tax matters and changes in tax laws could adversely affect our results of operations or cash flow.

          Our provision for income taxes, our recorded tax liabilities and net deferred tax assets, including any valuation allowances, are recorded based on estimates. These estimates require us to make significant judgments regarding a number of factors, including, among others, the applicability of various federal and state laws, the interpretations given to those tax laws by taxing authorities, courts and ProAssurance, the timing of future income and deductions, and our expected levels and source of future taxable income. We believe our tax positions are supportable under tax laws and that our estimates are prepared in accordance with GAAP. Nevertheless, we are periodically under routine examination by various federal, state and local authorities regarding income tax matters and our tax positions could be successfully challenged; the costs of defending our tax position could be considerable. Additionally, from time to time there are changes to tax laws and interpretations of tax laws which could change our estimates of the amount of tax benefits or deductions expected to be available to us in future periods. In either case, changes to our prior estimates would be reflected in the period changed and could have a material effect on our effective tax rate, financial position, results of operations and cash flow.

          ProAssurance is subject to U. S. federal and various state income taxes, and generally remains open to income tax examinations by tax authorities for years beginning with 2006. From time to time, we have tax positions being reviewed by the IRS or state taxing authorities. Our expectation regarding the resolution of those reviews is reflected in our then-current period financial statements. At this time, we do not have any matters under review for which we do not expect to prevail that we consider to be a material amount, separately or in the aggregate. As of December 31, 2009 our current tax liability is approximately $17.0 million, and we have a net deferred tax asset of approximately $68.8 million.

New or changes in existing accounting standards, practices and/or policies, and also subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial results.

          U.S.generally accepted accounting principles (GAAP) and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business, such as revenue recognition, estimation of losses, determination of fair value, asset impairment (particularly investment securities and goodwill) and tax matters, are highly complex and involve many subjective assumptions, estimates and judgments. Changes in these rules or their interpretation or changes in underlying assumptions, estimates, or judgments could significantly change our reported or expected financial performance or financial condition. See Note 1 of the Consolidated Financial Statements for the discussion on accounting policies.

          ProAssurance is primarily a holding company of insurance subsidiaries and is required to comply with statutory accounting principles (SAP). SAP and its components are subject to review by the National Association of Insurance Commissioners (NAIC) and state insurance departments. The NAIC Accounting Practices and Procedures manual provides that a state insurance department may allow insurance companies that are domiciled in that state to depart from SAP by granting them permitted non-SAP accounting practices. This permission may allow for more favorable treatment to competitors. We cannot predict whether or how reforms will be enacted, or whether the enacted reforms will have a positive or negative effect. We can also give no assurance that future changes to SAP or its components or the grant of permitted non-SAP accounting practices to our competitors will not negatively affect our financial results or operations. See the Insurance Regulatory Matters section in Item 1 for the full discussion on regulatory matters.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

          None.

ITEM 2. PROPERTIES.

          We own five office buildings, all of which are unencumbered. In Birmingham, Alabama we own a 165,000 square foot building in which we currently occupy approximately 82,000 square feet and in Franklin, Tennessee we own a 103,000 square foot building in which we currently occupy 51,000 square feet; the remaining office space in these buildings is leased to unaffiliated persons or available for lease. In Okemos, Michigan we own, and fully occupy a 53,000 square foot building and in Madison, Wisconsin we own and fully occupy a 38,000 square foot building. In Brentwood, Tennessee we own a 25,000 square foot building all of which is either leased to unaffiliated persons or is available for lease and is held for sale.

ITEM 3. LEGAL PROCEEDINGS.

          Our insurance subsidiaries are involved in various legal actions, a substantial number of which arise from claims made under insurance policies. While the outcome of all legal actions is not presently determinable, management and its legal counsel are of the opinion that these actions will not have a material adverse effect on our financial position or results of operations. See Note 9 to the Consolidated Financial Statements included herein.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

          Not applicable.

EXECUTIVE OFFICERS OF PROASSURANCE CORPORATION

          The executive officers of ProAssurance Corporation (ProAssurance) serve at the pleasure of the Board of Directors. We have a knowledgeable and experienced management team with established track records in building and managing successful insurance operations. In total, our senior management team has average experience in the insurance industry of 19 years. Following is a brief description of each executive officer of ProAssurance, including their principal occupation, and relevant background with ProAssurance and former employers.

W. Stancil Starnes		Mr. Starnes was appointed as Chief Executive Officer of ProAssurance effective July 2, 2007 and has served as the Chairman of the Board since October 2008. Mr. Starnes served as President, Corporate Planning and Administration, of Brasfield & Gorrie, LLC, a large commercial construction firm from October 2006 to May 2007. Prior to October 2006, Mr. Starnes served as the Senior and Managing Partner of Starnes & Atchison, LLP, Attorneys at Law, and was extensively involved with ProAssurance and its predecessor companies in the defense of its medical liability claims. (Age 61)
Victor T. Adamo		Mr. Adamo has been the President of ProAssurance since its inception. Mr. Adamo joined the predecessor to Professionals Group in 1985 as general counsel and was elected as Professionals Group CEO in 1987. From 1975 to 1985, Mr. Adamo was in private legal practice and represented the predecessor to Professionals Group. Mr. Adamo is a Chartered Property Casualty Underwriter. (Age 61)
Howard H. Friedman		Mr. Friedman is a Co-President of our Professional Liability Group, a position he has held since October 2005, and is also our Chief Underwriting Officer. Mr. Friedman has served in a number of positions for ProAssurance, most recently as Chief Financial Officer and Corporate Secretary. He was also the Senior Vice President, Corporate Development of Medical Assurance. Mr. Friedman is an Associate of the Casualty Actuarial Society. (Age 51)
Jeffrey P. Lisenby		Mr. Lisenby was appointed as a Senior Vice President in December 2007 and has served as our Corporate Secretary since January 1, 2006. Mr. Lisenby has served as Vice President and head of the corporate Legal Department since 2001. Mr. Lisenby also previously practiced law privately in Birmingham, Alabama and served as a judicial clerk for the United States District Court for the Northern District of Alabama. Mr. Lisenby is a member of the Alabama State Bar and the United States Supreme Court Bar and is a Chartered Property Casualty Underwriter. (Age 41)
Frank B. O’Neil		Mr. O’Neil was appointed as our Senior Vice President of Corporate Communications and Investor Relations in September 2001. Mr. O’Neil first joined our predecessor in 1987 and has been our Senior Vice President of Corporate Communications since 1997. (Age 56)

Edward L. Rand, Jr.		Mr. Rand was appointed Chief Financial Officer on April 1, 2005, having joined ProAssurance as our Senior Vice President of Finance in November 2004. Prior to joining ProAssurance Mr. Rand was the Chief Accounting Officer and Head of Corporate Finance for PartnerRe Ltd. Prior to that time Mr. Rand served as the Chief Financial Officer of Atlantic American Corporation. Mr. Rand is a Certified Public Accountant. (Age 43)
Darryl K. Thomas		Mr. Thomas has been with ProAssurance since its inception and currently serves as a Co-President of our Professional Liability Group, a position he has held since October 2005, and as our Chief Claims Officer. Previously, Mr. Thomas was Senior Vice President of Claims for Professionals Group. Prior to joining the predecessor to Professionals Group in 1995, Mr. Thomas was Executive Vice President of a national third-party administrator of professional liability claims. Mr. Thomas was also Vice President and Litigation Counsel for the Kentucky Hospital Association. (Age 52)

          We have adopted a code of ethics that applies to our directors and executive officers, including our principal executive officers, principal financial officer, and principal accounting officer. We also have share ownership guidelines in place to ensure that management maintains a significant portion of their personal investments in the stock of ProAssurance. See Item 1 for information regarding the availability of the Code of Ethics and the Share ownership Guidelines.

