Protective Insurance Corp (Form: 10-Q, Received: 08/08/2018 14:23:28)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

☒	QUARTERLY REPORT PRUSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2018

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission file number: 0-5534

PROTECTIVE INSURANCE CORPORATION

(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 Number)
111 Congressional Boulevard, Carmel, Indiana (Address of principal executive offices)		46032 (Zip Code)

Registrant's telephone number, including area code: (317) 636-9800

Baldwin & Lyons, Inc.

(Former name, if changed since last report)

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 period 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ____ Accelerated filer  Non-accelerated filer ____ (Do not check if a smaller reporting company)

Smaller reporting company ____ Emerging growth company ____

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ____

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ____ No 

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of August 1, 2018:

Common Stock, No Par Value: Class A (voting) 2,622,809

Class B (non-voting) 12,371,188

14,993,997

PART I – FINANCIAL INFORMATION

Protective Insurance Corporation and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except share data)

	June 30			December 31
	2018			2017
Assets
Investments:
Fixed maturities	$	576,388		$	521,853
Equity securities		125,407			201,763
Limited partnerships		65,442			70,806
Short-term and other		1,000			1,000
		768,237			795,422

Cash and cash equivalents		75,952			64,680
Restricted cash and cash equivalents		6,853			4,033
Accounts receivable		108,145			87,551
Reinsurance recoverable		326,346			318,331
Other assets		102,736			80,061
Current federal income taxes recoverable		1,626			6,938
	$	1,389,895		$	1,357,016

Liabilities and shareholders' equity
Reserves for losses and loss expenses	$	716,281		$	680,274
Reserves for unearned premiums		65,535			53,085
Short-term borrowings		20,000			20,000
Accounts payable and other liabilities		178,612			170,488
Deferred federal income taxes		2,232			14,358
		982,660			938,205
Shareholders' equity:
Common stock-no par value:
Class A voting -- authorized 3,000,000 shares;
outstanding -- 2018 - 2,622,809; 2017 - 2,623,109		112			112
Class B non-voting -- authorized 20,000,000 shares;
outstanding -- 2018 - 12,379,561; 2017 - 12,423,518		528			530
Additional paid-in capital		55,745			55,078
Unrealized net gains (losses) on investments		(4,487	)		46,700
Foreign exchange adjustment		(720	)		(309	)
Retained earnings		356,057			316,700
		407,235			418,811
	$	1,389,895		$	1,357,016

See notes to condensed consolidated financial statements.

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Protective Insurance Corporation and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except per share data)

	Three Months Ended						Six Months Ended
	June 30						June 30
	2018			2017			2018			2017
Revenues
Net premiums earned	$	111,940		$	67,996		$	217,402		$	141,971
Net investment income		5,796			4,716			10,432			8,408
Commissions and other income		2,263			1,400			4,076			2,380
Net realized gains on investments, excluding impairment losses		915			2,565			1,290			3,573
Other-than-temporary impairment losses on investments		-			-			-			-
Net unrealized gains (losses) on equity securities and limited partnership investments		(4,350	)		731			(9,258	)		6,017
Net realized and unrealized gains (losses) on investments		(3,435	)		3,296			(7,968	)		9,590
		116,564			77,408			223,942			162,349

Expenses
Losses and loss expenses incurred		77,488			71,754			149,787			120,353
Other operating expenses		36,019			26,834			70,784			52,998
		113,507			98,588			220,571			173,351
Income (loss) before federal income tax expense (benefit)		3,057			(21,180	)		3,371			(11,002	)
Federal income tax expense (benefit)		570			(8,837	)		554			(5,414	)
Net income (loss)	$	2,487		$	(12,343	)	$	2,817		$	(5,588	)

Per share data:
Basic and diluted earnings (loss)	$	.17		$	(.82	)	$	.19		$	(.37	)

Dividends paid to shareholders	$	.28		$	.27		$	.56		$	.54

Reconciliation of shares outstanding:
Average shares outstanding - basic		15,014			15,122			15,012			15,122
Dilutive effect of share equivalents		9			-			9			-
Average shares outstanding - diluted		15,023			15,122			15,021			15,122

See notes to condensed consolidated financial statements.

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Protective Insurance Corporation and Subsidiaries
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)
(in thousands)

	Three Months Ended						Six Months Ended
	June 30						June 30
	2018			2017			2018			2017

Net income (loss)	$	2,487		$	(12,343	)	$	2,817		$	(5,588	)

Other comprehensive income (loss), net of tax:
Unrealized net gains (losses) on fixed income securities:
Unrealized net gains (losses) arising during the period		(1,051	)		5,147			(4,050	)		11,137
Less: reclassification adjustment for net gains
included in net income (loss)		975			1,667			1,097			2,322
		(2,026	)		3,480			(5,147	)		8,815

Foreign currency translation adjustments		(188	)		388			(411	)		453

Other comprehensive income (loss)		(2,214	)		3,868			(5,558	)		9,268

Comprehensive income (loss)	$	273		$	(8,475	)	$	(2,741	)	$	3,680

See notes to condensed consolidated financial statements.

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Protective Insurance Corporation and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
	Six Months Ended
	June 30
	2018			2017

Operating activities
Net income (loss)	$	2,817		$	(5,588	)
Adjustments to reconcile net income to net cash provided by operating activities		21,857			28,752
Net cash provided by operating activities		24,674			23,164

Investing activities
Purchases of fixed maturities and equity securities		(215,226	)		(231,601	)
Purchases of limited partnership interests		(450	)		-
Distributions from limited partnerships		369			15,398
Proceeds from maturities		37,590			83,484
Proceeds from sales of fixed maturities		102,408			121,708
Proceeds from sales of equity securities		87,557			16,626
Purchase of insurance company-owned life insurance		(10,000	)		-
Purchases of property and equipment		(2,691	)		(3,534	)
Proceeds from disposals of property and equipment		8			580
Net cash provided by (used in) investing activities		(435	)		2,661

Financing activities
Dividends paid to shareholders		(8,456	)		(8,174	)
Repurchase of common shares		(1,280	)		-
Net cash used in financing activities		(9,736	)		(8,174	)

Effect of foreign exchange rates on cash and cash equivalents		(411	)		453

Increase in cash, cash equivalents and restricted cash		14,092			18,104
Cash, cash equivalents and restricted cash at beginning of period		68,713			62,976
Cash, cash equivalents and restricted cash at end of period	$	82,805		$	81,080

See notes to condensed consolidated financial statements.

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Notes to Unaudited Condensed Consolidated Financial Statements

(All dollar amounts presented in these notes are in thousands, except per share data)

(1) Summary of Significant Accounting Policies:

Description of Business: Protective Insurance Corporation (formerly Baldwin & Lyons, Inc.) (the "Company"), based in Carmel, Indiana, is a property-casualty insurer specializing in marketing and underwriting property, liability and workers compensation coverage for trucking and public transportation fleets, as well as coverage for trucking industry independent contractors. In addition, the Company offers workers' compensation coverage for a variety of operations outside the transportation industry. The Company operates as one reportable property and casualty insurance segment, offering a range of products and services, the most significant being commercial automobile and workers' compensation insurance products.

Effective August 1, 2018, the Company changed its name to Protective Insurance Corporation to better align its operational and market identities to reflect its position within the transportation and workers' compensation insurance industry.

Basis of Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Interim financial statements should be read in conjunction with the Company's annual audited financial statements and other disclosures included in the Company's most recent Annual Report on Form 10-K. Operating results for interim periods are not necessarily indicative of results that may be expected for the year ending December 31, 2018 or any other future period.

Investments : Carrying amounts for fixed maturity securities represent fair value and are based on quoted market prices, where available, or broker/dealer quotes for specific securities where 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 the limited partnerships 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 condensed consolidated statements of operations, its proportionate share of the investee's unrealized, as well as realized, investment gains or losses within net unrealized gains (losses) on equity securities and limited partnership investments.

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 the specific identification of the cost of investments sold and are included in income.

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Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Fixed maturity securities are considered to be available-for-sale. The related unrealized net gains or losses (net of applicable tax effects) on fixed maturity securities are reflected directly in shareholders' equity. Included within available-for-sale fixed maturity securities are convertible debt securities. A portion of the changes in the fair values of convertible debt securities is reflected as a component of net realized gains on investments, excluding impairment losses within the condensed consolidated statements of operations. Equity securities are recorded at fair value, with unrealized net gains or losses reflected as a component of net unrealized gains (losses) on equity securities and limited partnership investments within the condensed consolidated statements of operations.

In accordance with the Financial Accounting Standards Board's ("FASB") other-than-temporary impairment 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 other-than-temporary impairment losses on investments in the condensed 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 other-than-temporary impairment losses on investments in the condensed consolidated statements of operations and the non-credit component of the other-than-temporary impairment is recognized directly in shareholders' equity.

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.

Revenue Recognition: For our non-fully-insured contracts, we had no material contract assets, contract liabilities or deferred contract costs recorded on our condensed consolidated balance sheet at June 30, 2018. For the three and six months ended June 30, 2018, revenue recognized from performance obligations related to prior periods, such as due to changes in transaction price, was not material. For contracts that have an original expected duration of greater than one year, revenue expected to be recognized in future periods related to unfulfilled contractual performance obligations and contracts with variable consideration related to undelivered performance obligations is not material.

Recently Adopted Accounting Pronouncements: In May 2014, the FASB issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606), or ASU 2014-09, 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 commission and fee income, other than that directly associated with insurance contracts, is 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 first quarter of 2018. The Company adopted the new guidance as of January 1, 2018. The adoption of the new guidance did not have a material impact on the Company's condensed consolidated financial statements.

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Notes to Unaudited Condensed Consolidated Financial Statements (continued)

In January 2016, the FASB issued 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 changed 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. Previously, the Company's equity securities were classified as available-for-sale and changes in fair value were recognized in accumulated other comprehensive income (loss) as a component of shareholders' equity. ASU 2016-01 became effective for interim and annual reporting periods beginning after December 15, 2017. The Company adopted the new guidance as of January 1, 2018 using the modified retrospective approach and recorded a cumulative-effect adjustment to reclassify unrealized gains on equity securities of $71,012 ($46,157, net of tax) from other comprehensive income (loss) to retained earnings within the current period condensed consolidated balance sheet. Going forward, unrealized gains or losses on equity securities will be recognized in the condensed consolidated statements of operations within net unrealized gains (losses) on equity securities and limited partnership investments.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, or ASU 2016-15. This update addresses the presentation and classification on the statement of cash flows for eight specific items, with the objective of reducing existing diversity in practice in how certain cash receipts and cash payments are presented and classified. ASU 2016-15 became effective for interim and annual reporting periods beginning after December 15, 2017. The Company adopted the new guidance as of January 1, 2018. The adoption of the new guidance did not have a material impact on the Company's condensed consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This update amends Accounting Standards Codification ("ASC") Topic 230 to add and clarify guidance on the classification and presentation of restricted cash in the statement of cash flows. The guidance requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The guidance was applied retrospectively and is effective for annual periods beginning after December 15, 2017, and interim periods within those years, with early adoption permitted. The Company adopted the new guidance as of January 1, 2018 and reclassified $4.0 million of restricted cash as of December 31, 2017 to the beginning cash balance within the condensed consolidated statement of cash flows. The adoption of the new guidance did not have a material impact on the Company's condensed consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220). This ASU allows for the option to reclassify, from accumulated other comprehensive income (loss) to retained earnings, stranded tax effects resulting from the newly enacted federal corporate income tax rate in the Tax Cuts and Jobs Act of 2017 (the "U.S. Tax Act"), which was enacted on December 22, 2017. The legislation included a reduction to the corporate income tax rate from 35 percent to 21 percent effective January 1, 2018. The amount of the reclassification would be the difference between the historical corporate income tax rate and the newly enacted 21 percent corporate income tax rate. ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted the new guidance in the first quarter of 2018 and recorded a cumulative-effect adjustment to reclassify the tax effects on fixed maturity investments of $117 from other comprehensive income (loss) to retained earnings within the current period condensed consolidated balance sheet.

