Press Release - APRIL 04, 2013

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

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 04, 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 Rating Methodology can be found at

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

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