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1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934


------------------------------------------------------

For Quarter Ended Commission file number
March 31, 2004 0-5534

BALDWIN & LYONS, INC.
(Exact name of registrant as specified in its charter)

INDIANA 35-0160330
------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

1099 NORTH MERIDIAN STREET, INDIANAPOLIS, INDIANA 46204
- ------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)

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

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, and (2) has been subject to such filing
requirements for the past 90 days.

Yes X No
----- -----

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).

Yes X No
------ -----

Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of May 5, 2004:

TITLE OF CLASS NUMBER OF SHARES OUTSTANDING

Common Stock, No Par Value:
Class A (voting) 2,666,666
Class B (nonvoting) 11,955,642


Index to Exhibits located on page 13.






Page 1 of a total of 20 pages

2


PART I - FINANCIAL INFORMATION

ITEM 1 FINANCIAL STATEMENTS



BALDWIN & LYONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

MARCH 31 December 31
2004 2003
---------------- -----------------

ASSETS
Investments:
Fixed maturities $ 322,216 $ 321,193
Equity securities 126,637 130,139
Short-term and other 32,043 36,545
---------------- -----------------
480,896 487,877
Cash and cash equivalents 58,926 30,078
Accounts receivable 40,644 37,333
Reinsurance recoverable 192,384 185,457
Notes receivable from employees 3,599 4,828
Other assets 18,627 17,634
---------------- -----------------
$ 795,076 $ 763,207
================ =================

LIABILITIES AND SHAREHOLDERS' EQUITY
Reserves for losses and loss expenses $ 358,650 $ 343,724
Reserves for unearned premiums 43,221 36,803
Accounts payable and accrued expenses 45,137 44,005
Current federal income taxes 5,179 901
Deferred federal income taxes 14,298 13,200
---------------- -----------------
466,485 438,633
Shareholders' equity:
Common stock-no par value 623 623
Additional paid-in capital 35,518 35,419
Unrealized net gains on investments 45,240 44,837
Retained earnings 247,210 243,695
---------------- -----------------
328,591 324,574
---------------- -----------------
$ 795,076 $ 763,207
================ =================

Number of common and common
equivalent shares outstanding 14,751 14,752
Book value per outstanding share $22.28 $22.00



See notes to condensed consolidated financial statements.


3



BALDWIN & LYONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(IN THOUSANDS, EXCEPT PER SHARE DATA)

Three Months Ended
March 31
------------------------------
2004 2003
------------- -------------

REVENUES
Net premiums earned $ 38,497 $31,701
Net investment income 3,172 3,373
Realized net gains (losses) on investments 5,818 (2,452)
Other income 1,906 1,502
------------- -------------
49,393 34,124
EXPENSES
Losses and loss expenses incurred 25,246 20,511
Other operating expenses 8,089 6,983
------------- -------------
33,335 27,494
------------- -------------
INCOME BEFORE FEDERAL INCOME TAXES 16,058 6,630
Federal income taxes 5,159 2,098
------------- -------------
NET INCOME $ 10,899 $ 4,532
============= =============

PER SHARE DATA:
DILUTED EARNINGS $ .74 $ .31
============= =============

BASIC EARNINGS $ .75 $ .31
============= =============

DIVIDENDS PAID TO SHAREHOLDERS $ .50 $ .10
============= =============

RECONCILIATION OF SHARES OUTSTANDING:
Average shares outstanding - basic 14,603 14,554
Dilutive effect of options outstanding 212 102
------------- -------------
Average shares outstanding - diluted 14,815 14,656
============= =============



See notes to condensed consolidated financial statements.

4



BALDWIN & LYONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)



Three Months Ended
March 31
2004 2003
------------- -------------

Net cash provided by operating activities $ 18,569 $ 9,218
Investing activities:
Purchases of long-term investments (41,605) (46,204)
Proceeds from sales or maturities
of long-term investments 52,778 49,473
Net sales of short-term investments 5,476 989
Decrease in notes receivable from employees 1,093 75
Other investing activities (222) (576)
------------- -------------
Net cash provided by investing activities 17,520 3,757
Financing activities:
Dividends paid to shareholders (7,304) (1,457)
Proceeds from sales of common stock 63 1
------------- -------------
Net cash used in financing activities (7,241) (1,456)
------------- -------------
Increase in cash and cash equivalents 28,848 11,519
Cash and cash equivalents at beginning of period 30,078 41,699
------------- -------------
Cash and cash equivalents at end of period $58,926 $53,218
============= =============




See notes to condensed consolidated financial statements.


NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1) BASIS OF PRESENTATION: The accompanying unaudited condensed financial
statements have been prepared in accordance with the instructions to Form 10Q
and do not include all of the information and footnotes required by 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. Operating results
for the interim periods are not necessarily indicative of the results that may
be expected for the year ended December 31, 2004. 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 Form 10K.

5

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(2) FORWARD-LOOKING STATEMENTS: Forward-looking statements in this report are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Investors are cautioned that such forward-looking statements
involve inherent risks and uncertainties. Readers are encouraged to review the
Company's annual report for its full statement regarding forward-looking
information.

(3) REINSURANCE: The following table summarizes the Company's transactions with
reinsurers for the 2004 and 2003 comparative periods.



2004 2003
---------------- ----------------

Quarter ended March 31:
Premiums ceded to reinsurers $ 19,248 $ 17,713
Losses and loss expenses

ceded to reinsurers 17,948 21,093

Commissions from reinsurers 5,202 4,825



(4) COMPREHENSIVE INCOME OR LOSS: The Company refers to comprehensive income or
loss as realized and unrealized income or loss which is composed of net income
or loss and changes in unrealized gains or losses on investments for the periods
presented. Total realized and unrealized income for the quarter ended March 31,
2004 was $11,223 and compares to total realized and unrealized income of $3,638
for the quarter ended March 31, 2003.

6

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(5) REPORTABLE SEGMENTS - PROFIT AND LOSS: The following table provides certain
profit and loss information for each reportable segment. All amounts presented
are computed based upon generally accepted accounting principles. In addition,
segment profit for fleet trucking includes the direct marketing agency
operations conducted by the parent company and is computed after elimination of
inter-company commissions and, accordingly, segment profit presented here will
not agree with statutory underwriting gains for this segment which may be quoted
elsewhere in the Company's financial statements.



2004 2003
-------------------------------------------- -------------------------------------------
DIRECT AND Direct and
ASSUMED NET PREMIUM SEGMENT Assumed Net Premium Segment
PREMIUM EARNED AND PROFIT Premium Earned and Profit
WRITTEN FEE INCOME (LOSS) Written Fee Income (Loss)
-------------- --------------- ----------- --------------- -------------- ----------

THREE MONTHS ENDED MARCH 31:
PROTECTIVE PRODUCTS:
Fleet trucking $ 39,171 $ 21,267 $ 6,321 $ 34,438 $ 18,107 $ 6,879
Reinsurance assumed 2,918 3,074 1,907 2,823 2,559 483
SAGAMORE PRODUCTS:
Personal division 15,180 11,228 1,350 13,737 9,243 636
Commercial division:
Small fleet trucking 3,865 2,524 332 3,577 1,792 153
Workers' compensation 2,788 1,945 (229) 2,192 1,132 (10)
-------------- --------------- ----------- --------------- -------------- ----------
Total Commercial division 6,653 4,469 103 5,769 2,924 143
All other 241 242 (80) 103 99 158
-------------- --------------- ----------- --------------- -------------- ----------

Totals $ 64,163 $ 40,280 $ 9,601 $ 56,870 $ 32,932 $ 8,299
============== =============== =========== =============== ============== ==========


(6) REPORTABLE SEGMENTS - RECONCILIATION TO CONSOLIDATED REVENUE AND
CONSOLIDATED PROFIT OR LOSS: The following tables are reconciliations of
reportable segment revenues and profit or loss to the Company's consolidated
revenue and income from continuing operations before federal income taxes,
respectively.