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Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Recently Issued Accounting Pronouncements: 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 does not expect the adoption of ASU 2016-02 to have a material impact on the Company's consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - 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 its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, or ASU 2017-04. This amendment removes Step 2 of the goodwill impairment test under current guidance. The new guidance requires an impairment charge to be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value. ASU 2017-04 is effective for interim and annual reporting periods beginning after December 15, 2020, with early adoption permitted. The Company does not expect the guidance to have a material impact on its consolidated financial statements.

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Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(2) Investments:

The following is a summary of available-for-sale securities at June 30, 2018 and December 31, 2017:

										Net
			Cost or		Gross		Gross			Unrealized
	Fair		Amortized		Unrealized		Unrealized			Gains
	Value		Cost		Gains		Losses			(Losses)
June 30, 2018 ¹
Fixed maturities
Agency collateralized mortgage obligations	$	14,961	$	14,480	$	646	$	(165	)	$	481
Agency mortgage-backed securities		33,708		34,459		12		(763	)		(751	)
Asset-backed securities		51,454		50,994		689		(229	)		460
Bank loans		20,202		20,127		204		(129	)		75
Certificates of deposit		3,122		3,124		-		(2	)		(2	)
Collateralized mortgage obligations		5,135		4,789		369		(23	)		346
Corporate securities		212,059		216,496		716		(5,153	)		(4,437	)
Mortgage-backed securities		30,954		30,475		940		(461	)		479
Municipal obligations		48,327		48,468		296		(437	)		(141	)
Non-U.S. government obligations		38,602		39,681		191		(1,270	)		(1,079	)
U.S. government obligations		117,864		118,975		-		(1,111	)		(1,111	)
Total fixed maturities	$	576,388	$	582,068	$	4,063	$	(9,743	)	$	(5,680	)

										Net
			Cost or		Gross		Gross			Unrealized
	Fair		Amortized		Unrealized		Unrealized			Gains
	Value		Cost		Gains		Losses			(Losses)
December 31, 2017 ¹
Fixed maturities
Agency collateralized mortgage obligations	$	16,586	$	15,839	$	818	$	(71	)	$	747
Agency mortgage-backed securities		27,075		27,180		47		(152	)		(105	)
Asset-backed securities		43,469		42,861		749		(141	)		608
Bank loans		19,488		19,271		266		(49	)		217
Certificates of deposit		3,135		3,124		11		-			11
Collateralized mortgage obligations		6,492		6,079		451		(38	)		413
Corporate securities		198,349		198,419		1,602		(1,672	)		(70	)
Mortgage-backed securities		24,204		23,656		933		(385	)		548
Municipal obligations		96,650		97,059		322		(731	)		(409	)
Non-U.S. government obligations		37,394		37,971		475		(1,052	)		(577	)
U.S. government obligations		49,011		49,558		-		(547	)		(547	)
Total fixed maturities		521,853		521,017		5,674		(4,838	)		836
Equity securities:
Consumer		46,578		23,565		24,031		(1,018	)		23,013
Energy		10,278		6,763		3,602		(87	)		3,515
Financial		45,470		31,859		13,937		(326	)		13,611
Industrial		25,402		8,949		16,793		(340	)		16,453
Technology		13,061		5,768		7,401		(108	)		7,293
Funds (e.g. mutual funds, closed end funds, ETFs)		50,291		46,177		4,153		(39	)		4,114
Other		10,683		7,670		3,313		(300	)		3,013
Total equity securities		201,763		130,751		73,230		(2,218	)		71,012

Total	$	723,616	$	651,768	$	78,904	$	(7,056	)	$	71,848

¹ Effective January 1, 2018, the Company adopted ASU 2016-01 and equity securities are no longer classified as available-for-sale. Prior periods have not been restated to conform to the current presentation. See Note 1 – Summary of Significant Accounting Policies - Recently Adopted Accounting Pronouncements for further discussion.

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Notes to Unaudited Condensed Consolidated Financial Statements (continued)

The following table summarizes, for available-for-sale fixed maturities in an unrealized loss position at June 30, 2018 and available-for-sale fixed maturities and equity securities in an unrealized loss position at December 31, 2017, respectively, the aggregate fair value and gross unrealized loss categorized by the duration individual securities have been continuously in an unrealized loss position.

	June 30, 2018							December 31, 2017
	Number of Securities		Fair Value		Gross Unrealized Loss			Number of Securities		Fair Value		Gross Unrealized Loss
Fixed maturity securities:
12 months or less		542	$	419,376	$	(7,862	)		459	$	313,421	$	(2,683	)
Greater than 12 months		101		58,200		(1,881	)		112		75,638		(2,155	)
Total fixed maturities		643		477,576		(9,743	)		571		389,059		(4,838	)

Equity securities ¹ :
12 months or less		-		-		-			65		46,654		(2,218	)
Greater than 12 months		-		-		-			-		-		-
Total equity securities		-		-		-			65		46,654		(2,218	)
Total fixed maturity and equity securities		643	$	477,576	$	(9,743	)		636	$	435,713	$	(7,056	)

The fair value and the cost or amortized costs of fixed maturity investments at June 30, 2018, by contractual maturity, are shown below. Actual maturities may ultimately 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

One year or less	$	48,916	$	49,514
Excess of one year to five years		303,116		307,337
Excess of five years to ten years		87,208		89,044
Excess of ten years		2,531		2,590
Contractual maturities		441,771		448,485
Asset-backed securities		134,617		133,583
Total	$	576,388	$	582,068

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Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Following is a summary of the components of net realized and unrealized gains (losses) on investments for the periods presented in the accompanying condensed consolidated statements of operations.

	Three Months Ended						Six Months Ended
	June 30						June 30
	2018			2017			2018			2017
Gross gains on available-for-sale investments sold during the period:
Fixed maturities	$	3,691		$	4,804		$	6,134		$	5,692
Equity securities ¹		-			2,892			-			4,498
Total gains		3,691			7,696			6,134			10,190

Gross losses on available-for-sale investments sold during the period:
Fixed maturities	$	(3,088	)		(4,776	)	$	(5,796	)		(6,149	)
Equity securities ¹		-			(355	)		-			(468	)
Total losses		(3,088	)		(5,131	)		(5,796	)		(6,617	)

Other-than-temporary impairments		-			-			-			-

Change in value of limited partnership investments		(2,842	)		731			(5,445	)		6,017

Gains (losses) on equity securities:
Realized gains on equity securities sold during the period ²		312			-			953			-
Unrealized losses on equity securities held at the end of the period		(1,508	)		-			(3,814	)		-
Realized and unrealized losses on equity securities held at the end of the period		(1,196	)		-			(2,861	)		-

Net realized and unrealized gains (losses) on investments	$	(3,435	)	$	3,296		$	(7,968	)	$	9,590

² During the three and six months ended June 30, 2018, the Company sold $27,800 and $87,557 in equity securities, resulting in a realized gain of $9,990 and $45,128, respectively. The majority of this gain was included in unrealized gains within other comprehensive income at December 31, 2017 and, as a result of the adoption of ASU 2016-01, was reclassified to retained earnings as of January 1, 2018 and was therefore not recognized in the condensed consolidated statements of operations for the three and six months ended June 30, 2018.

Shareholders' equity at June 30, 2018 included approximately $35,635, net of federal income tax expense, of reported earnings, that remain undistributed by limited partnerships.

- 13 -

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(3) Reinsurance:

The following table summarizes the Company's transactions with reinsurers for the 2018 and 2017 comparative periods.

	2018		2017
Three months ended June 30:
Premiums ceded to reinsurers	$	28,800	$	45,791
Losses and loss expenses
ceded to reinsurers		21,975		52,396
Commissions from reinsurers		6,443		6,387

Six months ended June 30:
Premiums ceded to reinsurers	$	61,241	$	77,099
Losses and loss expenses
ceded to reinsurers		48,636		71,870
Commissions from reinsurers		14,323		13,795

(4) Loss and Loss Expense Reserves:

Activity in the reserves for losses and loss expenses for the six months ended June 30, 2018 and 2017 is summarized as follows. All amounts are shown net of reinsurance, unless otherwise indicated.

	2018			2017
Reserves, gross of reinsurance
recoverable, at the beginning of the year	$	680,274		$	576,330
Reinsurance recoverable on unpaid losses at the beginning of the year		308,143			251,563
Reserves at the beginning of the year		372,131			324,767

Provision for losses and loss expenses:
Claims occurring during the current period		151,462			103,666
Claims occurring during prior periods		(1,675	)		16,687
Total incurred		149,787			120,353

Loss and loss expense payments:
Claims occurring during the current period		28,903			23,548
Claims occurring during prior periods		88,965			84,628
Total paid		117,868			108,176
Reserves at the end of the period		404,050			336,944

Reinsurance recoverable on unpaid losses at the end of the period		312,231			290,781
Reserves, gross of reinsurance
recoverable, at the end of the period	$	716,281		$	627,725

The table above shows a roll-forward of loss and loss expense reserves from the prior year end to the current balance sheet date with comparable prior year information. Losses incurred from claims occurring during prior years reflect the development from prior accident years, 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.

The $1,675 prior accident year savings that developed during the six months ended June 30, 2018 was largely due to favorable loss development in workers' compensation and independent contractor coverages. This 2018 savings compares to a deficiency of $16,687 for the six months ended June 30, 2017 related to prior year reserve strengthening due to unfavorable development from prior year claims, particularly from infrequent, but severe loss events during the second quarter of 2017.

- 14 -

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(5) Segment Information:

The Company has one reportable business segment in its operations: Property and Casualty Insurance. The property and casualty insurance segment provides multiple lines of insurance coverage primarily to fleet transportation companies as well as to independent contractors who contract with fleet transportation companies. In addition, the Company provides workers' compensation coverage for a variety of classes outside the transportation industry.

The following table summarizes segment revenues for the three and six months ended June 30, 2018 and 2017:

	Three Months Ended					Six Months Ended
	June 30					June 30
	2018			2017		2018			2017

Revenues:
Net premiums earned	$	111,940		$	67,996	$	217,402		$	141,971
Net investment income		5,796			4,716		10,432			8,408
Net realized and unrealized gains (losses) on investments		(3,435	)		3,296		(7,968	)		9,590
Commissions and other income		2,263			1,400		4,076			2,380
Total revenues	$	116,564		$	77,408	$	223,942		$	162,349

(6) 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 June 30, 2018 and December 31, 2017. At June 30, 2018, the effective interest rate was 3.18%. The Company has $20,000 remaining and unused under the line of credit at June 30, 2018. The current outstanding borrowings were used for general corporate purposes.

