UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934

                             For the fiscal year ended                                                                                                                                                                                                                                                                                                                             Commission file number 0-5534
                              December 31, 20152016
BALDWIN & LYONS, INC.
(Exact name of registrant as specified in its charter)

Indiana
(State or other jurisdiction of
Incorporation or organization)
35-0160330
(I.R.S. Employer
Identification No.)
111 Congressional Boulevard, Carmel, Indiana
(Address of principal executive offices)
46032
(Zip Code)

Registrant's telephone number, including area code:  (317) 636-9800
Securities registered pursuant to Section 12(b) of the Act:
  None(Title of class)Name of Each Exchange on which Registered
                                                                                      Class A Common Stock, No Par Value                                     The Nasdaq Stock Market, LLC
                                                                                      Class B Common Stock, No Par Value                                     The Nasdaq Stock Market, LLC

Securities registered pursuant to Section 12(g) of the Act:

(Title of class)None
Class A Common Stock, No Par Value
Class B Common Stock, No Par Value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    
Yes -___ No   ✓
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes -___ No   ✓
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 (or for such shorter periodsperiod that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes -  ✓     No ___
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ✓    No__

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.         -   
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a non-accelerated filer.smaller reporting company.  See definitiondefinitions of "large accelerated filer, "accelerated filerfiler" and large accelerated filer""smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ____    Accelerated filer   ✓      Non-accelerated filer ____    Smaller Reporting Company____
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes -___ No   ✓
The aggregate market value of Class A and Class B Common Stock held by non-affiliates of the Registrant as of June 30, 20152016, based on the closing trade prices on that date, was approximately $229,880,000.254,086,000.
The number of shares outstanding of each of the issuer's classes of common stock as of March 1, 2016:2017:
Common Stock, No Par Value: Class A (voting)                                                       2,623,109 shares
                                                                Class B (nonvoting) 12,402,941 shares12,481,081
                                                                                                                                               15,104,190

The Index to Exhibits is located on page 83.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held on May 10, 20169, 2017 are incorporated by reference into Part III.III of this Annual Report on Form 10-K.
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PART I

Item 1.  BUSINESS

Baldwin & Lyons, Inc. was incorporated under the laws of the State of Indiana in 1930.  Through its divisions and subsidiaries, Baldwin & Lyons, Inc. (referred to herein as "B&L") engages in marketing and underwriting property and casualty insurance, including a limited assumption of risks as a reinsurer of other companies.
B&L's principal subsidiaries are:
1.
Protective Insurance Company (referred to herein as "Protective"), which is licensed by insurance authorities in all 50 states, the District of Columbia, all Canadian provinces and Puerto Rico;
2.
Protective Specialty Insurance Company (referred to herein as "Protective Specialty"), which is currently approved for excess and surplus lines business by insurance authorities in 48 states and the District of Columbia and licensed in Indiana;
3.
Sagamore Insurance Company (referred to herein as "Sagamore"), which is licensed by insurance authorities in 49 states and the District of Columbia and approved for excess and surplus lines business in one additional state;
4.
B&L Brokerage Services, Inc., (referred to herein as "BLBS"), an Indiana domiciled insurance broker licensed in all 50 states and the District of Columbia; and
5.
B&L Insurance, Ltd. (referred to herein as "BLI"), which is domiciled and licensed in Bermuda.
Protective, Protective Specialty, Sagamore and BLI are collectively referred to herein as the "Insurance Subsidiaries."  The "Company", "we", "us" and "our", as used herein, refers to Baldwin & Lyons, Inc. and all its subsidiaries unless the context clearly indicates otherwise.

Approximately 21% of premiums written by the Insurance Subsidiaries during 2015 was attributable to business produced directly by B&L. The remainder was produced through a network of broker and agent partners.
As is a common practice in the property &and casualty insurance industry, the Insurance Subsidiaries share (referred to as "ceding") portions of their gross premiums written with several non-affiliated reinsurers under excess of loss and quota-share treaties covering predetermined groups of risks and by facultative (individual policy-by-policy) placements.  Reinsurance is ceded to spread the risk of loss from individual accidents or groups of accidents among several reinsurers and is an integral part of the Company's business.
The
In 2016, the Insurance Subsidiaries serve a variety of specialty markets as follows:described below.  Continuing operations and targeted growth will occur mainly in fleet transportation.
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Fleet Transportation

The Insurance Subsidiaries provide coverage for larger companies in the motor carrier industry whichthat retain substantial amounts of self-insurance, for independent contractors utilized by trucking companies, for medium-sized and small trucking companies on a first dollar or small deductible basis and for public livery concerns, principally covering fleets of commercial buses.  This group of products is collectively referred to as fleet transportation.  Large fleet trucking products are marketed both by the B&L agency organization directly to fleet transportation clients and also through relationships with non-affiliated brokers and specialized independent agents.  Large fleet trucking products are marketed both by the B&L agency organization directly to fleet transportation clients and also through relationships with non-affiliated brokers and specialized independent agents.  Products for small and intermediate fleets, independent contractors, and non-trucking entities are marketed through relationships with non-affiliated brokers and specialized agents.  In some cases, the Company will provide specific product offerings to specialized markets through partnerships with brokers and program administrators.

The principal types of fleet transportation insurance marketed by the Insurance Subsidiaries are:
-
Commercial motor vehicle liability, physical damage and general liability insurance.
-Workers' compensation insurance.
-
Specialized accident (medical and indemnity) insurance for independent contractors of trucking concerns.
-Non-trucking motor vehicle liability insurance for independent contractors.
-Fidelity and surety bonds.
-Inland Marine insurance consisting principally of cargo insurance.
-"Captive" insurance company products, which are provided through BLI in Bermuda.
- 2 -

B&L also performs a variety of additional services, primarily for the Company's insureds, including risk surveys and analyses, safety program design and monitoring, government compliance assistance, loss control and cost studies and research, development, and consultation in connection with new insurance programs, including development of computerized systems to assist customers in monitoring their accident data.  Extensive claimsClaims handling services are also provided, primarily to clients with self-insurance programs.
Reinsurance Assumptions

TheIn the first quarter of 2016, the Company acceptsdiscontinued its reinsurance assumed professional liability line of products.  These products are in run off and will continue earning premiums in 2017.  Prior to that, the Company accepted cessions and retrocessions from selected insurance and reinsurance companies, providing reinsurance coverage for both property and casualty events.  Participation in reinsurance markets fluctuatesfluctuated based on market conditions for these products.  In recent years, unfavorable pricing and terms available in reinsurance markets, particularly property markets, has resulted in a significant decline in premium assumed by the Company.

Approximately 86% of  The net reinsurance premiumpremiums earned during 2015 relates2016 primarily related to professional liability coverages provided to domestic insurance companies and produced through a network of independent brokers.

Property reinsurance premium for 2015 was limited to the final runoff of United States wind and earthquake business produced through a single exclusive managing general agency partnership.    Effective July 1, 2014, this final property catastrophe exposure was not renewed and, as of June 30, 2015, no property reinsurance risk remained inforce.

In addition to the assumption of risks described above, the Insurance Subsidiaries participate in numerous mandatory government-operated reinsurance pools which require insurance companies to provide coverages on assigned risks.  These assigned risk pools allocate participation to all insurers based upon each insurer's portion of direct premium writings on a state or national level.   Assigned risk premium typically comprises less than 1% of gross direct premium written and assumed by the Insurance Subsidiaries and are included with the property and casualty segment because they are linked to premiums written and earned by that segment.

Professional Liability

TheIn the fourth quarter of 2016, the Company marketsdiscontinued its professional liability line of products.  Prior to that, the Company marketed a variety of professional liability products through wholesale and retail agents on both an admitted and surplus lines basis throughout the United States, specializing in smaller insureds.  Some professional liability policies will renew in 2017 as required by state regulations and existing policies will remain inforce through 2017.
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Private Passenger Automobile Insurance

In latethe fourth quarter of 2015, the Company discontinued marketing private passenger automobile liability and physical damage coverages and substantially all business for this product line will expireexpired in 2016.


Property/Casualty Losses and Loss Adjustment Expenses
Losses and loss adjustment expenses incurred typically comprise nearlyapproximately two-thirds of the Company's operating expenses. A discussion of this expense category follows.

The Company's consolidated balance sheets as of December 31, 2016 and 2015 set forth in Part II, Item 8 of this Annual Report on Form 10-K include the estimated liability for unpaid losses and loss adjustment expenses ("LAE") of the Insurance Subsidiaries before the application of reinsurance credits (gross reserves).  The liabilities for losses and LAE are determined using case basis evaluations and statistical projections and represent estimates of the Company's ultimate exposure for all unpaid losses and LAE incurred through December 31 of each year.  These estimates are subject to the effects of trends in claim severity and frequency and are continually reviewed and, as experience develops and new information becomes known, the liability is adjusted as necessary.  Such adjustments, either positive or negative, are reflected in current operations as recorded.
The Company's reserves for losses and loss expenses are determined based on evaluations of individual reported claims and by actuarial estimation processes using historical experience, current economic information and, when necessary, available industry statistics.  "Case basis" loss reserves which comprise approximately 66% of total gross reserves at December 31, 2015, are evaluated on an individual case-by-case basis by experienced claims adjusters using established Company guidelines and are monitored by claims management.  Additionally, "bulk" reserves , which comprise approximately 34% of total gross reserves at December 31, 2015 are established for (1) those losses which have occurred, but have not yet been reported to the Company ("incurred but not reported" claims), (2) provisions for any possible deficiencies in the case reserving process and (3) the expected external and internal costs to fully settle each claim ("loss adjustment expenses)expenses").  Common actuarial methods are employed in the establishment of bulk reserves using Company historical loss data, consideration of changes in the Company's business and study of current economic trends affecting ultimate claims costs.  Loss adjustment expense reserves include amounts ultimately allocable to individual claims as well as amounts required for the general overhead of the claims handling operation which are not specifically allocable to individual claims.  Historical analyses of the ratio of loss adjusting expenses to losses paid on prior closed claims and study of current economic trends affecting loss settlement costs are used to estimate the loss adjustment reserve needs relatedrelative to the established loss reserves.  Each of these reserve categories contain elements of uncertainty which assure variability when compared to the ultimate costs to settle the underlying claims for which the reserves are established.  For a more detailed discussion of the three categories of reserves, see "Loss and Loss Expense Reserves" under the caption, "Critical Accounting Policies" beginning on page 2831 in Part II, Item 7, Management's Discussion and Analysis.Analysis, of this Annual Report on Form 10-K.
- 3 -

The reserving process requires management to continuously monitor and evaluate the life cycle of claims.  Our claims range from the very routine private passenger automobile "fender"automobile fender bender" to the highly complex and costly claims involving large tractor-trailer rigs and large-scale losses resulting from catastrophic events.rigs.  Reserving for each class of claims requires a set of assumptions based upon historical experience, knowledge of current industry trends and seasoned judgment.  The high limits provided by the Company's fleet transportation liability policies provide for greater volatility in the reserving process for more serious claims.  Court rulings, legislative actions, geographic location of the claim under consideration and trends in jury awards also play a significant role in the estimation process of larger claims.  The Company continuously reviews and evaluates loss developments subsequent to each measurement date and adjusts its reserve estimation assumptions, as necessary, in an effort to achieve the best possible estimate of the ultimate remaining loss costs at any point in time.

Loss reserves related to certain permanent total disability (PTD) workers' compensation claims have been discounted to present value using tables provided by the National Council on Compensation Insurance which are based upon a pretax interest rate of 3.5% and adjusted for those portions of the losses retained by the insured. The loss and LAE reserves at December 31, 2015 have been reduced by approximately $2.1 million as a result of such discounting. Had the Company not discounted these loss reserves, pretax income would have been approximately $1.0 million higher for the year ended December 31, 2015.

For policies inforce at December 31, 2015,2016, the maximum amount for which the Company insures a fleet transportation risk is $10 million, less applicable self-insured retentions, although for the majority of policies written, the maximum limits provided by the Company are $5 million or less.  Occasionally, limits above $10 million required by customers are placed directly by Baldwin & Lyons, Inc.the Company with non-affiliated carriers or written by the Company but 100% reinsured with non-affiliated reinsurers.  Certain coverages, such as workers' compensation, provide essentially unlimited exposure,do not have policy limits, although the Company protects itself to the extent believed prudent through the purchase of excess reinsurance for these coverages.  After giving effect to treaty and facultative reinsurance arrangements, the Company's maximum exposure to loss from a single occurrence for currently inforce business ranges from approximately $.25$0.25 million to $1.3 million for the vast majority of risks insured although, for certain losses occurring within the past five policy years, maximum exposure could be as high as $2.5 million for a single occurrence.  Certain reinsurance agreements effective since June 3, 2005 include provisions for aggregate deductibles that must be exceeded before the Company can recover under the terms of the treaties.  The Company retains a higher percentage of the direct premium (and, therefore, cedes less premium to reinsurers) in consideration of these deductible provisions.


- 4 -
The Company is a cedent under numerous reinsurance treaties covering its varied product lines.  Treaties are typically written on an annual basis, each with its own renewal date.  However, treaty terms may occasionally be agreed to for periods beyond one year.  Treaty renewals are expected to largely continue to occur annually in the foreseeable future.  Because losses from certain of the Company's products can experience delays in being reported and can take years to settle, losses reported to the Company in the current year may be covered by a number of older reinsurance treaties with higher or lower net loss exposures than those provided by current treaty provisions.
- 4 -

The table on page 5 sets forth a reconciliation of beginning and ending loss and LAE liability balances for 2016, 2015 2014 and 2013.2014.  That table is presented net of reinsurance recoverable to correspond with our income statement presentation.  However, a reconciliation of these net reserves to thosebeginning and ending loss and LAE liability gross of reinsurance recoverable, as presented in the balance sheet, is also shown.  The table on page 1011 shows the development of the estimated liability, net of reinsurance recoverable, for the ten years prior to 2015.2016.  The table on page 1112 is a summary of the re-estimated liability, before consideration of reinsurance, for the ten years prior to 20152016 as well as the related re-estimated reinsurance ceded for the same periods.periods.


RECONCILIATION OF LIABILITY FOR LOSSES AND LOSS ADJUSTMENT 
EXPENSES (GAAP BASIS) 
       
  Year Ended December 31 
  2015  2014  2013 
NET OF REINSURANCE RECOVERABLE:
 (in thousands) 
  Liability for losses and LAE at the      
    Beginning of the year $295,583  $288,088  $289,236 
             
  Provision for losses and LAE:            
      Claims occurring during the current year  165,812   169,950   156,264 
      Claims occurring during prior years  (10,062)  (10,354)  (5,563)
   155,750   159,596   150,701 
  Payments of losses and LAE:            
      Claims occurring during the current year  56,710   59,826   47,908 
      Claims occurring during prior years  92,870   92,275   103,941 
   149,580   152,101   151,849 
             
             
  Liability for losses and LAE at end of year  301,753   295,583   288,088 
             
Reinsurance recoverable on unpaid losses            
  at end of the year  211,843   210,519   186,382 
             
Liability for losses and LAE, gross of            
  reinsurance recoverable, at end of the year $513,596  $506,102  $474,470 

  2016  2015  2014 
Reserves at the beginning of the year $301,753  $295,583  $288,088 
             
Provision for losses and loss expenses:            
   Claims occurring during the current year  172,645   165,812   169,950 
   Claims occurring during prior years  13,836   (10,062)  (10,354)
   Total incurred  186,481   155,750   159,596 
             
Loss and loss expense payments:            
   Claims occurring during the current year  54,239   56,710   59,826 
   Claims occurring during prior years  109,228   92,870   92,275 
   Total paid  163,467   149,580   152,101 
             
Reserves at the end of the year  324,767   301,753   295,583 
             
Reinsurance recoverable on unpaid losses at the end of the year  251,563   211,843   210,519 
Reserves, gross of reinsurance            
    recoverable, at the end of the year $576,330  $513,596  $506,102 
             

The reconciliation above shows that the Company's estimate of net losses on 20142015 and prior accidents is approximately $10.1$13.8 million lowerhigher at December 31, 20152016 than was provided in loss reserves at December 31, 20142015 (referred to as a "reserve savings"deficiency"), with comparative reserve savings for.  In the two previous calendar years.years, the Company had reserve savings.


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The following table is a summary of the 20152016 calendar year reserve savingsdeficiency by accident year (dollars in thousands):


Years in Which Losses Were Incurred Reserve at December 31, 2014  (Savings) Deficiency Recorded During 2015  % (Savings) Deficiency  Reserve at December 31, 2015  (Savings) Deficiency Recorded During 2016  % (Savings) Deficiency 
          
2015 $109,102  $(4,183)  (3.8%)
2014 $110,124  $(1,085)  (1.0%)  83,176   (2,186)  (2.6%)
2013  65,165   (6,281)  (9.6%)  35,242   8,558   24.3%
2012  37,335   5,530   14.8%  20,807   4,429   21.3%
2011  28,343   (4,666)  (16.5%)  13,080   4,814   36.8%
2010  10,285   2,685   26.1%
2009 & prior  44,331   (6,245)  (14.1%)
2010 & Prior  40,346   2,404   6.0%
                        
 $295,583  $(10,062)  (3.4%) $301,753  $13,836   4.6%

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The (savings) deficiency recorded for the above individual loss years was derived from varied sources, as follows (dollars in thousands):

  2009 & Prior  2010  2011  2012  2013  2014 
             
Losses and allocated loss expenses developed on cases known to exist at December 31, 2014 $1,240  $(301) $(4,529) $8,829  $14,858  $17,220 
Losses and allocated loss expenses reported on cases unknown at December 31, 2014  432   44   1,147   400   1,348   16,886 
Unallocated loss expenses paid  193   57   245   832   758   1,363 
Change in reserves for incurred but not reported losses and allocated and unallocated loss expenses  (7,892)  (1,168)  1,167   (9,202)  (21,650)  (32,565)
Net (savings) deficiency on losses from directly-produced business  (6,027)  (1,368)  (1,970)  859   (4,686)  2,904 
                         
(Savings) deficiency reported under voluntary reinsurance assumption agreements and residual markets  (218)  4,053   (2,696)  4,671   (1,595)  (3,989)
                         
Net (savings) deficiency $(6,245) $2,685  $(4,666) $5,530  $(6,281) $(1,085)
  2010 & Prior  2011  2012  2013  2014  2015 
                   
Losses and allocated loss expenses developed on cases known to exist at December 31, 2015 $1,345  $2,095  $(505) $1,237  $(2,651) $21,934 
Losses and allocated loss expenses reported on cases unknown at December 31, 2015  17   124   484   152   4,564   9,656 
Unallocated loss expenses paid  266   115   166   486   819   1,620 
Change in reserves for incurred but not reported losses and allocated and unallocated loss expenses  (219)  1,122   (77)  665   (4,979)  (32,995)
Net deficiency (savings) on losses from directly-produced business  1,410   3,455   67   2,540   (2,247)  216 
                         
Deficiency (savings) reported under voluntary reinsurance assumption agreements and residual markets  994   1,359   4,362   6,018   61   (4,399)
                         
Net deficiency (savings) $2,404  $4,814  $4,429  $8,558  $(2,186) $(4,183)

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Loss and loss expense development savingsdeficiency (savings), presented separately by segment, were as follows for the years ended December 31 (dollars in thousands):
          
  2016  2015  2014 
          
Property and casualty insurance $5,441  $(10,289) $(5,423)
Reinsurance  8,395   227   (4,931)
      Totals $13,836  $(10,062) $(10,354)
             
Development as a percent of beginning loss and loss adjustment expense reserves deficiency (savings):
    Property and casualty insurance  2.1  %  (4.3 %)   (2.9%) 
    Reinsurance   17.7 %   0.4 %   (6.3 %)
      Total   4.6 %   (3.4 %)   (3.6 %)

  2015  2014  2013 
Property and casualty insurance $(10,289) $(5,423) $(1,725)
Reinsurance  227   (4,931)  (3,838)
      Totals $(10,062) $(10,354) $(5,563)
             

Development as a percent of beginning loss and loss adjustment expense reserves: 2015  2014  2013 
    Property and casualty insurance  4.3%  2.9%  1.4%
    Reinsurance  -.4%  6.3%  4.5%
      Totals  3.4%  3.6%  1.9%

In the first table on page 6,above, the amounts identified as "Net deficiency (savings) deficiency on losses from directly-produced business" consist of development on cases known at December 31, 2014,2015, losses reported which were previously unknown at December 31, 20142015 (incurred but not reported), unallocated loss expense paid related to accident years 20142015 and prior and changes in the reserves for incurred but not reported losses and loss expenses.  Bulk loss reserves are established to provide for potential future adverse development on cases known to the Company and for cases unknown at the reserve date.  Changes in the reserves for incurred but not reported losses and loss expenses occur based upon information received on known and newly reported cases during the current year and the effect of that development on the application of standard actuarial methods used by the Company.
Also shown in the table are amounts representing the "(savings) deficiency"Deficiency (savings) reported under reinsurance assumption agreements and residual markets".  These amounts relate to the Company's participation in both voluntary reinsurance policies and treaties and government mandated pools.treaties.  The Company records its share of losses from these policies, treaties and pools based on reports from the reinsured companies retrocessionaires and residual market administrators and does not directly establish case reserves related to this portion of the Company's business.  The Company does, however, establish additional reserves for reinsurance losses to supplement case reserves reported by the ceding companies, when considered necessary.  Involuntary residual market premiums and losses are included in the property and casualty segment; however, claims are not administered by the Company but, rather, reserves on this business are established by the regulatory entities and, accordingly, development on these losses is largely dependent on the adequacy of loss reserving by these entities.  Development deficiencies on residual market business were $3.0 million, $0.7 million, and $1.6 millionHistorically, loss developments for involuntary assumed policies in prior accident years have been immaterial to the years ended December 31, 2015, 2014 and 2013, respectively.overall reserve position.
 
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The property and casualty insurance segment has historically constituted the largest portion of net reserve development, savings as it has historically generated the majority of the Company's premium revenue.  As shown, the savingsdevelopment from this segment ranged from $1.7a $10.3 million savings to a savingsdeficiency of $10.3$5.4 million during the past three years.  This fluctuation reflects the variability associated with higher premium volumes and, hence, the larger claims covered by the Company, as well as fluctuations in the Company's net retentions.  During 2016, the property and casualty segment was also affected by infrequent developments in the Company's workers' compensation and Public Transportation products.  The Company continues to incorporate more recent loss development data into its loss reserving formulae; however, the change from excess of loss to quota share treaties beginning in 2005, the use of facultative reinsurance on larger risks, and the dynamic nature of losses associated with the fleet transportation business, as well as the timing of settlement of large claims, increases the likelihood of variability in loss developments from period to period.  As discussed elsewhere, the Company has historically experienced savings in its loss developments owing to, among other things, its long-standing policy of reserving for the ultimate value of losses quickly and realistically and a willingness to settle claims based upon a seasoned evaluation of its exposures.  While the Company's basic assumptions have remained consistent, we continue to update loss data to reflect changing trends which can be expected to result in fluctuations in loss developments over time.

The development for the reinsurance segment is heavily dependent on the establishment of case basis and IBNRincurred but not reported ("IBNR") reserves by other insurance and reinsurance companies.  However, the Company evaluates the sufficiency of such reservingreserves and often adjusts reserves based on management's independent analysis, considering the number of different entities involved and the fact that the Company must rely on external sources of information and reserve development from these products is potentially subject to fluctuation from year to year.
Factors affecting the development of environmental claims are more fully discussed in the following paragraphs.  - 7 -The Company has very limited exposure to environmental losses and activity with respect to environmental losses during the three year period ending 2015 has been insignificant.
Management's goal is to produce an overall estimate of reserves which is sufficient and as close to expected ultimate losses as possible.  The $10.1$13.8 million in net savingsdeficiency developed during 20152016 represents approximately 30%70% of pre-tax net income before realized capital gains for 20152016 but only 3.4%4.6% of December 31, 20142015 net loss and LAE reserves, which is well within the acceptable range of variation for the Company's diverse and complex book of business.  The Company has maintained a consistent, conservative posture in its reserving process, which has proven to be fully adequate with no overallcalendar year reserve deficiencies above 5% of prior year loss positions developed since 1985.  The Company constantly monitors changes in trends related to the numbers of claims incurred relative to correlative variances with premium volume, average settlement amounts, numbers of claims outstanding at period ends and the average value per claim outstanding and adjusts actuarial assumptions as necessary to accommodate observed trends.
As described on page 4, changes have occurred in the Company's net per accident retained exposure under reinsurance agreements in place during the periods presented in the previous table.  It is much more difficult to reserve for losses where policy limits are as high as $10 million per accident as opposed to those losses related to business which carries lower policy limits, such as private passenger automobile.  This is because there are fewer policy limit losses in the Company's historical loss database on which to project future loss developments, and the larger and more complex the loss, the greater the likelihood that litigation will become involved in the settlement process.  Consequently, the level of uncertainty in the reserving process is much greater when dealing with larger losses and will routinely result in fluctuations among accident year developments.

- 7 -

Ten Year Historical Development Tables:
The table on page 1011 presents the development of GAAP balance sheet insurance reserves for each year-end from 20052006 through 2014,2015, as of December 31, 2015,2016, net of all reinsurance credits.  The top line of the table shows the estimated liability for unpaid losses and LAE recorded at the balance sheet date for each of the indicated years.  This liability represents the estimated amount of losses and LAE for claims arising in all prior years that were unpaid at the respective balance sheet date, including IBNR losses, that had been incurred, but not yet reported, to the Company.

The upper portion of the table shows the re-estimated amount of the previously recorded liability based on additional information available to the Company as of the end of each succeeding year.  The estimate is increased or decreased as more information becomes known about the frequency and severity of individual claims and as claims are settled and paid.
The "cumulative redundancy" represents the aggregate change in the estimates of each calendar year end reserve through December 31, 2015.2016.  For example, the 20052006 liability has developed a $51.9$56.0 million redundancy over ten years.  That amount has been reflected in income over those ten years, as shown on the table.  The effect on calendar year income of changes in estimates of the liability for losses and LAE during each of the past three years is shown in the table on page 5.
Historically, the Company's net loss developments have been favorable.  Reserve developments for all years ended in the period 19861985 through 20142011 have produced redundancies as of December 31, 2015.2016, with only small deficiencies developing for periods from 2012 through 2014.  The $13.8 million deficiency developed through one year on the 2015 reserve position is considered infrequent for the Company.  In addition to a consistently conservative approach to reserving methods, loss reserve developments in recent years have been favorably affected by several other factors.  Perhaps theThe most significant single factor has been the improvement in safety programs by the fleet transportation industry in general and by the Company's insureds specifically.  Statistics produced by a variety of sources show that driver quality in general and specifically as it relates to the type of transportation companies underwritten by the Company, has improved markedly in the past decade, resulting in fewer fatalities and serious accidents.  The Company's experience also shows that improved safety and hiring programs have a dramatican impact on the frequency and severity of fleet transportation accidents and, more recently, the introduction of numerous safety devices using state-of-the-art technology has reduced rear end and cross over accidents which often produce the most serious injuries.  In addition, the expanded use of telematics to precisely measure driver behavior and provide focused training and remediation is positively impacting loss experience.  Significant trucking industry and regulatory initiatives, such as CSA 2010, have provided strong motivation to trucking companies to upgrade their driver roster, increase monitoring of driver behavior and improve equipment maintenance, all resulting in fewer accidents.  Higher self-insured retentions also play a part in reduced insurance losses.  Higher retentions not only raise the excess insurance entry point but also encourage fleet transportation company management to focus even more intensely on safety programs.
- 8 -
The establishment of bulk reserves requires the use of historical data, where available, and generally a minimum of ten years of such data is required to provide statistically valid samples for most lines of business.  As previously mentioned, numerous factors must be considered in reviewing historical data including inflation, legislative actions, new coverages provided and trends noted in the current book of business, which are different from those present in the historical data.  Clearly, the Company's book of business in 20152016 is different, both in terms of exposures provided and rates charged, from that which generated much of the ten-year historical loss data used to establish reserves in recent years.  Management has noted trends toward significantly higher settlements and jury awards associated with the more serious fleet transportation liability claims over the past several years.  The inflationary factors affecting these claims appear to be more subjective in nature and not in line with compensatory equity.  In addition to the factors mentioned above, any savings realized in recent years upon the closing of claims, as reflected in the tables on pages 56 and 11,12, are attributable to the Company's experience in specializing in the long-haul trucking business for over 50 years, as well as its long-standing policy of reserving for losses realistically and a willingness to settle claims based upon a seasoned evaluation of the underlying exposures.  TheHowever, over the past several years, the Company has experienced premium growth in areas outside of fleet trucking, where the Company has less experience in handling claims.  For these products, management relies more heavily on pricing assumptions, as well as industry data, to support the reserve positions.  Management will continue to review the trends notedin all products and, should it appear that such trends are permanent and projectable, they will be reflected in future reserving method refinements.
The lower section of the table on page 1011 shows the cumulative amount paid with respect to the previously recorded calendar year end liability as of the end of each succeeding year.  For example, as of December 31, 2015,2016, the Company had paid $168.3$171.2 million of losses and LAE that had been incurred, but not paid, as of December 31, 2005;2006; thus, an estimated $22.0$22.3 million (12%(11.5%) of losses incurred through 20052006 remain unpaid as of the current financial statement date ($190.3193.5 million incurred less $168.3$171.2 million paid).  The payment patterns shown in this table demonstrate the "long-tail" nature of much of the Company's business, whereby portions of claims, principally in workers compensation coverages, do not fully pay out for more than ten years.
 
- 8 -
Readers should note that the table on page 1011 does not present accident or policy year development data, which they may be more accustomed to analyzing.  Rather, this table is intended to present an evaluation of the Company's ability to establish its liability for losses and loss expenses at a given balance sheet date.  In reviewing this information, it is important to understand that this method of presentation causes some development experience to be duplicated.  For example, the amount of any redundancy or deficiency related to losses settled in 2008,2009, but incurred in 2005,2006, will be included in the cumulative development amount for each of the years ending December 31, 2005, 2006, 2007, and 2007.2008.  It is also important to note that conditions and trends that have affected development of the liability in the past may not necessarily occur in the future.  Accordingly, it would not be appropriate to extrapolate future redundancies or deficiencies based on this table.
The table presented on page 11below presents loss development data on a gross (before consideration of reinsurance) basis for the same ten year period December 31, 20052006 through December 31, 2014,2015, as of December 31, 2015,2016, with a reconciliation of the data to the net amounts shown in the table on page 10.above.  Readers are reminded that the gross data presented on page 11below requires significantly more subjectivity in the estimation of incurred but not reportedIBNR and loss expense reserves because of the high limits provided by the Company to its fleet transportation customers, some of which has been covered by excess of loss and facultative reinsurance.  This is particularly true of excess of loss treaties where the Company retains risk in only the lower, more predictable, layers of coverage.  Accordingly, one would generally expect more variability in development on a gross basis than on a net basis.  The difference between loss developments before consideration of reinsurance, as presented on page 11,below, and those net of reinsurance, as shown on page 10in the table above do not impact the Company's operating results as all such differences are borne by reinsurers.

Environmental Matters:
Given that the Company's principal business is insuring fleet transportation companies, on occasion claims involving a commercial automobile accident which has resulted in the spill of a pollutant are made.  Certain of the Company's policies may cover these situations on the basis that they were caused by an accident that resulted in the immediate and isolated spill of a pollutant.  These claims are typically reported, evaluated and fully resolved within a short period of time.
- 9 -
In general, establishing reserves for environmental claims, other than those associated with "sudden and accidental" losses, is subject to uncertainties that are greater than those represented by other types of claims.  Factors contributing to those uncertainties include a lack of historical data, long reporting delays, uncertainty as to the number and identity of insureds with potential exposure, unresolved legal issues regarding policy coverage, and the extent and timing of any such contractual liability.  Courts have reached different and sometimes inconsistent conclusions as to when the loss occurred and what policies provide coverage, what claims are covered, whether there is an insured obligation to defend, how policy limits are determined, how policy exclusions are applied and interpreted, and whether cleanup costs represent insured property damage.
As previously noted, very
Very few environmental claims have historically been reported to the Company.  In addition, a review of the businesses of our past and current insureds indicates that exposure to claims of an environmental nature is limited because the vast majority of the Company's accounts are not currently, and have not in the past been, involved in the hauling of hazardous substances.  Also, the revision of the pollution exclusion in the Company's policies since 1986 has, and is expected to, further limit exposure to such claims from that point forward.
The Company has never been presented with andoes not expect to have any significant environmental claimclaims relating to asbestos and, based on the types of business the Company has insured over the years, it is not expected that the Company could have any significant asbestos exposure.
The Company's reserves for unpaid losses and loss expenses at December 31, 20152016 did not include significant amounts for liability related to environmental damage claims.  The Company does not foresee significant future exposure to environmental damage claims and accordingly has established no reserve for incurred but not reportedIBNR environmental losses at December 31, 2015.2016.
 
