BOSTON ( TheStreet) -- Insurance stocks are in vogue as companies are making money on investments and writing policies. Plus, the crazy half-brother known as AIG ( AIG) has been lying low, giving insurance companies a breather from bad-news flow. Indianapolis-based Baldwin & Lyons ( BWINB) is rising in investment stature, according to TheStreet.com's stock model, which upgraded the insurer two months ago following impressive third-quarter results. Baldwin & Lyons has risen 3% since then and recently broke into our list of the top-100-ranked stocks. Baldwin & Lyons endured a difficult 2008. It posted net losses in three out of four quarters. Management watched the company's share price plummet from a high of $27.39 to a low of $16.50. In 2009, losses subsided and profitability resumed. In the third quarter, Baldwin & Lyons swung to a profit of $14 million, or 97 cents a share, from a loss of $7 million, or 48 cents, a year earlier. The company's gross and operating margins climbed from negative territory to 20%. Baldwin & Lyons' balance sheet improved considerably. Cash and marketable securities more than doubled to $189 million as debt increased 23% to $9 million. The insurer is modestly levered. Its two U.S.-based subsidiaries, Protective Insurance and Sagamore Insurance, receive strong marks from our insurance model. Protective earns a grade of "A" (excellent) and Sagamore merits a grade of "B" (good). Our stock model gives the holding company a financial-strength score of 7.9 out of 10, higher than the "buy"-list average of 7.1. In addition, the stock pays a quarterly dividend of 25 cents, which translates to an annual yield of 4.2%. The company's payout ratio, a measure of dividend safety, clocks in at a stable 46%. The quarterly dividend peaked at 35 cents a share in 2007, prior to the onset of the recession. If operating conditions continue to improve, it's feasible for management to raise the distribution again. Baldwin & Lyons has amassed a record of consistent payouts and dividend growth starting in the 1980s.
The stock trades at a price-to-earnings ratio of 11 and a price-to-book ratio of 1, discounts to insurance-industry averages. However, the shares are comparatively expensive when considering sales and cash flow per share. Baldwin & Lyons is a lesser-known insurance company, which makes it attractive to value-conscious investors. But its daily trading volume, around 17,000 shares, is notably low, so the stock is susceptible to a major slide if an institutional owner jumps ship. Baldwin & Lyons's shares increased 29% over the past year, matching the Dow Jones Industrial Average, but trailing the Russell 2000, a small-cap barometer. We rate the insurer "buy." -- Reported by Jake Lynch in Boston.