The downgrading of the ICR for the Baldwin & Lyons Group largely reflects the magnitude of its catastrophe losses in 2010, and particularly 2011, which significantly exceeded A.M. Best’s expectations and is not characteristic of its current ratings, and which contributed to slippage in its operating performance relative to comparably rated peers. While A.M. Best believes the group has taken appropriate actions to reduce its catastrophe exposures to more prudent levels, catastrophe losses will likely continue to be a source of earnings variability in the future. In addition, there are significant challenges and uncertainties relating to several of the group’s recently formed businesses associated with the successful execution of operating plans in highly competitive property/casualty markets.PSIC’s ratings recognize its excellent risk-adjusted capitalization, the operational and financial support of PIC, its experienced management team and the 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 uncertainties associated with PSIC’s recently formed business operations, including the property catastrophe exposure of its dominant Florida BOP operations and the potential variability in the profitability of its E&O insurance, as well as the currently low yield on its investment portfolio. Furthermore, the production of PSIC’s Florida BOP business is concentrated with one managing general agent. The downgrading of the ICR of Baldwin & Lyons, Inc. is based on applying standard notching off the ICR of Baldwin & Lyons Group. Baldwin & Lyons, Inc. maintains low financial leverage, with adjusted debt-to-capital of 3.3% at year-end 2011, and favorable coverage ratios. Baldwin & Lyons Group’s ratings and outlook could come under pressure should soft market conditions and a lack of underwriting discipline result in its underwriting and overall profitability continuing to underperform its peers for a sustained period or should there be a further material decline in the group’s risk-adjusted capitalization.
PSIC’s ratings and outlook could come under pressure should execution risks associated with new operations or soft market conditions result in the company’s underwriting and overall profitability underperforming its peers; should there be a material decline in its risk-adjusted capitalization; or should PIC 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. 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 Ratings”; Rating Members of Insurance Groups”; and Insurance Holding Company and Debt Ratings.” Best’s Credit Rating Methodology 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 © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.