Baldwin & Lyons, Inc.
Baldwin & Lyons, Inc.
Incorporated: 1930 as H.C. Baldwin Agency, Inc.
Sales: $109.89 million (2001)
Stock Exchanges: NASDAQ
Ticker Symbol: BWINB
NAIC: 524126 Direct Property and Casualty Insurance Carriers
Baldwin & Lyons, Inc. sells and underwrites casualty insurance for the trucking industry. The company provides insurance coverage through two main subsidiaries: Protective Insurance Company and Sagamore Insurance Company. Protective Insurance, which is licensed in all 50 states and Canada, insures large and medium-sized trucking fleets. Sagamore, which is licensed in 37 states, provides personal insurance coverage to higher risk drivers and fleet coverage to smaller trucking fleets. Sagamore also sells workers’ compensation insurance to small businesses. The company sells its policies through its own agency and through other independent agents.
1940s-60s: Industry Pioneers
The forerunner to Baldwin & Lyons, the H.C. Baldwin Agency, Inc., was formed in 1930 by Harry C. Baldwin, a 37-year-old insurance agent. In 1944, Harry was joined by Voris Lyons, a 40-year-old fellow insurance agent. Lyons was to be the driving force behind the company’s growth and the direction in which it grew. Believing that there was great potential in the trucking market, Lyons carved a niche for the company by designing a self-insurance program for small trucking fleets.
Within a few years, it was apparent that Lyons’s plan was a solid one, and Baldwin’s course was set. In 1954, the company formed a wholly owned subsidiary—Protective Insurance Company—to focus solely on the trucking insurance market. The new subsidiary began insuring small trucking companies, many of which consisted of owner-operated vehicles.
More growth followed, with the company acquiring and establishing agencies located in Michigan, Illinois, and Pennsylvania. In 1962, Baldwin acquired Mitchell & Company, of San Francisco, and in 1965, Woodsmall Agency. The following year, the company was renamed Baldwin & Lyons, Inc. (B & L) reflecting the importance of Voris Lyons’s role in the business.
In 1969, B & L went public, making an initial offering of 200,000 shares. Two years later, the company made a second offering of 187,500 shares. Together, the two offerings generated $9.8 million, more than doubling the net worth of the company.
1970s: Growing Pains
In 1970, H.C. Baldwin, the company’s founder and chairman of the board, retired, becoming an honorary chairman. Voris Lyons, who had served previously as president, assumed the role of chairman; the office of president was filled by Merritt Smith. That same year, Protective Insurance, which had until that time insured almost exclusively single units or very small fleets of trucks, broadened its scope, writing for some of the country’s largest trucking companies. Also in the early 1970s, Protective began writing policies for sports, fishing, and excursion boats on the West Coast.
The early 1970s saw aggressive price cuts in the insurance industry. Because many insurance companies had realized higher-than-normal profits in the first few years of the decade, they had an excess of underwriting capacity. They took advantage of this surplus by reducing their rates to bring in new business, as well as insuring classes of risks they had previously rejected. While many of its competitors were reducing their rates, B & L did not do so. This meant that although the price decreases hurt the company’s agency side, which placed business with other insurers, they did little damage to Protective’s business.
Meanwhile, Protective was growing at an incredible rate. Between 1974 and 1977, the company’s premium volume almost tripled, and its number of claims settled per year had increased by almost 40 percent. At the same time, the company’s exposure increased. Whereas in 1974, Protective’s maximum exposure on any single occurrence was $100,000, by 1977, it was $192,500. This increase in business, multiplied by the increase in exposure, left Protective in a somewhat vulnerable position. This situation was only exacerbated by general trends in the insurance industry. Nationwide, both the number of claims filed and the settlement cost per claim were increasing sharply. Whereas the high inflation of the period was quickly pushing up insurance companies’ settlement costs, industry regulation prevented the companies from immediately passing those increases on to their policyholders by increasing their rates.