PART II

ITEM 5.		MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

          At February 15, 2010, ProAssurance Corporation (PRA) had 3,779 stockholders of record and 32,411,990 shares of common stock outstanding. ProAssurance’s common stock currently trades on The New York Stock Exchange (NYSE) under the symbol “PRA”.

		2009								2008
Quarter		High				Low				High				Low
First		$	51.34			$	40.66			$	58.65			$	49.90
Second			51.35				43.17				55.19				48.11
Third			53.62				44.80				64.85				45.61
Fourth			54.95				49.84				55.07				41.78

          ProAssurance has not paid any cash dividends on its common stock and does not currently have a policy to pay regular dividends.

          ProAssurance’s insurance subsidiaries are subject to restrictions on the payment of dividends to the parent. Information regarding restrictions on the ability of the insurance subsidiaries to pay dividends is incorporated by reference from the paragraphs under the caption “Insurance Regulatory Matters–Regulation of Dividends and Other Payments from Our Operating Subsidiaries” in Item 1 on page 13 of this 10-K.

Securities Authorized for Issuance Under Equity Compensation Plans

          The following table provides information regarding ProAssurance’s equity compensation plans as of December 31, 2009.

Number of securities to be

Weighted-average

Number of securities remaining

issued upon exercise of

exercise price of

available for future issuance under

outstanding options,

outstanding options,

equity compensation plans (excluding

Plan Category

warrants and rights

warrants and rights

securities reflected in column (a))

(a)

(b)

(c)

Equity compensation plans approved by security holders

1,176,308

$

42.66

*

1,820,096

Equity compensation plans not approved by security holders

—

—

—

Issuer Purchases of Equity Securities

          The following table provides information regarding ProAssurance’s shares purchased as part of publicly announced plans or programs.

										Total Number of Shares
		Total Number				Average				Purchased as Part of Publicly				Approximate Dollar Value of Shares
		of Shares				Price Paid				Announced Plans or				that May Yet Be Purchased Under
Period		Purchased				per Share				Programs				the Plans or Programs(1)
January 1-31, 2009			—				—				—			$	74,409,144
February 1-28, 2009			—				—				—			$	74,409,144
March 1-31, 2009			443,450			$	42.04				443,450			$	55,767,577
April 1-30, 2009			—				—				—			$	55,767,577
May 1-31, 2009			—				—				—			$	55,767,577
June 1-30, 2009			396,823			$	43.93				396,823			$	38,336,077
July 1-31, 2009			—				—				—			$	38,336,077
August 1-31, 2009			—				—				—			$	38,336,077
September 1-30, 2009			40,500			$	51.12				40,500			$	129,265,865
October 1-31, 2009			249,500			$	51.90				249,500			$	116,316,002
November 1-30, 2009			18,300			$	52.01				18,300			$	115,364,171
December 1-31, 2009			—				—				—			$	115,364,171
Total			1,148,573			$	45.31				1,148,573

ITEM 6. SELECTED FINANCIAL DATA

		Year Ended December 31
		2009				2008				2007				2006				2005
						(In thousands except per share data)
Selected Financial Data (1)
Gross premiums written (2)		$	553,922			$	471,482			$	549,074			$	578,983			$	572,960
Net premiums written (2)			514,043				429,007				506,397				543,376				521,343
Premiums earned (2)			540,012				503,579				585,310				627,166				596,557
Premiums ceded (2)			(42,469	)			(44,301	)			(51,797	)			(44,099	)			(53,316	)
Net premiums earned (2)			497,543				459,278				533,513				583,067				543,241
Net investment income (2)			150,945				158,384				171,308				147,450				98,293
Equity in earnings (loss) of unconsolidated subsidiaries (2)			1,438				(7,997	)			1,630				2,339				900
Net realized investment gains (losses) (2)			12,792				(50,913	)			(5,939	)			(1,199	)			912
Other revenues			9,965				8,410				5,556				5,941				4,604
Total revenues (2)			672,683				567,162				706,068				737,598				647,950
Net losses and loss adjustment expenses (2)			231,068				211,499				350,997				443,329				438,201
Income (loss) from continuing operations (3)			222,026				177,725				168,186				126,984				80,026
Net income (3)		$	222,026			$	177,725			$	168,186			$	236,425			$	113,457
Income (loss) from continuing operations per share:
Basic		$	6.76			$	5.43			$	5.10			$	3.96			$	2.66
Diluted		$	6.70			$	5.22			$	4.78			$	3.72			$	2.52
Net income per share:
Basic		$	6.76			$	5.43			$	5.10			$	7.38			$	3.77
Diluted		$	6.70			$	5.22			$	4.78			$	6.85			$	3.54
Weighted average shares outstanding:
Basic			32,848				32,750				32,960				32,044				30,049
Diluted			33,150				34,362				35,823				34,925				32,908
Balance Sheet Data (as of December 31)
Total investments (2)		$	3,838,222			$	3,575,942			$	3,639,395			$	3,492,098			$	2,614,319
Total assets from continuing operations			4,647,414				4,280,938				4,440,808				4,342,853				3,341,600
Total assets			4,647,414				4,280,938				4,440,808				4,342,853				3,909,379
Reserve for losses and loss adjustment expenses (2)			2,422,230				2,379,468				2,559,707				2,607,148				2,224,436
Long-term debt (2)			50,203				34,930				164,158				179,177				167,240
Total liabilities from continuing operations			2,942,819				2,857,353				3,185,738				3,224,306				2,806,820
Total capital		$	1,704,595			$	1,423,585			$	1,255,070			$	1,118,547			$	765,046
Total capital per share of common stock outstanding		$	52.59			$	42.69			$	38.69			$	33.61			$	24.59
Common stock outstanding at end of year			32,412				33,346				32,443				33,276				31,109

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

          The following discussion should be read in conjunction with Consolidated Financial Statements and Notes to those statements which accompany this report. A glossary of insurance terms and phrases is available on the investor section of our website. Throughout the discussion, references to ProAssurance, “PRA,” “we,” “us” and “our” refer to ProAssurance Corporation and its consolidated subsidiaries. The discussion contains certain forward-looking information that involves risks and uncertainties. As discussed under “Forward-Looking Statements,” our actual financial condition and operating results could differ significantly from these forward-looking statements.

Critical Accounting Estimates

          Our Consolidated Financial Statements are prepared in conformity with U.S. generally accepted accounting principles (GAAP). Preparation of these financial statements requires us to make estimates and assumptions that affect the amounts we report on those statements. We evaluate these estimates and assumptions on an ongoing basis based on current and historical developments, market conditions, industry trends and other information that we believe to be reasonable under the circumstances. There can be no assurance that actual results will conform to our estimates and assumptions; reported results of operations may be materially affected by changes in these estimates and assumptions.

          Management considers the following accounting estimates to be critical because they involve significant judgment by management and the effect of those judgments could result in a material effect on our financial statements.

Reserve for Losses and Loss Adjustment Expenses (reserve for losses or reserve)

          The largest component of our liabilities is our reserve for losses, and the largest component of expense for our operations is incurred losses. Incurred losses in any period reflect our estimate of losses incurred related to the premiums earned in that period as well as any changes to our estimates of the reserve established for losses of prior periods.

          The estimation of professional liability losses is inherently difficult. Loss costs, even for claims with similar characteristics, can vary significantly depending upon many factors, including but not limited to, the nature of the claim and the personal situation of the claimant or the claimant’s family, the outcome of jury trials, the legislative and judicial climate where the insured event occurred, general economic conditions and, for medical professional liability, the trend of health care costs. Professional liability claims are typically resolved over an extended period of time, often five years or more. The combination of changing conditions and the extended time required for claim resolution results in a loss cost estimation process that requires actuarial skill and the application of judgment, and such estimates require periodic revision. Our reserves are established by management after taking into consideration a variety of factors including premium rates, claims frequency, historical paid and incurred loss development trends, the effect of inflation, general economic trends, the legal and political environment, and the conclusions reached by our internal actuaries.

