1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
------------------------------------------------------
For Quarter Ended Commission file number
September 30, 2005 0-5534
BALDWIN & LYONS, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-0160330
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1099 NORTH MERIDIAN STREET, INDIANAPOLIS, INDIANA 46204
- ------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (317) 636-9800
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No[ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes [ X ] No[ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of November 4, 2005:
TITLE OF CLASS NUMBER OF SHARES OUTSTANDING
Common Stock, No Par Value:
Class A (voting) 2,666,666
Class B (nonvoting) 12,120,521
Index to Exhibits located on page 15.
2
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
BALDWIN & LYONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
SEPTEMBER 30 December 31
2005 2004
------------------ ------------------
ASSETS
Investments:
Fixed maturities $ 273,809 $ 331,281
Equity securities 133,732 133,042
Other long-term 40,330 15,989
Short-term 67,130 36,406
------------------ ------------------
515,001 516,718
Cash and cash equivalents 90,495 57,384
Accounts receivable 28,417 33,481
Reinsurance recoverable 213,730 236,466
Notes receivable from employees 2,334 2,514
Other assets 17,701 22,000
------------------ ------------------
$ 867,678 $ 868,563
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Reserves for losses and loss expenses $ 442,281 $ 441,821
Reserves for unearned premiums 32,315 33,233
Notes payable to banks - 6,000
Accounts payable and accrued expenses 38,315 48,224
Current federal income taxes 2,027 660
Deferred federal income taxes 12,596 12,077
------------------ ------------------
527,534 542,015
Shareholders' equity:
Common stock-no par value 631 628
Additional paid-in capital 38,563 37,083
Unrealized net gains on investments 47,747 44,497
Retained earnings 253,203 244,340
------------------ ------------------
340,144 326,548
------------------ ------------------
$ 867,678 $ 868,563
================== ==================
See notes to condensed consolidated financial statements.
3
BALDWIN & LYONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Nine Months Ended
September 30 September 30
------------------------------ -------------------------------
2005 2004 2005 2004
------------- ------------- -------------- -------------
REVENUES
Net premiums earned $ 49,848 $ 44,384 $139,981 $126,284
Net investment income 3,734 2,958 10,589 9,138
Realized net gains on investments 2,962 27 8,430 8,135
Other income 1,645 1,752 5,284 5,461
------------- ------------- -------------- -------------
58,189 49,121 164,283 149,018
EXPENSES
Losses and loss expenses incurred 46,827 36,923 106,412 91,904
Other operating expenses 9,902 7,286 29,849 23,095
------------- ------------- -------------- -------------
56,729 44,209 136,260 114,999
------------- ------------- -------------- -------------
INCOME BEFORE FEDERAL INCOME TAXES 1,460 4,912 28,023 34,019
Federal income taxes 308 1,452 9,052 10,796
------------- ------------- -------------- -------------
NET INCOME $ 1,152 $ 3,460 $ 18,971 $ 23,223
============= ============= ============== =============
PER SHARE DATA:
BASIC EARNINGS $ .08 $ .24 $ 1.29 $ 1.59
============= ============= ============== =============
DILUTED EARNINGS $ .08 $ .23 $ 1.28 $ 1.57
============= ============= ============== =============
DIVIDENDS PAID TO SHAREHOLDERS $ .35 $ .15 $ .70 $ 1.05
============= ============= ============== =============
RECONCILIATION OF SHARES OUTSTANDING:
Average shares outstanding - basic 14,764 14,641 14,739 14,623
Dilutive effect of options outstanding 109 144 115 172
------------- ------------- -------------- -------------
Average shares outstanding - diluted 14,873 14,785 14,854 14,795
============= ============= ============== =============
See notes to condensed consolidated financial statements.
4
BALDWIN & LYONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
Nine Months Ended
September 30
2005 2004
------------- -------------
Net cash provided by operating activities $ 37,620 $ 47,177
Investing activities:
Purchases of long-term investments (110,125) (132,928)
Proceeds from sales or maturities
of long-term investments 152,664 129,901
Net purchases of short-term investments (30,724) (8,019)
Decrease in notes receivable from employees 169 1,533
Other investing activities (1,470) (627)
------------- -------------
Net cash provided by (used in) investing activities 10,514 (10,140)
Financing activities:
Dividends paid to shareholders (10,329) (15,354)
Repayment on notes payable (6,000) -
Proceeds from sales of common stock 1,306 384
------------- -------------
Net cash used in financing activities (15,023) (14,970)
------------- -------------
Increase in cash and cash equivalents 33,111 22,067
Cash and cash equivalents at beginning of period 57,384 30,078
------------- -------------
Cash and cash equivalents at end of period $90,495 $52,145
============= =============
See notes to condensed consolidated financial statements.