 
- 910 -
ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE DEVELOPMENT--GAAP BASIS 
(Dollars in thousands) 
                       
Year Ended December 31 2005  2006  2007  2008  2009  2010  2011  2012  2013  2014  2015 
                       
Liability for Unpaid Losses                      
  and Loss Adjustment                      
  Expenses $242,130  $249,495  $244,500  $231,633  $203,253  $218,629  $290,092  $289,236  $288,088  $295,583  $301,753 
                                             
Liability Reestimated                                            
   as of:                                            
  One Year Later  225,183   228,211   227,423   222,049   194,430   208,933   280,217   283,673   277,734   285,521     
  Two Years Later  209,774   207,818   216,730   208,702   198,220   201,745   272,285   282,381   268,757         
  Three Years Later  200,955   199,503   206,445   210,562   188,110   204,243   276,525   279,685             
  Four Years Later  198,376   192,678   210,170   205,519   192,195   202,078   268,299                 
  Five Years Later  191,846   198,023   208,132   208,398   187,792   198,518                     
  Six Years Later  195,348   196,101   210,446   205,986   181,547                         
  Seven Years Later  193,226   197,898   209,288   200,460                             
  Eight Years Later  194,188   196,421   205,179                                 
  Nine Years Later  192,585   193,746                                     
  Ten Years Later  190,276                                         
                                             
                                             
Cumulative Redundancy $51,854  $55,749  $39,321  $31,173  $21,706  $20,111  $21,793  $9,551  $19,331  $10,062     
                                             
Cumulative Amount of                                            
 Liability Paid                                            
 Through:                                            
  One Year Later $59,581  $58,956  $76,970  $84,777  $74,182  $72,393  $94,003  $103,941  $92,275  $92,870     
  Two Years Later  94,947   100,990   124,870   120,628   107,413   109,382   156,271   162,087   159,282         
  Three Years Later  117,522   127,011   145,857   142,731   125,038   133,507   193,566   205,452             
  Four Years Later  136,652   143,612   157,724   152,679   137,460   147,462   214,873                 
  Five Years Later  148,039   151,662   164,877   161,834   143,461   158,172                     
  Six Years Later  154,573   157,223   170,554 �� 166,290   148,101                         
  Seven Years Later  159,428   162,331   174,190   170,126                             
  Eight Years Later  163,779   165,372   177,275                                 
  Nine Years Later  166,062   168,157                                     
  Ten Years Later  168,303                                         

ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE DEVELOPMENT--GAAP BASIS 
(Dollars in thousands) 
                                  
Year Ended December 31 2006  2007  2008  2009  2010  2011  2012  2013  2014  2015  2016 
                                  
Liability for Unpaid Losses                                 
  and Loss Adjustment                                 
  Expenses $249,495  $244,500  $231,633  $203,253  $218,629  $290,092  $289,236  $288,088  $295,583  $301,753  $324,767 
                                             
Liability Reestimated                                            
   as of:                                            
  One Year Later  228,211   227,423   222,049   194,430   208,933   280,217   283,673   277,734   285,521   315,589     
  Two Years Later  207,818   216,730   208,702   198,220   201,745   272,285   282,381   268,757   303,540         
  Three Years Later  199,503   206,445   210,562   188,110   204,243   276,525   279,685   288,862             
  Four Years Later  192,678   210,170   205,519   192,195   202,078   268,299   291,332                 
  Five Years Later  198,023   208,132   208,398   187,792   198,518   275,517                     
  Six Years Later  196,101   210,446   205,986   181,547   200,922                         
  Seven Years Later  197,898   209,288   200,460   181,998                             
  Eight Years Later  196,421   205,179   200,808                                 
  Nine Years Later  193,746   205,248                                     
  Ten Years Later  193,453                                         
                                             
                                             
Cumulative Redundancy (Deficiency) $56,042  $39,252  $30,825  $21,255  $17,707  $14,575   (2,096)  (774)  (7,957)  (13,836)    
                                             
Cumulative Amount of                                            
 Liability Paid                                            
 Through:                                            
  One Year Later $58,956  $76,970  $84,777  $74,182  $72,393  $94,003  $103,941  $92,275  $92,870  $109,228     
  Two Years Later  100,990   124,870   120,628   107,413   109,382   156,271   162,087   159,282   166,642         
  Three Years Later  127,011   145,857   142,731   125,038   133,507   193,566   205,452   166,642             
  Four Years Later  143,612   157,724   152,679   137,460   147,462   214,873   202,803                 
  Five Years Later  151,662   164,877   161,834   143,461   158,172   227,359                     
  Six Years Later  157,223   170,554   166,290   148,101   166,112                         
  Seven Years Later  162,331   174,190   170,126   152,375                             
  Eight Years Later  165,372   177,275   173,867                                 
  Nine Years Later  168,157   180,569                                     
  Ten Years Later  171,161                                         

 
- 1011 -
 

ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE DEVELOPMENT--GAAP BASISANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE DEVELOPMENT--GAAP BASIS ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE DEVELOPMENT--GAAP BASIS 
(Dollars in thousands)(Dollars in thousands) (Dollars in thousands) 
                                                       
Year Ended December 31 2005  2006  2007  2008  2009  2010  2011  2012  2013  2014  2015  2006  2007  2008  2009  2010  2011  2012  2013  2014  2015  2016 
                                                       
Direct and Assumed:
                                                       
Liability for Unpaid Losses and Loss                                                       
Adjustment Expenses $430,273  $409,412  $378,616  $389,558  $359,030  $344,520  $421,556  $455,454  $474,470  $506,102  $513,596  $409,412  $378,616  $389,558  $359,030  $344,520  $421,556  $455,454  $474,470  $506,102  $513,596  $576,330 
                                                                                        
Liability Reestimated as of                                                                                        
December 31, 2014  324,746   300,304   305,844   298,439   289,678   300,507   382,745   423,750   438,189   463,951     
December 31, 2016  301,115   307,148   300,055   291,037   307,486   401,670   459,296   501,374   546,935   552,805     
                                                                                        
Cumulative Redundancy  105,527   109,108   72,772   91,119   69,352   44,013   38,811   31,704   36,281   42,151     
Cumulative Redundancy (Deficiency)  108,297   71,468   89,503   67,993   37,034   19,886   (3,842)  (26,904)  (40,833)  (39,209)    
                                                                                        
                                                                                        
Ceded:
                                                                                        
Liability for Unpaid Losses and Loss                                                                                        
Adjustment Expenses  188,143   159,917   134,116   157,925   155,777   125,891   131,464   166,218   186,382   210,519   211,843   159,917   134,116   157,925   155,777   125,891   131,464   166,218   186,382   210,519   211,843   251,563 
                                                                                        
Liability Reestimated as of                                                                                        
December 31, 2014  134,470   106,558   100,665   97,979   108,131   101,989   114,446   144,065   169,432   178,430     
December 31, 2016  107,662   101,900   99,247   109,039   106,564   126,153   167,964   212,512   243,395   237,216     
                                                                                        
Cumulative Redundancy  53,673   53,359   33,451   59,946   47,646   23,902   17,018   22,153   16,950   32,089     
Cumulative Redundancy (Deficiency)  52,255   32,216   58,678   46,738   19,327   5,311   (1,746)  (26,130)  (32,876)  (25,373)    
                                                                                        
Net:
                                                                                        
Liability for Unpaid Losses and Loss                                                                                        
Adjustment Expenses  242,130   249,495   244,500   231,633   203,253   218,629   290,092   289,236   288,088   295,583   301,753   249,495   244,500   231,633   203,253   218,629   290,092   289,236   288,088   295,583   301,753   324,767 
                                                                                        
Liability Reestimated as of                                                                                        
December 31, 2014  190,276   193,746   205,179   200,460   181,547   198,518   268,299   279,685   268,757   285,521     
December 31, 2016  193,453   205,248   200,808   181,998   200,922   275,517   291,332   288,862   303,540   315,589     
                                                                                        
Cumulative Redundancy  51,854   55,749   39,321   31,173   21,706   20,111   21,793   9,551   19,331   10,062     
Cumulative Redundancy (Deficiency)  56,042   39,252   30,825   21,255   17,707   14,575   (2,096)  (774)  (7,957)  (13,836)    

 
- 1112 -
Marketing

The Company's primary marketing areas are outlined on pages 2 and 3.
Historically, the Company has primarily focused its fleet transportation marketing efforts on large and medium trucking fleets, with its biggest market share in the larger trucking fleets (over 150 power units).  The largest of these fleets (over 250 power units) self-insure a significant portion of their risk, and self-insurance plans are a specialty of the Company.  The indemnity contract provided to self-insured customers is designed to cover all aspects of fleet transportation liability, including third party liability, property damage, physical damage, cargo and workers' compensation, arising from vehicular accident or other casualty loss.  The self-insured program is supplemented with large deductible workers' compensation policies in states which do not allow for self-insurance of this coverage.  Fleets with fewer than 250 power units typically purchase full insurance coverage or retain small deductibles on each claim.  The Company's fleet transportation offerings also include public livery risks, principally large and mediummedium- sized operators of bus fleets.  The Company's fleet transportation offerings include work-related accident insurance, on a group or individual basis, to independent contractors under contract to a fleet sponsor, as well as workers' compensation coverage to employees of independent contractor fleet owners.Large fleet trucking products are marketed both by the B&L agency organization directly to fleet transportation clients and also through relationships with non-affiliated brokers and specialized independent agents.
In addition, the Company offers a program of coverages for "small fleet" trucking concerns (owner-operators generally with one to six power units) and "medium fleet" trucking concerns (7-149 power units).Products for small and medium fleets, independent contractors, and non-trucking entities are marketed through relationships with non-affiliated brokers and specialized agents.  In some cases, the Company will provide specific product offerings to specialized markets through partnerships with brokers and program administrators.
In 2015,2016, fleet transportation products generated approximately 95%96% of direct premiumpremiums written by the Property & Casualty Insurance Segment.property and casualty insurance segment.
Beginning in 2010,
In 2016, the Company began underwriting miscellaneousdiscontinued its professional liability coveragesline of products.  Prior to that, the Company marketed and underwrote a variety of professional liability products through wholesale and retail agents and brokers on both an admitted and surplus lines basis.basis throughout the United States, specializing in smaller insureds.

Since 1992,Prior to 2016, the Company hashad accepted reinsurance cessions and retrocessions covering property and casualty risks from selected insurers and reinsurers.  Participation in this market hashad varied over the years depending on the adequacy of pricing.  Effective June 30, 2015, no property reinsurance risk remained inforce.
The Company terminated the marketing of its private passenger automobile insurance products in late 2015 and substantially all inforce business for this product line will expireexpired in 2016.


Investments
The Company's investment portfolio is essentially divided between (1) funds which are considered necessary to support insurance underwriting activities and (2) excess capital funds.  Management believes the funds invested in fixed maturity and short-term securities are more than sufficient to cover underwriting operations while equity securities and limited partnerships are utilized to invest excess capital funds to achieve higher long-term returns.  The following discussion will concentrate on the different investment strategies for these two major categories.
At December 31, 20152016 the financial statement value of the Company's investment portfolio was approximately $730$749.5 million, including $70$61.2 million of short-term funds classified as cash equivalents.  The adjusted cost of the portfolio was $670$697.1 million, with the $60$52.4 million difference representing pre-tax unrealized appreciation.
 
- 1213 -

A comparison of the allocation of assets within the Company's investment portfolio, using adjusted cost as a basis, is as follows as of December 31:
  2016  2015 
       
   Agency collateralized mortgage obligations  0.9%  -%
   Agency mortgage-backed securities  0.7   0.5 
   Asset-backed securities  7.1   7.7 
   Bank loans  1.6   0.9 
   Certificates of deposit  0.5   0.5 
   Collateralized mortgage obligations  1.4   1.6 
   Corporate securities  22.5   18.8 
   Mortgage-backed securities  3.8   4.0 
   Municipal obligations  20.5   18.4 
   Non-U.S. government obligations  4.2   4.3 
   U.S. government obligations  14.5   17.3 
      Total fixed maturities  77.7   74.0 
   Limited partnerships (equity basis)  12.0   12.6 
   Consumer  2.4   2.8 
   Energy  0.9   1.0 
   Financial  3.5   4.0 
   Industrial  1.0   1.6 
   Technology  0.6   1.0 
   Mutual fund  1.1   1.8 
   Other  0.8   1.2 
      Total equity securities  10.3   13.4 
   100.0%  100.0%

  2015  2014 
     
   Corporate securities  25.1%  25.2%
   State and municipal obligations  16.4   16.7 
   U.S. government obligations  15.4   14.9 
   Short-term and money markets  10.7   9.2 
   Commercial mortgage-backed securities  4.6   5.3 
   Foreign government obligations  3.8   4.2 
   Residential mortgage-backed securities  0.7   0.9 
      Total fixed maturities  76.7   76.4 
   Limited partnerships (equity basis)  11.3   12.0 
   Equity securities  12.0   11.6 
   100.0%  100.0%


Fixed Maturity and Short-Term Investments

Fixed maturity and short-term securities comprised 69.7%73.8% of the market value of the Company's total invested assets at December 31, 2015.  Excluding U.S. government obligations, the2016.  The fixed maturity portfolio is widely diversified with no concentrations in any single industry, geographic location or municipality.  The largest amount invested in any single issuer was $8.4 million (1.1% of total invested assets) although most individual investments, other than municipal bonds,government obligations, are less than $750,000.  The Company's fixed maturity portfolio has a short duration compared to the duration of its insurance liabilities and, accordingly, the Company does not actively trade fixed maturity securities but typically holds such investments until maturity.  Exceptions exist in instances where the underlying credit for a specific issue is deemed to be diminished.  In such cases, the security will be considered for disposal prior to maturity.  In addition, fixed maturity securities may be sold when realignment of the portfolio is considered beneficial (i.e., moving from taxable to non-taxable issues) or when valuations are considered excessive compared to alternative investments.

The Investment Committee has determined that the Company's Insurance Subsidiaries will, at all times, hold high grade fixed maturity securities and short-term investments with a market value equal to at least 100% of reserves for losses and loss expenses and unearned premiums, net of applicable reinsurance credits.  At December 31, 2015, investment grade bonds and short-term instruments held by Insurance Subsidiaries equaled 136% of designated underwriting liabilities, thus providing a substantial margin above this conservative guideline.

The Company's concentration of fixed maturity funds in relatively short-term investments provides it with a level of liquidity which is more than adequate to provide for its anticipated cash flow needs.

The following comparison of the Company's fixed maturity and short-term investment portfolios, using par value as a basis, shows the changes in contractual maturities in the portfolio during 2015.2016.  Note that the expected average maturity of the portfolio is less than the contractual maturity average life shown below because the Company has, in some cases, the right to put obligations and borrowers have, in some cases, the right to call or prepay obligations with or without call or prepayment penalties.
  2016  2015 
Less than one year  27.7%  28.4%
1 to 5 years  52.7   49.6 
5 to 10 years  9.7   8.8 
More than 10 years  9.9   13.2 
   100.0%  100.0%
         
Average contractual life of portfolio (years)  4.5   4.6 

  2015  2014 
Less than one year  28.4%  37.3%
1 to 5 years  49.6   37.7 
5 to 10 years  8.8   10.9 
More than 10 years  13.2   14.1 
   100.0%  100.0%
         
Average contractual life of portfolio (years)  4.6   4.8 


- 14 -
Approximately $61.3$69.1 million of our fixed maturity investments (8.4%(9.2% of our total invested assets) consists of non-rated bonds and bonds rated as less than investment grade by the National Association of Insurance Commissioners at year end.  These investments include a diversified portfolio of over 40 investments with a cost basis of approximately $64.5$68.2 million.
 
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The market value of the consolidated fixed maturity portfolio was $5.4$2.7 million lower than cost at December 31, 2015,2016, before income taxes, which compares to a $3.6$5.4 million unrealized loss at December 31, 2014, with the change due primarily to the decline in oil prices and the strengthening of the U.S. Dollar.2015.  The Company analyzes fixed maturity securities for other-than-temporary impairment ("OTTI") in accordance with the Financial Accounting Standards Board ("FASB") OTTI guidance.  As has been the Company's consistent policy, other-than-temporary impairment is considered for any individual issue which has sustained a decline in current market value of at least 20% below original or adjusted cost, and the decline is ongoing for more than six months, regardless of the evaluation of the creditworthiness of the issuer or the specific issue.  Additionally, the Company takes into account any known subjective information in evaluating for impairment without consideration toof the Company's 20% threshold.  In 2015,2016, the net effect of OTTI adjustments to fixed maturity securities was a charge against incomean increase to investment gains of $4.7$3.3 million with securities owned at year end having only an insignificant credit related loss treated as unrealized.before taxes.  The current net unrealized gain on fixed maturity securities consists of $4.1$4.6 million of gross unrealized gains and $9.5$7.3 million of gross unrealized losses.  The gross unrealized loss equals approximately 2.2%1.5% of the cost of all bonds in this category.fixed maturity securities.

Equity Securities
Because of the large amount of high quality fixed maturity investments owned, relative to the Company's loss and loss expense reserves and other liabilities, amounts invested in equity securities are not needed to fund current operations and, accordingly, can be committed for long periods of time.  Equity securities comprise 19.9%16.0% of the market value of the consolidated investment portfolio at December 31, 2015,2016, but only 12.0%9.3% of the related adjusted cost basis, as long-term holdings have appreciated significantly.  The Company's equity securities portfolio consists of over 200 separate issues with diversification from large to small capitalization issuers and among several industries.  The largest single equity issue owned has a market value of $6.2$7.3 million at December 31, 2015 (0.9%2016 (1.0% of our total invested assets) although the average equity holding of an individual issuer is less than $150,000.
In general, the Company maintains a buy-and-hold philosophy with respect to equity securities.  Many current holdings have been continuously owned for more than ten years, which accounts for the fact that the portfolio, in total, carries a $60.0net $55.0 million pre-tax unrealized gain at the current year end using original cost and over $65.3 million in unrealized gains using cost adjusted for previous other-than-temporary impairment adjustments.end.  An individual equity security will be disposed of when it is determined by the Company's external investment managers or the Board of Director's - Investment Committee that there is little potential for future appreciation.  All equity securities are considered to be available for sale although portfolio turnover has historically been very low.  Securities are not sold to meet any quarterly or annual earnings quotas but, rather, are disposed of only when market conditions are deemed to dictate, regardless of the impact, positively or negatively, on current period earnings.  In addition, equity securities may be sold when realignment of the portfolio is considered beneficial or when valuations are considered excessive compared to alternative investments.  Sales of equity securities during 20152016 generated both gains and losses but netted to a realized gain of $8.4$23.9 million before taxes.
The net effect of other-than-temporary impairment adjustments, including recovery of prior year write downs upon sale or disposal, increased investment gains from equity securities by $1.3$3.2 million for the year before taxes.  The reclassification of unrealized losses to realized losses occurred on each individual issue where the current market value was at least 20% below original or adjusted cost, and the decline was ongoing for more than six months at the date of write-down, regardless of the evaluation of the issuer or the potential for recovery.  Additionally, for any equity security where the decline has existed for a period of at least one year, the decline is treated as an other-than-temporary impairment, regardless of the percentage decline.  Further, the Company takes into account any known subjective information in evaluating for impairment without consideration to the Company's 20% threshold.  Net unrealized gains on the equity security portfolio were $65.3$55.0 million before tax at December 31, 20152016 compared to $83.3$65.3 million at December 31, 2014.2015.  The current net unrealized gain consists of $70.4$56.0 million of gross unrealized gains and $5.1$1.0 million of gross unrealized losses.

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Limited Partnerships
The Company invests in various limited partnerships engaged in securities trading activities, real estate development or small venture capital funding, as an alternative to direct equity investments.  The funds used for these investments are part of the Company's excess capital strategy.  At December 31, 2015,2016, aggregate funds invested in limited partnerships was $31.0$29.8 million and the aggregate carrying value was $75.5$76.5 million, comprising 10.3%10.2% of the market value of our invested assets.
 
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As a group, these investments experienced decreasesincreases in value during 2015,2016, with the aggregate of the Company's share of such lossesgains reported by the limited partnerships totaling approximately $1.7 million.  The decrease in value is composed of estimated realized gains of $6.5 million and decreases in estimated unrealized gains of $8.2$2.5 million.  On an inception-to-date basis, active limited partnerships have produced estimated realized income of $38.8 million and estimated unrealized income of $5.1$46.6 million.
The Company follows the equity method of accounting for its limited partnership investments and, accordingly, records the total change in value as a component of net gains or losses on investments.  However, readersReaders are cautioned that, to the extent that reported increases in equity value are unrealized, they can be subsequently reduced or eliminated quickly by volatile market conditions.  Further, assets purchased with reinvested realized gains can also diminish in value.  In addition, a significant minority of the investments included in the limited partnerships do not have readily ascertainable fair market values and, accordingly, values assigned by the general partners may not be realizable upon the sale or disposal of the related assets, which may not occur for several years.  Limited partnerships also are highly illiquid investments, and the Company's ability to withdraw funds is generally subject to significant restrictions.

Investment Yields
Interest rates, particularly those on the short end of the yield curve where the vast majority of the Company's fixed maturity investments are maintained, continued at historically low levels during 2015.2016.  Pre-tax net investment income increased $3.4$2.0 million, or 38%16%, and after tax income increased $2.2$1.4 million, or 32%15%, during 20152016 reflecting a larger concentration in high-yield bonds and higher average invested assets from continuing positive cash flow from operations.  A comparison of consolidated investment yields, before consideration of investment management expenses, is as follows:

 2015  2014  2016  2015 
Before federal tax:          
Investment income  2.5%  2.0%  2.9%  2.5%
Investment income plus investment gains (losses)  2.3   4.3 
Investment income plus investment gains  6.8   2.3 
                
After federal tax:                
Investment income  1.8   1.5   2.2   1.8 
Investment income plus investment gains (losses)  1.7   2.9 
Investment income plus investment gains  6.1   1.7 

Readers areSee also directed to the Results of Operations in Part II, Item 7 of this documentAnnual Report on Form 10-K for additional details of our investment operations.

Regulatory Framework
The Company's businesses are currently subject to insurance industry regulation by each of the fifty states in which the Company's subsidiaries are licensed.  In addition, minor portions of the Company's business are subject to regulation by Bermudian and Canadian federal and provincial authorities.  There can be no assurance that laws and regulations will not be changed by one or more of these regulatory bodies in ways that will require the Company to modify its business models and objectives.  In particular, the United States federal government continues to undertake a substantial review and revision of the regulation and supervision of financial institutions, including insurance companies as well as tax laws and regulation, which could impact the Company's operations and performance.  While it is currently expected that federal government regulation will be focused on the largest financial companies, additional regulations are likely to increase the cost of compliance to the Company.  Further, while management is not aware of any significant pending changes, the Company is also subject to regulatory risks from changes to state and federal tax laws that may affect the treatment of insurance related deductions or income recognition.
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Additionally, changes in laws and regulations governing the insurance industry could have an impact on the Company's ability to generate historical levels of income from its insurance operations.  The Company is obligedobligated to comply with numerous complex and varied governmental regulations in order to maintain its authority to write insurance business.  While the Company has continuously maintained each of its licenses without exception, failure to maintain compliance could result in governmental regulators temporarily preventing the Company from writing new business, thus having a detrimental effect on the Company.  Also, the ability forof the Company's Insurance Subsidiaries to increasemodify insurance rates is heavily regulated for significant portions of the Company's business, and such rate increases are often denied or delayed for substantial periods by regulators.
 
- 15 -Investments made by the Company's domestic Insurance Subsidiaries are regulated by guidelines promulgated by the National Association of Insurance Commissioners, which are designed to provide protection for both policyholders and shareholders.  The statutory capital of each of the Insurance Subsidiaries substantially exceeds minimum risk- based capital requirements set by the National Association of Insurance Commissioners.  State regulatory authorities prescribe calculations of the minimum amount of statutory capital and surplus necessary for each insurance company to remain authorized.  These computations are referred to as Risk Based Capital ("RBC") requirements and are based on a number of complex factors taking into consideration the quality and nature of assets, the historical adequacy of recorded liabilities and the specific nature of business conducted.  At December 31, 2016, the minimum statutory capital and surplus requirements of the insurance subsidiaries was $85,842.  Actual consolidated statutory capital and surplus at December 31, 2016 exceeded this requirement by $313,473.

Employees
As of December 31, 2015,2016, the Company had 438455 employees, an increase of 1317 employees from the prior year end.

Revenue Concentration
The Company derives a significant percentage of its direct premium volume from certain FedEx subsidiaries and operating companies ("FedEx"), and from property and casualty insurance coverage provided to FedEx's contracted service providers.  FedEx represented approximately $18.3 million, $17.8 million and $19.0 million of the Company's consolidated gross premiums written in 2016, 2015 and 2014, respectively.  An additional $202.2 million, $209.4 million and $197.8 million in 2016, 2015 and 2014, respectively, was placed with the Company by a non-affiliated broker on behalf of contracted service providers of FedEx but this additional business was not dependent upon the Company's direct business with FedEx.
Competition
The insurance brokerage and agency business is highly competitive.  B&L competes with a large number of insurance brokerage and agency firms and individual brokers and agents throughout the country, many of which are considerably larger than B&L.  B&L also competes with insurance companies which write insurance directly with their customers.
Insurance underwriting is also highly competitive.  The Insurance Subsidiaries compete with other stock and mutual companies and inter-insurance exchanges (reciprocals).  There are numerous insurance companies offering the lines of insurance which are currently written or may in the future be written by the Insurance Subsidiaries.  Many of these companies have been in business for longer periods of time, have significantly larger volumes of business, offer more diversified lines of insurance coverage and have significantly greater financial resources than the Company.  In many cases, competitors are willing to provide coverage for rates lower than those charged by the Insurance Subsidiaries.  Many potential clients self-insure workers' compensation and other risks for which the Company offers coverage, and some concerns have organized "captive" insurance companies as subsidiaries through which they insure their own operations.  Some states have workers' compensation funds that preclude private companies from writing this business in those states.  Federal law also authorizes the creation of "Risk Retention Groups"Groups," which may write insurance coverages similar to those offered by the Company.
The Company believes it has a competitive advantage in its major lines of business as the result of the extensive experience of its long-tenured management and staff, its superior service and products, its willingness to custom build insurance programs for its customers, its centralized location with ready access to management, its extensive proprietary data basesdatabases and the use of technology with respect to its insureds and independent agent force.  However, the Company is not "top-line" oriented and will readily sacrifice premium volume during periods of unrealistic rate competition.  Accordingly, should competitors determine to "buy" market share with unprofitable rates, the Company's Insurance Subsidiaries will generally experience a decline in business until pricing returns to profitable levels.

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Availability of Documents
This
The Company is an accelerated filer as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is required, pursuant to Item 101 of Regulation S-K, to provide certain information regarding its website and the availability of certain documents filed with or furnished to the U.S. Securities and Exchange Commission (the "SEC"). The Company's Internet website is www.baldwinandlyons.com. The Company has included its Internet website address throughout this Annual Report on Form 10-K as well astextual reference only. The information contained on, or accessible through, the Company's Audit Committee CharterInternet website is not incorporated into this Annual Report on Form 10-K.

The Company makes available, free of charge, by mail or through its Internet website, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after it electronically files such material with or furnishes it to the SEC. The Company also includes on its Internet website its Code of Business Conduct willand the charter of each standing committee of its Board of Directors. In addition, the Company intends to disclose on its Internet website any amendments to, or waivers from, its Code of Business Conduct that are required to be sentpublicly disclosed pursuant to shareholdersrules of the SEC and the Nasdaq Stock Market, LLC ("Nasdaq").

Shareholders may obtain, without charge, a copy of this Annual Report on Form 10-K, including the consolidated financial statements and schedules thereto, without the accompanying exhibits, upon written request to the Company'sBaldwin & Lyons, Inc., 111 Congressional Boulevard, Carmel, Indiana 46032, Attention:  Investor Contact at the corporate address. These documents, along with all other filings with the SecuritiesRelations. A list of exhibits is included in this Annual Report on Form 10-K, and Exchange Commissionexhibits are available for review, download or printing from the Company's web site at www.baldwinandlyons.com.Company upon payment to the Company of the cost of furnishing the exhibits.

Item 101(b), (c)(1)(i)Financial Information about Segments and (vii), and (d) of Regulation S-K:Geographic Areas:
Reference is made to Note J toof the consolidated financial statements, which provideprovides financial information concerning industryour segments and is filed herewith underin Part II, Item 8, Financial Statements and Supplementary Data.Data, of this Annual Report on Form 10-K.

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Item 1A.  RISK FACTORS

●The Company operates in the Property and Casualty insurance industry where many of its competitors are larger with far greater resources.  Further, this industry is heavily regulated.  Changes in laws and regulations governing the insurance industry could have a significant impact on the Company's ability to generate income from its insurance operations.  The Company's Insurance Subsidiaries, as a group, are regulated and licensed in all 50 of the United States, the District of Columbia, all Canadian provinces, Puerto Rico and Bermuda.  The Company is obliged to comply with numerous complex and varied governmental regulations in order to maintain its authority to write insurance business.  Failure to maintain compliance could result in various governmental regulators preventing the Company from writing new business and therefore having a material impact on the Company.  Further, the ability for the Company's Insurance Subsidiaries to adjust insurance rates is regulated for significant portions of the Company's business and needed rate adjustments can be denied or delayed for substantial periods by regulators.
The following is a description of the risk factors that could cause the Company's actual results to differ materially from those contained in forward-looking statements made in this Annual Report on Form 10-K and presented elsewhere by management from time to time.  Such factors may have a material adverse effect on the Company's business, financial condition and results of operations, and you should carefully consider them before deciding to invest in, or retain, shares of the Company's common stock.  These risk factors do not identify all risks that the Company faces; its operations could also be affected by factors that are not presently known to the Company or that the Company currently considers to be immaterial to its operations. Due to risks and uncertainties, known and unknown, the Company's past financial results may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. 
●
The Company's main insurance subsidiary, Protective, currently has a financial strength rating of "A+" (Superior) by A.M. Best.  A decline in the Company's rating below "A-" could adversely affect the Company's position in the insurance market, make it more difficult to market the Company's insurance products and cause a significant reduction in the Company's premiums and earnings. A downgrade could result in a loss of a number of insurance contracts the Company writes and in a substantial loss of business to other competitors.  Financial ratings are an important factor influencing the competitive position of insurance companies. A.M. Best ratings, which are commonly used in the insurance industry, currently range from "A++" (Superior) to "F" (In Liquidation). The objective of A.M. Best's rating system is to provide potential policyholders and other interested parties an expert independent opinion of an insurer's financial strength and ability to meet ongoing obligations, including paying claims. This rating is subject to periodic review and may be revised downward, upward or revoked at the sole discretion of A.M. Best.
●The Company has two classes of common stock with unequal voting rights. The Company is effectively controlled by its principal stockholders and management, which limits other stockholders' ability to influence operations.  The Company's executive officers, directors and principal stockholders and their affiliates control approximately 58% of the outstanding shares of voting Class A common stock and approximately 28% of the outstanding shares of non-voting Class B common stock. These parties effectively control the Company, direct its affairs, and exert significant influence in the election of directors and approval of significant corporate transactions.  The interests of these stockholders may conflict with those of other stockholders, limit marketability of the stock and this concentration of voting power has the potential to delay, defer or prevent a change in control.

●The Company limits its risk of loss from policies of insurance issued by its Insurance Subsidiaries through the purchase of reinsurance coverage from other insurance companies. Such reinsurance does not relieve the Company from its responsibility to policyholders should the reinsurers be unable to meet their obligations to the Company under the terms of the underlying reinsurance agreements.  As a result, the Company is subject to credit risk relating to our ability to recover amounts due from reinsurers.  While the Company has not experienced any significant reinsurance losses for over twenty five years, a small number of our less significant historical reinsurance carriers have experienced deteriorating financial conditions or have been downgraded by rating agencies and provisions for potential uncollectible balances from these reinsurers have been established.  If the Company is unable to collect the amounts due to it from reinsurers, any unreserved credit losses could adversely affect its results of operations, equity, business and insurer financial strength.
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●Operating in the Property and Casualty insurance industry, the Company is exposed to loss from policies of insurance issued to its policyholders.  A large portion of the provision for losses recorded by the Company is composed of estimates of future loss payments to be made.  Such estimates of future loss payments may prove to be inadequate.  Loss and loss expense reserves represent management's best estimate at a given point in time but are not an exact calculation of ultimate liability.  Rather, they are complex estimates derived by utilizing a variety of reserve estimation techniques from numerous assumptions and expectations about future events, many of which are highly uncertain, such as estimates of claims severity, frequency of claims, inflation, claims handling, case reserving policies and procedures, underwriting and pricing policies, changes in the legal and regulatory environment and the lag time between the occurrence of an insured event and the time of its ultimate settlement.  Many of these uncertainties are not precisely quantifiable and require significant judgment on management's part.  As trends in underlying claims develop, particularly in so-called "long tail" lines where the adjudication of claims can take many years, management is sometimes required to revise reserves.  This results in a charge to the Company's earnings in the amount of the adjusted reserves, recorded in the period the change in estimate is made.  These charges can be substantial and can potentially have a material impact, either positively or negatively, on calendar year results of operations and shareholders' equity.
We compete with a large number of companies in the insurance industry for underwriting revenues.
We compete with a large number of other companies in our selected lines of business. During periods of intense competition for premium, we are vulnerable to the actions of other companies who may seek to write business without the appropriate regard for ultimate profitability. During these times, it is very difficult to grow or maintain premium volume without sacrificing underwriting discipline and income.
Insurance underwriting is highly competitive.  We compete with other stock and mutual companies and inter-insurance exchanges (reciprocals).  There are numerous insurance companies offering the lines of insurance which are currently written or may in the future be written by us.  Many of these companies have been in business for longer periods of time, have significantly larger volumes of business, offer more diversified lines of insurance coverage and have significantly greater financial resources than us.  In many cases, competitors are willing to provide coverage for rates lower than those charged by us.  Many potential clients self-insure workers' compensation and other risks for which we offer coverage, and some have organized "captive" insurance companies as subsidiaries through which they insure their own operations.  Some states have workers' compensation funds that preclude private companies from writing this business in those states.  Federal law also authorizes the creation of "Risk Retention Groups," which may write insurance coverages similar to those offered by us.
We may incur increased costs in competing for underwriting revenues. If we are unable to compete effectively in the markets in which we operate or to expand our operations into new markets, our underwriting revenues may decline, as well as our overall business results.
New competition could cause the supply and/or demand for insurance or reinsurance to change, which could affect our ability to price our coverages at attractive rates and thereby adversely affect our underwriting results.
Changes in laws and regulations governing the insurance industry could have a negative impact on our ability to generate income from our insurance operations.
One or more of our Insurance Subsidiaries are regulated and licensed in all 50 of the United States, the District of Columbia, all Canadian provinces, Puerto Rico and Bermuda.  We are obligated to comply with numerous complex and varied governmental regulations in order to maintain our authority to write insurance business.  Failure to maintain compliance could result in governmental regulators preventing us from writing new business, which would have a material adverse impact on us, our results of operations and our financial condition.  Further, the ability for our Insurance Subsidiaries to adjust insurance rates is regulated for significant portions of our business and needed rate adjustments can be denied or delayed for substantial periods by regulators.
A material decline in our financial strength rating could adversely affect our position in the insurance market and cause a significant reduction in our premiums and earnings.
Our main insurance subsidiary, Protective, currently has a financial strength rating of "A+" (Superior) by A.M. Best.    Financial ratings are an important factor influencing the competitive position of insurance companies. A.M. Best ratings, which are commonly used in the insurance industry, currently range from "A++" (Superior) to "F" (In Liquidation).  The objective of A.M. Best's rating system is to provide potential policyholders and other interested parties with an expert independent opinion of an insurer's financial strength and ability to meet ongoing obligations, including paying claims.  This rating is subject to periodic review and may be revised downward, upward or revoked at the sole discretion of A.M. Best.  A downgrade in rating could result in a loss of a number of insurance contracts we write and in a substantial loss of business to other competitors, which would have a material adverse effect on our results of operations.
We have two classes of common stock with unequal voting rights and are effectively controlled by our principal shareholders and management, which limits other shareholders' ability to influence our operations.
Our executive officers, directors and principal shareholders and their affiliates control approximately 57% of the outstanding shares of voting Class A common stock and approximately 26% of the outstanding shares of non-voting Class B common stock.  These parties effectively control us, direct our affairs, and exert significant influence in the election of directors and approval of significant corporate transactions.  The interests of these shareholders may conflict with those of other shareholders, and this concentration of voting power may limit marketability of our stock and has the potential to delay, defer or prevent a change in control.
We are subject to credit risk relating to our ability to recover amounts due from reinsurers.
We limit our risk of loss from policies of insurance issued by our Insurance Subsidiaries through the purchase of reinsurance coverage from other insurance companies.  Such reinsurance does not relieve us of our responsibility to policyholders should the reinsurers be unable to meet their obligations to us under the terms of the underlying reinsurance agreements.  While we have not experienced any significant reinsurance losses for over 25 years, a small number of our less significant historical reinsurance carriers have experienced deteriorating financial conditions or have been downgraded by rating agencies, and provisions for potential uncollectible balances from these reinsurers have been established.  If we are unable to collect the amounts due to us from reinsurers, any unreserved credit losses could adversely affect our results of operations, equity, business and insurer financial strength.
 
