AM Best Information Services

JUNE 15, 2016 10:36 AM (EDT)

A.M. Best Affirms Ratings of the Members of the Baldwin & Lyons Group

 Darian Ryan
Senior Financial Analyst
(908) 439-2200, ext. 5449

Daniel Ryan
Vice President
(908) 439-2200, ext. 5325

Christopher Sharkey
Manager, Public Relations
+1 908 439-2200, ext. 5159

Jim Peavy
Assistant Vice President, Public Relations
+1 908 439-2200, ext. 5644


OLDWICK - JUNE 15, 2016 10:36 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 each of these ratings is stable. All companies are domiciled in Carmel, 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 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 small fleet trucking programs, 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 automobile and recently terminated 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.

Growth in the group’s assumed property reinsurance business and Florida business owners policies (BOP) segment in recent years diversified revenues, but 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. The group has since terminated all of its U.S. and non-U.S. assumed property reinsurance programs and 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.

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 its limited business profile, following significant reunderwriting initiatives over the past few years, and poor calendar year underwriting performance. PSIC company has faced 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 increased underwriting losses. Effective Dec. 31, 2012, PSIC’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 PSIC’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 outlooks for PIC and Sagamore could be lowered if the operating performance is impacted by material unfavorable investment performance given the sizable amounts of higher risk invested assets held by the company. Additionally, the ratings and outlooks for the companies could be lowered if a sudden or unforeseen change affects its larger client relationships. Finally, any event that limits the financial flexibility of its parent or any significant deterioration in the group’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), could negatively impact the ratings.

PSIC’s ratings could come under pressure if execution risks associated with growth or soft market conditions result in the company’s underwriting and overall profitability underperforming its peers for a sustained period. Additionally, the company’s ratings could come under pressure if there is a material decline in its risk-adjusted capitalization, or if PIC no longer provides continued necessary financial and operational support.

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 see A.M. Best’s Recent Rating Activity web page.

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