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION: The accompanying unaudited condensed financial
statements have been prepared in accordance with the instructions to Form
10Q and do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for fair presentation have been
included. Operating results for the interim periods are not necessarily
indicative of the results that may be expected for the year ended December
31, 2005. Interim financial statements should be read in conjunction with
the Company's annual audited financial statements and other disclosures
included in the Company's most recent Form 10K.
5
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) FORWARD-LOOKING STATEMENTS: Forward-looking statements in this report are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Investors are cautioned that such forward-looking statements
involve inherent risks and uncertainties. Readers are encouraged to review the
Company's annual report for its full statement regarding forward-looking
information.
(3) REINSURANCE: The following table summarizes the Company's transactions with
reinsurers for the 2005 and 2004 comparative periods.
2005 2004
---------- -----------
Quarter ended September 30:
Premiums ceded to reinsurers $ 8,225 $ 21,803
Losses and loss expenses
ceded to reinsurers 19,620 23,465
Commissions from reinsurers 1,482 5,665
Nine months ended September 30:
Premiums ceded to reinsurers 31,313 62,688
Losses and loss expenses
ceded to reinsurers 42,508 71,583
Commissions from reinsurers 6,568 16,601
(4) COMPREHENSIVE INCOME OR LOSS: Total realized and unrealized income for the
quarter ended September 30, 2005 was $8,056 and compares to total realized and
unrealized income of $2,426 for the quarter ended September 30, 2004. For the
nine months ended September 30, 2005, total realized and unrealized income was
$22,441 and compares to total realized and unrealized income of $16,935 for the
nine months ended September 30, 2004.
6
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) REPORTABLE SEGMENTS - PROFIT OR LOSS: The following table provides certain
profit and loss information for each reportable segment. All amounts presented
are computed based upon generally accepted accounting principles. In addition,
segment profit for fleet trucking includes the direct marketing agency
operations conducted by the parent company and is computed after elimination of
inter-company commissions and, accordingly, segment profit presented here will
not agree with statutory underwriting gains for this segment which may be quoted
elsewhere in the Company's financial statements.
2005 2004
------------------------------------------- -----------------------------------------
NET NET
DIRECT AND PREMIUM DIRECT AND PREMIUM
ASSUMED EARNED SEGMENT ASSUMED EARNED SEGMENT
PREMIUM AND FEE PROFIT PREMIUM AND FEE PROFIT
WRITTEN INCOME (LOSS) WRITTEN INCOME (LOSS)
------------ ----------- ------------ ------------ ----------- -----------
THREE MONTHS ENDED SEPTEMBER 30:
PROTECTIVE PRODUCTS:
Fleet trucking $ 39,296 $ 33,262 $ 6,013 $ 46,688 $ 27,689 $ 7,334
Reinsurance assumed 4,498 4,367 (10,534) 1,842 2,195 (2,934)
SAGAMORE PRODUCTS:
Personal division 7,651 10,602 1,607 8,441 11,208 1,549
Commercial division:
Small fleet trucking 4,045 2,379 8 3,970 2,644 (33)
Workers' compensation 48 404 (15) 1,790 2,055 (1,440)
------------ ----------- ------------ ------------ ----------- -----------
Total Commercial division 4,093 2,783 (7) 5,760 4,699 (1,473)
All other 304 410 102 294 280 (227)
------------ ----------- ------------ ------------ ----------- -----------
Totals $ 55,842 $ 51,424 $ (2,819) $ 63,025 $ 46,071 $ 4,249
============ =========== ============ ============ =========== ===========
NINE MONTHS ENDED SEPTEMBER 30:
PROTECTIVE PRODUCTS:
Fleet trucking $117,402 $ 91,875 $ 20,621 $130,204 $ 74,606 $ 20,796
Reinsurance assumed 8,916 9,596 (7,914) 6,678 8,183 729
SAGAMORE PRODUCTS:
Personal division 31,138 32,927 3,737 32,420 34,037 4,720
Commercial division:
Small fleet trucking 11,679 6,868 258 12,173 7,727 436
Workers' compensation 140 2,625 100 7,689 6,124 (2,110)
------------ ----------- ------------ ------------ ----------- ----------
Total Commercial division 11,819 9,493 358 19,862 13,851 (1,674)
All other 1,096 1,102 (295) 912 829 (414)
------------ ----------- ------------ ------------ ----------- ----------
Totals $170,371 $144,993 $16,507 $190,076 $131,506 $ 24,157
============ =========== ============ ============ =========== ==========
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NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) REPORTABLE SEGMENTS - RECONCILIATION TO CONSOLIDATED REVENUE AND
CONSOLIDATED PROFIT OR LOSS: The following tables are reconciliations of
reportable segment revenues and profit or loss to the Company's consolidated
revenue and income before federal income taxes, respectively.
