OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. has affirmed the financial strength rating (FSR) of
A+ (Superior) and issuer credit ratings (ICR) of “aa-” of Protective
Insurance Company (PIC) and its wholly owned subsidiary, Sagamore
Insurance Company (Sagamore). In addition, A.M. Best has affirmed
the FSR of A (Excellent) and ICR of “a” of PIC’s other wholly owned,
separately rated subsidiary, Protective Specialty Insurance Company
(PSIC). Collectively, these three companies are referred to as Baldwin
& Lyons Group (the group).
“Risk
Management and the Rating Process for Insurance Companies”
Concurrently, A.M. Best has affirmed the ICR of “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 ratings of PIC and Sagamore reflect the group's superior
risk-adjusted capitalization, historically excellent operating
performance and solid market position in its core commercial trucking
market. These positive rating factors 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 development
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 property reinsurance, and more recently,
professional lines errors and omissions (PL E&O) insurance, and workers'
compensation insurance, the latter largely marketed, along with other
coverages, to commercial trucking independent contractors. Historically,
the group's emphasis on disciplined underwriting and loss control has
led to solid underwriting profitability and substantial loss reserve
redundancies on prior accident years.
These positive rating attributes are partially offset by the long-term
competitive nature of the group’s core commercial trucking and
non-standard personal automobile markets; elevated exposure to
investment variability due to above-average common stock and limited
partnership investments; variability in earnings due to catastrophe
losses; below-average net yield on investments; the shareholder dividend
requirements of Baldwin & Lyons, Inc.; and the degree of concentration
with its largest customer. While growth in the group's Florida business
owners policies (BOP) and assumed property reinsurance business in
recent years diversified revenues, the growth added a new potential
source of variability in results through exposure to natural
catastrophes, as evidenced in the group’s assumed property reinsurance
business in 2010 and 2011. In 2012, the group terminated two assumed
property reinsurance programs and began terminating all of its Florida
BOP business, due to the belief that these catastrophe exposures
outweighed potential profitability, thus significantly lowering overall
catastrophe exposure.
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 the company’s substantial reinsurance
programs.
These positive rating factors are partially offset by the significant
challenges and uncertainties associated with PSIC’s PL E&O insurance
operations launched in 2010, including acceptance in the marketplace,
the execution risks associated with growing the business in competitive
markets and the potential variability in profitability. In 2012, the
company began terminating all of its catastrophe exposed Florida BOP
business believing its risk/reward aspects were no longer favorable.
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.
Baldwin & Lyons, Inc. is financially strong with very low financial
leverage and solid coverage ratios, as well as access to capital
markets. Stockholder dividends from its agency/brokerage and insurance
operations comfortably support its dividend and debt obligations.
The ratings and outlook of PIC and Sagamore could come under pressure
should soft market conditions and a lack of underwriting discipline
result in the group’s underwriting and overall profitability
underperforming its peers for a sustained period or should there be a
material decline in the group’s risk-adjusted capitalization.
PSIC’s ratings and outlook could come under pressure should execution
risks associated with growth or soft market conditions result in its
underwriting and overall profitability underperforming its peers, should
there be a material decline in its risk-adjusted capitalization or
should affiliates 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”; “Catastrophe
Analysis in A.M. Best Ratings”; “Rating Members of Insurance Groups”;
and “Understanding BCAR for Property/Casualty Insurers.” Best’s Credit
Methodology can be found at www.ambest.com/ratings/methodology.
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 © 2013 by A.M. Best Company, Inc. ALL RIGHTS
RESERVED.
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