          Our internal actuaries perform an in-depth review of our reserve for losses on a semi-annual basis using the loss and exposure data of our insurance subsidiaries. In addition, we engage external actuaries to review our data and provide us with their observations regarding our data and the adequacy of our established reserve. We believe that use of external actuaries provides us with an independent viewpoint regarding our loss experience and a broader perspective on industry loss trends. We update and review the data underlying the estimation of our reserve for losses each reporting period and make adjustments to loss estimation assumptions that we believe best reflect emerging data. Any adjustments are reflected in the then-current operations. Due to the size of our reserve for losses, even a small percentage adjustment to these estimates could have a material effect on our results of operations for the period in which the adjustment is made.

          There is a significant risk that actual incurred losses will develop differently from our estimates. In establishing our initial reserves for a given accident year we rely significantly on the loss assumptions embedded within our pricing. Because of the historically volatile nature of professional liability losses, we establish the initial loss estimates at a level which is approximately 8 to 10% above our pricing assumptions. This difference recognizes the volatility of the professional liability loss environment and the risk in determining pricing parameters. As each accident year matures, we analyze reserves in a variety of ways and use multiple actuarial methodologies in performing these analyses, including:

	–		Bornhuetter-Ferguson (Paid and Reported) Method
	–		Paid Development Method
	–		Reported Development Method
	–		Average Paid Value Method
	–		Average Reported Value Method
	–		Backward Recursive Method

          The descriptions require some explanation as to how we and actuaries view our reserves and a brief description of each method follows. We segment our reserves by accident year, which is the year in which the claim becomes our liability. As claims are incurred (reported) and claim payments are made, they are aggregated by accident year for analysis purposes. We also segment our reserves by reserve type: case reserves and IBNR reserves. Case reserves are established by our claims department based upon the particular circumstances of each reported claim and represent our estimate of the future loss costs (often referred to as expected losses) that will be paid on reported claims. Case reserves are decremented as claim payments are made and are periodically adjusted upward or downward as claim department estimates regarding the amount of future losses are revised; reported loss is the case reserve at any point in time plus the claim payments that have been made to date. IBNR reserves represent our estimate of losses that have been incurred but not reported to us, and future developments on losses that have been reported to us.

          Bornhuetter-Ferguson Method. We use both the Paid and the Reported Bornhuetter-Ferguson methods. The Paid method assigns partial weight to initial expected losses for each accident year (initial expected losses being the first established case and IBNR reserves for a specific accident year) and partial weight to paid to-date losses. The Reported method assigns partial weight to the initial expected losses and partial weight to current reported losses. The weights assigned to the initial expected losses decrease as the accident year matures.

          Paid Development and Reported Development Method. These methods use historical, cumulative losses (paid losses for the Paid Development Method, reported losses for the Reported Development Method) by accident year and develops those actual losses to estimated ultimate losses based upon the assumption that each accident year will develop to estimated ultimate cost in a manner that is analogous to prior years, adjusted as deemed appropriate for the expected effects of known changes in the claim payment environment (and case reserving environment for the Reported Development Method), and, to the extent necessary, supplemented by analyses of the development of broader industry data.

          Average Paid Value and Average Reported Value Methods. In these methods, average claim cost data (paid claim cost for the Average Paid Value Method and reported claim cost for the Reported Value Method) is developed to an ultimate average cost level by report year based on historical data. Claim counts are similarly developed to an ultimate count level. The average claim cost (after rounding and adjustment, if necessary, to accommodate report year data that is not considered to be predictive) is then multiplied by the ultimate claim counts by report year to derive ultimate loss and ALAE.

          Backward Recursive Development Method. This method is an extrapolation on the movements in case reserve adequacy in order to estimate unpaid loss costs. Historical data showing incremental changes to case reserves over progressive time periods is used to derive factors that represent the ratio of case reserve values at successive maturities. Historical claim payments data showing the additional payments in progressive time periods is used to derive factors that represent the portion of a case reserve paid in the

following period. Starting from the most mature period, after which all the case reserve is paid and the case reserve is exhausted, the next prior ultimate development factor for the prior case reserve can be calculated as the case factor times the established ultimate development factor plus the paid factor. For each successive prior maturity, the ultimate development factor is calculated similarly. The result of multiplying the ultimate development factor times the case reserve is the total indicated unpaid amount.

          Generally, methods such as the Bornhuetter-Ferguson method are used on more recent accident years where we have less data on which to base our analysis. As time progresses and we have an increased amount of data for a given accident year, we begin to give more confidence to the development and average methods, as these methods typically rely more heavily on our own historical data. Each of these methods treats our assumptions differently, and thus provides a different perspective for our reserve review.

          The various actuarial methods discussed above are applied in a consistent manner from period to period. In addition, we perform statistical reviews of claims data such as claim counts, average settlement costs and severity trends.

          In performing these analyses we partition our business by coverage type, geography, layer of coverage and accident year. This procedure is intended to balance the use of the most representative data for each partition, capturing its unique patterns of development and trends. For each partition, the results of the various methods, along with the supplementary statistical data regarding such factors as the current economic environment, are used to develop a point estimate based upon management’s judgment and past experience. The process of selecting the point estimate from the set of possible outcomes produced by the various actuarial methods is based upon the judgment of management and is not driven by formulaic determination. For each partition of our business, we select a point estimate with due regard for the age, characteristics and volatility of the partition of the business, the volume of data available for review and past experience with respect to the accuracy of estimates. This series of selected point estimates is then combined to produce an overall point estimate for ultimate losses.

          We have modeled implied reserve ranges around our single point reserve estimates for our professional liability business assuming different confidence levels. The ranges have been developed by aggregating the expected volatility of losses across partitions of our business to obtain a consolidated distribution of potential reserve outcomes. The aggregation of this data takes into consideration the correlation among our geographic and specialty mix of business. The result of the correlation approach to aggregation is that the ranges are narrower than the sum of the ranges determined for each partition.

          We have used this modeled statistical distribution to calculate an 80% and 60% confidence interval for the potential outcome of our net reserve for losses. The high and low end points of the distributions are as follows:

		Low End Point		Carried Net Reserve		High End Point
80% Confidence Level		$1.656 billion		$2.160 billion		$2.725 billion
60% Confidence Level		$1.801 billion		$2.160 billion		$2.494 billion

          The claims environment in which we and others in our industry operate is inherently uncertain. The development of a statistical distribution models the uncertainty as well as the limited predictive power of past loss data. The distributions represent an estimate of the range of possible outcomes and should not be confused with a range of best estimates. Given the number of factors considered, it is neither practical nor meaningful to isolate a particular assumption or parameter of the process and calculate the impact of changing that single item.

          The following table presents additional information about net favorable loss development:

		(In thousands)
		2009				2008				2007
Net favorable loss development recognized		$	207,300			$	185,251			$	104,985
Loss development as % of beginning of year loss reserves			8.7	%			7.2	%			4.0	%

          Any change in our estimate of losses is reflected in then-current operations. Due to the size of our reserve for losses, even a small percentage adjustment to these estimates could have a material effect on our results of operations for the period in which the adjustment is made, as has been the case in 2009, 2008 and 2007.

Reinsurance

          We use insurance and reinsurance (collectively, “reinsurance”) to provide capacity to write larger limits of liability, to provide protection against losses in excess of policy limits, and to stabilize underwriting results in years in which higher losses occur. The purchase of reinsurance does not relieve us from the ultimate risk on our policies, but it does provide reimbursement for certain losses we pay.

          We evaluate each of our ceded reinsurance contracts at inception to determine if there is sufficient risk transfer to allow the contract to be accounted for as reinsurance under current accounting guidance. At December 31, 2009 all ceded contracts are accounted for as risk transferring contracts.