Three Months Ended Nine Months Ended
September 30 September 30
2005 2004 2005 2004
------------- ------------- -------------- -------------
REVENUE:
Net premium earned and fee income $51,424 $46,071 $144,993 $131,506
Net investment income 3,734 2,958 10,589 9,138
Realized net gains on investments 2,962 27 8,430 8,135
Other 69 65 271 239
------------- ------------- -------------- -------------
Total consolidated revenue $58,189 $49,121 $164,283 $149,018
============= ============= ============== =============
PROFIT:
Segment profit $ (2,819) $4,249 $16,507 $24,157
Net investment income 3,734 2,958 10,589 9,138
Realized net gains on investments 2,962 27 8,430 8,135
Corporate expenses (2,417) (2,322) (7,503) (7,411)
------------- ------------- -------------- -------------
Income before federal income taxes $1,460 $4,912 $28,023 $34,019
============= ============= ============== =============
(7) LOANS TO EMPLOYEES: In 2000, 2001 and 2002 the Company provided loans to
certain employees for the sole purpose of purchasing the Company's Class B
common stock in the open market. $7,260 of such full-recourse loans were issued
and $2,266 remain outstanding at September 30, 2005 and carry interest rates of
between 4.75% and 6%, payable annually on the loan anniversary date. The
underlying securities serve as collateral for these loans, which must be repaid
no later than 10 years from the date of issue. No additional loans will be made
under this program.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS
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LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company generally experiences positive cash flow from operations resulting
from the fact that premiums are collected on insurance policies in advance of
the disbursement of funds in payment of claims. Operating costs of the
property/casualty insurance subsidiaries, other than loss and loss expense
payments and commissions paid to related agency companies, generally average
between 25% and 35% of premiums earned and the remaining amount is available for
investment for varying periods of time pending the settlement of claims relating
to the insurance coverage provided. The Company's cash flow relating to premiums
is significantly affected by reinsurance programs in effect from time-to-time
whereby the Company cedes both premium and risk to other insurance and
reinsurance companies. These programs vary significantly among products and
overall premium ceded rates, net of ceding commission allowances, have generally
decreased since 2001, as Protective Insurance Company has accepted more net risk
under the terms of annual reinsurance treaty renewals. For the nine months ended
September 30, 2005, the Company experienced positive cash flow from operations
totaling $37.6 million, down from the $47.2 million generated during the first
nine months of 2004. The decrease in positive cash flow is due largely to an
$18.6 million increase in net losses paid when compared to the first nine months
of 2004. Additionally, collateral deposits held by the Company on its trucking
accounts decreased $4.9 million during the first nine months of 2005 compared to
a $2.6 million increase in deposits held during the 2004 period corresponding
with a decrease in direct premium written. Although direct premium writings
decreased, changes in reinsurance agreements allowed for an increase of $5.8
million in net premiums collected when compared to the first nine months of
2004.
For several years, the Company's investment philosophy has emphasized the
purchase of relatively short-term instruments with maximum quality and
liquidity. The average life of the Company's fixed income (bond and short-term
investment) portfolio was approximately 2.2 years at September 30, 2005
representing a small decrease from the prior year end as significant portions of
the proceeds from maturing investments and new cash flows have been placed in
short-term investments in anticipation of further interest rate increases.
The Company's assets at September 30, 2005 included $90.5 million in investments
classified as short-term or cash equivalents that were readily convertible to
cash without significant market penalty. An additional $105.9 million of fixed
maturity investments will mature within the twelve-month period following
September 30, 2005. The Company believes that these liquid investments are more
than sufficient to provide for projected claim payments and operating cost
demands even before consideration of current positive cash flows.
Consolidated shareholders' equity is composed largely of GAAP shareholder's
equity of the insurance subsidiaries. As such, there are statutory restrictions
on the transfer of portions of this equity to the parent holding company. At
September 30, 2005, $50.3 million may be transferred by dividend or loan to the
parent company without approval by, or notification to, regulatory authorities.
