<PAGE> 1
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                    FORM 10-K

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

  For the fiscal year ended                  Commission file number 0-5534
     DECEMBER 31, 2003

                              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 No.)

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

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

Securities registered pursuant to Section 12(b) of the Act:  NONE
                                                             ----

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

                                (TITLE OF CLASS)
                                ----------------
                       Class A Common Stock, No Par Value
                       Class B Common Stock, No Par Value

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 periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).  Yes  [ X ] No [   ]

The aggregate market value of Class A and Class B Common Stock held by
non-affiliates of the Registrant as of June 30, 2003, based on the closing trade
prices on that date, was approximately $175,327,000.

The number of shares outstanding of each of the issuer's classes of common stock
as of March 11, 2004:
          Common Stock, No Par Value:
                  Class A  (voting)            2,666,666  shares
                  Class B  (nonvoting)        11,941,892  shares

The Index to Exhibits is located on pages 66 and 67.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for Annual Meeting of Shareholders to be held
May 4, 2004 are incorporated by reference into Part III.


<PAGE> 2

                                     PART I
                                     ------

ITEM 1.  BUSINESS
         --------

Baldwin & Lyons, Inc. was incorporated under the laws of the State of Indiana in
1930. Through its divisions and subsidiaries, Baldwin & Lyons, Inc. (referred to
herein as "B&L") specializes in marketing and underwriting property and casualty
insurance. The Company's subsidiaries are: Protective Insurance Company
(referred to herein as "Protective"), with licenses in all 50 states and all
Canadian provinces; Sagamore Insurance Company (referred to herein as
"Sagamore"), which is currently licensed in 45 states; and B & L Insurance, Ltd.
(referred to herein as "BLI"), which is domiciled and licensed in Bermuda. These
subsidiaries are collectively referred to herein as the "Insurance
Subsidiaries." The "Company", as used herein, refers to Baldwin & Lyons, Inc.
and all its subsidiaries unless the context indicates otherwise.

Approximately 65% of the gross direct premiums written and assumed by the
Insurance Subsidiaries during 2003 was attributable to business produced
directly by B & L. Approximately 5% of gross premium is assumed from several
other insurance and reinsurance companies through retrocessions. The remaining
30% consists primarily of business written by Sagamore originating through an
extensive network of independent agents.

The Insurance Subsidiaries cede portions of their gross premiums written to
several non-affiliated reinsurers under excess of loss and quota-share treaties
and by facultative (individual policy-by-policy) placements. Reinsurance is
ceded to spread the risk of loss among several reinsurers. In addition to the
assumption of voluntary reinsurance, described below, the Insurance Subsidiaries
participate in numerous mandatory government-operated reinsurance pools which
require insurance companies to provide coverages on assigned risks. These
assigned risk pools allocate participation to all insurers based upon each
insurer's portion of premium writings on a state or national level. Assigned
risk premium typically comprises less than 1% of gross direct premium written
and assumed.

The Insurance Subsidiaries serve various specialty markets as follows:

FLEET TRUCKING INSURANCE
------------------------

Protective provides coverage for larger customers in the motor carrier industry
which retain substantial amounts of self-insurance as well as for medium-sized
trucking companies on a first dollar or small deductible basis. Large fleet
trucking products are marketed exclusively by the B&L agency organization
directly to trucking clients although broker or agent intermediaries are used on
a limited basis for smaller accounts. The principal types of insurance marketed
by Protective are:

   - Casualty insurance including motor vehicle liability, physical damage and
     other liability insurance.
   - Workers' compensation insurance.
   - Specialized accident (medical and indemnity) insurance for independent
     contractors.
   - Fidelity and surety bonds.
   - Inland Marine consisting principally of cargo insurance.
   - "Captive" insurance company products, which are provided through BLI in
     Bermuda.

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


<PAGE> 3

VOLUNTARY ASSUMPTION REINSURANCE
--------------------------------

Protective accepts cessions and retrocessions from selected insurance and
reinsurance companies, principally reinsuring against catastrophes. Exposures
under these retrocessions are generally in high upper layers, are spread among
several geographic regions and are limited so that only a major catastrophic
event or series of major events would have a material affect on the Company's
operations or financial position. The events of September 11, 2001 materially
impacted the Company's operating results in 2001. See page 24 and Note E to the
consolidated financial statements for further discussion.

PRIVATE PASSENGER AUTOMOBILE INSURANCE
--------------------------------------

Sagamore markets nonstandard private passenger automobile liability and physical
damage coverages to individuals through a network of independent agents in
twenty-six states.

SMALL FLEET TRUCKING INSURANCE
------------------------------

Sagamore provides commercial automobile liability, physical damage and cargo
insurance to truck owner-operators with twenty-five or fewer power units. These
products are marketed through independent agents in thirty states.

SMALL BUSINESS WORKERS' COMPENSATION
------------------------------------

Sagamore also markets worker's compensation insurance to selected small
businesses in ten states. This product is marketed through independent agents.

PROPERTY/CASUALTY LOSSES AND LOSS ADJUSTMENT EXPENSES
-----------------------------------------------------

The consolidated financial statements include the estimated liability for unpaid
losses and loss adjustment expenses ("LAE") of the Insurance Subsidiaries. The
liabilities for losses and LAE are determined using case basis evaluations and
statistical projections and represent estimates of the ultimate net cost of all
unpaid losses and LAE incurred through December 31 of each year. These estimates
are subject to the effects of trends in claim severity and frequency and are
continually reviewed and, as experience develops and new information becomes
known, the liability is adjusted as necessary. Such adjustments, either positive
or negative, are reflected in current operations.

The Company uses case-basis reserving on the majority of its outstanding losses
(approximately 64% of net outstanding reserves at December 31, 2003). Standard
actuarial methods are employed to determine reserves for incurred but not
reported losses and for loss expenses using the Company's historical data. The
anticipated effect of inflation is implicitly considered when estimating
liabilities for losses and LAE. In addition, frequency and severity of claims
must be projected. The average severity of claims is influenced by a number of
factors that vary with the individual type of policy written. Future average
severities are projected based on historical trends adjusted for anticipated
changes in underwriting standards, policy provisions, and general economic and
social trends. These anticipated trends are monitored based on actual
development and are modified as new conditions would suggest that changes are
necessary. These actuarial processes are a combination of objective mathematical
calculations and the application of subjective factors, based on experience and
knowledge of the specific risks being evaluated, to arrive at selected ultimate
reserve amounts. The Company consistently builds conservatism into all
subjective aspects of the actuarial reserving process. While ranges of reserves
are not calculated, it is believed that, if ranges were utilized, the Company's
estimate would fall within the upper end of any such range.

Loss reserves related to certain permanent total disability (PTD) workers'
compensation claims have been discounted to present value using tables provided
by the National Council on Compensation Insurance which are based upon a pretax
interest rate of 3.5% and adjusted for losses retained by the insured. The loss
and LAE reserves at December 31, 2003 have been reduced by approximately $5.5
million as a result of such discounting. Had the Company not discounted loss and
LAE reserves, pretax income would have been approximately $.8 million higher for
the year ended December 31, 2003.

<PAGE> 4

The maximum amount for which Protective insures a trucking risk is $10 million
although, occasionally, limits above $10 million are provided but are 100%
reinsured. Certain coverages, such as workers' compensation, provide essentially
unlimited exposure although the Company protects itself to the extent believed
prudent through the purchase of excess insurance for these coverages. After
giving effect to current treaty reinsurance arrangements, for the majority of
risks insured, Protective's maximum exposure to loss from a single occurrence is
approximately $1.6 million (excepting reinsurance assumed). Protective has
revised its treaty arrangements several times in prior years in response to
changing market conditions. The current treaty arrangements are effective until
June 1, 2004 and cover the entire policy period for all business written through
that date. Treaty renewals are expected to occur annually in the foreseeable
future. During the past ten years, Protective's maximum exposure to a single
occurrence has ranged from less than $100,000 to approximately $2 million.
Because Protective, on occasion, writes multiple year policies and because
losses from trucking business take years to develop, losses reported in the
current year may be covered by a number of older reinsurance treaties with
higher or lower loss retention by Protective than those provided by current
treaty provisions.

Certain of the previous reinsurance treaties contained aggregate recovery
limitations. To the extent that losses in these layers, in the aggregate, exceed
these limitations, the Company could be liable for amounts that would otherwise
be covered under these reinsurance treaties. No such aggregate limits have been
exceeded as of December 31, 2003.

With respect to Sagamore's private passenger automobile and small fleet trucking
business, the Company's maximum net exposure for a single occurrence is $100,000
through December 31, 2002 and $250,000 thereafter. Sagamore's retention for
workers' compensation coverages is $100,000 for a single occurrence. Sagamore's
retention on prior year's business has never exceeded $250,000 per occurrence.

The following table on page 5 sets forth a reconciliation of beginning and
ending loss and LAE liability balances, for 2003, 2002 and 2001. That table is
presented net of reinsurance recoverable to correspond with income statement
presentation. However, a reconciliation of these net reserves to those gross of
reinsurance recoverable, as presented in the balance sheet, is also shown. The
table on page 10 shows the development of the estimated liability, net of
reinsurance recoverable, for the ten years prior to 2003. The table on page 11
is a summary of the reestimated liability, before consideration of reinsurance,
for the ten years prior to 2003 and the related reestimated reinsurance
recoverable for the same periods.


<PAGE> 5
<TABLE>
<CAPTION>

                            RECONCILIATION OF LIABILITY FOR LOSSES AND LOSS ADJUSTMENT
                                              EXPENSES (GAAP BASIS)

                                                                            Year Ended December 31,
                                                                  2003               2002                 2001
                                                             ---------------    ----------------     ---------------
                                                                                (IN THOUSANDS)
<S>                                                          <C>                <C>                  <C>
NET OF REINSURANCE RECOVERABLE:
-------------------------------
  Liability for losses and LAE at the
    Beginning of the year                                          $144,702            $137,733            $120,206

  Provision for losses and LAE:
    Claims occurring during the current year                        109,324              78,115              82,757
    Claims occurring during prior years                             (13,586)            (10,008)               (887)
                                                             ---------------    ----------------     ---------------
                                                                     95,738              68,107              81,870
  Payments of losses and LAE:
    Claims occurring during the current year                         37,625              30,997              33,237
    Claims occurring during prior years                              39,956              30,249              31,132
                                                             ---------------    ----------------     ---------------
                                                                     77,581              61,246              64,369

  Change in the allowance for uncollectible
    amounts due from reinsurers                                         840                 108                  26
                                                             ---------------    ----------------     ---------------
  Liability for losses and LAE at end of year                       163,699             144,702             137,733

Reinsurance recoverable on unpaid losses
    at end of the year                                              180,025             133,042             109,410
                                                             ---------------    ----------------     ---------------

Liability for losses and LAE, gross of
  reinsurance recoverable, at end of the year                      $343,724            $277,744            $247,143
                                                             ===============    ================     ===============

</TABLE>

The reconciliation above shows a $13.6 million (9.4%) savings in the liability
for losses and LAE recorded at December 31, 2002. The net savings is reflected
in 2003 underwriting income. All major product groups produced redundancies
during each of the years 2003, 2002 and 2001 with the exception of reinsurance
assumed in 2003 and 2001 and small business worker's compensation in 2003. The
increase in reserve redundancy from 2002 results primarily from more favorable
development from fleet trucking and relates to the increases in retained loss
per occurrence for this product. During 2001, 2002 and 2003, the Company
increased its net retention under treaties covering this product from a maximum
of $100,000 per occurrence to $1,020,000, $1,400,000 and $1,625,000 per
occurrence, respectively. The Company's private passenger automobile and small
fleet products also experienced increases in reserve redundancies during 2003.
The following table is a summary of the above $13.6 million reserve savings by
accident year.


<PAGE> 6
<TABLE>
<CAPTION>
        YEAR IN WHICH
         LOSSES WERE                   RESERVE AT             SAVINGS RECORDED                  %
           INCURRED                 DECEMBER 31, 2002            DURING 2003                 SAVINGS
           --------                 -----------------            -----------                 -------
                                                  (IN THOUSANDS)
        <S>                         <C>                          <C>                        <C>
             2002                     $    47,118                 $  (3,867)                  (8.2%)
             2001                          31,651                      (111)                   (.4%)
             2000                           6,546                    (1,415)                 (21.6%)
             1999                           4,610                    (1,339)                 (29.0%)
             1998                           3,517                       (89)                  (2.5%)
         1997 & prior                      50,825                    (6,765)                 (13.3%)
                                      ------------                ----------

                                      $   144,267                 $ (13,586)                  (9.4%)
                                      ============                ===========

</TABLE>

The savings recorded for these loss years was derived from varied sources, as
follows.

<TABLE>
<CAPTION>
                                               1997
                                              & Prior       1998        1999         2000         2001         2002
                                              --------    --------    --------     --------     --------     --------
                                                                           (IN THOUSANDS)
<S>                                           <C>         <C>          <C>          <C>          <C>          <C>
Losses and allocated loss expenses
   developed on cases known to
   exist at December 31, 2002                 $(1,763)    $   187      $ (750)      $   41       $ 1,305      $ 2,938
Losses and allocated loss expenses
   reported on cases unknown at
   December 31, 2002                              596           -          29          290           611        5,292
Unallocated loss expenses paid                    535          17          67          220           389        1,036
Change in reserves for incurred but
   not reported losses and loss
   expenses                                    (6,906)       (449)       (774)      (1,234)       (2,103)     (13,762)
                                             ---------    --------    --------     --------      --------     --------
Net (savings) deficiency on losses
   from directly-produced business             (7,538)       (245)     (1,428)        (683)          202       (4,496)
(Savings) deficiency reported under
   voluntary reinsurance assumption
   agreements and residual markets              1,055         156          88         (732)         (314)         629
                                             ---------    --------    --------     --------      --------     --------

                            Net savings      $ (6,765)    $   (89)   $ (1,339)     $(1,415)      $  (111)     $(3,867)
                                             =========    ========    ========     ========      ========     ========

</TABLE>

The Company approaches the reserving process from a conservative standpoint. The
Company has not altered any of the key assumptions used in the reserving process
since the mid-1980's and this process has proven to be fully adequate with no
overall deficiencies developed since 1985. There were no significant changes in
trends related to the numbers of claims incurred, average settlement amounts,
numbers of claims outstanding at period ends or the averages per claim
outstanding during the year ended December 31, 2003.

In the above table, the amounts identified as "net (savings) deficiency on
losses from directly-produced business" consist of development on cases known at
December 31, 2002, losses reported which were previously unknown at December 31,
2002 (incurred but not reported), unallocated loss expense paid related to
accident years 2002 and prior and changes in the reserves for incurred but not
reported losses and loss expenses. Reserves for incurred but not reported losses
are established to provide for future development on cases known to the Company
at the time the reserve is established as well as for cases unknown at the
reserve date. Changes in the reserves for incurred but not reported losses and
loss expenses occur based upon


<PAGE> 7
information received on known and newly reported cases during the current year
and the effect of that development on the application of standard actuarial
methods used by the Company.

Also shown in the above table are amounts representing the "(savings) deficiency
reported under reinsurance assumption agreements". These amounts relate
primarily to the Company's participation in property catastrophe pools. The
Company records its share of losses from these pools based on reports from the
pool managers and has no control over the establishment of case reserves related
to this segment of the Company's business. The Company does, however, establish
additional reserves for reinsurance assumed losses to supplement case reserves
reported by the ceding companies, when considered necessary.

As described on pages 3 and 4, changes have occurred in the Company's net per
accident exposure under reinsurance agreements in place during the periods
presented in the above table. It is much more difficult to reserve for losses
where policy limits are as high as $10 million per accident than it is for
losses in the lower layers. There are fewer policy limit losses in the Company's
historical loss database on which to project future loss developments and the
larger the loss, the greater the likelihood that the courts will become involved
in the settlement process. As such, the level of uncertainty in the reserving
process is much greater when dealing with larger losses and will often result in
fluctuations among accident year developments. However, in spite of the
significant changes in product mix and reinsurance structure over the past ten
years, the Company's reserving process has produced consistently favorable net
developments on an overall basis.