          Our receivable from reinsurers on unpaid losses and loss adjustment expenses represents our estimate of the amount of our reserve for losses that will be recoverable under our reinsurance programs. We base our estimate of funds recoverable upon our expectation of ultimate losses and the portion of those losses that we estimate to be allocable to reinsurers based upon the terms of our reinsurance agreements. Our assessment of the collectability of the recorded amounts receivable from reinsurers considers the payment history of the reinsurer, publicly available financial and rating agency data, our interpretation of the underlying contracts and policies, and responses by reinsurers. Appropriate reserves are established for any balances we believe may not be collected.

          Given the uncertainty of the ultimate amounts of our losses, our estimates of losses and related amounts recoverable may vary significantly from the eventual outcome. Also, we estimate premiums ceded under reinsurance agreements wherein the premium due to the reinsurer, subject to certain maximums and minimums, is based in part on losses reimbursed or to be reimbursed under the agreement. Any adjustments are reflected in then-current operations. Due to the size of our reinsurance balances, an adjustment to these estimates could have a material effect on our results of operations for the period in which the adjustment is made.

Investment Valuations

          We have engaged an independent pricing service to provide us with the fair value for approximately 95% of our investments, principally equity securities and fixed income securities. 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. The pricing service has a larger and more experienced staff than ours, has access to large quantities of data that would be difficult and expensive for us to acquire, and many years of valuation experience.

          We determine fair value using an exchange traded price if one is available. As of December 31, 2009 we valued approximately 6% of our investments at fair value using an exchange traded price. There is little judgment involved when fair value is determined using an exchange traded price. In accordance with GAAP, for disclosure purposes we classify securities valued using an exchange traded price as Level 1 securities.

          Approximately 89% of our investments, principally our fixed income securities, are valued at fair value using available market information. Excluding government bonds, most fixed income securities do not trade daily and thus exchange traded prices are generally not available for these securities. However, market information, (such as last reported trade, non-binding broker quotes, bids, benchmark yield curves, issuer spreads, two sided markets, benchmark securities, offers, and recent data regarding assumed prepayment speeds, cash flow and loan performance data) often referred to as observable inputs, is available for most of our fixed income securities. The pricing service provides us a price that has been determined using pricing models when multiple observable inputs are available but an exchange traded price is not. Pricing models vary by asset class and utilize the available market data for securities considered comparable to establish a price for our security. The pricing service discloses the inputs used for each asset class that it prices and states that all market inputs used are scrutinized for consistency with other relevant market information before being included in the valuation computation. Determining fair values using these pricing models requires the use of judgment to identify appropriate comparable securities and to choose valuation methodology that is appropriate for the asset class and available data. In accordance with GAAP, for disclosure purposes we classify securities valued using multiple market observable inputs as Level 2 securities.

          The pricing service provides a single price per instrument quoted. We review the pricing for reasonableness each quarter by comparing market yields generated by the supplied price versus market yields observed in the market place. If a supplied price is deemed unreasonable, we will discuss the provided valuation with the pricing service and would make adjustments if deemed necessary. To date, we have not adjusted any prices supplied by the pricing service.

          The pricing service provides a fair value only when an exchange traded price is available or when suitable multiple market observable inputs for a security can be identified. We hold certain non public investments which are not valued by the pricing service and certain other securities which are valued by the pricing service in some periods, but not others, depending upon the level of recent market activity for the securities or comparable securities. If the pricing service does not provide a price, Management estimates fair value using either a single non-binding broker quote or pricing models that utilize market based assumptions which have limited observable inputs. The process involves significant judgment in selecting the appropriate data and modeling techniques to use in the valuation process. We fair value 2% of our investments in this manner. In accordance with GAAP, for disclosure purposes we classify securities that are valued using limited observable inputs as Level 3 securities.

          We also hold interests in private investment funds (non-public investment partnerships and limited liability companies) which are accounted for under the cost method and some of which are accounted for under the equity method, depending on our presumed degree of influence over the operating and financial policies of the fund. We value our interests in the entities accounted for under the equity method based on quarterly net asset values provided to us by fund managers. Interests accounted for using the equity method total $48.5 million at December 31, 2009. Interests accounted for using the cost method total $36.3 million at December 31, 2009.

Investment Impairments

          We evaluate all our investments on at least a quarterly basis for declines in fair value that represent other-than-temporary impairments (OTTI). In all instances we consider an impairment to be an other-than-temporary impairment if we intend to sell the security or if we believe we will be required to sell the security before we fully recover the amortized cost basis of the security. Otherwise, we consider various factors in our evaluation, depending upon the type of security, as discussed below.

          For equity securities, we consider the following:

	–		the length of time for which the fair value of the investment has been less than its recorded basis;
	–		the financial condition and near-term prospects of the issuer underlying the investment, taking into consideration the economic prospects of the issuer’s industry and geographical region, to the extent that information is publicly available;
	–		the historical and implied volatility of the fair value of the security;
	–		our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in fair value.

          For debt securities, we consider the following:

–

whether or not we expect to fully recover the amortized cost basis of the security, based upon consideration of some or all of the following:

	–		third party research and credit rating reports;
	–		the current credit standing of the issuer, including credit rating downgrades
	–		extent to which the decline in fair value is attributable to credit risk specifically associated with an investment or its issuer;
	–		our internal assessments and those of our external portfolio managers regarding specific circumstances surrounding an investment, which can cause us to believe the investment is more or less likely to recover its value than other investments with a similar structure;
	–		for asset-backed securities, the origination date of the underlying loans, the remaining average life, the probability that credit performance of the underlying loans will deteriorate in the future, and our assessment of the quality of the collateral underlying the loan;
	–		failure of the issuer of the security to make scheduled interest or principal payments;
	–		any changes to the rating of the security by a rating agency;
	–		recoveries or additional declines in fair value subsequent to the balance sheet date; and
	–		our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in fair value.

          In assessing whether we expect to recover the cost basis of debt securities, particularly asset-backed securities, we must make a number of assumptions regarding matters that will affect the cash flows that we expect to receive from the security in future periods. These judgments are subjective in nature and may subsequently be proved to be inaccurate.

          We evaluate our investments in private investment funds for OTTI by considering whether there has been a decline in fair value below the recorded value. We receive reports from the funds at least quarterly which provide us a net asset value (NAV) for our interest in the fund. The NAV is based on the fair values of securities held by the fund as determined by the fund manager. Determining whether there has been a decline in fair value involves assumptions and estimates. We consider the most recent NAV provided, the performance of the fund relative to the market, the stated objectives of the fund, and cash flows expected from the fund and audit results in considering whether an OTTI exists.

          We also evaluate our holdings of Federal Home Loan Bank (FHLB) securities for impairment. We consider the current capital status of the FHLB, whether the FHLB is in compliance with regulatory minimum capital requirements, and the reported operating results of the current period.

Deferred Policy Acquisition Costs

          Policy acquisition costs (primarily commissions, premium taxes and underwriting salaries) which are directly related to the acquisition of new and renewal premiums, are capitalized as deferred policy acquisition costs and charged to expense as the related premium revenue is recognized. We evaluate the recoverability of our deferred policy acquisition costs each reporting period, and any amounts estimated to be unrecoverable are charged to expense in the current period.

Deferred Taxes

          Deferred federal income taxes arise from the recognition of temporary differences between the basis of assets and liabilities determined for financial reporting purposes and the basis determined for income tax purposes. Our temporary differences principally relate to loss reserves, unearned premiums, deferred policy acquisition costs, unrealized investment gains (losses) and investment impairments. Deferred tax assets and liabilities are measured using the enacted tax rates expected to be in effect when such benefits are realized. We review our deferred tax assets quarterly for impairment. If we determine that it is more likely than not that some or all of a deferred tax asset will not be realized, a valuation allowance is recorded to reduce the carrying value of the asset. In assessing the need for a valuation allowance, management is required to make certain judgments and assumptions about our future operations based on historical experience and information as of the measurement period regarding reversal of existing temporary differences, carryback capacity, future taxable income (including its capital and operating characteristics) and tax planning strategies.

