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

Stocks in this article: BWINA BWINB

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.

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