As a result of these factors, Protective suffered its first underwriting loss in 16 years in 1975. The following two years also saw losses in underwriting, although B & L’s investment and agency income was high enough to maintain profitability for the company overall. Protective took rapid steps to reverse the unfavorable trend in underwriting. The company slowed down its rate of increase in new policies, thereby limiting its exposure. For existing policies, it increased the amount of risk its customers were responsible for themselves, which also served to reduce its exposure. It also implemented tighter screening processes to better eliminate high-risk drivers and, as the regulators allowed, increased its rates. Consequently, Protective returned to profitability in 1978.
The late 1970s saw the departure of the second of B & L’s founders. In 1977, Voris Lyons retired from his post as chairman. The company’s president, Merritt Smith, moved into the position of chairman, and Fred Peoples, the president of Protective Insurance became president of the parent company.
1980s: Changes in the Trucking Industry
In 1980, the United States deregulated its trucking industry. As is always the case, this opening up of the market meant increased competition and a downward pressure on prices. In addition to struggling with the chaos of a newly deregulated market, trucking companies also had to contend with a general downturn in the U.S. economy. The combination of these factors led to a sharp decrease in trucking revenues and, as the slump wore on, many transportation companies were forced out of business.
One result of deregulation and the relaxing of ICC requirements was the entrance of many smaller, independent carriers into the market. To take advantage of this growing market segment, B & L initiated a small fleet plan, which was structured similarly to private passenger auto insurance. By the end of 1980, the company had received licensure in Indiana and Illinois for its small fleet program; by the end of 1981, it was licensed in 27 other states.
In 1981, B & L formed two new subsidiaries—Sagamore Insurance Company, an Indiana company, and B & L Insurance, Ltd., which was incorporated in Bermuda. Sagamore was engaged in reinsurance and excess and surplus lines insurance on a non-admitted basis—that is, it insured risks that could not be covered in a particular state’s insurance market by companies licensed in that state. B & L Insurance functioned as an offshore reinsurer, accepting business from Protective Insurance and other firms. The company also was experimenting with a new field of business. In 1980, it had begun offering an excess workers’ compensation program to small businesses.
Despite its efforts to keep pace with the changing markets, B & L, like its competitors, felt the impact of the trucking industry slowdown. Because insurance rates for trucking companies were typically based on a percent of the company’s revenues or payroll, the decline in customer revenues meant a decline in B & L’s premium revenues. By 1982, the problematic business environment was starting to show in the company’s bottom line. For that year, net income fell by almost 30 percent, on revenues that were down by 27 percent from 1981.
The year 1983 was even worse for B & L. Although revenues increased a bit, the company posted a net loss of $1.2 million. Part of the problem was the company’s new small fleet insurer, Sagamore. The company had generated a large amount of new business since its inception in 1981. Due to weaknesses in Sagamore’s selection and rating system, some of these new customers were paying rates that were too low to compensate for the amount of risk they presented. Another problem was that the casualty insurance industry, as a whole, was in a period of price-cutting. Although B & L refused to make radical rate cuts, it did have to reduce its prices somewhat just to stay competitive. Ultimately, it found that its premiums were not sufficient to offset underwriting losses and keep the company profitable.
- Harry Baldwin forms the H.C. Baldwin Agency.
- Voris Lyons joins Baldwin.
- Baldwin forms Protective Insurance Company as a subsidiary to write insurance for small trucking fleets.
- The H.C. Baldwin Agency is renamed Baldwin & Lyons, Inc.
- Baldwin & Lyons makes its first public offering of stock.
- Protective Insurance begins writing for larger trucking fleets.
- Baldwin & Lyons makes a second stock offering.
- The U.S. trucking industry is deregulated; B & L introduces a small fleet insurance plan.
- Baldwin & Lyons forms two new subsidiaries: Sagamore Insurance Company and B & L Insurance, Ltd.
- Baldwin & Lyons makes a third stock offering; Hoosier Insurance Company is formed as a subsidiary.
- Hoosier Insurance is sold; the remaining businesses are restructured; the company enters the private passenger auto insurance market.
- Sagamore Insurance begins offering a line of small business workers compensation insurance products.
