A.M. Best Revises Outlooks to Negative for Baldwin & Lyons, Inc. and Its Subsidiaries
July 13 2018 - 12:48PM
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.
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 affiliates. ALL RIGHTS RESERVED.
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version on businesswire.com: https://www.businesswire.com/news/home/20180713005383/en/
A.M. BestHerman W. Redd, +1 908 439 2200, ext.
5623Financial
Analystherman.redd@ambest.comorChristopher Sharkey, +1 908
439 2200, ext. 5159Manager, Public
Relationschristopher.sharkey@ambest.comorSusan Molineux, +1
908 439 2200, ext. 5829Associate
Directorsusan.molineux@ambest.comorJim Peavy, +1 908 439
2200, ext. 5644Director, Public
Relationsjames.peavy@ambest.com
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