UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2008 or                     

o		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to                     

Commission file number 0-16533

ProAssurance Corporation

(Exact Name of Registrant as Specified in Its Charter)

Delaware		63-1261433
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)
100 Brookwood Place, Birmingham, AL		35209
(Address of Principal Executive Offices)		(Zip Code)

(205) 877-4400

if Changed Since Last Report)

     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 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

     As of August 1, 2008 there were 33,492,005 shares of the registrant’s common stock outstanding.

 

 

FORWARD-LOOKING STATEMENTS

     Any statements in this Form 10Q 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 10Q 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, 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 area, that are different than anticipated;
	–		regulatory, legislative and judicial actions or decisions that affect our business plans or operations;
	–		inflation, particularly in loss costs trends;
	–		changes in the interest rate environment;
	–		performance of financial markets affecting the fair value of our investments or making it difficult to determine the value of our investments;
	–		changes in laws or government regulations affecting medical professional liability insurance;
	–		changes to our ratings assigned by rating agencies;
	–		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 collectibility 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;
	–		changes in competition among insurance providers and related pricing weaknesses in our markets;
	–		loss of independent agents;
	–		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;
	–		the expected benefits from acquisitions may not be achieved or may be delayed longer than expected due to, among other reasons, business disruption, loss of customers and employees, increased operating costs or inability to achieve cost savings, and assumption of greater than expected liabilities;
	–		changes in accounting policies and practices that may be adopted by our regulatory agencies, the Financial Accounting Standards Board, or the Securities and Exchange Commission;
	–		changes in our organization, compensation and benefit plans; and
	–		our ability to retain and recruit senior management.

     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 our annual report on Form 10K 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.

ProAssurance Corporation and Subsidiaries
Condensed Consolidated Balance Sheets

		June 30				December 31
		2008				2007
(In thousands, except share data)		(Unaudited)
Assets
Investments
Fixed maturities available for sale, at fair value		$	3,172,913			$	3,236,739
Equity securities, available for sale, at fair value			16,056				15,451
Equity securities, trading, at fair value			16,054				14,173
Short-term investments			307,208				229,817
Business owned life insurance			62,689				61,509
Investment in unconsolidated subsidiaries			47,484				26,767
Other			52,008				54,939
Total Investments			3,674,412				3,639,395
Cash and cash equivalents			8,389				30,274
Premiums receivable			94,720				98,693
Receivable from reinsurers on unpaid losses and loss adjustment expenses			281,149				327,111
Prepaid reinsurance premiums			13,827				14,835
Deferred taxes			108,613				103,105
Real estate, net			23,962				24,004
Other assets			171,902				203,391
Total Assets		$	4,376,974			$	4,440,808
Liabilities and Stockholders’ Equity
Liabilities
Policy liabilities and accruals:
Reserve for losses and loss adjustment expenses		$	2,506,661			$	2,559,707
Unearned premiums			207,775				218,028
Reinsurance premiums payable			124,840				128,582
Total Policy Liabilities			2,839,276				2,906,317
Other liabilities			118,711				115,263
Long-term debt			164,380				164,158
Total Liabilities			3,122,367				3,185,738
Stockholders’ Equity
Common stock, par value $0.01 per share 100,000,000 shares authorized, 33,640,830 and 33,570,685 shares issued, respectively			337				336
Additional paid-in capital			514,173				505,923
Accumulated other comprehensive income (loss), net of deferred tax expense (benefit) of ($8,078) and $5,334, respectively			(15,006	)			9,902
Retained earnings			872,352				793,166
			1,371,856				1,309,327
Treasury stock, at cost, 2,362,013 shares and 1,128,111 shares, respectively			(117,249	)			(54,257	)
Total Stockholders’ Equity			1,254,607				1,255,070
Total Liabilities and Stockholders’ Equity		$	4,376,974			$	4,440,808

See accompanying notes

ProAssurance Corporation and Subsidiaries
Condensed Consolidated Statements of Changes in Capital (Unaudited)

						Accumulated
						Other							Other
						Comprehensive				Retained			Capital
(In thousands)		Total				Income (Loss)				Earnings			Accounts
Balance at December 31, 2007		$	1,255,070			$	9,902			$	793,166			$	452,002
Net income			79,186				—				79,186				—
Change in net unrealized gains (losses) on investments, after tax, net of reclassification adjustments			(24,908	)			(24,908	)			—				—
Purchase of treasury stock			(62,992	)			—				—				(62,992	)
Common shares issued as compensation			3,687				—				—				3,687
Share-based compensation			4,545				—				—				4,545
Net effect of stock options exercised			19				—				—				19
Balance at June 30, 2008		$	1,254,607				($15,006	)		$	872,352			$	397,261
						Accumulated
						Other							Other
						Comprehensive				Retained			Capital
(In thousands)		Total				Income (Loss)				Earnings			Accounts
Balance at December 31, 2006		$	1,118,547			$	111			$	622,310			$	496,126
Cumulative effect of accounting change			2,670				—				2,670				—
Net income			73,711				—				73,711				—
Change in net unrealized gains (losses) on investments, after tax, net of reclassification adjustments			(28,293	)			(28,293	)			—				—
Purchase of treasury stock			(20,012	)			—				—				(20,012	)
Common shares issued as compensation			3,137				—				—				3,137
Share-based compensation			3,742				—				—				3,742
Net effect of stock options exercised			752				—				—				752
Balance at June 30, 2007		$	1,154,254			$	(28,182	)		$	698,691			$	483,745

See accompanying notes

ProAssurance Corporation and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)

		Three Months Ended								Six Months Ended
		June 30								June 30
(In thousands, except per share data)		2008				2007				2008				2007
Revenues:
Gross premiums written		$	88,005			$	105,747			$	248,272			$	291,049
Net premiums written		$	78,784			$	90,867			$	227,199			$	262,326
Premiums earned		$	126,407			$	148,622			$	258,425			$	299,306
Premiums ceded			(10,639	)			(15,959	)			(22,080	)			(29,466	)
Net premiums earned			115,768				132,663				236,345				269,840
Net investment income			41,313				44,548				82,372				87,119
Equity in earnings (loss) of unconsolidated subsidiaries			(2	)			964				(1,949	)			1,831
Net realized investment gains (losses)			(5,349	)			277				(6,775	)			(2,885	)
Other income			1,336				1,682				2,699				3,107
Total revenues			153,066				180,134				312,692				359,012
Expenses:
Losses and loss adjustment expenses			77,715				110,050				168,294				239,651
Reinsurance recoveries			(12,044	)			(11,257	)			(20,940	)			(41,811	)
Net losses and loss adjustment expenses			65,671				98,793				147,354				197,840
Underwriting, acquisition and insurance expenses			25,157				25,648				51,399				52,475
Interest expense			2,292				2,984				4,714				5,944
Total expenses			93,120				127,425				203,467				256,259
Income before income taxes			59,946				52,709				109,225				102,753
Provision for income taxes:
Current expense (benefit)			16,770				10,607				22,135				22,204
Deferred expense (benefit)			(142	)			4,481				7,904				6,838
			16,628				15,088				30,039				29,042
Net income		$	43,318			$	37,621			$	79,186			$	73,711
Earnings per share:
Basic		$	1.36			$	1.13			$	2.47			$	2.22
Diluted		$	1.27			$	1.06			$	2.31			$	2.08
Weighted average number of common shares outstanding:
Basic			31,868				33,178				32,025				33,236
Diluted			34,739				36,093				34,904				36,125

See accompanying notes

ProAssurance Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)