The differences between the liability for losses and LAE reported in the
accompanying 2003 consolidated financial statements in accordance with generally
accepted accounting principles ("GAAP") and that reported in the annual
statements filed with state and provincial insurance departments in the United
States and Canada in accordance with statutory accounting practices ("SAP") are
as follows:

<TABLE>
<CAPTION>
                                                                                      (IN THOUSANDS)
<S>                                                                                    <C>
  Liability reported on a SAP basis - net of reinsurance recoverable                     $164,584

  Add differences:
      Reinsurance recoverable on unpaid losses and LAE                                    180,025
      Additional reserve for residual market losses not
        reported to the Company at the current year end                                       240
      Reclassification of loss reserves ceded attributable to insolvent reinsurers          1,275

  Deduct differences:
      Estimated salvage and subrogation recoveries recorded on
        a cash basis for SAP and on an accrual basis for GAAP                              (2,400)
                                                                                        ----------

  Liability reported on a GAAP basis                                                     $343,724
                                                                                        ==========

</TABLE>

The provision for loss reserves ceded attributable to insolvent reinsurers is
treated as a separate liability for SAP purposes but is classified as an
addition to loss reserves in the GAAP consolidated balance sheets. This
classification was used for GAAP since the uncollectible amounts are, in effect,
a reversal of reinsurance credits taken against gross loss and LAE reserves.
Losses incurred, however, do not include charges for uncollectible reinsurance,
nor do the tables on pages 5, 6 and 10, since the inability to recover these
amounts from insolvent reinsurers is considered to be a credit loss and is not
associated with the Company's reserving process. Accordingly, loss and LAE
developments would be distorted if amounts related to insolvent reinsurance were
included.

The table on page 10 presents the development of GAAP balance sheet liabilities
for each year-end 1993 through 2003, net of all reinsurance credits. The top
line of the table shows the estimated liability for unpaid losses and LAE
recorded at the balance sheet date for each of the indicated years. The
liabilities shown on this line for each year-end have been reduced by amounts
relating to loss reserves ceded attributable to insolvent


<PAGE> 8
reinsurers, as discussed in the immediately preceding paragraph. This liability
represents the estimated amount of losses and LAE for claims arising in all
prior years that are unpaid at the balance sheet date, including losses that had
been incurred, but not yet reported, to the Company.

The upper portion of the table shows the reestimated amount of the previously
recorded liability based on additional information available to the Company as
of the end of each succeeding year. The estimate is increased or decreased as
more information becomes known about the frequency and severity of individual
claims.

The "cumulative redundancy" represents the aggregate change in the estimates
over all prior years. For example, the 1993 liability has developed a $44.8
million redundancy over ten years. That amount has been reflected in income over
the ten years, as shown on the table. The effect on income of changes in
estimates of the liability for losses and LAE during each of the past three
years is shown in the table on page 5.

Historically, the Company's loss developments have been favorable. Reserve
developments for all year-ends 1986 through 2002 have produced redundancies as
of December 31, 2003. In addition to improvements in reserving methods, loss
reserve developments since 1985 have been favorably affected by several other
factors. Perhaps the most significant single factor has been the improvement in
safety programs by the trucking industry in general and by the Company's
insureds specifically. Statistics produced by the American Trucking Association
show that driver quality has improved markedly in the past decade resulting in
fewer fatalities and serious accidents. The Company's experience also shows that
improved safety and hiring programs have a dramatic impact on the frequency and
severity of trucking accidents. Higher self-insured retentions also played a
part in reduced insurance losses during portions of this period. Higher
retentions not only raise the excess insurance entry point but also encourage
trucking company management to focus even more intensely on safety programs.
Further, reserve savings have been achieved by the use of structured settlements
on certain workers' compensation and liability claims of a long-term liability
nature.

The establishment of reserves requires the use of historical data where
available and generally a minimum of ten years of such data is required to
provide statistically valid samples. As previously mentioned, numerous factors
must be considered in reviewing historical data including inflation, tort reform
(or lack thereof), new coverages provided and trends noted in the current book
of business which are different from those present in the historical data.
Clearly, the Company's book of business in 2003 is different from that which
generated much of the ten-year historical loss data used to establish reserves
in the past few years. Savings realized in recent years upon the closing of
claims, as reflected in the tables on pages 5 and 10, are attributable to the
Company's long-standing policy of reserving for losses realistically and a
willingness to settle claims based upon a seasoned evaluation of the underlying
exposures. The Company will continue to review the trends noted and, should it
appear that such trends are permanent and projectable, they will be reflected in
future reserving method refinements.

The lower section of the table on page 10 shows the cumulative amount paid with
respect to the previously recorded liability as of the end of each succeeding
year. For example, as of December 31, 2003, the Company had paid $101.4 million
of losses and LAE that had been incurred, but not paid, as of December 31, 1993;
thus an estimated $29.2 million in losses incurred through 1993 remain unpaid as
of the current financial statement date ($130.6 million incurred less $101.4
million paid).

In evaluating this information, it is important to note that the method of
presentation causes some development experience to be duplicated. For example,
the amount of any redundancy or deficiency related to losses settled in 1996,
but incurred in 1993, will be included in the cumulative development amount for
years-end 1993, 1994, and 1995. As such, this table does not present accident or
policy year development data which readers may be more accustomed to analyzing.
Rather, this table is intended to present an evaluation of the Company's ability
to establish its liability for losses and loss expenses at a given balance sheet
date. It is important to note that conditions and trends that have affected
development of the liability in the past may not necessarily occur in the
future. Accordingly, it may not be appropriate to extrapolate future
redundancies or deficiencies based on this table.


<PAGE> 9

The table presented on page 11 presents loss development data on a gross (before
consideration of reinsurance) basis for each of the ten years December 31, 1993
through December 31, 2002 as of December 31, 2003 with a reconciliation of the
data to the net amounts shown in the table on page 10.

ENVIRONMENTAL MATTERS: The Company's reserves for unpaid losses and loss
expenses at December 31, 2003 included amounts for liability related to
environmental damage claims. Given the Company's principal business is insuring
trucking companies; it does on occasion receive claims involving a trucking
accident which has resulted in the spill of a pollutant. Certain of the
Company's policies may cover these situations on the basis that they were caused
by an accident that resulted in the immediate spill of a pollutant. These claims
are typically reported and resolved within a short period of time.

However, the Company has also received a few environmental claims that did not
result from a "sudden and accidental" event. Some of these claims fall under
policies issued in the 1970's primarily to one account which was involved in the
business of hauling and disposing of hazardous waste. Although the Company had
pollution exclusions in its policies during that period, the courts have ignored
similar exclusions in many environmental cases. During the ten years ended
December 31, 2003, the Company has recorded a total of $7.7 million in losses
incurred with respect to environmental claims. Incurred losses to date include a
reserve for incurred but not reported environmental losses of $2.5 million at
December 31, 2003.

Establishing reserves for environmental claims is subject to uncertainties that
are greater than those represented by other types of claims. Factors
contributing to those uncertainties include a lack of historical data, long
reporting delays, uncertainty as to the number and identity of insureds with
potential exposure, unresolved legal issues regarding policy coverage, and the
extent and timing of any such contractual liability. Courts have reached
different and sometimes inconsistent conclusions as to when the loss occurred
and what policies provide coverage, what claims are covered, whether there is an
insured obligation to defend, how policy limits are determined, how policy
exclusions are applied and interpreted, and whether cleanup costs represent
insured property damage. Management believes that those issues are not likely to
be resolved in the near future.

However, to date, very few environmental claims have been reported to the
Company. In addition, a review of the businesses of our past and current
insureds indicates that exposure to further claims of an environmental nature is
limited because most of the Company's accounts are not currently, and have not
in the past been, involved in the hauling of hazardous substances. Also, the
revision of the pollution exclusion in the Company's policies since 1986 is
expected to further limit exposure to claims from that point forward.

The Company has never been presented with an environmental claim relating to
asbestos and, based on the types of business the Company has insured over the
years, it is not expected that the Company will have any significant asbestos
exposure.

Accordingly, management believes that the Company's exposure to environmental
losses beyond those already provided for in the financial statements is not
material.


<PAGE> 10
<TABLE>
<CAPTION>

                           ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE DEVELOPMENT--GAAP BASIS
                                               (DOLLARS IN THOUSANDS)


YEAR ENDED DECEMBER 31    1993      1994      1995      1996      1997      1998      1999      2000      2001      2002      2003
----------------------  --------  --------  --------  --------  --------  --------  --------  --------  --------  --------  --------
<S>                     <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Liability for Unpaid
  Losses and LAE, Net
  of Reinsurance
  Recoverables  *       $175,395  $175,012  $161,001  $154,039  $151,013  $143,515  $130,345  $119,905  $137,406  $144,267  $162,424

Liability Reestimated
  as of:
    One Year Later       152,146   169,528   148,756   146,201   140,272   132,906   122,238   119,018   127,398   130,681
    Two Years Later      147,577   159,000   140,811   135,125   128,743   124,878   124,540   112,558   118,055
    Three Years Later    144,526   153,833   130,540   123,775   122,211   124,367   119,379   103,251
    Four Years Later     142,178   148,390   122,792   119,862   122,674   121,021   111,476
    Five Years Later     137,876   143,478   120,410   121,445   119,632   114,456
    Six Years Later      134,744   142,475   122,060   120,995   113,150
    Seven Years Later    134,540   144,077   122,162   114,660
    Eight Years Later    135,201   143,744   116,258
    Nine Years Later     135,103   138,604
    Ten Years Later      130,593

Cumulative Redundancy   $ 44,802  $ 36,408  $ 44,743  $ 39,379  $ 37,863  $ 29,059  $ 18,869  $ 16,654  $ 19,351  $ 13,586
                        ========  ========  ========  ========  ========  ========  ========  ========  ========  ========

Cumulative Amount of
  Liability Paid Through:
    One Year Later      $ 30,297  $ 45,005  $ 27,825  $ 26,934  $ 25,088  $ 30,214  $ 30,239  $ 31,132  $ 30,249  $ 39,956
    Two Years Later       58,969    67,219    43,016    43,280    43,311    48,416    49,068    47,060    55,724
    Three Years Later     71,375    76,248    55,515    55,834    55,180    60,594    60,427    58,618
    Four Years Later      77,702    85,096    62,740    63,998    64,370    66,679    69,374
    Five Years Later      82,792    90,331    69,747    71,089    68,807    74,861
    Six Years Later       87,316    95,924    75,496    74,482    76,657
    Seven Years Later     90,441   101,073    78,228    79,547
    Eight Years Later     94,737   103,499    83,104
    Nine Years Later      96,926   108,144
    Ten Years Later      101,430

</TABLE>

* Amounts shown for 1993 through 2003 do not include the unpaid portion of
uncollectible amounts due from insolvent reinsurers which are classified with
loss and LAE reserves for financial statement purposes of $554, $542, $457,
$498, $480, $436, $358, $301, $327, $435 and $1,275, respectively.


<PAGE> 11
<TABLE>
<CAPTION>
ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE DEVELOPMENT--GAAP BASIS
(THOUSANDS OF DOLLARS)

Year Ended December 31           1993     1994     1995     1996     1997     1998     1999     2000     2001     2002     2003
                               -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S>                            <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>
Direct and Assumed:

Liability for Unpaid Losses
  and Loss Adjustment
  Expenses                     $224,219 $235,209 $211,489 $196,939 $197,195 $194,432 $173,473 $182,425 $247,143 $277,744 $343,724

Liability Reestimated as of
  December 31, 2003             215,197  228,901  156,470  153,353  150,573  158,045  182,721  208,852  254,273  292,378

Cumulative (Deficiency)
  Redundancy                      9,022    6,308   55,019   43,586   46,622   36,387   (9,248) (26,427)  (7,130) (14,634)

Ceded:

Liability for Unpaid Losses
  and Loss Adjustment
  Expenses                       48,823   60,197   50,488   42,900   46,182   50,917   43,128   62,520  109,737  133,477  181,300

Liability Reestimated as of
  December 31, 2003              84,604   90,297   40,212   38,693   37,423   43,589   71,245  105,601  136,218  161,697

Cumulative (Deficiency)
  Redundancy                    (35,781) (30,100)  10,276    4,207    8,759    7,328  (28,117) (43,081) (26,481) (28,220)

Net:

Liability for Unpaid Losses
  and Loss Adjustment
  Expenses                      175,395  175,012  161,001  154,039  151,013  143,515  130,345  119,905  137,406  144,267  162,424

Liability Reestimated as of
  December 31, 2003             130,593  138,604  116,258  114,660  113,150  114,456  111,476  103,251  118,055  130,681

Cumulative Redundancy            44,802   36,408   44,743   39,379   37,863   29,059   18,869   16,654   19,351   13,586

</TABLE>

<PAGE> 12

MARKETING
---------

The Company's primary marketing areas are outlined on pages 2 and 3.

Since the mid-1980's, Protective has focused its marketing efforts on large and
medium trucking fleets. Protective has its largest market share in the larger
trucking fleets (over 150 units). These fleets self-insure a portion of their
risk and such self-insurance plans are a specialty of the Company. The indemnity
contract provided to self-insured customers is designed to cover all aspects of
trucking liability, including third party liability, property damage, physical
damage, cargo and workers' compensation, arising from vehicular accident or
other casualty loss. The self-insured program is supplemented with large
deductible workers' compensation policies in states that do not allow for
self-insurance. Protective also offers accident insurance, on a group basis, to
independent contractors under contract to a fleet sponsor. Throughout the
1990's, the market for Protective's products grew increasingly competitive,
though this competitive pressure has eased recently (see comments under
"Competition" following). In 2003, fleet trucking products generated
approximately 65% of direct premium written and assumed for the Company.

Since 1992, Protective has accepted reinsurance cessions and retrocessions,
principally for catastrophe exposures, from selected reinsurers on an
opportunistic basis. Protective is committed to participation in this market
provided pricing remains conducive to profitable results. In determining the
volume of catastrophe reinsurance assumed that it will accept, the Company first
determines the exposure that it is willing to accept from a single "maximum
foreseeable loss" (MFL) and a "probable maximum loss" (PML) within a given
geographic area. As retrocessions are offered to the Company, computer models of
geographic exposure are evaluated against these maximums and programs are only
considered if they do not cause aggregate exposure to exceed the predetermined
limits. Currently, the Company's exposure to a MFL or a PML is approximately
6.5% and 4.0% of consolidated surplus, respectively. However, this amount is
before state and federal tax credits and reinstatement fees which would
significantly reduce the impact of a MFL or a PML on the Company's surplus.

During 1995, Sagamore entered the private passenger automobile insurance market
for nonstandard risks. This program is currently being marketed in twenty-six
mid-western and southern states and further geographic expansion is planned for
2004. Sagamore utilizes state-of-the-art technology extensively in marketing its
nonstandard automobile product in order to provide superior service to its
agents and insureds. Market acceptance to date has been favorable and
approximately $42.3 million of premium was written in this line during 2003.

Through its Commercial Division, Sagamore also offers a program of coverages for
"small fleet" trucking concerns (owner-operators with one to twenty-five power
units). This program was limited to a small geographic area composed of
Midwestern states through the end of 1997. However, significant geographic
expansion began during 1998 and has continued through 2003 with policies being
sold in thirty states in 2003. Future expansion into other states is anticipated
during 2004. Approximately $15.1 million of premium was written in this program
during 2003, an increase of 43% from the prior year, as market conditions have
improved.

During 1997, Sagamore began marketing a small business workers' compensation
product in Missouri. Through 1999, growth in this product had been slow,
resulting mainly from competitive forces. However, recent developments in the
competitive make-up in the states where Sagamore markets this program has
resulted in approximately $9.7 million in premium written during 2003, an
increase of 53% from the prior year. Assuming a continuation of favorable market
conditions, this product will also be expanded geographically in 2004.

INVESTMENTS
-----------

The Company manages its invested assets to provide a high degree of flexibility
to respond to opportunities in the financial markets and to provide necessary
cash flows for operations. The resulting investment strategies currently
emphasize relatively short-term maturities of fixed income securities, wide
diversification among


<PAGE> 13
issuers and industries and high asset quality designed to produce reasonable
returns without jeopardizing principal.

At December 31, 2003 the financial statement value of the Company's investment
portfolio was approximately $522 million, including money market instruments
classified as cash equivalents. A comparison of the diversification of the
Company's investment portfolio, using cost as a basis, is as follows:

<TABLE>
<CAPTION>
                                                December 31
                                            2003           2002
                                          --------       --------
  <S>                                     <C>            <C>
  U.S. Government obligations               27.2%          27.6%
  Municipal bonds                           22.7           16.7
  Corporate and other bonds                 16.5           22.4
  Short-term and other investments          15.6           13.2
  Common stocks                             13.7           14.5
  Mortgage-backed securities                 3.0            3.1
  Preferred stocks                           1.3            2.5
                                          --------       --------
                                           100.0%         100.0%
                                          ========       ========

</TABLE>

The Company's concentration of invested assets in relatively short-term
investments provides it with a level of liquidity which is more than adequate to
provide for its anticipated cash flow needs. The structure of the investment
portfolio also provides the Company with the ability to restrict premium
writings during periods of intense competition, which typically result in
inadequate premium rates, and allows the Company to respond to new opportunities
in the marketplace as they arise.