An additional $204.9 million of shareholder's equity of the insurance
subsidiaries may be advanced or loaned to the parent holding company with prior
notification to, and approval from, regulatory authorities. The Company believes
that these restrictions pose no material liquidity concerns to the Company. The
financial strength and stability of the subsidiaries would permit ready access
by the parent company to short-term and long-term sources of credit.
The Company's annualized premium writing to surplus ratio for the first nine
months of 2005 was approximately 44%. Regulatory guidelines generally allow for
writings of 200% of surplus.
9
Accordingly, the Company can increase premium writings significantly with no
need to raise additional capital. Further, the Insurance Subsidiaries'
individual capital levels are several times higher than the minimum amounts
designated by the National Association of Insurance Commissioners.
RESULTS OF OPERATIONS
---------------------
COMPARISONS OF THIRD QUARTER, 2005 TO THIRD QUARTER, 2004
---------------------------------------------------------
Net premium earned during the third quarter of 2005 increased $5.5 million (12%)
as compared to the third quarter of 2004. A 21% increase in premiums from the
Company's fleet trucking program was partially offset by decreases in the
remainder of the Company's directly written products. In particular, premiums
from the Company's small business workers' compensation program decreased 81%
due to its discontinuance late in 2004. The small fleet trucking and private
passenger automobile programs decreased 11% and 6%, respectively, due primarily
to competitive pressures in the marketplace. Premium assumed from property
catastrophe pools included approximately $1.8 million in reinstatement premium
during the quarter resulting from Hurricane Katrina exposure.
Direct premiums written and assumed during the third quarter of 2005 totaled
$55.8 million, an 11% decrease from the $63.0 million reported a year earlier.
This decrease is due largely to a $7.4 million (16%) decrease in direct premiums
written from the Company's fleet trucking program. This decrease is due to
competitive pressures in a softening market. In addition, direct premiums
written for the Company's discontinued small business workers' compensation
product dropped $1.7 million (97%) from the prior year period. These decreases
were partially offset by a $2.7 million increase in premiums from property
catastrophe pools, including the aforementioned reinstatement premium.
Premium ceded to reinsurers averaged 17.9% of direct premium production for the
current quarter compared to 35.8% a year earlier reflecting changes in
reinsurance agreements whereby Protective Insurance Company is retaining a
larger portion of risks underwritten. This reduction in premium ceded was
instrumental in allowing for the increase in net premium earned for the quarter
despite the decline in gross production.
Net investment income, before tax, during the third quarter of 2005 was 26%
higher than the third quarter of 2004 due to increases in both average invested
assets and in yields on bonds and short-term investments. Pre-tax yields on
short-term investments nearly tripled from the prior year period. Overall after
tax yields posted similar increases.
The third quarter 2005 net realized gain of $3.0 million consisted of net gains
on limited partnerships, which are largely involved in the trading of securities
and, to a lesser extent, small venture capital investments, of $1.9 million and
net gains on direct equity trading of $1.1 million.
10
Losses and loss expenses incurred during the third quarter of 2005 increased
$9.9 million from that experienced during the third quarter of 2004 due
primarily to an estimated $14.8 million in losses sustained from Hurricanes
Katrina and Rita. Hurricane losses in the third quarter of 2004 were
approximately $5.0 million. Loss ratios for each of the Company's major product
lines were as follows:
2005 2004
-------- --------
Fleet trucking 75.2% 78.8%
Private passenger automobile 56.8 58.2
Small fleet trucking 64.7 67.9
Voluntary reinsurance assumed 339.4 215.4
Small business workers' compensation 59.2 136.6
All lines 93.9 83.2
Other operating expenses for the third quarter of 2005 increased 36% from the
third quarter of 2004. Adjusted for ceding allowances, operating expenses
decreased 12% from the third quarter of 2004 and compares favorably with the
increase in premiums earned for the quarter as many of the Company's expenses do
not vary directly with premium volume. Ceding allowances as a percentage of
direct expenses have declined due to changes in the Company's reinsurance
structure whereby the Company now retains a greater percentage of the risk
compared to prior periods, particularly within the Large and Medium Fleet
trucking products. Ceding allowances totaled $1.5 million for the 2005 quarter
compared to $5.7 million for the 2004 quarter. The ratio of consolidated other
operating expenses to operating revenue was 17.9% during the third quarter of
2005 compared to 14.8% for the 2004 third quarter, with the loss of ceding
commission adding 9 points to the current year total.