		Three Months Ended								Six Months Ended
		June 30								June 30
(In thousands)		2008				2007				2008				2007
Comprehensive income:
Net income		$	43,318			$	37,621			$	79,186			$	73,711
Change in net unrealized gains (losses) on investments, after tax, net of reclassification adjustments			(27,567	)			(29,787	)			(24,908	)			(28,293	)
Comprehensive income		$	15,751			$	7,834			$	54,278			$	45,418

See accompanying notes

ProAssurance Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)

		Six Months Ended
		June 30
(In thousands)		2008				2007
Operating Activities
Net Income		$	79,186			$	73,711
Depreciation and amortization			7,721				7,789
Net realized investment (gains) losses			6,775				2,885
Net sales (purchases) of trading portfolio securities			(2,497	)			(4,180	)
Share-based compensation			4,545				3,742
Deferred income taxes			7,904				6,838
Changes in assets and liabilities:
Premiums receivable			3,973				6,703
Reserve for losses and loss adjustment expenses			(53,046	)			(4,411	)
Unearned premiums			(10,253	)			(7,590	)
Reinsurance related assets and liabilities			43,228				38,168
Other			11,422				(28,931	)
Net cash provided by operating activities			98,958				94,724
Investing Activities
Purchases of:
Fixed maturities available for sale			(468,362	)			(663,487	)
Equity securities available for sale			(2,346	)			(218	)
Other investments			(278	)			(2,051	)
Cash invested in unconsolidated subsidiaries			(22,666	)			—
Proceeds from sale or maturities of:
Fixed maturities available for sale			485,276				672,888
Equity securities available for sale			369				518
Other investments			2,592				7,045
Net (increase) decrease in short-term investments			(77,390	)			(106,821	)
Other			5,785				(8,564	)
Net cash provided (used) by investing activities			(77,020	)			(100,690	)
Financing Activities
Repurchase of treasury stock			(62,992	)			(16,770	)
Excess tax benefit from options exercised			25				1,643
Book overdraft			13,330				10,594
Other			5,814				117
Net cash provided (used) by financing activities			(43,823	)			(4,416	)
Increase (decrease) in cash and cash equivalents			(21,885	)			(10,382	)
Cash and cash equivalents at beginning of period			30,274				21,236
Cash and cash equivalents at end of period		$	8,389			$	10,854
Significant Non-cash Transactions:
Fixed maturity securities transferred, at fair value, to other investments		$	—			$	34,732

See accompanying notes

ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2008

1. Basis of Presentation

     The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of ProAssurance Corporation and its consolidated subsidiaries (ProAssurance). The financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008. The accompanying Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes contained in ProAssurance’s December 31, 2007 report on Form 10-K.

     Certain reclassifications have been made in the prior period consolidated financial statements to conform to the current period presentation.

Accounting Changes

     In September 2006, the FASB issued Statement of Financial Accounting Standards 157, Fair Value Measurements (SFAS 157). The standard establishes a revised definition of fair value: fair value is 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. SFAS 157 also establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. SFAS 157 is applicable to other accounting pronouncements that require or permit fair value measurements but does not establish new guidance regarding the assets and liabilities required or allowed to be measured at fair value. The statement is effective for fiscal years beginning after November 15, 2007, with early adoption permitted. ProAssurance adopted SFAS 157 on January 1, 2008. ProAssurance did not recognize any cumulative effect related to the adoption of SFAS 157 and adoption did not have a significant effect on ProAssurance’s results of operations or financial condition.

     In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 permits many financial assets and liabilities to be reported at fair value that are not otherwise required under GAAP to be measured at fair value. Under SFAS 159 guidance, the election of fair value treatment is specific to individual assets and liabilities, with changes in fair value recognized in earnings as they occur. The election of fair value measurement is generally irrevocable. SFAS 159 is effective for fiscal years beginning after November 15, 2007, with early adoption permitted. ProAssurance adopted SFAS 159 on January 1, 2008 but did not elect fair value measurement for any financial assets or liabilities that were not otherwise required to be measured at fair value.

Recent Accounting Developments

     In May 2008, the FASB issued FASB Staff Position (FSP) APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement), which will alter the accounting for ProAssurance’s Convertible Debentures. FSP APB 14-1 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, FSP APB 14-1 requires that when such debt instruments are repaid or converted any consideration transferred at settlement should be allocated between the extinguishment of the liability component and the reacquisition of the equity component. FSP APB 14-1 is effective for ProAssurance on January 1, 2009, and must be applied retrospectively with a cumulative effect adjustment being made as of the earliest period presented. Early adoption is not permitted. ProAssurance is currently assessing

ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2008

1. Basis of Presentation (continued)

the impact that the adoption will have on its financial condition and results of operations, but expects no impact on ending Total Stockholders’ Equity after the conversion of the Convertible Debentures (July 2, 2008).

     In December 2007 the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial Statements. SFAS 160 amends Accounting Research Bulletin 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The Statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. ProAssurance will adopt the Statement on its effective date. Adoption is not expected to have an effect on ProAssurance’s results of operations or financial position.

     In December 2007 the FASB issued SFAS 141 (Revised 2007), Business Combinations. SFAS 141R replaces FASB Statement No. 141, Business Combinations, but retains the fundamental requirement in SFAS 141 that the acquisition method (referred to as the purchase method in SFAS 141) of accounting be used for all business combinations. SFAS 141R provides new or additional guidance with respect to business combinations 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. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is prohibited. ProAssurance will adopt the Statement on its effective date.

2. Fair Value Measurement

     Effective January 1, 2008 ProAssurance adopted SFAS 157 which establishes a framework for measuring fair value and requires specific disclosures regarding assets and liabilities that are measured at fair value.

     As defined in SFAS 157, fair value is 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. SFAS 157 establishes a three level hierarchy for valuing assets and liabilities based on how transparent (observable) the inputs are that are used to determine fair value, with the inputs considered most observable categorized as Level 1 and those that are the least observable categorized as Level 3. Hierarchy levels are defined by SFAS 157 as follows:

		Level 1:		quoted (unadjusted) market prices in active markets for identical assets and liabilities. For ProAssurance, Level 1 inputs are generally quotes for debt or equity securities actively traded in exchange or over-the-counter markets.
		Level 2:		market data obtained from sources independent of the reporting entity (observable inputs). For ProAssurance, Level 2 inputs generally include quoted prices in markets that are not active, quoted prices for similar assets/liabilities, and other observable inputs such as interest rates and yield curves that are generally available at commonly quoted intervals.
		Level 3:		the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). For ProAssurance, Level 3 inputs are used in situations where little or no Level 1 or 2 inputs are available or are inappropriate given the particular circumstances. Level 3 inputs include results from pricing models and discounted cash flow methodologies as well as adjustments to externally quoted prices that are based on management judgment or estimation.

ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2008

2. Fair Value Measurement (continued)

     The following tables present information about ProAssurance’s assets measured at fair value on a recurring basis as of June 30, 2008, and indicate the fair value hierarchy of the valuation techniques utilized to determine such value. No liabilities are measured at fair value at June 30, 2008. For some assets, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. When this is the case, the asset is categorized in the table based on the lowest level input that is significant to the fair value measurement in its entirety. ProAssurance’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the assets being valued.

     Assets measured at fair value on a recurring basis as of June 30, 2008 are as follows:

		June 30, 2008
		Fair Value Measurements Using												Total
(In thousands)		Level 1				Level 2				Level 3				Fair Value
Assets:
Fixed maturities, available for sale
Government-sponsored enterprises		$	—			$	217,282			$	—			$	217,282
Asset-backed securities			—				893,248				1,576				894,824
Corporate bonds			5,071				597,408				60,487				662,966
State and municipal bonds			—				1,386,699				11,142				1,397,841
Equity securities, available-for-sale			15,316				—				740				16,056
Equity securities, trading			16,054				—				—				16,054
Other investments(1)			—				—				19,156				19,156
Short-term investments(2)			188,228				118,980				—				307,208
Total assets		$	224,669			$	3,213,617			$	93,101			$	3,531,387

     Level 3 assets in the above table consist primarily of asset-backed securities (as shown in the table), private placement senior notes (included in Corporate bonds), auction rate municipal bonds (included in State and Municipal bonds), and a beneficial interest in asset-backed securities held in a private investment fund (included in Other investments).