Goodwill

          We make at least an annual assessment as to whether the value of our goodwill asset is impaired. Management evaluates the carrying value of goodwill annually during the fourth quarter and before the annual evaluation if events occur or circumstances change that would more likely than not reduce the fair value below the carrying value. We operate in a single operating segment. Our segment components are economically similar, and we consider ProAssurance to be one reporting unit for the purposes of evaluating goodwill. We estimate the fair value of our reporting unit on the evaluation date based on ProAssurance’s market capitalization and an expected premium that would be paid to acquire control of the company (a control premium). We then perform a sensitivity analysis using a range of historical stock prices and control premiums. We concluded in 2009, 2008, and 2007 that the fair value of our reporting unit exceeded the carrying value and no adjustment to impair goodwill was necessary.

ProAssurance Overview

          We are an insurance holding company and our operating results are primarily derived from the operations of our insurance subsidiaries, which principally write medical and other professional liability insurance.

Corporate Strategy

          Our mission is to be the preferred source of professional liability protection by providing unparalleled claims defense, highly responsive customer service and innovative risk management while maintaining our commitment to long-term financial strength. According to A.M. Best’s analysis of 2008 data, we are the largest publicly traded medical professional liability specialist insurance writer in the nation. We believe our customer focus combined with our financial strength, strong reputation and proven ability to manage claims, will enable us, over the long-term, to profitably expand our operations. We have successfully acquired and integrated companies and books of business in the past and believe our financial size and strength make us an attractive acquirer. We emphasize disciplined underwriting and do not manage our business to achieve a certain level of premium growth or market share. In addition to

prudent risk selection and pricing, we seek to control our underwriting results through effective claims management, and have fostered a strong culture of defending claims that we believe have no merit. We manage claims by tailoring claims handling to the legal climate of each state, which we believe differentiates us from other national writers.

          Through our market-based underwriting and claims office structure, we are able to gain a strong understanding of local market conditions and efficiently adapt our underwriting and claims strategies to regional conditions. Our market-based focus allows us to maintain active relationships with our customers and be more responsive to their needs. We understand the importance of the professional identity and reputation of our insureds. An important part of our strategy is to emphasize the needs of our insureds throughout our operations. We attempt to further our understanding of those needs through the use of advisory boards and operational committees that ensure we understand the challenges facing our insureds and ways we may best assist them. We also believe that it is important to employ medical and legal professionals throughout our organization, especially on our senior management team. We emphasize our pledge that each insured professional will be treated fairly in all of our conduct with them and that all of our business actions will be informed by the core values that guide our organization: integrity, respect, doctor involvement, collaboration, communication and enthusiasm. We believe our strategy allows us to compete on a basis other than price alone. We also believe that our local market knowledge allows us to monitor and understand changes in the liability climate and thus develop better business strategies in a timely manner.

          We have sustained our financial stability during difficult market conditions through responsible pricing and loss reserving practices and through conservative investment practices. We are committed to maintaining prudent operating and financial leverage and conservatively investing our assets. We recognize the importance that our customers and producers place on the financial strength of our principal insurance subsidiaries and we manage our business to protect our financial security.

          We measure performance in a number of ways, but particularly focus on our combined ratio and investment returns, both of which directly affect our return on equity (ROE). We target a long-term average ROE of 12% to 14%.

          We believe that a focus on rate adequacy, selective underwriting and effective claims management is required if we are to achieve our ROE targets. We closely monitor premium revenues, losses and loss adjustment costs, and acquisition, underwriting and insurance expenses. Our overall investment strategy is to focus on maximizing current income from our investment portfolio while maintaining safety, liquidity, duration and portfolio diversification. We engage in activities that generate other income; however, such activities, principally fee and agency services, do not constitute a significant use of our resources or a significant source of revenues or profits.

Growth Opportunities and Outlook

          We expect our long-term growth to come through controlled expansion of our existing operations. We also look to expand through the acquisition of other specialty insurance companies or books of business; however, such expansion is often opportunistic and cannot be predicted. We continue to review our distribution channels and will make adjustments as market opportunities change.

          We continue to face price-based competition in virtually all of our markets. Some competitors offer coverage at rates we believe do not allow for an acceptable return for the risk being accepted. One competitive trend emerging with greater frequency is hospitals purchasing physician practices. In response to this trend, we have recently introduced a new product designed to provide greater risk sharing options to hospitals and large physician groups. Another continuing competitive trend is physicians and hospitals seeking to lower their costs through the use of alternative risk transfer approaches such as self insurance and risk sharing pools. These alternatives become less attractive as prices soften in the traditional insurance markets. Our focus on basic fundamentals is providing opportunities in a variety of markets. In 2009, we strengthened our agency distribution system and improved work flows related to

new business submissions. These process improvements allowed us to review additional risks, increasing our overall new business writings despite continued price and coverage competition.

          As a result of our branding campaign, “Treated Fairly”, and improvements in loss cost trends that have allowed us to reduce rates in certain markets, we were able to grow our organic physician count in 2009 which partially offset the effects of lower rates. We believe our emphasis on fair treatment of our insureds and other important stakeholders enhanced our market position and differentiation. We will continue to use “Treated Fairly” in all of our activities, and we believe that as we reach more customers with this message we will continue to improve retention and add new insureds, both of which will help offset the effects of lower rates.

          Our integration of our three acquisitions in 2009 provides opportunity for continued market leadership in the podiatry line and expands the markets for allied health and legal professional liability. The entities now provide for licensure and opportunistic expansion within all states. With each of the acquired entities we began to cross sell and identify new opportunities for all ProAssurance entities. We continue to see new opportunities from each of the acquisitions and believe each will provide organic growth through expansion in their existing markets and relationships.

Accounting Changes Adopted

Consolidation-Accounting and Reporting for Decreases in Ownership of a Subsidiary

          Effective for interim and annual reporting periods ending on or after December 15, 2009, the FASB issued clarification on the scope of the guidance regarding decreases in ownership of consolidated entities. The guidance also expands disclosure requirements about deconsolidation of a subsidiary or derecognition of a group of assets. We adopted the revised guidance as of the quarter ended December 31, 2009; adoption had no effect on our results of operations or financial position.

Distributions to Shareholders with Components of Stock and Cash

          Effective for interim and annual periods ending on or after December 15, 2009, the FASB revised GAAP guidance that clarifies the proper accounting treatment for distributions to shareholders that include both stock and cash. We adopted the revised guidance as of the quarter ended December 31, 2009; adoption had no effect on our results of operations or financial position.

Fair Value Measurements-Investments in Certain Entities that Calculate Net Asset Value per Share (or its Equivalent)

          Effective for interim and annual periods ending after December 15, 2009, the FASB revised GAAP guidance to permit a reporting entity to measure the fair value of certain investments on the basis of the net asset value per share of the investment (or its equivalent). The revised guidance also requires new disclosures, by major category of investments, regarding investments measured on the basis of net asset value. We adopted the revised guidance as of the quarter ended December 31, 2009; adoption had no effect on our results of operations or financial position.

Fair Value-Liabilities

          In August 2009, the FASB revised GAAP guidance regarding the valuation of liabilities at fair value; the guidance is effective for the first reporting period that begins after issuance of the guidance. The updated guidance clarifies that when a quoted price in an active market for an identical liability is not available, fair value should be determined using quoted prices for identical or similar liabilities traded as assets or using another valuation technique described in existing GAAP guidance for determining fair values. Such techniques include present value techniques, and techniques based on the amount that a reporting entity would pay on the measurement date to transfer or enter into an identical liability. We

adopted the revised guidance as of the quarter ended December 31, 2009; adoption had no effect on the valuation of our liabilities.