The following comparison of the Company's bond and short-term investment
portfolios, using par value as a basis, indicates the changes in contractual
maturities in the portfolio during 2003.

<TABLE>
<CAPTION>
       MATURITIES OF BONDS AND SHORT-TERM INVESTMENTS AT DECEMBER 31 (PAR VALUE)
       -------------------------------------------------------------------------

                                                     2003          2002
                                                   --------      --------
              <S>                                  <C>           <C>
              Less than one year                     42.9%         38.3%
              1 to 5 years                           48.1          54.2
              5 to 10 years                           2.2           1.6
              More than 10 years                      6.8           5.9
                                                   --------      --------
                                                    100.0%        100.0%
                                                   ========      ========

              Average life of portfolio (years)       2.8           2.9
                                                   ========      ========

</TABLE>

Fixed income securities (including those classified as short-term) comprised
73.9% of the Company's invested assets at December 31, 2003. With the exception
of U.S. Government obligations, the fixed income portfolio is widely diversified
with no concentrations in any single industry. The largest amount invested in
any single issuer was $5.3 million (1.1% of total invested assets) although most
individual investments are less than $500,000. The Company does not actively
trade fixed income securities but typically holds such investments until
maturity. Exceptions exist in instances where the underlying credit for a
specific issue is deemed to be diminished. In such cases, the security will be
considered for disposal prior to maturity. In addition, fixed income securities
will be sold when realignment of the portfolio is considered beneficial (i.e.
moving from taxable to non-taxable issues). During 2003, municipal bonds were
increased and corporate bonds were decreased to produce higher after tax yields.

The Company had determined that its insurance subsidiaries will, at all times,
hold high grade fixed income securities with a market value equal to at least
100% of reserves for losses and loss expenses, net of applicable


<PAGE> 14
reinsurance credits. At December 31, 2003, investment grade bonds held by
insurance subsidiaries equaled 168% of net loss and loss adjustment expense
reserves (without consideration of short-term investments).

Approximately $19.1 million of fixed maturity investments (3.7% of total
invested assets) consists of bonds rated as less than investment grade at year
end. The majority of this total is composed of shares in a widely diversified
high yield municipal bond fund where exposure to default by any single issuer is
extremely limited. Further, the average bond quality of assets held in this fund
at year end was BBB, which would be considered investment grade. We have
included the investment in this fund in the total of non-investment grade bonds
since, at times, the average bond quality of the fund could fall below BBB. The
market value of all non-investment grade bonds exceeded cost by 3% at December
31, 2003.

The market value of the consolidated fixed maturity portfolio was $7.1 million
greater than cost at December 31, 2003, before income taxes, which compares to
an $8.8 million unrealized gain at December 31, 2002. Other than temporary
impairment is recorded for any individual issue which has sustained a decline in
current market value of at least 20% below original or adjusted cost, and the
decline is ongoing for more than 6 months, regardless of the evaluation of the
underlying credit of the issue. No investments met these criteria at December
31, 2003. A single holding which had been written down in prior years has fully
recovered with the resultant increase in value being considered unrealized.
Gross unrealized losses on fixed income securities were $.2 million in total at
December 31, 2003 with no individual issue having more than an 8% decline.

Equity securities comprise 24.9% of the financial statement value of the
consolidated investment portfolio at December 31, 2003 (15% of cost) as
long-term holdings have appreciated significantly. The Company's equity
securities portfolio consists of approximately 150 separate issues with
diversification from large to small capitalization issuers and among several
industries. The largest single equity issue owned has a market value of $6.3
million at December 31, 2003 (1.3% of total investments). In general, the
Company maintains a buy-and-hold philosophy with respect to equity securities.
Many current holdings have been continuously owned for more than ten years.
Because of the large amount of high quality, short-term bonds owned, relative to
the Company's loss and loss expense reserves and other liabilities, amounts
invested in equity securities are not needed to fund current operations and,
accordingly, can be committed for long periods of time. An individual equity
security will be disposed of when it is determined that there is little
potential for future appreciation and all equity securities are considered to be
available for sale. Securities are not sold to meet any quarterly or annual
earnings quotas but, rather, are disposed of when market conditions are deemed
to dictate, regardless of the impact on current period earnings. During 2003 as
the stock market improved, the Company disposed of numerous equity securities
which were considered to have little near term potential for improvement. These
sales generated both gains and losses but netted to a realized gain of $8.5
million. In addition, gains of $3.9 million representing appreciation of
previously recorded other than temporary impairment losses, were reported as
released upon the sale of securities during 2003 and additional adjustments to
record other than temporary impairment relating to equity securities totaled
$2.4 million during the year. The reclassification of unrealized losses to
realized occurred on each individual issue where the current market value was at
least 20% below original or adjusted cost and the decline was ongoing for more
than 6 months at December 31, 2003, regardless of the evaluation of potential
for recovery. After adjustment for other than temporary impairment, net
unrealized gains on the equity security portfolio increased $25.4 million to
$62.2 million at December 31, 2003 as all equity markets recorded gains during
the year. The net gain at year end consisted of $62.8 million of gross
unrealized gains and $.6 million of gross unrealized losses and the average loss
on individual issues where market was less than adjusted cost was 5.3%.

Included in short-term and other investments are approximately $6.1 million of
limited partnership investments. The majority of assets underlying the
partnerships consist of marketable securities which are valued at readily
ascertainable market values. Approximately $2.0 million of this balance consists
of real estate and venture capital investments which are non-traded securities.
Valuations for these investments are provided by the general partners and are
determined in accordance with generally accepted accounting principles. These
non-traded securities constitute less than .4% of invested assets. Any decline
in value of a limited partnership investment is immediately treated as realized,
regardless of the character of the underlying partnership asset, and no
unrealized losses exist with respect to this portion of the investment portfolio
at December 31, 2003.


<PAGE> 15

The Company's investment yields continue to be negatively
impacted by the ongoing historically low interest rates. Overall investment
yields improved substantially during 2003 as the result of gains realized on the
sale of securities. A comparison of consolidated investment yields, before
consideration of investment expenses, is as follows:

<TABLE>
<CAPTION>
                                                                                2003               2002
                                                                               -------           --------
        <S>                                                                    <C>               <C>
        Before federal tax:
           Investment income                                                     3.3%              4.1%
           Investment income plus realized investment gains (losses)             7.4                .0
        After federal tax:
           Investment income                                                     2.4               2.9
           Investment income plus realized investment gains (losses)             5.1                .3

</TABLE>
Further discussion of the components of investment yields is included in the
RESULTS OF OPERATIONS on page 21.


EMPLOYEES
---------

As of December 31, 2003, the Company had 293 employees, representing an increase
of 18 employees from December 31, 2002 (7%) in response to the 40% increase in
gross premium volume. As of March 1, 2004, the Company had 291 employees.

COMPETITION
-----------

The insurance brokerage and agency business is highly competitive. B & L
competes with a large number of insurance brokerage and agency firms and
individual brokers and agents throughout the country, many of which are
considerably larger than B & L. B & L also competes with insurance companies
which write insurance directly with their customers.

Insurance underwriting is also highly competitive. The Insurance Subsidiaries
compete with other stock and mutual companies and inter-insurance exchanges
(reciprocals). There are numerous insurance companies offering the lines of
insurance which are currently written or may in the future be written by the
Insurance Subsidiaries. Many of these companies have been in business for longer
periods of time, have significantly larger volumes of business, offer more
diversified lines of insurance coverage and have greater financial resources
than the Company. In many cases, competitors are willing to provide coverage for
rates lower than those charged by the Insurance Subsidiaries. Many potential
clients self-insure workers' compensation and other risks for which the Company
offers coverage, and some concerns have organized "captive" insurance companies
as subsidiaries through which they insure their own operations. Some states have
workers' compensation funds that preclude private companies from writing this
business in those states. Federal law also authorizes the creation of "Risk
Retention Groups" which may write insurance coverages similar to those offered
by the Company.

The Company believes it has a competitive advantage in its major lines of
business as the result of the extensive experience of its long-tenured
management and staff, its superior service and products, its willingness to
custom build insurance programs for its large trucking customers and the
extensive use of technology with respect to its insureds and independent agent
force. However, the Company is not "top-line" oriented and will readily
sacrifice premium volume during periods of unrealistic rate competition.
Accordingly, should competitors determine to "buy" market share with
unprofitable rates, the Company's Insurance Subsidiaries will generally
experience a decline in business until pricing returns to profitable levels.



ITEM 101(b), (c)(1)(i) AND (vii), AND (d) OF REGULATION S-K:
------------------------------------------------------------

Reference is made to Note I to the consolidated financial statements which
provides information concerning industry segments and is filed herewith under
Item 8, Financial Statements and Supplementary Data.


<PAGE> 16

ITEM 2.  PROPERTIES
-------------------

The Company leases office space at 1099 North Meridian Street, Indianapolis,
Indiana. This building is located approximately one mile from downtown
Indianapolis. The lease covers approximately 72,000 square feet and expires in
August, 2008, with an option to renew for an additional five years. The
Company's entire operations, with the exception of Baldwin & Lyons, California,
are conducted from these leased facilities.

The Company owns a building and the adjacent real estate approximately two miles
from its main office. This building contains approximately 3,300 square feet of
usable space, and is used primarily as a contingent back up and disaster
recovery site for computer operations.

Baldwin & Lyons, California leases approximately 1,900 square feet of office
space in a suburb of Los Angeles, California. All West Coast operations are
conducted from these facilities.

The current facilities are expected to be adequate for the Company's operations
for the foreseeable future.


ITEM 3.  LEGAL PROCEEDINGS
--------------------------

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


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------

Nothing to report.


<PAGE> 17
                                     PART II
                                     -------

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY
                AND RELATED STOCKHOLDER MATTERS
         --------------------------------------

The Company's Class A and Class B common stocks are traded on The NASDAQ Stock
Market(R) under the symbols BWINA and BWINB, respectively. The Class A and Class
B common shares have identical rights and privileges except that Class B shares
have no voting rights other than on matters for which Indiana law requires class
voting. As of December 31, 2003, there were approximately 400 record holders of
Class A Common Stock and approximately 500 record holders of Class B Common
Stock.

The table below sets forth the range of high and low sale prices for the Class A
and Class B Common Stock for 2003 and 2002, as reported by the National
Association of Security Dealers, Inc. and published in the financial press. The
quotations reflect interdealer prices without retail markup, markdown or
commission and do not necessarily represent actual transactions. All per share
amounts have been adjusted for a five-for-four stock split, effective February
17, 2003.

<TABLE>
<CAPTION>

                                         CLASS A                   CLASS B              CASH
                                ------------------------  -------------------------   DIVIDENDS
                                   HIGH          LOW          HIGH          LOW       DECLARED
                                -----------  -----------  ------------  -----------  -----------
<S>                             <C>          <C>          <C>           <C>          <C>
Year ended December 31:
2003:
Fourth Quarter                    $23.480      $22.000       $29.450      $23.370       $.35
Third Quarter                      23.950       20.750        26.508       21.500        .10
Second Quarter                     25.000       18.020        26.480       19.490        .10
First Quarter                      19.850       18.256        20.750       17.832        .10

2002:
Fourth Quarter                     19.488       16.192        20.799       16.792        .08
Third Quarter                      18.360       15.600        19.056       15.256        .08
Second Quarter                     20.144       16.608        23.072       16.944        .08
First Quarter                      18.216       17.000        21.288       16.000        .08

</TABLE>

The Company expects to continue its policy of paying regular cash dividends
although there is no assurance as to future dividends because they are dependent
on future earnings, capital requirements and financial conditions and are
subject to regulatory restrictions as described in Note F to the consolidated
financial statements.

Given the record operating earnings achieved in 2002 and the excellent returns
on equity investments, the Directors at their meeting in February, 2003,
declared a 5 for 4 stock split while maintaining a 10 cent per share quarterly
dividend. That action effectively increased the dividend payout by 25%. At the
meeting in November, 2003, the Board of Directors declared a regular dividend of
10 cents and an extra dividend of 25 cents per share. The Board again considered
dividends at its most recent meeting in February, 2004, and declared another
extra dividend of 40 cents per share in addition to the regular dividend of 10
cents. The Board intends to address the subject of dividends at each of its
future meetings considering the Company's earnings, returns on investments and
its capital needs; however, shareholders should not expect extra dividends, if
any, in the future to follow any predetermined pattern.


<PAGE> 18

ITEM 6.  SELECTED FINANCIAL DATA
--------------------------------

<TABLE>
<CAPTION>

                                                                        YEAR ENDED DECEMBER 31
                                              ---------------------------------------------------------------------------
                                                 2003            2002            2001            2000            1999
                                              ------------    ------------    ------------    ------------    -----------
                                                            (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                           <C>             <C>             <C>             <C>             <C>
DIRECT AND ASSUMED PREMIUMS WRITTEN             $ 227,614       $ 173,294       $ 120,308       $ 101,390       $ 90,376

NET PREMIUMS EARNED                               146,153         104,392          83,138          77,439         69,114

NET INVESTMENT INCOME                              12,873          14,964          17,626          19,049         18,891

REALIZED NET GAINS (LOSSES) ON                      9,990         (16,445)          5,053          12,473          5,625
INVESTMENTS

LOSSES AND LOSS EXPENSES INCURRED                  95,738          68,107          81,870 <F5>     57,470         44,911

NET INCOME                                         33,075          12,366           5,390          19,750         18,616

EARNINGS PER SHARE -- NET INCOME <F1>, <F4>          2.25            0.84            0.35            1.26           1.10

CASH DIVIDENDS PER SHARE <F4>                         .65             .32             .32             .32            .32

INVESTMENT PORTFOLIO <F3>                         515,843         448,520         439,434         442,060        440,797

TOTAL ASSETS                                      763,207         644,462         601,109         552,164        530,677

SHAREHOLDERS' EQUITY                              324,574         284,588         288,360         294,000        284,783

COST OF TREASURY SHARES PURCHASED                       -           8,978           2,154          17,018         11,794

BOOK VALUE PER SHARE <F1>, <F4>                     22.00           19.43           18.98           19.21          17.20

UNDERWRITING RATIOS <F2>:
   Losses and loss expenses                         65.5%           65.2%           98.5%           74.2%          65.0%

   Underwriting expenses                            26.5%           26.1%           24.3%           28.1%          29.6%

   Combined                                         92.0%           91.3%          122.8%          102.3%          94.6%



<F1> Earnings and book value per share are adjusted for the dilutive effect of
     stock options outstanding.

<F2> Data is for all coverages combined, does not include fee income and is
     presented based upon generally accepted accounting principles.

<F3> Includes money market instruments classified with cash in the Consolidated
     Balance Sheets.

<F4> All per share amounts have been adjusted for the five-for-four stock split
     effective February 17, 2003. 2003 includes a $.25 extra dividend.

<F5> Includes $20,000 relating to the events of September 11, 2001.

</TABLE>

<PAGE> 19
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                FINANCIAL CONDITION AND RESULTS OF OPERATIONS
         ----------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

The primary sources of the Company's liquidity are (1) funds generated from
insurance operations including net investment income, (2) proceeds from the sale
of investments and (3) proceeds from maturing investments. The Company generally
experiences positive cash flow resulting from the fact that premiums are
collected on insurance policies in advance of the disbursement of funds in
payment of claims. Operating costs of the insurance subsidiaries, other than
loss and loss expense payments, generally average less than 30% of premiums
earned on a consolidated basis and the remaining amount is available for
investment for varying periods of time depending on the type of insurance
coverage provided. Because losses are often settled in periods different from
when they are incurred, at times, operating cash flows may turn negative as loss
settlements on claim reserves established in prior years exceed net premium
revenue and receipts of investment income. During 2003, positive cash flow from
operations totaled $56.9 million compared to $38.1 million in 2002, as market
conditions remained positive allowing the Company to continue to expand its
market share in all of its major lines of business.

For several years, the Company's investment philosophy has emphasized the
purchase of short-term bonds with maximum quality and liquidity. As interest
rates have declined and yield curves have not provided a strong incentive to
lengthen maturities in recent years, the Company has maintained its short-term
position with respect to the vast majority of its fixed maturity investments.
The average life of the Company's bond and short-term investment portfolio was
2.8 years and 2.9 years at December 31, 2003 and 2002, respectively. The Company
also remains an active participant in the equity securities market using capital
which is not considered necessary to fund current operations. The long-term
nature of the Company's equity investments allows it to invest in positions
where ultimate value, and not short-term market fluctuations, is the primary
focus. Investments made by the Company's domestic insurance subsidiaries are
regulated by guidelines promulgated by the National Association of Insurance
Commissioners which are designed to provide protection for both policyholders
and shareholders.