     The private placement senior notes are unconditionally guaranteed by large regional banks rated “A” or better. The asset-backed securities have a weighted average rating of AA+, and are collateralized by a timber trust and a Fannie Mae mortgage backed security. The auction rate municipal bonds are rated AA-. The fair value of these assets are primarily derived using pricing models that may require multiple market input parameters as is considered appropriate for the asset being valued.

     The asset-backed securities held in a private investment fund are rated BB+ and are valued using a broker dealer quote.

ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2008

2. Fair Value Measurement (continued)

     The following table presents additional information about assets measured at fair value using Level 3 inputs for the three and six months ended June 30, 2008:

		June 30, 2008
		Fair Value Measurements
		Asset-								State and								Other
		backed				Corporate				Municipal				Equity				Invested
(In thousands)		Securities				Bonds				Bonds				Securities				Assets				Total
Balance March 31, 2008		$	4,290			$	64,703			$	15,621			$	740			$	19,740			$	105,094
Total gains (losses), realized and unrealized:
Included in earnings, as a part of net realized investment gains/(losses)			—				—				—				—				—				—
Included in other comprehensive income			236				435				(911	)			—				(491	)			(731	)
Purchases, sales or settlements			(16	)			6,147				(2,575	)			—				(93	)			3,463
Transfers in and/or out of Level 3			(2,934	)			(10,798	)			(993	)			—				—				(14,725	)
Balance June 30, 2008		$	1,576			$	60,487			$	11,142			$	740			$	19,156			$	93,101
Unrealized gains (losses) included in other comprehensive income for the three months ended June 30, 2008 related to assets still held at June 30, 2008		$	(58	)		$	(7	)		$	(883	)		$	—			$	(490	)		$	(1,438	)
Balance January 1, 2008		$	33,283			$	86,969			$	7,183			$	—			$	20,981			$	148,416
Total gains (losses), realized and unrealized:
Included in earnings, as a part of net realized investment gains/(losses)			—				(80	)			—				—				—				(80	)
Included in other comprehensive income			(1,713	)			(535	)			(886	)			—				(1,265	)			(4,399	)
Purchases, sales or settlements			(402	)			14,128				(158	)			740				(560	)			13,748
Transfers in and/or out of Level 3			(29,592	)			(39,995	)			5,003				—				—				(64,584	)
Balance June 30, 2008		$	1,576			$	60,487			$	11,142			$	740			$	19,156			$	93,101
Unrealized gains (losses) included in other comprehensive income for the six months ended June 30, 2008 related to assets still held at June 30, 2008		$	46			$	(720	)		$	(883	)		$	—			$	(1,264	)		$	(2,821	)

     The transfers out of Level 3 into Level 2 primarily consist of $40 million (including $11 million transferred after March 31, 2008) of bank loans and $30 million (including $3 million transferred after March 31, 2008) of asset backed bonds that were previously valued using either a pricing model or a single broker dealer quote. The securities are now priced using multiple observable inputs including pricing services that use multiple broker quotes for their evaluation.

ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2008

3. Investments

     The amortized cost and estimated fair value of available-for-sale fixed maturities and equity securities are as follows:

		June 30, 2008
						Gross				Gross				Estimated
		Amortized				Unrealized				Unrealized				Fair
(In thousands)		Cost				Gains				Losses				Value
Fixed maturities		$	3,189,360			$	26,128			$	(42,575	)		$	3,172,913
Equity securities			15,599				1,569				(1,112	)			16,056
		$	3,204,959			$	27,697			$	(43,687	)		$	3,188,969
		December 31, 2007
						Gross				Gross				Estimated
		Amortized				Unrealized				Unrealized				Fair
(In thousands)		Cost				Gains				Losses				Value
Fixed maturities		$	3,217,194			$	37,246			$	(17,701	)		$	3,236,739
Equity securities			13,931				2,724				(1,204	)			15,451
		$	3,231,125			$	39,970			$	(18,905	)		$	3,252,190

     Proceeds from sales of fixed maturities and equity securities during the six months ended June 30, 2008 and 2007 are $228.3 million and $495.4 million, respectively, including proceeds from sales of adjustable rate, short-duration fixed maturities of approximately $106.1 million and $326.3 million, respectively. Purchases of adjustable rate, short-duration fixed maturities approximated $77.3 million and $242.0 million during the same respective periods.

     Net realized investment gains (losses) are comprised of the following:

		Three Months Ended								Six Months Ended
		June 30								June 30
(In thousands)		2008				2007				2008				2007
Gross realized gains		$	688			$	1,292			$	1,089			$	1,734
Gross realized (losses)			(859	)			(78	)			(943	)			(260	)
Other-than-temporary impairment (losses)			(5,450	)			—				(6,307	)			(4,174	)
Trading portfolio net gains (losses)			272				(937	)			(614	)			(185	)
Net realized investment gains (losses)		$	(5,349	)		$	277			$	(6,775	)		$	(2,885	)

     During the second quarter of 2008 ProAssurance recognized other-than-temporary impairment losses of $5.5 million, which included $4.7 million related to asset backed bonds, $433,000 related to corporate bonds and $271,000 related to equity holdings. During the first quarter of 2008 ProAssurance recognized impairment losses of $857,000 including impairments of $396,000 related to asset backed bonds, $80,000 related to a corporate bond, $353,000 related to a passive investment that ProAssurance holds in a private investment fund and $28,000 related to an equity position that was sold shortly after the end of the first quarter. Other-than-temporary impairment losses recognized in 2007 related to high yield asset backed bonds, particularly those with sub-prime loan exposures.

     In January 2007, ProAssurance transferred high yield asset backed bonds (previously considered as available-for-sale securities) having a fair value of approximately $34.7 million to a private investment fund that is primarily focused on managing such investments. ProAssurance maintains a direct beneficial interest (the separate interest) in the securities originally contributed to the fund. ProAssurance recognized an impairment of $4.2 million related to these securities in 2007. The securities held in the separate interest are included in Other Investments, at fair value totaling $14.1 million at June 30, 2008 (net of unrealized losses of $7.1 million). Cash flows of the separate interest, including net investment earnings and proceeds from sales or maturities, (totaling $12.0 million to date), are routinely transferred to a joint interest (the joint interest) of the fund.

ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2008

3. Investments (continued)

     The joint interest is accounted for using the equity method and is included in Investment in Unconsolidated Subsidiaries. In March 2008 ProAssurance contributed an additional $20 million to the joint interest to take advantage of current dislocations in the credit market. At June 30, 2008 the carrying value of the joint interest is $30.7 million and ProAssurance’s ownership interest approximates 22%.

4. Income Taxes

     The provision for income taxes is different from that which would be obtained by applying the statutory Federal income tax rate to income before taxes primarily because a portion of ProAssurance’s investment income is tax-exempt.

5. Deferred Policy Acquisition Costs

     Policy acquisition costs, most significantly commissions, premium taxes, and underwriting salaries, that are primarily and directly related to the production of new and renewal premiums are capitalized as policy acquisition costs and amortized to expense as the related premium revenues are earned.

     Amortization of deferred acquisition costs are $11.7 million and $24.0 million for the three and six months ended June 30, 2008. Amortization of deferred acquisition costs was $13.2 million and $26.8 million for the three and six months ended June 30, 2007. Unamortized deferred acquisition costs are included in Other Assets totaling $20.6 million and $22.1 million at June 30, 2008 and December 31, 2007.