Three Months Ended
March 31
2004 2003
---------------- -----------------

REVENUE:
Net premium earned and fee income $ 40,280 $ 32,932
Net investment income 3,172 3,373
Realized net gains (losses) on investments 5,818 (2,452)
Other 123 271
---------------- -----------------
TOTAL CONSOLIDATED REVENUE $ 49,393 $ 34,124
================ =================

PROFIT:
Segment profit $ 9,601 $ 8,299
Net investment income 3,172 3,373
Realized net gains (losses) on investments 5,818 (2,452)
Corporate expenses (2,533) (2,590)
---------------- -----------------
INCOME BEFORE FEDERAL INCOME TAXES $ 16,058 $ 6,630
================ =================



7
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(7) LOANS TO EMPLOYEES: In 2000, 2001 and 2002 the Company provided loans to
certain key employees for the sole purpose of purchasing the Company's Class B
common stock in the open market. $7,260 of such full-recourse loans were issued
and $3,599 remain outstanding at March 31, 2004 and carry interest rates of
between 4.75% and 6%, payable annually on the loan anniversary date. The
underlying securities serve as collateral for these loans, which must be repaid
no later than 10 years from the date of issue. No additional loans will be made
under this program.

8

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- -----------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------

LIQUIDITY AND CAPITAL RESOURCES

The Company generally experiences positive cash flow from operations resulting
from the fact that premiums are collected on insurance policies in advance of
the disbursement of funds in payment of claims. Operating costs of the
property/casualty insurance subsidiaries, other than loss and loss expense
payments and commissions paid to related agency companies, generally average
between 25% and 35% of premiums earned and the remaining amount is available for
investment for varying periods of time pending the settlement of claims relating
to the insurance coverage provided. The Company's cash flow relating to premiums
is significantly affected by reinsurance programs in effect from time-to-time
whereby the Company cedes both premium and risk to other insurance and
reinsurance companies. These programs vary significantly among products and
overall premium ceded rates, net of ceding commission allowances, have generally
decreased since 2001, reflective of the effect of the provisions of reinsurance
agreements currently in place. For the three months ended March 31, 2004, the
Company experienced positive cash flow from operations totaling $18.6 million
and compares to positive cash flow of $9.2 million for the three months ended
March 31, 2003. The majority of this change resulted from a $2.0 million
decrease in reinsurance recoverable on paid claims during the current quarter
compared to a $5.6 million increase in such recoverables during the prior year
first quarter.

For several years, the Company's investment philosophy has emphasized the
purchase of relatively short-term instruments with maximum quality and
liquidity. The average life of the Company's fixed income (bond and short-term
investment) portfolio was approximately 2.6 years at March 31, 2004 compared to
2.8 years at December 31, 2003. The decrease in the average life resulted from
management's belief that meaningful long term interest rate increases are
imminent.

The Company's assets at March 31, 2004 included $58.9 million in investments
classified as short-term or cash equivalents that were readily convertible to
cash without significant market penalty. An additional $90.2 million of fixed
maturity investments will mature within the twelve-month period following March
31, 2004. The Company believes that these liquid investments are more than
sufficient to provide for projected claim payments and operating cost demands
even before consideration of current positive cash flows.

Consolidated shareholders' equity is composed largely of GAAP shareholder's
equity of the insurance subsidiaries. As such, there are statutory restrictions
on the transfer of portions of this equity to the parent holding company. At
March 31, 2004, $47.0 million may be transferred by dividend or loan to the
parent company without approval by, or prior notification to, regulatory
authorities. An additional $198.8 million of shareholder's equity of the
insurance subsidiaries may be advanced or loaned to the parent holding company
with prior notification to, and approval from, regulatory authorities. The
Company believes that these restrictions pose no material liquidity concerns to
the Company. The financial strength and stability of the subsidiaries would
permit ready access by the parent company to short-term and long-term sources of
credit. The parent company had cash and marketable securities valued at $48.0
million at March 31, 2004.

The Company's annualized premium writing to surplus ratio for the first quarter
of 2004 was approximately 46%. Regulatory guidelines generally allow for
writings of at least 200% of surplus. Accordingly, the Company can continue to
increase premium writings significantly with no need to raise additional
capital. Further, the Insurance Subsidiaries' individual capital levels are
several times higher than the minimum amounts designated by the National
Association of Insurance Commissions.