B & L’s fortunes soon turned around, however. The overly optimistic price cutting of the previous two years had caused many of the company’s competitors to falter. By 1984 and 1985, many insurance companies realized their mistake and began increasing their rates, while others stopped writing trucking insurance altogether. Still others went out of business completely. The result of this market contraction was positive for B & L. Not only did it scoop up many refugee customers from the companies that had failed or stopped writing trucking insurance, but it also was able to comfortably raise its rates. By mid-1985, these factors had propelled the company into such aggressive growth that its existing personnel and processing infrastructure were taxed. B & L’s directors took steps to slow down the pace, placing a moratorium on writing new fleet business and discontinuing its small fleet program. Even with these braking mechanisms, however, the company’s revenues almost tripled from 1984 to 1985.
In 1986, the company again made a stock offering. The capital generated—almost $43 million—allowed B & L to expand once again. It removed its self-imposed moratorium on new business and began writing new policies. It also formed a new subsidiary, Hoosier Insurance Company, to write general, nontrucking policies—such as personal and smaller commercial property and casualty insurance. Hoosier Insurance began marketing its products in Indiana and also insured an existing collection of businesses in Florida. The company hoped that this expansion into nontrucking lines would produce a relatively stable stream of revenue, thereby helping to reduce the impact of downturns in the more volatile trucking market. Early results from these general lines were disappointing, however. In 1988, B & L decided to stop insuring its business clients in Florida, but continued to pursue new business in Indiana.
1990s: Exploring New Avenues
Although the insurance market as a whole softened in the early 1990s, B & L turned in a consistently stable performance, with revenues hovering around the $100 million mark and net income between $20 and $25 million. In 1995, the company sold its general insurance subsidiary, Hoosier Insurance, to General Casualty Company of Wisconsin. Although Hoosier had shown good growth, it had failed to produce the hoped-for returns. That same year, B & L restructured its remaining businesses. Under the new structure, Protective sold all fleet trucking insurance, and Sagamore served as an “incubator” for developing new lines and products. Included in this incubator environment were a new line of small fleet products and a line of nonstandard private passenger auto products, introduced in 1994 and 1995, respectively. In early 1997, Sagamore added a third new line to its developing collection: small business workers’ compensation products.
Sagamore’s experimental lines proved beneficial to B & L in the latter part of the 1990s. The nonstandard auto line, particularly, showed tremendous growth; by the end of 1998, it was being marketed in seven states and had posted a 75 percent increase in earned premium over the previous year. The growth in Sagamore’s business helped to offset difficulties experienced by B & L’s other subsidiary, Protective, which was suffering from a combination of increasing loss costs and overcapacity in the trucking insurance market.
Moving into a New Century
As B & L left the 20th century behind, it appeared that conditions in the ever-fluctuating commercial insurance industry had taken a favorable turn. After close to a decade of intense competition that kept rates unprofitably low, the market began to contract and rates began to creep up. As a result, Protective Insurance was able to emerge from its slump, posting a 22 percent increase in large fleet trucking premiums over the previous year. Unfortunately, Sagamore did not fare as well; the company posted a large underwriting loss in its nonstandard personal auto division. The subsidiary responded by increasing rates in all of its personal auto and small fleet products and implementing stricter screening terms.
In the September 11, 2001 attacks on the World Trade Center, B & L, like so many other insurers, incurred an enormous loss—approximately $20 million. As a result, the company finished the year with a net income of just $5.4 million, barely a quarter of the previous year’s profit. Aside from the disaster, however, B & L was on solid ground. The trucking insurance market continued to harden, allowing Protective to charge both higher rates and attract new business. At the same time, Sagamore’s rate and terms modifications in its personal auto line allowed it to return to profitability.
With industry conditions in its favor, then, B & L approached the future optimistically. In a February 2002 letter to shareholders, Gary Miller, the company’s CEO, said that while the September 11 losses were a significant setback, the company’s “positive expectations” were higher than ever. “Our prospects for top line and bottom line growth appear excellent,” he said.
Protective Insurance Company; Sagamore Insurance Company; B & L Insurance, Ltd.
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Andrews, Greg, “Baldwin & Lyons Puts Growth on Hold,” Indianapolis Business Journal, March 2, 1992, p. 1.
Fullam, Peter, “Baldwin & Lyons, Inc.,” Indianapolis Business Journal, January 5, 1987, p. 19.