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●While much less significant in the past few years, a portion of the risk underwritten by the Insurance Subsidiaries prior to June 30, 2015 covered property losses resulting from catastrophic events on a worldwide basis.  The occurrence and valuation of loss events for this business is highly unpredictable and a single catastrophic event could result in a materially significant loss to the Company.  Catastrophe losses can take many months, or even years, for the ultimate cost  to be finally determined.  As our claim experience develops on a particular catastrophe, management may be required to adjust recorded reserves to reflect our revised estimates of the total cost of claims.
●The Company derives a significant percentage of its direct premium volume from certain FedEx subsidiaries and related entities ("FedEx"), and from insurance coverage provided to FedEx's contracted service providers.  While the loss of this major customer could severely impact the Company's revenue earnings potential and A.M. Best rating, insurance programs provided to FedEx and programs provided to the contracted service providers are not necessarily dependent upon one another and, therefore, could be viewed as separate entities.
We may incur additional losses if our loss reserves are inadequate.
●The Company, through its Insurance Subsidiaries, requires collateral from its insureds covering the insureds' obligations for self-insured retentions or deductibles related to policies of insurance provided. Should the Company, as surety, become responsible for such insured obligations, the collateral held may prove to be insufficient.  In this regard, FedEx utilizes significant self-insured retentions and deductibles under policies of insurance provided by the Company's Insurance Subsidiaries.  In the case of FedEx, the Company has determined that the financial strength of the customer is sufficient to allow for holding only partial collateral at this time.  Should the Company become responsible for this entire customer's self-insured retention and deductible obligations, the collateral held would be insufficient and the Company would sustain a significant operating loss.
●Given the Company's significant interest-bearing investment portfolio, a material drop in interest rates could have an adverse impact on the Company's earnings and, potentially, its financial position.  Conversely, because of the inverse relationship between interest rates and the market value of bonds, a material increase in interest rates could have a significant temporary negative impact on the market value of the Company's fixed maturity investment portfolio.  The functioning of the fixed income markets, the values of the investments the Company holds and the Company's ability to liquidate them may be adversely affected if those markets are disrupted by a change in interest rates or otherwise affected by significant negative factors, including, without limitation: local, national, or international events, such as regulatory changes, wars, or terrorist attacks; a recession, depression, or other adverse developments in either the U.S. or other economies that adversely affects the value of securities held in the Company's portfolio; financial weakness or failure of one or more financial institutions that play a prominent role in securities markets or act as a counterparty for various financial instruments, which could further disrupt the markets; inactive markets for specific kinds of securities, or for the securities of certain issuers or in certain sectors, which could result in decreased valuations and impact the Company's ability to sell a specific security or a group of securities at a reasonable price when desired; a significant change in inflation expectations, or the onset of deflation or stagflation. If the fixed-income portfolio were to suffer a decrease in value to a substantial degree, the Company's liquidity, financial position, and financial results could be materially adversely affected.  Under these circumstances, the Company's income from these investments could be materially reduced, and declines in the value of certain securities could further reduce the Company's results of operations, equity, business and insurer financial strength.
A large portion of our provision for losses recorded is composed of estimates of future loss payments to be made.  Such estimates of future loss payments may prove to be inadequate.  Loss and loss expense reserves represent our best estimate at a given point in time but are not an exact calculation of ultimate liability.  Rather, they are complex estimates derived by utilizing a variety of reserve estimation techniques from numerous assumptions and expectations about future events, many of which are highly uncertain, such as estimates of claims severity, frequency of claims, inflation, claims handling, case reserving policies and procedures, underwriting and pricing policies, changes in the legal and regulatory environment and the lag time between the occurrence of an insured event and the time of its ultimate settlement.  Many of these uncertainties are not precisely quantifiable and require significant judgment on our part.  As trends in underlying claims develop, particularly in so-called "long tail" lines where the adjudication of claims can take many years, management is sometimes required to revise reserves.  This results in a charge to our earnings in the amount of the adjusted reserves, recorded in the period the change in estimate is made.  These charges can be substantial and can potentially have a material impact, either positively or negatively, on results of operations and shareholders' equity.
●The Company has a large portfolio of equity securities and limited partnership investments which can fluctuate in value with a wide variety of market conditions.  A decline in the aggregate value of the equity securities and limited partnership investments would result in a commensurate decline in the Company's shareholders equity, either through the income statement or directly to equity.  The resultant decline could, at least temporarily, materially adversely affect the Company's results of operations, equity, business and insurer financial strength ratings.
The loss of our major customer could severely impact our revenue and earnings potential and A.M. Best rating.
We derive a significant percentage of our direct premium volume from certain FedEx subsidiaries and related entities, and from insurance coverage provided to FedEx's contracted service providers.  The loss of this major customer could materially adversely impact our revenue and earnings potential, as well as our A.M. Best rating.
Our collateral held may prove to be insufficient.
We require collateral from our insureds covering the insureds' obligations for self-insured retentions or deductibles related to policies of insurance provided.  Should we, as surety, become responsible for such insured obligations, the collateral held may prove to be insufficient.  In this regard, FedEx utilizes significant self-insured retentions and deductibles under policies of insurance provided by us.  In the case of FedEx, we have determined that the financial strength of the customer is sufficient to allow for holding only partial collateral at this time.  Should we become responsible for this customer's entire self-insured retention and deductible obligations, the collateral held would be insufficient, and we would sustain a significant operating loss.
A material drop in interest rates could have an adverse impact on our earnings and, potentially, our financial position.
Our income from these investments could be materially reduced, and reduce our results of operations, equity, business and insurer financial strength.  The functioning of the fixed income markets, the values of the investments we hold and our ability to liquidate them may be adversely affected if those markets are disrupted by a change in interest rates or otherwise affected by significant negative factors, including, without limitation: local, national, or international events, such as regulatory changes, wars, or terrorist attacks; a recession, depression, or other adverse developments in either the U.S. or other economies that adversely affects the value of securities held in our portfolio; financial weakness or failure of one or more financial institutions that play a prominent role in securities markets or act as a counterparty for various financial instruments, which could further disrupt the markets; inactive markets for specific kinds of securities, or for the securities of certain issuers or in certain sectors, which could result in decreased valuations and impact our ability to sell a specific security or a group of securities at a reasonable price when desired; a significant change in inflation expectations, or the onset of deflation or stagflation.
Our investment portfolio is subject to market and credit risks, which could affect our financial results and ability to conduct business
We have a large portfolio of securities and limited partnership investments which can fluctuate in value with a wide variety of market conditions.  A decline in the aggregate value of the securities and limited partnership investments would result in a commensurate decline in our shareholders' equity, either through the income statement or directly to equity.  The resultant decline could, at least temporarily, materially adversely affect our results of operations, equity, business and insurer financial strength ratings.
 
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●Technological advances, including those specific to the transportation industry, could present the Company
Technological advances, including those specific to the transportation industry, could present us with added competitive risks.  An increase in accident prevention technologies and the growth of autonomous or partially autonomous vehicles could reduce the amount of accidents over time and shift the liability from the owner of the vehicle to the manufacturer, which would cause automobile insurance to become a smaller portion of the Company's overall Property and Casualty insurance book of business.  Innovations in telematics and the increase in usage-based information have become more important and will likely change the way premiums are determined in the future.  These advances in technology could materially change the way products in the transportation industry are designed, priced and underwritten and it will take time for the Company to adjust to these changes.
●The Company's operations rely upon complex and expensive information technology systems for interacting with policyholders, brokers and employers. The Company's success involves providing customers with easy-to-use products and ensuring the Company's workforce has the technology to support the customer base.  The pace at which information systems must be upgraded is continually increasing, requiring an ongoing commitment of significant resources to maintain or upgrade to current standards.  The Company's success is reliant on developing and expanding the effectiveness of existing systems and continuing to enhance information systems that support the Company's operations in a cost effective manner.
●The Company relies upon the information technology systems and other operational systems and on the integrity and timeliness of data to run the businesses and service the customers.  These systems may fail to operate properly or become disabled as a result of events or circumstances wholly or partly beyond our control.  Despite our implementation of a variety of security measures, the information technology and other systems could be subject to physical or electronic break-ins, unauthorized tampering or other cyber security breaches, resulting in a failure to maintain the security, confidentiality or privacy of sensitive data, including personal information relating to customers, or in theft of intellectual property or proprietary information.  A failure to maintain proper security, confidentiality or privacy of sensitive data residing on such systems could delay or disrupt the Company's ability to do business and service customers, harm the Company's reputation, subject the Company to litigation, regulatory fines, a loss of customers and revenues or otherwise adversely affect the business.
●Changes in current accounting practices and future pronouncements may materially impact the Company's reported financial results.  Developments in accounting practices may require the Company to incur considerable additional expenses to comply with such developments, particularly if the Company is required to prepare information relating to prior periods for comparative purposes or to apply the new requirements retroactively.  The impact of changes in current accounting practices and future pronouncements cannot be predicted but may affect the calculation of net income, net equity and other historical financial statement line items that are important to users of the financial statements.  Changes could also introduce significant volatility in the Company's results of operations, equity, business and insurer financial strength.
 
An increase in accident prevention technologies and the growth of autonomous or partially autonomous vehicles could reduce the amount of accidents over time and shift the liability from the owner of the vehicle to the manufacturer, which would cause automobile insurance to become a smaller portion of our overall property and casualty insurance book of business.  Innovations in telematics and the increase in usage-based information have become more important and will likely change the way premiums are determined in the future.  These advances in technology could materially change the way products in the transportation industry are designed, priced and underwritten, and it will take time for us to adjust to these changes.
Our information technology systems and other operational systems may fail to operate properly or become disabled as a result of events or circumstances wholly or partly beyond our control.
We rely upon our information technology systems and other operational systems and on the integrity and timeliness of our data to run our businesses and service our customers.  These information technology and other systems could be subject to physical or electronic break-ins, unauthorized tampering or other cyber security breaches, resulting in a failure to maintain the security, confidentiality or privacy of sensitive data, including personal information relating to customers, or in theft of intellectual property or proprietary information.  A failure to maintain proper security, confidentiality or privacy of sensitive data residing on such systems could delay or disrupt our ability to do business and service customers, harm our reputation, subject us to litigation, regulatory fines, a loss of customers and revenues or otherwise adversely affect our business.
Our operations rely upon complex and expensive information technology systems for interacting with policyholders, brokers and employers.  The pace at which information systems must be upgraded is continually increasing, requiring an ongoing commitment of significant resources to maintain or upgrade to current standards.  Our success may be impacted if we are not able to develop and expand the effectiveness of existing systems and to continue to enhance information systems that support our operations in a cost effective manner.
Changes in current accounting practices and future pronouncements may materially impact our reported financial results.
Developments in accounting practices may require us to incur considerable additional expenses to comply with such developments, particularly if we are required to prepare information relating to prior periods for comparative purposes or to apply the new requirements retroactively.  The impact of changes in current accounting practices and future pronouncements cannot be predicted but may affect the calculation of net income, net equity and other historical financial statement line items that are important to users of our financial statements.  Changes could also introduce significant volatility in our results of operations, equity, business and insurer financial strength.
We may be unable to attract and retain qualified employees.
We depend on our ability to attract and retain qualified executive officers, experienced underwriters, claims professionals and other skilled employees who are knowledgeable about our specialty lines of business. If we are unable to attract and retain such individuals, we may be unable to maintain our current competitive position in the specialty markets in which we operate and may be unable to expand our operations into new specialty markets.
Item 1B.  UNRESOLVED STAFF COMMENTS

None.
- 21 -
Item 2.  PROPERTIES

The Company owns its home office building and the adjacent real estate in Carmel, Indiana, approximately 14 miles from downtown Indianapolis.  The home office building contains a total of 181,000 usable square feet, and the Company currently occupies approximately 70%72% of this space, with the remainder being leased to non-affiliated entities on relatively short-term leases.leases expiring in 2017 through 2023.

The Company also owns a building and the adjacent real estate in Indianapolis, approximately nine miles from its main office in Carmel.  The building contains approximately 15,000 square feet of usable space, and is used primarily for off-site data storage and as a contingent back up and disaster recovery site.

The Company's entire operations are conducted from these two facilities.  The current facilities are expected to be adequate for the Company's operations for the foreseeable future.

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Item 3.  LEGAL PROCEEDINGS

In the ordinary, regular and routine course of their business, the Company and its Insurance Subsidiaries are frequently involved in various matters of litigation relating principally to claims for insurance coverage provided.  No currently pending matter is deemed by management to be material to the Company.


Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSMINE SAFETY DISCLOSURES

Nothing to report.




Not applicable.


- 2022 -

PART II


Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERSHAREHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES


The Company's Class A and Class B common stocks are traded on The NASDAQ Stock Market®Nasdaq under the symbols BWINA and BWINB, respectively.  The Class A and Class B common shares have identical rights and privileges, except that Class B shares have no voting rights other than on matters for which Indiana law requires class voting. As of December 31, 2015,2016 there were approximately 400 record holders of Class A Common Stock and approximately 1,000 record holders of Class B Common Stock.
The table below sets forth the range of high and low sale prices for the Class A and Class B Common Stock for 20152016 and 2014,2015, as reported by NASDAQNasdaq and published in the financial press.  The quotations reflect interdealer prices without retail markup, markdown or commission and do not necessarily represent actual transactions.press, as well as the cash dividends paid by the Company.


         Cash              Cash 
 Class A  Class B  Dividends  Class A  Class B  Dividends 
 High  Low  High  Low  Declared  High  Low  High  Low  Declared 
               
2016:               
Fourth Quarter $26.10  $23.21  $27.70  $23.45  $.26 
Third Quarter  26.50   23.04   27.25   24.43   .26 
Second Quarter  24.90   22.50   25.28   23.33   .26 
First Quarter  24.02   22.00   25.10   22.11   .26 
                              
2015:                              
Fourth Quarter $24.89  $22.43  $24.99  $21.27  $.25   24.89   22.43   24.99   21.27   .25 
Third Quarter  24.40   21.04   23.69   21.85   .25   24.40   21.04   23.69   21.85   .25 
Second Quarter  24.40   22.50   24.36   22.02   .25   24.40   22.50   24.36   22.02   .25 
First Quarter  27.63   22.57   25.80   23.00   .25   27.63   22.57   25.80   23.00   .25 
                    
2014:                    
Fourth Quarter  24.80   23.25   27.44   24.19   .25 
Third Quarter  24.50   23.25   26.68   24.55   .25 
Second Quarter  25.20   22.89   26.94   24.36   .25 
First Quarter  24.88   22.06   27.24   23.40   .25 


The Company has paid quarterly cash dividends continuously since 1974.  The current regular quarterly dividend rate has beenwas increased to $.26 per share, effective February 2016.2016 and was increased to $.27 per share, effective February 2017.  The Company expects to continue its policy of paying regular cash dividends, although there is no assurance as to future dividends because they are dependent on future earnings, capital requirements and financial conditions and are subject to regulatory restrictions.  At December 31, 2016, $85.8 million, or 21% of shareholders' equity, represented net assets of the Company's Insurance Subsidiaries which, at that time, could not be transferred in the form of dividends, loans or advances to the parent company because of minimum statutory capital requirements.  However, management believes that these restrictions do not currently pose any material dividend payment concerns for the Company.  The Board intends to address the subject of dividends at each of its future meetings consideringand will consider the Company's earnings, returns on investments and its capital needs.


- 2123 -

Corporate Performance
The following graph shows a five year comparison of cumulative total return for the Corporation'sCompany's Class B common shares, the NASDAQNasdaq Insurance Stock Index, and the Russell 2000 Index.Index and the Company's peer group as determined by management.  The basis of comparison is a $100 investment at December 31, 2010,2011, in each of (i) Baldwin & Lyons, Inc., (ii) Nasdaq Insurance Stocks, and (iii) the Russell 2000 Index.Index and (iv) the BWINB Peer Group.  All dividends are assumed to be reinvested.


 

     Period Ending    
Index 12/31/11  12/31/12  12/31/13  12/31/14  12/31/15  12/31/16 
Baldwin & Lyons, Inc.  100.00   114.53   136.59   134.10   130.46   142.57 
NASDAQ Insurance Index  100.00   116.83   153.22   169.39   184.16   216.67 
Russell 2000  100.00   116.35   161.52   169.43   161.95   196.45 
BWINB Peer Group  100.00   123.59   183.80   202.39   217.16   265.37 


  
  Period Ending
 
 
Index 12/31/10  12/31/11  12/31/12  12/31/13  12/31/14  12/31/15 
Baldwin & Lyons, Inc.  100.00   96.80   110.86   132.22   129.80   126.28 
NASDAQ Insurance Index  100.00   105.63   123.41   161.85   178.92   194.53 
Russell 2000  100.00   95.82   111.49   154.78   162.35   155.18 

Baldwin & Lyons, Inc. Peer Group
Amerisafe, Inc.Heritage Insurance Holdings, Inc.
Atlas Financial Holdings, Inc.James River Group Holdings, Ltd.
Donegal Group Inc.NMI Holdings, Inc.
EMC Insurance Group Inc.National Interstate Insurance Company
Employers Holdings, Inc.Safety Insurance Group, Inc.
Federated National Holding CompanyUnited Insurance Holdings Corp.
HCI Group, Inc.Universal Insurance Holdings, Inc.
Hallmark Financial Services, Inc.



- 2224 -

Item 6.  SELECTED FINANCIAL DATA

The table below provides selected consolidated financial data of the Company.   The information has been derived from our consolidated financial statements for each of the years in the five year period ended December 31, 2015.2016.  You should read this selected consolidated financial data in conjunction with the audited consolidated financial statements and notes as of and for the year ended December 31, 20152016 included in Part II, Item 8 "Financial"Financial Statements and Supplementary Data"Data", and Part II, Item 7 "Management's"Management's Discussion and Analysis of Financial Condition and Results of Operations"Operations" included in this Annual Report on Form 10-K.


 Year Ended December 31  Year Ended December 31 
 2015  2014  2013  2012  2011  2016  2015  2014  2013  2012 
 (Dollars in thousands, except per share data)  (Dollars in thousands, except per share data) 
                         
Direct and assumed premiums written $383,553  $382,388  $369,476  $341,286  $334,526 
Gross premiums written $403,004  $383,553  $382,388  $369,476  $341,286 
                                        
Net premiums earned  263,335   261,627   252,743   237,461   244,570   276,011   263,335   261,627   252,743   237,461 
                                        
Net investment income  12,498   9,055   8,770   9,930   10,729   14,483   12,498   9,055   8,770   9,930 
                                        
Net gains (losses) on investments  (1,261)  14,930   23,515   9,011   (17,803)
Net realized gains (losses) on investments  23,228   (1,261)  14,930   23,515   9,011 
                                        
Losses and loss expenses incurred  155,750   159,596   150,701   138,088   215,555   186,481   155,750   159,596   150,701   138,088 
                                        
Net income (loss)  23,283   29,717   36,588   31,919   (28,175)
Net income  28,945   23,283   29,717   36,588   31,919 
                                        
Earnings per share -- net income (loss) 1
  1.55   1.98   2.45   2.15   (1.90)
Earnings per share -- net income 1
  1.92   1.55   1.98   2.45   2.15 
                                        
Cash dividends per share  1.00   1.00   1.00   1.00   1.00   1.04   1.00   1.00   1.00   1.00 
                                        
Investment portfolio 2
  729,877   757,421   703,259   681,856   637,681   749,501   729,877   757,421   703,259   681,856 
                                        
Total assets  1,085,771   1,144,247   1,072,270   983,024   905,294   1,154,137   1,085,771   1,144,247   1,072,270   983,024 
                                        
Shareholders' equity  394,498   399,496   381,724   346,712   319,061   404,345   394,498   399,496   381,724   346,712 
                                        
Book value per share 1
  26.25   26.67   25.57   23.25   21.49   26.81   26.25   26.67   25.57   23.25 
                                        
Underwriting ratios 3
                                        
                                        
Losses and loss expenses  59.2%  61.0%  59.6%  58.1%  88.1%  67.6%  59.2%  61.0%  59.6%  58.1%
                                        
Underwriting expenses  32.2%  32.0%  32.4%  30.8%  30.2%  30.9%  32.2%  32.0%  32.4%  30.8%
                                        
Combined  91.4%  93.0%  92.0%  88.9%  118.3%  98.5%  91.4%  93.0%  92.0%  88.9%


1   Earnings and book value per share are adjusted for the dilutive effect of stock options outstanding.
2   Includes money market instruments classified with cash in the Consolidated Balance Sheets.
3   Data is for all coverages combined, does not include fee income and is presented based upon U.S. generally accepted accounting principles.



- 2325 -

Item 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Liquidity and Capital Resources
The primary sources of the Company's liquidity are (1) funds generated from insurance operations, including net investment income, (2) proceeds from the sale of investments and (3) proceeds from maturing investments.  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 Insurance Subsidiaries, other than loss and loss expense payments, generally average less than 33% of net premiums earned on a consolidated basis, and the remaining amount is available for investment for varying periods of time depending on the type of insurance coverage provided.  Because losses are often settled in periods subsequent to when they are incurred, operating cash flows may, at times, become negative as loss settlements on claim reserves established in prior years exceed current revenues.  During 2015,2016, cash flow from operations totaled $38.2$32.4 million compared to $30.2the $38.2 million total for 2014.2015.  The increasedecrease in operating cash flow resulted mainly from increased loss and loss adjustment expenses in 2016.  During 2015, the $38.2 million cash flow from operations compared to $30.2 million during 2014, an increase that resulted from decreased loss, LAE and other operating expense payments in addition toas well as higher premium volume in 2015.
As a result of the cash flow from operations noted above, net cash used in investing activities totaled $27.4 million and $12.8 million for the years ended December 31, 2016 and 2015, respectively.
Financing activity for 2016 and 2015 consisted solely of regular cash dividend payments to shareholders of $15.8 million ($1.04 per share) and $15.0 million ($1.00 per share), respectively.

For several years, the Company's investment philosophy has emphasized the purchase of short-term bonds with superior quality and liquidity.  As flat yield curves have not provided incentive to lengthen maturities in recent years, the Company has continued to maintain its fixed maturity portfolio at short-term levels.  The average contractual life of the Company's bondfixed maturity and short-term investment portfolio decreased slightly to 4.64.5 years during 2015.2016. The average duration of the Company's fixed maturity portfolio remains much shorter than both the contractual maturity average and significantly shorter than the duration of the Company's liabilities.  The Company also remains an active participant in the equity securities market using capital which is in excess of amounts considered necessary to fund current operations.  The long-term horizon for the Company's equity investments allows it to invest in positions where ultimate value, and not short-term market fluctuation, is the primary focus.  Investments made by the Company's domestic Insurance Subsidiaries are regulated by guidelines promulgated by the National Association of Insurance Commissioners, which are designed to provide protection for both policyholders and shareholders.
The Company's assets at December 31, 20152016 included $71.7$61.2 million in short-term and cash equivalent investments whichthat are readily convertible to cash without market penalty and an additional $73.9$98.6 million of fixed maturity investments (at par) maturing in less than one year.  The Company believes that these liquid investments, plus the expected cash flow from premium collections, are more than sufficient to provide for projected claim payments and operating cost demands.  In the event competitive conditions produce inadequate premium rates and the Company chooses to further restrict volume, the liquidity of its investment portfolio would permit management to continue to pay claims as settlements are reached without requiring the disposal of investments at a loss, regardless of interest rates in effect at the time.  In addition, the Company's reinsurance program is structured to avoid significant cash outlays that accompany large losses.
The Company maintains a revolving line of credit with a $40.0 million limit and an expiration date of September 23, 2018.  Interest on this line of credit is referenced to LIBOR and can be fixed for periods of up to one year at the Company's option.  Outstanding drawings on this line of credit were $20.0 million as of both December 31, 2016 and December 31, 2015.  At December 31, 2016, the effective interest rate was 1.86%.  The Company had $20.0 million remaining unused under the line of credit at December 31, 2016.  The Company's revolving line of credit has three financial covenants, each of which were met as of December 31, 2016.  The three financial covenants relate to a minimum GAAP net worth, a minimum Statutory surplus and a minimum A.M. Best rating.
- 26 -
Net premiums written by the Company's Insurance Subsidiaries for 20152016 equaled approximately 65%68% of the combined statutory surplus of these subsidiaries, a level consistent with the past several years.  Premium writings of up to 100% and in some cases up to 200% of surplus are generally considered acceptable by regulatory authorities.  Further, the statutory capital of each of the Insurance Subsidiaries substantially exceeds minimum risk based capital requirements set by the National Association of Insurance Commissioners.  Accordingly, the Company has the ability to significantly increase its business without seeking additional capital to meet regulatory guidelines.
At December 31, 2015, $87.72016, $85.8 million, or 22%21% of shareholders' equity, represented net assets of the Company's Insurance Subsidiaries which, at that time, could not be transferred in the form of dividends, loans or advances to the parent company because of minimum statutory capital requirements.  However, management believes that these restrictions do not currently pose noany material liquidity concerns for the Company.  The financial strength and stability of the subsidiariesInsurance Subsidiaries permit ready access by the parent company to short-term and long-term sources of credit. The Company maintains a $40 million unsecured line of credit with $20 million of unused capacity at December 31, 2015.when needed.
- 24 -
Results of Operations

2016 Compared to 2015

Premiums written by the Property and Casualty Insurance segment for 2016 totaled $395.6 million, an increase of $29.0 million (8%) from 2015.  This increase was attributable to a $32.3 million (9%) increase in premiums generated by fleet transportation products resulting from the addition of several new accounts during 2016, rate increases and increased revenue and miles driven by our insureds, which is immediately reflected in premium.  This increase was partially offset by decreases of $0.5 million and $8.5 million in premiums generated by primary professional liability and personal automobile, respectively, reflecting the Company's strategic initiatives of reducing exposures in these products.  Premiums ceded to reinsurers on Property and Casualty Insurance segment business averaged 33.2% of gross written premiums for 2016, compared to 35.0% for 2015, with the variation attributable to a fluctuation in the mix of business as well as reinsurance treaty placement changes.
Premiums written by the Reinsurance segment totaled $7.4 million during 2016, a decrease of $9.5 million (56%) from 2015.  Premiums generated by property reinsurance products decreased $2.2 million (91%), reflective of management's decision to completely withdraw from the property catastrophe market.  As of June 30, 2015, all exposure to catastrophic losses had expired.  Further contributing to the Reinsurance segment premium written decrease was a $7.3 million (51%) decline in the Company's book of professional liability reinsurance assumed, reflective of the Company's decision not to renew certain business in response to deteriorating rates and treaty terms.
After giving effect to changes in unearned premiums, consolidated net premiums earned totaled $276.0 million for 2016 compared to $263.3 million for 2015, an increase of 4.8%.  The net premium earned increase reflected a 12.5% increase in premium earned from the fleet transportation products mentioned above, partially offset by decreased premium written from primary professional liability and personal automobile products and in the Reinsurance segment.
Pre-tax investment income of $14.5 million during 2016 was 16% higher than 2015, reflecting an increased allocation to higher-yielding bonds and increases in average invested assets.  After tax investment income increased by 15% during 2016 compared to the prior year reflecting the mix between taxable and tax-exempt investment income.
Net gains on investments, before taxes, totaled $23.2 million in 2016 compared to net pre-tax losses on investments of $1.3 million during 2015.  The 2016 results were heavily influenced by direct trading results, with gains of $13.3 million in 2016 compared to direct trading gains of $4.5 million in 2015.  In addition, our investments in limited partnerships produced gains of $2.5 million in 2016, compared to losses of $1.7 million during the prior year.  Limited partnership ventures utilized by the Company are primarily engaged in the trading of public and private securities, including foreign securities and, to a lesser extent, small venture capital activities and real estate development.  The aggregate of the Company's share of gains and losses in these entities represented a 3.3% appreciation in value for 2016, compared to a 2% decrease in value for 2015.  During 2016, our investments in limited partnerships produced $2.5 million in net realized gains.  Other-than-temporary impairments of $5.7 million, netted with losses of $12.3 million on previously impaired available-for-sale securities that were sold in 2016, are included in the net gains stated above.
- 27 -
Losses and loss expenses incurred during 2016 increased $30.7 million (19.7%) from 2015 to $186.5 million, due primarily to prior accident year development and growth.  The 2016 consolidated loss and loss expense ratio was 67.6%, compared to 59.2% for 2015.  The Company's loss and loss expense ratios for major product lines are summarized in the following table:
  2016  2015 
Fleet transportation  63.4%  55.7%
All other  95.5   96.4 
All lines  67.6   59.2 

The higher loss ratio for fleet transportation during 2016 was the result of less favorable developments related to prior accident year losses.  The prior year reserve deficiency in 2016 increased the 2016 calendar year fleet transportation loss ratio by 5.0 percentage points compared to a 4.3 percentage point decrease experienced in 2015 due to the prior year reserve savings in 2015.
The Company produced an overall reserve deficiency on prior year claims during 2016 of $13.8 million.  This net deficiency is included in the computation of loss ratios shown in the previous table, as is the $10.1 million savings produced during 2015 on prior year claims.  Separated by segment, a $5.4 million net deficiency attributable to the property and casualty insurance segment during 2016 was primarily attributable to the Company's Fleet Transportation business, a described in the previous paragraph.  An $8.4 million deficiency attributable to the reinsurance segment in 2016 was related primarily to professional liability assumed losses.  Because of the high limits provided by the Company to its fleet transportation insureds, the length of time necessary to settle larger, more complex claims and the volatility of the fleet transportation liability insurance business, the Company believes it is important to take a conservative posture in its reserving process.  Changes in both gross premium volumes and the Company's reinsurance structure for its fleet transportation business can have a significant impact on future loss developments and, as a result, loss and loss expense ratios and prior year reserve development may not be consistent year to year.

Other operating expenses for 2016, before credits for ceding allowances from reinsurers, increased $3.4 million (3%) to $123.0 million, generally in line with increases in property and casualty insurance segment premium written.  This increase was due primarily to an increase in salary and salary related expenses, reflective of the Company's increased workforce in response to the continued expansion of the Company's products and services.   Reinsurance ceded credits were 16% higher in 2016, resulting primarily from favorable changes to the terms of certain reinsurance treaties.  After consideration of these expense offsets, operating expenses decreased $1.1 million, or 1%, from the prior year.

A portion of the Company's fleet transportation business is produced by the direct sales efforts of Baldwin & Lyons, Inc. employees and, accordingly, this business does not incur commission expense on a consolidated basis.  Rather, the expenses of the agency operations, including salaries and bonuses of salesmen, travel expenses, etc. are included in operating expenses.  The ratio of net operating expenses of the Insurance Subsidiaries to net premiums earned was 30.9% in 2016 and 32.2% in 2015.  Including the agency operations and corporate expenses, and after elimination of inter-company commissions, the ratio of operating expenses to operating revenue (defined as total revenue less gains or losses on investments) was 30.2% for 2016 compared with 32.2% for 2015.

The effective federal tax rate on the consolidated pre-tax income for 2016 was 32.8% as compared to 31.4% in 2015.  The effective rate differs from the normal statutory rate primarily as a result of tax-exempt investment income.

Net income for 2016 of $28.9 million compares to net income of $23.3 million during 2015 with the increase primarily attributable to realized investment gains.  Diluted earnings per share of $1.92 were recorded in 2016 compared to diluted earnings per share of $1.55 in 2015.
- 28 -
2015 Compared to 2014

Premiums written by the Property and Casualty Insurance segment for 2015 totaled $366.7 million, an increase of $23.5 million (7%) from 2014.  This increase iswas attributable to a $30.1 million (10%) increase in premiums generated by fleet transportation products resulting from the addition of several new accounts during 2015, rate increases, and increased revenue and miles driven by our insureds, which is immediately reflected in premium.  This increase was partially offset by decreases of $4.7 million and $4.1 million in premiums generated by primary professional liability and personal automobile, respectively, reflecting the Company's strategic initiatives of reducing exposures in these products.  Premiums ceded to reinsurers on Property and Casualty Insurance segment business averaged 35.0% of gross written premium for 2015, compared to 34.7% for 2014, with the small variation attributable to a fluctuation in the mix of business as well reinsurance treaty placement changes.
Premiums written by the Reinsurance segment totaled $16.9 million during 2015, a decrease of $22.3 million (57%) from 2014.  Premiums generated by property reinsurance products decreased $13.4 million (85%), reflective of management's decision to completely withdraw from the property catastrophe market.  As of June 30, 2015, all exposure to catastrophic losses hashad expired.  Further contributing to the Reinsurance segment premium written decrease was an $8.9 million (38%) decline in the Company's book of professional liability reinsurance assumed, reflective of the Company's decision not to non-renewrenew certain business in 2015 in response to deteriorating rates and treaty terms.
After giving effect to changes in unearned premiums, consolidated net premiums earned totaled $263.3 million for 2015 compared to $261.6 million for 2014, an increase of 0.7%.  The small net premium earned increase reflectsreflected a 10.3% increase in premium earned from the fleet transportation products mentioned above, partially offset by decreased premium written from primary professional liability and personal automobile products and in the Reinsurance segment.
Pre-tax investment income of $12.5 million during 2015 was 38% higher than the 2014, reflecting an increased allocation to high-yield bonds and increases in average invested assets.  After tax investment income increased by 32% during 2015 compared to the prior year, reflecting athe mix inbetween taxable compared toand tax-exempt investment income.
Net pre-tax losses on investments, before taxes, totaled $1.3 million in 2015 compared to net pre-tax gains on investments of $14.9 million during 2014.  The 2015 results were heavily influenced by direct trading results, with gains of $4.5 million in 2015 compared to direct trading gains of $7.9 million in 2014.  In addition, our investments in limited partnership resultspartnerships produced losses of $1.7 million in 2015 compared to gains of $7.1 million during the prior year.  Limited partnership ventures utilized by the Company are primarily engaged in the trading of public and private securities, including foreign securities and, to a lesser extent, small venture capital activities and real estate development.  The aggregate of the Company's share of gains and losses in these entities represented a 2% decrease in value for 2015 compared to a 10% appreciation in value for 2014.  To the extent that accounting rules require theDuring 2015, our investments in limited partnerships to include realized and unrealized gains or losses in their net income, the Company's proportionate share of net income will include the results as reported to the Company by the various general partners.  During 2015, the limited partnershipproduced $1.7 million in net loss was composed of $8.2 million attributable to a decrease in unrealized gains and $6.5 million attributable to realized gains.losses.  Other-than-temporary impairments of $7.7 million, netted with losses of $4.4 million on previously impaired available-for-sale securities that were sold in 2015, are included in the net losses stated above.
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Losses and loss expenses incurred during 2015 decreased $3.8 million (2.4%) from 2014 to $155.8 million, a decrease generally consistent with the decreased reinsurance exposure described above.  The 2015 consolidated loss and loss expense ratio was 59.2% compared to 61.0% for 2014.  The Company's loss and loss expense ratios for major product lines are summarized in the following table:

  2015  2014 
Fleet transportation  55.7%  58.8%
All other  96.4   93.9 
All lines  59.2   61.0 

 
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The lower loss ratio for Fleet Transportation during 2015 was the result of more favorable frequency and severity related to currentthen-current accident year losses.  Prior year reserve savings lowered the 2015 calendar year Fleet Transportation loss ratio by 4.3 percentage points compared to a 4.4 percentage point decrease experienced in 2014.
The Company produced an overall savings on the handling of prior year claims during 2015 of $10.1 million.  This net savings is included in the computation of loss ratios shown in the previous table, as is the $10.4 million savings produced during 2014 on prior year claims.  Separated by segment, a $10.3 million net savings attributable to the property and casualty insurance segment during 2015 was primarily attributable to the Company's Fleet Transportation business, a described in the previous paragraph.  A $0.2 million deficiency attributable to the reinsurance segment in 2015 was related primarily to professional liability assumed losses.  Because of the high limits provided by the Company to its fleet transportation insureds, the length of time necessary to settle larger, more complex claims and the volatility of the fleet transportation liability insurance business, the Company believes it is important to take a conservative posture in its reserving process.  As claims are settled in years subsequent to their occurrence, the Company's claim handling process has, historically, tended to produce savings from the reserves provided.  Changes in both gross premium volumes and the Company's reinsurance structure for its fleet transportation business can have a significant impact on future loss developments and, as a result, loss and loss expense ratios and prior year reserve development may not be consistent year to year.

Other operating expenses for 2015, before credits for ceding allowances from reinsurers, increased $7.7 million (7%) to $119.5 million, generally in line with increases in Property and Casualty Insurance segment premium written.  This increase iswas due primarily to (1) an increase in salary and salary relatedsalary-related expenses, reflective of the Company's growingincreased workforce in response to the continued expansion of the Company's products and services, (2) a non-recurring recovery during 2014 of a substantial previously written off reinsurance recovery and (3) increased commissions related to business produced by non-affiliated agents and brokers.  Reinsurance ceded credits were 22% higher in 2015, resulting primarily from favorable changes to the terms of certain reinsurance treaties.  After consideration of these expense offsets, operating expenses increased $2.5 million, or 3%, from the prior year.

A portion of the Company's fleet transportation business is produced by the direct sales efforts of Baldwin & Lyons, Inc. employees and, accordingly, this business does not incur commission expense on a consolidated basis.  Rather, the expenses of the agency operations, including salaries and bonuses of salesmen, travel expenses, etc. isare included in operating expenses.  In general, commissions paid by the Insurance Subsidiaries to the parent company exceed related acquisition costs incurred in the production of the property and casualty insurance business.  The ratio of net operating expenses of the Insurance Subsidiaries to net premiums earned was 32.2% in 2015 and 32.0% in 2014.  Including the agency operations and corporate expenses, and after elimination of inter-company commissions, the ratio of operating expenses to operating revenue (defined as total revenue less gains or losses on investments) was 32.2% for 2015 compared with 31.8% for 2014.

The effective federal tax rate on the consolidated pre-tax income for 2015 was 31.4%., as compared to 33.1% in 2014.  The effective rate differs from the normal statutory rate primarily as a result of tax-exempt investment income.

Net income for 2015 of $23.3 million comparescompared to net income of $29.7 million during 2014, with the decline attributable to realized investment gains.losses.  Diluted earnings per share of $1.55 were recorded in 2015 compared to diluted earnings per share income of $1.98 in 2014.