The Company's assets at December 31, 2003 included $58.4 million in short-term
investments which are readily convertible to cash without market penalty and an
additional $99.4 million of fixed income investments maturing in less than one
year. The Company believes that these liquid investments, plus the expected cash
flow from current operations, are more than sufficient to provide for projected
claim payments and operating cost demands. In addition, the Company's
reinsurance program is structured to avoid serious cash drains that might
accompany catastrophic losses. In the event competitive conditions produce
inadequate premium rates and the Company chooses to restrict volume, the
liquidity of its investment portfolio would permit it 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.

Net premiums written by the Company's U.S. insurance subsidiaries for 2003
equaled approximately 40% of the combined statutory surplus of these
subsidiaries. Premium writings of 200% to 300% of surplus are generally
considered acceptable by regulatory authorities. Further, the statutory capital
of each of the insurance subsidiaries substantially exceeds minimum risk based
capital requirements set by the National Association of Insurance Commissioners.
Accordingly, the Company has the ability to significantly increase its business
without seeking additional capital to meet regulatory guidelines.

As more fully discussed in Note F to the consolidated financial statements, at
December 31, 2003, $71.5 million, or 22% of shareholders' equity, represented
net assets of the Company's insurance subsidiaries which, at that time, could
not be transferred in the form of dividends, loans or advances to the parent
company because


<PAGE> 20

of minimum statutory capital requirements. However, management believes that
these restrictions pose no material liquidity concerns for the Company. The
financial strength and stability of the subsidiaries permit ready access by the
parent company to short-term and long-term sources of credit. The Company has no
long-term or short-term debt outstanding at December 31, 2003.


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

2003 COMPARED TO 2002

Direct premiums written for 2003 totaled $215.6 million, an increase of $50.9
million (31%) from 2002. This increase is primarily attributable to increases in
fleet trucking liability and private passenger automobile programs of $32.6
million (43%) and $6.9 million (19%), respectively, from 2002 levels. Direct
premium writings from the Company's small trucking fleet, independent contractor
and small business workers' compensation programs also increased by $4.6 million
(43%), $3.5 million (10%) and $3.3 million (53%), respectively. Large trucking
fleet volume increased primarily from the addition of new accounts during 2003
and the fact that a full year of premiums was recorded for the new accounts
added in 2002. Increased revenues from renewal accounts and, to a lesser degree,
premium rate increases also contributed to the increase in large fleet trucking
liability premiums during 2003. The higher premium volume from the independent
contractor program resulted from the addition of contractors by existing
accounts. Increased premium volume from the Sagamore personal automobile and
commercial divisions came largely from existing market areas resulting from
improving market conditions and, to a lesser extent, from geographic expansion.

Premiums assumed from other insurers and reinsurers totaled $11.1 million during
2003, an increase of $3.0 million (37%) from 2002. Improved pricing in this
market allowed the Company to increase its participation in existing treaties
and, to a lesser extent, add new treaties during 2003. Premium volume for this
division is limited by the Company's self-imposed limitation to loss from a
single catastrophic event. Further, the Company's participation in reinsurance
assumed in the future will be restricted should pricing become less favorable.

Premiums ceded to reinsurers increased $9.7 million (15%) during 2003 to $73.5
million. The consolidated percentage of premiums ceded to direct premiums
written decreased to 34% for 2003 from 39% for 2002. This decrease is reflective
of the Company's increased exposure under reinsurance treaties effective in 2002
and 2003 covering large fleet trucking risks. The Company's maximum retained
loss under these treaties has increased over the last two years and, as a
result, a lower percentage of the direct premiums are ceded to reinsurers.

After giving effect to changes in unearned premiums, net premiums earned
increased 40% to $146.2 million for 2003 from $104.4 million for 2002. Excluding
inter-company reinsurance arrangements, net premiums earned from all
trucking-related insurance products increased by $29.3 million (48%). Net
premiums earned from the Company's private passenger automobile, non-affiliated
reinsurance assumed and small workers' compensation programs also increased $6.4
million (20%), $3.0 million (39%) and $2.6 million (76%), respectively.

Net investment income decreased $2.1 million (14%) during 2003 reflecting lower
overall pre-tax yields while average invested assets increased 6 %. The average
pre-tax yield on invested assets dropped to 3.3% this year from 4.1% during 2002
(18%). The largest decline in yields occurred in the bond portfolio which
averaged 3.9% during 2003 compared to 5.1% last year. Yields on short-term
investments also declined from 1.4% in 2002 to .8% in 2003. After tax yields
declined less than pre-tax because of a reallocation of the investment portfolio
whereby corporate (fully taxable) bonds were replaced with municipal (largely
tax exempt) bonds. After-tax yields were 2.4% and 2.9% for 2003 and 2002,
respectively. The short-term nature of the Company's bond portfolio results in a
rapid recognition of changes in interest rates, either positive or negative. As
interest


<PAGE> 21

rates have leveled off at 50 year historical lows, the Company has continued to
remain short in the belief that interest rates have a higher probability of
increasing than decreasing or remaining at current levels.

Realized net capital gains were $10.0 million in 2003 compared to losses of
$16.4 million for 2002. The current year's net gain consisted of gains on equity
securities of $9.3 million, gains on fixed maturities of $.5 million, and gains
on other investments of $.2 million. The gains on equity securities include
approximately $3.9 million of gains realized by disposal of securities whose
recorded value had previously been written down due to other than temporary
impairment concerns. Partially offsetting the effect of other than temporary
impairment adjustments on securities sold was $2.4 million in unrealized losses
on fixed maturity securities still owned which experienced a decline in market
value of more than 20% for more than six months and, accordingly, were
reclassified as realized losses during 2003. The gains realized during 2003
reflect the improvement in the equity markets, in general, particularly in the
last quarter.

Losses and loss expenses incurred during 2003 increased $27.6 million (41%) to
$95.7 million. The increase in losses incurred is reflective of the 40% increase
in net premiums earned, as previously discussed. The 2003 consolidated loss and
loss expense ratio was 65.5% compared to 65.2% for 2002. The Company's loss and
loss expense ratios for individual product lines are summarized in the following
table.

<TABLE>
<CAPTION>
Loss and loss expense ratios:
                                                   2003          2002
                                                 --------      --------
     <S>                                         <C>           <C>
     Fleet trucking                                68.6%         68.6%
     Private passenger automobile                  60.2          63.9
     Small fleet trucking                          64.0          50.1
     Reinsurance assumed                           51.6          61.5
     Small business workers' compensation          91.4          54.7
     All lines                                     65.5          65.2

</TABLE>

The loss and loss expense ratios for the Company's fleet trucking and private
passenger automobile programs were fairly consistent with that experienced in
2002. Small fleet trucking experienced a 14 percentage point increase in its
loss and loss expense ratio due to the increased frequency and severity of
reported claims while the loss and loss expense ratio for reinsurance assumed
dropped by 10 percentage points, reflecting the lack of major catastrophe
activity affecting treaties in which the Company participates. The loss and loss
expense ratio for the small business workers' compensation program increased to
91.4% in 2003 from 54.7% in 2002. This significant increase is due to
approximately $.7 million in adjustments to prior year losses resulting from
internal management review of the reserving methodologies for this product as
well as increased frequency and severity of 2003 losses.

Including the deficiency noted above for the small business workers'
compensation product, the Company produced an overall savings on the handling of
prior year claims during 2003 of $13.6 million. This net savings is included in
the computation of loss ratios shown in the above table. Because of the high
limits provided by the Company to its large trucking fleet insureds, the length
of time required to settle larger, more complex claims and the volatility of the
trucking liability insurance business, the Company believes it is important to
have a high degree of conservatism in its reserving process. As claims are
settled in years subsequent to their occurrence, the Company's claim handling
process has, historically, tended to produce savings from the reserves provided.
The Company believes that favorable loss developments are attributable to the
Company's long-standing policy of reserving for losses realistically and a
willingness to settle claims based upon a seasoned evaluation of its exposures.
Changes in both gross premium volumes and the Company's reinsurance structure
for its large trucking fleets can have a significant impact on future loss
developments and, as a result, loss and loss expense ratios may not be
consistent year to year.


<PAGE> 22

Other operating expenses for 2003, before credits for allowances from
reinsurers, increased $10.8 million (27%) to $50.6 million. Gross expenses
increased at a lower rate than the increase in premium volume because much of
the Company's expense structure is fixed and does not vary directly with volume.
In general, only commissions to independent agents, premium taxes and other
acquisition costs vary directly with premium volume. Personnel related expenses,
including amounts allocated to loss expenses and investment income, increased
26% due mainly to employee incentives based upon Company performance in addition
to a 7% increase in the number of employees during 2003. Direct commission
expense increased $2.9 million (33%) due to growth in all of the Company's
business produced by outside agents and as the result of increased participation
in voluntary reinsurance assumed treaties. Substantially all fleet trucking
business is produced by direct sales efforts of Baldwin & Lyons, Inc. employees
and, accordingly, this business does not incur commission expense on a
consolidated basis. Instead, the expenses of the agency operations, including
salaries and bonuses of salesmen, travel expenses, etc. are included in
operating expenses. In general, commissions paid by the insurance subsidiaries
to the parent company exceed related acquisition costs incurred in the
production of fleet trucking business. Ceding commission allowances from
reinsurers increased $2.5 million (14%), resulting from increased premium volume
ceded under reinsurance agreements covering Protective's fleet trucking
business. The ratio of net operating expenses of the insurance subsidiaries to
net premiums earned was 26.5% during 2003 compared to 26.1% for 2002. Including
the agency operations, and after elimination of inter-company commissions, the
ratio of other operating expenses to operating revenue was 18.4% for 2003
compared with 17.8% for 2002, with the increase primarily attributable to the
lower ratio of ceding commission income to gross acquisition costs, as less of
the gross premium is ceded to reinsurers.

The effective federal tax rate for consolidated operations for 2003 was 32.5%.
This rate is lower than the statutory rate primarily because of tax-exempt
investment income.

As a result of the factors mentioned above, net income for 2003 was $33.1
million compared to $12.4 million for 2002. Diluted earnings per share increased
to $2.25 in 2003 from $.84 in 2002. Earnings per share from operations before
realized gains or losses on investments was $1.81 in 2003 compared to $1.57 in
2002.


2002 COMPARED TO 2001

Direct premiums written for 2002 totaled $164.7 million, an increase of $50.4
million (44%) from 2001. This increase is primarily attributable to increases in
fleet trucking and independent contractor programs of $35.2 million (86%) and
$9.0 million (33%), respectively, from 2001 levels. Direct premium writings from
the Company's private passenger automobile and small business workers'
compensation programs also increased by $5.4 million (18%) and $2.0 million
(46%), respectively. These increases were partially offset by a $1.2 million
(10%) decrease in direct premium written for the Company's small trucking fleet
program. Large trucking fleet volume increased primarily from the addition of
new accounts during 2002. Premium rate increases also contributed to higher
large trucking fleet premium in 2002 although rate increases on renewals were
not as significant as in 2001. The higher premium volume from the independent
contractor program resulted from the addition of contractors by existing
accounts. Increases in private passenger automobile and small business workers'
compensation were due primarily to geographic expansion, although modest rate
increases were implemented in both divisions during 2002. The decrease in small
trucking fleet premium resulted from continuing competitive market pressures
within that segment.

Premiums assumed from other reinsurers totaled $8.1 million during 2002, an
increase of $2.5 million (43%) from 2001. Premiums assumed for 2001 included
$1.0 million of reinstatement premiums attributable to losses reported that
year. Without these reinstatement premiums, reinsurance assumed volume would
have increased 74% from the prior year. Improved pricing in this market allowed
the Company to increase its participation via several new treaties since the
2001 period.


<PAGE> 23

Premiums ceded to reinsurers increased $26.2 million (70%) during 2002 to $63.8
million. The percentage of premiums ceded to direct premiums written increased
to 39% for 2002 from 33% for 2001 consistent with the increase in direct
premiums written for the more heavily reinsured large trucking fleet program
discussed above. While the average ceding rate for large fleet trucking was
lower in 2002, a significantly higher portion of consolidated premium revenue
was concentrated in this product line, resulting in the increase in the overall
average ceding rate.

After giving effect to changes in unearned premiums, net premiums earned
increased 26% to $104.4 million for 2002 from $83.1 million for 2001. Net
premiums earned from all trucking-related insurance products increased by $18.6
million (44%). Net premiums earned from the Company's voluntary reinsurance
assumed and small workers' compensation programs increased $2.1 million (37%)
and $.7 million (26%), respectively. These increases were partially offset by a
$.3 million (1%) decrease in premiums earned from private passenger automobile.

Net investment income decreased $2.7 million (15.1%) during 2002 reflecting
lower overall pre-tax yields while average invested assets increased 5%. The
average pre-tax yield on invested assets dropped to 4.1% this year from 5.0%
during 2001. The largest decline in yields came from short-term investments
which averaged 1.4% during 2002 compared to 3.7% during 2001. Average bond
yields also declined from 6.0% in 2001 to 5.1% in 2002. After-tax yields were
2.9% and 3.6% for 2002 and 2001, respectively, in line with pre-tax yield
changes.

Realized net capital losses were $16.4 million in 2002 compared to gains of $5.1
million for 2001. The current year's net loss consisted of losses on equity
securities of $13.7 million, losses on fixed maturities of $1.9 million, and
losses on other investments of $.8 million. The losses on equity securities
include approximately $13.7 million of losses actually realized by disposal of
securities which were considered to have little potential for near-term recovery
as well as $5.8 million of gains realized on sales. In addition, unrealized
losses on securities still owned which had experienced a decline in market value
of more than 20% for more than six months were reclassified as realized losses
during 2002 in the following amounts: equity securities, $5.8 million; fixed
income securities, $.9 million and other investments $1.1 million. The losses
realized during 2002 reflect the continuing bear market which has resulted from
an unusual combination of factors coming together at approximately the same
time. These factors included, in no particular order, the unwinding of one of
the great speculative bubbles of all time (fueled largely by internet and
technology stocks in which the Company had zero participation), the attack of
September 11, 2001 and the significant change in security measures and attendant
economic friction that resulted therefrom, an ongoing recession, a disputed U.S.
Presidential election, corporate collapses and bankruptcies of historic
proportion, corporate malfeasance and fraud which has resulted in massive
changes in corporate governance regulations, evidence of wrongdoing on the part
of major securities firms, the collapse of the merchant energy industry in the
U.S. and, most recently, the imminent commencement of armed conflict with Iraq.
The largest single losses realized on investments actually sold were $4.2
million realized on the sale of Vanguard Index Trust 500 Fund (S&P 500 index
fund) and $1.6 million on Trenwick Group, Inc. common stock. The largest single
losses reported as realized on investments still owned were $1.4 million on PICO
Holdings, Inc. and $1.2 million on El Paso Corp., both common stocks.

Losses and loss expenses incurred during 2002 decreased $13.8 million (17%) to
$68.1 million. Losses and loss expenses for 2001 included $20 million related to
the events of September 11, 2001 ("WTC loss"). Adjusting 2001 losses and loss
expenses for the WTC loss, losses and loss expenses for 2002 were $6.2 million
(10%) higher due mainly to the increased premium volume during 2002. The 2002
consolidated loss and loss expense ratio was 68.5% compared to 74.4% for 2001,
after adjustment for the WTC loss. All of the Company's individual product lines
contributed to the more favorable loss and loss expense ratio. The improved loss
and loss expense ratios for the Company's private passenger automobile, small
fleet trucking and


<PAGE> 24

small business workers' compensation programs are due primarily to improved
underwriting selection and rate increases.

Other operating expenses for 2002, before credits for allowances from
reinsurers, increased $5.4 million (16%) to $39.8 million. Gross expenses
increased at a much lower rate than the increase in premium volume because much
of the Company's expense structure is fixed and does not vary directly with
volume. Personnel related expenses, including amounts allocated to loss expenses
and investment income, increased 7% due mainly to annual cost of living and
merit wage adjustments and staffing increases necessitated by the increased
premium volume. Direct commission expense increased $1.4 million (19%) primarily
as the result of increased participation in voluntary reinsurance assumed
treaties. Ceding commission allowances from reinsurers increased $4.8 million
(37%), resulting from increased premium volume ceded under reinsurance
agreements covering Protective's fleet trucking business. The ratio of net
operating expenses of the insurance subsidiaries to net premiums earned was
26.1% during 2002 compared to 24.3% for 2001, reflecting higher commissions
including bonus commissions measured, in part, on underwriting profitability and
from slightly lower rates for ceding commissions received from reinsurers.
Including the agency operations, and after elimination of inter-company
commissions, the ratio of other operating expenses to operating revenue was
17.8% for 2002 compared with 20.6% for 2001.