6. Reserves for Losses and Loss Adjustment Expenses

     The reserve for losses is established based on estimates of individual claims and actuarially determined estimates of future losses based on ProAssurance’s past loss experience, available industry data and projections as to future claims frequency, severity, inflationary trends and settlement patterns. Estimating reserves is a complex process. Claims may be resolved over an extended period of time, often five years or more, and may be subject to litigation. Estimating losses for liability claims requires ProAssurance to make and revise judgments and assessments regarding multiple uncertainties over an extended period of time. As a result, reserve estimates may vary significantly from the eventual outcome. The assumptions used in establishing ProAssurance’s reserves are regularly reviewed and updated by management as new data becomes available. Changes to estimates of previously established reserves are included in earnings in the period in which the estimate is changed.

     ProAssurance recognized favorable net loss development of $31.3 million related to previously established reserves for the three months ended June 30, 2008 and recognized $51.3 million of favorable net loss development for the six months ended June 30, 2008. The favorable net loss development reflects reductions in the Company’s estimates of claim severity, principally for the 2003 through 2006 accident years but also includes $3.7 million recognized in the second quarter of 2008 related to prior year reinsurance contracts that were commuted during the period.

     ProAssurance recognized favorable net loss development of $20.0 million for the three months and $35.6 million for the six months ended June 30, 2007 to reflect reductions in estimated claim severity principally for accident years 2003 through 2005, offset by an increase to the reserves for losses in excess of policy limits.

ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2008

7. Long-term Debt

     Outstanding long-term debt, as of June 30, 2008 and December 31, 2007, consists of the following:

										June 30				December 31
(In thousands)										2008				2007
Convertible Debentures due June 2023 but all converted into common stock in July 2008, see below. Unsecured, principal of $107.6 million bearing a fixed interest rate of 3.9%, net of unamortized discounts of $1.5 million and $1.6 million at June 30, 2008 and December 31, 2007, respectively.										$	106,121			$	105,973
Trust Preferred Subordinated Debentures (the 2034 Subordinated Debentures), unsecured, bearing interest at a floating rate, adjustable quarterly.
		Due				6/30/2008 Rate
		April 2034					6.5	%			13,403				13,403
		May 2034					6.5	%			32,992				32,992
Surplus Notes due May 2034 (the Surplus Notes), unsecured, net of unamortized discounts of $0.1 million and $0.2 million at June 30, 2008 and December 31, 2007, principal of $12.0 million bearing a fixed interest rate of 7.7%, until May 2009.											11,864				11,790
										$	164,380			$	164,158

Convertible Debentures

     On June 2, 2008 ProAssurance notified holders of its intent to redeem all of its outstanding Convertible Debentures (aggregate principal amount of $107.6 million) on July 7, 2008. As discussed in Note 11, prior to the redemption date all holders of the Convertible Debentures requested conversion and on July 2, 2008 all of the Convertible Debentures were converted into 2,572,029 shares of ProAssurance Corporation common stock.

Fair Value

     At June 30, 2008, the fair value of the 2034 Subordinated Debentures approximated 85% of their face value of $46.4 million and the fair value of the Surplus Notes approximated 86% of their face value of $12.0 million, based on the present value of underlying cash flows discounted at rates available at June 30, 2008 for similar debt.

Additional Information

     For additional information regarding the terms of ProAssurance’s outstanding long-term debt see Note 10 of the Notes to the Consolidated Financial Statements in ProAssurance’s December 31, 2007 Annual Report on Form 10K.

ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2008

8. Stockholders’ Equity

     At June 30, 2008 ProAssurance had 100 million shares of authorized common stock and 50 million shares of authorized preferred stock. The Board of Directors of ProAssurance Corporation (the Board) has the authority to determine the provisions for the issuance of preferred shares, including the number of shares to be issued, the designations, powers, preferences and rights, and the qualifications, limitations or restrictions of such shares. To date, no preferred stock has been authorized or issued.

     In 2007, the Board authorized $150 million to repurchase its common shares or debt securities. During the six months ended June 30, 2008 approximately $63.0 million of the authorization was utilized to repurchase approximately 1.2 million common shares, all of which are held as treasury shares on June 30, 2008. Treasury shares are reported at cost, and are reflected on the balance sheet as an unallocated reduction of total equity. As of June 30, 2008 approximately $17.3 million of the Board repurchase authorization remains available for use.

     As discussed in Note 11, on July 2, 2008 approximately 2.12 million treasury shares were re-issued and 450,000 new common shares were issued to complete the conversion of ProAssurance’s Convertible Debentures.

     ProAssurance adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007. In accordance with the guidance provided in the statement, the cumulative effect of adoption, a $2.7 million reduction in tax liabilities, was recorded as an increase to beginning retained earnings.

     ProAssurance provides performance-based stock compensation to employees under the ProAssurance 2004 Equity Incentive Plan and the ProAssurance Corporation Incentive Compensation Stock Plan. Share-based compensation expense of approximately $2.1 million and $4.5 million with a related tax benefit of approximately $720,000 and $1.6 million was recognized during the three and six months ended June 30, 2008. Share-based compensation expense of approximately $1.5 million and $3.7 million with a related tax benefit of approximately $493,000 and $1.3 million was recognized during the three and six months ended June 30, 2007.

     ProAssurance granted approximately 133,000 options during the six months ended June 30, 2008. The estimated fair value of the options averaged $16.49 per option. Fair values were estimated as of the date of grant, using the Black-Scholes option pricing model and the following assumptions:

		2008
Weighted average assumptions:
Risk-free interest rate			3.1%
Expected volatility			0.23
Dividend yield			0%
Expected average term (in years)			6

ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2008

8. Stockholders’ Equity (continued)

     ProAssurance also granted Performance Share awards to employees in March 2008 under the ProAssurance 2004 Equity Incentive Plan. The Performance Share awards vest at the end of a three year service period if specified Performance Measures are attained. The number of Performance Shares ultimately awarded varies from 75% to 125% of the target award depending upon the degree to which Performance Measures are attained. The fair value of each Performance Share was estimated as the market value of ProAssurance’s common shares on the respective date of grant. The following table provides information regarding ProAssurance’s Performance Shares awards:

		Performance
		Shares
		2008
100% vesting date			12/31/2010
Shares awarded (target)			73,000
Grant date fair value		$	54.28

9. Commitments and Contingencies

     As a result of the acquisition of NCRIC Corporation (NCRIC) in 2005, ProAssurance assumed the risk of loss for a judgment entered against NCRIC on February 20, 2004 by a District of Columbia Superior Court in favor of Columbia Hospital for Women Medical Center, Inc. (CHW) in the amount of $18.2 million (the judgment). The judgment is on appeal to the District of Columbia Court of Appeals. ProAssurance has established a liability related to the judgment of $22.1 million, which includes the estimated costs associated with pursuing appellate relief and projected post-trial interest, $19.5 million of which was established as a component of the fair value of assets acquired and liabilities assumed in the allocation of the NCRIC purchase price. ProAssurance has posted a $21.1 million appellate bond to secure payment of the judgment plus interest and costs, in the event the judgment is ultimately affirmed and paid.