2014 Compared to 2013

Premiums written by the Property and Casualty Insurance segment for 2014 totaled $343.2 million, an increase of $28.4 million (9%) from 2013. This increase is primarily attributable to a $32.0 million (11%) increase in premiums generated by fleet transportation products resulting from the addition of several new accounts during 2014, rate increases and increased revenue and miles driven by our insureds, which is immediately reflected in premium. This increase was partially offset by a decrease of $10.0 million in premiums generated by primary professional liability reflecting the termination of products produced through a single managing general agency which had experienced unfavorable results in recent years.  Premiums ceded to reinsurers on direct business averaged 34.7% of gross written premium for 2014 compared to 35.9% for 2013, with the decrease attributable to the above-described changes in mix of business.
 
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Premiums written by the Reinsurance segment totaled $39.2 million during 2014, a decrease of $15.5 million (28%) from 2013. Premiums generated by property reinsurance products decreased $13.0 million (45%), reflective of management's decision to reduce exposures to property catastrophe losses.  Further contributing to the Reinsurance segment decrease was a decrease in the Company's book of professional liability reinsurance assumed.
After giving effect to changes in unearned premiums, consolidated net premiums earned totaled $261.6 million for 2014 compared to $252.7 million for 2013, an increase of 3.5%.  The premium earned increase also reflects the higher premium volume generated by the fleet transportation products mentioned above which was partially offset by decreased premium written in the primary professional liability products.
Pre-tax investment income of $9.1 million during 2014 was 3% higher than the 2013 total as available pre-tax yields began to level and average invested assets continued to grow marginally.  After tax investment income increased by 5% during 2014 compared to the prior year reflecting a mix in taxable compared to tax-exempt investment income.
Net gains on investments, before taxes, totaled $14.9 million in 2014 compared to net gains on investments of $23.5 million during 2013.  The 2014 results were once again heavily influenced by direct trading results with gains of $7.9 million in 2014 compared to gains of $13.6 million in 2013.  In addition, limited partnership results produced gains of $7.1 million in 2014 compared to gains of $8.0 million during the prior year.  Limited partnership ventures utilized by the Company are primarily engaged in the trading of public and private securities, including foreign securities and, to a lesser extent, small venture capital activities and real estate development.  The aggregate of the Company's share of gains in these entities represented a 10% appreciation in value for 2014 compared to a 13% appreciation in value for 2013.  To the extent that accounting rules require the limited partnerships to include realized and unrealized gains or losses in their net income, the Company's proportionate share of net income will include the results as reported to the Company by the various general partners.  During 2014, the $7.1 million net gain was composed of $5.8 million attributable to an increase in unrealized gains and $1.3 million attributable to realized gains.  Recoveries of $0.3 million on previously impaired available-for-sale securities that were sold in 2014 are included in the net gains stated above.
Losses and loss expenses incurred during 2014 increased $8.9 million (5.9%) from 2013 to $159.6 million, an increase generally consistent with the increased premium volume described above and reflects higher property catastrophe losses occurring in 2014.  The 2014 consolidated loss and loss expense ratio was 61.0% compared to 59.6% for 2013. The Company's loss and loss expense ratios for major product lines are summarized in the following table:

  2014  2013 
Fleet transportation  58.8%  63.0%
All other  93.9   84.8 
All lines  61.0   59.6 

The lower loss ratio for Fleet Transportation was the result of more favorable frequency and severity experience during the year as well as prior year reserve savings.  The increase in the All Other loss ratio in 2014 was attributable to unfavorable loss development on a single MGA produced program in Primary Professional Liability and a small number of catastrophic losses aggregating over $11 million.
The Company produced an overall savings on the handling of prior year claims during 2014 of $10.4 million.  This net savings is included in the computation of loss ratios shown in the previous table, as is the $5.6 million savings produced during 2013 on prior year claims.  Separated by segment, a $5.4 million net savings attributable to the property and casualty insurance segment during 2014 was attributable to the Company's Fleet Transportation and Personal Automobile business with deficiencies in Primary Professional Liability and a discontinued line of Commercial Multi-Peril partially offsetting the savings.  The $4.9 million savings attributable to the reinsurance segment in 2014 related largely to the casualty reinsurance business.  Because of the high limits provided by the Company to its fleet transportation insureds, the length of time necessary to settle larger, more complex claims and the volatility of the fleet transportation liability insurance business, the Company believes it is important to take a conservative posture in its reserving process.  As claims are settled in years subsequent to their occurrence, the Company's claim handling process has, historically, tended to produce savings from the reserves provided. Changes in both gross premium volumes and the Company's reinsurance structure for its fleet transportation business can have a significant impact on future loss developments and, as a result, loss and loss expense ratios and prior year reserve development may not be consistent year to year.

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Other operating expenses for 2014, before credits for ceding allowances from reinsurers, increased $5.7 million (5%) to $111.8 million, generally in line with increases in premium written. This increase is due primarily to an increase in salary and salary related expenses, reflective of the Company's growing workforce in response to the continued expansion of the Company's products and services, and from higher expenses related to technological advances within the Company, both in the area of telematics and information technology.  Reinsurance ceded credits were 14% higher in 2014, resulting from favorable changes to the terms of certain reinsurance treaties as well as increased business ceded to other companies under quota share reinsurance treaties which provide commissions to the Insurance Subsidiaries.  After consideration of these expense offsets, operating expenses increased $2.7 million, or 3% from the prior year.

A portion of the Company's fleet transportation business is produced by the direct sales efforts of Baldwin & Lyons, Inc. employees and, accordingly, this business does not incur commission expense on a consolidated basis.  Rather, the expenses of the agency operations, including salaries and bonuses of salesmen, travel expenses, etc. is included in operating expenses.  In general, commissions paid by the Insurance Subsidiaries to the parent company exceed related acquisition costs incurred in the production of the property and casualty insurance business. The ratio of net operating expenses of the Insurance Subsidiaries to net premiums earned was 32.0% in 2014 and 32.4% in 2013.  Including the agency operations and corporate expenses, and after elimination of inter-company commissions, the ratio of operating expenses to operating revenue (defined as total revenue less gains or losses on investments) was 31.8% for 2014 compared with 31.9% for 2013.

The effective federal tax rate on the consolidated pre-tax income for 2014 was 33.1%.  The effective rate differs from the normal statutory rate primarily as a result of tax-exempt investment income.

Net income for 2014 of $29.7 million compares to net income of $36.6 million during 2013. Diluted earnings per share of $1.98 were recorded in 2014 compared to per share income of $2.45 in 2013.

Critical Accounting Policies
The Company's significant accounting policies which are material and/or subject to significant degrees of judgment are highlighted below.
Investment Valuation
All marketable securities are included in the Company's balance sheets at current fair market value.

Approximately 67%65% of the Company's assets are composed of investments at December 31, 2015.2016.  Approximately 90% of these investments are publicly-traded, owned directly and have readily-ascertainable market values.  The remaining 10% of investments are composed primarily of minority interests in several limited partnerships.  These
limited partnerships are engaged in the trading of public and non-public equity securities and debt, hedging transactions, real estate development and venture capital investment.  These partnerships, themselves, do not have readily-determinable market values.  Rather, the values recorded are those provided to the Company by the respective partnerships based on the underlying assets of the partnerships.  While a substantial portion of the underlying assets are publicly-traded securities, those which are not publically traded have been valued by the respective partnerships using their experience and judgment.

Under FASB guidance, if a fixed maturity security is in an unrealized loss position and the Company has the intent to sell the security, or it is more likely than not that the Company will have to sell the security before recovery of its amortized cost basis, the decline in value is deemed to be other-than-temporary and is recorded to net realized losses on investments in the consolidated statements of operations.   For impaired fixed maturity securities that the Company does not intend to sell or it is more likely than not that the Company will not have to sell such securities, but the Company expects that it will not fully recover the amortized cost basis, the credit component of the other-than-temporary impairment is recognized in net realized losses on investments in the consolidated statements of operations and the non-credit component of the other-than-temporary impairment is recognized directly in shareholder's equity (accumulated other comprehensive income).

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In determining if and when an equity security's decline in market value below cost is other-than-temporary, we first make an objective analysis of each individual equity security where current market value is less than cost.  For any equity security where the unrealized loss exceeds 20% of original or adjusted cost, and where that decline has existed for a period of at least six months, the decline is treated as an other-than-temporary impairment, without any subjective evaluation as to possible future recovery.  For individual issues where the decline in value is less than 20% but the amount of the decline is considered significant, we will also evaluate the market conditions, trends of earnings, price multiples and other key measures for the securities to determine if it appears that the decline is other-than-temporary.  In those instances, the Company also considers its intent and ability to hold equity investments until recovery can be reasonably expected.  Additionally, for any equity security where the decline has existed for a period of at least one year, the decline is treated as an other-than-temporary impairment.  For any decline which is considered to be other-than-temporary, we recognize an impairment loss in the current period earnings as an investment loss.  Declines which are considered to be temporary are recorded as a reduction in shareholders' equity, net of related federal income tax credits.

It is important to note that all available for sale securities included in the Company's financial statements are valued at current fair market values.  The evaluation process for determination of other-than-temporary decline in value of investments, as described above, does not change these valuations but, rather, determines when a decline in value will be recognized in the income statement (other-than-temporary decline) as opposed to a charge to shareholders' equity (temporary decline).  Another seemingly inconsistent aspect of this accounting policy which is important to understand is that any subsequent recoveries in value of investments which have incurred other-than-temporary impairment adjustments are accounted for as unrealized gains (with credits to equity but not reflected in the income statement) until the security is actually disposed of or sold.  At December 31, 2015,2016, unrealized gains include $14.7included $2.1 million of appreciation on investments previously adjusted for other-than-temporary impairment, compared to a cumulative total of $10.5$4.0 million of impairment write-downs at that date.  This evaluation process is subject to risks and uncertainties since it is not always clear what has caused a decline in value of an individual security or since some declines may be associated with general market conditions or economic factors which relate to an industry, in general, but not necessarily to an individual issue.  The Company has attempted to minimize many of these uncertainties by adopting a largely objective evaluation process as described above.  However, to the extent that certain declines in value are reported as unrealized at December 31, 2015,2016, it is possible that future earnings charges will result should the declines in value increase or persist or should the security actually be disposed of while market values are less than cost.  At December 31, 2015,2016, the total gross unrealized loss included in the Company's investment portfolio was approximately $14.6$8.2 million.  No individual issue constituted a material amount of this total.  Had this entire amount been considered other-than-temporary at December 31, 2015,2016, there would have been no impact on total shareholders' equity or book value since the decline in value of these securities was previously recognized as a reduction to shareholders' equity.
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Reinsurance Recoverable
Reinsurance ceded transactions were as follows for the years ended December 31 (dollars in thousands):
  2015  2014  2013 
Reinsurance recoverable $215,888  $220,221  $195,568 
Premium ceded (reduction to premium earned)  133,548   119,248   113,882 
Losses ceded (reduction to losses incurred)  75,581   105,891   107,321 
Commissions from reinsurers (reduction to operating expenses)  28,956   23,797   20,822 
  2016  2015  2014 
Reinsurance recoverable $255,024  $215,888  $220,221 
Premium ceded (reduction to premium earned)  130,012   133,548   119,248 
Losses ceded (reduction to losses incurred)  108,656   75,581   105,891 
Commissions from reinsurers (reduction to operating expenses)  33,512   28,956   23,797 

A discussion of the Company's reinsurance strategies is presented in Part I, Item 1, Business, on page 3.3 of this Annual Report on Form 10-K.

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Amounts recoverable under the terms of reinsurance contracts comprisecomprised approximately 20%22% of total Company assets as of December 31, 2015.2016.  In order to be able to provide the high limits required by the Company's insureds, the Company shares a significant amount of the insurance risk of the underlying contracts with various insurance entities through the use of reinsurance contracts.  Some reinsurance contracts provide that a loss be shared among the Company and its reinsurers on a predetermined pro-rata basis ("quota-share"), while other contracts provide that the Company keep a fixed amount of the loss, similar to a deductible, with reinsurers taking all losses above this fixed amount ("excess of loss").  Some risks are covered by a combination of quota-share and excess of loss contracts.  The computation of amounts due from reinsurers is based upon the terms of the various contracts and follows the underlying estimation process for loss and loss expense reserves, as described below.  Accordingly, the uncertainties inherent in the loss and loss expense reserving process also affect the amounts recorded as recoverable from reinsurers.  Estimation uncertainties are greatest for claims which have occurred but which have not yet been reported to the Company.  Further, the high limits provided by certain of the Company's insurance policies for fleet transportation liability, workers' compensation and professional liability risks provide more variability in the estimation process than lines of business with lower coverage limits.

It should be noted, however, that a change in the estimate of amounts due from reinsurers on unpaid claims will not, in itself, result in charges or credits to losses incurred.  This is because any change in estimated recovery follows the estimate of the underlying loss.  Thus, it is the computation of the gross underlying loss that is critical.

As with any receivable, credit risk exists in the recoverability of reinsurance.  This may be even more pronounced than in normal receivable situations since recoverable amounts are not generally due until the loss is settled which, in some cases, may be many years after the contract was written.  If a reinsurer is unable, in the future, to meet its financial commitments under the terms of the contracts, the Company would be responsible to satisfy the reinsurer's portion of the loss.  The financial condition of each of the Company's reinsurers is vetted upon the execution of a given treaty and only reinsurers with the superior credit ratings available are utilized.  However, as noted above, reinsurers are often not called upon to satisfy their obligations for several years and changes in credit worthiness can occur in the interim period.  Reviews of the current financial strength of each reinsurer are made frequently and, should impairment in the ability of a reinsurer be determined to exist, current year operations would be charged in amounts sufficient to provide for the Company's additional liability.  Such charges are included in other operating expenses, rather than losses and loss expenses incurred, since the inability of the Company to collect from reinsurers is a credit loss rather than a deficiency associated with the loss reserving process.


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Loss and Loss Expense Reserves
The Company's loss and loss expense reserves for each segment are shown in the following table on both a gross (before consideration of reinsurance) and on a net of reinsurance basis at December 31, 20152016 and 20142015 (dollars in thousands).


 Gross  Net Gross Net 
Line of Business (Segment) 2015  2014  2015  2014 2016 2015 2016 2015 
                
Property and casualty insurance $464,305  $449,133  $254,299  $241,215  $531,008  $464,305  $280,899  $254,299 
Reinsurance  49,291   56,969   47,454   54,369   45,322   49,291   43,868   47,454 
                                
 $513,596  $506,102  $301,753  $295,584  $576,330  $513,596  $324,767  $301,753 

The Company's reserves for losses and loss expenses ("reserves") are determined based on complex estimation processes using historical experience, current economic information and, when necessary, available industry statistics.  The Company's claims range from the very routine private passenger automobile "fender bender"benders" to the highly complex and costly third party bodily injury claim involving large tractor-trailer rigs.  Reserving for each class of claims requires a set of assumptions based upon historical experience, knowledge of current industry trends and seasoned judgment.  The high limits provided in many of the Company's policies provide for greater volatility in the reserving process for more serious claims.  Court rulings, legislative actions and trends in jury awards also play a significant role in the estimation process of larger claims.  The Company continuously reviews and evaluates loss developments subsequent to each measurement date and adjusts its reserve estimation assumptions, as necessary, in an effort to achieve the best possible estimate of the ultimate remaining loss costs at any point in time.  Changes to previously established reserve amounts are charged or credited to losses and loss expenses incurred in the accounting periods in which they are determined.  Note C to the consolidated financial statements includes additional information relating to loss and loss adjustment expense reserve development.
 
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The Company's methods for determining loss and loss expense reserves are essentially identical for interim and annual reporting periods.
A detailed analysis and discussion for each of the above basic reserve categories follows.
Reserves for known losses (Case reserves)
Each known claim, regardless of complexity, is handled by a claims adjuster experienced with claims of this nature and a "case" reserve, appropriate for the individual loss occurrence, is established.  For very routine "short-tail" claims, such as private passenger physical damage, the Company records an initial reserve that is based upon historical loss settlements adjusted for current trends.  As information regarding the loss occurrence is gathered in the claim handling process, the initial reserve is adjusted to reflect the anticipated ultimate cost to settle the claim.  For more complex claims which can tend toward being "long-tail" in nature, an experienced claims adjuster will review the facts and circumstances surrounding the loss occurrence to make a determination of the reserve to be established.  Many of the more complex claims involve litigation and necessitate an evaluation of potential jury awards, in addition to the factual information, to determine the value of each claim.  Each claim is frequently monitored and the recorded reserve is increased or decreased relative to information gathered during the settlement life cycle.
Reserves for incurred but not reportedIBNR losses
The Company uses both standard actuarial techniques common to most insurance companies as well as proprietary techniques developed by the Company in consideration of its specialty business products.  For its short-tail lines of business, the Company uses predominantly the incurred or paid loss development factor methods.  The Company has found that the use of accident quarter loss development triangles, rather than those based upon accident year, are most responsive to claim settlement trends and fluctuations in premium exposures for its short-tail lines.  A minimum of 12 running accident quarters is used to project the reserve necessary for incurred but not reportedIBNR losses for its short-tail lines.
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The Company also uses the loss development factor approach for its long-tail lines of business.  A minimum of 15 accident years is included in the loss development triangles used to calculate link ratios and the selected loss development factors used to determine the reserves for incurred but not reportedIBNR losses.  A minimum of 20 accident years is used for long-tail workers' compensation reserve projections.  Significant emphasis is placed on the use of tail factors for the Company's long-tail lines of business.
For the Company's fleet transportation risks, which are covered by regularly changing reinsurance agreements and which contain wide-ranging self-insured retentions ("SIR"), traditional actuarial methods are supplemented by other methods, as described below, in consideration of the Company's exposures to loss.  In situations where the Company's reinsurance structure, the insured's SIR selections, policy volume, and other factors are changing, current accident period loss exposures may not be homogenous enough with historical loss data to allow for reliable projection of future developed losses.  Therefore, the Company supplements the above-described actuarial methods with loss ratio reserving techniques developed from the Company's extensive, proprietary databases to arrive at the reserve for losses incurred but not reportedIBNR for the calendar/accident period under review.  As losses for a given calendar/accident period develop with the passage of time, management evaluates such development on a monthly and quarterly basis and adjusts reserve factors, as necessary, to reflect current judgment with regard to the anticipated ultimate incurred losses.  This process continues until all losses are settled for each period subject to this method.
Reserves for loss adjustment expenses
While certain of the Company's products involve case basis reserving for allocated loss adjustment expenses, the majority of such reserves are determined on a bulk basis.  The Company uses historical analysis of the ratios of allocated loss adjustment expenses paid to losses paid on closed claims to arrive at the expected ultimate incurred loss adjustment expense factors applicable to each affected product.  Once developed, the factors are applied to the expected ultimate incurred losses, including IBNR, on all open claims.  The resulting ultimate incurred allocated loss adjustment expense is then reduced by amounts paid to date on all open claims to arrive at the reserve for allocated loss adjustment expenses to be incurred in the future for the handling of specific claims.
 
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For those loss adjustment expenses not specific to individual claims (general claims handling expenses referred to as unallocated loss adjustment expenses) the Company uses standard industry loss adjustment expenses paid to losses paid (net of reinsurance) ratio analysis to establish the necessary reserves.  The selected factors are applied to 100% of IBNR reserves and to case reserves with consideration given for that portion of loss adjustment expense already paid at the reserve measurement date.  Such factors are monitored and revised, as necessary, on a quarterly basis.
The reserving process requires management to continuously monitor and evaluate the life cycle of claims based on the class of business and the nature of the individual losses.  As previously noted, our claims vary widely in scope and complexity.  Reserving for each class of claims requires a set of assumptions based upon historical experience, knowledge of current industry trends and seasoned judgment.  The high limits provided in certain of the Company's fleet transportation liability policies provide for greater volatility in the reserving process for more serious claims.  Court rulings, legislative actions and trends in jury awards also play a significant role in the estimation process of larger claims.  The Company continuously reviews and evaluates loss developments subsequent to each measurement date and adjusts its reserve estimations, as necessary, in an effort to achieve the best possible estimate of the ultimate remaining loss costs at any point in time.
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Sensitivity Analysis - Potential impact on reserve volatility from changes in key assumptions
Management is aware of the potential for variation from the reserves established at any particular point in time.  Savings or deficiencies could develop in future valuations of the currently established loss and loss expense reserve estimates under a variety of reasonably possible scenarios.  The Company's reserve selections are developed to be a "best estimate" of unpaid losslosses at a point in time and, due to the unique nature of our exposures, particularly in the large fleet transportation excess product, where insured's policies of insurance combine large self-insured retentions with high policy limits, ranges of reserve estimates are not established during the reserving process.  However, basic assumptions that could potentially impact future volatility of our valuations of current loss and loss expense reserve estimates include, but are not limited to, the following:
Consistency in the individual case reserving processes
The selection of loss development factors in the establishment of bulk reserves for incurred but reported losses and loss expenses
•
Consistency in the individual case reserving processes
Projected future loss trend
•
The selection of loss development factors in the establishment of bulk reserves for incurred but not reported losses and loss expenses
•
Projected future loss trend
Expected loss ratios for the current book of business, particularly the Company's fleet transportation products, where the number of accounts insured, selected self-insured retentions, policy limits and reinsurance structure
•
Expected loss ratios for the current book of business, particularly the Company's fleet transportation products, where the number of accounts insured, selected self-insured retentions, policy limits and reinsurance structures may vary widely from period to period
Under reasonably possible scenarios, it is conceivable that the Company's selected loss reserve estimates could be 10%, or more redundant or deficient.  The majority of the Company's reserves for losses and loss expenses, on either a gross or a net of reinsurance basis, relate to its fleet transportation products.  Perhaps the most significant example of sensitivity to variation in the key assumptions is the loss ratio selection for the Company's fleet transportation products for policies subject to certain major reinsurance treaties (approximately $169.5 million, or approximately 37% of carried gross reserves for directly produced property and casualty business).treaties.  The following table presents the approximate impacts on gross and net loss reserves of both a hypothetical 10 percentage point and a hypothetical 20 percentage point increase or decrease in the loss factors actually utilized in the Company's reserve determination at December 31, 2015.2016 for the prior six treaty periods, covering exposures earned on policies written between July 3, 2011 and December 31, 2016.  The Company's selection of the range of values presented should not be construed as the Company's prediction of future events, but rather simply an illustration of the impact of such events, should they occur:occur.

10 Point Increase
10 Point Decrease
20 Point Increase
20 Point Decrease
Gross reserves$64.6 million($42.3) million$129.1 million($76.7) million
Net reserves$26.2 million($18.9) million$48.0 million($30.6) million

The variation in impact from loss ratio increases and decreases is attributable to minimum and maximum premium rate factors included in the various reinsurance contracts.  In between the minimum and maximum ceded premium provisions within the treaty terms, net premiums earned can be increased or decreased based on a change in loss expectation.  The total impact to profitability in the same scenarios is shown below ($ in millions):


  10% Loss Ratio Increase  10% Loss Ratio Decrease  20% Loss Ratio Increase  20% Loss Ratio Decrease 
Gross Reserves $43.4  $(32.0) $86.8  $(49.7)
Net Reserves $11.8  $(8.4) $23.6  $(12.8)
                 
Net premiums earned $(22.0) $23.3  $(32.3) $40.8 
Total Net Underwriting Income (Loss) $(33.8) $31.7  $(55.9) $53.6 

 
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Federal Income Tax Considerations
The liability method is used in accounting for federal income taxes.  Using this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.  The provision for deferred federal income tax is based on items of income and expense whichthat are reported in different years in the financial statements and tax returns and are measured at the tax rate in effect in the year the difference originated.  Net deferred tax liabilities reported at December 31 are as follows (dollars in thousands):


 2015  2014  2016  2015 
Total deferred tax liabilities $(27,833) $(37,493) $(24,969) $(27,833)
Total deferred tax assets  16,635   17,520   13,557   16,635 
Net deferred tax liabilities $(11,198) $(19,973) $(11,412) $(11,198)


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Deferred tax assets at December 31, 2015,2016 include approximately $9.3$9.5 million related to the timing of deductibility of loss and loss expense reserves, the majority of which relatesrelate to policy liability discounts required by the Internal Revenue Code which are perpetual in nature and, in the absence of the termination of business, will not, in the aggregate, reverse to a material degree in the foreseeable future.  An additional $3.4$0.9 million relates to impairment adjustments made to investments, as required by accounting regulations.  The sizable unrealized gains in the Company's investment portfolios would allow for the recovery of this deferred tax at any time.  Unearned premiums discount and deferred ceding commissions represent $1.6$1.3 and $0.4$0.5 million of deferred tax assets, respectively.  The balance of deferred tax assets consists of various normal operating expense accruals and is not considered to be material.  As a result of its analysis, management has determined that no valuation allowance is necessary at December 31, 2015.2016.
FASB provides guidance for recognizing and measuring uncertain tax positions and prescribes a threshold condition that a tax position must meet for any of the benefit of the uncertain tax position to be recognized in the financial statements. Based on this guidance, management regularly analyzes tax positions taken or expected to be taken in a tax return based on the threshold condition prescribed.  Tax positions that do not meet or exceed this threshold condition are considered uncertain tax positions.  Interest related to uncertain tax positions, if any, would be recognized in income tax expense.  Penalties, if any, related to uncertain tax positions would be recorded in income tax expenses.  

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 involveare based on current expectations and assumptions that are subject to risks and uncertainties including,that could cause actual results to differ materially from such forward-looking statements.  These risks and uncertainties include 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; and (iii) other risks and uncertainties indicated from time to time in the Company's filings with the Securities and Exchange Commission.Commission including in Part I, Item 1A, Risk Factors, in this Annual Report on Form 10-K; and (iv) other risks and factors which may be beyond the control or foresight of the Company.  Readers of this report are cautioned not to place undue reliance on these forward-looking statements.  While the Company believes the assumptions on which the forward-looking statements are based are reasonable, there can be no assurance that these forward-looking statements will prove to be accurate.  The Company expressly disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Impact of Inflation
To the extent possible, the Company attempts to recover the impact of inflation toon loss costs and operating expenses by increasing the premiums it charges.  Within the fleet transportation business, a majority of the Company's accounts are charged as a percentage of an insured's gross revenue, mileage or payroll.  As these charging bases increase with inflation, premium revenues are immediately increased.  The remaining premium rates charged are adjustable only at periodic intervals and often require state regulatory approval.  Such periodic increases in premium rates may lag far behind cost increases.

- 33 -
To the extent inflation influences yields on investments, the Company is also affected.  The Company's short-term and fixed investment portfolios are structured in direct response to available interest rates over the yield curve.  As available market interest rates fluctuate in response to the presence or absence of inflation, the yields on the Company's investments are impacted.  Further, as inflation affects current market rates of return, previously committed investments might increase or decline in value depending on the type and maturity of investment (see additional comments underin Part II, Item 7A, Quantitative and Qualitative Disclosures about Market Risk following), in this Annual Report on Form 10-K).

Inflation must also be considered by the Company in the creation and review of loss and loss adjustment expense reserves since portions of these reserves are expected to be paid over extended periods of time.  The anticipated effect of inflation is implicitly considered when estimating liabilities for losses and loss adjustment expenses.

- 36 -
Market RiskContractual Obligations
The table below sets forth the amounts of the Company's contractual obligations at December 31, 2016.


  Payments Due by Period 
  Total  Less than 1 year  1 - 3 Years  3 - 5 Years  More Than 5 Years 
  (dollars in millions) 
Loss and loss expense reserves $576.3  $196.0  $196.0  $71.4  $112.9 
                     
Investment commitments  1.6   1.6   -   -   - 
                     
Operating leases  0.8   0.4   0.4   -   - 
                     
Borrowings  20.0   20.0   -   -   - 
                     
Total $598.7  $218.0  $196.4  $71.4  $112.9 


The Company's loss and loss expense reserves do not have contractual maturity dates and the exact timing of the payment of claims cannot be predicted with certainty.  However, based upon historical payment patterns, the above table presents an estimate of when we might expect our direct loss and loss expense reserves (without the benefit of reinsurance recoveries) to be paid.  Timing of the collection of the related reinsurance recoverable, estimated to be $255.0 million at December 31, 2016, or 43% of the amounts presented in the above table, would approximate that of the above projected direct reserve payout but could lag such payments by several months in some instances.

The investment commitments in the above table relate to maximum unfunded capital obligations for limited partnership investments at December 31, 2016.  The actual call dates for such funding could vary from that presented.

Borrowings made under the Company's line of credit can be called by the bank, under certain circumstances, with short notice.  The Company's line of credit has a current expiration of September 23, 2018; however, management expects that this line of credit will be renewed for a multiple year period prior to maturity.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.

Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company operates within the property and casualty insurance industry and, accordingly, has significant invested assets which are exposed to various market risks.  These market risks relate to interest rate fluctuations, credit risks, equity security market prices and, to a lesser extent, foreign currency rate fluctuations.  All of the Company's invested assets, with the exception of investments in limited partnerships, are classified as available for sale.

Based on the structure of the Company's investment portfolio, the most potentially significant of the threefour identified market risks relates to prices in the equity security market.  ThoughAlthough not the largest category of the Company's invested assets, equity securities have a high potential for short-term price fluctuation.  The market value of the Company's equity positions at December 31, 20152016 was $145.4$119.9 million, or approximately 20%16% of invested assets.  This market valuation includes $65.3$55.0 million of appreciation over the adjusted cost basis of the equity security investments.  Funds invested in the equities market are not considered to be assets necessary for the Company to conduct its daily operations and, therefore, can be committed for extended periods of time.  The long-term nature of the Company's equity investments allows it to invest in positions where ultimate value, and not short-term market fluctuations, is the primary focus.

- 37 -
Reference is made to the discussion of limited partnership investments in Critical"Critical Accounting PoliciesPolicies" in Part II, Item 7 of this report.Annual Report on Form 10-K.  All of the market risks attendant to equity securities apply to the underlying assets in these partnerships, and to a greater degree because of the generally more aggressive investment philosophies utilized by the partnerships.  In addition, these investments are illiquid.  There is no primary or secondary market on which these limited partnerships trade and, in most cases, the Company is prohibited from disposing of its limited partnership interests for some period of time and must seek approval from the general partner for any such disposal.  Distributions of earnings from these partnerships are largely at the sole discretion of the general partners and distributions are generally not received by the Company for many years after the earnings have been reported.   Finally, through the application of the equity method of accounting, the Company's share of net income reported by the limited partnerships often includes significant amounts of unrealized appreciation on the underlying investments.  As such, the likelihood that reported income from limited partnership investments will be ultimately returned to the Company in the form of cash is markedly lower than the Company's other investments, where appreciation is recognized as income only when a security is actually sold.

The Company's fixed maturity portfolio totaled $437.2$491.9 million at December 31, 2015.2016.  Approximately 49%45% of this portfolio is made up of U.S. Government and government agency obligations and state and municipal debt securities;  78% of the portfolio matures within 5 years;securities, and the average contractual maturity of the Company's fixed maturity investments is approximately 4.64.5 years with an average modified duration of approximately 2.32.1 years.  Although the Company is exposed to interest rate risk on its fixed maturity investments, given the anticipated duration of the Company's liabilities (principally insurance loss and loss expense reserves) relative to investment maturities, even a 100 to 200 basis point increase in interest rates would not have even a moderate impact on the Company's ability to conduct daily operations or to meet its obligations and would, in fact, result in significantly higher investment income in a relatively short period of time, as short term investments and maturing bonds could be reinvested in the higher yielding securities very quickly.

- 34 -
There is an inverse relationship between interest rate fluctuations and the fair value of the Company's fixed maturity investments.  Additionally, the fair value of interest rate sensitive instruments may be affected by the financial strength of the issuer, prepayment options, relative values of alternative investments, liquidity of the investment, currency fluctuations for non-U.S. debt holdings and other general market conditions.  The Company monitors its sensitivity to interest rate risk by measuring the change in fair value of its fixed maturity investments relative to hypothetical changes in interest rates.

The following tables present the estimated effects on the fair value of financial instruments at December 31 whichthat would result from an instantaneous change in yield rates of varying magnitudes on a static balance sheet to determine the effect such a change in rates would have on current fair value. The analysis presents the sensitivity of the fair value of the Company's financial instruments to selected changes in market rates and prices. The range of change chosen reflects the Company's view of changes that the Company believes are reasonably possible over a one-year period.  The Company's selection of the range of values chosen to represent changes in interest rates should not be construed as the Company's prediction of future market events, but rather, as an illustration of the impact of such events, should they occur.  The equity portfolio was compared to the S&P 500 index due to its correlation with the vast majority of the Company's current equity portfolio.  The limited partnership portfolio was compared to the S&P 500 and Indian BSE 500 indices due to their significant correlation with the vast majority of our limited partnership portfolio.  As previously indicated, several other factors can impact the fair values of fixed maturity investments and, therefore, significant variations in market interest rates could produce quite different results from the hypothetical estimates presented below.



- 3538 -

The following tables present the estimated effects on the fair value of financial instruments at December 31 due to an instantaneous change in yield rates of 100 basis points and a 10% decline in the S&P 500 and Indian BSE 500 indices (dollars in thousands).


   Increase (Decrease)     Increase (Decrease) 
 Fair  Interest  Equity  Fair  Interest  Equity 
 Value  Rate Risk  Risk  Value  Rate Risk  Risk 
2015:      
2016:         
Fixed maturities               
Agency collateralized mortgage obligations $6,171  $-  $- 
Agency mortgage-backed securities  4,770   (202)  - 
Asset-backed securities  45,183   (1,577)  - 
Bank loans  10,349   -   - 
Certificates of deposit  3,117   (111)  - 
Collateralized mortgage obligations  9,104   (302)  - 
Corporate securities  142,683   (4,026)  - 
Mortgage-backed securities  24,571   (780)  - 
Municipal obligations  129,335   (3,028)  - 
Non-U.S. government obligations  24,681   (458)  - 
U.S. government obligations $103,245  $(1,430) $-   91,940   (1,249)  - 
Residential mortgage-backed securities  4,776   (103)  - 
Commercial mortgage-backed securities  30,595   (655)  - 
State and municipal obligations  110,578   (3,326)  - 
Corporate securities  164,025   (5,030)  - 
Foreign government obligations  23,965   (531)  - 
Total fixed maturities  437,184   (11,075)  -   491,904   (11,733)  - 
Equity securities:                        
Financial institutions  21,694   -   (2,169)
Industrial & miscellaneous  123,804   -   (12,380)
Consumer  32,576   -   (3,258)
Energy  12,842   -   (1,284)
Financial  31,186   -   (3,119)
Industrial   21,145   -   (2,115)
Technology  8,858   -   (886)
Mutual fund  6,995   -   (700)
Other  6,343   -   (634)
Total equity securities  145,498   -   (14,549)  119,945   -   (11,996)
Limited partnerships  75,458   -   (5,349)  76,469   -   (5,542)
Short-term  2,220   -   -   1,500   -   - 
Total $660,360  $(11,075) $(19,898) $689,818  $(11,733) $(17,538)
            
2014:            
Fixed maturities            
U.S. government obligations $101,094  $(1,208) $- 
Residential mortgage-backed securities  6,066   (198)  - 
Commercial mortgage-backed securities  36,440   (1,183)  - 
State and municipal obligations  113,777   (3,224)  - 
Corporate securities  166,966   (5,646)  - 
Foreign government obligations  27,466   (922)  - 
Total fixed maturities  451,809   (12,381)  - 
Equity securities:            
Financial institutions  25,343   -   (2,534)
Industrial & miscellaneous  136,764   -   (13,676)
Total equity securities  162,107   -   (16,210)
Limited partnerships  81,230   -   (5,450)
Short-term  2,966   -   - 
Total $698,112  $(12,381) $(21,660)


2015:         
Fixed maturities         
   Agency collateralized mortgage obligations $-  $-  $- 
   Agency mortgage-backed securities  3,157   (80)  - 
   Asset-backed securities  44,309   (1,724)  - 
   Bank loans  5,060   -   - 
   Certificates of deposit  3,230   (144)  - 
   Collateralized mortgage obligations  9,257   (260)  - 
   Corporate securities  110,511   (3,204)  - 
   Mortgage-backed securities  23,892   (395)  - 
   Municipal obligations  110,578   (3,326)  - 
   Non-U.S. government obligations  23,945   (512)  - 
   U.S. government obligations  103,245   (1,430)  - 
      Total fixed maturities  437,184   (11,075)  - 
Equity securities:            
   Consumer  46,541   -   (4,654)
   Energy  8,635   -   (864)
   Financial  35,686   -   (3,569)
   Industrial   24,841   -   (2,484)
   Technology  11,596   -   (1,160)
   Mutual fund  9,983   -   (998)
   Other  8,216   -   (821)
      Total equity securities  145,498   -   (14,549)
Limited partnerships  75,458   -   (5,349)
Short-term  2,220   -   - 
      Total $660,360  $(11,075) $(19,898)

 
- 3639 -

The following tables present the estimated effects on the fair value of financial instruments at December 31 due to an instantaneous change in yield rates of 150 basis points and a 15% decline in the S&P 500 and Indian BSE 500 indices (dollars in thousands).