(7) Taxes:

As of June 30, 2018, the Company's calendar years 2016, 2015 and 2014 remain subject to examination by the Internal Revenue Service.

The effective federal tax rate on consolidated income for the three months ended June 30, 2018 was 18.6% compared to 41.7% on consolidated loss for the three months ended June 30, 2017. The effective federal tax rate on consolidated income for the six months ended June 30, 2018 was 16.4% compared to 49.2% on consolidated loss for the six months ended June 30, 2017.

The effective federal income tax rate differs from the normal statutory rate primarily as a result of tax-exempt investment income. The decrease also reflects the reduced federal corporate income tax rate as a result of the enactment of the U.S. Tax Act in December 2017. The Company continues to analyze the different aspects of the U.S. Tax Act, which could potentially affect the provisional estimates that were recorded at December 31, 2017.

During the six months ended June 30, 2018, the Company paid $6,000 in cash taxes.

- 15 -

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(8) Fair Value:

Assets and liabilities recorded at fair value in the condensed consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The following tables summarize fair value measurements by level for assets measured at fair value on a recurring basis:

As of June 30, 2018:

Description	Total		Level 1		Level 2		Level 3

Fixed maturities:
Agency collateralized mortgage obligations	$	14,961	$	-	$	14,961	$	-
Agency mortgage-backed securities		33,708		-		33,708		-
Asset-backed securities		51,454		-		51,454		-
Bank loans		20,202		-		20,202		-
Certificates of deposit		3,122		3,122		-		-
Collateralized mortgage obligations		5,135		-		5,135		-
Corporate securities		206,291		-		206,291		-
Options embedded in convertible securities		5,768		-		5,768		-
Mortgage-backed securities		30,954		-		30,954		-
Municipal obligations		48,327		-		48,327		-
Non-U.S. government obligations		38,602		-		38,602		-
U.S. government obligations		117,864		-		117,864		-
Total fixed maturities		576,388		3,122		573,266		-
Equity securities:
Consumer		25,000		25,000		-		-
Energy		7,240		7,240		-		-
Financial		37,243		37,243		-		-
Industrial		13,144		13,144		-		-
Technology		4,129		4,129		-		-
Funds (e.g. mutual funds, closed end funds, ETFs)		27,908		22,873		5,035		-
Other		10,743		10,743		-		-
Total equity securities		125,407		120,372		5,035		-
Short-term		1,000		1,000		-		-
Cash equivalents		73,600		-		73,600		-
Total	$	776,395	$	124,494	$	651,901	$	-

- 16 -

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

As of December 31, 2017:

Description	Total		Level 1		Level 2		Level 3

Fixed maturities:
Agency collateralized mortgage obligations	$	16,586	$	-	$	16,586	$	-
Agency mortgage-backed securities		27,075		-		27,075		-
Asset-backed securities		43,469		-		43,469		-
Bank loans		19,488		-		19,488		-
Certificates of deposit		3,135		3,135		-		-
Collateralized mortgage obligations		6,492		-		6,492		-
Corporate securities		193,058		-		193,058		-
Options embedded in convertible securities		5,291		-		5,291		-
Mortgage-backed securities		24,204		-		24,204		-
Municipal obligations		96,650		-		96,650		-
Non-U.S. government obligations		37,394		-		37,394		-
U.S. government obligations		49,011		-		49,011		-
Total fixed maturities		521,853		3,135		518,718		-
Equity securities:
Consumer		46,578		46,578		-		-
Energy		10,278		10,278		-		-
Financial		45,470		45,470		-		-
Industrial		25,402		25,402		-		-
Technology		13,061		13,061		-		-
Funds (e.g. mutual funds, closed end funds, ETFs)		50,291		45,276		5,015		-
Other		10,683		10,683		-		-
Total equity securities		201,763		196,748		5,015		-
Short-term		1,000		1,000		-		-
Cash equivalents		59,173		-		59,173		-
Total	$	783,789	$	200,883	$	582,906	$	-

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.

- 17 -

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

The Company does not have any Level 3 fair value assets at June 30, 2018. 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 six months ended June 30, 2018 and for the year ended December 31, 2017:

	2018		2017
Beginning of period balance	$	-	$	25,218
Total gains or losses (realized)
included in income		-		406
Purchases		-		81
Settlements		-		(9,123	)
Transfers into Level 3		-		144
Transfers out of Level 3		-		(16,726	)
End of period balance	$	-	$	-

Quoted market prices are obtained whenever possible. Where quoted market prices are not available, fair values are estimated using broker/dealer quotes for specific securities. These techniques are significantly affected by the Company's 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 the six months ended June 30, 2018 and 2017.

In addition to the preceding disclosures on assets recorded at fair value in the condensed 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 condensed 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 of the Company. 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.

- 18 -

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Short-term borrowings: The fair value of the Company's 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 the Company for debt of similar terms and remaining maturities.

A summary of the carrying value and fair value by level of financial instruments not recorded at fair value on the Company's condensed consolidated balance sheets at June 30, 2018 and December 31, 2017 is as follows:

	Carrying		Fair Value
	Value		Level 1		Level 2		Level 3		Total

June 30, 2018
Assets: Limited partnerships	$	65,442	$	-	$	-	$	65,442	$	65,442
Liabilities: Short-term borrowings		20,000		-		20,000		-		20,000

December 31, 2017
Assets: Limited partnerships		70,806		-		-		70,806		70,806
Liabilities: Short-term borrowings		20,000		-		20,000		-		20,000

(9) Stock Based Compensation:

The Company issues shares of restricted Class B common stock to the Company's outside directors, which serve as the annual retainer compensation for the outside directors. The shares are distributed to the outside directors on the vesting date, which, with the exception of pro-rated annual retainers granted to outside directors, is one year following the date of grant. The table below provides detail of the restricted stock issuances to directors for 2017 and 2018:

				Grant Date
Grant	Number of Shares	Vesting	Service	Fair Value
Date	Issued	Date	Period	Per Share

5/9/2017	18,183	5/9/2018	7/1/2017 - 6/30/2018	$24.20

8/31/2017	1,257	5/9/2018	8/31/2017 - 6/30/2018	$21.90

2/9/2018	408	5/9/2018	2/9/2018 - 6/30/2018	$24.20

5/8/2018	19,085	5/8/2019	7/1/2018 - 6/30/2019	$23.05

Compensation expense related to the above stock grants is recognized over the period in which the directors render services.

- 19 -

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

In May 2017, the Company's Compensation Committee granted equity-based awards pursuant to the Company's Long-Term Incentive Plan (the "Long-Term Incentive Plan"), which was approved by the Company's shareholders at the 2017 Annual Meeting of Shareholders. Certain participants under the Long-Term Incentive Plan were granted performance-based equity awards (the "2017 LTIP Awards"), with the number of shares of Class B common stock earned pursuant to such award determined by applying a performance matrix consisting of a measurement of the combined results of the Company's 2017 growth in net premiums earned and the Company's 2017 combined ratio. The combined ratio is calculated as a ratio of (A) losses and loss expenses incurred, plus other operating expenses, less commission and other income to (B) net premiums earned. No 2017 LTIP Awards were earned based on the Company's performance in 2017, and therefore no shares were issued pursuant to the 2017 LTIP Awards. In addition to the 2017 LTIP Awards, in May 2017 the Company's Compensation Committee also granted Value Creation Incentive Plan awards (the "2017 VCIP Awards") to certain participants under the Long-Term Incentive Plan. The 2017 VCIP Awards are performance-based equity awards that will be earned based on the Company's cumulative operating income over a three-year performance period from January 1, 2017 through December 31, 2019 relative to an operating income goal for the period set by the Compensation Committee in March 2017. For the purpose of the 2017 VCIP Awards, cumulative operating income is equal to income before taxes excluding net realized gains (losses) on investments. Any 2017 VCIP Awards that are earned will be paid in unrestricted shares of the Company's Class B common stock at the end of the three-year performance period, but no later than March 15, 2020. No shares are eligible to be issued under the 2017 VCIP Awards as of June 30, 2018.

In March 2018, the Company's Compensation Committee granted equity-based awards pursuant to the Company's Long-Term Incentive Plan. Certain participants under the Long-Term Incentive Plan were granted equity awards (the "2018 LTIP Awards"), with the number of shares of Class B common stock earned pursuant to such award determined by applying a performance matrix consisting of a measurement of the combined results of the Company's 2018 growth in gross premiums earned and the Company's 2018 combined ratio, as defined above. Any 2018 LTIP Awards earned by the Company's named executive officers ("NEOs") will be paid in shares of restricted Class B common stock at the end of the 2018 annual performance period and will vest one year from the date of issue. Any 2018 LTIP Awards earned by non-NEOs will be paid in shares of restricted Class B common stock at the end of the 2018 annual performance period and will vest ratably over a three-year period from the date of issue. In addition to the 2018 LTIP Awards, in March 2018 the Company's Compensation Committee also granted Value Creation Incentive Plan awards (the "2018 VCIP Awards") to certain participants under the Long-Term Incentive Plan. The 2018 VCIP Awards are performance-based equity awards that will be earned based on the Company's cumulative operating income, as defined above, over a three-year performance period from January 1, 2018 through December 31, 2020 relative to an operating income goal for the period set by the Compensation Committee in March 2018. Any 2018 VCIP Awards that are earned will be paid in unrestricted shares of the Company's Class B common stock at the end of the three-year performance period, but no later than March 15, 2021. The Company recorded $657 of expense related to these awards during the six months ended June 30, 2018.

(10) Litigation, Commitments and Contingencies:

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.

- 20 -

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(11) Shareholders' Equity:

Changes in common stock outstanding and additional paid-in-capital are as follows:

													Additional
				Class A					Class B				Paid-in
	Shares				Amount		Shares			Amount			Capital
Balance at December 31, 2017		2,623,109			$	112		12,423,518		$	530		$	55,078
Restricted stock grants		-				-		10,128			-			901
Repurchase of common shares		(300	)			-		(54,085	)		(2	)		(234	)
Balance at June 30, 2018		2,622,809			$	112		12,379,561		$	528		$	55,745

During the six months ended June 30, 2018, the Company paid $1,280 to repurchase 300 shares of Class A and 54,085 shares of Class B common stock under a share repurchase program approved by its Board of Directors on August 31, 2017.