The effective federal tax rate for consolidated operations for 2002 was 30.6%.
This rate is lower than the statutory rate primarily because of tax-exempt
investment income.

As a result of the factors mentioned above, net income for 2002 was $12.4
million compared to $5.4 million for 2001. Diluted earnings per share increased
to $.84 in 2002 from $.35 in 2001. 2001 results included losses related to the
events of September 11, 2001 equal to $.84 per share. Earnings per share from
operations before realized gains or losses on investments was $1.57 in 2002
compared to $.14 in 2001.

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

The Company's significant accounting policies are discussed in Note A to the
Consolidated Financial Statements. The following discussion is provided to
highlight areas of the Company's accounting policies which are both material and
subject to significant degrees of estimation.

INVESTMENT VALUATION

All marketable securities are included in the Company's balance sheet at current
fair market value.

Approximately 68% of the Company's assets are composed of investments at
December 31, 2003. Less than .4% of these investments, consisting of limited
partnership investments in real estate and venture capital assets, do not have
readily determinable market values. For these investments, we estimate fair
value by reference to the underlying assets of the limited partnerships. In
addition, approximately $19.1 million of fixed maturity investments (3.7% of
total invested assets) consists of bonds rated as less than investment grade at
year end. The majority of this total is composed of shares in a widely
diversified high yield municipal bond fund where exposure to default by any
single issuer is extremely limited. Further, the average bond quality of assets
held in this fund at year end was BBB, which would be considered investment
grade. We have included the investment in this fund in the total of
non-investment grade bonds since, at times, the average bond quality of the fund
could fall below BBB.

In determining if and when a decline in market value below cost is other than
temporary, we first make an objective analysis of each individual security where
current market value is less than cost. For any security where the unrealized
loss exceeds 20% of original or adjusted cost, and where that decline has
existed for a period of at least six months, the decline is treated as an other
than temporary impairment, without any subjective evaluation as to possible
future recovery. The only exception exists where substantial recovery to cost
has actually occurred prior to the issuance of the financial statements. For
individual issues where the


<PAGE> 25

decline in value is less than 20% but the amount of the decline is considered
significant, a similar objective evaluation is conducted but, in these cases, we
will also evaluate the market conditions, trends of earnings, price multiples
and other key measures for the securities to determine if it appears that the
decline is other than temporary. For any decline which is considered to be other
than temporary, we recognize an impairment loss in the current period operating
results as an addition to realized capital losses. Declines which are considered
to be temporary are recorded as a reduction in shareholders' equity, net of
related federal income tax credits.

It is important to note that all investments included in the Company's financial
statements are valued at current fair market values. The evaluation process for
determination of other than temporary decline in value of investments does not
change these valuations but, rather, determines when the decline in value will
be recognized in the income statement (other than temporary decline) as opposed
to a charge to shareholders' equity (temporary decline). Subsequent recoveries
in value of investments which have incurred an other than temporary impairment
adjustment are accounted for as unrealized gains until the security is actually
disposed. At December 31, 2003, unrealized gains include $4.3 million of
appreciation on investments previously adjusted for "other than temporary"
impairment. This evaluation process is subject to risks and uncertainties since
it is not always clear what has caused a decline in value of an individual
security or since some declines may be associated with general market conditions
or economic factors which relate to an industry, in general, but not necessarily
to an individual issue. The Company has attempted to minimize many of these
uncertainties by adopting a largely objective evaluation process which results
in automatic income statement recognition of any investment which, over a six
month period, is unable to recover from a 20% decline in value from our cost
basis. However, to the extent that certain declines in value are reported as
unrealized at December 31, 2003, it is possible that future earnings charges
will result should the declines in value increase or persist or should the
security actually be disposed of while market values are less than cost. At
December 31, 2003, the total gross unrealized loss included in the Company's
investment portfolio was less than $1.2 million. No individual issue constituted
a material amount of this total. Had this entire amount been considered other
than temporary at December 31, 2003, realized capital losses would have
increased by $.05 per share for the year. There would, however, have been no
impact on total shareholders equity or book value per share since the decline in
value of these securities was already recognized as a reduction to shareholders
equity at December 31, 2003.

REINSURANCE RECOVERABLE

Amounts recoverable under the terms of reinsurance contracts comprise
approximately 24% of total Company assets as of December 31, 2003. In order to
be able to provide the high limits required by the Company's trucking company
insureds, we share a significant amount of the insurance risk of the underlying
contracts with various insurance entities through the use of reinsurance
contracts. Some reinsurance contracts provide that a loss be shared among the
Company and its reinsurers on a predetermined pro-rata basis ("quota-share")
while other contracts provide that the Company keep a fixed amount of the loss,
similar to a deductible, with reinsurers taking all losses above this fixed
amount ("excess of loss"). Some risks are covered by a combination of
quota-share and excess of loss contracts. The computation of amounts due from
reinsurers is based upon the terms of the various contracts and follows the
underlying estimation process for loss and loss expense reserves, as described
below. Accordingly, the uncertainties inherent in the loss and loss expense
reserving process also affect the amounts recorded as recoverable from
reinsurers. Estimation uncertainties are greatest for claims which have occurred
but which have not yet been reported to the Company. Further, the high limits
provided by the Company's insurance policies for trucking liability and workers'
compensation, provide more variability in the estimation process than lines of
business with lower coverage limits.

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

As with any receivable, credit risk exists in the recoverability of reinsurance.
This is even more pronounced than in normal receivable situations since
recoverable amounts are not generally due until the loss is settled which, in
some cases, may be many years after the contract was written. If a reinsurer is
unable, in the future, to meet its financial commitments under the terms of the
contracts, the Company would be responsible for the


<PAGE> 26

reinsurer's portion of theloss. The financial condition of each of the Company's
reinsurers is initially determined upon the execution of a given treaty and only
reinsurers with the highest credit ratings available are utilized. However, as
noted above, reinsurers are often not called upon to satisfy their obligations
for several years and changes in credit worthiness can occur in the interim
period. Reviews of the current financial strength of each reinsurer are made
continually and, should impairment in the ability of a reinsurer be determined
to exist, current year operations would be charged in amounts sufficient to
provide for the Company's additional liability. Such charges are included in
other operating expenses, rather than losses and loss expenses incurred, since
the inability of the Company to collect from reinsurers is a credit risk rather
than a deficiency associated with the loss reserving process.

LOSS AND LOSS EXPENSE RESERVES

The Company's reserves for losses and loss expenses ("reserves") are determined
based on complex estimation processes using historical experience, current
economic information and, when necessary, available industry statistics. Our
reserves are evaluated in three basic categories (1) "case basis", (2) "incurred
but not reported" and (3) "loss adjustment expense" reserves. Case basis
reserves are established for specific known loss occurrences at amounts
dependent upon various criteria such as type of coverage, severity and the
underlying policy limits, as examples. Case basis reserves are generally
estimated by experienced claims adjusters using established Company guidelines
and are subject to review by claims management. Incurred but not reported
reserves, which are established for those losses which have occurred, but have
not yet been reported to the Company, are not linked to specific claims but are
computed on a "bulk" basis. Common actuarial methods are used in the
establishment of incurred but not reported loss reserves using company
historical loss data, consideration of changes in the Company's business and
study of current economic trends affecting ultimate claims costs. Loss
adjustment expense reserves, or reserves for the costs associated with the
investigation and settlement of a claim, are also bulk reserves representing the
Company's estimate of the costs associated with the claims handling process.
Loss adjustment expense reserves include amounts ultimately allocable to
individual claims as well as amounts required for the general overhead of the
claims handling operation that are not specifically allocable to individual
claims. Historical analyses of the ratio of loss adjusting expenses to losses
paid on prior closed claims and study of current economic trends affecting loss
settlement costs are used to estimate the loss adjustment reserve needs related
to the established loss reserves. Each of these reserve categories contain
elements of uncertainty which assure variability when compared to the ultimate
costs to settle the underlying claims for which the reserves are established.

The reserving process requires us to continuously monitor and evaluate the life
cycle of claims based on the class of business and the nature of claims. Our
claims range from the very routine private passenger automobile "fender bender"
to the highly complex and costly third party bodily injury claim involving large
tractor-trailer rigs. Reserving for each class of claims requires a set of
assumptions based upon historical experience, knowledge of current industry
trends and seasoned judgment. The high limits provided in the Company's trucking
liability policies provide for greater variation in the reserving process for
more serious claims. Court rulings, tort reform (or lack thereof) and trends in
jury awards also play a significant role in the estimation process of larger
claims. The Company continuously reviews and evaluates loss developments
subsequent to each measurement date and adjusts its reserve estimation
assumptions, as necessary, in an effort to achieve the best possible estimate of
the ultimate remaining loss costs at any point in time. Changes to previously
established reserve amounts are charged or credited to losses and loss expenses
incurred in the accounting periods in which they are determined. Note C to the
consolidated financial statements includes additional information relating to
loss and loss adjustment expense reserve development.

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


<PAGE> 27
following: (i) the Company's plans, strategies, objectives, expectations and
intentions are subject to change at any time at the discretion of the Company;
(ii) the Company's business is highly competitive and the entrance of new
competitors into or the expansion of the operations by existing competitors in
the Company's markets and other changes in the market for insurance products
could adversely affect the Company's plans and results of operations; and (iii)
other risks and uncertainties indicated from time to time in the Company's
filings with the Securities and Exchange Commission.

FEDERAL INCOME TAX CONSIDERATIONS

The liability method is used in accounting for federal income taxes. Using this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The provision for deferred federal income
tax was based on items of income and expense that were reported in different
years in the financial statements and tax returns and were measured at the tax
rate in effect in the year the difference originated. Net deferred tax
liabilities of $13.2 million and $5.8 million were recorded at December 31, 2003
and 2002, respectively. The net deferred tax liability at December 31, 2003
included $5.5 million in special tax deposits covered under Section 847 of the
Internal Revenue Code, as explained in the following paragraph, which compares
to $4.6 million in special tax deposits at December 31, 2002. Adjusted for the
special deposits, a net deferred tax liability of $18.7 million was recorded at
December 31, 2003 compared to a net deferred tax liability of $10.3 million at
December 31, 2002. The increase in deferred federal taxes payable is primarily
attributable to the increase in unrealized capital gains in the investment
portfolio.

A provision in the Technical and Miscellaneous Revenue Act of 1988 created a
mechanism which allows for a recognizable deferred tax asset specifically for
property and casualty loss reserves discounted for tax purposes. Adopted as
Section 847 of the Internal Revenue Code, this provision allows an insurer to
take a special tax deduction equal to the discount on post 1986 accident year
loss and loss expense reserves while making "special estimated tax payments"
equal to the amount of the tax benefit derived from the special deduction. The
"special estimated tax payments" can be carried forward for fifteen years to
offset taxes arising from decreases in the special deduction and can be treated
as regular estimated payments or refunded at the end of the carryforward period.
Based upon the concerns regarding the recognition of deferred tax assets, the
Company adopted the provisions of Section 847 for all tax years 1987 and
subsequent and has taken deductions for the entire amount of discount on
post-1986 loss reserves. As mentioned above, special Section 847 estimated tax
deposits totaling $5.5 million have been paid in connection with this election.


IMPACT OF INFLATION

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

To the extent inflation influences yields on investments, the Company is also
affected. The Company maintains a sizable portion of its investment portfolio in
short-term instruments and changes in current market interest rates
correspondingly affect yields on these investments. Further, as inflation
affects current market rates of return, previously committed investments may
rise or decline in value depending on the type and maturity of investment.
(See comments under Market Risk, following.)

Inflation must also be considered by the Company in the creation and review of
loss and loss adjustment expense reserves since portions of these reserves are
expected to be paid over extended periods of time. The


<PAGE> 28

anticipated effect of inflation is implicitly considered when estimating
liabilities for losses and loss adjustment expenses.

MARKET RISK

The Company operates solely within the property and casualty insurance industry
and, accordingly, has significant invested assets which are exposed to various
market risks. These market risks relate to interest rate fluctuations, equities
market prices and, to a lesser extent, foreign currency rate fluctuations. All
of the Company's invested assets are classified as available for sale and are
listed as such in Note B to the consolidated financial statements.

The most significant of the three identified market risks relates to prices in
the equities market. Though not the largest category of the Company's invested
assets, equity securities have the greatest potential for short-term price
fluctuation. The market value of the Company's equity positions at December 31,
2003 was $130.1 million or approximately 25% of invested assets. This market
valuation includes $62.2 million of appreciation on original purchase prices of
the equity security investments. Funds invested in the equities market are not
considered to be assets necessary for the Company to conduct its daily
operations and, therefore, can be committed for extended periods of time. The
long-term nature of the Company's equity investments allows it to invest in
positions where ultimate value, and not short-term market fluctuations, is the
primary focus.

The Company's fixed maturity portfolio totaled $321.2 million at December 31,
2003. Over two-thirds of this portfolio is made up of U. S. Government and
government agency obligations and state and municipal debt securities, 95% of
the portfolio matures within 5 years and the average life of the Company's fixed
maturity investments is approximately 2.8 years. Although the Company is exposed
to interest rate risk on its fixed maturity investments, given the anticipated
duration of the Company's liabilities (principally insurance loss and loss
expense reserves) relative to investment maturities, even a 100 to 200 basis
point increase in interest rates would not have a significant impact on the
Company's ability to conduct daily operations or to meet its obligations.

There is an inverse relationship between interest rate fluctuations and the fair
value of the Company's fixed maturity investments. Additionally, the fair value
of interest rate sensitive instruments may be affected by the financial strength
of the issuer, prepayment options, relative values of alternative investments,
liquidity of the investment and other general market conditions. The Company
monitors its sensitivity to interest rate risk by measuring the change in fair
value of its fixed maturity investments relative to hypothetical changes in
interest rates. As previously indicated, several other factors can impact the
fair values of fixed maturity investments and, therefore, significant variations
in market interest rates could produce quite different results from the
hypothetical estimates presented in the next paragraph.

We estimate that a 100 basis point increase in market interest rates would have
resulted in a pre-tax loss in the fair value of fixed maturity investments of
approximately $5.3 million at December 31, 2003. Similarly, a 100 basis point
decrease in market interest rates would have resulted in an estimated pre-tax
gain in the fair value of these instruments of approximately $5.4 million at
December 31, 2003. Note, however, that the hypothetical loss mentioned above
would only be realized if the Company was obligated to sell bonds prior to
maturity, which is extremely unlikely. The aggregate value of money market and
short-term investments, bonds maturing within twelve months and expected
positive cash flow from operations for 2004 is equal to more than 100% of net
loss and loss expense reserves at December 31, 2003.

The Company's exposure to foreign currency risk is not material.


<PAGE> 29




                           ANNUAL REPORT ON FORM 10-K




               ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA








                          YEAR ENDED DECEMBER 31, 2003

                              BALDWIN & LYONS, INC.

                              INDIANAPOLIS, INDIANA








<PAGE> 30

                          YEAR ENDED DECEMBER 31, 2003

                              BALDWIN & LYONS, INC.

                              INDIANAPOLIS, INDIANA


REPORT OF INDEPENDENT AUDITORS


Shareholders and Board of Directors
Baldwin & Lyons, Inc.

We have audited the accompanying consolidated balance sheets of Baldwin & Lyons,
Inc. and subsidiaries as of December 31, 2003 and 2002, and the related
consolidated statements of income, changes in equity other than capital, and
cash flows for each of the three years in the period ended December 31, 2003.
Our audits also included the financial statement schedules listed in the Index
at Item 15(a). These financial statements and schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedules based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Baldwin & Lyons,
Inc. and subsidiaries at December 31, 2003 and 2002, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.



