OLDWICK, N.J.--(BUSINESS WIRE)--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.
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