The change in equity for the six months ended June 30, 2018 was as follows:

	Total equity
Balance at December 31, 2017	$	418,811
Net income		2,817
Other comprehensive loss		(5,558	)
Cash dividends paid to shareholders		(8,456	)
Restricted stock grants		901
Repurchase of common shares		(1,280	)
Balance at June 30, 2018	$	407,235

The change in equity for the six months ended June 30, 2017 was as follows:

	Total equity
Balance at December 31, 2016	$	404,345
Net income		(5,588	)
Other comprehensive income		9,268
Cash dividends paid to shareholders		(8,174	)
Restricted stock grants		920
Balance at June 30, 2017	$	400,771

- 21 -

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

The following table illustrates changes in accumulated other comprehensive income (loss) by component for the six months ended June 30, 2018:

				Unrealized
				holding gains on
	Foreign			available-for-sale
	Currency			securities			Total

Beginning balance at December 31, 2017	$	(309	)	$	46,700		$	46,391

Cumulative effect of adoption of
ASU 2016-01, net of tax		-			(46,157	)		(46,157	)

Balance at January 1, 2018		(309	)		543			234

Cumulative effect of adoption of
ASU 2018-02		-			117			117
Other comprehensive loss
before reclassifications		(411	)		(4,050	)		(4,461	)
Amounts reclassified from
accumulated other
comprehensive income (loss)		-			(1,097	)		(1,097	)

Net current-period other
comprehensive loss		(411	)		(5,147	)		(5,558	)

Ending balance at June 30, 2018	$	(720	)	$	(4,487	)	$	(5,207	)

The following table illustrates changes in accumulated other comprehensive income by component for the six months ended June 30, 2017:

				Unrealized
				holding gains on
	Foreign			available-for-sale
	Currency			securities			Total

Beginning balance	$	(831	)	$	34,051		$	33,220

Other comprehensive income
before reclassifications		453			11,137			11,590

Amounts reclassified from
accumulated other
comprehensive income (loss)		-			(2,322	)		(2,322	)

Net current-period other
comprehensive income		453			8,815			9,268

Ending balance	$	(378	)	$	42,866		$	42,488

- 22 -

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(12) Related Parties:

The Company has invested in three limited partnerships with an aggregate estimated value of $40,508 at June 30, 2018 that are managed by organizations in which one director of the Company is an executive officer and owner. The Company's ownership interest in these limited partnerships at June 30, 2018 was 6% for New Vernon India Fund, 37% for New Vernon Global Opportunity Fund and 27% for New Vernon Global Opportunity Fund II. For the six months ended June 30, 2018 and 2017 the Company recorded $372 and $363 of fees related to the management of these limited partnership investments.

The Company utilizes the services of an investment firm of which one director of the Company is a partial owner. These investment firms manage equity securities and fixed maturity portfolios with an aggregate market value of approximately $23,880 at June 30, 2018. Total commissions and net fees earned by the investment firms and affiliates on these portfolios were $54 and $44 for the six months ended June 30, 2018 and 2017.

( 13) Subsequent Events:

On August 7, 2018, the Board of Directors of Protective Insurance Corporation declared a regular quarterly dividend of $0.28 per share on the Company's Class A and Class B Common Stock. The dividend per share will be payable September 4, 2018 to shareholders of record on August 21, 2018.

- 23 -

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Protective Insurance Corporation (formerly Baldwin & Lyons, Inc.) ("Protective," "we," "us" or "the Company") is a property-casualty insurer specializing in marketing and underwriting property, liability and workers compensation coverage for trucking and public transportation fleets, as well as coverage for trucking industry independent contractors. Additionally, we offer workers' compensation coverage for a variety of operations outside the transportation industry. We operate as one reportable property and casualty insurance segment, offering a range of products and services, the most significant being commercial automobile and workers' compensation insurance products.

Effective August 1, 2018, we changed our name to Protective Insurance Corporation to better align our operational and market identities to reflect our position within the transportation and workers' compensation insurance industry.

Effective January 1, 2018, we adopted ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, or ASU 2016-01, using a cumulative-effect adjustment. This adjustment moved our historical unrealized gains and losses, net of tax, on our equity portfolio from accumulated other comprehensive income (loss) to retained earnings, but had no impact on overall shareholders' equity. In addition, for 2018 and forward, the change in fair value for equity securities is required to be recognized in net earnings rather than in other comprehensive income (loss). The impact to our statements of operations will vary depending upon the level of volatility in the performance of the securities held in our equity portfolio and the overall market.

On December 22, 2017, the U.S. Tax Act was signed into law. The U.S. Tax Act lowered the U.S. corporate income rate from 35% to 21% effective January 1, 2018.

On July 13, 2018, A.M. Best Company, Inc. ("A.M. Best") affirmed our financial strength rating of "A+" (Superior). At the same time, A.M. Best revised its outlook to negative based on their monitoring of our growth strategy and the potential for adverse loss development in certain lines of business.

Liquidity and Capital Resources

The primary sources of our 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.

We generally experience positive cash flow from operations. Premiums are collected on insurance policies in advance of the disbursement of funds in payment of claims. Operating costs of our property/casualty insurance subsidiaries, other than loss and loss expense payments and commissions paid to related agency companies, average less than one-third 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 and the timing of the claim payments. 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. Our cash flow relating to premiums is significantly affected by reinsurance programs in effect, whereby the Company cedes both premium and risk to other insurance and reinsurance companies. These programs vary significantly among products and certain contracts call for reinsurance payment patterns, which do not coincide with the collection of premiums by us from our insureds.

- 24 -

On August 31, 2017, our Board of Directors authorized the reinstatement of our share repurchase program for up to 2,464,209 shares of our Class A or Class B common stock. The repurchases may be made in the open market or through privately negotiated transactions, from time-to-time, and in accordance with applicable laws, rules and regulations. On June 18, 2018, we entered into a stock repurchase plan for the purpose of repurchasing up to $17.0 million of shares of our common stock, at various pricing thresholds, in accordance with guidelines specified under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the "Rule 10b5-1 Plan"). The Rule 10b5-1 Plan was established pursuant to, and as part of, our share repurchase program and permits shares to be repurchased in accordance with pre-determined criteria when repurchases would otherwise be prohibited, such as during self-imposed blackout periods, or under insider trading laws. The Rule 10b5-1 plan expires on August 9, 2018. The share repurchase program may be amended, suspended or discontinued at any time and does not commit us to repurchase any shares of our common stock. We have funded, and intend to continue to fund, the share repurchase program from cash on hand. The actual number and value of the shares to be purchased will depend on the performance of our stock price, market volume and other market conditions. During the six months ended June 30, 2018, we paid $1.3 million to repurchase 300 shares of Class A and 54,085 shares of Class B common stock under the share repurchase program.

For several years, our investment philosophy has emphasized the purchase of short-term bonds with high quality and liquidity. Our fixed income investment portfolio continues to emphasize shorter-duration instruments. If there was a hypothetical increase in interest rates of 100 basis points, the price of our bonds at June 30, 2018 would be expected to fall by approximately 2.6%. The credit quality of our fixed income securities remains high with a weighted average rating of A+, including cash. The average contractual life of our fixed maturity and short-term investment portfolio increased slightly to 5.1 years at June 30, 2018 compared to 4.9 years at December 31, 2017. The average duration of our fixed maturity portfolio remains much shorter than both the contractual maturity average and the duration of our liabilities. We also remain an active participant in the equity securities market using capital in excess of amounts considered necessary to fund our current operations. The long-term horizon for our equity investments allows us to invest in positions where ultimate value, and not short-term market fluctuation, is the primary focus. Investments made by our domestic property/casualty insurance subsidiaries are regulated by guidelines promulgated by the National Association of Insurance Commissioners (the "NAIC"), which are designed to provide protection for both policyholders and shareholders.

Net cash flows from operations increased $1.5 million to $24.7 million during the six months ended June 30, 2018 compared to net cash flows from operations of $23.2 million for the six months ended June 30, 2017. The increase in operating cash flow was mainly due to higher premium volume during the six months ended June 30, 2018.

- 25 -

Net cash used in investing activities was $0.4 million for the six months ended June 30, 2018 compared to net cash provided by investing activities of $2.7 million for the six months ended June 30, 2017. The $3.1 million change was primarily the result of lower distributions from limited partnerships and lower proceeds from maturities and sales of our fixed income securities during the six months ended June 30, 2018 and the purchase of $10.0 million of company-owned life insurance in the first quarter of 2018, partially offset by higher proceeds from sales of our equity investments and lower purchases of fixed maturities and equity securities.

Net cash used in financing activities for the six months ended June 30, 2018 consisted of regular cash dividend payments to shareholders of $8.5 million ($0.56 per share) and $1.3 million to repurchase shares of our Class A and B common stock. Financing activities for the six months ended June 30, 2017 consisted solely of the regular cash dividend payments to shareholders of $8.2 million ($0.54 per share).

Our assets at June 30, 2018 included $73.6 million of investments included within cash and cash equivalents on the condensed consolidated balance sheets that are readily convertible to cash without market penalty and an additional $48.9 million of fixed maturity investments maturing in less than one year. We believe 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 we choose to further restrict volume, the liquidity of our investment portfolio would permit us 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, our reinsurance program is structured to avoid significant cash outlays that accompany large losses.

We maintain 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 our option. Outstanding drawings on this line of credit were $20.0 million as of both June 30, 2018 and December 31, 2017. At June 30, 2018, the effective interest rate was 3.18%, and we had $20.0 million remaining under the line of credit as of June 30, 2018. Our revolving line of credit has three financial covenants, each of which were met as of June 30, 2018. The three financial covenants relate to a minimum Generally Accepted Accounting Principles ("GAAP") net worth, a minimum statutory surplus and a minimum A.M. Best rating.

Annualized net premiums written by our insurance subsidiaries for the second quarter of 2018 equaled approximately 106% of the combined statutory surplus of these subsidiaries, a level consistent with higher premiums written. 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 our insurance subsidiaries substantially exceeded minimum risk based capital requirements set by the NAIC as of June 30, 2018. Accordingly, we have the ability to significantly increase our business without seeking additional capital to meet regulatory guidelines.

Consolidated shareholders' equity is composed largely of GAAP shareholders' equity of our insurance subsidiaries. As such, there are statutory restrictions on the transfer of substantial portions of this equity to the parent company. At June 30, 2018, $69.1 million may be transferred by dividend or loan to the parent company during the remainder of 2018 without approval by, or prior notification to, regulatory authorities. An additional $254.3 million of shareholders' equity of our insurance subsidiaries could be advanced or loaned to the parent company with prior notification to, and approval from, regulatory authorities, although transfers of this size would not be practical. We believe these restrictions pose no material liquidity concerns to us. We also believe the financial strength and stability of our insurance subsidiaries would permit access by the parent company to short-term and long-term sources of credit when needed. The parent company had cash and marketable securities valued at $6.3 million at June 30, 2018.

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Results of Operations

Comparison of Second Quarter 2018 to Second Quarter 2017

The following table provides information regarding premiums written and earned for the quarters ended June 30 (dollars in thousands):

	2018		2017		Change

Gross Premiums Written	$	142,270	$	119,007	$	23,263
Net Premiums Written		114,254		72,707		41,547
Net Premiums Earned		111,940		67,996		43,944

Gross premiums written during the second quarter of 2018 increased $23.3 million (19.5%), while net premiums earned increased $43.9 million (64.6%), as compared to the second quarter of 2017. The higher gross premiums written and net premiums earned were the result of continued growth in our commercial automobile and workers' compensation products in both our retail and program distribution channels. The difference in the percentage change for premiums written compared to earned is reflective of the normal differences in the financial statement recognition of earned premiums compared to written, as well as differences in reinsurance ceding rates on the mix of business in-force.

Premiums ceded to reinsurers on our insurance business averaged 19.7% of gross premiums written for the second quarter of 2018 compared to 38.9% in the second quarter of 2017. The percentage of premiums ceded decreased as a result of changes in our reinsurance structure. In the third quarter of 2017, management lowered the quota share rate on the Company's Workers Compensation premiums to reflect growing profitability and confidence in this book of business. The Company also restructured its Commercial Auto reinsurance treaty, moving away from variable premium ceded rates (based on loss performance), to a flat ceding arrangement with no material changes to the economic risks taken for these products (i.e. ceded losses will decrease by a similar amount as ceded premiums).