     ProAssurance is involved in various other legal actions arising primarily from claims against ProAssurance related to insurance policies and claims handling, including but not limited to claims asserted by policyholders. Such legal actions have been considered by ProAssurance in establishing its loss and loss adjustment expense reserves. The outcome of such legal actions is not presently determinable for a number of reasons. For example, in the event that ProAssurance or its insureds receive adverse verdicts, post-trial motions may be denied, in whole or in part; any appeals that may be undertaken may be unsuccessful; ProAssurance may be unsuccessful in legal efforts to limit the scope of coverage available to its insureds, and ProAssurance may become a party to bad faith litigation over the amount of the judgment above an insured’s policy limits. ProAssurance’s management is of the opinion, based on consultation with legal counsel, that the resolution of these actions will not have a material adverse effect on ProAssurance’s financial position. However, the ultimate cost of resolving these legal actions may differ from the reserves established; the resulting difference could have a material effect on ProAssurance’s results of operations for the period in which any such action is resolved.

ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2008

10. Earnings Per Share

     The following table provides detailed information regarding the calculation of basic and diluted earnings per share for each period presented:

		Three Months Ended								Six Months Ended
		June 30								June 30
(In thousands, except per share data)		2008				2007				2008				2007
Basic earnings per share calculation:
Numerator:
Net income		$	43,318			$	37,621			$	79,186			$	73,711
Denominator:
Weighted average number of common shares outstanding			31,868				33,178				32,025				33,236
Basic earnings per share		$	1.36			$	1.13			$	2.47			$	2.22
Diluted earnings per share calculation:
Numerator:
Net income		$	43,318			$	37,621			$	79,186			$	73,711
Effect of assumed conversion of contingently convertible debt instruments			742				742				1,484				1,484
Net income—diluted computation		$	44,060			$	38,363			$	80,670			$	75,195
Denominator:
Weighted average number of common shares outstanding			31,868				33,178				32,025				33,236
Assumed exercise of dilutive stock options and issuance of performance shares			299				343				307				317
Assumed conversion of contingently convertible debt instruments			2,572				2,572				2,572				2,572
Diluted weighted average equivalent shares			34,739				36,093				34,904				36,125
Diluted earnings per share		$	1.27			$	1.06			$	2.31			$	2.08

     In accordance with SFAS 128, Earnings per Share, the diluted weighted average number of shares outstanding includes an incremental adjustment for the assumed exercise of dilutive stock options. The adjustment is computed quarterly; the annual incremental adjustment is the average of the quarterly adjustments. Stock options are considered dilutive stock options if the assumed exercise of the options, using the treasury stock method as specified by SFAS 128, produces an increased number of shares. Approximately 370,000 and 200,000 of ProAssurance’s outstanding options, on average, were not considered to be dilutive during the six-months periods ended June 30, 2008 and 2007, respectively.

11. Subsequent Event

     On June 2, 2008, ProAssurance notified holders of its Convertible Debentures of its intent to redeem 100% of its outstanding debentures (aggregate principal of $107.6 million) on July 7, 2008. Prior to redemption, all holders of the Convertible Debentures requested conversion. The conversion rate under the Indenture was 23.9037 shares of Common Stock per $1,000 principal amount of debentures surrendered for conversion. ProAssurance completed the conversion of all of the outstanding debentures on July 2, 2008 by reissuing 2.12 million treasury shares and 450,000 newly issued common shares. The transaction will result in a net increase to Stockholders’ Equity of approximately $112 million in the third quarter of 2008. No gain or loss will be recorded related to the conversion.

     Approximately 360,000 common shares were repurchased in July 2008 which fully utilized the purchase authorization that remained at June 30, 2008. On August 5, 2008 the Board of Directors of ProAssurance authorized, effective immediately, an additional $100 million for the repurchase of common shares or retirement of outstanding debt.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following discussion should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and Notes to those statements which accompany this report as well as ProAssurance’s Annual Report on Form 10K for the year ended December 31, 2007, which includes a glossary of insurance terms and phrases. Throughout the discussion, references to ProAssurance, “we,” “us” and “our” refers 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 Condensed Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America (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. Net losses in any period reflect our estimate of net losses incurred related to the premiums earned in that period as well as any changes to our estimates of the reserve established for net losses of prior periods.

     The estimation of medical professional liability losses is inherently difficult. Ultimate loss costs, even for claims with similar characteristics, vary significantly depending upon many factors, including but not limited to, the nature of the injury 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 the trend of health care costs. Medical 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.

     In establishing our reserve for losses, management considers a variety of factors including claims frequency, historical paid and incurred loss development trends, the effect of inflation on medical care, general economic trends and the legal environment. We perform an in-depth review of our reserve for losses on a semi-annual basis. Additionally, during each reporting period we update and review the data underlying the estimation of our reserve for losses and make adjustments 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.

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 June 30, 2008 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 insurance and 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. As losses are paid, the related amount expected to be collected from reinsurers is recorded as a receivable in Other Assets.

     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. Our estimates of the amounts due from and to reinsurers are regularly reviewed and updated by management as new data becomes available. Our assessment of the collectibility 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. 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 adopted a new accounting pronouncement, Statement of Financial Accounting Standards 157, Fair Value Measurements, effective January 1, 2008. The new pronouncement revises the definition of fair value and establishes a framework for measuring fair value. The pronouncement defines fair value 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 framework establishes a three level hierarchy for valuing assets and liabilities based on how transparent (observable) the inputs are that are used to determine fair value. For example, a quoted market price for an actively traded security on an established trading exchange is considered the most transparent (observable) input used to fair value that security and is classified as a Level 1 in the fair value hierarchy. An investment valued using multiple broker dealer quotes is considered to be valued using observable input that is not as transparent as a quoted market price on an exchange and is classified as a Level 2. An investment valued using either a single broker dealer quote or based on a cash flow valuation model is considered to be valued based on limited observable input and a significant amount of judgment and is classified as Level 3. For further information on the adoption of the pronouncement and the fair value of our investments, see Note 2 to the Condensed Consolidated Financial Statements.

     A significant portion of our financial assets are comprised of investments recorded at fair value. Of the Company’s investments recorded at fair value totaling $3.5 billion, a substantial percentage (approximately 97%) is based on observable market prices, observable market parameters (i.e. broker quotes, benchmark yield curves, issuer spreads, bids, etc.) or is derived from such prices or parameters. The availability of observable market prices and pricing parameters (referred to as observable inputs) can vary from investment to investment. We utilize observable inputs, where available, to value our investments. In many cases, we obtain multiple observable inputs for an investment to derive the fair value without requiring significant judgments.

     For investments that are not actively traded, limited or no observable inputs may be available and fair value is determined using valuation techniques appropriate for that investment whether valued internally or externally. The valuation techniques involve some degree of judgment. The portion of our investments valued using less observable market inputs and valuation techniques totaling $93 million (approximately 3% of investments recorded at fair value) consist of asset-backed securities that are priced by external managers using single broker dealer quotes, private placements, and auction rate securities and other investments valued internally by management.

     Most of our investments recorded at fair value are considered available-for-sale with a small portion classified as trading. For investments considered as available-for-sale, changes in the fair value are recognized as unrealized gains and losses and are included, net of related tax effects, in stockholders’ equity as a component of other comprehensive income (loss). Gains or losses on these investments are recognized in earnings in the period the investment is sold or an other-than-temporary impairment is deemed to have occurred. Changes in the fair value of investments considered as trading are recorded in realized investment gains and losses in the current period.

     We also have other investments, primarily comprised of equity interests in private investment funds (non-public investment partnerships and limited liability companies), $47.5 million of which are accounted for using the equity method and $32.9 million of which are carried at cost. We evaluate these investments for other-than-temporary impairment by considering any declines in fair value below the recorded value. Determining whether there has been a decline in fair value involves assumptions and estimates as there are typically no observable inputs to determine the fair value of these investments.

