A.M. Best Revises Outlooks to Negative for Baldwin & Lyons, Inc. and Its Subsidiaries

A.M. Best has revised the outlooks to negative from stable and
affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the
Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa-” of Protective
Insurance Company (PIC) and its wholly owned subsidiary, Sagamore
Insurance Company (Sagamore). These companies are collectively
referred to as the Baldwin & Lyons Group (the group). In
addition, A.M. Best also has revised the outlooks to negative from
stable and affirmed the FSR of A (Excellent) and the Long-Term ICR of
“a” of PIC’s other wholly owned subsidiary, Protective Specialty
Insurance Company (PSIC). Concurrently, A.M. Best has revised the
outlook to negative from stable and affirmed the Long-Term ICR of “a-”
of the organization’s publicly traded ultimate parent, Baldwin &
Lyons, Inc. (B&L) [NASDAQ: BWINA and BWINB]. All companies are
domiciled in Carmel, IN.

The ratings of PIC and Sagamore reflect the group’s balance sheet
strength, which A.M. Best categorizes as very strong, as well as its
strong operating performance, favorable business profile and appropriate
enterprise risk management. These positive rating factors are derived
from the group’s modest underwriting leverage, historically favorable
operating results and its well-respected reputation as being a leading
specialty, niche insurer in the commercial transportation sector. The
group also benefits from its long-standing client relationships,
including its largest customer – FedEx. These positive rating attributes
are partially offset by concerns regarding the group’s rapid growth,
heavy customer concentration, the potential financial fallout and risk
encountered in the event this long-standing relationship is non-renewed
or terminated and its continued adverse loss reserve development
reported in 2016 and 2017. Over the years, the group has benefited from
its affinity relationship with FedEx. Any material deviation in this
relationship could be detrimental to the group’s business profile.

The ratings of PSIC reflect the company’s balance sheet strength, which
A.M. Best categorizes as very strong, as well as its weak operating
performance, limited business profile and appropriate enterprise risk
management. The ratings of PSIC reflect the company’s more than
supportive capitalization and the explicit financial support provided by
its affiliates, which includes a financial guarantee and aggregate stop
loss coverage. The ratings of PSIC are further enhanced by the company’s
strategic role within the group under its new marketing and rebranding
campaign. These positive rating attributes are offset by PSIC’s limited
business profile and weaker-than-expected operating results, both
reflective of its primary task of winding down its discontinued business
lines. PSIC’s catastrophe-exposed Florida business owner’s policy
writings were discontinued after 2012, which was later followed by the
termination of its largest managing general agent, which wrote legal
professional errors and omissions business in 2015.

The ratings of B&L reflect the organization’s low financial leverage,
its generally favorable interest and fixed coverage ratios, and its
access to capital markets.

The revised outlook on the group reflects the ongoing adverse loss
development that it experienced in 2016 and 2017 and its rapid expansion
into lines of business, which has driven this adverse development.
According to the group’s management, this expansion is expected to be
profitable and should alleviate the group’s heavy concentration with its
largest customer. However, A.M. Best has some concerns around the
execution of this expansion plan given the challenges in the commercial
auto sector, the recent instability in the group’s reserves and the
potential that further unforeseen developments could negatively impact
the group’s ratings.

Negative rating action could occur as a result of an unforeseen change
in the group’s relationship with its largest client, or if there is
significant weakening of the balance sheet due to a loss of surplus,
which could result from an increase in claims frequency or severity; a
decline in investment values; or from adverse reserve development.

This press release relates to Credit Ratings 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. For additional information
regarding the use and limitations of Credit Rating opinions, please view Understanding
Best’s Credit Ratings. For information on the proper media
use of Best’s Credit Ratings and A.M. Best press releases, please view Guide
for Media – Proper Use of Best’s Credit Ratings and A.M. Best Rating
Action Press Releases.

A.M. Best is the world’s oldest and most authoritative insurance
rating and information source. For more information, visit www.ambest.com.

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its

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