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The outsized change in net premiums earned, compared to growth in gross premiums written, was also impacted by variable premium adjustment provisions in our historical commercial automobile reinsurance treaties. Our historical reinsurance structure, which was revised in the past two reinsurance renewals, causes an adjustment to premiums ceded when the ultimate loss estimate changes for a reinsurance treaty year. During the second quarter of 2017, the Company had reserve strengthening that resulted in the Company ceding additional premium from prior treaty years.

Net investment income for the second quarter of 2018 increased 22.9% to $5.8 million compared to $4.7 million for the second quarter of 2017. The increase reflected higher interest rates, which lead to higher reinvestment yields for our short-duration fixed income portfolio and an increase in average funds invested resulting from positive cash flow. After-tax investment income increased by 38.2% to $4.7 million during the second quarter of 2018, compared to $3.4 million during the 2017 second quarter, reflecting the aforementioned higher interest rates and reinvestment yield environment in addition to the lower tax rate as a result of the U.S. Tax Act.

Net realized and unrealized losses on investments of $3.4 million during the second quarter of 2018 were primarily driven by a $2.8 million decrease in the value of our limited partnership investments and $1.5 million in unrealized losses on equity securities during the period, which are now recorded in the condensed consolidated statements of operations in conjunction with our adoption of ASU 2016-01. These losses were partially offset by net realized gains on sales of securities of $0.9 million. During the second quarter of 2018, we sold $27.8 million in equity securities resulting in a realized gain of $10.0 million. The majority of this gain was included in unrealized gains within other comprehensive income (loss) at December 31, 2017 and, as a result of the adoption of ASU 2016-01, was reclassified to retained earnings as of January 1, 2018 and not recognized in the condensed consolidated statements of operations for the second quarter of 2018. These equity sales further solidified the conservative nature of our high quality, short-duration investment portfolio; opportunistically utilized the new lower corporate tax rate of 21%, which was beneficial given the low tax basis of many of these equity positions; and were accretive to income, given the increase in yields at the shorter end of the yield curve. Comparative second quarter 2017 net realized investment gains were $3.3 million, consisting primarily of $2.6 million in net realized gains from sales of securities and $0.7 million in gains reported from our investments in limited partnerships. Realized investment gains and losses result from decisions regarding overall portfolio realignment as well as the sale of individual securities, including the change in aggregate value of limited partnerships and, as such, should not be expected to be consistent from period to period.

Losses and loss expenses incurred during the second quarter of 2018 increased $5.7 million (8.0%) compared to the second quarter of 2017. The loss ratio, however, decreased to 69.2% during the second quarter of 2018 compared to a loss ratio of 105.5% during the second quarter of 2017 as a result of higher net earned premiums in the current period and significant reserve strengthening in the second quarter of 2017 that did not recur. The loss ratio is calculated as the percentage of losses and loss expenses incurred to net premiums earned. The second quarter of 2017 loss ratio reflected significant unfavorable loss experience as well as $16.6 million in prior year reserve strengthening due to unfavorable development from prior year claims, particularly from infrequent, but severe loss events during the second quarter of 2017.

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Other operating expenses for the second quarter of 2018 increased $9.2 million, or 34.2%, from the second quarter of 2017. The increase in other operating expenses was primarily due to increased commission expenses as a result of increased premiums written and higher salary and benefit expense. The ratio of consolidated other operating expenses less commissions and other income to net premiums earned was 30.2% during the second quarter of 2018 compared to 37.4% for the 2017 second quarter. The decrease in the ratio was primarily related to higher net premiums earned in the second quarter of 2018 compared to the second quarter of 2017, in addition to reinsurance impacts in the second quarter of 2017 as discussed above.

Income tax expense was $0.6 million for the second quarter of 2018 compared to an income tax benefit of $8.8 million for the second quarter of 2017. The effective tax rate for the second quarter of 2018 was 18.6%. The effective federal income tax rate in the current year differed from the normal statutory rate primarily as a result of tax-exempt investment income. The decrease also reflects the reduced federal corporate income tax rate as a result of the enactment of the U.S. Tax Act in December 2017. We continue to analyze the different aspects of the U.S. Tax Act, which could potentially affect the provisional estimates that were recorded at December 31, 2017.

As a result of the factors mentioned above, and primarily the increase in net premiums earned in the second quarter of 2018 and the reserve strengthening in the second quarter of 2017 that did not recur in the second quarter of 2018, net income increased $14.8 million during the second quarter of 2018 as compared to the second quarter of 2017.

Comparison of Six Months Ended June 30, 2018 to Six Months Ended June 30, 2017

The following table provides information regarding premiums written and earned for the six months ended June 30 (dollars in thousands):

	2018		2017		Change

Gross Premiums Written	$	291,093	$	229,035	$	62,058
Net Premiums Written		227,688		150,237		77,451
Net Premiums Earned		217,402		141,971		75,431

Gross premiums written during the six months ended June 30, 2018 increased $62.1 million (27.1%), while net premiums earned increased $75.4 million (53.1%), as compared to the same period in 2017. The higher gross premiums written and net premiums earned were the result of continued growth in our commercial automobile and workers' compensation products in both our retail and program distribution channels. The difference in the percentage change for premiums written compared to earned was reflective of the normal differences in the financial statement recognition of earned premiums compared to written, as well as differences in reinsurance ceding rates on the mix of business in-force.

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Premiums ceded to reinsurers on our insurance business averaged 21.8% of gross premiums written for the six months ended June 30, 2018 compared to 34.4% for the same period of 2017. The percentage of premiums ceded to reinsurance decreased as a result of changes in the Company's reinsurance structure. In the third quarter of 2017, management lowered the quota share rate on our Workers Compensation premiums to reflect growing profitability and confidence in this book of business. We also restructured our Commercial Auto reinsurance treaty, moving away from variable premium ceded rates (based on loss performance), to a flat ceding arrangement with no material changes to the economic risks taken for these products (i.e. ceded losses will decrease by a similar amount as ceded premiums).

The outsized change in net premiums earned, compared to growth in gross premiums written, was also impacted by variable premium adjustment provisions in our historical commercial automobile reinsurance treaties. Our historical reinsurance structure, which was revised in the past two reinsurance renewals, causes an adjustment to premiums ceded when the ultimate loss estimate changes for a reinsurance treaty year. During the six months ended June 30, 2017, the Company had reserve strengthening that resulted in the Company ceding additional premium from prior treaty years.

Net investment income for the six months ended June 30, 2018 increased 24.1% to $10.4 million compared to $8.4 million in the same period of 2017. The increase reflects higher interest rates, leading to higher reinvestment yields for our short-duration fixed income portfolio and an increase in average funds invested resulting from positive cash flow. After-tax investment income increased by 40.0% to $8.4 million during the six months ended June 30, 2018, compared to $6.0 million during the same period of 2017, reflecting the aforementioned higher interest rates and reinvestment yield environment.

Net realized and unrealized losses on investments of $8.0 million during the six months ended June 30, 2018 were driven by a $5.4 million decrease in the value of our limited partnership investments and $3.8 million in unrealized losses on equity securities during the period, which are now recorded in the condensed consolidated statements of operations in conjunction with our adoption of ASU 2016-01. These losses were partially offset by net realized gains on sales of fixed income and equity securities of $1.2 million during the six months ended June 30, 2018. During the six months ended June 30, 2018, we sold $87.6 million in equity securities resulting in a realized gain of $45.1 million. The majority of this gain was included in unrealized gains within other comprehensive income (loss) at December 31, 2017 and, as a result of the adoption of ASU 2016-01, was reclassified to retained earnings as of January 1, 2018 and not recognized in the condensed consolidated statements of operations for the six months ended June 30, 2018. Comparative six months ended June 30, 2017 net realized investment gains were $9.6 million, consisting primarily of $6.0 million in gains reported from our investments in limited partnerships and $3.6 million in net realized gains from sales of securities. Realized investment gains and losses result from decisions regarding overall portfolio realignment as well as the sale of individual securities, including the change in aggregate value of limited partnerships and, as such, should not be expected to be consistent from period to period.

Losses and loss expenses incurred during the six months ended June 30, 2018 increased $29.4 million (24.5%) compared to the same period of 2017. The loss ratio, however, decreased to 68.9% for the six months ended June 30, 2018, compared to a loss ratio of 84.8% during the same period of 2017 as a result of higher net earned premiums in the current period and significant reserve strengthening in the 2017 period that did not recur. The loss ratio is calculated as the percentage of losses and loss expenses incurred to net premiums earned. The six months ended June 30, 2017 loss ratio reflected significant unfavorable loss experience as well as $16.7 million in prior year reserve strengthening due to unfavorable development from prior year claims, particularly from infrequent, but severe loss events in addition to a number of severe public transportation losses.

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Other operating expenses for the six months ended June 30, 2018 increased $17.8 million, or 33.6%, compared to the same period of 2017. The increase in other operating expenses was primarily due to increased commission expenses as a result of increased premiums written and higher salary and benefit expense. The ratio of consolidated other operating expenses less commissions and other income to net premiums earned was 30.7% during the six months ended June 30, 2018 compared to 35.7% for the same period of 2017. The decrease in the ratio was primarily related to higher net premiums earned in the six months ended June 30, 2018 compared to the same period of 2017, in addition to reinsurance impacts in the six months ended June 30, 2017 as discussed above.

Income tax expense was $0.6 million for the six months ended June 30, 2018 compared to an income tax benefit of $5.4 million for the same period of 2017. The effective tax rate for the six months ended June 30, 2018 was 16.4%. The effective federal income tax rate in the current year differed from the normal statutory rate primarily as a result of tax-exempt investment income. The decrease also reflects the reduced federal corporate income tax rate as a result of the enactment of the U.S. Tax Act in December 2017. We continue to analyze the different aspects of the U.S. Tax Act, which could potentially affect the provisional estimates that were recorded at December 31, 2017.

As a result of the factors mentioned above, and primarily the increase in net premiums earned in the six months ended June 30, 2018 and the reserve strengthening in the six months ended June 30, 2017 that did not recur in the six months ended June 30, 2018, net income increased $8.4 million during the six months ended June 30, 2018 as compared to the same period of 2017.

Forward-Looking Information

The disclosures in this Form 10-Q contain "forward-looking statements" (within the meaning of the Private Securities Litigation Reform Act of 1995). All statements, trend analyses and other information contained in this Form 10-Q relative to markets for our products and trends in our operations or financial results, as well as other statements including words such as "may," "target," "anticipate," "believe," "plan," "estimate," "expect," "intend," "project," and other similar expressions, constitute forward-looking statements.

Investors are cautioned that such forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements , many of which are difficult to predict and generally beyond our control. Investors are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof. Investors are also urged to carefully review and consider the various disclosures made by us, which attempt to advise interested parties of the factors that affect our business, including "Risk Factors" set forth in Part I, Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and our reports filed with the U.S. Securities and Exchange Commission from time to time . Except to the extent otherwise required by federal securities laws, we do not undertake any obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof.