     We evaluate all our investments on at least a quarterly basis for declines in fair value that represent other-than-temporary impairments. Some of the factors we consider in the evaluation of our investments are:

	–		the extent to which the fair value of an investment is less than its recorded basis,
	–		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,
	–		third party research and credit rating reports,
	–		the extent to which the decline in fair value is attributable to credit risk specifically associated with an investment or its issuer,
	–		the extent to which we believe market assessments of credit risk for a specific investment or category of investments are either well founded or are speculative,
	–		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, and
	–		our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in fair value.

     Determining whether a decline in the fair value of investments is an other-than-temporary impairment may also involve a variety of assumptions and estimates, particularly for investments that are not actively traded in established markets or during periods of market dislocation. For example, assessing the value of certain investments requires us to perform an analysis of expected future cash flows or prepayments. For investments in tranches of structured transactions, we are required to assess the credit worthiness of the underlying investments of the structured transaction.

     When we judge a decline in fair value to be other-than-temporary, we reduce the basis of the investment to fair value and recognize a loss in the current period income statement for the amount of the reduction. In subsequent periods, we base any measurement of gain or loss or decline in value upon the adjusted cost basis of the investment.

Deferred Policy Acquisition Costs

     Policy acquisition costs, primarily commissions, premium taxes and underwriting salaries, which are primarily and 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 and any amounts estimated to be unrecoverable are charged to expense in the current period.

Recent Accounting Pronouncements and Guidance

     In May 2008, the FASB issued FASB Staff Position (FSP) APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement), which will alter the accounting for our Convertible Debentures. FSP APB 14-1 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, FSP APB 14-1 requires that when such debt instruments are repaid or converted any consideration transferred at settlement should be allocated between the extinguishment of the liability component and the reacquisition of the equity component. FSP APB 14-1 will become effective for ProAssurance on January 1, 2009 and must be applied retrospectively with a cumulative effect adjustment being made as of the earliest period presented. Early adoption is not permitted. We are currently assessing the impact that the adoption will have on our financial condition and results of operations but expect no impact on Total Stockholders’ Equity after the conversion of the Convertible Debentures (July 2, 2008).

     In December 2007 the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial Statements. SFAS 160 amends Accounting Research Bulletin (ARB) 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The Statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. We will adopt the Statement on its effective date. The adoption is not expected to have an effect on our results of operations or financial position.

     In December 2007 the FASB issued SFAS 141 (Revised December 2007), Business Combinations. SFAS 141R replaces FASB Statement No. 141, Business Combinations, but retains the fundamental requirement in SFAS 141 that the acquisition method (referred to as the purchase method in SFAS 141) of accounting be used for all business combinations. SFAS 141R provides new or additional guidance with respect to business combinations 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. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is prohibited. We will adopt the Statement on its effective date.

Accounting Changes

     In September 2006, the FASB issued SFAS 157, Fair Value Measurements. The standard revises the definition of fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. SFAS 157 is applicable to other accounting pronouncements that require or permit fair value measurements but does not establish new guidance regarding the assets and liabilities required or allowed to be measured at fair value. The statement is effective for fiscal years beginning after November 15, 2007, with early adoption permitted. We adopted SFAS 157 on January 1, 2008. We did not recognize any cumulative effect related to the adoption of SFAS 157 and the adoption did not have a significant effect on our results of operations or financial condition.

     In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115. SFAS 159 permits many financial assets and liabilities to be reported at fair value that are not otherwise required under GAAP to be measured at fair value. Under SFAS 159 guidance, the election of fair value treatment is specific to individual assets and liabilities, with changes in fair value recognized in earnings as they occur. The election of fair value measurement is generally irrevocable. SFAS 159 is effective for fiscal years beginning after November 15, 2007, with early adoption permitted. We adopted SFAS 159 on January 1, 2008 but did not elect fair value measurement for any financial assets or liabilities that were not otherwise required to be measured at fair value.

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. The ability of our insurance subsidiaries to pay dividends is subject to limitation by state insurance regulations. See our discussions under “Regulation of Dividends and Other Payments from Our Operating Subsidiaries” in Part I, and in Note 15 of our Notes to the Consolidated Financial Statements in our December 31, 2007 Form 10K for additional information regarding the ordinary dividends that can be paid by our insurance subsidiaries in 2008. At June 30, 2008 we held cash and investments of approximately $124 million outside of our insurance subsidiaries that are available for use without regulatory approval. Additionally, in early August, 2008 we received dividends of $125 million from and also contributed capital of $25 million to our insurance subsidiaries.

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 ultimate payment of losses. 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 reinsurance recoveries. Our operating activities provided positive cash flows of approximately $99.0 million and $94.7 million during the six months ended June 30, 2008 and 2007, respectively.

     Operating cash flows during the first half of 2008 increased as compared to the same period in 2007 principally due to lower loss payments, net of reinsurance received (including $24 million received related to the commutation of a group of prior year contracts). Additionally, cash inflows were affected by lower premium receipts as a result of declines in gross premiums written, increased premium payments to our reinsurers for adjustments related to losses recovered under the contract in the preceding year, and higher income tax payments (attributable to an increase in taxable income in the fourth quarter of 2007 as compared to the fourth quarter of 2006).

     Two metrics commonly used to analyze the operating cash flows of insurance companies are the paid-to-incurred ratio and the paid loss ratio.

		Three Months Ended								Six Months Ended
		June 30								June 30
		2008				2007				2008				2007
Paid-to-incurred ratio			100.2	%			109.8	%			104.8	%			92.8	%
Paid loss ratio			56.8	%			81.8	%			65.3	%			68.1	%

     The paid-to-incurred ratio is calculated as net paid losses divided by net incurred losses. The paid loss ratio is calculated as net paid losses divided by net premiums earned. In calculating both of these ratios, net paid losses is defined as losses and loss adjustment expenses paid during the period, net of the anticipated reinsurance recoveries related to those losses.

     For a long-tailed business such as ProAssurance, fluctuations in the ratios over short periods of time are not unexpected and are not necessarily indicative of either positive or negative changes in loss experience. The timing of our indemnity payments is affected by many factors, including the nature and number of the claims in process during any one period and the speed at which cases work through the trial and appellate process. The ratios are affected not only by variations in net paid losses, but also by variations in premium volume and the recognition of reserve development.

     The paid loss ratio and paid-to-incurred ratio declined in the second quarter 2008 as compared to 2007 because of lower net paid losses, including the effect of a reinsurance commutation of $24 million. The decrease in net paid losses more than offset the effects of lower ratio denominators (net earned premiums for the paid loss ratio; net incurred losses for the paid-to-incurred ratio).

     Net earned premiums and net incurred losses both reflect reductions in insured risks in 2008 as compared to 2007; net incurred losses also reflect a greater amount of prior year favorable net loss development in 2008 than 2007.

     The reduction in net paid losses was much less pronounced on a year-to-date basis, and thus had a smaller effect on both ratios for the six-month period. In the case of the paid-to-incurred ratio, the decrease to the ratio caused by lower net paid losses did not completely offset the increase to the ratio that resulted from lower net incurred losses.

     Losses paid in 2008 have not, as a whole, exceeded amounts reserved for those losses as of December 31, 2007, nor has the payment of losses accelerated in an unexpected manner. In the contractual obligations table included in Part II of our December 31, 2007 Form 10K we projected, largely based on historical payment patterns, that we would pay gross losses of $541 million during 2008 related to the reserves that were established at December 31, 2007. Through June 30, 2008, our gross loss payments total approximately $221 million, which, when annualized, is consistent with the amount estimated for purposes of the table.

Investments

     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. Typically, between $50 million and $75 million of our investments mature or are paid down in a given quarter and are available, if needed, to meet our cash flow requirements. At our insurance subsidiaries’ level, the primary outflow of cash 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 $315.6 million at June 30, 2008 as compared to $260.1 million at December 31, 2007. We are holding additional funds in our short-term portfolio as a means of increasing our flexibility in a volatile investment market.