    Increase (Decrease) 
  Fair  Interest  Equity 
  Value  Rate Risk  Risk 
2015:      
Fixed maturities      
   U.S. government obligations $103,245  $(2,144) $- 
   Residential mortgage-backed securities  4,776   (153)  - 
   Commercial mortgage-backed securities  30,595   (983)  - 
   State and municipal obligations  110,578   (4,988)  - 
   Corporate securities  164,025   (7,547)  - 
   Foreign government obligations  23,965   (797)  - 
      Total fixed maturities  437,184   (16,612)  - 
Equity securities:            
   Financial institutions  21,694   -   (3,254)
   Industrial & miscellaneous  123,804   -   (18,571)
      Total equity securities  145,498   -   (21,825)
Limited partnerships  75,458   -   (8,023)
Short-term  2,220   -   - 
      Total $660,360  $(16,612) $(29,848)
             
2014:            
Fixed maturities            
   U.S. government obligations $101,094  $(1,800) $- 
   Residential mortgage-backed securities  6,066   (297)  - 
   Commercial mortgage-backed securities  36,440   (1,787)  - 
   State and municipal obligations  113,777   (4,724)  - 
   Corporate securities  166,966   (8,333)  - 
   Foreign government obligations  27,466   (1,366)  - 
      Total fixed maturities  451,809   (18,307)  - 
Equity securities:            
   Financial institutions  25,343   -   (3,801)
   Industrial & miscellaneous  136,764   -   (20,515)
      Total equity securities  162,107   -   (24,316)
Limited partnerships  81,230   -   (8,175)
Short-term  2,966   -   - 
      Total $698,112  $(18,307) $(32,491)

- 37 -
Contractual Obligations
The table below sets forth the amounts of the Company's contractual obligations at December 31, 2015.
     Increase (Decrease) 
  Fair  Interest  Equity 
  Value  Rate Risk  Risk 
2016:         
Fixed maturities         
   Agency collateralized mortgage obligations $6,171  $-  $- 
   Agency mortgage-backed securities  4,770   (303)  - 
   Asset-backed securities  45,183   (2,365)  - 
   Bank loans  10,349   -   - 
   Certificates of deposit  3,117   (167)  - 
   Collateralized mortgage obligations  9,104   (453)  - 
   Corporate securities  142,683   (6,039)  - 
   Mortgage-backed securities  24,571   (1,170)  - 
   Municipal obligations  129,335   (4,542)  - 
   Non-U.S. government obligations  24,681   (689)  - 
   U.S. government obligations  91,940   (1,872)  - 
      Total fixed maturities  491,904   (17,600)  - 
Equity securities:            
   Consumer  32,576   -   (4,886)
   Energy  12,842   -   (1,926)
   Financial  31,186   -   (4,678)
   Industrial   21,145   -   (3,172)
   Technology  8,858   -   (1,329)
   Mutual fund  6,995   -   (1,049)
   Other  6,343   -   (951)
      Total equity securities  119,945   -   (17,991)
Limited partnerships  76,469   -   (8,312)
Short-term  1,500   -   - 
      Total $689,818  $(17,600) $(26,303)


  Payments Due by Period 
  Total  Less than 1 year  1 - 3 Years  3 - 5 Years  More Than 5 Years 
  (dollars in millions) 
Loss and loss expense reserves $513.6  $174.6  $174.6  $63.7  $100.7 
                     
Investment commitments  17.5   17.5   -   -   - 
                     
Operating leases  0.3   0.2   0.1   -   - 
                     
Borrowings  20.0   20.0   -   -   - 
                     
Total $551.4  $212.3  $174.7  $63.7  $100.7 


The Company's loss and loss expense reserves do not have contractual maturity dates and the exact timing of the payment of claims cannot be predicted with certainty.  However, based upon historical payment patterns, the above table presents an estimate of when we might expect our direct loss and loss expense reserves (without the benefit of reinsurance recoveries) to be paid.  Timing of the collection of the related reinsurance recoverable, estimated to be $215.9 million at December 31, 2015, or 39% of the amounts presented in the above table, would approximate that of the above projected direct reserve payout but could lag such payments by several months in some instances.

The investment commitments in the above table relate to maximum unfunded capital obligations for limited partnership investments and unfunded bridge loan obligations at December 31, 2015.  The actual call dates for such funding could vary from that presented.

Borrowings made under a line of credit can be called by the bank, under certain circumstances, with short notice. The line of credit has a current expiration of September 23, 2018; however, it is expected that this line of credit will be renewed for a multiple year period prior to maturity.
2015:         
Fixed maturities         
   Agency collateralized mortgage obligations $-  $-  $- 
   Agency mortgage-backed securities  3,157   (119)  - 
   Asset-backed securities  44,309   (2,586)  - 
   Bank loans  5,060   -   - 
   Certificates of deposit  3,230   (216)  - 
   Collateralized mortgage obligations  9,257   (391)  - 
   Corporate securities  110,511   (4,797)  - 
   Mortgage-backed securities  23,892   (593)  - 
   Municipal obligations  110,578   (4,988)  - 
   Non-U.S. government obligations  23,945   (778)  - 
   U.S. government obligations  103,245   (2,144)  - 
      Total fixed maturities  437,184   (16,612)  - 
Equity securities:            
   Consumer  46,541   -   (6,981)
   Energy  8,635   -   (1,295)
   Financial  35,686   -   (5,353)
   Industrial   24,841   -   (3,726)
   Technology  11,596   -   (1,739)
   Mutual fund  9,983   -   (1,497)
   Other  8,216   -   (1,232)
      Total equity securities  145,498   -   (21,825)
Limited partnerships  75,458   -   (8,023)
Short-term  2,220   -   - 
      Total $660,360  $(16,612) $(29,848)



- 3840 -
ANNUAL REPORT ON FORM 10-K





ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA











YEAR ENDED DECEMBER 31, 20152016

BALDWIN & LYONS, INC.

CARMEL, INDIANA



 


- 3941 -

Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Baldwin & Lyons, Inc.
 
 
We have audited the accompanying consolidated balance sheets of Baldwin & Lyons, Inc. and subsidiaries (the Company) as of December 31, 20152016 and 2014,2015, and the related consolidated statements of operations,income, comprehensive income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2015.2016. Our audits also included the financial statement schedules listed in the Index at Item 15(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Baldwin & Lyons, Inc. and subsidiaries at December 31, 20152016 and 2014,2015, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2015,2016, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Baldwin & Lyons, Inc. and subsidiaries' internal control over financial reporting as of December 31, 2015,2016, based on criteria established in Internal Control - Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 4, 2016 6, 2017 expressed an unqualified opinion thereon.
 
 
/s/ Ernst & Young LLP

Indianapolis, IN
Indiana
March 4, 20166, 2017



- 4042 -

Consolidated Balance SheetsConsolidated Balance Sheets     Consolidated Balance Sheets       
Baldwin & Lyons, Inc. and SubsidiariesBaldwin & Lyons, Inc. and Subsidiaries     Baldwin & Lyons, Inc. and Subsidiaries       
             
  December 31    December 31 
  2015  2014    2016  2015 
  (dollars in thousands)    (dollars in thousands) 
AssetsAssets     Assets       
Investments:Investments:     Investments:       
Fixed maturities (Amortized cost: 2015, $442,578; 2014, $455,385)  $437,184  $451,809 
Equity securities (Cost: 2015, $80,221; 2014, $78,778)   145,498   162,107 
Limited partnerships (Affiliated: 2015, $45,009; 2014, $46,987)   75,458   81,230 
Fixed maturities (Amortized cost: 2016, $494,561; 2015, $442,578)Fixed maturities (Amortized cost: 2016, $494,561; 2015, $442,578)  $491,904  $437,184 
Equity securities (Cost: 2016, $64,902; 2015, $80,221)Equity securities (Cost: 2016, $64,902; 2015, $80,221)   119,945   145,498 
Limited partnerships (Affiliated: 2016, $44,038; 2015, $45,009)Limited partnerships (Affiliated: 2016, $44,038; 2015, $45,009)   76,469   75,458 
Short-term and otherShort-term and other   2,220   2,966 Short-term and other   1,500   2,220 
   660,360   698,112     689,818   660,360 
                   
Cash and cash equivalentsCash and cash equivalents   73,538   64,632 Cash and cash equivalents   62,976   73,538 
Accounts receivable--less allowance (2015, $600; 2014, $605)   66,522   98,144 
Accounts receivable--less allowance (2016, $542; 2015, $600)Accounts receivable--less allowance (2016, $542; 2015, $600)   64,984   66,522 
Accrued investment incomeAccrued investment income   3,989   3,682 Accrued investment income   3,882   3,989 
Reinsurance recoverableReinsurance recoverable   215,888   220,221 Reinsurance recoverable   255,024   215,888 
Prepaid reinsurance premiumsPrepaid reinsurance premiums   3,176   2,274 Prepaid reinsurance premiums   2,674   3,176 
Deferred policy acquisition costsDeferred policy acquisition costs   1,443   2,263 Deferred policy acquisition costs   1,172   1,443 
Property and equipment--less accumulated depreciationProperty and equipment--less accumulated depreciation         Property and equipment--less accumulated depreciation         
(2015, $14,768; 2014, $13,777)
   46,144   43,815 
$(2016, 15,328; 2015, $14,768)   47,225   46,144 
Other assetsOther assets   11,009   9,413 Other assets   23,779   11,009 
Current federal income taxes recoverableCurrent federal income taxes recoverable   3,702   1,691 Current federal income taxes recoverable   2,603   3,702 
   $1,085,771  $1,144,247     $1,154,137  $1,085,771 
                     
Liabilities and Shareholders' EquityLiabilities and Shareholders' Equity         Liabilities and Shareholders' Equity         
Reserves:Reserves:         Reserves:         
Losses and loss expensesLosses and loss expenses  $513,596  $506,102 Losses and loss expenses  $576,330  $513,596 
Unearned premiumsUnearned premiums   25,291   35,019 Unearned premiums   21,694   25,291 
    538,887   541,121      598,024   538,887 
                     
Reinsurance payableReinsurance payable   47,565   46,338 Reinsurance payable   43,150   47,565 
Short-term borrowingsShort-term borrowings   20,000   20,000 Short-term borrowings   20,000   20,000 
Depository liabilitiesDepository liabilities   16,847   48,893 Depository liabilities   9,910   16,847 
Accounts payable and other liabilitiesAccounts payable and other liabilities   56,776   68,426 Accounts payable and other liabilities   67,296   56,776 
Deferred federal income taxesDeferred federal income taxes   11,198   19,973 Deferred federal income taxes   11,412   11,198 
    691,273   744,751      749,792   691,273 
Shareholders' equity:Shareholders' equity:         Shareholders' equity:         
Common stock, no par value:Common stock, no par value:         Common stock, no par value:         
Class A voting -- authorized 3,000,000 shares;Class A voting -- authorized 3,000,000 shares;         Class A voting -- authorized 3,000,000 shares;         
outstanding -- 2015 - 2,623,109; 2014 - 2,623,109 shares   112   112 
outstanding -- 2016 - 2,623,109; 2015 - 2,623,109 sharesoutstanding -- 2016 - 2,623,109; 2015 - 2,623,109 shares   112   112 
Class B non-voting -- authorized 20,000,000 shares;Class B non-voting -- authorized 20,000,000 shares;         Class B non-voting -- authorized 20,000,000 shares;         
outstanding -- 2015 - 12,402,941; 2014 - 12,356,389 shares   529   527 
outstanding -- 2016 - 12,460,900; 2015 - 12,402,941 sharesoutstanding -- 2016 - 12,460,900; 2015 - 12,402,941 shares   532   529 
Additional paid-in capitalAdditional paid-in capital   52,946   51,854 Additional paid-in capital   54,286   52,946 
Unrealized net gains on investmentsUnrealized net gains on investments   38,924   51,840 Unrealized net gains on investments   34,051   38,924 
Foreign exchange adjustmentForeign exchange adjustment   (1,066)  390 Foreign exchange adjustment   (831)  (1,066)
Retained earningsRetained earnings   303,053   294,773 Retained earnings   316,195   303,053 
    394,498   399,496      404,345   394,498 
   $1,085,771  $1,144,247     $1,154,137  $1,085,771 
- 41 -
 
See notes to consolidated financial statements.
- 43 -

Consolidated Statements of Operations               
Baldwin & Lyons, Inc. and Subsidiaries               
               
               
 Year Ended December 31      Year Ended December 31  
 2015  2014  2013  2016  2015  2014 
 (dollars in thousands, except per share data)  (dollars in thousands, except per share data) 
Revenue:               
Net premiums earned $263,335  $261,627  $252,743  $276,011  $263,335  $261,627 
Net investment income  12,498   9,055   8,770   14,483   12,498   9,055 
Commissions and other income  5,703   6,430   5,944   5,275   5,703   6,430 
Net realized gains on investments, excluding                        
impairment losses  6,439   15,619   24,257   28,971   6,439   15,619 
Total other-than-temporary impairment losses on investments  (7,700)  (689)  (744)  (5,743)  (7,700)  (689)
Portion of other-than-temporary impairment losses            
recognized in other comprehensive income  -   -   2 
Net realized gains (losses) on investments  (1,261)  14,930   23,515   23,228   (1,261)  14,930 
  280,275   292,042   290,972   318,997   280,275   292,042 
Expenses:                        
Losses and loss expenses incurred  155,750   159,596   150,701   186,481   155,750   159,596 
Other operating expenses  90,573   88,048   85,361   89,462   90,573   88,048 
  246,323   247,644   236,062   275,943   246,323   247,644 
Income before federal income taxes  33,952   44,398   54,910   43,054   33,952   44,398 
                        
Federal income taxes  10,669   14,681   18,322   14,109   10,669   14,681 
Net income $23,283  $29,717  $36,588  $28,945  $23,283  $29,717 
                        
Per share data:                        
Basic and diluted earnings $1.55  $1.98  $2.45  $1.92  $1.55  $1.98 



See notes to consolidated financial statements.

 
- 4244 -

 

Consolidated Statements of Comprehensive Income            
Baldwin & Lyons, Inc. and Subsidiaries            
            
            
            
        
        
 2015  2014  2013 2016 2015 2014 
 (dollars in thousands) (dollars in thousands) 
            
Net income $23,283  $29,717  $36,588  $28,945  $23,283  $29,717 
                        
Other comprehensive income (loss), net of tax:                        
Unrealized net gains (losses) on securities:                        
Unrealized holding net gains (losses) arising during the period  (12,639)  7,835   23,711   8,618   (12,639)  7,835 
Less: reclassification adjustment for net losses            
Less: reclassification adjustment for net gains            
included in net income  (277)  (5,084)  (10,089)  (13,491)  (277)  (5,084)
  (12,916)  2,751   13,622   (4,873)  (12,916)  2,751 
                        
Foreign currency translation adjustments  (1,456)  (1,011)  (575)  235   (1,456)  (1,011)
                        
Other comprehensive income (loss)  (14,372)  1,740   13,047   (4,638)  (14,372)  1,740 
                        
Comprehensive income $8,911  $31,457  $49,635  $24,307  $8,911  $31,457 


- 43 -


Consolidated Statements of Shareholders' Equity      
Baldwin & Lyons, Inc. and Subsidiaries      
       
       
       
  2015  2014  2013 
  (dollars in thousands) 
       
Shareholders' equity at beginning of year $399,496  $381,724  $346,712 
             
    Net income  23,283   29,717   36,588 
             
    Other comprehensive income (loss)  (14,372)  1,740   13,047 
             
    Cash dividends paid to shareholders  (15,003)  (14,947)  (14,943)
             
    Issuance of common stock  1,094   1,262   320 
             
Shareholders' equity at end of year: $394,498  $399,496  $381,724 
See notes to consolidated financial statements.




- 4445 -

Consolidated Statements of Shareholders' Equity
      
Baldwin & Lyons, Inc. and Subsidiaries      
       
       
       
 2016 2015 2014 
 (dollars in thousands) 
       
Shareholders' equity at beginning of year: $394,498  $399,496  $381,724 
             
    Net income  28,945   23,283   29,717 
             
    Other comprehensive income (loss)  (4,638)  (14,372)  1,740 
             
    Cash dividends paid to shareholders  (15,803)  (15,003)  (14,947)
             
    Issuance of common stock  1,343   1,094   1,262 
             
Shareholders' equity at end of year: $404,345  $394,498  $399,496 


Consolidated Statements of Cash Flows      
Baldwin & Lyons, Inc. and Subsidiaries      
       
  2015  2014  2013 
  (dollars in thousands) 
Operating activities      
   Net income $23,283  $29,717  $36,588 
   Adjustments to reconcile net income to net cash            
      provided by operating activities:            
         Change in accounts receivable and unearned premium  22,939   3,230   (16,488)
         Change in accrued investment income  (307)  (234)  939 
         Change in reinsurance recoverable on paid losses  4,458   (2,785)  (1,618)
         Change in losses and loss expenses reserves net of reinsurance  6,325   7,545   (1,264)
         Change in other assets, other liabilities and current income taxes  (28,299)  (4,847)  29,892 
         Amortization of net policy acquisition costs  21,314   25,075   26,592 
         Net policy acquisition costs deferred  (20,495)  (25,019)  (25,819)
         Provision for deferred income taxes (benefits)  (1,819)  1,640   939 
         Bond amortization  3,388   4,235   5,068 
         (Gain) loss on sale of property  18   474   (27)
         Depreciation  5,037   4,797   4,300 
         Net realized (gains) losses on investments  1,261   (14,930)  (23,515)
         Compensation expense related to restricted stock  1,094   1,262   320 
Net cash provided by operating activities  38,197   30,160   35,907 
             
Investing activities            
   Purchases of fixed maturities and equity securities  (342,592)  (288,283)  (369,259)
   Purchases of limited partnership interests  (409)  (6,886)  (3,568)
   Distributions from limited partnerships  4,494   1,752   2,528 
   Proceeds from maturities  161,706   98,714   129,113 
   Proceeds from sales of fixed maturities  117,338   167,406   207,723 
   Proceeds from sales of equity securities  53,270   19,263   29,858 
   Net sales (purchases) of short-term investments  746   1,925   (690)
   Purchases of property and equipment  (7,662)  (13,451)  (28,607)
   Proceeds from disposals of property and equipment  277   693   261 
Net cash used in investing activities  (12,832)  (18,867)  (32,641)
             
Financing activities            
   Dividends paid to shareholders  (15,003)  (14,947)  (14,943)
   Drawings on line of credit  -   10,000   - 
Net cash used in financing activities  (15,003)  (4,947)  (14,943)
             
   Effect of foreign exchange rates on cash and cash equivalents  (1,456)  (1,011)  (575)
             
Increase (decrease) in cash and cash equivalents  8,906   5,335   (12,252)
Cash and cash equivalents at beginning of year  64,632   59,297   71,549 
Cash and cash equivalents at end of year $73,538  $64,632  $59,297 


See notes to consolidated financial statements.



- 4546 -


Consolidated Statements of Cash Flows         
Baldwin & Lyons, Inc. and Subsidiaries         
          
  2016  2015  2014 
  (dollars in thousands) 
Operating activities         
   Net income $28,945  $23,283  $29,717 
   Adjustments to reconcile net income to net cash            
      provided by operating activities:            
         Change in accounts receivable and unearned premium  (2,721)  22,939   3,230 
         Change in accrued investment income  108   (307)  (234)
         Change in reinsurance recoverable on paid losses  692   4,458   (2,785)
         Change in losses and loss expenses reserves net of reinsurance  23,568   6,325   7,545 
         Change in other assets, other liabilities and current income taxes  (8,063)  (28,299)  (4,847)
         Amortization of net policy acquisition costs  18,085   21,314   25,075 
         Net policy acquisition costs deferred  (17,813)  (20,495)  (25,019)
         Provision for deferred income taxes (benefits)  2,838   (1,819)  1,640 
         Bond amortization  3,030   3,388   4,235 
         Loss on sale of property and equipment  63   18   474 
         Depreciation  5,521   5,037   4,797 
         Net realized (gains) losses on investments  (23,228)  1,261   (14,930)
         Compensation expense related to restricted stock  1,343   1,094   1,262 
Net cash provided by operating activities  32,368   38,197   30,160 
             
Investing activities            
   Purchases of fixed maturities and equity securities  (400,670)  (342,592)  (288,283)
   Purchases of limited partnership interests  -   (409)  (6,886)
   Distributions from limited partnerships  1,462   4,494   1,752 
   Proceeds from maturities  78,691   161,706   98,714 
   Proceeds from sales of fixed maturities  199,790   117,338   167,406 
   Proceeds from sales of equity securities  88,773   53,270   19,263 
   Net sales of short-term investments  11,258   746   1,925 
   Purchases of property and equipment  (7,725)  (7,662)  (13,451)
   Proceeds from disposals of property and equipment  1,059   277   693 
Net cash used in investing activities  (27,362)  (12,832)  (18,867)
             
Financing activities            
   Dividends paid to shareholders  (15,803)  (15,003)  (14,947)
   Drawings on line of credit  -   -   10,000 
Net cash used in financing activities  (15,803)  (15,003)  (4,947)
             
   Effect of foreign exchange rates on cash and cash equivalents  235   (1,456)  (1,011)
             
Increase (decrease) in cash and cash equivalents  (10,562)  8,906   5,335 
Cash and cash equivalents at beginning of year  73,538   64,632   59,297 
Cash and cash equivalents at end of year $62,976  $73,538  $64,632 

See notes to consolidated financial statements.



- 47 -

Notes to Consolidated Financial Statements
Baldwin & Lyons, Inc. and Subsidiaries
(Dollars in thousands, except share and per share data)

Note A - Summary of Significant Accounting Policies
Description of Business:  Baldwin & Lyons, Inc., (the "Company"), based in Carmel, Indiana, is a specialty property-casualty insurer providing liability coverage for large and medium-sized trucking and public transportation fleets, as well as coveragescoverage for trucking industry independent contractors.  Additionally, the Company's product offerings include coverage for small fleet trucking and professional liability as well as workers' compensation for small businesses and casualty reinsurance.

Basis of Presentation:  The consolidated financial statements include the accounts of the Company and its whollywholly- owned subsidiaries.  All significant inter-companyInter-company transactions and accounts have been eliminated in consolidation.
Use of Estimates:  Preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.  Actual results will differ from those estimates.
Cash and Cash Equivalents:  The Company considers investments in money market funds to be cash equivalents.  Carrying amounts for these instruments approximate their fair values.
Investments:  Carrying amounts for fixed maturity securities represent fair value and are based on quoted market prices, wherewhen available, or broker/dealer quotes for specific securities wherewhen quoted market prices are not available.  Equity securities are carried at quoted market prices (fair value).  The Company accounts for investments in limited partnerships using the equity method of accounting, which requires an investor in a limited partnership to record its proportionate share of the limited partnership's net income.  To the extent that the limited partnership investees include both realized and unrealized investment gains or losses in the determination of net income or loss, then the Company would also recognize, through its statements of operations, its proportionate share of the investee's unrealized as well as realized investment gains or losses.

Other investments, if any, are carried at either market value or cost, depending on the nature of the investment. Short-term and other investments are carried at cost, which approximates their fair values.

Realized gains and losses on disposals of investments are recorded on the trade date and are determined by specific identification of cost of investments sold and are included in income.  All fixed maturity and equity securities are considered to be available for sale; the related unrealized net gains or losses (net of applicable tax effect) are reflected directly in shareholders' equity.  Included within available for sale fixed maturity securities are insurance linked securities and convertible debt securities.  The changes in fair values of insurance-linked securities and portions of the changes in fair values of convertible debt securities are reflected as a component of net realized gains (losses) on investments.

In accordance with the Financial Accounting Standard Board's ("FASB") other-than-temporary impairment ("OTTI") guidance, if a fixed maturity security is in an unrealized loss position and the Company has the intent to sell the fixed maturity security, or it is more likely than not that the Company will have to sell the fixed maturity security before recovery of its amortized cost basis, the decline in value is deemed to be other-than-temporary and is recorded to net realized losses on investments in the consolidated statements of operations.   For impaired fixed maturity securities that the Company does not intend to sell or in cases where it is more likely than not that the Company will not have to sell such securities, but the Company expects that it will not fully recover the amortized cost basis, the credit component of the other-than-temporary impairment is recognized in net realized losses on investments in the consolidated statements of operations and the non-credit component of the other-than-temporary impairment is recognized directly in shareholder's equity (accumulated other comprehensive income).

The credit component of an other-than-temporary impairment is determined by comparing the net present value of projected future cash flows with the amortized cost basis of the fixed maturity security.  The net present value is calculated by discounting the Company's best estimate of projected future cash flows at the appropriate effective interest rate.

 
- 4648 -
Note A - Significant Accounting Policies (continued)
The unrealized net gains or losses (net of applicable tax effect) related to equity securities are reflected directly in shareholders' equity, unless a decline in value is determined to be other-than-temporary, in which case the loss is charged to income.  In determining if and when a decline in market value below cost is other-than-temporary, an objective analysis is made of each individual security where current market value is less than cost.   For any equity security where the unrealized loss exceeds 20%a set percentage of original or adjusted cost, and where that decline has existed for a set period of at least six months,time, the decline is treated as an other-than-temporary impairment.  Additionally, for any equity security where the decline has existed for a period of at least one year, the decline is treated as an other-than-temporary impairment.  Additionally, the Company takes into account any known subjective information in evaluating for impairment, without consideration toof the Company's quantitative criteria defined above, as well as the Company's intent and ability to retain the equity security for a period of time sufficient to allow for such recovery in fair value.
Property and Equipment:  Property and equipment are carried at cost, less accumulated depreciation.  Depreciation is computed principally by the straight-line method.
Goodwill and Other Intangible Assets:  Goodwill is not amortized.  Rather, it is tested for impairment in accordance with FASB guidance, at the reporting-unit level.  Goodwill is tested annually (during the fourth quarter) or more often if events or circumstances, such as adverse changes in the business climate, indicate there may be impairment.  No impairment was noted as a result of the 2016 impairment evaluation.  Intangible assets determined to have finite lives, such as customer relationships and employment agreements, are amortized over their estimated useful lives in a manner that best reflects the economic benefits of the intangible asset.  In addition, impairment testing is performed on these amortizing intangible assets if impairment indicators are noted.
Reserves for Losses and Loss Expenses:  The reserves for losses and loss expenses minor portions of which are discounted, are determined using case basis evaluations and statistical analyses and represent estimates of the ultimate cost of all reported and unreported losses which are unpaid at year end.  These reserves include estimates of future trends in claim severity and frequency and other factors which could vary as the losses are ultimately settled.  While actual results will differ from such estimates, management believes that the reserves for losses and loss expenses are adequate.  The estimates are continually reviewed and as adjustments to these reserves become necessary, such adjustments are reflected in current operations.
Recognition of Revenue and Costs:  Premiums are earned over the period for which insurance protection is provided.  A reserve for unearned premiums, computed by the daily pro-rata method, is established to reflect amounts applicable to subsequent accounting periods.  Commissions to unaffiliated companies and premium taxes applicable to unearned premiums are deferred and expensed as the related premiums are earned.  The Company does not defer acquisition costs which are not directly variable with the production of premium.  If it is determined that expected losses and deferred expenses will likely exceed the related unearned premiums, the asset representing deferred policy acquisition costs is reduced and an expense is charged against current operations to reflect any such premium deficiency.  In the event that the expected premium deficiency exceeds deferred policy acquisition costs, an additional liability would be recorded with a corresponding expense to current operations for the amount of the excess premium deficiency.  Anticipated investment income is considered in determining recoverability of deferred acquisition costs.
Reinsurance:  Reinsurance premiums, commissions, expense reimbursements and reserves related to reinsured business are accounted for on bases consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts.  Premiums ceded to other insurers have been reported as a reduction of premium earned.  Amounts applicable to reinsurance ceded for unearned premium and claim loss reserves have been reported as reinsurance recoverable assets.  Certain reinsurance contracts provide for additional or return premiums and commissions based upon profits or losses to the reinsurer over prescribed periods.  Estimates of additional or return premiums and commissions are adjusted quarterly to recognize actual loss experience to date, as well as projected loss experience applicable to the various contract periods.  Estimates of reinstatement premiums on reinsurance contracts covering catastrophic events are, to the extent reasonably determinable, recorded concurrently with the related loss.
- 4749 -

Note A - Significant Accounting Policies (continued)
 
Should impairment in the ability of a reinsurer to satisfy its obligations to the Company be determined to exist, current year operations would be charged in amounts sufficient to provide for the Company's additional liability.  Such charges, when incurred, are included in other operating expenses, rather than losses and loss expenses incurred, since the inability of the Company to collect from reinsurers is a credit risk rather than a deficiency associated with the loss reserving process.
The Company accounts for foreign and domestic reinsurance using the periodic method.  Under the periodic method, premiums are recognized as revenue ratably over the contract term, and claims, including an estimate of claims incurred but not reported, are recognized as they occur.
Deferred Taxes:  Deferred income tax assets and liabilities are recognized for temporary differences between the financial statement and tax return bases of assets and liabilities based on enacted tax rates and laws.  The deferred tax benefits of the deferred tax assets are recognized to the extent realization of such benefits is more likely than not.  Deferred income tax expense or benefit generally represents the net change in deferred income tax assets and liabilities during the year.  Current income tax expense represents the tax liability associated with revenues and expenses currently taxable or deductible on various income tax returns for the year reported.
Restricted Stock:  Restricted shares vest ratably over the vesting period from the date of grant and certain restricted shares are accelerated for retirement eligible recipients in accordance with the non-substantive post-grant date vesting clause of Accounting Standard Codification ("ASC") 715, Compensation-Retirement Benefits.  Restricted stock is valued based on the closing price of the stock on the day the award is granted. Non-vested restricted shares will be forfeited should an executive's employment terminate for any reason other than death, disability, or retirement as defined by the Compensation Committee.Committee of the Board of Directors (the "Board") of the Company (the "Compensation Committee").
Earnings Per Share:  Diluted earnings per share of common stock are based on the average number of shares of Class A and Class B common stock outstanding during the year, adjusted for the dilutive effect, if any, of restricted stock awards outstanding.  Basic earnings per share are presented exclusive of the effect of share-based awards outstanding.
Comprehensive Income: The Company records accumulated other comprehensive income from unrealized gains and losses on available-for-sale securities and from foreign exchange adjustments as a separate component of shareholders' equity.  Foreign exchange adjustments are generally not material and theThe Company has no defined benefit pension plan.  A reclassification adjustment to other comprehensive income is made for gains or losses during the period included in net income.
Fair Value Measurements: The Company provides disclosures related to recurring and non-recurring fair value measurements with separate disclosures for the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements, along with an explanation for the transfers. Additionally, separate disclosures are provided for purchases, sales, issuances and settlements on a gross basis for Level 3 fair value measurements as well as additional clarification for both the level of disaggregation reported for each class of assets or liabilities and disclosures of inputs and valuation techniques used to measure fair value for both recurring and non-recurring fair value measurements for assets and liabilities categorized as Level 2 or Level 3.
Recent Accounting Pronouncements: In January 2016, the Financial Accounting Standards Board (FASB)FASB issued Accounting Standards Update (ASU)"ASU" 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, or ASU 2016-01. The amendments in ASU 2016-01 change the accounting for non-consolidated equity investments that are not accounted for under the equity method of accounting by requiring changes in fair value to be recognized in income. Under current guidance, changes in fair value for investments of this nature are recognized in accumulated other comprehensive income as a component of shareholders' equity. Additionally, ASU 2016-01 simplifies the impairment assessment of equity investments without readily determinable fair values; requires entities to use the exit price when estimating the fair value of financial instruments; and modifies various presentation disclosure requirements for financial instruments. ASU 2016-01 is effective for interim and annual reporting periods beginning after December 15, 2017. The Company has not yet adoptedevaluated the guidance and the adoptionimpact of this guidance is not expected to have a material impact on presentation of data in the consolidated financial statements.guidance.
- 4850 -
Note A - Significant Accounting Policies (continued)

 
In May 2015, the FASB issued ASU 2015-09, Disclosures about Short-Duration Contracts, and this new guidance will enhance disclosures about an entity's insurance liabilities. This guidance will provide additional information about unpaid claims and claim development, including supplemental disaggregated incurred and paid claim data.  Under the guidance, enhanced disclosures on claim frequency and reserving methodologies are required. The guidance isbecame effective for annual periods beginning after December 15, 2015 and for interim periods beginning after December 15, 2016, however early adoption iswas permitted. The Company has not yet adopted the guidance and the adoption of this guidance willdid not impact our consolidated financial position, results of operations or cash flows.
In May 2015, the FASB issued ASU 2015-07 – Fair Value Measurement – (Topic 820) Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or its equivalent) (a consensus of the Emerging Issues Task Force), which will bebecame effective for fiscal years beginning after December 15, 2015. The new pronouncement was issued to ensure that all investments categorized in the fair value hierarchy are classified using a consistent approach. The Company has not yet adopted the guidance and the adoption of this guidance isdid not expected to have a material impact on presentation of data in theour consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), as amended by subsequently issued ASUs, to clarify the principles for recognizing revenue. While insurance contracts are not within the scope of this updated guidance, the Company's service and fee income could be subject to this updated guidance. The updated guidance requires an entity to recognize revenue as performance obligations are met, in order to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration the entity is entitled to receive for those goods or services. The following steps are applied in the updated guidance: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 to the quarter ending March 31, 2018. The Company is currently evaluatinghas performed an initial evaluation of the impact this guidance will have on its results of operations, financial position or liquidity.  The Company does not expect the guidance to have a material impact on its results of operations, financial position or liquidity.

 
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), or ASU 2016-02.  Upon the effective date, ASU 2016-02 will supersede the current lease guidance in ASC Topic 840, Leases.  Under the new guidance, lessees will be required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis.  Concurrently, lessees will be required to recognize a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term.  ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted.  The guidance is required to be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements.  The Company is currently
evaluating the effects that adoption of ASU 2016-02 will have on our consolidated financial statements, results of operations and cash flows.  The Company does not expect the guidance to have a material impact on its results of operations, financial position or liquidity.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - 49 Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU 2016-13. This update introduces a current expected credit loss model for measuring expected credit losses for certain types of financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. ASU
2016-13 replaces the current incurred loss model for measuring expected credit losses, requires expected losses on available-for-sale debt securities to be recognized through an allowance for credit losses rather than as reductions in the amortized cost of the securities, and provides for additional disclosure requirements. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted for interim and annual reporting periods beginning after December 15, 2018. The Company is currently evaluating the effects the adoption of ASU 2016-13 will have on the consolidated financial statements, results of operations and cash flows.

