A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit ratings (ICR) of “aa” 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 wholly owned subsidiary, Protective Specialty Insurance Company (PSIC). Concurrently, A.M. Best has affirmed the ICR of “a” of the group and PSIC’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 group’s ratings reflect its superior risk-adjusted capitalization, solid operating performance and market position in its core commercial trucking market. These positive rating 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, somewhat offsetting 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 and, more recently, Florida business owners’ policies (BOP) and miscellaneous professional lines errors and omissions (MPL E&O) insurance. Historically, the group’s emphasis on disciplined underwriting and loss controls has led to solid underwriting profitability and consistent loss reserve redundancies on prior accident years. The group’s positive rating factors are partially offset by the long-term competitive nature of its core commercial trucking and non-standard automobile markets; elevated exposure to investment variability due to above-average common stock and limited partnership investments (as demonstrated by realized and unrealized capital losses experienced by the group in years 2008, followed by gains in 2009 and 2010); shareholder dividend requirements of the parent; and a degree of concentration with its largest customer. While growth in the group’s assumed reinsurance program and recent entrance into the Florida BOP business adds diversification, it also adds a source of potential variability in results through exposure to natural catastrophes as evidenced in the assumed reinsurance program in 2010 and the first quarter of 2011.
PSIC’s ratings recognize its excellent risk-adjusted capitalization, operational and financial support of affiliates, experienced management team and its targeted earnings and capital accumulation projections set forth by management. In addition, the ratings consider the mitigation of underwriting risks through substantial reinsurance programs.These positive rating factors are partially offset by the significant challenges and uncertainties associated with PSIC’s newly formed business operations, including the successful execution of its operating plans in highly competitive property/casualty markets, the property catastrophe exposure of its dominant Florida BOP operations and the potential variability in profitability of its more limited MPL E&O insurance. Furthermore, the production of PSIC’s Florida BOP business is concentrated with one managing general agent. Explicit support from PSIC’s affiliates includes a financial guarantee of all its liabilities and/or obligations and stop loss coverage being provided by its financially strong parent, PIC. Baldwin & Lyons, Inc. also is financially strong with very low financial leverage and solid coverage ratios, as well as access to capital markets. 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. The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition , which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “Catastrophe Analysis in A.M. Best’s Ratings”; Natural Catastrophe Stress Test Methodology”; “Rating Members of Insurance Groups”; and “A.M. Best’s Ratings & the Treatment of Debt.” Methodologies can be found at www.ambest.com/ratings/methodology. Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com. Copyright © 2011 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.