The effective federal tax rate for consolidated operations for the third quarter
of 2005 was 21.1% and is less than the statutory rate primarily because of tax
exempt investment income. The effect of tax exempt investment income was much
greater this quarter because of the lower net taxable underwriting income
resulting from the hurricane losses during the quarter.
As a result of the factors mentioned above, net income decreased $2.3 million
(67%) during the third quarter of 2005 as compared with the 2004 third quarter.
COMPARISONS OF NINE MONTHS ENDED SEPTEMBER 30, 2005 TO
------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 2004
------------------------------------
Net premiums earned increased $13.7 million (11%) during the first nine months
of 2005 as compared to the same period of 2004. The increased premium volume is
primarily attributable to a 24% increase in the Company's fleet trucking
product. The Company experienced decreases in the remainder of its directly
written products, primarily from the discontinued small business workers'
compensation product which posted a 57% decline. In addition, net premiums
earned for the small fleet and private passenger automobile products decreased
11% and 4%, respectively. Premium assumed from property catastrophe pools
increased 21% due solely to the $1.8 million reinstatement premium resulting
from Hurricane Katrina exposure.
Direct premiums written and assumed during the first nine of 2005 totaled $170.4
million, a 10% decrease from the $190.1 million reported a year earlier. All
directly-written products experienced a decline in direct premium volume for
reasons cited in the comparison of the third quarters. The most significant
decreases were $12.8 million and $7.5 million in the fleet trucking program and
the discontinued small business workers' compensation product, respectively.
Premium ceded to reinsurers averaged 19.4% of direct premium production for the
current period compared to 34.4% a year earlier.
11
Net investment income during the first nine months of 2005 was 16% higher than
the 2004 period for the same reasons as indicated in the quarterly comparison
above. After tax investment income was 14% higher than 2004 levels. Overall
pre-tax and after tax yields were higher during the current period while average
invested funds increased 6% from the prior year, resulting from positive cash
flow.
The net realized gain on investments of $8.4 million for the first nine months
of 2005 consists of net gains on equity securities and limited partnership
investments of $6.2 million and $2.4 million, respectively, partially offset by
$.3 million in losses on fixed maturity investments, after consideration of
impairment changes during the period.
Losses and loss expenses incurred during the first nine months of 2005 increased
$14.5 million from the first nine months of 2004, due primarily to the higher
hurricane losses sustained in 2005 ($9.8 million). Loss and loss expense ratios
for the comparative nine-month periods were as follows:
2005 2004
-------- --------
Fleet trucking 72.0% 77.8%
Private passenger automobile 60.9 58.3
Small fleet trucking 58.1 62.2
Voluntary reinsurance assumed 173.2 68.5
Small business workers' compensation 71.2 102.7
All lines 76.0 72.8
Other operating expenses increased $6.8 million (29%) during the first nine
months of 2005 compared to the same period of 2004. Ceding commission allowances
included in net expenses were $6.6 million for the 2005 period compared to $16.6
million in the prior year period, while expenses before consideration of ceding
allowances actually decreased $3.3 million despite the 11% increase in premium
earned. The ratio of other operating expenses to total operating revenue
(adjusted for realized gains) was 19.2% for 2005 compared to 16.4% for 2004,
with the loss of ceding commissions adding over 7 points to the current year
ratio.
The effective federal tax rate for consolidated operations for the first nine
months of 2005 was 32.3% and is less than the statutory rate primarily because
of tax exempt investment income.
As a result of the factors mentioned above, net income decreased $4.3 million
(18.3%) during the first nine months of 2005 as compared with the 2004 period.
12
FORWARD-LOOKING INFORMATION
---------------------------
Any forward-looking statements in this report, including without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties including without limitation the following: (i) the Company's
plans, strategies, objectives, expectations and intentions are subject to change
at any time at the discretion of the Company; (ii) the Company's business is
highly competitive and the entrance of new competitors into or the expansion of
the operations by existing competitors in the Company's markets and other
changes in the market for insurance products could adversely affect the
Company's plans and results of operations; (iii) other risks and uncertainties
indicated from time to time in the Company's filings with the Securities and
Exchange Commission; and (iv) other risks and factors which may be beyond the
control or foresight of the Company.
CRITICAL ACCOUNTING POLICIES
----------------------------
There have been no changes in the Company's critical accounting policies as
disclosed in the Form 10K filed for the year ended December 31, 2004.