- 51 -


Note B - Investments          
           
The following is a summary of available for sale securities at December 31:     
           
          Net 
    Cost or  Gross  Gross  Unrealized 
  Fair  Amortized  Unrealized  Unrealized  Gains 
  Value  Cost  Gains  Losses  (Losses) 
2015:          
Fixed maturities:          
   U.S. government obligations $103,245  $103,448  $56  $(259) $(203)
   Residential mortgage-backed securities  4,776   4,668   162   (54)  108 
   Commercial mortgage-backed securities  30,595   30,977   247   (629)  (382)
   State and municipal obligations  110,578   109,932   806   (160)  646 
   Corporate securities  164,025   168,137   2,445   (6,557)  (4,112)
   Foreign government obligations  23,965   25,416   404   (1,855)  (1,451)
      Total fixed maturities  437,184   442,578   4,120   (9,514)  (5,394)
Equity securities:                    
   Financial institutions  21,694   10,836   11,069   (211)  10,858 
   Industrial & miscellaneous  123,804   69,385   59,338   (4,919)  54,419 
      Total equity securities  145,498   80,221   70,407   (5,130)  65,277 
Total $582,682  $522,799  $74,527  $(14,644)  59,883 
                     
              Applicable federal income taxes   (20,959)
                     
              Net unrealized gains - net of tax  $38,924 
                     
2014:                    
Fixed maturities:                    
   U.S. government obligations $101,094  $101,058  $108  $(72) $36 
   Residential mortgage-backed securities  6,066   5,830   273   (37)  236 
   Commercial mortgage-backed securities  36,440   36,210   630   (400)  230 
   State and municipal obligations  113,777   113,133   784   (140)  644 
   Corporate securities  166,966   170,822   2,005   (5,861)  (3,856)
   Foreign government obligations  27,466   28,332   114   (980)  (866)
      Total fixed maturities  451,809   455,385   3,914   (7,490)  (3,576)
Equity securities:                    
   Financial institutions  25,343   10,100   15,303   (60)  15,243 
   Industrial & miscellaneous  136,764   68,678   70,260   (2,174)  68,086 
      Total equity securities  162,107   78,778   85,563   (2,234)  83,329 
Total $613,916  $534,163  $89,477  $(9,724)  79,753 
                     
              Applicable federal income taxes   (27,913)
                     
              Net unrealized gains - net of tax  $51,840 
Note B - Investments               
The following is a summary of available for sale securities at December 31:          
                
              Net 
     Cost or  Gross  Gross  Unrealized 
  Fair  Amortized  Unrealized  Unrealized  Gains 
  Value  Cost  Gains  Losses  (Losses) 
December 31, 2016               
Fixed maturities               
   Agency collateralized mortgage obligations $6,171  $6,000  $171  $-  $171 
   Agency mortgage-backed securities  4,770   4,751   57   (38)  19 
   Asset-backed securities  45,183   45,207   458   (482)  (24)
   Bank loans  10,349   10,222   149   (22)  127 
   Certificates of deposit  3,117   3,126   -   (9)  (9)
   Collateralized mortgage obligations  9,104   9,096   290   (282)  8 
   Corporate securities  142,683   143,356   1,643   (2,316)  (673)
   Mortgage-backed securities  24,571   23,904   1,132   (465)  667 
   Municipal obligations  129,335   130,204   391   (1,260)  (869)
   Non-U.S. government obligations  24,681   26,461   230   (2,010)  (1,780)
   U.S. government obligations  91,940   92,234   74   (368)  (294)
      Total fixed maturities  
491,904
   
494,561
   4,595   (7,252)  (2,657)
Equity securities:                    
   Consumer  32,576   15,231   17,656  ��(311)  17,345 
   Energy  12,842   5,641   7,203   (2)  7,201 
   Financial  31,186   22,417   8,998   (229)  8,769 
   Industrial  21,145   6,239   15,098   (192)  14,906 
   Technology  8,858   4,117   4,769   (28)  4,741 
   Mutual fund  6,995   6,930   121   (56)  65 
   Other  6,343   4,327   2,181   (165)  2,016 
      Total equity securities  119,945   64,902   56,026   (983)  55,043 
                     
      Total $611,849  $559,463  $60,621  $(8,235)  52,386 
                     
              Applicable federal income taxes   (18,335)
                     
              Net unrealized gains - net of tax  $34,051 

- 5052 -
Note B – Investments (continued)

              Net 
     Cost or  Gross  Gross  Unrealized 
  Fair  Amortized  Unrealized  Unrealized  Gains 
  Value  Cost  Gains  Losses  (Losses) 
December 31, 2015               
Fixed maturities               
   Agency collateralized mortgage obligations $-  $-  $-  $-  $- 
   Agency mortgage-backed securities  3,157   3,159   38   (40)  (2)
   Asset-backed securities  44,309   45,941   393   (2,025)  (1,632)
   Bank loans  5,060   5,333   4   (277)  (273)
   Certificates of deposit  3,230   3,247   -   (17)  (17)
   Collateralized mortgage obligations  9,257   9,282   116   (141)  (25)
   Corporate securities  110,511   112,615   2,123   (4,227)  (2,104)
   Mortgage-backed securities  23,892   24,138   243   (489)  (246)
   Municipal obligations  110,578   109,932   805   (159)  646 
   Non-U.S. government obligations  23,945   25,483   342   (1,880)  (1,538)
   U.S. government obligations  103,245   103,448   56   (259)  (203)
      Total fixed maturities  437,184   442,578   4,120   (9,514)  (5,394)
Equity securities:                    
   Consumer  46,541   16,849   30,535   (843)  29,692 
   Energy  8,635   6,152   3,323   (840)  2,483 
   Financial  35,686   24,173   12,265   (752)  11,513 
   Industrial  24,841   9,325   15,840   (324)  15,516 
   Technology  11,596   6,153   5,546   (103)  5,443 
   Mutual fund  9,983   11,022   69   (1,108)  (1,039)
   Other  8,216   6,547   2,829   (1,160)  1,669 
      Total equity securities  145,498   80,221   70,407   (5,130)  65,277 
                     
      Total $582,682  $522,799  $74,527  $(14,644)  59,883 
                     
              Applicable federal income taxes   (20,959)
                     
              Net unrealized gains - net of tax  $38,924 

The following table summarizes, for fixed maturity and equity security investments in an unrealized loss position at December 31, the aggregate fair value and gross unrealized loss categorized by the duration those securities have been continuously in an unrealized loss position.position:


 2015  2014  2016  2015 
 Number of Securities  Fair Value  Gross Unrealized Loss  Number of Securities  Fair Value  Gross Unrealized Loss  Number of Securities  Fair Value  Gross Unrealized Loss  Number of Securities  Fair Value  Gross Unrealized Loss 
Fixed maturity securities:                              
12 months or less  328  $205,475  $(5,070)  591  $176,756  $(6,083)  397  $291,048  $(4,380)  328  $205,475  $(5,070)
Greater than 12 months  168   108,043   (4,444)  140   27,667   (1,407)  54   32,054   (2,872)  168   108,043   (4,444)
Total fixed maturities  496   313,518   (9,514)  731   204,423   (7,490)  451   323,102   (7,252)  496   313,518   (9,514)
Equity securities:                                                
12 months or less  73   26,517   (5,130)  33   13,538   (2,170)  35   20,698   (983)  73   26,517   (5,130)
Greater than 12 months  -   -   -   3   686   (64)  -   -   -   -   -   - 
Total equity securities  73   26,517   (5,130)  36   14,224   (2,234)  35   20,698   (983)  73   26,517   (5,130)
Total  569  $340,035  $(14,644)  767  $218,647  $(9,724)  486  $343,800  $(8,235)  569  $340,035  $(14,644)


- 53 -

Note B – Investments (continued)

Unrealized losses in the Company's fixed maturity portfolio are generally the result of interest rate or foreign currency fluctuations as well as the disruption of credit markets occasioned by financial market turmoil.  The average unrealized loss for all fixed maturity securities in a loss position at December 31, 2015 is approximately 3% of original or adjusted cost.fluctuations.  The Company does not intend to sell any fixed maturity securities which are in an unrealized loss position at December 31, 20152016 and it is not more likely than not that the Company will have to sell any fixed maturity security before recovery of its amortized cost basis.  For equity securities, the Company has evaluated the near-term prospects of the investments in relation to the severity and duration of the impairment and, based on that evaluation, the Company has the ability and intent to hold these investments for a period sufficient to allow for recovery of fair value.  Accordingly, the Company does not believe the unrealized losses represent an other-than-temporary impairment as of December 31, 2015.2016.

The fair value and the cost or amortized cost of fixed maturity investments at December 31, 2015,2016, organized by contractual maturity, is shown below.  Actual maturities may differ from contractual maturities because borrowers have, in some cases, the right to call or prepay obligations with or without call or prepayment penalties.  Pre-refunded municipal bonds are classified based on their pre-refunded call dates.

 Fair Value  Cost or Amortized Cost  Fair Value  Cost or Amortized Cost 
                    
One year or less $74,187   17.0% $75,854   17.1% $87,661   17.8% $88,139   17.8%
Excess of one year to five years  242,713   55.5   244,033   55.1   273,874   55.7   276,995   56.0 
Excess of five years to ten years  36,452   8.3   37,269   8.4   35,553   7.2   35,409   7.2 
Excess of ten years  3,218   0.8   2,901   0.7   5,017   1.0   5,060   1.0 
Total maturities  356,570   81.6   360,057   81.3   402,105   81.7   405,603   82.0 
Asset-backed securities  80,614   18.4   82,521   18.7   89,799   18.3   88,958   18.0 
 $437,184   100.0% $442,578   100.0% $491,904   100.0% $494,561   100.0%

- 51 -
Note B – Investments (continued)

Major categories of investment income for the years ended December 31 are summarized as follows:
  2016  2015  2014 
Interest on fixed maturities $13,254  $11,663  $8,806 
Dividends on equity securities  3,598   3,445   2,693 
Money market funds, Short-term and other  128   32   37 
   16,980   15,140   11,536 
Investment expenses  (2,497)  (2,642)  (2,481)
Net investment income $14,483  $12,498  $9,055 

- 54 -

  2015  2014  2013 
Interest on fixed maturities $11,663  $8,806  $9,023 
Dividends on equity securities  3,445   2,693   2,166 
Money market funds, Short-term and other  32   37   49 
   15,140   11,536   11,238 
Investment expenses  (2,642)  (2,481)  (2,468)
Net investment income $12,498  $9,055  $8,770 

Note B – Investments (continued)
Gains and losses on investments, including equity method earnings from limited partnerships, for the years ended December 31 are summarized below:

 2015  2014  2013  2016  2015  2014 
Fixed maturities:               
Gross gains $6,633  $6,480  $7,235  $11,628  $6,633  $6,480 
Gross losses  (13,634)  (4,596)  (4,371)  (14,020)  (13,634)  (4,596)
Net gains (losses)  (7,001)  1,884   2,864   (2,392)  (7,001)  1,884 
                        
Equity securities:                        
Gross gains  21,070   7,467   15,374   28,742   21,070   7,467 
Gross losses  (13,643)  (1,529)  (2,718)  (5,595)  (13,643)  (1,529)
Net gains  7,427   5,938   12,656   23,147   7,427   5,938 
                        
Limited partnerships - net gain (loss)  (1,687)  7,108   7,995   2,473   (1,687)  7,108 
                        
                        
Total net gains (losses) $(1,261) $14,930  $23,515  $23,228  $(1,261) $14,930 

Shareholders' equity includes approximately $26,521,$28,110, net of deferred federal income taxes, of undistributed earnings from limited partnerships as of December 31, 2015.2016.
Gain and loss activity for fixed maturity and equity security investments, as shown in the previous table, include adjustments for other-than-temporary impairment for the years ended December 31 summarized as follows:

 2015  2014  2013  2016  2015  2014 
               
Cumulative charges to income at beginning of year $7,168  $6,770  $7,773  $10,513  $7,168  $6,770 
                        
Writedowns based on objective and subjective criteria  7,700   689   742   5,743   7,700   689 
Recovery of prior writedowns upon sale or disposal  (4,355)  (291)  (1,745)  (12,260)  (4,355)  (291)
Net pre-tax realized gain (loss)  (3,345)  (398)  1,003   6,517   (3,345)  (398)
                        
Cumulative charges to income at end of year $10,513  $7,168  $6,770  $3,996  $10,513  $7,168 
                        
Addition (reduction) to earnings per share from net            
after-tax OTTI gain (loss) $(.14) $(.02) $.04 
            
Unrealized gain on investments previously                        
written down at end of the year - see note below $14,710  $17,127  $13,129 
written down at end of the year 1
 $2,108  $14,710  $17,127 

Note:1 Recovery in market value of an investment which has previously been adjusted for other-than-temporary impairment is treated as an unrealized gain until the investment matures or is sold.

- 52 -

Note B – Investments (continued)
There is no primary ormarket and only a limited secondary market for the Company's investments in limited partnerships and, in most cases, the Company is prohibited from disposing of its limited partnership interests for some period of time and generally must seek approval from the applicable general partner for any such disposal.  Distributions of earnings from these partnerships are largely at the sole discretion of the general partners and distributions are generally not received by the Company for many years after the earnings have been reported.  The Company has commitments to contribute an additional $2,459$1,627 to various limited partnerships as of December 31, 2015.2016.
The Company has invested a total of $23,000 in twothree limited partnerships, with an aggregate estimated value of $45,009$44,038 at December 31, 2015,2016, that are managed by organizations in which four directors of the Company are executive officers, directors or owners.  The Company's ownership interest in these limited partnerships ranges from 5% to 17%.was 6% for New Vernon India Fund, 37% for New Vernon Global Opportunity Fund and 23% for New Vernon Global Opportunity Fund II.  These limited partnerships addedcontributed ($1,978)971), $7,088($1,978) and $1,154,$7,088, net of fees, to investment gains (losses) in 2016, 2015 2014 and 2013,2014, respectively.  During 2016, 2015 2014 and 2013,2014, the Company has recorded management fees of $777, $749 and $697, and $640, respectively, and performance-based fees of $0, $0 and $18, respectively, to these organizations for management of these limited partnerships.
- 55 -

Note B – Investments (continued)
The Company utilizes the services of an investment firmfirms of which twofour directors of the Company are employees or partial owners.  ThisThese investment firm may serve as agent for purchases and sales of securities and managesfirms manage equity securities and fixed maturity portfolios with an aggregate market value of approximately $62,156$41,706 at December 31, 2015.2016.  Total commissions and net fees earned by the investment firm and affiliates on these transactions and for advice and consulting were approximately $207, $235 and $212 during 2016, 2015 and $239 during 2015, 2014, and 2013, respectively.
The Company's limited partnerships include one significant investment which primarily invests in public and private equity markets in India.  This limited partnership investment's value as of December 31, 2016 and 2015 was $27,153 and 2014 was $28,270, and $29,868, respectively.  At December 31, 2015,2016, the Company's estimated ownership interest in this limited partnership investment was approximately 5%6%.  The Company's share of earnings (losses) from this limited partnership investment was ($1,599)1,117), ($1,599) and $7,176 in 2016, 2015 and ($3,176) in 2015, 2014, and 2013, respectively.  The summarized financial information of the significantthis limited partnership investment as of and for the years ended December 31 is as follows:

  2015  2014  2013 
Total assets $511,118  $565,500  $493,028 
Total partners' capital  470,783   542,700   444,337 
Net increase (decrease) in partners' capital resulting from operations  (19,603)  125,700   (64,550)
  2016  2015  2014 
Total assets $448,263  $511,118  $565,500 
Total partners' capital  408,275   470,783   542,700 
Net increase (decrease) in partners' capital resulting from operations  (15,679)  (19,603)  125,700 

The fair value of regulatory deposits with various insurance departments in the United States and Canada totaled $84,198$86,169 and $76,406$84,198 at December 31, 2016 and 2015, and 2014, respectively.
Short-term investments at December 31, 2015 include $2,2202016 included $1,500 in time certificates of deposit issued by a Bermuda bank.
The Company's fixed maturities are over 85% invested in investment grade fixed maturity investments.  The Company has a total of $2,969,$719, representing three different investments,one investment, of fixed maturity investments which were originally issued with guarantees by three differenta third party insurance companies, with the largest exposure to a single investment being $1,997.company.  The average S&P credit rating of such investments,investment, with consideration of the guarantee, is AA.  The average S&P underlying credit rating of such investments,investment, without consideration of the guarantee, would remain AA.  The Company does not have any direct exposure to any guarantor.

Approximately $61,271$69,112 of fixed maturity investments (8.4%(9.2% of total invested assets) consists of non-rated bonds and bonds rated as less than investment grade at year end.  These investments include a diversified portfolio of over 40 investments and have a $3,185$951 aggregate net unrealized lossgain position at December 31, 2015.2016.

AsDuring 2016 the Company's bridge loan investment program was terminated and the Company had no remaining committed funds related to bridge loan agreements as of December 31, 2015, the Company had committed funds totaling $5,000 related to one bridge loan agreement.2016.  The Company retainshistorically retained possession of these committed funds which willwere only be loaned in the unlikely event that long-term financing iswas unavailable to the counter party in the market.
- 5356 -

Note C - Loss and Loss Expense Reserves
Activity in the reserves for losses and loss expenses is summarized as follows.  All amounts are shown net of reinsurance, unless otherwise indicated.
  2016  2015  2014 
Reserves at the beginning of the year $301,753  $295,583  $288,088 
             
Provision for losses and loss expenses:            
   Claims occurring during the current year  172,645   165,812   169,950 
   Claims occurring during prior years  13,836   (10,062)  (10,354)
   Total incurred  186,481   155,750   159,596 
             
Loss and loss expense payments:            
   Claims occurring during the current year  54,239   56,710   59,826 
   Claims occurring during prior years  109,228   92,870   92,275 
   Total paid  163,467   149,580   152,101 
Reserves at the end of the year  324,767   301,753   295,583 
             
Reinsurance recoverable on unpaid losses at the end of the year  251,563   211,843   210,519 
Reserves, gross of reinsurance            
    recoverable, at the end of the year $576,330  $513,596  $506,102 
             

  2015  2014  2013 
   
       
  Reserves at the beginning of the year $295,583  $288,088  $289,236 
             
  Provision for losses and loss expenses:            
      Claims occurring during the current year  165,812   169,950   156,264 
      Claims occurring during prior years  (10,062)  (10,354)  (5,563)
      Total incurred  155,750   159,596   150,701 
             
  Loss and loss expense payments:            
      Claims occurring during the current year  56,710   59,826   47,908 
      Claims occurring during prior years  92,870   92,275   103,941 
      Total paid  149,580   152,101   151,849 
             
             
  Reserves at the end of the year  301,753   295,583   288,088 
             
  Reinsurance recoverable on unpaid losses            
  at the end of the year  211,843   210,519   186,382 
             
  Reserves, gross of reinsurance            
  recoverable, at the end of the year $513,596  $506,102  $474,470 


The table above shows that a savingsdeficiency of $10,062 was$13,836 developed during 20152016 in the settlement of claims occurring on or before December 31, 2014 with comparative developments2015, compared to reserve savings for the two previous calendar years.  The net savingsdevelopments for each year are composed of individual claim savings and deficiencies which, in the aggregate have resulted from the settlement of claims at amounts higher or lower than previously reserved and from changes in estimates of losses incurred but not reported as part of the normal reserving process.

The major components of the developments shown above are as follows for the years ended December 31:The major components of the developments shown above are as follows for the years ended December 31:   The major components of the developments shown above are as follows for the years ended December 31:   
            
 2015  2014  2013 2016 2015 2014 
            
Property and casualty insurance $(10,289) $(5,423) $(1,725) $5,441  $(10,289) $(5,423)
Reinsurance  227   (4,931)  (3,838)  8,395   227   (4,931)
Totals $(10,062) $(10,354) $(5,563) $13,836  $(10,062) $(10,354)
                        
Favorable
Unfavorable loss development isin the current year for property and casualty was influenced by severity in the Company's long-standing policy of reserving for losses realistically and a willingness to settle claims based upon a seasoned evaluation of its exposures.public transportation business.  Loss reserves pertaining to the Company's property reinsurance business are established partially bywere also strengthened during the ceding reinsurers although the Company routinely adjusts such reserves if management determines that additional reserves could be necessary.  There is potential for fluctuations inyear to reflect increased loss developments relateddevelopment.  In addition to reinsurance assumed to be more pronounced than those experienced on directly produced business which is reserved entirely by Company personnel. In addition,these developments, changes in the Company's net retention under reinsurance treaties will impact developments as more or less business is retained.  These trends were considered in the establishment of the Company's reserves at December 31, 2015 and 2014.2016.
Loss reserves on certain permanent total disability workers' compensation reserves have been discounted to present value at pre-tax rates not exceeding 3.5%. At December 31, 2015 and 2014, loss reserves have been reduced by estimated salvage and subrogation recoverable of approximately $2,110$4,151 and $3,129,$4,674 at December 31, 2016 and 2015, respectively. Discounting is applied to these claims since the amount of periodic payments to be made during the lifetime of claimants is fixed and determinable.
- 5457 -
Note C - Loss and Loss Expense Reserves (continued)
The following is information about incurred claims development as of December 31, 2016, net of reinsurance, as well as cumulative claim frequency and the total of incurred‐but‐not‐reported liabilities plus expected development on reported claims included within the net incurred claims amounts.


Workers' Compensation ($ in thousands)                   
                         
                     As of December 31, 2016 
                     Total of Incurred-   
                     but-Not-Reported   
                     Liabilities Plus   
 Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance Expected Cumulative 
AccidentFor the Years Ended December 31 (2007-2015 is Supplementary Information and Unaudited) Development on Number of 
Year2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Reported Claims Reported Claims 
2007 $9,050  $11,930  $13,298  $12,023  $11,239  $11,790  $12,175  $12,637  $12,340  $12,399  $173   2,828 
2008      19,833   23,640   24,715   24,721   24,855   25,109   23,916   24,048   24,352   661   3,649 
2009          17,270   20,931   21,447   21,261   21,268   20,767   20,641   20,817   1,060   3,784 
2010              20,644   20,111   19,400   19,300   18,849   18,344   19,195   1,107   4,222 
2011                  26,057   26,628   26,958   26,767   25,515   27,293   2,784   4,543 
2012                      23,965   25,544   24,887   24,485   25,616   3,136   4,477 
2013                          27,619   30,638   29,913   32,121   5,170   5,255 
2014                              36,768   36,968   34,009   6,908   5,371 
2015                                  26,277   23,115   6,462   6,219 
2016                                      35,240   20,695   5,520 
                                 Total  $254,157  $48,156     

Commercial Liability ($ in thousands)                     
                         
                     As of December 31, 2016 
                     Total of Incurred-   
                     but-Not-Reported   
                     Liabilities Plus   
 Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance Expected Cumulative 
AccidentFor the Years Ended December 31 (2007-2015 is Supplementary Information and Unaudited) Development on Number of 
Year2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Reported Claims Reported Claims 
2007 $38,486  $41,803  $41,692  $41,146  $41,216  $40,429  $40,505  $40,516  $39,598  $39,436  $79   1,380 
2008      34,693   28,591   27,311   25,511   23,989   24,892   24,902   23,480   23,482   23   948 
2009          29,707   30,406   30,203   26,280   27,259   25,872   25,373   25,320   70   899 
2010              31,124   22,161   21,899   19,139   20,300   19,764   19,377   40   2,398 
2011                  46,829   43,832   31,633   36,894   35,805   37,122   89   2,899 
2012                      49,743   54,269   49,743   51,367   48,708   279   3,124 
2013                          53,817   39,143   37,701   36,371   671   3,739 
2014                              49,971   52,254   52,483   2,239   3,271 
2015                                  61,420   70,174   5,800   3,086 
2016                                      61,638  $27,480   3,193 
                                 Total  $414,111  $36,770     

Professional Liability Assumed ($ in thousands)                  
                      
                  As of December 31, 2016 
                  Total of Incurred-   
                  but-Not-Reported   
                  Liabilities Plus   
 Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance Expected Cumulative 
AccidentFor the Years Ended December 31 (2007-2015 is Supplementary Information and Unaudited) Development on Number of 
Year2007200820092010 2011 2012 2013 2014 2015 2016 Reported Claims Reported Claims 
2007                     
2008                     
2009                     
2010        $2,196  $4,277  $7,827  $7,946  $9,733  $10,740  $11,689  $270   N/A 
2011         10,492   8,314   9,017   9,859   10,779   12,735   628   N/A 
2012             10,041   9,276   5,569   10,157   14,605   2,653   N/A 
2013                 14,370   13,034   11,618   17,694   3,449   N/A 
2014                     12,675   8,825   7,259   3,178   N/A 
2015                         11,638   7,859   6,956   N/A 
2016                             6,368  $6,368   N/A 
                        Total  $78,210  $23,502     


- 58 -
Note C - Loss and Loss Expense Reserves (continued)
The following is information about paid claims development as of December 31, 2016, net of reinsurance.


Workers' Compensation ($ in thousands)                     
                              
  Cumulative Paid Claims and Allocated Claim Adjustment Expense, Net of Reinsurance 
Accident For the Years Ended December 31 (2007-2015 is Supplementary Information and Unaudited) 
Year 2007  2008  2009  2010  2011  2012  2013  2014 2015  2016 
2007 $1,525  $6,072  $8,064  $7,805  $8,352  $9,226  $9,571  $9,974  $10,138   10,401 
2008      6,046   13,919   17,320   18,943   20,055   20,839   21,306   21,883   22,199 
2009          4,186   10,073   13,343   15,576   16,592   17,448   18,028   18,514 
2010              3,974   9,134   11,963   13,845   14,966   15,835   16,590 
2011                  4,916   11,912   15,973   18,884   20,617   21,622 
2012                      4,597   11,004   14,834   17,415   18,946 
2013                          4,880   12,792   18,065   21,655 
2014                              5,328   13,665   19,075 
2015                                  2,918   10,128 
2016                                      5,784 
                                 Total  $164,914 
                                 Outstanding liabilities prior to 2007 net of reinsurance   12,640 
                                 Liabilities for claims and claims adjustment expenses, net of reinsurance  $101,883 


Commercial Liability ($ in thousands)                        
                              
  Cumulative Paid Claims and Allocated Claim Adjustment Expense, Net of Reinsurance 
Accident For the Years Ended December 31 (2007-2015 is Supplementary Information and Unaudited) 
Year 2007  2008  2009  2010  2011  2012  2013  2014 2015  2016 
2007 $5,493  $17,302  $32,571  $36,150  $38,621  $39,006  $39,069  $39,160  $39,216  $39,193 
2008      2,612   8,942   15,733   21,220   21,396   23,169   23,354   23,444   23,500 
2009          928   17,880   19,718   23,521   24,866   25,066   25,114   25,125 
2010              1,649   7,166   11,635   16,052   18,627   18,517   18,866 
2011                  1,809   11,350   23,615   30,795   33,255   34,009 
2012                      3,086   23,252   32,942   45,303   47,601 
2013                          5,167   15,772   25,270   34,481 
2014                              4,023   9,046   28,393 
2015                                  10,923   27,582 
2016                                      6,843 
                                 Total  $285,593 
                                 Outstanding liabilities prior to 2007 net of reinsurance   4,621 
                                 Liabilities for claims and claims adjustment expenses, net of reinsurance  $133,139 


Professional Liability Assumed ($ in thousands)              
                  
 Cumulative Paid Claims and Allocated Claim Adjustment Expense, Net of Reinsurance 
AccidentFor the Years Ended December 31 (2007-2015 is Supplementary Information and Unaudited) 
Year2007200820092010 2011 2012 2013 2014 2015 2016 
2007                 
2008                 
2009                 
2010        $41  $729  $3,505  $5,844  $7,758  $9,904  $11,132 
2011         50   637   2,061   4,983   8,104   10,404 
2012             103   992   2,388   5,077   8,355 
2013                 123   1,135   5,088   10,988 
2014                     723   761   2,241 
2015                         10   390 
2016                             - 
                        Total  $43,510 
                        Outstanding liabilities prior to 2007 net of reinsurance   - 
                        Liabilities for claims and claims adjustment expenses, net of reinsurance  $34,700 

- 59 -
Note C - Loss and Loss Expense Reserves (continued)
The reconciliation of the net incurred and paid claims development tables to the liability for claims and claim adjustment expenses in the consolidated statement of financial position is as follows.


Net outstanding liabilities   
Commercial Liability $133,139 
Workers' Compensation  101,883 
Professional Liability Assumed  34,700 
Other short-duration insurance lines  38,556 
Liabilities for unpaid claims and claim adjustment    
expenses, net of reinsurance  308,278 
     
Reinsurance recoverable on unpaid claims    
Commercial Liability  85,549 
Workers' Compensation  153,847 
Professional Liability Assumed  - 
Other short-duration insurance lines  12,167 
Reinsurance recoverable on unpaid losses at the    
end of the year  251,563 
     
Unallocated claims adjustment expenses  16,489 
     
Total gross liability for unpaid claims and    
claims adjustment expense $576,330 


The following is supplementary information about average historical claims duration as of December 31, 2016.
  Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance 
  (Supplementary Information and Unaudited) 
Years  1   2   3   4   5   6   7   8   9   10 
                                         
Commercial Liability  9.7%  31.3%  26.7%  20.0%  6.2%  2.2%  0.7%  0.2%  0.2%  0.1%
Workers' Compensation  17.4%  28.3%  15.3%  8.1%  5.3%  4.5%  2.9%  2.7%  1.3%  2.1%
Professional Liability Assumed  1.7%  4.6%  17.4%  23.7%  21.1%  18.2%  10.5%            

Reserve methodologies for incurred but not reported losses
The Company uses both standard actuarial techniques common to most insurance companies as well as proprietary techniques developed by the Company in consideration of its specialty business products.  For its short-tail lines of business, the Company uses predominantly the incurred or paid loss development factor methods.  The Company has found that the use of accident quarter loss development triangles, rather than those based upon accident year, are most responsive to claim settlement trends and fluctuations in premium exposures for its short-tail lines.  A minimum of 12 running accident quarters is used to project the reserve necessary for incurred but not reported losses for its short-tail lines.
The Company also uses the loss development factor approach for its long-tail lines of business, including workers' compensation.  A minimum of 15 accident years is included in the loss development triangles used to calculate link ratios and the selected loss development factors used to determine the reserves for incurred but not reported losses.  Significant emphasis is placed on the use of tail factors for the Company's long-tail lines of business.
For the Company's fleet transportation risks, which are covered by regularly changing reinsurance agreements and which contain wide-ranging self-insured retentions ("SIR"), traditional actuarial methods are supplemented by other methods, as described below, in consideration of the Company's exposures to loss.  In situations where the Company's reinsurance structure, the insured's SIR selections, policy volume, and other factors are changing, current accident period loss exposures may not be homogenous enough with historical loss data to allow for reliable projection of future developed losses.  Therefore, the Company supplements the above-described actuarial methods
- 60 -
Note C - Loss and Loss Expense Reserves (continued)
with loss ratio reserving techniques developed from the Company's extensive, proprietary databases to arrive at the reserve for losses incurred but not reported for the calendar/accident period under review.  As losses for a given calendar/accident period develop with the passage of time, management evaluates such development on a monthly and quarterly basis and adjusts reserve factors, as necessary, to reflect current judgment with regard to the anticipated ultimate incurred losses.  This process continues until all losses are settled for each period subject to this method.
Claim count methodology
The Company uses a claim event and coverage combination to estimate frequency.  For example, a single claim event involving loss for physical damage of a vehicle and personal injury to a claimant would be considered two claims for purposes of the calculation of frequency.  A single claim event causing personal injury to two claimants would be considered a single claim under the methodology.
Note D – Reinsurance
The insurance subsidiariesInsurance Subsidiaries cede portions of their gross premiums written to certain other insurers under excess of loss and quota share treaties and by facultative placements.  Reinsurance treaties with other companies permit the recovery of a portion of related direct losses.  Management determines the amount of net exposure it is willing to accept generally on a product line basis.  Certain treaties covering fleet transportation risks include annual deductibles which must be exceeded before the Company can recover under the terms of the treaty.  The Company retains a higher percentage of the direct premium in consideration of these deductible provisions.  The Company remains liable to the extent the reinsuring companies are unable to meet their obligations under reinsurance contracts.
The Company also serves as an assuming reinsurer on treaties with direct writing insurance companies and, prior to June 30, 2015, under retrocessions from other reinsurers for catastrophic property coverages.  Accordingly, for periods prior to that date, the occurrence of catastrophic events could have had a significant impact on the Company's operations.  The Company also assumes reinsurance from direct writing insurance companies for casualty insurance coverages.  In addition, the insurance subsidiariesInsurance Subsidiaries participate in certain mandatory residual market pools which require insurance companies to provide coverages on assigned risks.  The assigned risk pools allocate participation to all insurers based upon each insurer's portion of premium writings on a state or national level.  Historically, the operation of these assigned risk pools have resulted in net losses allocated to the Company, although such losses have not been material in relation to the Company's operations.
The following table summarizes the impact of reinsurance ceded and assumed on the Company's net premiums written and earned for the most recent three years:

 Premiums Written  Premiums Earned  Premiums Written  Premiums Earned 
 2015  2014  2013  2015  2014  2013  2016  2015  2014  2016  2015  2014 
Direct $366,668  $343,200  $314,784  $370,499  $342,656  $313,842  $395,625  $366,668  $343,200  $394,679  $370,499  $342,656 
Ceded on direct  (128,338)  (118,942)  (112,967)  (128,135)  (117,973)  (111,057)  (131,166)  (128,338)  (118,942)  (129,926)  (128,135)  (117,973)
Net direct  238,330   224,258   201,817   242,364   224,683   202,785   264,459   238,330   224,258   264,753   242,364   224,683 
                                                
Assumed  16,885   39,188   54,692   21,533   38,219   52,783   7,379   16,885   39,188   11,344   21,533   38,219 
Ceded on assumed  (562)  (1,275)  (2,825)  (562)  (1,275)  (2,825)  (86)  (562)  (1,275)  (86)  (562)  (1,275)
Net assumed  16,323   37,913   51,867   20,971   36,944   49,958   7,293   16,323   37,913   11,258   20,971   36,944 
                                                
Net $254,653  $262,171  $253,684  $263,335  $261,627  $252,743  $271,752  $254,653  $262,171  $276,011  $263,335  $261,627 

Net losses and loss expenses incurred for 2016, 2015 2014 and 20132014 have been reduced by ceded reinsurance recoveries of approximately $108,656, $75,581 $105,891  and $107,321,$105,891, respectively.  Ceded reinsurance premiums and loss recoveries for the purchase of catastrophe reinsurance coverage on the Company's net direct business were not material.
Net losses and loss expenses incurred for 2016, 2015 2014 and 20132014 include approximately $14,746, $13,492 $20,288 and $17,696,$20,288, respectively, relating to reinsurance assumed from non-affiliated insurance or reinsurance companies.

- 61 -
Note D – Reinsurance (continued)
Components of reinsurance recoverable at December 31 are as follows:

  2015  2014 
Case unpaid losses, net of valuation allowance $120,320  $143,403 
Incurred but not reported unpaid losses and loss expenses  90,578   66,325 
Paid losses and loss expenses  2,452   6,910 
Unearned premiums  2,538   3,583 
  $215,888  $220,221 

  2016  2015 
Case unpaid losses, net of valuation allowance $126,244  $120,320 
Incurred but not reported unpaid losses and loss expenses  123,819   90,578 
Paid losses and loss expenses  1,760   2,452 
Unearned premiums  3,201   2,538 
  $255,024  $215,888 
- 55 -

Note E - Income Taxes

Deferred income taxes are calculated to account for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.  Significant components of the Company's deferred tax assets and liabilities as of December 31 are as follows:


 2015  2014  2016  2015 
Deferred tax liabilities:          
Unrealized gain on fixed income and equity security investments $20,959  $27,914  $18,335  $20,959 
Deferred acquisition costs  877   1,341   874   877 
Loss and loss expense reserves  2,305   2,373   1,198   2,305 
Limited partnership investments  1,771   4,636   2,274   1,771 
Accelerated depreciation  897   601   1,037   897 
Other  1,024   628   1,251   1,024 
Total deferred tax liabilities  27,833   37,493   24,969   27,833 
                
Deferred tax assets:                
Loss and loss expense reserves  9,349   10,973   9,467   9,349 
Unearned premiums discount  1,593   2,201   1,295   1,593 
Other-than-temporary investment declines  3,437   2,049   858   3,437 
Deferred compensation  1,699   1,565   1,097   1,699 
Deferred ceding commission  371   549   464   371 
Other  186   183   376   186 
Total deferred tax assets  16,635   17,520   13,557   16,635 
            ��   
Net deferred tax liabilities $(11,198) $(19,973) $(11,412) $(11,198)


A summary of the difference between federal income tax expense computed at the statutory rate and that reported in the consolidated financial statements is as follows:


 2015  2014  2013  2016  2015  2014 
               
Statutory federal income rate applied to pretax income $11,883  $15,539  $19,218  $15,069  $11,883  $15,539 
Tax effect of (deduction):                        
Tax-exempt investment income  (919)  (924)  (811)  (938)  (919)  (924)
Other  (295)  66   (85)  (22)  (295)  66 
Federal income tax expense $10,669  $14,681  $18,322  $14,109  $10,669  $14,681 




Federal income tax expense consists of the following:      
  2015  2014  2013 
Taxes (benefit) on pre-tax income:      
   Current $12,488  $13,041  $17,383 
   Deferred  (1,819)  1,640   939 
  $10,669  $14,681  $18,322 


- 5662 -

Note E – Income Taxes (continued)

Federal income tax expense consists of the following:      
 2016 2015 2014 
Taxes (benefit) on pre-tax income:      
   Current $11,271  $12,488  $13,041 
   Deferred  2,838   (1,819)  1,640 
  $14,109  $10,669  $14,681 


The components of the provision for deferred federal income taxes are as follows:     
      
 2015  2014  2013  2016  2015  2014 
Limited partnerships $(2,865) $2,025  $1,058  $503  $(2,865) $2,025 
Discounts of loss and loss expense reserves  1,526   113   313   (114)  1,526   113 
Reserves - salvage and subrogation and other  (1,110)  29   (280)
Unearned premium discount  608   (38)  (65)  298   608   (38)
Deferred compensation  (127)  (685)  (146)  595   (127)  (685)
Other-than-temporary investment declines  (1,416)  (19)  680   2,320   (1,416)  (19)
Deferred acquisitions costs and ceding commission  (287)  (20)  (271)  (95)  (287)  (20)
Other  742   264   (630)  441   713   544 
Provision for deferred federal income tax $(1,819) $1,640  $939  $2,838  $(1,819) $1,640 


Cash flows related to federal income taxes paid, net of refunds received, for 2016, 2015 and 2014 were $10,173, $14,500 and 2013 were $14,500, $11,619, and $17,250, respectively.