FASB Accounting Standards Codification

          Effective for interim and annual periods ending after September 15, 2009, the FASB published the FASB Accounting Standards Codification (the Codification) as the single source of authoritative nongovernmental GAAP. The Codification is not intended to change current GAAP, but rather to provide all the authoritative literature related to a particular topic in one place. Upon the effective date, all pre-existing accounting standard documents were superseded and accounting literature not included in the Codification became non-authoritative. We adopted use of the Codification as of the quarter ended September 30, 2009; adoption had no effect on our results of operations or financial position.

Subsequent Events

          Effective for interim and annual reporting periods ending on or after June 15, 2009, the FASB revised GAAP guidance to more clearly set forth the period after the balance sheet date during which management should evaluate events or transactions for potential recognition or disclosure in the financial statements, the circumstances under which events or transactions after the balance sheet date should be recognized and the disclosures that should be made regarding such events. We adopted the revised guidance as of the quarter ended June 30, 2009; adoption had no effect on our results of operations or financial position.

Fair Value

          Effective for interim and annual reporting periods ending on or after June 15, 2009, the FASB revised GAAP guidance regarding the valuation of assets or liabilities when the volume and level of market transactions for those assets or liabilities has significantly decreased. The revised guidance clarifies factors to be considered in determining whether there has been a significant decrease in market activity for an asset in relation to normal activity and provides additional guidance on when the use of multiple (or different) valuation techniques may be warranted and considerations for determining the weight that should be applied to the various techniques. The revisions also establish a requirement that conclusions about whether transactions are orderly be based on the weight of the evidence and require entities to disclose any changes to valuation techniques (and related inputs) that result from a conclusion that markets are not orderly and the effect of the change, if practicable. The revised guidance also expanded disclosure requirements regarding the fair value of financial instruments. We adopted the revised guidance as of the quarter ended June 30, 2009; adoption had no significant effect on our results of operations or financial position.

Investments—Disclosure Requirements; Other-than-temporary Impairments

          Effective for interim and annual reporting periods ending on or after June 15, 2009, the FASB revised GAAP to require expanded disclosures related to investments in debt and equity securities. Guidance regarding other-than-temporary impairments was also revised. Previous investment guidance required that an impairment of a debt security be considered as other-than-temporary unless management could assert both the intent and the ability to hold the impaired security until recovery of value. The revised impairment guidance specifies that an impairment be considered as other-than-temporary unless an entity can assert that it has no intent to sell the security and that it is not more likely than not that the entity will be required to sell the security before recovery of its anticipated amortized cost basis. The new guidance also establishes the concept of credit loss. Credit loss is defined as the difference between the present value of the cash flows expected to be collected from a debt security and the amortized cost basis of the security. The new guidance states that “in instances in which a determination is made that a credit loss exists but the entity does not intend to sell the debt security and it is not more likely than not that the

entity will be required to sell the debt security before the anticipated recovery of its remaining amortized cost basis” an impairment is to be separated into (a) the amount of the total impairment related to the credit loss and (b) the amount of total impairment related to all other factors. The credit loss component of the impairment is to be recognized in income of the current period. The non-credit component is to be recognized as a part of other comprehensive income. Transition provisions require a cumulative effect adjustment to reclassify the noncredit component of a previously recognized other-than-temporary impairment from retained earnings to accumulated other comprehensive income “if an entity does not intend to sell and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis”. We adopted the revised guidance as of the beginning of the quarter ended June 30, 2009. As of April 1, 2009, our debt securities included non-credit impairment losses previously recognized in earnings of approximately $5.4 million. In accordance with the transition provisions of the revised guidance, we reclassified these non-credit losses, net of tax, from retained earnings to accumulated comprehensive income as of April 1, 2009 (a $3.5 million increase to retained earnings; a $3.5 million decrease to accumulated other comprehensive income).

Convertible Debentures

          Effective January 1, 2009, the FASB revised GAAP guidance regarding the accounting for Convertible Debentures. The revised guidance requires issuers to account for convertible debt securities that allow for either mandatory or optional cash settlement (including partial cash settlement) by separating the liability and equity components in a manner that reflects the issuer’s nonconvertible debt borrowing rate at the time of issuance and requires recognition of additional (non-cash) interest expense in subsequent periods based on the nonconvertible rate. Additionally, when such debt instruments are repaid or converted, any consideration transferred at settlement is to be allocated between the extinguishment of the liability component and the reacquisition of the equity component. The revised guidance is applicable to the Convertible Debentures which we converted in July 2008. We adopted the revised guidance as of its effective date January 1, 2009; adoption had no effect on 2009 operating results because no convertible debt has been outstanding during 2009. The cumulative effect of adoption, which would be an increase to additional paid-in capital of $65,000 and an offsetting decrease to retained earnings of the same amount, has not been recorded because the effect is immaterial and would not change total stockholders’ equity.

Non-controlling Interests in Subsidiaries

          Effective for interim and annual reporting periods beginning on or after December 15, 2008, the FASB revised GAAP guidance to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. We adopted the revised guidance as of its effective date, January 1, 2009. Adoption did not have an effect on our results of operations or financial position.

Business Combinations

          Effective prospectively for business combinations with an acquisition date on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, the FASB revised GAAP guidance related to business combinations. The revised guidance retains the previous requirement that the acquisition method of accounting be used for all business combinations but provides new and additional guidance including: defining the acquirer in a transaction, the valuation of assets and liabilities when noncontrolling interests exist, the treatment of contingent consideration, the treatment of costs incurred to effect the acquisition, the treatment of reorganization costs, and the valuation of assets and liabilities when the purchase price is below the net fair value of assets acquired. We adopted the new guidance as of its effective date, January 1, 2009 and accounted for our acquisitions of Mid-Continent General Agency, Inc. (Mid-Continent), Georgia Lawyers Insurance Company (Georgia Lawyers) and

Podiatry Insurance Company of America (PICA) during the first and second quarters of 2009 in accordance with the revised guidance (see Note 3).

Trading Security Cash Flows

          Effective for fiscal years beginning after November 15, 2007 the FASB revised GAAP regarding cash flows from purchases, sales and maturities of trading securities. Under the new guidance, such cash flows are classified based on the nature and purpose for which the securities were acquired. Under prior guidance, cash flows from purchases, sales and maturities of trading securities were classified as operating cash flows. ProAssurance adopted this guidance as of January 1, 2008. Accordingly, ProAssurance’s statement of cash flows reflects trading security cash flows during 2007 based on the prior guidance, whereas cash flows during 2008 and 2009 are based on the revised guidance.

Accounting Changes Not Yet Adopted

Fair Value Measurements

          Effective for interim and annual reporting periods beginning after December 15, 2009 or December 15, 2010, as specified, the FASB revised GAAP guidance related to fair value measurement to require additional disclosures and to clarify certain existing disclosure requirements. The guidance is intended to improve the disclosures and increase transparency in financial reporting. Adoption of this guidance is not expected to have an effect on our results of operations or financial position.

Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance

          Effective for interim and annual reporting periods beginning on or after December 15, 2009 for outstanding arrangements and effective otherwise for reporting periods beginning on or after June 15, 2009, the FASB issued guidance related to share-lending arrangements for an entity’s own shares executed in contemplation of a convertible debt offering or other financing. Adoption of this guidance is not expected to have an effect on our results of operations or financial position. Early adoption is not permitted.

Consolidation of Variable Interest Entities

          Effective at the start of a reporting entity’s first fiscal year beginning after November 15, 2009, the FASB revised guidance which changes how a reporting entity determines whether or not to consolidate its interest in an entity that is insufficiently capitalized or is not controlled through voting (or similar) rights. The determination of whether a reporting entity is required to consolidate another entity will now be based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. The revised guidance also requires the reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. A reporting entity will be required to disclose how its involvement with a variable interest entity affects the reporting entity’s financial statements. Adoption of this guidance is not expected to have a significant effect on our results of operations or financial position. Early adoption is not permitted.