9
RESULTS OF OPERATIONS
---------------------

COMPARISONS OF FIRST QUARTER, 2004 TO FIRST QUARTER, 2003
---------------------------------------------------------

Net premiums earned during the first quarter of 2004 increased $6.8 million
(21%) as compared to the same period of 2003. The increase is due primarily to
an 18% increase in premiums from the Company's fleet trucking program as the
market has allowed the Company to maintain rate levels while continuing to add
new accounts. In addition, premiums from the Company's small business workers'
compensation, small fleet trucking and private passenger automobile programs
increased 68%, 35% and 20%, respectively, due largely to rate increases by
competitors, which allow Sagamore's pricing to be more competitive.

Direct premiums written and assumed increased approximately 13% to $64.2 million
from $56.9 million reported a year earlier. All divisions, excluding voluntary
reinsurance assumed, experienced direct premium growth ranging from 8% to 27%
when compared to the first quarter of 2003. Premium ceded to reinsurers averaged
31.6% of direct premium production for the current quarter compared to 32.8% a
year earlier.

Net investment income, before tax, during the first quarter of 2004 was 6% lower
than the first quarter of 2003 due primarily to the continuing historically low
level of investment yields. The short-term nature of the Company's fixed income
investment portfolio has been negatively impacted by the numerous interest rate
reductions by the Federal Reserve Board since January 1, 2001. Pre-tax yields
dropped 50 basis points from the prior year quarter. After tax yields posted a
smaller decline as the Company holds a larger percentage of tax-exempt
securities in its fixed income portfolio. The average life of the Company's
fixed income portfolio decreased from 2.8 years at the prior year end to 2.6
years at March 31, 2004.

The first quarter 2004 net realized gain of $5.8 consisted of net gains on
equity securities, fixed maturities and short-term investments of $4.9 million,
$.6 million and $.2 million, respectively.

Losses and loss expenses incurred during the first quarter of 2004 increased
$4.7 million from that experienced during the first quarter of 2003, which is
consistent with the increase in premium volume previously discussed. Loss ratios
for each of the Company's major product lines were as follows:



2004 2003
---- ----

Large and medium fleet trucking 75.6% 67.6%
Private passenger automobile 59.9 63.2
Small fleet trucking 57.6 53.7
Voluntary reinsurance assumed 11.8 66.2
Small business workers' compensation 82.4 60.5
All lines 65.6 64.7



The increase in the Large and Medium Fleet Trucking ratio is due to higher
frequency and severity of reported claims compared to the prior year quarter.
The 2004 Small Business Workers' Compensation loss ratio reflects high current
year loss experience on a very small book of business. The low loss ratio for
reinsurance assumed reflects the lack of major catastrophes this quarter.

Other operating expenses for the first quarter of 2004 increased 16% from the
first quarter of 2003. Adjusted for ceding allowances, operating expenses
increased only 13% from the first quarter of 2003 and compare favorably with the
21% increase in premiums earned from the 2003 quarter as many of the Company's
expenses do not vary directly with premium volume. Ceding allowances as a
percentage of direct expenses have declined due to changes in the Company's

10

reinsurance structure whereby the Company now retains a greater percentage of
the risk compared to prior periods, particularly within the Large and Medium
Fleet trucking products. In addition, ceding allowance rates are slightly lower
under current reinsurance agreements compared to rates in effect under prior
period agreements. Available capacity within each of the Company's divisions has
allowed for the expansion of business with only minimal additions to personnel
and other fixed costs over the past year. Management believes that significant
additional capacity exists before most divisions would be obliged to incur
meaningful increases in personnel or other fixed costs. The Company cedes a
large portion of its direct premiums to reinsurers and these reinsurance
premiums carry significant expense offsets. Ceding allowances totaled $5.2
million for the 2004 quarter compared to $4.8 million for the 2003 quarter. The
ratio of consolidated other operating expenses to operating revenue was 18.6%
during the first quarter of 2004 compared to 19.1% for the 2003 first quarter.

The effective federal tax rate for consolidated operations for the first quarter
of 2004 was 32.1% and is less than the statutory rate primarily because of tax
exempt investment income.

As a result of the factors mentioned above, principally the change in net
realized capital gains, net income increased $6.4 million (140.5%) during the
first quarter of 2004 as compared with the 2003 first quarter.