CONCENTRATIONS OF CREDIT RISK
-----------------------------
The insurance subsidiaries cede portions of their gross premiums to numerous
reinsurers under quota share and excess of loss treaties as well as facultative
placements. These reinsurers assume commensurate portions of the risk of loss
covered by the contracts. As losses are reported and reserved, portions of the
gross losses attributable to reinsurers are established as receivable assets and
losses incurred are reduced. At September 30, 2005, amounts due from reinsurers
on paid and unpaid losses, including provisions for incurred but not reported
losses, are estimated to total approximately $214 million. Included in this
total are case basis losses (before consideration of incurred but not reported
losses) of approximately $13 million due from Converium Insurance (North
America) Inc., approximately $4 million due from PMA Re and approximately $.6
million from Trenwick Re., each of which have reported substantial reserve
strengthening and/or impairment of assets which have negatively affected their
reported financial positions. All amounts due from these reinsurers on paid
claims are current and the Company has no information at this time to indicate
that all obligations of these reinsurers will not be met.
At September 30, 2005, other long-term investments includes approximately $26.8
million consisting of three limited partnerships which are managed by
organizations in which two of the Company's directors are officers, directors,
general partners or owners. Certain of these investments contain profit sharing
agreements to the affiliated organizations.
ITEM 4. CONTROLS AND PROCEDURES
- -------------------------------
(a) The Corporation's Chief Executive Officer and Chief Financial Officer
evaluated the disclosure controls and procedures (as defined under Rules
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as
of the end of the period covered by this report. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded that the
Corporation's disclosure controls and procedures are effective.
13
(b) There were no significant changes in the Corporation's internal control over
financial reporting identified in connection with the foregoing evaluation that
occurred during the Corporation's last fiscal quarter that have affected, or are
reasonably likely to materially affect, the Corporation's internal control over
financial reporting.
PART II - OTHER INFORMATION
ITEM 6 (a) EXHIBITS
- --------------------
NUMBER AND CAPTION FROM EXHIBIT
TABLE OF REGULATION S-K ITEM 601 EXHIBIT NO.
- -------------------------------- -----------
(11) Statement regarding computation EXHIBIT 11 - Computation of
of per share earnings Per Share Earnings
(31.1) Certification of CEO EXHIBIT 31.1
pursuant to Section 302 of the Certification of CEO
Sarbanes-Oxley Act of 2002
(31.2) Certification of CFO EXHIBIT 31.2
pursuant to Section 302 of the Certification of CFO
Sarbanes-Oxley Act of 2002
(32.1) Certification of CEO EXHIBIT 32.1
pursuant to 18 U.S.C. 1350, as Certification of CEO
adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
(32.2) Certification of CFO EXHIBIT 32.2
pursuant to 18 U.S.C. 1350, as Certification of CFO
adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
ITEM 6 (b) REPORTS ON FORM 8-K
- -------------------------------
A Form 8-K was filed by the registrant on July 29, 2005 regarding its earnings
announcement for the second quarter of 2005.
A Form 8-K was filed by the registrant on September 21, 2005 regarding the
Company's estimate of losses sustained as the result of Hurricane Katrina.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BALDWIN & LYONS, INC.
Date NOVEMBER 4, 2005 By /s/ GARY W. MILLER
------------------ --------------------------------
Gary W. Miller, Chairman and CEO
Date November 4, 2005 By /S/ G. PATRICK CORYDON
------------------ --------------------------------
G. Patrick Corydon,
Senior Vice President - Finance
(Principal Financial and
Accounting Officer)
15
BALDWIN & LYONS, INC.
Form 10-Q for the fiscal quarter
ended September 30, 2005
INDEX TO EXHIBITS
BEGINS ON SEQUENTIAL
PAGE NUMBER OF FORM
EXHIBIT NUMBER 10-Q
-------------- -----------------------------
EXHIBIT 11 Filed herewith electronically
Computation of per share earnings
EXHIBIT 31.1 Filed herewith electronically
Certification of CEO
pursuant to Section 302 of the
Sarbanes-Oxley Act
EXHIBIT 31.2 Filed herewith electronically
Certification of CFO
pursuant to Section 302 of the
Sarbanes-Oxley Act
EXHIBIT 32.1 Filed herewith electronically
Certification of CEO
pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section
906 of the Sarbanes-Oxley Act
EXHIBIT 32.2 Filed herewith electronically
Certification of CFO
pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section
906 of the Sarbanes-Oxley Act