/s/ ERNST & YOUNG LLP

Indianapolis, Indiana
February 27, 2004


<PAGE> 31
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
BALDWIN & LYONS, INC. AND SUBSIDIARIES


                                                                               December 31
                                                                          2003              2002
                                                                    ----------------   ---------------
                                                                           (DOLLARS IN THOUSANDS)
<S>                                                                  <C>                <C>
ASSETS
Investments:
    Fixed maturities                                                     $ 321,193         $ 290,155
    Equity securities                                                      130,139           105,441
    Short-term and other                                                    36,545             9,158
                                                                    ----------------   ---------------
                                                                           487,877           404,754

Cash and cash equivalents                                                   30,078            41,699
Accounts receivable--less allowance
   (2003, $1,127; 2002, $1,047)                                             37,333            33,646
Accrued investment income                                                    3,848             4,060
Reinsurance recoverable                                                    185,457           137,870
Deferred policy acquisition costs                                            5,309             4,177
Current federal income taxes                                                     -             1,701
Property and equipment--less accumulated depreciation
    (2003, $10,009; 2002, $8,718)                                            6,206             6,658
Notes receivable from employees                                              4,828             7,494
Other assets                                                                 2,271             2,403
                                                                    ----------------   ---------------
                                                                         $ 763,207         $ 644,462
                                                                    ================   ===============

LIABILITIES AND SHAREHOLDERS' EQUITY
Reserves:
    Losses and loss expenses                                             $ 343,724         $ 277,744
    Unearned premiums                                                       36,803            29,016
                                                                    ----------------   ---------------
                                                                           380,527           306,760

Reinsurance payable                                                            810             1,592
Note payable                                                                     -             7,500
Accounts payable and other liabilities                                      43,195            38,262
Current federal income taxes                                                   901                 -
Deferred federal income taxes                                               13,200             5,760
                                                                    ----------------   ---------------
                                                                           438,633           359,874
Shareholders' equity:
    Common stock, no par value:
       Class A -- authorized 3,000,000 shares;
           outstanding -- 2003 and 2002, 2,666,666 shares                      114               114
       Class B -- authorized 20,000,000 shares;
           outstanding -- 2003, 11,924,354 shares;
           2002, 11,882,813 shares                                             509               507
    Additional paid-in capital                                              35,419            35,248
    Unrealized net gains on investments                                     44,837            29,640
    Retained earnings                                                      243,695           219,079
                                                                    ----------------   ---------------
                                                                           324,574           284,588
                                                                    ----------------   ---------------
                                                                         $ 763,207         $ 644,462
                                                                    ================   ===============



See notes to consolidated financial statements.

</TABLE>


<PAGE> 32
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
BALDWIN & LYONS, INC. AND SUBSIDIARIES



                                                                                        Year Ended December 31
                                                                               2003              2002             2001
                                                                         ----------------  ----------------  ---------------
                                                                            (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                                       <C>               <C>               <C>
REVENUE:
    Net premiums earned                                                        $ 146,153         $ 104,392         $ 83,138
    Net investment income                                                         12,873            14,964           17,626
    Realized net gains (losses) on investments                                     9,990           (16,445)           5,053
    Commissions, service fees and other income                                     6,232             5,219            4,063
                                                                         ----------------  ----------------  ---------------
                                                                                 175,248           108,130          109,880
EXPENSES:
    Losses and loss expenses incurred                                             95,738            68,107           81,870
    Other operating expenses                                                      30,477            22,193           21,572
                                                                         ----------------  ----------------  ---------------
                                                                                 126,215            90,300          103,442
                                                                         ----------------  ----------------  ---------------
                                  INCOME BEFORE FEDERAL INCOME TAXES              49,033            17,830            6,438

Federal income taxes                                                              15,958             5,464            1,048
                                                                         ----------------  ----------------  ---------------
                                                          NET INCOME            $ 33,075          $ 12,366          $ 5,390
                                                                         ================  ================  ===============

PER SHARE DATA:
DILUTED EARNINGS:
    Income before realized net gains (losses)                                     $ 1.81            $ 1.57            $ .14
    Realized net gains (losses) on investments                                       .44             ( .73)             .21
                                                                         ----------------  ----------------  ---------------
                                                          NET INCOME              $ 2.25            $  .84            $ .35
                                                                         ================  ================  ===============

BASIC EARNINGS:
    Income before realized net gains (losses)                                     $ 1.82            $ 1.58            $ .14
    Realized net gains (losses) on investments                                       .45             ( .73)             .22
                                                                         ----------------  ----------------  ---------------
                                                          NET INCOME              $ 2.27            $  .85            $ .36
                                                                         ================  ================  ===============

                                                           DIVIDENDS              $  .65            $  .32            $ .32
                                                                         ================  ================  ===============




See notes to consolidated financial statements.

</TABLE>

<PAGE> 33
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY OTHER THAN CAPITAL
BALDWIN & LYONS, INC. AND SUBSIDIARIES



                                                                                 2003             2002            2001
                                                                             --------------  --------------  --------------
                                                                                         (DOLLARS IN THOUSANDS)
<S>                                                                          <C>             <C>             <C>
BALANCES AT BEGINNING OF YEAR:
    Retained earnings                                                             $219,079        $219,067        $220,698
    Unrealized gains on investments                                                 29,640          32,377          36,237
                                                                             --------------  --------------  --------------
                                                                                   248,719         251,444         256,935

CHANGES ARISING FROM INCOME-PRODUCING ACTIVITIES:
    Net income                                                                      33,075          12,366           5,390

    Gains (losses) on investments:
        Holding gains (losses) arising during period,
            before federal income taxes                                             33,371         (20,656)           (886)
        Federal income taxes (benefit)                                              11,680          (7,230)           (310)
                                                                             --------------  --------------  --------------
                                                                                    21,691         (13,426)           (576)

        (Gains) losses realized during period included in net income,
            before federal income taxes                                            (9,990)          16,445          (5,053)
        Federal income taxes (benefit)                                             (3,496)           5,756          (1,769)
                                                                             --------------  --------------  --------------
                                                                                   (6,494)          10,689          (3,284)
                                                                             --------------  --------------  --------------

        Change in unrealized gains on investments                                   15,197          (2,737)         (3,860)

    Foreign exhange adjustment                                                       1,011              77            (300)
                                                                             --------------  --------------  --------------

                                   TOTAL REALIZED AND UNREALIZED INCOME             49,283           9,706           1,230

OTHER CHANGES AFFECTING RETAINED EARNINGS:
    Cash dividends paid to shareholders                                            (9,470)          (4,636)         (4,850)
    Cost of treasury shares in excess of original issue proceeds                         -          (7,795)         (1,871)
                                                                             --------------  --------------  --------------
                                                                                   (9,470)         (12,431)         (6,721)
                                                                             --------------  --------------  --------------
                                                          TOTAL CHANGES             39,813          (2,725)         (5,491)
                                                                             --------------  --------------  --------------

BALANCES AT END OF YEAR:
    Retained earnings                                                              243,695         219,079         219,067
    Unrealized gains on investments                                                 44,837          29,640          32,377
                                                                             --------------  --------------  --------------
                                                                                  $288,532        $248,719        $251,444
                                                                             ==============  ==============  ==============



See notes to consolidated financial statements.

</TABLE>

<PAGE> 34

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
BALDWIN & LYONS, INC. AND SUBSIDIARIES

                                                                                          Year Ended December 31
                                                                                 2003               2002           2001
                                                                            ---------------  ---------------  --------------
                                                                                          (DOLLARS IN THOUSANDS)
<S>                                                                         <C>              <C>              <C>
OPERATING ACTIVITIES
   Net income                                                                     $ 33,075         $ 12,366         $ 5,390
   Adjustments to reconcile net income to net cash
      provided by operating activities:
         Change in accounts receivable and unearned premium                          4,275           (3,434)           (365)
         Change in accrued investment income                                           213             (185)           (151)
         Change in loss and loss expense reserves
            and reinsurance recoverable                                             18,218            4,357          17,788
         Change in other assets, other liabilities and current income taxes          7,252            7,046          (3,732)
         Amortization of net policy acquisition costs                               (4,431)          (5,569)         (3,141)
         Net policy acquisition costs deferred                                       3,299            4,915           3,293
         Provision for deferred income taxes                                         (743)           (2,675)           (559)
         Bond amortization                                                           2,802            1,482             578
         Loss on sale of property                                                       17               10               8
         Depreciation                                                                2,741            2,601           2,604
         Net realized loss (gain) on investments                                   (9,990)           17,057          (5,668)
         Compensation expense related to discounted stock options                      143              134             131
                                                                            ---------------  ---------------  --------------
                              Net cash provided by operating activities             56,871           38,105          16,177

Investing activities
   Purchases of fixed maturities and equity securities                           (206,141)         (172,806)       (163,996)
   Proceeds from maturities                                                         85,429           51,978          74,029
   Proceeds from sales of fixed maturities                                          34,492           32,000          11,921
   Proceeds from sales of equity securities                                         61,764           53,112          61,328
   Net sales (purchases) of short-term investments                                (27,529)           19,814           4,213
   Distributions from limited partnerships                                              63              632           9,896
   Decrease (increase) in principal balance of
      notes receivable from employees                                                2,676           (5,036)           (532)
   Purchases of property and equipment                                             (2,437)           (1,989)         (1,727)
   Proceeds from disposals of property and equipment                                   130              161             129
                                                                            ---------------  ---------------  --------------
                                  Net cash used in investing activities           (51,553)          (22,134)         (4,739)

Financing activities
   Dividends paid to shareholders                                                  (9,470)           (4,636)         (4,850)
   Proceeds from sale of common stock                                                   31                2               3
   Drawing on line of credit                                                             -           10,000               -
   Repayment on line of credit                                                     (7,500)           (2,500)         (5,411)
   Cost of treasury shares                                                               -           (8,978)         (2,154)
                                                                            ---------------  ---------------  --------------
                                  Net cash used in financing activities           (16,939)           (6,112)        (12,412)
                                                                            ---------------  ---------------  --------------
                       Increase (decrease) in cash and cash equivalents           (11,621)            9,859            (974)
Cash and cash equivalents at beginning of year                                      41,699           31,840          32,814
                                                                            ---------------  ---------------  --------------
                               Cash and cash equivalents at end of year           $ 30,078         $ 41,699        $ 31,840
                                                                            ===============  ===============  ==============




See notes to consolidated financial statements.

</TABLE>

<PAGE> 35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Baldwin & Lyons, Inc. and Subsidiaries
(DOLLARS IN THOUSANDS)

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION:  The consolidated financial statements include the
accounts of Baldwin & Lyons, Inc. and its wholly owned subsidiaries ("the
Company").  All significant intercompany transactions and accounts have been
eliminated in consolidation.

USE OF ESTIMATES: Preparation of the consolidated financial statements requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.

CASH AND CASH EQUIVALENTS: The Company considers investments in money market
funds to be cash equivalents. Carrying amounts for these instruments approximate
their fair values.

INVESTMENTS: Carrying amounts for fixed maturity securities (bonds, notes and
redeemable preferred stocks) 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 (nonredeemable
preferred stocks and common stocks) are carried at quoted market prices (fair
value). Other investments are carried at either market value, cost or cost
adjusted for operations of limited partnerships, depending on the nature of the
investment. All fixed maturity and equity securities are considered to be
available for sale; the related unrealized net gains or losses (net of
applicable tax effect) are reflected directly in shareholders' equity unless a
decline in value is determined to be other than temporary, in which case, the
loss is charged to income. Although the Company has classified fixed maturity
investments as available for sale, it has the ability to hold its fixed maturity
investments to maturity. Short-term investments are carried at cost which
approximates their fair values. Realized gains and losses on disposals of
investments are determined by specific identification of cost of investments
sold and are included in income.

PROPERTY AND EQUIPMENT: Property and equipment is carried at cost. Depreciation
is computed principally by the straight-line method.

RESERVES FOR LOSSES AND LOSS EXPENSES: The reserves for losses and loss
expenses, certain of which are discounted, are determined using case basis
evaluations and statistical analyses and represent estimates of the ultimate
cost of all reported and unreported losses which are unpaid at year end. These
reserves include estimates of future trends in claim severity and frequency and
other factors which could vary as the losses are ultimately settled. Although it
is not possible to measure the degree of variability inherent in such estimates,
management believes that the reserves for losses and loss expenses are adequate.
The estimates are continually reviewed and as adjustments to these reserves
become necessary, such adjustments are reflected in current operations.

RECOGNITION OF REVENUE AND COSTS: Premiums are earned over the period for which
insurance protection is provided. A reserve for unearned premiums, computed by
the daily pro-rata method, is established to reflect amounts applicable to
subsequent accounting periods. Commissions to unaffiliated companies and other
acquisition costs applicable to unearned premiums are deferred and expensed as
the related premiums are earned. If it is determined that deferred expenses will
exceed the related unearned premiums, the asset representing deferred policy
acquisition costs is reduced and an expense is charged against current
operations to reflect any such premium deficiency. If the expected premium
deficiency exceeds deferred policy acquisition costs, an additional liability is
recorded with a corresponding expense to current operations for the amount of
the excess premium deficiency. Anticipated investment income is considered in
determining recoverability of deferred acquisition costs.

Reinsurance premiums, commissions, expense reimbursements and reserves related
to reinsured business are accounted for on bases consistent with those used in
accounting for the original policies issued and the terms of the reinsurance
contracts. Premiums ceded to other insurers have been reported as a reduction of
premium income. Amounts applicable to reinsurance ceded for unearned premium and
claim loss reserves have been reported as reinsurance recoverable assets.
Certain reinsurance contracts provide for additional or return premiums and
commissions based upon profits or losses to the reinsurer over prescribed
periods. Estimates of additional or return premiums and commissions are adjusted
quarterly to


<PAGE> 36
recognize actual loss experience to date as well as projected loss experience
applicable to the various contract periods. Reinstatement premiums on
reinsurance assumed contracts covering catastrophic events are recorded
concurrently with the related loss.

STOCK-BASED COMPENSATION: Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related Interpretations are used in
accounting for stock options, stock purchases and equity appreciation rights
which are, from time to time, granted to employees and outside directors.

FEDERAL INCOME TAXES: A consolidated federal income tax return is filed by the
Company and includes all wholly owned subsidiaries.

EARNINGS PER SHARE: Diluted earnings per share of common stock are based on the
average number of shares of Class A and Class B common stock outstanding during
the year, adjusted for the effect, if any, of options outstanding. Basic
earnings per share are presented exclusive of the effect of options outstanding.
See note H.

COMPREHENSIVE INCOME: The Company records accumulated other comprehensive income
from unrealized gains and losses on available-for-sale securities as a separate
component of shareholders' equity. Foreign exchange adjustments are not material
and the Company has no defined benefit pension plan.

The enclosed STATEMENT OF CHANGES IN EQUITY OTHER THAN CAPITAL refers to
comprehensive income as TOTAL REALIZED AND UNREALIZED INCOME. Items of other
comprehensive income included in this statement are referred to as CHANGE IN
UNREALIZED GAINS (LOSSES) ON INVESTMENTS and FOREIGN EXCHANGE ADJUSTMENT. A
reclassification adjustment to other comprehensive income is made for GAINS
REALIZED DURING PERIOD INCLUDED IN NET INCOME.

RECLASSIFICATION: Certain prior year balances have been reclassified to conform
to the current year presentation. All share amounts have been restated for the
five-for-four stock split declared in February, 2003.


<PAGE> 37
NOTE B - INVESTMENTS
The following is a summary of available-for-sale securities at December 31:

<TABLE>
<CAPTION>
                                                                 COST OR         GROSS         GROSS          NET
                                                    FAIR        AMORTIZED      UNREALIZED    UNREALIZED    UNREALIZED
                                                    VALUE          COST          GAINS         LOSSES        GAINS
                                                 ------------  -------------  ------------  ------------  ------------
<S>                                              <C>           <C>            <C>           <C>           <C>
2003:
   U. S. government obligations                    $ 113,359      $ 111,972      $  1,407       $   (20)      $ 1,387
   Mortgage-backed securities                         19,198         19,139           168          (109)           59
   Obligations of states and political
      subdivisions                                   104,237        102,865         1,398           (26)        1,372
   Corporate securities                               78,000         73,807         4,265           (72)        4,193
   Foreign government obligations                      6,399          6,295           104             -           104
                                                 ------------  -------------  ------------  -------------  ------------
      Total fixed maturities                         321,193        314,078         7,342          (227)        7,115
   Equity securities                                 130,139         67,929        62,805          (595)       62,210
   Short-term and other                               36,545         36,890             -          (345)         (345)
                                                 ------------  -------------  ------------  -------------  ------------
      Total available-for-sale securities          $ 487,877      $ 418,897      $ 70,147      $ (1,167)       68,980
                                                 ============  =============  ============  =============

                                                                          Applicable federal income taxes     (24,143)
                                                                                                           ------------

                                                                        Net unrealized gains - net of tax    $ 44,837
                                                                                                           ============
2002:
   U. S. government obligations                    $ 116,325      $ 113,280      $  3,045      $      -      $  3,045
   Mortgage-backed securities                         12,817         12,240           578            (1)          577
   Obligations of states and political
      subdivisions                                    68,837         67,299         1,538             -         1,538
   Corporate securities                               87,716         84,101         4,084          (469)        3,615
   Foreign government obligations                      4,460          4,407            53             -            53
                                                 ------------  -------------  ------------  -------------  ------------
      Total fixed maturities                         290,155        281,327         9,298          (470)        8,828
   Equity securities                                 105,441         68,669        40,036        (3,264)       36,772
   Short-term and other                                9,158          9,158             -             -             -
                                                 ------------  -------------  ------------  -------------  ------------
      Total available-for-sale securities          $ 404,754      $ 359,154      $ 49,334      $ (3,734)       45,600
                                                 ============  =============  ============  =============

                                                                          Applicable federal income taxes     (15,960)
                                                                                                           ------------

                                                                        Net unrealized gains - net of tax    $ 29,640
                                                                                                           ============
</TABLE>

The securities in an unrealized loss position are not significant.