The Company is required to establish a valuation allowance for any portion of the gross deferred tax asset that management believes will not be realized.  Management has determined that no such valuation allowance is necessary at December 31, 20152016 or 2014.2015.  As of December 31, 2016, calendar years 2015 only the calendar yearand 2014 remainsremain subject to examination by the IRS.

The Company has no uncertain tax positions as of December 31, 20152016 or 2014.2015.  The Company recognizes accrued interest and penalties, if any, related to unrecognized tax benefits in income tax expense and changes in such accruals would impact the Company's effective tax rate.  There were no amounts accrued for the payment of interest at December 31, 2016, 2015 2014 and 2013.2014.



Note F - Shareholders' Equity                        
                        
Changes in common stock outstanding and additional paid-in capital are as follows:Changes in common stock outstanding and additional paid-in capital are as follows:   Changes in common stock outstanding and additional paid-in capital are as follows:   
           Additional           Additional 
  Class A    Class B   Paid-in   Class A    Class B  Paid-in 
 Shares   Amount  Shares   Amount  Capital Shares  Amount Shares  Amount Capital 
Balance at January 1, 2013  2,623,109   $112   12,290,035   $524  $50,275 
Restricted stock grants  -    -   14,156    1   319 
Balance at December 31, 2013  2,623,109    112   12,304,191    525   50,594 
Balance at January 1, 2014  2,623,109   $112   12,304,191   $525  $50,594 
Restricted stock grants  -    -   52,198    2   1,260   -    -   52,198    2   1,260 
Balance at December 31, 2014  2,623,109    112   12,356,389    527   51,854   2,623,109    112   12,356,389    527   51,854 
Restricted stock grants  -    -   46,552    2   1,092   -    -   46,552    2   1,092 
Balance at December 31, 2015  2,623,109   $112   12,402,941   $529  $52,946   2,623,109    112   12,402,941    529   52,946 
Restricted stock grants  -    -   57,959    3   1,340 
Balance at December 31, 2016  2,623,109   $112   12,460,900   $532  $54,286 

The Company's Class A and Class B common stock has a stated value of approximately $.04 per share.  The Company paid a total of $15,803, or $1.04 per share, in dividends during 2016, and $15,003 $14,947 and $14,943,$14,947, or $1.00 per share, in dividends for the years 2015 and 2014, and 2013, respectively.

- 5763 -

Note G - Other Operating Expenses            
            
Details of other operating expenses for the years ended December 31:Details of other operating expenses for the years ended December 31:     Details of other operating expenses for the years ended December 31:     
            
 2015  2014  2013 2016 2015 2014 
Amortization of gross deferred policy acquisition costs $50,270  $48,872  $47,414  $51,597  $50,270  $48,872 
Other underwriting expenses  42,638   37,830   35,281   41,692   42,638   37,830 
Expense allowances from reinsurers  (28,956)  (23,797)  (20,822)  (33,512)  (28,956)  (23,797)
Total underwriting expenses  63,952   62,905   61,873   59,777   63,952   62,905 
                        
Operating expenses of non-insurance companies  26,621   25,143   23,488   29,685   26,621   25,143 
Total other operating expenses $90,573  $88,048  $85,361  $89,462  $90,573  $88,048 

TheDuring 2015, the Company entered into a consulting contract with an insurance intermediary, capital advisor and insurance managementbrokerage firm of which a director of the Company is CEO and a Managing Director.  The consulting contract provides for an annual fee of $300.  For the years ended December 31, 2016 and 2015, the Company incurred expenses of $300 and $0, respectively, related to this agreement.  The Company also has a brokerage agreement with this entity.  The Company incurred commission expense in connection with insurance policies written in 2016 under this brokerage agreement.  Total commission expense for 2016 and 2015 was $419 and $0, respectively.
 
Note H - Employee Benefit Plans
The Company maintains a defined contribution 401(k) Employee Savings and Profit Sharing Plan (the "Plan") which covers nearly all employees who have completed one year of service.  The Company's contributions are based on a set percentage and the contributions to the Plan for 2016, 2015 and 2014 and 2013 were $2,449, $2,090 $1,798 and $1,798, respectively.

 
Note I - Stock Purchase and Option Plans

In accordance with the terms of the 1981 Stock Purchase Plan (1981 Plan)(the "1981 Plan"), the Company is obligated to repurchase shares issued under the 1981 Plan, at a price equal to 90% of the book value of the shares at the end of the quarter immediately preceding the date of repurchase.repurchase from two outside directors.  A limited number of shares have ever been repurchased under the 1981 Plan.  At December 31, 2015,2016, there were 121,28660,938 shares (Class A) and 339,546240,938 shares (Class B) outstanding which remain eligible for repurchase by the Company.
The Company maintains a single restricted stock unit plan which is described below.

Restricted Stock:
Each year, beginning in 2009, the Company has issued shares of class B restricted stock to the Company's outside directors.  The shares serve as the annual retainer compensation for the outside directors for the periods shown below.  The shares are distributed on the vesting date and have a total value of $440, $480 $440 and $440 for the annual periods ended 2016, 2015 2014 and 2013,2014, respectively.  The table below provides detail of the stock issuances for 2016, 2015 2014 and 2013:2014:

Effective Number of Shares  Vesting  Value 
 Date Issued  Date Period Per Share 
       
5/7/2013  18,106 5/7/20147/1/2013 - 6/30/2014 $24.30 
           
5/8/2014  17,237 5/8/20157/1/2014 - 6/30/2015 $25.53 
           
5/12/2015  21,252 5/12/20167/1/2015 - 6/30/2016 $22.59 
EffectiveNumber of Shares  Vesting Value 
 DateIssued  Date PeriodPer Share 
       
5/8/2014  17,237 5/8/20157/1/2014 - 6/30/2015 $25.53 
           
5/12/2015  21,252 5/12/20167/1/2015 - 6/30/2016 $22.59 
           
5/10/2016  17,677 5/10/20177/1/2016 - 6/30/2017 $24.89 

Compensation expense related to the above stock grantgrants is recognized over the period in which the directors render the services.
Director compensation cost associated with restricted stock grants of $460, $440$460 and $440 was charged against income for the restricted stock units forgranted in 2016, 2015 2014 and 2013,2014, respectively.


- 5864 -

Note I - Stock Purchase and Option Plans (continued)

Effective February 4, 2015, the Company issued 36,646 shares of class B restricted stock to certain of the Company's executives. The restricted shares will be paid solely in the Company's class B stock. The restricted shares represent a portion of the calendar year 2014 compensation to certain executives under the terms of the Company's Executive Incentive Bonus Plan. The restricted shares will vest ratably over a three year period from the date of grant and are accelerated for retirement eligible recipients in accordance with the non-substantive post-grant date vesting clause of ASC 715, Compensation-Retirement Benefits. Restricted stock was valued based on the closing price of the stock on the day the award was granted. Each share was valued at $23.29 per share representing a total value of $853. Non-vested restricted shares will be forfeited should an executive's employment terminate for any reason other than death, disability, or retirement as defined by the Compensation Committee.

Effective February 5, 2016, the Company issued 47,333 shares of classClass B restricted stock to certain of the Company's executives.executives under the company's Restricted Stock Compensation Plan.  The restricted shares will be paid solely in the Company's classClass B common stock.  The restricted shares represent a portion of the calendar year 2015 compensation to certain executives under the terms of the Company's Executive Incentive Bonus Plan.  The restricted shares will vest ratably over a three yearthree-year period from the date of grant and are accelerated for retirement eligible recipients in accordance with the non-substantive post-grant date vesting clause of ASC Topic 715, Compensation-RetirementCompensation—Retirement Benefits.  Restricted stock wasThe restricted shares were valued based on the closing price of the Company's Class B common stock on the day the award was granted.  Each share was valued at $23.30 per share, representing a total value of $1,103.  Non-vested restricted shares will be forfeited should an executive's employment terminate for any reason other than death, disability, or retirement as defined by the Compensation Committee.

Effective February 8, 2017, the Company issued 20,181 shares of Class B restricted stock to certain of the Company's executives under the company's Restricted Stock Compensation Plan.  The restricted shares will be paid solely in the Company's Class B common stock.  The restricted shares represent a portion of the calendar year 2016 compensation to certain executives under the terms of the Company's Executive Incentive Bonus Plan.  The restricted shares will vest over a three-year period from the date of grant.  The restricted shares were valued based on the closing price of the Company's Class B common stock on the day the award was granted.  Each share was valued at $23.80 per share representing a total value of $480.  Non-vested restricted shares will be forfeited should an executive's employment terminate for any reason other than death, disability, or retirement as defined by the Compensation Committee.

Note J - Reportable Segments
The Company operates within two reportable business segments:  property and casualty insurance and reinsurance.  The property and casualty insurance segment provides multiple line insurance coverage primarily to fleet transportation companies as well as to independent contractors who contract with fleet transportation companies.  In addition, the Company provides private passenger automobile products to individuals, workers' compensation coverage to small businesses andbusinesses.  In 2016, the Company discontinued its professional liability line of products.  Prior to that, the Company marketed a variety of professional liability products on a selective basis.  Thebasis through wholesale and retail agents on both an admitted and surplus lines basis throughout the United States, specializing in smaller insureds.  In late 2015, the Company discontinued marketing private passenger automobile liability and physical damage coverages and all business for this product line had expired by the end of 2016.

In 2016, the reinsurance segment currently acceptsdiscontinued accepting  professional liability cessions from other insurance companies.companies from current in-force business.  From 1992 until July 1, 2014, the reinsurance segment accepted property cessions from other insurance companies and retrocessions from reinsurance companies, principally reinsuring against catastrophes.  Final exposure to property catastrophe losses expired on June 30, 2015.
The Company evaluates performance and allocates resources based on past or expected results from insurance underwriting operations before income taxes.  Underwriting gain or loss does not include net investment income or gains or losses on the Company's investment portfolio.  All investment-related revenues are managed at the corporate level.  Underwriting gain or loss for the property and casualty insurance segment includesexcludes revenue and expense from the Company's agency operations since the agency operations serve as a primary direct marketing facility for this segment.operations.  Management does not identify or allocate assets to reportable segments when evaluating segment performance and depreciation expense is not material for any of the reportable segments.  The accounting policies of each reportable segment are the same as those described in the summary of significant accounting policies.



- 5965 -


Note J - Reportable Segments (continued)

The following table provides certain profit and loss information for each reportable segment for the years ended
December 31:
  2016  2015  2014 
Gross Premiums Written:         
Property and casualty insurance $395,625  $366,668  $343,200 
Reinsurance  7,379   16,885   39,188 
Totals $403,004  $383,553  $382,388 
             
Net Premiums Earned:            
Property and casualty insurance $264,753  $242,364  $224,683 
Reinsurance  11,258   20,971   36,944 
Totals $276,011  $263,335  $261,627 
             
Segment Underwriting Gain (Loss):            
Property and casualty insurance $12,424  $24,279  $16,221 
Reinsurance  (8,199)  (1,504)  2,147 
Totals $4,225  $22,775  $18,368 

  2015  2014  2013 
Direct and assumed premium written:      
Property and casualty insurance $366,668  $343,200  $314,784 
Reinsurance  16,885   39,188   54,692 
Totals $383,553  $382,388  $369,476 
             
Net premium earned:            
Property and casualty insurance $242,364  $224,683  $202,785 
Reinsurance  20,971   36,944   49,958 
Totals $263,335  $261,627  $252,743 
             
Underwriting gain:            
Property and casualty insurance $40,431  $32,663  $25,558 
Reinsurance  (1,504)  2,147   12,278 
Totals $38,927  $34,810  $37,836 

The following table reconciles reportable segment profitsunderwriting gain (loss) to the Company's consolidated income before federal income taxes:taxes included in the Company's consolidated statements of income for the years ended December 31, 2016, 2015 and 2014:
  2016  2015  2014 
Profit:         
Segment underwriting gain $4,225  $22,775  $18,368 
Net investment income  14,483   12,498   9,055 
Net realized gains (losses) on investments  23,228   (1,261)  14,930 
Corporate and other income (expenses)  1,118   (60)  2,045 
Income before federal income taxes $43,054  $33,952  $44,398 

  2015  2014  2013 
Profit:      
Underwriting gain $38,927  $34,810  $37,836 
Net investment income  12,498   9,055   8,770 
Net realized gains (losses) on investments  (1,261)  14,930   23,515 
Corporate expenses  (16,212)  (14,397)  (15,211)
Income before federal income taxes $33,952  $44,398  $54,910 

One customer of the property and casualty insurance segment, FedEx Ground Systems, Inc. and certain of its subsidiaries and related entities ("FedEx") represents approximately $18,347, $17,773 $18,951 and $27,004$18,951 of the Company's consolidated direct and assumed premiumgross premiums written in 2016, 2015 and 2014, and 2013, respectively.
An additional $202,205, $209,434 and $197,767 for 2016, 2015 and $171,615 for 2015, 2014, and 2013, respectively, is placed with the Company by a non-affiliated broker on behalf of contracted service providers of this same customerFedEx but this business is not dependent upon the direct business with this customer.FedEx.

Note K - Earnings Per Share

The following is a reconciliation of the denominators used in the calculation of basic and diluted earnings per share for the years ended December 31:

 2015  2014  2013  2016  2015  2014 
               
Average share outstanding for basic earnings per share  15,010,454   14,963,959   14,906,416 
Average shares outstanding for basic earnings per share  15,071,900   15,010,454   14,963,959 
                        
Dilutive effect of share equivalents  11,308   11,935   17,345   12,108   11,308   11,935 
                        
Average shares outstanding for diluted earnings per share  15,021,762   14,975,894   14,923,761   15,084,008   15,021,762   14,975,894 

- 6066 -
Note L - Concentrations of Credit Risk

The Company writes policies of excess insurance attaching above self-insured retentions ("SIR")SIR and also writes policies that contain per-claim deductibles.  Those losses and claims that fall within the SIR limits are obligations of the insured; however, the Company writes surety bonds in favor of various regulatory agencies guaranteeing the insureds' payment of claims within the SIR.  Further, specified portions of losses and claims incurred under large deductible policies, while obligations of the Company, are contractually reimbursable to the Company from the insureds.  The Company requires collateral from its insureds to serve as a source of reimbursement if the Company is obligated to pay claims within the SIR by reason of an insured's default or if the insured fails to reimburse the Company for deductible amounts paid by the Company.
Acceptable collateral may be provided in the form of letters of credit on Company approvedCompany-approved banks, CompanyCompany- approved marketable securities or cash.  At December 31, 2015,2016, the Company held collateral in the aggregate amount of $248,637.$257,095.
The amount of collateral required of an insured is determined by the financial condition of the insured, the type of obligations guaranteed by the Company, estimated reserves for incurred losses within the SIR or deductible that have been reported to the insured or the Company, estimated incurred but not reportedIBNR losses, and estimates for losses that are expected to occur, within the SIR or deductible, prior to the next collateral adjustment date.  In general, the Company attempts to hold collateral equal to 100% of the ultimate losses that would be paid by or due the Company in the event of an insured's default.  Periodic audits are conducted by the Company to evaluate its exposure and the collateral required.  If a deficiency in collateral is noted as the result of an audit, additional collateral is requested immediately.  Because collateral amounts contain numerous estimates of the Company's exposure, are adjusted only periodically and are sometimes reduced based on the superior financial condition of the insured, the amount of collateral held by the Company at a given point in time may not be sufficient to fully reimburse the Company for all of its guarantees or amounts due in the event of an insured's default.  In that regard, the Company is not fully collateralized for the guarantees made for, or the deductible amounts that may be due from, FedEx Ground and certain of its subsidiaries and related entities, and in the event of their default, such default may have a material adverse impact on the Company.  The Company estimates its uncollateralized exposure related to this customerFedEx to be as much as 47%37% (after-tax) of shareholders' equity at December 31, 2015.2016.
The Company's balance sheet includes paid and estimated unpaid amounts recoverable from reinsurers under various agreements totaling $232,735 at December 31, 2015.agreements.  These recoverables are only partially collateralized.  The two largest amounts due from individual reinsurers, net of collateral and offsets, were $36,796$40,335 and $17,817$27,131 at December 31, 2015.2016.

Investments in limited partnerships include an aggregate of $45,009$44,038 invested in twothree limited partnerships, New Vernon India Fund, New Vernon Global Opportunity Fund and New Vernon Global Opportunity Fund II, which are managed by organizations in which four directors of the Company are executive officers, directors andor owners.
Note M – Acquisition and related Goodwill and Intangibles
On October 31, 2008, the Company purchased a commercial lines specialty insurance agency for a cash purchase price of $3,500.  The acquisition is part of the Company's property and casualty insurance segment.  As part of the purchase, the Company recorded goodwill of $3,152 and intangible assets related to customer relationships and employment agreements of $179 which are included in Other Assets in the consolidated balance sheets and have recorded amortization of intangible assets of $0, $4 and $17 during 2015, 2014, and 2013, respectively.$179.  Accumulated amortization of intangible assets was $179 as of both December 31, 20152016 and 2014.2015.


- 6167 -

Note N – Fair Value

Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value.  The carrying amounts reported in the consolidated balance sheets for cash, accounts receivables, reinsurance recoverable, notes receivable, accounts payable and accrued expenses, income taxes payable, short termshort-term borrowings and unearned income approximate fair value because of the short termshort-term nature of these items. The following tables summarize fair value measurements by level for assets measured at fair value on a recurring basis:

As of December 31, 2015:

Description Total  Level 1  Level 2  Level 3 
         
Fixed maturities:        
U.S. government obligations $103,245  $-  $103,245  $- 
Residential mortgage-backed securities  4,776   -   4,776   - 
Commercial mortgage-backed securities  30,595   -   29,226   1,369 
State and municipal obligations  110,578   -   110,578   - 
Corporate securities  161,630   -   146,488   15,142 
Options embedded in convertible securities  2,395   -   2,395   - 
Foreign government obligations  23,965   -   23,683   282 
      Total fixed maturities  437,184   -   420,391   16,793 
Equity securities:                
Financial institutions  21,694   21,694   -   - 
Industrial & miscellaneous  123,804   123,804   -   - 
      Total equity securities  145,498   145,498   -   - 
Short term  2,220   2,220   -   - 
Cash equivalents  69,517   -   69,517   - 
Total $654,419  $147,718  $489,908  $16,793 

As of December 31, 2014:2016:

Description Total  Level 1  Level 2  Level 3  Total  Level 1  Level 2  Level 3 
                    
Fixed maturities:                    
U.S. government obligations $101,094  $-  $101,094  $- 
Residential mortgage-backed securities  6,066   -   6,066   - 
Commercial mortgage-backed securities  36,440   -   36,440   - 
State and municipal obligations  113,777   -   113,777   - 
Agency collateralized mortgage obligations $6,171  $-  $6,171  $- 
Agency mortgage-backed securities  4,770   -   4,770   - 
Asset-backed securities  45,183   -   37,919   7,264 
Bank loans  10,349   -   -   10,349 
Certificates of deposit  3,117   3,117   -   - 
Collateralized mortgage obligations  9,104   -   6,409   2,695 
Corporate securities  164,068   -   151,860   12,208   137,932   -   135,794   2,138 
Options embedded in convertible securities  2,898   -   2,898   -   4,751   -   4,751   - 
Foreign government obligations  27,466   -   27,466   - 
Mortgage-backed securities  24,571   -   22,206   2,365 
Municipal obligations  129,335   -   129,190   145 
Non-U.S. government obligations  24,681   -   24,419   262 
U.S. government obligations  91,940   -   91,940   - 
Total fixed maturities  451,809   -   439,601   12,208   491,904   3,117   463,569   25,218 
Equity securities:                                
Financial institutions  25,343   25,343   -   - 
Industrial & miscellaneous  136,764   136,764   -   - 
Consumer  32,576   32,576   -   - 
Energy  12,842   12,842   -   - 
Financial  31,186   30,943   243   - 
Industrial  21,145   20,262   883   - 
Technology  8,858   8,858   -   - 
Mutual fund  6,995   -   6,995   - 
Other  6,343   6,343   -   - 
Total equity securities  162,107   162,107   -   -   119,945   111,824   8,121   - 
Short term  2,966   2,966   -   -   1,500   1,500   -   - 
Cash equivalents  59,309   -   59,309   -   59,683   -   59,683   - 
Total $676,191  $165,073  $498,910  $12,208  $673,032  $116,441  $531,373  $25,218 

 
- 6268 -
Note N – Fair Value (continued)

As of December 31, 2015:
Description Total  Level 1  Level 2  Level 3 
             
Fixed maturities:            
Agency collateralized mortgage obligations $-  $-  $-  $- 
Agency mortgage-backed securities  3,157   -   3,157   - 
Asset-backed securities  44,309   -   37,235   7,074 
Bank loans  5,060   -   -   5,060 
Certificates of deposit  3,230   -   3,230   - 
Collateralized mortgage obligations  9,257   -   9,257   - 
Corporate securities  108,116   -   105,108   3,008 
Options embedded in convertible securities  2,395   -   2,395   - 
Mortgage-backed securities  23,892   -   22,523   1,369 
Municipal obligations  110,578   -   110,578   - 
Non-U.S. government obligations  23,945   -   23,663   282 
U.S. government obligations  103,245   -   103,245   - 
      Total fixed maturities  437,184   -   420,391   16,793 
Equity securities:                
Consumer  46,541   46,541   -   - 
Energy  8,635   8,635   -   - 
Financial  35,686   34,431   1,255   - 
Industrial  24,841   24,274   567   - 
Technology  11,596   11,596   -   - 
Mutual fund  9,983   -   9,983   - 
Other  8,216   8,216   -   - 
      Total equity securities  145,498   133,693   11,805   - 
Short term  2,220   2,220   -   - 
Cash equivalents  69,517   -   69,517   - 
Total $654,419  $135,913  $501,713  $16,793 

Level inputs, as defined by the FASB guidance, are as follows:
Level Input:  Input Definition:
Level 1  Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
Level 2  Inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data at the measurement date.
Level 3  Unobservable inputs that reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date.

The Level 3 assets consist of a portfolio of asset and mortgage-backed securities, bank loans, collateralized mortgage obligations, corporate convertible bonds, commercial mortgage-backed securities and a limited amount of municipal and foreign government obligations.  The assets are valued using various unobservable inputs including extrapolated data, proprietary models and indicative quotes.  Transfers into Level 3 during 20152016 and 20142015 relate to securities previously classified as Level 2.  A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using Level 3 inputs is as follows for the years ended December 31:

  2015  2014 
Beginning of period balance $12,208  $- 
Total gains or losses (realized)        
included in income  (104)  - 
Purchases  2,284   - 
Settlements  (8,068)  - 
Transfers into Level 3  11,586   12,208 
Transfers out of Level 3  (1,113)  - 
End of period balance $16,793  $12,208 
- 69 -
Note N – Fair Value (continued)
  2016  2015 
Beginning of period balance $16,793  $12,208 
Total gains or losses (realized)        
included in income  1,846   (104)
Purchases  5,540   2,284 
Settlements  (8,791)  (8,068)
Transfers into Level 3  10,202   11,586 
Transfers out of Level 3  (372)  (1,113)
End of period balance $25,218  $16,793 

Quoted market prices are obtained whenever possible.  Where quoted market prices are not available, fair values are estimated using present value or other valuation techniques.  These techniques are significantly affected by our assumptions, including discount rates and estimates of future cash flows.  Potential taxes and other transaction costs have not been considered in estimating fair values.
Transfers between levels, if any, are recorded as of the beginning of the reporting period.  There were no significant transfers of assets between Level 1 and Level 2 during 2015.2016.
In addition to the preceding disclosures on assets recorded at fair value in the consolidated balance sheets, FASB guidance also requires the disclosure of fair values for certain other financial instruments for which it is practicable to estimate fair value, whether or not such values are recognized in the consolidated balance sheets.
Non-financial instruments such as real estate, property and equipment, other assets, deferred income taxes and intangible assets, and certain financial instruments such as policy reserve liabilities are excluded from the fair value disclosures.  Therefore, the fair value amounts cannot be aggregated to determine the underlying economic value toof the Company.


- 63 -

Note N – Fair Value (continued)
TheCompany.The following methods, assumptions and inputs were used to estimate the fair value of each class of financial instrument:

Limited partnerships: The Company accounts for investments in limited partnerships using the equity method of accounting, which requires an investor in a limited partnership to carry the investment at its proportionate share of the limited partnership's equity.   The underlying assets of the Company's investments in limited partnerships are carried primarily at fair value, and, therefore, the Company's carrying value of limited partnerships approximates fair value.  As these investments are not actively traded and the corresponding inputs are based on data provided by the investees, they are classified as Level 3.
Short-term borrowings: The fair value of our short-term borrowings is based on quoted market prices for the same or similar debt, or, if no quoted market prices are available, on the current market interest rates available to us for debt of similar terms and remaining maturities.
- 70 -

Note N – Fair Value (continued)
A summary of the carrying value and fair value by level of financial instruments not recorded at fair value on the Company's consolidated balance sheet at December 31, 20152016 and 20142015 is as follows:

2015: Carrying  Fair Value 
  Value  Level 1  Level 2  Level 3  Total 
Assets:          
   Limited partnerships $75,458  $-  $-  $75,458  $75,458 
                     
Liabilities:                    
   Short-term borrowings  20,000   -   20,000   -   20,000 
                     
2014:      
Assets:                    
   Limited partnerships $81,230  $-  $-  $81,230  $81,230 
                     
Liabilities:                    
   Short-term borrowings  20,000   -   20,000   -   20,000 
 
2016: Carrying Fair Value 
  Value Level 1  Level 2  Level 3  Total 
Assets:              
   Limited partnerships $76,469  $-  $-  $76,469  $76,469 
                     
Liabilities:                    
   Short-term borrowings  20,000   -   20,000   -   20,000 
                     
2015:      
Assets:                    
   Limited partnerships $75,458  $-  $-  $75,458  $75,458 
                     
Liabilities:                    
   Short-term borrowings  20,000   -   20,000   -   20,000 

Note O - Quarterly Results of Operations (Unaudited)              
                  
Quarterly results of operations are as follows:                
         Results by Quarter        
    2015       2014   
  1st  2nd  3rd  4th   1st  2nd  3rd  4th 
                  
Net premiums earned $66,446  $65,449  $65,445  $65,995   $63,842  $62,905  $65,947  $68,933 
Net investment income  2,815   2,898   3,014   3,771    2,294   2,090   2,073   2,599 
Net gains (losses) on investments  3,743   (1,166)  (2,086)  (1,753)   4,070   8,089   658   2,113 
Losses and loss expenses incurred  41,646   37,031   35,212   41,860    39,289   40,282   38,693   41,332 
                                  
Net income  6,243   5,718   7,780   3,541    6,361   9,340   5,770   8,246 
                                  
   Net income per share - diluted $.42  $.38  $.52  $.24   $.42  $.62  $.39  $.55 



Note O - Quarterly Results of Operations (Unaudited)
              
                  
Quarterly results of operations are as follows:                
         Results by Quarter        
   2016     2015 
 1st 2nd 3rd 4th  1st 2nd 3rd 4th 
                  
Net premiums earned $66,909  $68,726  $71,235  $69,141   $66,446  $65,449  $65,445  $65,995 
Net investment income  3,440   3,549   3,513   3,982    2,815   2,898   3,014   3,771 
Net gains (losses) on investments  9,012   280   7,732   6,204    3,743   (1,166)  (2,086)  (1,753)
Losses and loss expenses incurred  38,623   42,666   56,827   48,366    41,646   37,031   35,212   41,860 
                                  
Net income  14,112   5,969   4,001   4,864    6,243   5,718   7,780   3,541 
                                  
   Net income per share - diluted $.94  $.40  $.27  $.32   $.42  $.38  $.52  $.24 
- 64 -

Note P - Statutory

Net income of the insurance subsidiaries,Insurance Subsidiaries, all of which are wholly owned,wholly-owned, as determined in accordance with statutory accounting practices, was $31,647, $25,627 and $27,143 for 2016, 2015 and $30,886 for 2015, 2014, and 2013, respectively.  Consolidated statutory capital and surplus for these subsidiaries was $390,823$399,314 and $398,762$390,823 at December 31, 20152016 and 2014,2015, respectively, of which $62,539$64,260 may be transferred by dividend or loan to the parent company during calendar year 20162017 with proper notification to, but without approval from, regulatory authorities.  An additional $239,249 of shareholders' equity of such insurance subsidiaries could, under existing regulations, be advanced or loaned to the parent company with prior notification to and approval from regulatory authorities, although it is unlikely that transfers of this size would be practical.
State regulatory authorities prescribe calculations of the minimum amount of statutory capital and surplus necessary for each insurance company to remain authorized.  These computations are referred to as Risk Based Capital ("RBC") requirements and are based on a number of complex factors taking into consideration the quality and nature of assets, the historical adequacy of recorded liabilities and the specific nature of business conducted.  At December 31, 20152016, the minimum statutory capital and surplus requirements of the insurance subsidiariesInsurance Subsidiaries was $87,688.$85,842.  Actual consolidated statutory capital and surplus at December 31, 20152016 exceeded this requirement by $303,135, which equals to 346% of minimum RBC.$313,473.

- 71 -
Note Q - Leases
The Company leases certain computer and related equipment using noncancelable operating leases.  Lease expense for 2016, 2015 and 2014 was $157, $175 and 2013 was $175, $330, and $1,324, respectively.  At December 31, 2015,2016, future lease payments for operating leases with initial or remaining noncancelable terms of one year or more consisted of the following:


2016 $148 
2017  116  $349 
2018 & thereafter  - 
2018  207 
2019  207 
2020 and thereafter  10 
Total minimum payments required $264  $773 

 
Note R – Accumulated Other Comprehensive Income
A reconciliation of the components of accumulated other comprehensive income at December 31 is as follows:

  2015  2014 
Investments:    
    Total unrealized gain before federal income taxes $59,883  $79,753 
    Deferred tax liability  (20,959)  (27,913)
Net unrealized gains on investments  38,924   51,840 
         
Foreign exchange adjustment:        
    Total unrealized gains (losses)  (1,640)  600 
    Deferred tax benefit (liability)  574   (210)
Net unrealized gains (losses) on foreign exchange adjustment  (1,066)  390 
         
Accumulated other comprehensive income $37,858  $52,230 
  2016  2015 
Investments:      
    Total unrealized gain before federal income taxes $52,386  $59,883 
    Deferred tax liability  (18,335)  (20,959)
Net unrealized gains on investments  34,051   38,924 
         
Foreign exchange adjustment:        
    Total unrealized losses  (1,278)  (1,640)
    Deferred tax benefit  447   574 
Net unrealized losses on foreign exchange adjustment  (831)  (1,066)
         
Accumulated other comprehensive income $33,220  $37,858 


- 65 -

Note R – Accumulated Other Comprehensive Income (continued)
Details of changes in net unrealized gains on investments for the years ended December 31 are as follows:
  2016  2015  2014 
Investments:         
    Pre-tax holding gains (losses) on debt and         
      equity securities arising during period $13,259  $(19,445) $12,055 
    Less: applicable federal income taxes  4,641   (6,806)  4,220 
   8,618   (12,639)  7,835 
             
    Pre-tax gains on debt and equity securities            
      included in net income during period  20,755   426   7,823 
    Less: applicable federal income taxes  7,264   149   2,739 
   13,491   277   5,084 
             
Change in unrealized gains on investments $(4,873) $(12,916) $2,751 

  2015  2014  2013 
Investments:      
    Pre-tax holding gains (losses) on debt and equity      
      securities arising during period $(19,445) $12,055  $36,477 
    Less: applicable federal income taxes  (6,806)  4,220   12,766 
   (12,639)  7,835   23,711 
             
    Pre-tax gains on debt and equity securities            
      included in net income during period  426   7,823   15,520 
    Less: applicable federal income taxes  149   2,739   5,431 
   277   5,084   10,089 
             
Change in unrealized gains on investments $(12,916) $2,751  $13,622 

- 72 -
Note R – Accumulated Other Comprehensive Income (continued)
Reconciliation of accumulated other comprehensive income and retained earnings for the years ended December 31 are as follows:

  2015  2014  2013 
       
Beginning accumulated other comprehensive income $52,230  $50,490  $37,443 
   Change in foreign exchange adjustment  (1,456)  (1,011)  (575)
   Change in unrealized net gains on investments  (12,916)  2,751   13,622 
Ending accumulated other comprehensive income $37,858  $52,230  $50,490 
             
             
   2015   2014   2013 
             
Beginning retained earnings $294,773  $280,003  $258,358 
   Net income  23,283   29,717   36,588 
   Dividends  (15,003)  (14,947)  (14,943)
Ending retained earnings $303,053  $294,773  $280,003 
  2016  2015  2014 
          
Beginning accumulated other comprehensive income $37,858  $52,230  $50,490 
   Change in foreign exchange adjustment  235   (1,456)  (1,011)
   Change in unrealized net gains on investments  (4,873)  (12,916)  2,751 
Ending accumulated other comprehensive income $33,220  $37,858  $52,230 
             
             
   2016   2015   2014 
             
Beginning retained earnings $303,053  $294,773  $280,003 
   Net income  28,945   23,283   29,717 
   Dividends  (15,803)  (15,003)  (14,947)
Ending retained earnings $316,195  $303,053  $294,773 

 
Note S – Debt
The Company maintains a revolving line of credit with a $40,000 limit and an expiration date of September 23, 2018.  Interest on this line of credit is referenced to LIBOR and can be fixed for periods of up to one year at the Company's option.  Outstanding drawings on this line of credit were $20,000 as of both December 31, 20152016 and 2014, respectively.2015.  At December 31, 2015,2016, the effective interest rate was 1.52%1.86%.  The Company has $20,000 remaining unused under the line of credit at December 31, 2015.2016.  The current outstanding borrowings were used for general corporate purposes.
- 6673 -
Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

No response to this item is required.

Item 9A. CONTROLS AND PROCEDURES

The Company carried out an evaluation as of December 31, 2015,2016, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as defined in Rule 13a-15(e) ofadopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, or the Exchange Act."Exchange Act". Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective in timely alerting the Company to material information required to be disclosed in reports under the Exchange Act. In addition, based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective in ensuring that information required to be disclosed in reports that the Company files or submits under the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms; and (b) accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. The Company noted no change in its internal control over financial reporting that occurred during the last fiscal quarterthree months ended December 31, 2016 that materially affected, or is reasonably likely to materially affect, theits internal control over financial reporting.