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Factors that could contribute to these differences include, among other things:

●

general economic conditions, including weakness of the financial markets, prevailing interest rate levels and stock and credit market performance, which may affect or continue to affect (among other things) our ability to sell our products and to collect amounts due to us, our ability to access capital resources and the costs associated with such access to capital and the market value of our investments;

●	our ability to obtain adequate premium rates and manage our growth strategy;

●	increasing competition in the sale of our insurance products and services resulting from the entrance of new competitors into, or the expansion of the operations of existing competitors in, our markets and our ability to retain existing customers;

●	other changes in the markets for our insurance products;

●	changes in the legal or regulatory environment, which may affect the manner in which claims are adjusted or litigated, including loss and loss adjustment expense;

●	legal or regulatory changes or actions, including those relating to the regulation of the sale, underwriting and pricing of insurance products and services and capital requirements;

●	technology or network security disruptions;

●	adequacy of insurance reserves;

●	availability of reinsurance and ability of reinsurers to pay their obligations;

●	our ability to attract and retain qualified employees;

●	tax law and accounting changes; and

●	legal actions brought against us.

Some of the significant risks and uncertainties that could cause actual results to differ materially from our expectations and projections are described more fully in Part II, Item 1A, "Risk Factors," of this Quarterly Report on Form 10-Q and Part I, Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017. You should read that information in conjunction with this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our unaudited condensed consolidated financial statements and related notes in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Critical Accounting Policies

There have been no changes in our critical accounting policies as disclosed in our Annual Report on Form 10-K filed for the year ended December 31, 2017.

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Concentrations of Credit Risk

Our insurance subsidiaries cede portions of their gross premiums to numerous reinsurers under quota share and excess of loss treaties as well as facultative placements. These reinsurers assume commensurate portions of the risk of loss covered by the contracts. As losses are reported and reserved, portions of the gross losses attributable to reinsurers are established as receivable assets and losses incurred are reduced. At June 30, 2018, amounts due from reinsurers on paid and unpaid losses were estimated to total approximately $312 million. Because of the large policy limits reinsured by us, the ultimate amount of incurred but not reported losses and loss adjustment expenses attributable to reinsurers could vary significantly from the estimate provided; however, absent the inability to collect from reinsurers, such variance would not result in changes in net claim losses incurred by us.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Other than as set forth below, there have been no material changes in the Company's exposure to market risk since the disclosure in the Company's Annual Report on Form 10-K for the year ended December 31, 2017.

Interest Rate Risk

We are exposed to interest rate risk on our fixed maturity investments. Given the anticipated duration of our liabilities (principally insurance loss and loss expense reserves) relative to investment maturities, a 100 to 200 basis point increase in interest rates would not have a material impact on our ability to conduct daily operations or to meet our obligations and could result in significantly higher investment income in a relatively short period of time, as short-term investments and maturing bonds could be reinvested in higher yielding securities very quickly.

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The table below summarizes our interest rate risk by illustrating the sensitivity of the fair value of our securities as of June 30, 2018 to selected hypothetical changes in interest rates.

	Fair Value		Estimated Change in Fair Value
	in thousands
200 basis point increase	$	542,965	$	(33,423	)
100 basis point increase		559,677		(16,711	)
Current fair value		576,388		-
100 basis point decrease		592,886		16,498
200 basis point decrease		609,251		32,863

Our selection of the range of values chosen to represent changes in interest rates should not be construed as our prediction of future market events, but rather, as an illustration of the impact of such events, should they occur. Several other factors, including but not limited to 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, 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 above.

ITEM 4. CONTROLS AND PROCEDURES

The Company carried out an evaluation as of June 30, 2018 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) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, or the "Exchange Act". Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded 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 period covered by this report that materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

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PART II – OTHER INFORMATION

I TEM 1A. RISK FACTORS

In addition to the information set forth in this Quarterly Report on Form 10-Q and before deciding to invest in, or retain, shares of the Company's common stock, you should carefully review and consider the information contained in the Company's other reports and periodic filings that it makes with the Securities and Exchange Commission, including, without limitation, the information contained under the caption Part I, Item 1A "Risk Factors" in its Annual Report on Form 10-K for the year ended December 31, 2017. Those risk factors could materially affect the Company's business, financial condition and results of operations. There have been no material changes from the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2017.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

	Total number of shares purchased		Average price paid per share		Total number of shares purchased under the program ⁽¹⁾		Remaining shares available to be purchased under the program ⁽¹⁾
April 1 – April 30		-	$	-		-		2,368,749
May 1 – May 31		15,234		23.11		15,234		2,353,515
June 1 – June 30		28,651		24.16		28,651		2,324,864
Total		43,885				43,885

⁽¹⁾ On August 31, 2017, the Company's Board of Directors authorized the reinstatement of its share repurchase program for up to 2,464,209 shares of the Company's Class A or Class B common stock. Pursuant to this share repurchase program, the Company entered into a Rule 10b5-1 plan on June 18, 2018, which authorizes the repurchase of up to $17.0 million of the Company's outstanding common shares, at various pricing thresholds. No duration has been placed on the Company's share repurchase program, and the Company reserves the right to discontinue it at any time.

ITEM 5. OTHER INFORMATION .

On August 7, 2018, the Company filed Amended and Restated Articles of Incorporation with the Indiana Secretary of State, which combined into one document the Company's Amended Articles of Incorporation and all amendments to such Amended Articles of Incorporation approved by the Board of Directors and the Company's shareholders as of such date. A copy of the Amended and Restated Articles of Incorporation are filed with this Quarterly Report on Form 10-Q as Exhibit 3.1.

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ITEM 6 (a) EXHIBITS

INDEX TO EXHIBITS

Table of Regulation of S-K Item 601		Exhibit No.
(3.1)	Amended and Restated Articles of Incorporation of Protective Insurance Corporation	EXHIBIT 3.1 Filed herewith
(10.1)	Severance, Confidentiality, Non-competition and Non-solicitation Agreement, dated May 10, 2018, by and between the Company and W. Randall Birchfield	EXHIBIT 10.1 Filed herewith
(10.2)	Severance, Confidentiality, Non-competition and Non-solicitation Agreement, dated June 22, 2018, by and between the Company and Matthew A. Thompson	EXHIBIT 10.2 Filed herewith
(10.3)	Severance Pay Release and Waiver of Rights, dated February 15, 2018, by and between the Company and Michael J. Case	EXHIBIT 10.3 Filed herewith
(31.1)	Certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	EXHIBIT 31.1 Certification of CEO
(31.2)	Certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	EXHIBIT 31.2 Certification of CFO
(32)	Certification of CEO and CFO pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	EXHIBIT 32 Certification of CEO and CFO
(101)	The following materials from Protective Insurance Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, formatted in XBRL (eXtensible Business Reporting Language): (1) the Condensed Consolidated Balance Sheets, (2) the Condensed Consolidated Statements of Operations, (3) the Condensed Consolidated Statements of Comprehensive Income (Loss), (4) the Condensed Consolidated Statements of Cash Flows, and (5) the Notes to Unaudited Condensed Consolidated Financial Statements.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PROTECTIVE INSURANCE CORPORATION

Date August 8, 2018

By / s/ W. Randall Birchfield

W. Randall Birchfield,

President, Chief Executive Officer &

Chief Operating Officer

Date August 8, 2018

By /s/ William C. Vens

William C. Vens

Chief Financial Officer

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SEVERANCE, CONFIDENTIALITY,

NON-COMPETITION, AND NON-SOLICITATION AGREEMENT

This SEVERANCE, CONFIDENTIALITY, NON-COMPETITION, AND NON-SOLICITATION AGREEMENT (this " Agreement ") is made and entered into as of May 10, 2018 (the "Effective Date"), by and between Baldwin & Lyons, Inc., an Indiana corporation (the " Company "), and W. Randall Birchfield (the " Executive ").

PRELIMINARY STATEMENTS

The Company is in the highly competitive insurance industry and its products and services include, but are not limited to, marketing and underwriting insurance for the transportation industry, insurance brokerage operations, claims servicing, loss prevention services, automobile insurance, reinsurance, workers compensation insurance, professional liability insurance, and related services (the " Business" ). The Company conducts the Business throughout the United States, Canada, Puerto Rico, and Bermuda, and has its headquarters in Carmel, Indiana; and

Upon the execution of this Agreement, the Executive serves as a highly valued member of the Company's team, specifically as the Chief Executive Officer and President of the Company or one of its subsidiaries, with duties and responsibilities coextensive with critical areas of the Business, including, but not limited to, assisting in developing the Company's business strategies, working closely with highly valued customers of the Company, and he/she has access to virtually all of the Company's Confidential Information. In such role, the Executive developed substantial business knowledge and expertise in the conduct of the Business, close relationships with highly valued customers of the Company, and he/she has acquired knowledge regarding Confidential Information of the Company; and

This Agreement is entered into to protect, among other things, the Company's goodwill, customer and referral relationships, trade secrets, intellectual property, confidential information, and other property that is proprietary to the Company; and

In consideration of the Company's continued employment of the Executive pursuant to this Agreement, and for other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Executive and the Company (the " parties ") hereby agree as follows:

1. Term . The " Term " of this Agreement is the period during which the Employee is employed by the Company, and the date on which his employment ends is referred to in this Agreement as the " Separation Date ." The parties agree that the Executive shall continue to be employed by the Company on an at-will basis during the Term which means that he/she may terminate his/her employment at any time for any or no reason, and that the Company may terminate his/her employment at any time for any or no reason. Notwithstanding the above, in the event the Company terminates the Executive's employment, the Company shall make a Separation Payment to the Executive. If the Executive resigns from his/her employment with the Company Group for Good Reason on or before the occurrence of the two (2) year anniversary of the occurrence of a Change of Control, the Company shall make a Change in Control Payment to the Executive. If the Executive Retires from the Company, the Company shall make a Retirement Payment to the Executive. If Executive is dismissed for dishonest activities, fraud, gross neglect of duty, or misconduct, the Executive shall not be entitled to any such Separation Payment. As a condition to the Executive's receipt of the above-described Separation Payment or Change in Control Payment, he/she shall execute a release of claims in a form prepared by and satisfactory to the Company. Within fourteen (14) business days of the effective date of such release of claims, the Executive shall receive the first Separation Payment described above, which will be paid over the course of twelve (12) months in accordance with the Company's regular bi-weekly payroll schedule. The Executive acknowledges and agrees that his/her obligations as set forth below, and the rights of the Company as described in this Agreement, shall be enforceable by the Company, whether or not the Executive executes the above-described release of claims and receives the Separation Payment or Change in Control Payment. The Company has a right to set-off any Separation Payment with any other wages or compensation the Executive earns from other employment during the period for which Separation Payments are made.

2. Confidentiality . The Executive acknowledges and agrees that he/she shall maintain the confidentiality of this Agreement and shall not disclose it to any other employee of the Company or other person; provided , however , he/she may disclose it to his/her spouse and/or legal counsel or as required by law and he/she may disclose or discuss any items of this Agreement which the Company had disclosed in its annual Proxy Statement, as required by the Securities Exchange Act or other applicable regulation.

The Executive acknowledges and agrees that the Confidential Information (as defined below) of the Company Group, and all physical embodiments thereof, are valuable, special and unique assets of the business of the Company Group and have been developed by the Company Group at considerable time and expense. Such Confidential Information is the sole property of the Company Group and the Executive has no individual right or ownership interest in any of the Company Group's Confidential Information. The Executive further acknowledges that access to such Confidential Information will be needed in connection with the performance of his/her duties and responsibilities during his/her employment with the Company. Therefore, the Executive agrees that, except as necessary in regard to his/her assigned duties and responsibilities with the Company, he/she shall hold in confidence all Confidential Information and will not reproduce, use, distribute, disclose, publish, or otherwise disseminate any Confidential Information, in whole or in part, and will take no action causing, or fail to take any action necessary to prevent causing, any Confidential Information to lose its character as Confidential Information, nor willfully make use of such information for his/her own purposes or for the benefit of any person, firm, corporation, association, or other entity (except the Company Group) under any circumstances.