<PAGE> 38
NOTE B - INVESTMENTS (CONTINUED)
Gross realized gains and losses on investments for the years ended December 31
are summarized below:

<TABLE>
<CAPTION>
                                                                          2003           2002          2001
                                                                      -------------  ------------  ------------
<S>                                                                   <C>            <C>           <C>
Fixed maturities:
   Gains                                                                  $  1,122      $  1,396         $  82
   Losses                                                                     (584)       (3,278)       (2,218)
                                                                      -------------  ------------  ------------
      Net gains (losses)                                                       538        (1,882)       (2,136)

Equity securities:
   Gains                                                                    15,754         5,774        15,591
   Losses                                                                   (6,502)      (19,520)       (8,305)
                                                                      -------------  ------------  ------------
      Net gains (losses)                                                     9,252       (13,746)        7,286

Short-term and other - net gain (loss)                                         200          (817)          (97)
                                                                      -------------  ------------  ------------

                                         TOTAL NET GAINS (LOSSES)          $ 9,990     $ (16,445)      $ 5,053
                                                                      =============  ============  ============

</TABLE>

The Company recorded other than temporary writedowns of $2,394, $7,726 and
$2,081 in 2003, 2002 and 2001, respectively.

The fair value and the cost or amortized cost of fixed maturity investments at
December 31, 2003, by contractual maturity, are shown below. Actual maturities
may differ from contractual maturities because borrowers have, in some cases,
the right to call or prepay obligations with or without call or prepayment
penalties.

<TABLE>
<CAPTION>
                                                                                                  Cost or
                                                                                                  Amoritzed
                                                                                 Fair Value         Cost
                                                                                ------------    -------------
<S>                                                                             <C>             <C>
One year or less                                                                   $ 99,443         $ 97,273
Excess of one year to five years                                                    185,013          180,300
Excess of five years to ten years                                                     7,206            7,191
Excess of ten years                                                                   7,385            7,239
                                                                                ------------    -------------
   Total maturities                                                                 299,047          292,003
Mortgage-backed securities                                                           19,198           19,139
Redeemable preferred stock                                                            2,948            2,936
                                                                                ------------    -------------
                                                                                  $ 321,193        $ 314,078
                                                                                ============    =============

</TABLE>

Major categories of investment income for the years ended December 31 are
summarized as follows:

<TABLE>
<CAPTION>
                                                                       2003             2002            2001
                                                                   -------------    -------------    ------------
<S>                                                                <C>              <C>              <C>
Fixed maturities                                                       $ 11,275         $ 12,744        $ 13,287
Equity securities                                                         2,367            2,813           2,739
Money market funds                                                          354              663           1,522
Short-term and other                                                        311              207           1,785
                                                                   -------------    -------------    ------------
                                                                         14,307           16,427          19,333
Investment expenses                                                      (1,434)          (1,463)         (1,707)
                                                                   -------------    -------------    ------------
                                         NET INVESTMENT INCOME         $ 12,873         $ 14,964        $ 17,626
                                                                   =============    =============    ============

</TABLE>

Approximately 21% of purchases and 38% of sales of investments during the three
years ended December 31, 2003 were made through securities broker-dealers in
which certain directors of the Company were officers, directors or owners. Fees
earned by affiliated investment advisors were $2,820, $482 and $1,110 in 2003,
2002 and 2001, respectively.

The Company has holdings in money-market accounts which were managed by or
purchased through companies affiliated with certain directors of the Company.


<PAGE> 39
NOTE C - LOSS AND LOSS EXPENSE RESERVES
Activity in the reserves for losses and loss expenses is summarized as follows.
All amounts are shown net of reinsurance recoverable.

<TABLE>
<CAPTION>
                                                                                       Year Ended December 31,
                                                                                2003            2002            2001
                                                                             ------------    ------------    ------------
<S>                                                                          <C>             <C>             <C>
Reserves at the beginning of the year                                           $144,702        $137,733        $120,206

Provision for losses and loss expenses:
   Claims occurring during the current year                                      109,324          78,115          82,757
   Claims occurring during prior years                                           (13,586)        (10,008)           (887)
                                                                             ------------    ------------    ------------
      Total incurred                                                              95,738          68,107          81,870

Loss and loss expense payments:
   Claims occurring during the current year                                       37,625          30,997          33,237
   Claims occurring during prior years                                            39,956          30,249          31,132
                                                                             ------------    ------------    ------------
      Total paid                                                                  77,581          61,246          64,369

Change in allowance for uncollectible
    amounts due from reinsurers                                                      840             108              26
                                                                             ------------    ------------    ------------
Reserves at the end of the year                                                  163,699         144,702         137,733

Reinsurance recoverable on reserves at the end of the year                       180,025         133,042         109,410
                                                                             ------------    ------------    ------------
Reserves, gross of reinsurance
    recoverables, at the end of the year                                        $343,724        $277,744        $247,143
                                                                             ============    ============    ============

</TABLE>

The reserves for losses and loss expenses, net of related reinsurance
recoverables, at December 31, 2002, 2001 and 2000 were decreased by $13,586,
$10,008 and $887, respectively, for claims that had occurred on or prior to
those dates. These decreases are the result of the settlement of claims at
amounts lower than previously reserved and changes in estimates of losses
incurred but not reported as part of the normal reserving process. Included in
the above developments during 2003 and 2002, are decreases of $1,659 and $1,539,
respectively, in reserves outstanding at December 31, 2002 and 2001 for losses
and loss expenses related to environmental damage claims. The development during
2001 was insignificant for environmental claims. Reserves for incurred but not
reported environmental losses were $2,500 and $3,900 at December 31, 2003 and
2002, respectively. Development during 2003 also included an increase in
reinsurance assumed loss and loss expense reserves at December 31, 2002 of $799.
Development during 2002 included a decrease in reinsurance assumed loss reserves
at December 31, 2001 of $1,305. Development during 2001 included $2,100 of
incurred losses and loss expenses on reinsurance assumed reserves outstanding at
December 31, 2000 which was partially offset by reinstatement premiums of
$1,000. Favorable loss development is influenced by the Company's long-standing
policy of reserving for losses realistically and a willingness to settle claims
based upon a seasoned evaluation of its exposures. Under terms of reinsurance
agreements effective June 1, 1998, the Company's exposure on large fleet
trucking losses dropped from $1,000 to $100 per occurrence. Effective June 1,
2001, June 1, 2002 and June 1, 2003, terms of replacement reinsurance agreements
increased the Company's maximum exposure on large fleet trucking losses to
$1,020, $1,400 and $1,625, respectively, per occurrence. The increased net
retention per occurrence is reflected in the increase in favorable development
during 2003. These trends were considered in the establishment of the Company's
reserves at December 31, 2003.

The Company has not changed its original estimate for the loss sustained as a
result of the terrorist attacks of September 11, 2001. Therefore, there is no
impact on the loss developments shown in the above table except for payments
against the original established reserves. The Company has paid $9.8 million to
date and carries a remaining reserve of $10.2 million at December 31, 2003.

The Company participates in mandatory residual market pools in various states.
The Company records the results from participation in these pools as reported
and records an additional provision in the financial statements for operating
periods unreported by the pools.

Loss reserves on certain permanent total disability workers' compensation
reserves have been discounted to present value at pre-tax rates not exceeding
3.5%. At December 31, 2003 and 2002, loss reserves have been reduced by
approximately


<PAGE> 40
$5,549 and $6,396, respectively. Discounting is applied to these claims since
the amount of periodic payments to be made during the lifetime of claimants is
fixed and determinable.

Loss reserves have been reduced by estimated salvage and subrogation recoverable
of approximately $3,490 and $2,810 at December 31, 2003 and 2002, respectively.


NOTE D - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31 are as
follows:

<TABLE>
<CAPTION>
                                                                                     2003             2002
                                                                                  ------------  -------------
<S>                                                                               <C>           <C>
DEFERRED TAX LIABILITIES:
   Unrealized gain on investments                                                     $24,143        $15,960
   Deferred acquisition costs                                                           1,868          1,486
   Salvage and subrogation                                                                840            621
   Other                                                                                  195            247
                                                                                  ------------  -------------
      Total deferred tax liabilities                                                   27,046         18,314
                                                                                  ------------  -------------

DEFERRED TAX ASSETS:
   Discounts of loss and loss expense reserves                                          5,523          4,554
   Other than temporary investment declines                                             2,018          2,532
   Deferred compensation                                                                2,460          2,418
   Unearned premiums                                                                    2,569          2,011
   Other                                                                                1,276          1,039
                                                                                  ------------  -------------
      Total deferred tax assets                                                        13,846         12,554
                                                                                  ------------  -------------

      NET DEFERRED TAX LIABILITIES                                                   $ 13,200        $ 5,760
                                                                                  ============  =============

</TABLE>

A summary of the difference between federal income tax expense computed at the
statutory rate and that reported in the consolidated financial statements is as
follows:
<TABLE>
<CAPTION>
                                                                     2003            2002             2001
                                                                 -------------    ------------    -------------
<S>                                                              <C>              <C>             <C>
Statutory federal income rate applied to
   pretax income                                                     $ 17,162         $ 6,240           $2,253
Tax effect of (deduction):
   Tax-exempt investment income                                        (1,174)         (1,081)          (1,241)
   Other                                                                  (30)            305               36
                                                                 -------------    ------------    -------------
Federal income tax expense                                           $ 15,958         $ 5,464          $ 1,048
                                                                 =============    ============    =============
</TABLE>


Federal income tax expense consists of the following:
<TABLE>
<CAPTION>
                                                                        2003            2002             2001
                                                                    -------------    ------------    -------------
<S>                                                                 <C>              <C>             <C>
Taxes (credits) on pre-tax income:
   Current                                                              $ 16,701         $ 8,139           $1,607
   Deferred                                                                 (743)         (2,675)            (559)
                                                                    -------------    ------------    -------------
                                                                        $ 15,958         $ 5,464          $ 1,048
                                                                    =============    ============    =============
</TABLE>

<PAGE> 41
NOTE D - INCOME TAXES (CONTINUED)

The components of the provision for deferred federal income taxes (credits) are
as follows:

<TABLE>
<CAPTION>
                                                                        2003           2002           2001
                                                                    ------------   ------------   ------------
<S>                                                                 <C>            <C>            <C>
Other than temporary investment declines                                  $ 514      $  (1,804)      $   (725)
Discounts of loss and loss expense reserves                              (1,179)          (256)          (144)
Limited partnerships                                                        (44)          (351)          (153)
Unearned premium disallowance                                              (557)          (354)            35
Deferred compensation                                                       (41)           (28)           537
Other                                                                       564            118           (109)
                                                                    ------------   ------------   ------------
                       PROVISION FOR DEFERRED FEDERAL INCOME TAX         $ (743)     $  (2,675)        $ (559)
                                                                    ============   ============   ============
</TABLE>

Cash flows related to federal income taxes paid, net of refunds received, for
2003, 2002 and 2001 were $14,100, $7,250 and $5,200, respectively, including
Section 847 special tax deposits. Future tax benefits on approximately $5,523 of
deferred tax assets at December 31, 2003 arising from loss reserve discounting
are assured based on Section 847 of the Internal Revenue Code.

NOTE E - REINSURANCE
The insurance subsidiaries cede portions of their gross premiums written to
certain other insurers under excess and quota share treaties and by facultative
placements. Risks are reinsured with other companies to permit the recovery of a
portion of related direct losses. The Company also serves as an assuming
reinsurer under retrocessions from certain other reinsurers. These retrocessions
include individual risks as well as aggregate catastrophe treaties. Accordingly,
the occurrence of a major catastrophic event can have a significant impact on
the Company's operations. In addition, the insurance subsidiaries participate in
certain involuntary reinsurance pools which require insurance companies to
provide coverages on assigned risks. The assigned risk pools allocate
participation to all insurers based upon each insurer's portion of premium
writings on a state or national level.

Detail with respect to direct premiums and premiums assumed from and ceded to
other insurers and reinsurers is as follows:

<TABLE>
<CAPTION>
                                         Premiums Written                                     Premiums Earned
                         -------------------------------------------------    -------------------------------------------------
                              2003              2002             2001              2003             2002              2001
                         --------------    -------------    --------------    -------------    --------------    --------------
<S>                      <C>               <C>              <C>               <C>              <C>               <C>
Direct                       $ 215,576        $ 164,662         $ 114,304        $ 208,282         $ 160,035         $ 114,913
Assumed                         12,038            8,632             6,004           11,547             8,147             5,931
Ceded                          (73,501)         (63,841)          (37,663)         (73,676)          (63,790)          (37,706)
                         --------------    -------------    --------------    -------------    --------------    --------------
               Net           $ 154,113        $ 109,453          $ 82,645        $ 146,153         $ 104,392          $ 83,138
                         ==============    =============    ==============    =============    ==============    ==============
</TABLE>

Net losses and loss expenses incurred for 2003, 2002 and 2001 have been reduced
by ceded reinsurance recoveries of approximately $96,812, $60,055 and $72,701,
respectively. Net losses and loss expenses incurred for 2003, 2002 and 2001
include approximately $5,687, $5,165 and $24,624 relating to reinsurance assumed
from non-affiliated insurance or reinsurance companies. Losses and loss expenses
incurred for 2001 included $20,000 for the Company's exposure from reinsurance
assumed treaties related to the events of September 11, 2001. Ceded reinsurance
premiums and loss recoveries for catastrophe reinsurance contracts were not
material. The Company remains liable to the extent the reinsuring companies are
unable to meet their obligations under reinsurance contracts.

Components of reinsurance recoverable at December 31 are as follows:

<TABLE>
<CAPTION>
                                                                                           2003          2002
                                                                                       ------------  -------------
<S>                                                                                    <C>           <C>
Unpaid losses and loss expenses                                                           $180,025       $133,042
Paid losses and loss expenses                                                                5,326          4,547
Unearned premiums                                                                              106            281
                                                                                       ------------  -------------
                                                                                          $185,457       $137,870
                                                                                       ============  =============
</TABLE>


<PAGE> 42
NOTE F - SHAREHOLDERS' EQUITY
Changes in common stock outstanding and additional paid-in capital are as
follows

<TABLE>
<CAPTION>
                                                            Class A                        Class B               Additional
                                                   --------------------------    ---------------------------      Paid-in
                                                      Shares         Amount         Shares         Amount         Capital
                                                   -------------    ---------    -------------    ----------    ------------
<S>                                                <C>              <C>          <C>              <C>           <C>
Balance at January 1, 2001                            2,875,982        $ 123       12,337,603         $ 526        $ 36,416
   Discounted stock options issued                            -            -                -             -             130
   Discounted stock options exercised                         -            -            8,312             1               3
   Treasury shares purchased                            (28,600)          (2)         (93,500)           (4)           (277)
                                                   -------------    ---------    -------------    ----------    ------------
Balance at December 31, 2001                          2,847,382          121       12,252,415           523          36,272
   Discounted stock options issued                            -            -                -             -             134
   Discounted stock options exercised                         -            -            7,110             -               2
   Fractional share adjustment from stock split             (37)           -              (48)            -               -
   Treasury shares purchased                           (180,679)          (7)        (376,664)          (16)         (1,160)
                                                   -------------    ---------    -------------    ----------    ------------
Balance at December 31, 2002                          2,666,666          114       11,882,813           507          35,248
   Discounted stock options issued                            -            -                -             -             142
   Discounted stock options exercised                         -            -           41,541             2              29
                                                   -------------    ---------    -------------    ----------    ------------
Balance at December 31, 2003                          2,666,666        $ 114       11,924,354         $ 509        $ 35,419
                                                   =============    =========    =============    ==========    ============

</TABLE>

The Company's Class A and Class B common stock has a stated value of
approximately $.04 per share.