FORWARD-LOOKING INFORMATION
---------------------------

Any forward-looking statements in this report, including without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties including without limitation the following: (i) the Company's
plans, strategies, objectives, expectations and intentions are subject to change
at any time at the discretion of the Company; (ii) the Company's business is
highly competitive and the entrance of new competitors into or the expansion of
the operations by existing competitors in the Company's markets and other
changes in the market for insurance products could adversely affect the
Company's plans and results of operations; (iii) other risks and uncertainties
indicated from time to time in the Company's filings with the Securities and
Exchange Commission; and (iv) other risks and factors which may be beyond the
control or foresight of the Company.

CRITICAL ACCOUNTING POLICIES
----------------------------

There have been no changes in the Company's critical accounting policies as
disclosed in the Form 10K filed for the year ended December 31, 2003.


ITEM 4. CONTROLS AND PROCEDURES
- -------------------------------

Baldwin & Lyons, Inc. management, including the Chief Executive Officer and
Chief Financial Officer, have conducted an evaluation of the effectiveness of
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based
on that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the disclosure controls and procedures are effective in ensuring
that all material information required to be filed in this quarterly report has
been made known to them in a timely fashion. There have been no significant
changes in internal controls, or in factors that could significantly affect
internal controls, subsequent to the date the Chief Executive Officer and Chief
Financial Officer completed their evaluation.

11

PART II - OTHER INFORMATION


ITEM 6 (a) EXHIBITS

NUMBER AND CAPTION FROM EXHIBIT
TABLE OF REGULATION S-K ITEM 601 EXHIBIT NO.
- -------------------------------- ------------------------

(11) Statement regarding EXHIBIT 11 --
computation of per share earnings Computation of Per Share
Earnings

(99.1) Certification of CEO EXHIBIT 99.1
pursuant to Section 302 of the Certification of CEO
Sarbanes-Oxley Act of 2002
And 18 U.S.C. 1350

(99.2) Certification of CFO EXHIBIT 99.2
pursuant to Section 302 of the Certification of CFO
Sarbanes-Oxley Act of 2002
And 18 U.S.C. 1350

(99.3) Certification of CEO EXHIBIT 99.3
pursuant to Section 906 of the Certification of CEO
Sarbanes-Oxley Act of 2002
And 18 U.S.C. 1350

(99.4) Certification of CFO EXHIBIT 99.4
pursuant to Section 906 of the Certification of CFO
Sarbanes-Oxley Act of 2002
And 18 U.S.C. 1350


ITEM 6 (b) REPORTS ON FORM 8-K

A Form 8-K was filed by the registrant on January 29, 2004 regarding its
earnings announcement for the fourth quarter and year ended December 31, 2003.

12

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.



BALDWIN & LYONS, INC.





Date MAY 6, 2004 By /s/ Gary W. Miller
----------------------------------
Gary W. Miller,
Chairman of the Board and
Chief Executive Officer






Date MAY 6, 2004 By /s/ G. Patrick Corydon
----------------------------------
G. Patrick Corydon,
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)


13

BALDWIN & LYONS, INC.

Form 10-Q for the fiscal quarter
ended March 31, 2004



INDEX TO EXHIBITS




Begins on sequential
page number of Form
Exhibit Number 10-Q
-------------- -----------------------------

EXHIBIT 11 Filed herewith electronically
Computation of per share earnings

EXHIBIT 99.1 Filed herewith electronically
Certification of CEO
pursuant to Section 302 of the
Sarbanes-Oxley Act
and 18 U.S.C. 1350

EXHIBIT 99.2 Filed herewith electronically
Certification of CFO
pursuant to Section 302 of the
Sarbanes-Oxley Act
and 18 U.S.C. 1350

EXHIBIT 99.3 Filed herewith electronically
Certification of CEO
pursuant to Section 906 of the
Sarbanes-Oxley Act
and 18 U.S.C. 1350

EXHIBIT 99.4 Filed herewith electronically
Certification of CFO
pursuant to Section 906 of the
Sarbanes-Oxley Act
and 18 U.S.C. 1350