Notwithstanding the above, the Executive may disclose such Confidential Information pursuant to a court order, subpoena, or other legal process, provided that, at least ten (10) days (or such lesser period as is practicable given the terms of any order, subpoena or other legal process) in advance of any legal disclosure, he/she shall furnish the Company with a copy of the judicial or administrative order requiring that such information be disclosed together with a written description of the information to be disclosed (which description shall be in sufficient detail to allow the Company to determine the nature and scope of the information proposed to be disclosed), and the Executive agrees to cooperate with the Company Group to deliver the minimum amount of information necessary to comply with such order.

Executive agrees to maintain in trust, as the Company's property, all documents, information and Confidential Information, both in tangible and intangible form, concerning the Company's Business or the Executive's role for Company. Executive agrees to return to Company all documents or other property belonging to the Company, including any and all copies thereof (whether in tangible or intangible form) in the possession or under the control of Executive upon separation of employment or at any other time upon request of Company.

The provisions of this Section 2 shall apply to Confidential Information during the Term and at all times thereafter, and shall survive the termination of this Agreement and the Executive's separation of employment. This Agreement supplements and does not supersede Executive's obligations under all statute(s) and common law(s) that protect the Company's trade secrets and/or property.

3. Restrictive Covenants .

3.01 Non-Competition .

(a) During the Restricted Period, Executive shall not, directly or indirectly: (i) for or on behalf of a Specified Competitor (as defined below), assist (in any manner, and including, without limitation, as an employee, consultant, or independent contractor), provide services to, or perform the same or substantially similar employee, executive, managerial, operational, sales, marketing, supervisory, and/or business development or advisory services as those the Executive performed for or on behalf of Company Group at any time in the two (2) year period immediately preceding the Separation Date (or the date of any breach hereof); or (ii) for or on behalf of any Specified Competitor, market, offer, promote, manage, or sell Competitive Products. The restrictions contained in this paragraph are necessary because of the Executive's extensive knowledge of the Business, the industry as a whole, and the Company's customers, and because a competitor would gain an unfair competitive advantage by associating with the Executive during the Restricted Period.

(b) Due to the nature of the Business and the nature of the Executive's job duties and responsibilities with the Company, which are co-extensive with the entire scope of the Company's Business, the broadest geographic scope enforceable by law for the restrictions set forth in Section 3.01(a) shall be applicable, as follows:

	The United States of America, Canada, Puerto Rico, and Bermuda;

	Each state, province, commonwealth, territory, and other political subdivision of the United States of America, Canada, Puerto Rico, and Bermuda;

	Indiana and any state, province, commonwealth, territory, or other political subdivision in which the Executive performed any services for the Company Group at any time in the two (2) year period immediately preceding the Separation Date; and

	Within one hundred (100) miles of any office or facility of the Company Group.

3.02. Non-Solicitation .

(a) For a period of twenty-four (24) months immediately following the Separation Date, directly or indirectly, call upon, solicit, accept any business of, provide any services or products to, contact, or have any communication with any Customer for the purpose of: (i) diverting or influencing, or attempting to divert or influence, any business of such Customer to any Competitor (as defined below), or (ii) marketing, selling, offering, or providing any Competitive Products (as defined above).

(b) During the Restricted Period, the Executive shall not, directly or indirectly, call upon, solicit, accept any business of, provide any services or products to, contact, or have any communication with any Prospect for the purpose of: (i) diverting or influencing, or attempting to divert or influence, any business of such Prospect to any Competitor (as defined below), or (ii) marketing, selling, offering, or providing any Competitive Products (as defined above). A "Prospect" is defined as any person or entity: (x) for or to whom the Company Group provided a quote to provide products or services; (y) for or to whom the Company Group was preparing a quote to provide products or services at the time of the Executive's separation from the Company.

(c) For a period of twenty-four (24) months immediately following the Separation Date, the Executive shall not, directly or indirectly, solicit for employment, endeavor to entice away from the Company Group, hire or retain (or attempt to do any of the foregoing) any person who is or was an employee, independent contractor, or other personnel of Company Group at any time during the twelve (12) month period prior to the Separation Date, or interfere in any way with the relationship between the Company Group and any of its Customers, employees, independent contractors, or other personnel.

3.03. Non-Disparagement . During the Term, and at all times thereafter, the Executive shall not, directly or indirectly, make any negative or disparaging statement or encourage others to make any such statement that has the effect of embarrassing or criticizing the Company Group, the services and products offered or provided in the Business, including, without limitation, the Company Group's actual or prospective Customers or employees.

3.04. Survival . The obligations of the Executive and the rights of the Company pursuant to this Section 3 shall survive any termination of this Agreement for the periods of time specified herein, or, if no time limitation is included, indefinitely.

3.05. Remedies .

(a) Remedies . The parties recognize, acknowledge and agree that (i) any breach or threatened breach of the provisions of Sections 2 and/or 3 shall cause irreparable harm and injury to the Company and that money damages alone will not provide an adequate remedy for such breach or threatened breach, (ii) the duration, scope and geographical application of Sections 2 and 3 are fair and reasonable under the circumstances of the Business, and are reasonably required to protect the legitimate business interests of the Company, (iii) the restrictions contained in Sections 2 and 3 will not prevent the Executive from earning or seeking a livelihood, and (iv) the restrictions contained in Sections 2 and 3 shall apply in all areas where such application is permitted by law. Accordingly, the Executive agrees that the Company shall be entitled to have the provisions of Sections 2 and 3 specifically enforced by any court having jurisdiction, and that such a court may issue a temporary restraining order, preliminary injunction, or other appropriate equitable relief, without having to prove the inadequacy of available remedies at law, having to post any bond or any other undertaking. In addition, the Company shall be entitled to avail itself of all such other actions and remedies available to it or any member of the Company Group under law or in equity and shall be entitled to such damages as it sustains by reason of such breach or threatened breach. It is the express desire and intent of the parties that the provisions of Sections 2 and 3 be fully enforced.

(b) Severability . In light of the fact that the covenants set forth in this Section 3 are reasonably required to protect the Company's legitimate interests, if any provision of Section 3 hereof is held to be unenforceable because of the duration of such provision, the area covered thereby or the scope of the activity restrained, the parties hereby expressly agree that the court making such determination shall have the power to reduce the duration and/or areas of such provision and/or the scope of the activity to be restrained contained in such provision and, in its reduced form, such provision shall then be enforceable. Furthermore, if any court shall refuse to enforce any of the separate covenants deemed included in Section 3 , then such unenforceable covenant shall be deemed eliminated from the provisions hereof to the extent necessary to permit the remaining separate covenants to be enforced in accordance with their terms. The prevailing party in any action arising out of a dispute in respect of any provision of this Section 3 shall be entitled to recover from the non-prevailing party reasonable attorneys' fees and costs and disbursements incurred in connection with the prosecution or defense, as the case may be, of any such action.

4. Works for Hire/Inventions . The Executive acknowledges that all original works of authorship that are made by him (solely or jointly with others) within the scope of his/her employment and that are protectable by copyright are "works made for hire," pursuant to the United States Copyright Act (17 U.S.C. §101). Any and all inventions, improvements, discoveries, designs, works of authorship, concepts or ideas, or expressions thereof, whether or not subject to patents, copyrights, trademarks or service mark protections, and whether or not reduced to practice, that are conceived or developed by the Executive while employed with the Company and which relate to or result from the actual or anticipated business, work, research or investigation of the Company (collectively, "Inventions"), shall be the sole and exclusive property of the Company, as applicable. The Executive shall do all things reasonably requested by the Company to assign to and vest in the Company the entire right, title and interest to any such Inventions and to obtain full protection therefor.

5. Definitions.

5.01 " Change in Control " shall mean the occurrence of any of the following events.

(1)

Any Person acquires ownership of the Class A Common Stock that, together with Class A Common Stock previously held by the acquirer, constitutes more than fifty percent (50%) of the total Fair Market Value or total voting power of the Company's stock. If any Person is considered to own more than fifty percent (50%) of the total Fair Market Value or total voting power of the Company's stock, the acquisition of additional stock by the same Person does not cause a change in ownership. An increase in the percentage of stock owned by any Person as a result of a transaction in which the Company acquires its stock in exchange for property, is treated as an acquisition of stock;

(2)	Any Person acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by that Person) ownership of the Company's stock possessing at least thirty percent (30%) of the total voting power of the stock;

(3)	A majority of the members of the Board is replaced during any twelve (12) month period by Directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of appointment or election; or

(4)

Any Person acquires (or has acquired during the twelve (12) month period ending on a date of the most recent acquisition by that Person) assets from a corporation that have a total gross fair market value equal to at least forty percent (40%) of the total gross fair market value of all the Company's assets immediately prior to the acquisition or acquisitions. Gross fair market value means the value of the Company's assets, or the value of the assets being disposed of, without regard to any liabilities associated with these assets.

A Change of Control shall not apply with respect to the assumption or reallocation of Class A Common Stock among the Shapiro family or entities, as disclosed in the definitive proxy statements filed by the Company with the Securities Exchange Commission;

In determining whether a Change of Control occurs, the attribution rules of Code Section 318 apply to determine stock ownership. For purposes of the definition of Change of Control, a "Person" shall mean any person, entity or "group" within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, except that such term shall not include (a) any member of the Company Group, (b) a trustee or other fiduciary holding securities under an employee benefit plan of any member of the Company Group, (c) an underwriter temporarily holding securities pursuant to an offering of such securities or (d) an entity owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of shares of the Company.

5.02 "Change in Control Payment" is equivalent of thirty-six (36) months of the Executive's then-current salary, plus the Executive's eligible Annual Incentive Plan (AIP) bonus applicable to the year in which the Separation Date occurs at the Target amount. All payments will be made less applicable taxes and other legally-required deductions, within thirty (30) days of the effective date of the effective date of the release of claims required per Section 1 .

5.03 " Company Group " means the Company and its subsidiaries and affiliates, including any subsidiaries or affiliates that may be acquired or formed after the Effective Date or after a Change in Control.

5.04 " Competitor " means any entity engaged in similar insurance Business as the Company Group to the extent that they are involved in any business concern that involves any Competitive Products (including, without limitation, an insurance agency that sells Competitive Products).

5.05 " Competitive Products " are those products and/or services that are the same as or substantially similar to (in terms of type, brand, functionality, or purpose) the products and services designed, developed, sold, marketed and/or distributed by the Company Group, as well as the products and services under development by the Company Group, in each case at any time during the two (2) year period immediately preceding the Separation Date.

5.06 " Confidential Information" means information, including but not limited to, any technical or nontechnical data, formula, pattern, compilation, program, device, method, technique, drawing, process, financial data, financial plan, product plan, pricing, rates, forms, loss prevention practices, claims data, list of actual or potential customers or suppliers, or other information similar to any of the foregoing, which derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can derive economic value from its disclosure or use. Notwithstanding anything contained herein to the contrary, Confidential Information does not include information that: (a) is or becomes generally available to the public, other than through any wrongful act or omission by the Executive or any other person or entity; (b) becomes available to the Executive on a non-confidential basis from a source other than the Company Group, provided it is not subject to a confidentiality agreement between a member of the Company Group and a third party; or (c) is required to be disclosed pursuant to applicable federal, state, or local laws or judicial process.