Transfers and Servicing-Accounting for Transfers of Financial Assets

          Effective at the start of a reporting entity’s first fiscal year beginning after November 15, 2009, the FASB revised guidance that requires additional disclosure regarding transfers of financial assets, including securitization transactions, where entities have continuing exposure to risks related to the transferred financial assets. Adoption of this guidance is not expected to have an effect on our results of operations or financial position. Early adoption is not permitted.

Revenue Recognition-Multiple Deliverable Revenue Arrangements

          Effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, the FASB issued guidance addressing the accounting for multiple-deliverable arrangements. The guidance eliminates the residual method of allocation and requires that arrangement consideration be allocated at inception using the relative selling price method. The guidance establishes a selling price hierarchy and also expands required disclosures related to a vendor’s multiple-deliverable revenue arrangements. Adoption of this guidance is not expected to have an effect on our results of operations or financial position.

Liquidity and Capital Resources and Financial Condition

Overview

          ProAssurance Corporation is a holding company and is a legal entity separate and distinct from its subsidiaries. Because it has no other business operations, dividends from its operating subsidiaries represent a significant source of funds for its obligations, including debt service. Our insurance subsidiaries, in aggregate, are permitted to pay dividends of approximately $204 million during 2010 without prior approval. However, the payment of any dividend requires prior notice to the insurance regulator in the state of domicile and the regulator may prevent the dividend if, in its judgment, payment of the dividend would have an adverse effect on the surplus of the insurance subsidiary. At December 31, 2009 we held cash and investments of approximately $211.4 million outside of our insurance subsidiaries that are available for use without regulatory approval.

Acquisitions

          In the first quarter of 2009 we acquired 100% of the outstanding shares of Mid-Continent and Georgia Lawyers as a means of expanding our professional liability business. These acquisitions were not material to ProAssurance individually or in the aggregate.

          On April 1, 2009 we acquired Podiatry Insurance Company of America and subsidiaries (PICA) through a cash sponsored demutualization as a means of expanding our professional liability insurance operations. PICA provides professional liability insurance primarily to podiatric physicians, chiropractors and other healthcare providers throughout the United States. We purchased all of PICA’s outstanding stock created in the demutualization for $135 million in cash, of which $15 million was a surplus contribution to be used to provide renewal premium credits to eligible policyholders over a three year period beginning in 2010.

          See Note 3 to the Consolidated Financial Statements for detailed information regarding the PICA transaction, including a summarized listing of the assets acquired and liabilities assumed.

Cash Flows

          The principal components of our operating cash flows are the excess of net investment income and premiums collected over net losses paid and operating costs, including income taxes. Timing delays exist between the collection of premiums and the payment of losses associated with the premiums. Premiums are generally collected within the twelve-month period after the policy is written while our claim payments are generally paid over a more extended period of time. Likewise, timing delays exist between the payment of claims and the collection of any associated reinsurance recoveries.

          Our operating activities provided positive cash flows of approximately $75.4 million and $167.9 million for the years ended December 31, 2009 and 2008, respectively. Operating cash flows for 2009 and 2008 compare as follows:

		(In millions)
		Cash Flow
		Increase (Decrease)
Cash provided by operating activities year ended December 31, 2008		$	168
Increase (decrease) in operating cash flows during 2009, exclusive of PICA:
Lower premium receipts (1)			(13	)
Lower investment receipts			(14	)
Increase in net premium payments to reinsurers			(7	)
Decrease in losses paid (2)			101
Decrease in reinsurance recoveries (3)			(77	)
2008 commutation receipts (no comparable receipts during 2009)			(27	)
Increase in Federal income tax payments (4)			(39	)
Payment of CHW judgment (5)			(21	)
Other amounts not individually significant, net			(11	)
PICA operating cash flows			15
Cash provided by operating activities year ended December 31, 2009		$	75

Investment Exposures

          The following table provides summarized information regarding our investments as of December 31, 2009:

		(In thousands)
						Gross				Gross
		Carrying				Unrealized				Unrealized				Average		% Total
		Value				Gains				Losses				Rating		Investments
Fixed Maturities
Government
U.S. Treasury		$	153,544			$	4,874			$	(1,267	)		AAA			4	%
U.S. Agency			67,026				2,371				(182	)		AAA			2	%
Total government			220,570				7,245				(1,449	)		AAA			6	%
State and Municipal Bonds			1,448,649				51,977				(3,621	)		AA			38	%
Corporate Bonds
Financial institutions			286,982				9,590				(1,797	)		A+			7	%
FDIC insured			76,907				818				(13	)		AAA			2	%
Communications			63,286				3,070				(221	)		BBB+			2	%
Utilities			80,192				3,493				(524	)		A			2	%
Energy			36,005				2,591				(178	)		BBB+			1	%
Industrial			491,411				18,191				(2,857	)		A			13	%
Transportation			17,655				624				(125	)		BBB+			0	%
Other			21,574				494				(40	)		A			1	%
Total corporate bonds			1,074,012				38,871				(5,755	)		A			28	%
Asset-backed Securities
Agency mortgage-backed securities			504,480				19,912				(368	)		AAA			13	%
Non-agency mortgage-backed securities			36,222				1,215				(2,961	)		BBB+			1	%
Subprime			7,231				—				(3,494	)		(1)			0	%
Alt-A			8,930				1,056				(4,184	)		(2)			0	%
Commercial mortgage-backed securities			92,567				1,074				(2,448	)		AAA			2	%
Credit card			34,045				1,247				(12	)		AAA			1	%
Automobile			6,605				89				—			AAA			0	%
Other			9,684				413				(164	)		AA			1	%
Total asset-backed securities			699,764				25,006				(13,631	)		AA+			18	%
Total fixed maturities			3,442,995				123,099				(24,456	)		AA+			90	%
Equities
Equity-common only
Financial			9,319				117				—						0	%
Energy			7,963				52				—						0	%
Consumer cyclical			3,647				92				(14	)					0	%
Consumer non-cyclical			9,527				206				(2	)					0	%
Technology			4,865				178				—						0	%
Industrial			4,158				311				—						0	%
Communications			4,197				24				—						0	%
All Other			3,729				48				(5	)					0	%
Total equities			47,405				1,028				(21	)					1	%
Short-Term			187,059				—				—						5	%
BOLI			65,003				—				—			AA-			2	%
Investment in Unconsolidated Subsidiaries
Private fund—primarily invested in high yield asset-backed securities(3)			29,930				—				—						1	%
Private fund—primarily invested in long/short equities			12,943				—				—						0	%
Private fund—primarily invested in non-public equities			5,629				—				—						0	%
Total investment in unconsolidated subsidiaries			48,502				—				—						1	%
Other Investments
High yield asset-backed securities, held in a private investment fund(4)			10,932				—				(8,485	)					0	%
Federal Home Loan Bank capital stock			5,190				—				—						0	%
Private fund—primarily invested in distressed debt			23,073				—				—						1	%
Private fund—primarily invested in long/short equities			6,010				—				—						0	%
Other			2,053				—				—						0	%
Total other investments			47,258				—				(8,485	)					1	%
Total Investments		$	3,838,222			$	124,127			$	(32,962	)					100	%

          A complete listing of our investment holdings as of December 31, 2009 is presented in an Investor Supplement we make available in the Investor Relations section of our website, www.proassurance.com or directly at www.proassurance.com/investorrelations/supplemental.aspx.

          We manage our investments to ensure that we will have sufficient liquidity to meet our obligations, taking into consideration the timing of cash flows from our investments, including interest payments, dividends and principal payments, as well as the expected cash flows to be generated by our operations. We anticipate that between $50 million and $80 million of our investments will mature (or be paid down) each quarter of the next year and become available, if needed, to meet our cash flow requirements. The primary outflow of cash at our insurance subsidiaries is related to net paid losses and operating costs, including income taxes. The payment of individual claims cannot be predicted with certainty; therefore, we rely upon the history of paid claims in estimating the timing of future claims payments. To the extent that we have an unanticipated shortfall in cash we may either liquidate securities or borrow funds under previously established borrowing arrangements. However, given the relatively short duration of our investments, we do not foresee any such shortfall.