Management's Responsibility for Financial Statements
Management is responsible for the preparation of the Company's consolidated financial statements and related information appearing in this report.  Management believes that the consolidated financial statements fairly reflect the form and substance of transactions and that the financial statements reasonably present the Company's financial position and results of operations in conformity with U.S. generally accepted accounting principles.  Management has included in the Company's financial statements amounts that are based upon estimates and judgments which it believes are reasonable under the circumstances.
The Board of Directors of the Company has an Audit Committee composed of four non-management Directors.directors.  The committee meets periodically with financial management, the internal auditors and the independent registered public accounting firm to review accounting, control, auditing and financial reporting matters.

Management's Report on Internal Control Over Financial Reporting
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f).  Under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control – Integrated Framework  issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework).  Based on our evaluation under this framework, management concluded that the Company's internal control over financial reporting was effective as of December 31, 2015.2016.  The effectiveness of the Company's internal control over financial reporting as of December 31, 20152016 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein.

 

- 6774 -

Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Baldwin & Lyons, Inc.
We have audited Baldwin & Lyons, Inc. and subsidiaries' internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Baldwin & Lyons, Inc. and subsidiaries' management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Baldwin & Lyons, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Baldwin & Lyons, Inc. and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2016 of Baldwin & Lyons, Inc. and subsidiaries and our report dated March 6, 2017 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Indianapolis, Indiana
March 6, 2017

The Board of Directors and Shareholders of Baldwin & Lyons, Inc.

- 75 -
We have audited Baldwin & Lyons, Inc. and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). The Company's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Baldwin & Lyons, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the COSO criteriaItem 9B.  .OTHER INFORMATION

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Baldwin & Lyons, Inc. and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2015 and our report dated March 4, 2016 expressed an unqualified opinion thereon.


/s/ Ernst & Young LLP
Indianapolis, IN
March 4, 2016


- 68 -
None.
PART III


Item 10.  DIRECTORS, AND EXECUTIVE OFFICERS OF THE REGISTRANTAND CORPORATE GOVERNANCE

The information with respect to the directors of the Registrant to be provided under this item is omitted from this Report because the Registrant will file with the Commission a definitive proxy statement pursuant to Regulation 14A involving the election of directors not later than 120 days after the close of its fiscal year.

The information required by this Item 10concerning the Company's directors and nominees for director, Audit Committee members and financial expert(s) and concerning disclosure of this Report with respect to directorsdelinquent filers under Section 16(a) of the Exchange Act is incorporated herein by reference from the Company's definitive Proxy Statement for its 2017 Annual Meeting of Shareholders, which will appear inbe filed with the definitive proxy statement is incorporated by reference herein.SEC pursuant to Regulation 14A within 120 days after the end of the Company's fiscal year.

The executive officers of the Company are expected to serve until the next annual meeting of the Board of Directors or until their respective successors are elected and qualified.  Except as otherwise indicated, the occupation of each officer during the past five years has been in his current position with the Company.

The following summary sets forth certain information concerning the Company's executive officers as of December 31, 2015:2016:

 
Name
 
Age
 
Title
Served in
Such Capacity Since
Joseph J. DeVitoW. Randall Birchfield6452CEO,Chief Executive Officer and President and COO20102016 (1)
Steven A. Shapiro5152Executive Chairman2015 (2)
Gary W. MillerWilliam C. Vens7545Deputy ChairmanChief Financial Officer20152016 (3)
G. Patrick CorydonMichael J. Case6747Chief Operating Officer and Executive Vice President and CFO20082016 (4)
William R. BirchfieldMatthew A. Thompson52Executive Vice President20142016 (5)
Michael J. Case46Senior Vice President and Secretary2015 (6)

(1)  Mr. DeVitoBirchfield was elected Chief Executive Officer in December, 2010.May, 2016 and President in August, 2016.  He previouslyjoined the Company in 2013 as Vice President of Underwriting and served as Executive Vice President and Chief Operating Officer from 2007April 2014 until 2010 and has2016.  Prior to joining the Company, Mr. Birchfield served in various capacities since 1981.as Vice President of Allstate Insurance Company from 2011 to 2013.
(2)  Mr. Shapiro was elected Executive Chairman in October, 2015.  He has beenserved as the lead director since 2010 and has served on the Board since 2007.  Mr. Shapiro has also served as Vice President of SF Investments since 1991.
(3)  Mr. MillerVens was appointed Deputy Chairmanelected Chief Financial Officer in October, 2015. HeAugust, 2016.  Mr. Vens joined the Company in June 2014 as Managing Director – Finance and after that served as ChairmanVice President of Strategy and Planning from June 2016 until August 2016.  Prior to joining the BoardCompany, Mr. Vens served as Chief Financial Officer of HighWave Energy, Inc. from 1997 until 2015.  Mr. Miller has served in various capacities since 1965.2011 to May 2014.
(4)  Mr. CorydonCase was elected Chief Operating Officer in May, 2016 and Executive Vice President in July, 2016.  He previously served as Senior Vice President, Secretary and General Counsel of the Company from May 2015 to July 2016 and served as Vice President, General Counsel and Secretary of the Company's subsidiaries Protective Insurance Company, Sagamore Insurance Company and Protective Specialty Insurance Company from 2008 to 2015.
(5)  Mr. Thompson was elected Executive Vice President in 2008 and has served as CFO since 1979.
(5) Mr. Birchfield was elected Executive Vice President in April, 2014.November, 2016.  He previously served as Senior Vice President of the Company from 2013 until 2014.
(6)  Mr. Case was elected Senior2015 to 2016 and as Vice President in May,of Sales from 2011 to 2015.  He has served in various capacities since July, 2003.

Code of Conduct

The Board of Directors has adopted a Code of Business Conduct (the Code)"Code") as our code of ethics document, which is applicable to all directors, officers at the vice president level and above, as well as certain other employees with control over accounting data.  The Code incorporates our guidelines designed to deter wrongdoing and to promote honest and ethical conduct and compliance with applicable laws and regulations. The Code also incorporates our expectations of our employees that enable us to comply with applicable laws, rules and regulations and to provide accurate and timely disclosure in our filings with the SEC and other public communications.
The Code is available on the Corporation's website at www.baldwinandlyons.com. The Board of Directors reviews the Code annually and approves any amendments necessary to update the Code.  Any amendments are properly posted.  Copies can also be obtained by contacting our investor relations at pcorydon@baldwinandlyons.cominvestors@baldwinandlyons.com or by written request to Baldwin & Lyons, Inc., Attention: Investor Relations, 111 Congressional Blvd., Suite 500, Carmel, Indiana 46032.
 
- 6976 -
 

Item 11.  EXECUTIVE COMPENSATION *

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS *

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE *

Item 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES *

* The information to be provided underrequired by Items 11, 12, 13 and 14 is omittedincorporated herein by reference from this Report because the RegistrantCompany's definitive Proxy Statement for its 2017 Annual Meeting of Shareholders, which will filebe filed with the Commission a definitive proxy statementSEC pursuant to Regulation 14A involving the election of directors not later thanwithin 120 days after the closeend of itsthe Company's fiscal year. The information required by these items of this Report which will appear in the definitive proxy statement is incorporated by reference herein.


PART IV


 Item 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K


(a)
1.  List of Financial Statements--The following consolidated financial statements of the registrant and its subsidiaries (including the Report of Independent Registered Public Accounting Firm) are submitted in Item 8 of this report.

Consolidated Balance Sheets - December 31, 20152016 and 20142015
Consolidated Statements of Operations - Years ended December 31, 2016, 2015 2014 and 20132014
Consolidated Statements of Comprehensive Income – Years ended December 31, 2016, 2015 2014 and 20132014
Consolidated Statements of Shareholders' Equity - Years ended December 31, 2016, 2015 2014 and 20132014
Consolidated Statements of Cash Flows - Years ended December 31, 2016, 2015 2014 and 20132014
Notes to Consolidated Financial Statements

2.
List of Financial Statement Schedules--The following consolidated financial statement schedules of Baldwin & Lyons, Inc. and subsidiaries are included in Item 15(d):this Annual Report on Form 10-K:

Pursuant to Article 7:
Schedule I    --  Summary of Investments--Other than Investments in Related Parties
Schedule II   --  Condensed Financial Information of the Registrant
Schedule III  --  Supplementary Insurance Information
Schedule IV  --  Reinsurance
Schedule VI  --  Supplemental Information Concerning Property/Casualty Insurance
                           Operations


All other schedules to the consolidated financial statements required by Article 7 and Article 5 of Regulation S-X are not required under the related instructions or are inapplicable and therefore have been omitted.


- 7077 -

3. ListingList of Exhibits:

Number & Caption from
Exhibit Table of
Item 601 of Regulation S-K
 
 
 
Exhibit Number and Description
(3) (Articles of Incorporation & By Laws)
EXHIBIT 3(i) –
Articles of Incorporation of Baldwin & Lyons, Inc., as amended (Incorporated as an exhibit by reference to Exhibit 3(a)A to the Company's definitive Proxy Statement for its Annual Report on Form 10-K for the year ended December 31, 1986)meeting held May 10, 2016)
 
 
EXHIBIT 3(ii)--
By-Laws of Baldwin & Lyons, Inc., as restatedamended May 10, 2016 (Incorporated as an exhibit by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed May 13, 2016)
 
(10) (Material Contracts)
EXHIBIT 10(a)-- 1981 Employee Stock Purchase Plan (Incorporated as an exhibit by reference to Exhibit A to the Company's definitive Proxy Statement for its Annual Meeting held May 5, 1981) (SEC File No. 000-05534)*
 
 
EXHIBIT 10(f)--
Baldwin & Lyons, Inc. Executive Incentive Bonus Plan (Incorporated as an exhibit by reference to the Company's definitive Proxy Statement for its Annual Meeting held May 4, 2010) (SEC File No. 000-05534)*
 
EXHIBIT 10(g)--
Baldwin & Lyons, Inc. Restricted Stock Compensation Plan (Incorporated as an exhibit by reference to the Company's definitive Proxy Statement for its Annual Meeting held May 4, 2010) (SEC File No. 000-05534)*
 
(21) (Subsidiaries of the registrant)
 
EXHIBIT 21--21----
Subsidiaries of Baldwin & Lyons, Inc.

(23) (Consents of experts and counsel)
EXHIBIT 23--
Consent of Ernst & Young LLP
 
(24) (Powers of Attorney)
EXHIBIT 24--
Powers of Attorney for certain Officers and Directors
 
(31) (Certification)
EXHIBIT 31.1--
Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act
 
 
EXHIBIT 31.2--
Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act




- 7178 -

Number & Caption from
       Exhibit Table of
Item 601 of Regulation S-K
Exhibit Number and Description



(32) (Certification)EXHIBIT 32--
Certification of CEO and CFO pursuant to Section 906 of the
Sarbanes-Oxley Act and 18 U.S.C. 1350


(b)(101)A reportThe following materials from Baldwin & Lyons, Inc.'s Annual Report on Form 8-K was filed by10-K for the Companyyear ended December 31, 2016, formatted in XBRL (eXtensible Business Reporting Language): (1) the fourth quarterConsolidated Balance Sheets, (2) the Consolidated Statements of 2015Operations, (3) the Consolidated Statements of Comprehensive Income, (4) the Consolidated Statements of Shareholders' Equity, (5) the Consolidated Statements of Cash Flows, and (6) the Notes to announce its third quarter earnings press release.Consolidated Financial Statements.

(c)Exhibits. The response to this portion of Item 15 is submitted as a separate section of this report.
*  Indicates management contracts or compensating plans or arrangements.

Item 16.  FORM 10-K SUMMARY

(d)Financial Statement Schedules.  The response to this portion of Item 15 is submitted on pages 73 through 79 of this report.
None.


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SCHEDULE I -- SUMMARY OF INVESTMENTS-   
OTHER THAN INVESTMENTS IN RELATED PARTIES   
    
Form 10-K - Year Ended December 31, 2015 
    
Baldwin & Lyons, Inc. and Subsidiaries   
(Dollars in thousands)   
    
    
Column AColumn B Column C Column D 
    
   Amount At 
   Which Shown 
  Fair In The Balance 
Type of InvestmentCost Value Sheet (A) 
    
Fixed Maturities:   
  Bonds:   
    U.S. government obligations  103,448   103,245   103,245 
    Mortgage-backed securities  35,645   35,371   35,371 
    State and municipal obligations  109,932   110,578   110,578 
    Foreign government obligations  25,416   23,965   23,965 
    Corporate securities  168,137   164,025   164,025 
          Total fixed maturities  442,578   437,184   437,184 
             
Equity Securities:            
  Common Stocks:            
    Industrial, miscellaneous and all other  80,221   145,498   145,498 
         Total equity securities  80,221   145,498   145,498 
             
Limited partnerships  30,449   30,449   30,449 
             
Short-term:            
  Certificates of deposit  2,220   2,220   2,220 
      Total short-term and other  2,220   2,220   2,220 
             
         Total investments $555,468  $615,351  $615,351 
             
(A) Investments presented above do not include $69,517 of money market funds classified with cash and            
       cash equivalents in the balance sheet.            
SCHEDULE I -- SUMMARY OF INVESTMENTS-         
OTHER THAN INVESTMENTS IN RELATED PARTIES         
          
Form 10-K - Year Ended December 31, 2016 
          
Baldwin & Lyons, Inc. and Subsidiaries         
(Dollars in thousands)         
          
          
Column A Column B  Column C  Column D 
          
        Amount At 
        Which Shown 
     Fair  In The Balance 
Type of Investment Cost  Value  Sheet (A) 
          
Fixed Maturities:         
  Bonds:         
    Agency collateralized mortgage obligations  6,000   6,171   6,171 
    Agency mortgage-backed securities  4,751   4,770   4,770 
    Asset-backed securities  45,207   45,183   45,183 
    Bank loans  10,222   10,349   10,349 
    Certificates of deposit  3,126   3,117   3,117 
    Collateralized mortgage obligations  9,096   9,104   9,104 
    Corporate securities  143,356   142,683   142,683 
    Mortgage-backed securities  23,904   24,571   24,571 
    Municipal obligations  130,204   129,335   129,335 
    Non-U.S. government obligations  26,461   24,681   24,681 
    U.S. government obligations  92,234   91,940   91,940 
          Total fixed maturities  494,561   491,904   491,904 
             
Equity Securities:            
  Common Stocks:            
    Consumer  15,231   32,576   32,576 
    Energy  5,641   12,842   12,842 
    Financial  22,417   31,186   31,186 
    Industrial  6,239   21,145   21,145 
    Technology  4,117   8,858   8,858 
    Mutual fund  6,930   6,995   6,995 
    Other  4,327   6,343   6,343 
         Total equity securities  64,902   119,945   119,945 
             
Limited partnerships  32,431   32,431   32,431 
             
Short-term:            
  Certificates of deposit  1,500   1,500   1,500 
      Total short-term and other  1,500   1,500   1,500 
             
         Total investments $593,394  $645,780  $645,780 
             
(A)  Investments presented above do not include $49,145 of money market funds classified with cash and            
       cash equivalents in the balance sheet.            

- 80 -
SCHEDULE II 
CONDENSED FINANCIAL INFORMATION OF REGISTRANT 
       
Form 10-K 
       
Baldwin & Lyons, Inc. 
(Dollars in thousands) 
       
Condensed Balance Sheets      
  December 31 
  2016  2015 
Assets      
Investment in subsidiaries $409,892  $405,192 
Due from affiliates  3,381   2,945 
Investments other than subsidiaries:        
   Fixed maturities  10,166   12,181 
   Limited partnerships  205   208 
   10,371   12,389 
Cash and cash equivalents  14,995   17,934 
Accounts receivable  7,602   6,418 
Other assets  25,763   21,067 
Total assets $472,004  $465,945 
Liabilities and shareholders' equity        
         
Liabilities:        
   Premiums payable $11,973  $21,672 
   Deposits from insureds  30,087   23,484 
   Short-term borrownings  20,000   20,000 
   Other liabilities  5,599   6,291 
   67,659   71,447 
Shareholders' equity:        
   Common stock:        
      Class A  112   112 
      Class B  532   529 
      Additional paid-in capital  54,286   52,946 
      Unrealized net gains on investments  34,051   38,924 
      Foreign exchange adjustment  (831)  (1,066)
      Retained earnings  316,195   303,053 
   404,345   394,498 
         
Total liabilities and shareholders' equity $472,004  $465,945 

 
- 7381 -
SCHEDULE II 
CONDENSED FINANCIAL INFORMATION OF REGISTRANT 
     
Form 10-K 
     
Baldwin & Lyons, Inc. 
(Dollars in thousands) 
     
Condensed Balance Sheets    
  December 31 
  2015  2014 
Assets    
Investment in subsidiaries $405,192  $415,304 
Due from affiliates  2,945   2,762 
Investments other than subsidiaries:        
   Fixed maturities  12,181   11,924 
   Limited partnerships  208   233 
   12,389   12,157 
Cash and cash equivalents  17,934   16,615 
Accounts receivable  6,418   5,157 
Other assets  21,067   17,905 
Total assets $465,945  $469,900 
Liabilities and shareholders' equity        
         
Liabilities:        
   Premiums payable $21,672  $27,850 
   Deposits from insureds  23,484   18,303 
   Notes payable to bank  20,000   20,000 
   Other liabilities  6,291   4,251 
   71,447   70,404 
Shareholders' equity:        
   Common stock:        
      Class A  112   112 
      Class B  529   527 
      Additional paid-in capital  52,946   51,854 
      Unrealized net gains on investments  38,924   51,840 
      Foreign exchange adjustment  (1,066)  390 
      Retained earnings  303,053   294,773 
   394,498   399,496 
         
Total liabilities and shareholders' equity $465,945  $469,900 

SCHEDULE II 
CONDENSED FINANCIAL INFORMATION OF REGISTRANT 
       
Form 10-K 
       
Baldwin & Lyons, Inc. 
(Dollars in thousands) 
       
Condensed Statements of Operations      
 Year Ended December 31 
 2016 2015 2014 
Revenue:      
   Commissions and service fees $27,736  $23,523  $22,153 
   Cash dividends from subsidiaries  20,000   20,000   15,000 
   Net investment income  134   120   102 
   Net realized losses on investments  (3)  (22)  (27)
   Other  (24)  (17)  126 
   47,843   43,604   37,354 
Expenses:            
   Salary and related items  17,462   17,616   15,543 
   Other  10,808   7,297   7,978 
   28,270   24,913   23,521 
Income before federal income taxes            
and equity in undistributed            
income of subsidiaries  19,573   18,691   13,833 
Federal income tax benefit  (69)  (350)  (294)
   19,642   19,041   14,127 
Equity in undistributed income            
   of subsidiaries  9,303   4,242   15,590 
             
Net income $28,945  $23,283  $29,717 

 

- 7482 -
SCHEDULE II 
CONDENSED FINANCIAL INFORMATION OF REGISTRANT 
       
Form 10-K 
       
Baldwin & Lyons, Inc. 
(Dollars in thousands) 
       
Condensed Statements of Operations      
  Year Ended December 31 
  2015  2014  2013 
Revenue:      
   Commissions and service fees $23,523  $22,153  $21,597 
   Cash dividends from subsidiaries  20,000   15,000   15,000 
   Net investment income  120   102   54 
   Net realized losses on investments  (22)  (27)  (11)
   Other  (17)  126   41 
   43,604   37,354   36,681 
Expenses:            
   Salary and related items  17,616   15,543   15,965 
   Other  7,297   7,978   6,633 
   24,913   23,521   22,598 
Income before federal income taxes            
and equity in undistributed            
income of subsidiaries  18,691   13,833   14,083 
Federal income tax benefit  (350)  (294)  (348)
   19,041   14,127   14,431 
Equity in undistributed income            
   of subsidiaries  4,242   15,590   22,157 
             
Net income $23,283  $29,717  $36,588 

SCHEDULE II 
CONDENSED FINANCIAL INFORMATION OF REGISTRANT 
          
Form 10-K 
          
Baldwin & Lyons, Inc. 
(Dollars in thousands) 
          
Condensed Statements of Cash Flows         
  Year Ended December 31 
  2016  2015  2014 
          
Net cash provided by operating activities $15,484  $21,841  $19,719 
             
Investing activities:            
   Purchases of long-term investments  (4,000)  (4,792)  (6,398)
   Sales or maturities of long-term investments  3,493   4,194   5,253 
   Net sales of short-term investments  2,165   -   - 
   Distributions from limited partnerships  -   -   13 
   Net purchases of property and equipment  (4,278)  (4,921)  (6,873)
Net cash used in investing activities  (2,620)  (5,519)  (8,005)
             
Financing activities:            
   Dividends paid to shareholders  (15,803)  (15,003)  (14,947)
   Drawings on line of credit  -   -   10,000 
Net cash used in financing activities  (15,803)  (15,003)  (4,947)
Increase (decrease) in cash and cash equivalents  (2,939)  1,319   6,767 
Cash and cash equivalents at beginning of year  17,934   16,615   9,848 
Cash and cash equivalents at end of year $14,995  $17,934  $16,615 
             
             
  

 
- 75 -
SCHEDULE II 
CONDENSED FINANCIAL INFORMATION OF REGISTRANT 
       
Form 10-K 
       
Baldwin & Lyons, Inc. 
(Dollars in thousands) 
       
Condensed Statements of Cash Flows      
  Year Ended December 31 
  2015  2014  2013 
       
Net cash provided by operating activities $21,841  $19,719  $15,125 
             
Investing activities:            
   Purchases of long-term investments  (4,792)  (6,398)  (10,322)
   Sales or maturities of long-term investments  4,194   5,253   9,982 
   Distributions from limited partnerships  -   13   - 
   Net purchases of property and equipment  (4,921)  (6,873)  (1,775)
   Other  -   -   (362)
Net cash used in investing activities  (5,519)  (8,005)  (2,477)
             
Financing activities:            
   Dividends paid to shareholders  (15,003)  (14,947)  (14,943)
   Drawings on line of credit  -   10,000   - 
Net cash used in financing activities  (15,003)  (4,947)  (14,943)
Increase (decrease) in cash and cash equivalents  1,319   6,767   (2,295)
Cash and cash equivalents at beginning of year  16,615   9,848   12,143 
Cash and cash equivalents at end of year $17,934  $16,615  $9,848 
             
             
             
             
             
             
 
Note to Condensed Financial Statements --- Basis of Presentation
The Company's investment in subsidiaries is stated at cost plus equity in the undistributed earnings of subsidiaries since the date of acquisition.  The Company's share of net income of its subsidiaries is included in income using the equity method.  These financial statementssatements should be read in conjunction with the Company's consolidated financial statements.

- 7683 -

SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATIONSCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION 
                                                  
Form 10-K Form 10-K  Form 10-K  
                                                  
Baldwin & Lyons, Inc. and SubsidiariesBaldwin & Lyons, Inc. and Subsidiaries Baldwin & Lyons, Inc. and Subsidiaries 
                                                  
(Dollars in thousands)(Dollars in thousands) (Dollars in thousands) 
                                                  
                                                  
Column A Column B  Column C  Column D  Column E  Column F  Column G  Column H  Column I  Column J  Column K  Column B  Column C  Column D  Column E  Column F  Column G  Column H  Column I  Column J  Column K 
                                                  
                                                  
 As of December 31  Year Ended December 31  As of December 31  Year Ended December 31 
   Reserves                     Reserves                         
   for Unpaid    Other      Benefits,  Amortization         for Unpaid     Other        Benefits,  Amortization       
 Deferred  Claims    Policy      Claims,  of Deferred      Deferred  Claims     Policy        Claims,  of Deferred       
 Policy  and Claim    Claims and  Net  Net  Losses and  Policy  Other  Net  Policy  and Claim     Claims and  Net  Net  Losses and  Policy  Other  Net 
 Acquisition  Acquisition  Unearned  Benefits  Premium  Investment  Settlement  Acquisition  Operating  Premiums  Acquisition  Adjustment  Unearned  Benefits  Premium  Investment  Settlement  Acquisition  Operating  Premiums 
Segment Costs  Expenses  Premiums  Payable  Earned  Income  Expenses  Costs  Expenses  Written  Costs  Expenses  Premiums  Payable  Earned  Income  Expenses  Costs  Expenses  Written 
           (C)  (A)    (B) (C)                   (C)  (A)     (B) (C)    
Property/Casualty                                                  
Insurance                                                  
                                                  
2015 $1,443  $464,305  $18,579   ---  $242,364  $12,498  $142,258  $50,270  $13,682  $238,330 
                                        
2014  2,263   449,133   23,659   ---   224,683   9,055   139,308   48,872   14,033   224,258 
                                        
2013  2,319   408,469   26,303   ---   202,785   8,770   133,005   47,414   14,459   201,817 
                                        
Reinsurance                                        
2016 $1,172  $531,008  $18,947   ---  $264,753  $14,483  $171,735  $51,597  $8,180  $264,459 
                                                                                
2015  ---  $49,291  $6,712   ---  $20,971  $12,498  $13,492   ---  $13,682  $16,323   1,443   464,305   18,579   ---   242,364   12,498   142,258   50,270   13,682   238,330 
                                                                                
2014  ---   56,969   11,360   ---   36,944   9,055   20,288   ---   14,033   37,913   2,263   449,133   23,659   ---   224,683   9,055   139,308   48,872   14,033   224,258 
                                                                                
2013  ---   66,001   10,390   ---   49,958   8,770   17,696   ---   14,459   51,867 
Reinsurance                                        
                                        
2016  ---  $45,322  $2,747   ---  $11,258  $14,483  $14,746   ---  $8,180  $7,293 
                                        
2015  ---   49,291   6,712   ---   20,971   12,498   13,492   ---   13,682   16,323 
                                        
2014  ---   56,969   11,360   ---   36,944   9,055   20,288   ---   14,033   37,913 

(A)  Allocations of certain expenses have been made to investment income, settlement expenses and other operating expenses and are based on a number of assumptions and estimates.  Results among these categories wouldwold change if different methods were applied.
 
(B)  Commission allowances relating to reinsurance ceded are offset against other operating expenses.
 
(C)  Amounts are not broken down into separate segments; entire consolidated amount included in each segment.

 
- 7784 -
SCHEDULE IV -- REINSURANCE          
           
Form 10-K 
           
Baldwin & Lyons, Inc. and Subsidiaries          
           
    (Dollars in thousands)          
           
Column A Column B  Column C  Column D  Column E  Column F 
           
          % of 
    Ceded  Assumed    Amount 
  Direct  to Other  from Other  Net  Assumed to 
  Premiums  Companies  Companies  Amount  Net 
           
Premiums Earned -          
 Property/casualty insurance:          
           
     Years Ended December 31:          
           
2015 $370,499  $128,697  $21,533  $263,335   8.0 
                     
2014  342,656   119,248   38,219   261,627   14.1 
                     
2013  313,842   113,882   52,783   252,743   19.8 

SCHEDULE IV -- REINSURANCE          
           
Form 10-K 
 Baldwin & Lyons, Inc. and Subsidiaries                   
 
     (Dollars in thousands)                   
 
           
Column AColumn B Column C Column D Column E Column F 
           
         % of 
   Ceded Assumed   Amount 
 Direct to Other from Other Net Assumed to 
 Premiums Companies Companies Amount Net 
           
Premiums Earned -          
 Property/casualty insurance:          
           
     Years Ended December 31:          
           
2016 $394,679  $130,012  $11,344  $276,011   4.1 
                     
2015  370,499   128,697   21,533   263,335   8.0 
                     
2014  342,656   119,248   38,219   261,627   14.1 

Note:  Included in Ceded to Other Companies is $86, $562 and $1,275 for 2016, 2015 and $2,825 for 2015, 2014, and 2013, respectively, relating to retrocessions associated with premiums assumed from other companies.  Amount Assumed to Net percentage above considers the impact of this retrocession.
 
- 7885 -
SCHEDULE VI--SUPPLEMENTAL INFORMATIONSCHEDULE VI--SUPPLEMENTAL INFORMATIONSCHEDULE VI--SUPPLEMENTAL INFORMATION  
CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONSCONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONSCONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS  
                                        
Form 10-K
                  
Baldwin & Lyons, Inc. and Subsidiaries Baldwin & Lyons, Inc. and Subsidiaries  
Baldwin & Lyons, Inc. and Subsidiaries  
                                        
(Dollars in thousands)(Dollars in thousands) (Dollars in thousands)  
                                        
Column AColumn BColumn CColumn DColumn EColumn FColumn G Column H Column IColumn JColumn K Column BColumn C Column D Column E Column F Column G        Column H Column I Column J Column K 
                                        
 As of December 31     Year Ended December 31        As of December 31 Year Ended December 31 
                                        
      Claims and Claim Amortiza-     Reserves            Claims and Claim       
      Adjustment Expenses tion of     for Unpaid Discount,         Adjustment Expenses Amortization of     
      Incurred Related to DeferredPaid Claims  DeferredClaims if any       Incurred Related to Deferred Paid Claims   
AFFILIATIONDeferred PolicyReserves for Unpaid ClaimsDiscount, if any   (1)   (2) Policyand ClaimNet Policyand Claim Deducted     Net (1) (2) Policy and Claim Net 
WITHPolicy Acquisitionand Claim AdjustmentDeducted inUnearnedEarnedNet Investment Current  Prior AcquisitionAdjustmentPremiums AcquisitionAdjustment in Unearned Earned Investment Current Prior Acquisition Adjustment Premiums 
REGISTRANTCostsExpensesColumn CPremiumsIncome Year  Years CostsExpensesWritten CostsExpenses Column C Premiums Premiums Income Year Years Costs Expenses Written 
                                             
Consolidated Property/Casualty Subsidiaries:Consolidated Property/Casualty Subsidiaries:(A)                    Consolidated Property/Casualty Subsidiaries: (A)                 
            
2016 $1,172$576,330  $- $21,694 $276,011 $14,483 $172,645 $13,836 $51,597 $163,467 $271,752 
2015$1,443$513,596$2,110$25,291$263,335$12,498  $165,812   $(10,062) $50,270$149,580$254,653 1,443513,596 2,110 25,291 263,335 12,498 165,812 (10,062) 50,270 149,580 254,653 
20142,263506,1023,12935,019261,6279,055  169,950   (10,354) 48,872152,101262,171 2,263506,102 3,129 35,019 261,627 9,055 169,950 (10,354) 48,872 152,101 262,171 
20132,319474,4705,88536,693252,7438,770  156,264   (5,563) 47,414151,849253,684



(A)  Loss reserves on certain reinsurance assumed and permanent total disability worker'sworkers' compensation claims have been discounted to present value using pretax interest rates not exceeding 3.5%. through 2015.
 
- 7986 -
SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) 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.

March 4, 20166, 2017
By /s/ Joseph J. DeVito
 
Joseph J. DeVito,By /s/ W. Randall Birchfield
W. Randall Birchfield,
Director, President and Chief Executive Officer and President


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.



March 4, 20166, 2017
By /s/ Stuart D. Bilton
Stuart D. Bilton,
Director
March 6, 2017
By /s/ W. Randall Birchfield
W. Randall Birchfield,
Director, President and Chief Executive Officer
(Principal Executive Officer)


March 6, 2017
By /s/ Michael B. Edwards
Michael B. Edwards,
Chief Accounting Officer and Treasurer
(Principal Accounting Officer)
March 6, 2017
By /s/ Otto N. Frenzel IV
Otto N. Frenzel IV,
Director
March 6, 2017
By /s/ Philip V. Moyles Jr.
Philip V. Moyles Jr.,
Director
March 6, 2017
By /s/ John M. O'Mara
John M. O'Mara,
Director



March 6, 2017
/s/By /s/ Thomas H. Patrick
Thomas H. Patrick,
Director



- 87 -

Signatures (continued)
March 6, 2017
By /s/ John A. Pigott
John A. Pigott,
Director


March 6, 2017
By /s/ Kenneth D. Sacks
Kenneth D. Sacks,
Director


March 6, 2017
By /s/ Nathan Shapiro
Nathan Shapiro,
Director


March 6, 2017
By /s/ Norton Shapiro
Norton Shapiro,
Director


March 6, 2017
By /s/ Robert Shapiro
Robert Shapiro,
Director
March 6, 2017
By /s/ Steven A. Shapiro
Steven A. Shapiro,
Executive Chairman


March 4, 20166, 2017
By /s/ G. Patrick Corydon
G. Patrick Corydon,
Executive Vice President and CFOBy /s/ William C. Vens
William C. Vens,
Chief Financial Officer
(Principal Financial and Accounting Officer)


March 4, 2016
 
 
March 4, 20166, 2017
By /s/ Stuart D. Bilton
                                     Stuart D. Bilton,
                                     Director
By /s/ Jeffrey S. Cohen
 
Jeffrey S. Cohen,
Director


March 4, 2016
By /s/ Joseph J. DeVito
Joseph J. DeVito,
Director, Chief Executive Officer and President


March 4, 2016
By /s/ Otto N. Frenzel IV
Otto N. Frenzel IV,
Director

March 4, 2016                                                                                                                                                                                                             By /s/ Gary W. Miller
Gary W. Miller,
Deputy Chairman
- 80 -
SIGNATURES (continued)
March 4, 2016
March 4, 2016
By /s/ Philip V. Moyles Jr.
                                    Philip V. Moyles Jr.,
                                    Director
By /s/ John M. O'Mara
                                    John M. O'Mara,
                                    Director


March 4, 2016
By /s/ Thomas H. Patrick
Thomas H. Patrick,
Director


March 4, 2016
By /s/ John A. Pigott
John A. Pigott,
Director


March 4, 2016
By /s/ Kenneth D. Sacks
Kenneth D. Sacks,
Director


March 4, 2016
By /s/ Nathan Shapiro
Nathan Shapiro,
Director


March 4, 2016
By /s/ Norton Shapiro
Norton Shapiro,
Director


March 4, 2016
By /s/ Robert Shapiro
Robert Shapiro,
Director


March 4, 2016
By /s//s/ Arshad R. Zakaria
Arshad R. Zakaria,
Director






- 8188 -



ANNUAL REPORT ON FORM 10-K





ITEM 15(c)--CERTAIN EXHIBITS



YEAR ENDED DECEMBER 31, 20152016

BALDWIN & LYONS, INC.

CARMEL, INDIANA






- 8289 -
BALDWIN & LYONS, INC.
Form 10-K for the Fiscal Year
Ended December 31, 20152016


INDEX TO EXHIBITS

 
Exhibit No.
Begins on sequential page number of Form 10-K
EXHIBIT 3(i)--
Articles of Incorporation of Baldwin & Lyons, Inc. as amended (Incorporated as an exhibit by reference to Exhibit 3(a) to the Company's Annual Report on Form
10-K for the year ended December 31, 1986)
N/A
EXHIBIT 3(ii)--
By-Laws of Baldwin & Lyons, Inc., as restated
N/A
EXHIBIT 10(a)--
1981 Employees Stock Purchase Plan (Incorporated as an exhibit by  reference to Exhibit A to the Company's definitive Proxy Statement for its Annual Meeting
held May 5, 1981) (SEC File No. 000-05534)*
N/A
 
EXHIBIT 10(f)--
Baldwin & Lyons, Inc. Executive Incentive Bonus Plan (Incorporated as an exhibit by reference to the Company's definitive Proxy Statement for its Annual Meeting held May 4, 2010) (SEC File No. 000-05534)*
EXHIBIT 10(g)--
Baldwin & Lyons, Inc. Restricted Stock Compensation Plan (Incorporated as an exhibit by reference to the Company's definitive Proxy Statement for its Annual Meeting held May 4, 2010) (SEC File No. 000-05534)*
 
N/A
EXHIBIT 21--
Subsidiaries of Baldwin & Lyons, Inc.
 
                                                      84
EXHIBIT 23--
Consent of Ernst & Young LLP
85

EXHIBIT 24--
Powers of Attorney for certain Officers and Directors
 
86 - 88
EXHIBIT 31.1--
Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
89 - 90
EXHIBIT 31.2--
Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
91 - 92
EXHIBIT 32.1--32--
Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
93

 *  Indicates management contracts or compensating plans or arrangements.
 
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