Press Release - APRIL 17, 2012

A.M. Best Downgrades Issuer Credit Ratings and Affirms Financial Strength Rating of Baldwin & Lyons Group

 W. Dolson Smith, CFA
Senior Financial Analyst
(908) 439-2200, ext. 5379

Michael J. Lagomarsino, CFA
Assistant Vice President
(908) 439-2200, ext. 5810
Rachelle Morrow
Senior Manager, Public Relations
(908) 439-2200, ext. 5378

Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644


OLDWICK, N.J. - APRIL 17, 2012
A.M. Best Co. has downgraded the issuer credit ratings (ICR) to “aa-” from “aa” and affirmed the financial strength rating (FSR) of A+ (Superior) of the Baldwin & Lyons Group, which includes the lead company, Protective Insurance Company (PIC) and its wholly owned subsidiary, Sagamore Insurance Company. In addition, A.M. Best has affirmed the FSR of A (Excellent) and ICR of “a” of PIC’s other wholly owned subsidiary, Protective Specialty Insurance Company (PSIC).

Concurrently, A.M. Best has downgraded the ICR to “a-” from “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 affirmation of Baldwin & Lyons Group’s FSR reflects its superior risk-adjusted capitalization, historically excellent operating performance and solid market position in its core commercial trucking market. These positive attributes 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 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 reinsurance, Florida business owners’ policies (BOP), professional lines errors and omissions (E&O) insurance and workers’ compensation insurance, the latter largely marketed to commercial trucking independent contractors. Historically, Baldwin & Lyons Group’s emphasis on disciplined underwriting and loss control has led to solid underwriting profitability and substantial loss reserve redundancies on prior accident years.

The positive rating factors are partially offset by the long-term competitive nature of Baldwin & Lyons Group’s core commercial trucking and non-standard automobile markets; elevated exposure to investment variability due to above-average common stock and limited partnership investments as evidenced in 2008 and 2011; variability in earnings due to catastrophe losses as demonstrated in 2010 and 2011, below-average net yield on investments resulting largely from a conservative fixed income portfolio both in terms of risk and duration; shareholder dividend requirements of the parent; and a degree of concentration with the group’s largest customer.

The downgrading of the ICR for the Baldwin & Lyons Group largely reflects the magnitude of its catastrophe losses in 2010, and particularly 2011, which significantly exceeded A.M. Best’s expectations and is not characteristic of its current ratings, and which contributed to slippage in its operating performance relative to comparably rated peers. While A.M. Best believes the group has taken appropriate actions to reduce its catastrophe exposures to more prudent levels, catastrophe losses will likely continue to be a source of earnings variability in the future. In addition, there are significant challenges and uncertainties relating to several of the group’s recently formed businesses associated with the successful execution of operating plans in highly competitive property/casualty markets.

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 substantial reinsurance programs.

These positive rating factors are partially offset by the significant uncertainties associated with PSIC’s recently formed business operations, including the property catastrophe exposure of its dominant Florida BOP operations and the potential variability in the profitability of its E&O insurance, as well as the currently low yield on its investment portfolio. Furthermore, the production of PSIC’s Florida BOP business is concentrated with one managing general agent.

The downgrading of the ICR of Baldwin & Lyons, Inc. is based on applying standard notching off the ICR of Baldwin & Lyons Group. Baldwin & Lyons, Inc. maintains low financial leverage, with adjusted debt-to-capital of 3.3% at year-end 2011, and favorable coverage ratios.

Baldwin & Lyons Group’s ratings and outlook could come under pressure should soft market conditions and a lack of underwriting discipline result in its underwriting and overall profitability continuing to underperform its peers for a sustained period or should there be a further material decline in the group’s risk-adjusted capitalization.

PSIC’s ratings and outlook could come under pressure should execution risks associated with new operations or soft market conditions result in the company’s underwriting and overall profitability underperforming its peers; should there be a material decline in its risk-adjusted capitalization; or should PIC 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”; “Understanding BCAR for Property/Casualty Insurers”; “Catastrophe Analysis in A.M. Best Ratings”; Rating Members of Insurance Groups”; and Insurance Holding Company and Debt Ratings.” Best’s Credit Rating Methodology can be found at

Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source.

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