          We held cash and short-term securities of $227.7 million at December 31, 2009 as compared to $445.5 million at December 31, 2008. We utilized $135 million in the PICA acquisition in April 2009. We also moved funds to longer-term investments during 2009 as credit markets stabilized.

          Our investment portfolio continues to be composed of high quality fixed income securities with approximately 97% of our fixed maturities being either United States government agency or investment grade securities as determined by national rating agencies. The weighted average effective duration of our fixed maturity securities at December 31, 2009 is 4.2 years; the weighted average effective duration of our fixed maturity securities combined with our short-term securities is 4.0 years. The securities acquired in the PICA transaction were, on average, longer in duration than the securities we already owned, which caused a small increase in the overall weighted average effective duration.

          At December 31, 2009 we held asset-backed securities with a fair value of $699.8 million (recorded cost basis of $688.4 million). During 2009, we recognized $3.2 million of losses on asset-backed securities primarily relating to mortgage-backed securities impacted by the deterioration of the housing market. In performing our OTTI assessment of mortgage-backed securities, management projects expected cash flows, making assumptions regarding expected default rates and the value of collateral available to recover losses. If estimated cash flows project a loss, an OTTI is realized for the difference between the book value and present value of the anticipated cash flows in accordance with generally accepted accounting principles. In some cases, the impairment loss is greater than the projected loss because market values are depressed as a result of market uncertainty and an aversion to risk by market participants. If we continue to hold these securities, and our estimates of projected loss prove over time to be accurate, the economic loss that we ultimately realize will be less than the impairment loss that has been recorded. Conversely, because our judgments about future default rates, the timing of expected cash flows and the estimated value of collateral may not prove over time to be accurate, we may experience losses on asset-backed securities that we are not currently projecting.

          We hold five positions in financial institution fixed maturity securities for which the position held has a fair value that exceeds $20 million. The aggregate fair value of these five positions totals $143.1 million ($140.2 million recorded cost basis), of which $51.2 million is FDIC backed.

          At December 31, 2009 we held fixed maturity securities with pretax net unrealized gains of approximately $99 million as compared to pretax net unrealized losses of $43 million as of December 31,

2008. The improvement is primarily due to a reduction in credit spreads, particularly with respect to state and municipal securities and corporate bonds, offset somewhat by the impact of slightly higher market interest rates. The fixed maturity securities acquired in the PICA transaction were valued at their fair value on the date of acquisition, April 1, 2009—see Notes 2 and 3—and overall have appreciated in value because of lower market interest rates at December 31, 2009.

Losses

          The following table, known as the Analysis of Reserve Development, presents information over the preceding ten years regarding the payment of our losses as well as changes to (the development of) our estimates of losses during that time period. Years prior to 2001 relate only to the reserves of ProAssurance’s predecessor, Medical Assurance. In years 2001 and thereafter the table reflects the reserves of ProAssurance, formed in 2001 in order to merge Medical Assurance and Professionals Group. PRA National reserves are included only in the year 2005 and thereafter. PRA Wisconsin reserves are included only in the year 2006 and thereafter. PICA and Georgia Lawyers reserves are included only in the year 2009.

          The table includes losses on both a direct and an assumed basis and is net of reinsurance recoverables. The gross liability for losses before reinsurance, as shown on the balance sheet, and the reconciliation of that gross liability to amounts net of reinsurance are reflected below the table. We do not discount our reserve for losses to present value. Information presented in the table is cumulative and, accordingly, each amount includes the effects of all changes in amounts for prior years. The table presents the development of our balance sheet reserve for losses; 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 is not appropriate to extrapolate future redundancies or deficiencies based on this table.

          The following may be helpful in understanding the Analysis of Reserve Development:

	—		The line entitled “Reserve for losses, undiscounted and net of reinsurance recoverables” reflects our reserve for losses and loss adjustment expense, less the receivables from reinsurers, each as reported in our consolidated financial statements 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.

Analysis of Reserve Development
(In thousands)

														December 31,
		1999				2000				2001				2002				2003				2004				2005				2006				2007				2008				2009
Reserve for losses, undiscounted and net of reinsurance recoverables		$	486,279			$	493,457			$	1,009,354			$	1,098,941			$	1,298,458			$	1,544,981			$	1,896,743			$	2,236,385			$	2,232,596			$	2,111,112			$	2,159,571
Cumulative net paid, as of:
One Year Later			133,832				143,892				245,743				224,318				200,314				199,617				242,608				331,295				312,348				278,655
Two Years Later			239,872				251,855				436,729				393,378				378,036				384,050				503,271				600,500				550,042
Three Years Later			313,993				321,957				563,557				528,774				526,867				578,455				697,349				787,347
Four Years Later			358,677				367,810				656,670				635,724				680,470				728,582				825,139
Five Years Later			387,040				402,035				726,661				749,300				794,870				805,270
Six Years Later			408,079				422,005				794,786				824,761				852,985
Seven Years Later			417,362				440,676				836,485				863,781
Eight Years Later			430,779				457,761				863,018
Nine Years Later			443,854				466,109
Ten Years Later			449,177
Re-estimated Net Liability as of:
End of Year			486,279				493,457				1,009,354				1,098,941				1,298,458				1,544,981				1,896,743				2,236,385				2,232,596				2,111,112
One Year Later			463,779				507,275				1,026,354				1,098,891				1,289,744				1,522,000				1,860,451				2,131,400				2,047,344				1,903,812
Two Years Later			469,934				529,698				1,023,582				1,099,292				1,282,920				1,479,773				1,764,076				1,955,903				1,829,140
Three Years Later			488,416				527,085				1,032,571				1,109,692				1,259,802				1,418,802				1,615,125				1,747,459
Four Years Later			487,366				534,382				1,035,832				1,108,539				1,250,110				1,340,061				1,450,275
Five Years Later			485,719				536,875				1,045,063				1,133,343				1,230,105				1,234,223
Six Years Later			489,187				535,120				1,052,050				1,121,440				1,156,614
Seven Years Later			490,200				531,995				1,040,376				1,079,640
Eight Years Later			490,575				524,837				1,015,217
Nine Years Later			487,380				520,981
Ten Years Later			487,935
Net cumulative redundancy (deficiency)		$	(1,656	)		$	(27,524	)		$	(5,863	)		$	19,301			$	141,844			$	310,758			$	446,468			$	488,926			$	403,456			$	207,300
Original gross liability — end of year		$	665,786			$	659,659			$	1,322,871			$	1,494,875			$	1,634,749			$	1,818,635			$	2,224,436			$	2,607,148			$	2,559,707			$	2,379,468
Less: reinsurance recoverables			(179,507	)			(166,202	)			(313,517	)			(395,934	)			(336,291	)			(273,654	)			(327,693	)			(370,763	)			(327,111	)			(268,356	)
Original net liability — end of year		$	486,279			$	493,457			$	1,009,354			$	1,098,941			$	1,298,458			$	1,544,981			$	1,896,743			$	2,236,385			$	2,232,596			$	2,111,112
Gross re-estimated liability — latest		$	589,435			$	607,163			$	1,245,507			$	1,381,076			$	1,467,949			$	1,538,627			$	1,821,354			$	2,186,313			$	2,176,881			$	2,170,605
Re-estimated reinsurance recoverables			(101,500	)			(86,182	)			(230,290	)			(301,436	)			(311,335	)			(304,404	)			(371,079	)			(438,854	)			(347,741	)			(266,793	)
Net re-estimated liability — latest		$	487,935			$	520,981			$	1,015,217			$	1,079,640			$	1,156,614			$	1,234,223			$	1,450,275			$	1,747,459			$	1,829,140			$	1,903,812
Gross cumulative redundancy (deficiency)		$	76,351			$	52,496			$	77,364			$	113,799			$	166,800			$	280,008			$	403,082			$	420,835			$	382,826			$	208,863