AM Best Information Services

APRIL 16, 2015 09:14 AM (EDT)

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

Christopher Sharkey
Manager, Public Relations
(908) 439-2200, ext. 5159

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


OLDWICK - APRIL 16, 2015 09:14 AM (EDT)
A.M. Best has affirmed the financial strength rating (FSR) of A+ (Superior) and the 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 the 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 the 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. (B&L) [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 of large trucking firms, including the group's largest customer, resulting from its commitment to service and product development initiatives, which somewhat offsets A.M. Best's 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, 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 group's core commercial automobile and non-standard personal automobile markets; elevated exposure to investment variability due to above-average common stock and limited partnership investments; below average net yield on investments; shareholder dividend requirements of B&L and the degree of concentration in its largest customer. While growth in the group's assumed property reinsurance business and Florida business owners policies (BOP) in recent years diversified revenues, the growth added a new potential source of variability through exposure to natural catastrophes, as evidenced in the group's assumed property reinsurance losses in 2010 and 2011. In 2012-2014, the group terminated all its U.S. and non-U.S. assumed property reinsurance programs and all of its Florida BOP business. These actions largely reflected the changes in property catastrophe markets that included significant amounts of new capital which drove down premium rates, resulting in less favorable terms for reinsurers. The group will have eliminated all its U.S. and non-U.S. property catastrophe assumed exposures once all the remaining coverages run off in the first half of 2015.

PSIC's ratings recognize its excellent risk-adjusted capitalization; the operational and financial support PIC provides PSIC, including a financial guarantee and aggregate stop loss coverage; and the targeted earnings and capital accumulation projections set forth by management. In addition, PSIC's ratings consider the mitigation of underwriting risks through substantial reinsurance.

PSIC's positive rating factors are offset by the significant challenges and uncertainties associated with its 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 as evidenced in 2013 and 2014. Effective Dec. 31, 2012, the company's catastrophe-exposed Florida BOP business was discontinued and remained in run-off mode through 2013, due to management believing its risk/reward aspects of this catastrophe-exposed business were no longer favorable. More recently, the company's direct and assumed PL premiums have declined as a result of the discontinuance in late 2013 of certain PL products produced by a single managing general agent due to unfavorable loss experience.

B&L 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 negative rating 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 and/or should there be a material decline in the group's risk-adjusted capitalization.

PSIC's ratings and outlook could come under negative rating pressure should execution risks associated with growth and/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. Best's Credit Rating Methodology can be found at

Key insurance criteria reports utilized:

  • Catastrophe Analysis in A.M. Best Ratings

  • Rating Members of Insurance Groups

  • Risk Management and the Rating Process for Insurance Companies

  • Understanding BCAR for Property/Casualty Insurers

  • Insurance Holding Company and Debt Ratings

This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best's Ratings & Criteria Center .

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