     Our investment in unconsolidated subsidiaries increased to $47.5 million at June 30, 2008 as compared to $26.8 million at December 31, 2007. Late in the first quarter of 2008 we increased our investment in one of our unconsolidated subsidiaries by $20 million in order to take advantage of dislocations in the credit market.

     As of June 30, 2008 our available-for-sale fixed maturity securities of $3.2 billion comprise 86% of our total investments. Substantially all of our fixed maturities are either United States government agency obligations or investment grade securities as determined by national rating agencies. Our available-for-sale fixed maturities have a dollar weighted average rating of “AA” at June 30, 2008. The weighted average effective duration of our fixed maturity securities at June 30, 2008 is 4.3 years; the weighted average effective duration of our fixed maturity securities and our short-term securities combined is 3.9 years.

     Fair values of our fixed maturity securities decreased by approximately $36 million during the first half of 2008 primarily because of increases in market interest rates. Treasury yields at June 30, 2008 remained relatively flat as compared to December 31, 2007. However, because spreads widened, our portfolio market yields increased, which reduced the fair value of our securities. 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 market interest rates also affect the fair value of our fixed maturity securities. On a pre-tax basis, net unrealized gains (losses) on our available-for-sale fixed maturity securities are comprised as follows:

		June 30				December 31
(In millions)		2008				2007
Gross unrealized gains		$	26.1			$	37.2
Gross unrealized (losses)			(42.6	)			(17.7	)
Net unrealized gains (losses)		$	(16.5	)		$	19.5

     Approximately 94% of the unrealized loss positions in our portfolio are interest-rate and spread related. We have the intent, and, due to the duration of our overall portfolio and positive cash flows, believe we have the ability to hold these bonds to recovery of book value or maturity and do not consider the declines in value to be other-than-temporary. For a discussion of the potential effects that future changes in interest rates may have on our investment portfolio see Item 3, “Quantitative and Qualitative Disclosures about Market Risk.”

     As of June 30, 2008, our fixed maturity securities include securities with a fair value of approximately $15.5 million (adjusted cost basis of the securities is approximately $17.5 million) that are supported by collateral we classify as sub-prime, of which approximately 62% are AAA rated, 26% are AA, 10% are A and 2% are BBB. Additionally, we have approximately $2.6 million (adjusted cost basis of the securities is approximately $7.5 million) of securities exposure to below investment grade fixed income securities with sub-prime exposure within a high-yield investment fund; the average rating of the securities is “BB+”. During the first half of 2008 we evaluated our exposure to the sub-prime market and determined that $452,000 of write downs were warranted for other-than-temporary impairments.

     Subsequent to June 30, 2008 the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp (Freddie Mac), both Government Sponsored Entities (GSEs), have been subject to significant market disruptions and regulatory discussions which have caused declines in related securities. Fannie Mae and Freddie Mac own or guarantee about half of the mortgages in the United States. We have direct exposure to these GSEs in our fixed income portfolio of approximately $104 million in senior debt and indirect exposure of $492 million through mortgage-backed securities guaranteed by these agencies. We also hold approximately $9 million of preferred stocks and $123,000 of common stocks of Fannie Mae and Freddie Mac. Based upon our analysis of these securities and the implicit and explicit support the GSEs are receiving from the Federal Government we continue to view these securities as an appropriate asset class. Whether or not the government will inject capital to boost the financial strength of these GSEs and whether that capital will rank equally to current preferred stocks is still uncertain and may impact the value of our preferred and common stocks in the future. We will continue to monitor the value of the securities we hold as related market events unfold as part of our ongoing other-than-temporary impairment process.

     Speculation has also been made with regard to financial institutions, as a whole, and their financial strength in light of the recent credit crisis. As of June 30, 2008 we hold fixed income securities of financial institutions that have a fair value of approximately $350 million (adjusted cost basis of the securities is approximately $359 million). The average rating of these securities is between AA- and A and the duration is approximately 2.8 years. Our largest fixed income exposures are to Lehman Brothers totaling $23.8 million and Morgan Stanley totaling $21.3 million. These securities are experiencing price and rating volatility. We have reviewed the individual securities and do not believe any of our holdings warrant a write down for other-than-temporary impairment.

     Equity investments represent less than 1% of our total investments and less than 3% of our stockholders’ equity at both June 30, 2008 and December 31, 2007. At June 30, 2008, the carrying value of our equity investments (including equities in our available-for-sale and trading portfolios) totaled $32.1 million as compared to $29.6 million at December 31, 2007.

Reinsurance

     At June 30, 2008 our reinsurance recoverable on unpaid losses is $281.1 million. Our receivable from reinsurers on paid losses, which is classified as a part of other assets, is $23.7 million.

     We use 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 from the reinsurer for certain losses paid by us.

     Our risk retention level is dependent upon numerous factors including our risk appetite and the capital we have to support it, the price and availability of reinsurance, volume of business, level of experience and our analysis of the potential underwriting results within each state. We purchase reinsurance from a number of companies to mitigate concentrations of credit risk. Our reinsurance broker assists us in the analysis of the credit quality of our reinsurers. We base our reinsurance buying decisions on an evaluation of the then-current financial strength, rating and stability of prospective reinsurers. However, the financial strength of our reinsurers, and their corresponding ability to pay us, may change in the future due to forces or events we cannot control or anticipate.

     Periodically, reinsurers may dispute our claim for reimbursement from them; however, we have not experienced significant collection difficulties due to the financial condition of the reinsurer. We have established appropriate reserves for any balances that we believe may not be ultimately collected. Should future events lead us to believe that any reinsurer will not meet its obligations to us, adjustments to the amounts recoverable would be reflected in the results of current operations. Such an adjustment has the potential to be significant to the results of operations in the period in which it is recorded; however, we would not expect such an adjustment to have a material effect on our capital position or our liquidity.

Debt

     Our long-term debt at June 30, 2008 is comprised of the following.

June 30

First

(In thousands, except %)

Rate

2008

Redemption Date

Convertible Debentures

3.9%, fixed

$

106,121

Converted July 2008 (see below)

2034 Subordinated Debentures

6.5%, Libor adjusted

46,395

May 2009

2034 Surplus Notes

7.7%, fixed until May 2009

11,864

May 2009*

$

164,380

     A detailed description of our debt is provided in Note 7 to the Consolidated Financial Statements.

     As discussed in Notes 7 and 11, on June 2, 2008 we notified holders of our Convertible Debentures of our intent to redeem all of the outstanding debentures on July 7, 2008; prior to redemption all holders requested conversion. On July 2, 2008 all outstanding Convertible Debentures were converted into 2.57 million shares of our common stock; comprised of approximately 2.12 million reissued treasury shares and 450,000 newly issued common shares. The transaction will result in a net increase to Stockholders’ Equity of approximately $112 million in the third quarter of 2008. No gain or loss will be recorded related to the conversion. Because the dilutive effect of the debentures has been included in our calculation of fully diluted earnings per share, the conversion of the debentures has no impact on this measurement. However, the conversion will result in an increase in book value per share of approximately $0.28.

Treasury Stock

     During the six months ended June 30, 2008 we repurchased 1.2 million shares of our common stock at a total cost of $63.0 million. At June 30, 2008 approximately $17.3 million of our Board’s authorization for the repurchase of common shares or debt securities remained available for use. As previously discussed, approximately 2.1 million shares of treasury shares were reissued in July 2008 as a part of the conversion of our Convertible Debentures.

     In July 2008 we repurchased approximately 360,000 common shares which exhausted our existing Board authorization. On August 5, 2008 our Board authorized, effective immediately, an additional $100 million for the repurchase of common shares or retire outstanding debt.

