BWINB

Baldwin & Lyons, Inc. (BWINB)

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Baldwin & Lyons, Inc. (BWINB)

Q1 2008 Earnings Call Transcript

May 1, 2008 11:00 am ET

Executives

Stacy Feit – IR, Financial Relations Board

Gary Miller – Chairman & CEO

Patrick Corydon – EVP and CFO

Analysts

John Gwynn – Morgan Keegan

Gideon King – Loeb Partners

Presentation

Operator

Good day everyone and welcome to today's Baldwin & Lyons, Inc. first quarter earnings conference call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Ms. Stacy Feit from Financial Relations Board. Please go ahead ma'am.

Stacy Feit

Thank you and thank you all for joining us this morning for the Baldwin & Lyons first quarter 2008 conference call. If you did not receive a copy of the press release, you may access it online at the Company's website, which is www.baldwinandlyons.com. I would like to remind everyone that we are hosting a live webcast for the call, which may be accessed on the Company's website as well.

At this time, management would like me to inform you that certain statements during this conference call and in the press release which are not historical may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Baldwin & Lyons believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be obtained. Factors and risks that could cause actual results to differ materially from expectations are detailed in the press release and from time to time within the Company's filings with the SEC.

And now I'd like to introduce Gary Miller, Chairman and Chief Executive Officer of Baldwin & Lyons, and turn the call over to him. Gary, please go ahead.

Gary Miller

Thank you, Stacy. Welcome to our shareholders’ and others interested in Baldwin & Lyons that are joined us on our conference call this morning reporting the Company results for the first quarter of 2008.

Joining me this morning on the call are Joe DeVito, President and Chief Operating Officer of the Company, and Pat Corydon, Senior Vice President and Financial Officer.

I’ll give some brief remarks summarizing our quarterly results with some industry and general business observations. Pat will follow with a more detailed report on the makeup of our quarterly results. At the conclusion of Pat’s remarks, Joe, Pat and I will happy to answer any questions you might have.

In our last quarterly conference call, referring to the Company’s large net retentions on most lines of business rights, its exposure to catastrophe losses, assumed reinsurance, in its fairly heavy investment in equity securities and limited partnerships or hedge funds, I stated the use that the Company may have a not so good quarter every now and then because we can catch a frequency of large losses in any quarter. Catastrophies can happen and equity markets can go down.

As it turned out this quarter, my predictive skills were good. The just completed quarter was not as good. To the possible lease leaving to volatility occurred. We cut some larger losses in our net retained lines in the equity markets as well as interest rates went a wrong direction. The Company had a net loss for the quarter at $0.30 a share. The primary reason for the loss was that significant general decline in the equity markets in the first quarter of 2008.

We call it, just as we were required to report our share of unrealized gains in our participation in limited partnerships as realized gains in prior quarters as (inaudible) up in value, we in turn must report our share of unrealized losses in limited partnerships as realized losses when the markets decline. The realized and unrealized gains and losses in our share of limited partnerships netted to $12 million pre-tax loss for the quarter, all of which we reported as realized loss.

Combined with realized losses on our other investments, we had $13.6 million of investment losses or $0.58 per share. Operating income including a significant decline in investment income could not cover that amount of investment loss and a reported $0.30 per share negative net income is the result.

Unrealized gains in the Company’s investment also followed the markets decline. Tax affected the value of the Company’s investments other than the limited partnerships declined by $2.7 million. That number does not go through the income statement, but does reduce equity and therefore book value.

Book value for the quarter declined from $24.98 to $24.23 per share for a reduction of $0.75 or 3%. Part of that reduction was the payment of $0.25 per share in dividends during the quarter. Had the quarter been a few weeks longer, a different story could be told. For nearly all the reduced equity positions have regained some value. The (inaudible) explained the numbers we saw at March 31.

For the first quarter of 2008 nearly all equity markets declined. The S&P 500 was down by 9.45%, the rest of 2000 by 9.9%, the MSCI global index by 9.75 % and the Bombay Stock Exchange 500 Index by 29.5%. Almost without exception, our limited partnership interests in our investment managers were down by less than their respective comparative indexes, but nonetheless still bounced significant amounts resulting in the loss we reported. Especially dramatic was the India market. A gain of 63% we enjoyed in 2007 was followed by our first quarter 2008 loss of 25%. That means our India investment is still up by 25% at the end of the first quarter of 2008 from the first day of 2007, but it is still hard to loose the gains and report the decline as a loss through the income statement.

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