Baldwin & Lyons Inc. (BWINA) filed Quarterly Report for the period ended 2009-09-30.
Baldwin & Lyons Inc. specializes in marketing and underwriting property and casualty insurance for companies in the motor carrier industry. The Company's principal lines of business consist of (1) the insurance brokerage and agency operations and specialized insurance-relatedservices carried on by Baldwin & Lyons Inc.; and (2) insurance underwriting operations carried on by B & L's three wholly-owned property/casualty insurance company subsidiaries: Protective InsuranceCompany; Sagamore Insurance Company; and B & L Insurance Ltd. Baldwin & Lyons Inc. has a market cap of $316 million; its shares were traded at around $21.45 with a P/E ratio of 13.1 and P/S ratio of 2. The dividend yield of Baldwin & Lyons Inc. stocks is 4.7%.
Highlight of Business Operations:
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 less than 30% 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. For the first nine months of 2009, the Company experienced positive cash flow from operations totaling $14.6 million which compares to negative cash flow from operations of $.2 million generated during the first nine months of 2008. The $14.8 million improvement in cash flow from the 2008 period is primarily due to higher gross premiums received, the timing of reinsurance payable payments and the timing of tax payments. These increases were partially offset by a $4.2 million increase in loss payments related to the settlement of several large claims during the 2009 period.
Financing activity for the first nine months of 2009 included regular dividend payments of $11.1 million ($.75 per share), and the purchase of $.9 million of the Company s common stock on the open market under the Company s previously announced stock repurchase program.
The Company s assets at September 30, 2009 included $56.8 million in investments classified as cash equivalents that were readily convertible to cash without significant market penalty. An additional $206.1 million of fixed maturity investments will mature within the twelve-month period following September 30, 2009. The Company believes that these liquid investments are more than sufficient to provide for projected claim payments and operating cost demands.
Consolidated shareholders equity is composed largely of GAAP shareholders 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, 2009, $39.0 million may be transferred by dividend or loan to the parent company during the remainder of 2009 without approval by, or prior notification to, regulatory authorities. An additional $242.8 million of shareholder s equity of the insurance subsidiaries could, theoretically, be advanced or loaned to the parent holding company with prior notification to, and approval from, regulatory authorities, although it is unlikely that transfers of this size would be practical. The Company believes that these restrictions pose no material liquidity concerns to the Company. The Company also believes that
Net realized investment gains, for the first nine months of 2009, were $26.7 million resulting primarily from gains on limited partnerships. Realized investment losses were $32.5 million for the same period in 2008. The realized investment gains during the current period were favorably impacted by the recovery of value in the global equity markets. See footnote 2 to the enclosed financial statements for a more detailed discussion regarding the accounting policies and the net gains or losses reported for the Company s investments in limited partnerships.
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, 2009, amounts due from reinsurers on paid and unpaid losses, are estimated to total approximately $146 million. Of this total, approximately $54 million (37%) represents the Company s provision for incurred but not reported losses and loss adjustment expenses attributable to reinsurers. Because of the large policy limits reinsured by the Company, the ultimate amount of incurred but not reported losses attributable to reinsurers could vary significantly from the estimate provided; however, such variance would not result in changes in net losses incurred by the Company.
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