Litigation

     We are involved in various legal actions arising primarily from claims against us related to insurance policies and claims handling, including, but not limited to, claims asserted by our policyholders. Legal actions are generally divided into two categories: (1) Legal actions dealing with claims and claim-related activities which we consider in our evaluation of our reserve for losses, and (2) legal actions falling outside of these areas which we evaluate and reserve for separately as a part of our Other Liabilities.

     Claim-related actions are considered as a part of our reserving process under the guidance provided by SFAS 60 Accounting and Reporting by Insurance Enterprises. We evaluate the likely outcomes from these actions giving consideration to the facts and laws applicable to each case, appellate issues, coverage issues, potential recoveries from our insurance and reinsurance programs, and settlement discussions as well as our historical claims resolution practices. This data is then given consideration in the overall evaluation of our reserve for losses.

     For non-claim-related actions we evaluate each case separately and establish what we believe is an appropriate reserve under the guidance provided by SFAS 5 Accounting for Contingencies. As a result of the acquisition of NCRIC in 2005, ProAssurance assumed the risk of loss for a judgment entered against NCRIC on February 20, 2004 by a District of Columbia Superior Court in favor of Columbia Hospital for Women Medical Center, Inc. (CHW) in the amount of $18.2 million (the CHW judgment). The CHW judgment is on appeal to the District of Columbia Court of Appeals. ProAssurance has established a liability for this judgment of $22.1 million, which includes the estimated costs associated with pursuing appellate relief and projected post-trial interest, $19.5 million of which was established as a component of the fair value of assets acquired and liabilities assumed in the allocation of the NCRIC purchase price.

     There are risks, as outlined in our Risk Factors in Part 1 of our 10K, that individual actions could cost us more than our estimates. In particular, we or our insureds may receive adverse verdicts; post-trial motions may be denied, in whole or in part; any appeals that may be undertaken may be unsuccessful; we may be unsuccessful in our legal efforts to limit the scope of coverage available to insureds; and we may become a party to bad faith litigation over the settlement of a claim. To the extent that the cost of resolving these actions exceeds our estimates, the legal actions could have a material effect on ProAssurance’s results of operations in the period in which any such action is resolved.

Overview of Results—Three and Six Months Ended June 30, 2008 and 2007

     Net income totaled $43.3 million and $79.2 million for the three- and six-month periods ended June 30, 2008 as compared to $37.6 million and $73.7 million, respectively, for the same periods in 2007. Net income per diluted share was $1.27 and $2.31 for the three- and six-month periods ended June 30, 2008, respectively, as compared to $1.06 and $2.08 for the three- and six-month periods ended June 30, 2007, respectively. The increase in net income earnings per share is attributable to both the increase in net income and treasury shares purchased during the twelve months preceding June 30, 2008, which reduced our weighted average shares outstanding as compared to 2007.

     Our results for the three and six months ended June 30, 2008 compare to the same respective periods in 2007 as follows:

Revenues

     Net premiums earned declined in 2008 by approximately $16.9 million (13%) for the three- month period and $33.5 million (12%) for the six-month period. The declines reflect the effects of a highly competitive market place and rate reductions.

     Our net investment result, which includes both net investment income and earnings from unconsolidated subsidiaries, declined in 2008 by $4.2 million (9.2%) for the three-month period and $8.5 million (9.6%) for the six-month period. The decline primarily reflects lower interest rates during 2008 and unfavorable conditions in the bond market.

     We recognized net investment losses during both the three- and six-month periods of 2008, primarily due to the recognition of other-than-temporary impairments which increased $5.5 million and $2.1 million for the quarter and year-to-date periods as compared to 2007.

Expenses

     Net losses decreased in 2008 as compared to 2007 by $33.1 million for the three months and by $50.4 million for the six months ended June 30, 2008 due to a decline in insured risks and increased recognition of favorable prior year loss development of $11.3 million for the second quarter and $15.7 million for the first half of 2008. Underwriting, acquisition and insurance expenses declined by approximately $500,000 and $1.1 million for the comparative three- and six-month periods, respectively. Interest expense declined by $700,000 for the three months and by $1.2 million for the six months.

Ratios

     Our net loss ratio decreased in 2008 by 17.8 points for the three-month period and 11.0 points for the six-month period as a result of the recognition of favorable net loss development as discussed above. Our expense ratio increased by 2.4 points for the three months and 2.3 points for the six months ended June 30, 2008 primarily as a result of flat operating expenses and the decline in premium. Our operating ratio decreased by 17.5 points for the three months and 11.3 points for the six months. Return on equity (annualized) increased by 0.7 points to 13.7% for the three months and decreased by 0.4 points to 12.6% for the six-month period.

Results of Operations-Three and Six Months Ended June 30, 2008 Compared to Three and Six Months Ended June 30, 2007

Selected consolidated financial data for each period is summarized in the table below.

		Three Months Ended June 30												Six Months Ended June 30
($ in thousands, except share data)		2008				2007				Change				2008				2007				Change
Revenues:
Gross premiums written		$	88,005			$	105,747			$	(17,742	)		$	248,272			$	291,049			$	(42,777	)
Net premiums written		$	78,784			$	90,867			$	(12,083	)		$	227,199			$	262,326			$	(35,127	)
Premiums earned		$	126,407			$	148,622			$	(22,215	)		$	258,425			$	299,306			$	(40,881	)
Premiums ceded			(10,639	)			(15,959	)			5,320				(22,080	)			(29,466	)			7,386
Net premiums earned			115,768				132,663				(16,895	)			236,345				269,840				(33,495	)
Net investment income			41,313				44,548				(3,235	)			82,372				87,119				(4,747	)
Equity in earnings of unconsolidated subsidiaries			(2	)			964				(966	)			(1,949	)			1,831				(3,780	)
Net realized investment gains (losses)			(5,349	)			277				(5,626	)			(6,775	)			(2,885	)			(3,890	)
Other income			1,336				1,682				(346	)			2,699				3,107				(408	)
Total revenues			153,066				180,134				(27,068	)			312,692				359,012				(46,320	)
Expenses:
Losses and loss adjustment expenses			77,715				110,050				(32,335	)			168,294				239,651				(71,357	)
Reinsurance recoveries			(12,044	)			(11,257	)			(787	)			(20,940	)			(41,811	)			20,871
Net losses and loss adjustment expenses			65,671				98,793				(33,122	)			147,354				197,840				(50,486	)
Underwriting, acquisition and insurance expenses			25,157				25,648				(491	)			51,399				52,475				(1,076	)
Interest expense			2,292				2,984				(692	)			4,714				5,944				(1,230	)
Total expenses			93,120				127,425				(34,305	)			203,467				256,259				(52,792	)
Income before income taxes			59,946				52,709				7,237				109,225				102,753				6,472
Income taxes			16,628				15,088				1,540				30,039				29,042				997
Net income		$	43,318			$	37,621			$	5,697			$	79,186			$	73,711			$	5,475
Earnings per share:
Basic		$	1.36			$	1.13			$	0.23			$	2.47			$	2.22			$	0.25
Diluted		$	1.27			$	1.06			$	0.21			$	2.31			$	2.08			$	0.23
Net loss ratio			56.7	%			74.5	%			(17.8	)			62.3	%			73.3	%			(11.0	)
Underwriting expense ratio			21.7	%			19.3	%			2.4				21.7	%			19.4	%			2.3
Combined ratio			78.4	%			93.8	%			(15.4	)			84.0	%			92.7	%			(8.7	)
Operating ratio			42.7	%			60.2	%			(17.5	)			49.1	%			60.4	%			(11.3	)
Return on equity*			13.7	%			13.0	%			0.7				12.6	%			13.0	%			(0.4	)