A.M. Best Affirms Ratings of Baldwin & Lyons, Inc. and Its Subsidiaries

  A.M. Best Affirms Ratings of Baldwin & Lyons, Inc. and Its Subsidiaries

Business Wire

OLDWICK, N.J. -- April 4, 2013

A.M. Best Co. has affirmed the financial strength rating (FSR) of A+
(Superior) and issuer credit ratings (ICR) of “aa-” of Protective Insurance
Company (PIC) and its wholly owned subsidiary, Sagamore Insurance Company
(Sagamore). In addition, A.M. Best has affirmed the FSR of A (Excellent) and
ICR of “a” of PIC’s other wholly owned, separately rated subsidiary,
Protective Specialty Insurance Company (PSIC). Collectively, these three
companies are referred to as Baldwin & Lyons Group (the group).

Concurrently, A.M. Best has affirmed the ICR of “a-” of the group’s ultimate
publicly traded parent, Baldwin & Lyons, Inc. [NASDAQ: BWINA and BWINB]. The
outlook for all ratings is stable. All companies are domiciled in
Indianapolis, IN.

The ratings of PIC and Sagamore reflect the group's superior risk-adjusted
capitalization, historically excellent operating performance and solid market
position in its core commercial trucking market. These positive rating factors
are derived from the group’s modest underwriting leverage, disciplined
underwriting practices and solid market presence within the national and
regional commercial trucking market. Long-standing relationships are
maintained with a core group of large trucking firms, including the group's
largest customer, resulting from its commitment to service and product
development initiatives, which somewhat offsets concerns regarding customer
concentration. In addition, the group increasingly operates as a diversified
carrier through its expansion of products and markets, including non-standard
personal automobile coverage, small fleet trucking programs, assumed property
reinsurance, and more recently, professional lines errors and omissions (PL
E&O) insurance, and workers' compensation insurance, the latter largely
marketed, along with other coverages, to commercial trucking independent
contractors. Historically, the group's emphasis on disciplined underwriting
and loss control has led to solid underwriting profitability and substantial
loss reserve redundancies on prior accident years.

These positive rating attributes are partially offset by the long-term
competitive nature of the group’s core commercial trucking and non-standard
personal automobile markets; elevated exposure to investment variability due
to above-average common stock and limited partnership investments; variability
in earnings due to catastrophe losses; below-average net yield on investments;
the shareholder dividend requirements of Baldwin & Lyons, Inc.; and the degree
of concentration with its largest customer. While growth in the group's
Florida business owners policies (BOP) and assumed property reinsurance
business in recent years diversified revenues, the growth added a new
potential source of variability in results through exposure to natural
catastrophes, as evidenced in the group’s assumed property reinsurance
business in 2010 and 2011. In 2012, the group terminated two assumed property
reinsurance programs and began terminating all of its Florida BOP business,
due to the belief that these catastrophe exposures outweighed potential
profitability, thus significantly lowering overall catastrophe exposure.

PSIC’s ratings recognize its excellent risk-adjusted capitalization, the
operational and financial support of PIC, its experienced management team and
the targeted earnings and capital accumulation projections set forth by
management. In addition, the ratings consider the mitigation of underwriting
risks through the company’s substantial reinsurance programs.

These positive rating factors are partially offset by the significant
challenges and uncertainties associated with PSIC’s PL E&O insurance
operations launched in 2010, including acceptance in the marketplace, the
execution risks associated with growing the business in competitive markets
and the potential variability in profitability. In 2012, the company began
terminating all of its catastrophe exposed Florida BOP business believing its
risk/reward aspects were no longer favorable. A.M. Best will continue to
closely monitor PSIC’s progress to ensure targeted results are attained and
capital and surplus are in compliance with A.M. Best’s standards relative to
its ratings.

Baldwin & Lyons, Inc. is financially strong with very low financial leverage
and solid coverage ratios, as well as access to capital markets. Stockholder
dividends from its agency/brokerage and insurance operations comfortably
support its dividend and debt obligations.

The ratings and outlook of PIC and Sagamore could come under pressure should
soft market conditions and a lack of underwriting discipline result in the
group’s underwriting and overall profitability underperforming its peers for a
sustained period or should there be a material decline in the group’s
risk-adjusted capitalization.

PSIC’s ratings and outlook could come under pressure should execution risks
associated with growth or soft market conditions result in its underwriting
and overall profitability underperforming its peers, should there be a
material decline in its risk-adjusted capitalization or should affiliates not
provide continued necessary financial and operational support.

The methodology used in determining these ratings is Best’s Credit Rating
Methodology, which provides a comprehensive explanation of A.M. Best’s rating
process and contains the different rating criteria employed in the rating
process. Key criteria utilized include: “Risk Management and the Rating
Process for Insurance Companies”; “Catastrophe Analysis in A.M. Best Ratings”;
“Rating Members of Insurance Groups”; and “Understanding BCAR for
Property/Casualty Insurers.” Best’s Credit Methodology can be found at

A.M. Best Company is the world’s oldest and most authoritative insurance
rating and information source. For more information, visit www.ambest.com.

       Copyright © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.


A.M. Best Co.
W. Dolson Smith, CFA, 908-439-2200, ext. 5379
Senior Financial Analyst
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
Michael J. Lagomarsino, CFA, 908-439-2200, ext. 5810
Assistant Vice President
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
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