5.07 " Customer " means any person or entity for or to whom the Company Group sold or distributed any products or services during the two (2) years prior to the Separation Date or during the Term of this Agreement.

5.08	" Good Reason " means an Executive's separation from service when the following

conditions are satisfied:

(1)	The Separation Date occurs no later than six (6) months after initial existence of one or more of the following conditions that arise without the Executive's consent:

a.	a material diminution in the Executive's base compensation;

b.	a material diminution in the Executive's authority, duties, or responsibilities;

c.	a material diminution in the authority, duties, or responsibilities of the supervisor to whom the Executive reports, including a requirement that the Executive report to an officer or employee instead of reporting directly to the Board or other governing body; or

d.	a change in the geographical location at which the Executive performs services of more than twenty-five (25) miles.

(2)

The Executive gives written notice to the Board or other governing body of the entity to which the Executive primarily provides services of the conditions described in subparagraph (1) within ninety (90) days of its initial existence, and upon receipt of the written notice, the Company has thirty (30) days to cure it.

5.09	" Restricted Period " means throughout the Term and for a period of twelve (12) months

immediately following the Term (regardless of how, when or why the Executive's employment relationship ends). The Restricted Period shall be tolled automatically by any period in which the Executive is in violation of any of his/her restrictive covenant obligations set forth in Section 3 of this Agreement

5.10	"Retire/Retirement" means the Executive's discontinuation of all employment,

consulting, advising, independent contractor or agent relationships, service as an officer, director, partner, owner, or principal, or other engagement or provision of services for the property & casualty insurance industry for any Executive who, upon his/her Separation Date, (i) is over age 55, (ii) has been with the Company Group for at least 12 years, and (iii) has given the Company at least 180 days' notice of his/her intent to Retire.

5.11 "Retirement Payment"

(1)

AIP Retirement Payment. Executive shall receive a pro-rated share of the Executive's eligible Annual Incentive Plan (AIP) bonus applicable to the year in which the Separation Date occurs. However, if the Separation Date occurs prior to the date that Annual Incentive Plan targets for the current year are determined by the Board of Directors for all executive officers, the Executive shall receive no AIP Separation Payment for the calendar year of the Separation Date. The Executive's assigned AIP target amount for the calendar year will be used to determine the pro-rated payout of the bonus; there will be no adjustment for Company performance prior to the Separation Date. The AIP Retirement Payment will be paid in cash within thirty (30) days of the Executive's Separation Date.

(2)

Long-Term Incentive Retirement Awards . The Executive shall not be eligible for any bonus award or payment authorized under the Baldwin & Lyons, Inc. Long-Term Incentive Plan applicable to the performance period encompassing the Separation Date. Any type of awarded but unvested bonus provided to the Executive under the Baldwin & Lyons, Inc. Long-Term Incentive Plan related to prior performance years shall continue to vest and will be payable according to the award's existing vesting schedule. Upon the death of the Executive during the vesting period, all awards will be paid to the Executive's estate.

(3)

The Company may require the Executive to sign an affidavit of Retirement, in a form acceptable to the Company, prior to the payment of any Retirement Benefits. If an Executive desires to serve in a director or advisor role within the property & casualty industry prior to the vesting of any award described in Section 5.11(2), the Executive must receive prior written approval from the Company before beginning such role (which approval the Company may, in its sole discretion, withhold) or will otherwise forfeit any such unvested award. Notwithstanding any role approved by the Company, the Executive understands that the Company may seek to recoup any Retirement Benefits paid to Executive should his/her Retirement status change.

5.12 " Separation Payment " is equivalent to twenty-four (24) months of the Executive's then current base salary, less applicable taxes and other legally-required deductions plus applicable bonus payments as outline below:

(1)

AIP Separation Payment. Executive shall receive a pro-rated share of the Executive's eligible Annual Incentive Plan (AIP) bonus applicable to the year in which the Separation Date occurs. However, if the Separation Date occurs prior to the date that Annual Incentive Plan targets for the current year are determined by the Board of Directors for all executive officers, the Executive shall receive no AIP Separation Payment for the calendar year of the Separation Date. The Executive's assigned AIP target amount for the calendar year will be used to determine the pro-rated payout of the bonus; there will be no adjustment for Company performance prior to the Separation Date. The AIP Separation Payment will be paid in cash according to the Separation Payment timeframe detailed in Section 1 .

(2)

Long-Term Incentive Awards. The Executive shall not be eligible for any bonus award or payment authorized under the Baldwin & Lyons, Inc. Long-Term Incentive Plan applicable to the performance period encompassing the Separation Date. Any type of awarded but unvested bonus provided to the Executive under the Baldwin & Lyons, Inc. Long-Term Incentive Plan related to prior performance periods shall immediately vest and be paid to Executive.

(3)

Continuation of Employee Benefits. The Company shall pay for all costs associated with the continuation of Executive's medical, dental, and/or vision benefits under COBRA for a period of twelve (12) months, which period shall begin on the first day of the month following the Executive's Separation Date.

5.13 " Specified Competitor " means (1) Fairfax Financial Holdings, American Financial Group, Old Republic International Corporation, DMC Insurance Services, RLI Corp., or any entity identified as part of the Company's comparator group in the Company's most recent Proxy Statement, including all of their subsidiaries or affiliates, or (2) any entity or operation engaged in any type of underwriting, administration, agency, reinsurance or property & casualty industry that has been in existence for less than two (2) years from the date on which the Executive begins his/her/her relationship with such entity, or (3) any entity for which the Executive becomes an owner, executive or principal, to the extent that it is involved in any business concern that involves any Competitive Products (including, without limitation, an insurance agency that sells or administers Competitive Products).

6. General Terms and Conditions.

6.01 Waiver . No failure on the part of either party hereto to exercise, and no delay by either party hereto in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or remedy by either party hereto preclude any other or further exercise thereof or the exercise by such party of any other right, power or remedy. No express waiver or assent by either party hereto of any breach of or default in any term or condition of this Agreement by the other party shall constitute a waiver of or an assent to any succeeding breach of or default in the same or any other term or condition hereof.

6.02 Severability . All rights and restrictions contained in this Agreement may be exercised and shall be applicable and binding only to the extent that they do not violate any applicable laws and are intended to be limited to the extent necessary so that they will not render this Agreement illegal, invalid or unenforceable. If any term of this Agreement, or part thereof, not essential to the commercial purpose of this Agreement shall be held to be illegal, invalid or unenforceable by a court of competent jurisdiction, it is the intention of the parties that the remaining terms hereof, or part thereof, shall constitute their agreement with respect to the subject matter hereof and all such remaining terms, or parts thereof, shall remain in full force and effect. To the extent legally permissible, any illegal, invalid or unenforceable provision of this Agreement shall be replaced by a valid provision, which will implement the commercial purpose of the illegal, invalid or unenforceable provision.

6.03 Notices . All notices, requests, demands or other communications required or permitted to be given or made hereunder shall be in writing and delivered personally or sent by Federal Express or other similar express courier. The addresses and facsimile numbers of the parties for purposes of this Agreement are:

Company: Baldwin & Lyons, Inc.

111 Congressional Blvd., Suite 500

Carmel, IN 46032

Attention : General Counsel

Executive: W. Randall Birchfield

___________________

Either party may change the address to which notices or other communications to such party shall be delivered or mailed by giving notice thereof to the other party hereto in the manner provided herein.

6.04 Governing Law/Venue . This Agreement shall be governed by, and construed and enforced in accordance with, the internal laws of the State of Indiana without reference to any jurisdiction's principles of conflicts of law to the contrary. The parties consent to the exclusive jurisdiction of all state courts located in Hamilton County, Indiana, or the federal courts located in Marion County, Indiana, as well as to the jurisdiction of all courts to which an appeal may be taken from such courts, for the purpose of any suit, action, or other proceeding arising out of, or in connection with, this Agreement, or any of the transactions contemplated hereby including, without limitation, any proceeding relating to provisional remedies and interim or injunctive relief. Each party hereby expressly waives any and all rights to bring any suit, action, or other proceeding in or before any court or tribunal other than the courts described above, and covenants that it shall not seek in any manner to resolve any dispute other than as set forth in this section, or to challenge or set aside any decision, award, or judgment obtained in accordance with the provisions hereof. Each party hereby expressly waives any and all objections it may have to venue, including, without limitation, the inconvenience of such forum, in any of such courts. In addition, each party consents to the service of process by personal service or any manner in which notices may be delivered hereunder in accordance with this Agreement.

6.05 Assignment . The parties acknowledge that this Agreement has been entered into as a result of, among other things, the specialized knowledge and experience of the Executive, and agree that this Agreement may not be assigned or transferred by him. The rights and benefits of the Company under this Agreement shall be transferable to any member of the Company Group or to any successor, and all covenants and agreements hereunder shall inure to the benefit of and be enforceable by or against its successors and assigns.

6.06 Entire Agreement . This Agreement shall not be modified or amended except by an instrument in writing signed by or on behalf of the parties hereto. This Agreement supersedes and replaces any prior such agreement(s) between the parties.

6.07 Incorporation of Preliminary Statements . The Preliminary Statements to this Agreement are herein incorporated into this section of the Agreement. The terms of this Agreement shall remain in full force and effect regardless of whether the Executive's position, title, role or responsibilities identified in the Preliminary Statements changes by reason of promotion, reassignment, demotion, or otherwise.

6.08 Statutory and Common Law Duties . The duties that the Executive owes to the Company under this Agreement shall be deemed to include all applicable federal and state statutory and common law obligations and such duties do not in any way supersede or limit any of the obligations or duties that he/she owes to the Company pursuant to any applicable law.

6.09 Construction of Agreement . This Agreement shall be deemed to have been drafted jointly by the parties, and, in the event of an ambiguity in this Agreement, this Agreement shall not be construed against either party as a result of the drafting hereof. All nouns, pronouns, and any variation thereof shall be deemed to refer the masculine, feminine, neuter, singular, or plural as the context may require.

6.10 Prospective Employer . During any applicable Restricted Period, the Executive shall inform any prospective employer about the existence of this Agreement before accepting employment.

7. Executive's Acknowledgments . The Executive acknowledges and agrees that he/she has carefully read this entire Agreement and has been given the opportunity to discuss this Agreement with the Company and, if he/she so chooses, his/her legal counsel before signing. He/she acknowledges and agrees that the restrictions set forth in this Agreement are reasonable and necessary for the reasonable and proper protection of the Company and the Business. He/she acknowledges that he/she has been given a copy of this Agreement. By signing, the Executive agrees to accept all of the terms and conditions of this Agreement and he/she understands that the Company is relying upon his/her stated acceptance of such terms and conditions.

8. Counterparts . This Agreement may be executed in two (2) original, facsimile, or electronic counterparts, each of which will be deemed to be an original, but both of which when taken together shall constitute one and the same document. Only one (1) counterpart signed by the party against whom enforceability is sought must be produced to evidence the existence of this Agreement.

IN WITNESS WHEREOF , the parties have caused this Agreement to be executed as of the date first written above.

THE COMPANY :

BALDWIN & LYONS, INC.

By:

Name:

Title:

THE EXECUTIVE:

______________________________________

Executive Name

______________________________________

Date