Shareholders' equity at December 31, 2003 includes $310,870 representing GAAP
shareholder's equity of insurance subsidiaries, of which $45,654 may be
transferred by dividend or loan to the parent company without approval by, or
notification to, regulatory authorities. An additional $193,723 of shareholder's
equity of such insurance subsidiaries may be advanced or loaned to the Company
with prior notification to and approval from regulatory authorities.

Net income of the insurance subsidiaries, as determined in accordance with
statutory accounting practices, was $22,851, $10,318 and $5,660 for 2003, 2002
and 2001, respectively. Consolidated statutory shareholder's equity for these
subsidiaries was $304,651 and $269,005 at December 31, 2003 and 2002,
respectively. Minimum statutory surplus necessary for the insurance subsidiaries
to satisfy statutory risk based capital requirements was $62,571 at December 31,
2003.


NOTE G - OTHER OPERATING EXPENSES
Details of other operating expenses for the years ended December 31:

<TABLE>
<CAPTION>
                                                                             2003             2002            2001
                                                                          ------------    -------------    ------------
<S>                                                                       <C>             <C>              <C>
Amortization of deferred policy acquisition costs                             $15,667          $12,072         $ 9,692
Other underwriting expenses                                                    18,329           14,158          12,878
Expense allowances from reinsurers                                            (20,099)         (17,641)        (12,833)
                                                                          ------------    -------------    ------------
                                          TOTAL UNDERWRITING EXPENSES          13,897            8,589           9,737

Operating expenses of non-insurance companies                                  16,580           13,604          11,835
                                                                          ------------    -------------    ------------
                                       TOTAL OTHER OPERATING EXPENSES         $30,477          $22,193         $21,572
                                                                          ============    =============    ============
</TABLE>


<PAGE> 43
NOTE H - EARNINGS PER SHARE
The following is a reconciliation of the denominators used in the calculations
of basic and diluted earnings per share for the years ended December 31:

<TABLE>
<CAPTION>
                                                                           2003              2002              2001
                                                                     ---------------    --------------    --------------
<S>                                                                  <C>                <C>               <C>
Average share outstanding for basic earnings per share                   14,562,310        14,609,727        15,153,577

Dilutive effect of options                                                  135,659           104,168           105,104
                                                                     ---------------    --------------    --------------
Average shares outstanding for diluted earnings per share                14,697,969        14,713,895        15,258,681
                                                                     ===============    ==============    ==============
</TABLE>

No effect on net income was considered to result from the presumed exercise of
the options used in calculating diluted earnings per share. Certain market value
options, granted in 1997, were included in the computation of diluted earnings
per share for 2003. These market value options were not included in the
computation of diluted earnings per share for 2002 and 2001 because the exercise
price during those years was greater than the average market price of the
Company's stock.


NOTE I  - REPORTABLE SEGMENTS
The Company and its consolidated subsidiaries market and underwrite casualty
insurance in five major specialty areas (reportable segments): (1) fleet
trucking, (2) nonstandard private passenger automobile, (3) small fleet
trucking, (4) the assumption of reinsurance and (5) small business workers'
compensation. The fleet trucking segment provides multiple line insurance
coverage to large trucking fleets which generally retain substantial amounts of
self-insurance and to medium-sized trucking fleets on a first dollar or small
deductible basis. The nonstandard private passenger automobile segment provides
motor vehicle liability and physical damage coverages to individuals. The small
fleet trucking segment provides commercial automobile coverages to small
trucking fleets and owner/operators. The reinsurance assumed segment accepts
retrocessions from selected reinsurance companies, principally reinsuring
against catastrophes. The small business workers' compensation segment provides
workers' compensation coverages to small businesses and other entities.

The Company's reportable segments are business units that operate in the
property/casualty insurance industry and each offers products to different
classes of customers. The reportable segments are managed separately due to the
differences in underwriting criteria used to market products to each class of
customer and the methods of distribution of the products each reportable segment
provides. Segment information shown in the table below as "all other" includes
products provided by the Company to assigned risks and residual markets as well
as the runoff of discontinued product lines.

The Company evaluates performance and allocates resources based on gain or loss
from insurance underwriting operations before income taxes. Underwriting gain or
loss does not include net investment income nor does it include realized gains
or losses on the Company's investment portfolio. All investment-related revenues
are managed at the corporate level. Underwriting gain or loss for the fleet
trucking segment includes revenue and expense from the Company's agency
operations since the agency operations serve as an exclusive direct marketing
facility for this segment. Underwriting gain or loss also includes fee income
generated by each segment in the course of its underwriting operations.
Management does not identify or allocate assets to reportable segments when
evaluating segment performance and depreciation expense is not material for any
of the reportable segments. The accounting policies of each reportable segment
are the same as those described in the summary of significant accounting
policies.



<PAGE> 44
NOTE I - REPORTABLE SEGMENTS (CONTINUED)
The following table provides certain profit and loss information for each
reportable segment for the years ended December 31:

<TABLE>
<CAPTION>
                                                                      2003            2002             2001
                                                                 -------------    -------------    -------------
<S>                                                              <C>              <C>              <C>
DIRECT AND ASSUMED PREMIUM WRITTEN:
  Fleet trucking                                                  $   148,482      $   112,355      $    68,154
  Non-standard private passenger automobile                            42,342           35,466           30,094
  Small fleet trucking                                                 15,086           10,514           11,722
  Voluntary reinsurance assumed                                        11,121            8,128            5,668
  Small business workers' compensation                                  9,665            6,321            4,332
  All Other                                                               918              510              338
                                                                 -------------    -------------    -------------
                                                         Totals   $   227,614      $   173,294      $   120,308
                                                                 =============    =============    =============

NET PREMIUM EARNED AND FEE INCOME:
  Fleet trucking                                                  $    82,545           55,145           34,824
  Non-standard private passenger automobile                            40,695           33,754           33,800
  Small fleet trucking                                                  9,301            8,316            9,600
  Voluntary reinsurance assumed                                        11,994            7,739            5,636
  Small business workers' compensation                                  6,132            3,535            2,791
  All Other                                                               806              414              295
                                                                 -------------    -------------    -------------
                                                         Totals   $   151,473      $   108,903      $    86,946
                                                                 =============    =============    =============

UNDERWRITING GAIN (LOSS):
  Fleet trucking                                                  $    29,778      $    22,718      $    11,116
  Non-standard private passenger automobile                             4,476            2,527              436
  Small fleet trucking                                                    123            1,340                -
  Voluntary reinsurance assumed                                         3,463            1,586          (19,429)
  Small business workers' compensation                                 (1,830)             157             (337)
  All Other                                                               213             (619)            (392)
                                                                 -------------    -------------    -------------
                                                         Totals   $    36,223      $    27,709      $    (8,606)
                                                                 =============    =============    =============
</TABLE>

For 2003, the above amounts for voluntary reinsurance assumed include certain
intersegment reinsurance agreements. Intersegment premiums earned were $1,239.
Intersegment losses and loss expenses incurred were $1,357.

The following tables are reconciliations of reportable segment revenues and
profits to the Company's consolidated revenue and income before federal income
taxes, respectively.

<TABLE>
<CAPTION>
                                                                      2003          2002            2001
                                                                 -------------  -------------  -------------
<S>                                                              <C>            <C>            <C>
REVENUE:
  Net premium earned and fee income                                $ 151,473      $ 108,903      $  86,946
  Net investment income                                               12,873         14,964         17,626
  Realized net gains (losses) on investments                           9,990        (16,445)         5,053
  Other income                                                           912            708            255
                                                                 -------------  -------------  -------------
                                    Total consolidated revenue     $ 175,248      $ 108,130      $ 109,880
                                                                 =============  =============  =============

PROFIT:
  Underwriting gain (loss)                                         $  36,223      $  27,709      $  (8,606)
  Net investment income                                               12,873         14,964         17,626
  Realized net gains (losses) on investments                           9,990        (16,445)         5,053
  Corporate expenses                                                 (10,053)        (8,398)        (7,635)
                                                                 -------------  -------------  -------------
                            Income before federal income taxes     $  49,033      $  17,830      $   6,438
                                                                 =============  =============  =============
</TABLE>


<PAGE> 45
NOTE I - REPORTABLE SEGMENTS (CONTINUED)
The Company, through its subsidiaries, is licensed to do business in all 50
states of the United States, all Canadian provinces and Bermuda. Canadian and
Bermuda operations are currently not significant.

One customer of the fleet trucking segment represents approximately $47,693,
$39,359 and $28,864 of the Company's consolidated direct and assumed premium
written in 2003, 2002 and 2001, respectively.


NOTE J - STOCK PURCHASE AND OPTION PLANS
In accordance with the terms of the 1981 Stock Purchase Plan (1981 Plan), the
Company is obligated to repurchase shares issued under the 1981 Plan, at a price
equal to 90% of the book value of the shares at the end of the quarter
immediately preceding the date of repurchase. No shares have ever been
repurchased under the 1981 Plan. At December 31, 2003 there were 160,849 shares
(Class A) and 439,708 shares (Class B) outstanding which are eligible for
repurchase by the Company.

The Company maintains stock option plans and has reserved an aggregate of
1,312,500 shares of Class B common stock for the granting of stock options to
employees and directors. No options were granted to employees during the three
year period ended December 31, 2003. All employee options outstanding at
December 31, 2003 are exercisable. Discounted options granted to directors are
generally not exercisable for one year from the date of grant. All options
expire ten years after the date of grant. All of the Company's option plans have
received shareholder approval. Approximately 326,000 of such options are
available for future grants.

A summary of the Company's stock option activity and related information for the
years ended December 31 follows:

<TABLE>
<CAPTION>
                                                         2003                         2002                      2001
                                              --------------------------  --------------------------  -------------------------
                                                             Weighted                     Weighted                    Weighted
                                                              Average                     Average                     Average
                                                             Exercise                     Exercise                    Exercise
                                                Options        Price         Options        Price       Options        Price
                                              -----------  ------------   -----------  ------------   -----------  -----------
<S>                                           <C>          <C>            <C>          <C>            <C>          <C>
Outstanding at beginning of year                 690,162      $ 17.475       689,776       $ 17.480      689,665      $17.478

Granted at exercise prices below market            6,938          .946         7,496           .800        8,423         .800
Exercised                                         41,539          .736         7,110           .305        8,312         .418
                                              -----------                 -----------                 -----------

Outstanding at end of year                       655,561        18.357       690,162         17.475      689,776       17.480
                                              ===========                 ===========                 ===========

Exercisable at end of year                       648,623        18.543       682,666         17.659      681,353       17.686

Weighted average fair value
   of options granted during the year
   at exercise prices below market                 6,938        20.538         7,496         17.931        8,423       15.509

</TABLE>
Exercise prices for options outstanding as of December 31, 2003 were $.80, $1.00
or $20.60. The weighted-average remaining contractual lives of options
exercisable at $.80 and $1.00 are 4.6 years and 9.5 years, respectively. The
remaining contractual life of options exercisable at $20.60 is 4 years. No
options have been granted since 1997 other than discounted options granted to
directors in lieu of directors' fees. The compensation cost that has been
charged against income for all stock-based compensation plans, consisting of
directors' fees only, was $143, $134 and $130 for 2003, 2002 and 2001,
respectively.

During 2002 and 2001, the Company offered loans to certain employees for the
sole purpose of purchasing the Company's Class B common stock in the open
market. $4,828 and $7,494 of such full-recourse loans were issued and
outstanding at December 31, 2003 and 2002, respectively, and carry interest
rates ranging from 4.75% to 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. This loan program was
terminated in 2002.



<PAGE> 46

NOTE K - NOTE PAYABLE
At December 31, 2002, the Company carried a note payable to bank in the amount
of $7.5 million at an annual interest rate of 3.22%. The carrying amount of this
note payable approximates fair value. This note was repaid in 2003.


NOTE L - EMPLOYEE BENEFIT PLANS
The Company maintains a defined contribution 401(k) Employee Savings and Profit
Sharing Plan ("the Plan") which covers all employees who have completed one year
of service. The Company's contributions to the Plan for 2003, 2002 and 2001 were
$978, $864 and $736, respectively.


NOTE M - CONCENTRATIONS OF CREDIT RISK
The Company writes policies of excess insurance attaching above a self-insured
retention ("SIR") and also writes policies that contain large, per-claim
deductibles. Those losses and claims that fall within the SIR or deductible are
obligations of the insured. The Company also writes surety bonds in favor of
various regulatory agencies guaranteeing the insured's payment of claims within
the SIR. Losses and claims under a large deductible policy are payable by the
Company with reimbursement due the Company from the insured. The Company
requires collateral from its insureds to serve as a source of reimbursement if
the Company is obligated to pay claims within the SIR by reason of an insured's
default or if the insured fails to reimburse the Company for deductible amounts
paid by the Company.

Acceptable collateral may be provided in the form of letters of credit on
Company approved banks, Company approved marketable securities or cash. At
December 31, 2003, the Company held collateral in the aggregate amount of
$177,847. The amount of collateral required of an insured is determined by the
financial condition of the insured, the type of obligations guaranteed by the
Company, estimated reserves for incurred losses within the SIR or deductible
that have been reported to the insured or the Company, estimated incurred but
not reported losses, and estimates for losses that are expected to occur, within
the SIR or deductible, prior to the next collateral adjustment date. In general,
the Company attempts to hold collateral equal to 100% of the ultimate losses
that would be paid by or due the Company in the event of the insured's default.
Periodic audits are conducted by the Company to evaluate its exposure and the
collateral required. If a deficiency in collateral is noted as the result of an
audit, additional collateral is requested immediately. Because collateral
amounts contain numerous estimates of the Company's exposure, are adjusted only
periodically and are sometimes adjusted based on the financial condition of the
insured, the amount of collateral held by the Company at a given point in time
may not be sufficient to fully reimburse the Company for all of its guarantees
or amounts due in the event of an insured's default. Further, the Company is not
fully collateralized for the guarantees made for, or the deductible amounts that
may be due from, the Company's largest customer, and in the event of that
customer's default, such default may have a material adverse impact on the
Company.



<PAGE> 47

NOTE N - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) QUARTERLY RESULTS OF
OPERATIONS ARE AS FOLLOWS:

<TABLE>
<CAPTION>
                                                                              Results by Quarter
                                             --------------------------------------------------------------------------------------
                                                                2003                                        2002
                                             ------------------------------------------  ------------------------------------------
                                                1st        2nd        3rd        4th        1st        2nd        3rd        4th
                                             ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
<S>                                          <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Net premiums earned                           $31,701    $36,960    $37,513    $39,979    $21,664    $25,865    $27,040    $29,823
Net investment income                           3,373      3,124      2,987      3,389      3,883      3,793      3,524      3,764
Realized net gains (losses) on investments     (2,452)     5,739      2,048      4,655        835       (735)    (4,972)   (11,573)
Losses and loss expenses incurred              20,511     23,900     24,411     26,916     13,764     17,137     17,388     19,817

Net income (loss)                               4,532     10,301      8,122     10,120      5,459      4,922      2,831       (846)

Per share - diluted:
   Income (loss) before realized
      net gains (losses) on investments          $.42       $.45       $.46       $.48       $.33       $.37       $.41      $ .46
   Realized net gains (losses)
      on investments                             (.11)       .25        .09        .21        .04       (.03)      (.22)      (.52)
                                             ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
   Net income (loss)                             $.31       $.70       $.55       $.69       $.37       $.34       $.19      $(.06)
                                             =========  =========  =========  =========  =========  =========  =========  =========
</TABLE>


NOTE O - STOCK SPLIT
At its regular meeting in February, 2003, the Company's Board of Directors
declared a 25% stock dividend in the form of a five-for-four stock split on the
Company's Class A and Class B Common Stock. The additional shares were
distributed on March 3, 2003 to shareholders of record on February 17, 2003.
Fractional shares were settled in cash using the closing market value on
February 17, 2003. All share and per share references within this report have
been restated to reflect the stock split.



<PAGE> 48
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE
         ------------------------------------------------

No response to this item is required.

ITEM 9A. CONTROLS AND PROCEDURES
         -----------------------

Pursuant to rules adopted by the SEC as directed by Section 302 of the
Sarbanes-Oxley Act of 2002, the company has performed an evaluation of its
disclosure controls and procedures (as defined by Exchange Act rule 13a-14)
within 90 days of the date of the filing of this report. Based on this
evaluation, the company's Chief Executive Officer and Chief Financial Officer
have concluded that these procedures are effective in ensuring that information
required to be disclosed by the company is recorded, processed, summarized, and
reported within the time periods specified in the SEC's rules and forms. In
addition, there have not been any significant changes in internal controls or
other factors that could significantly affect internal controls subsequent to
the date of the company's most recent evaluation.


                                    PART III
                                    --------

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
          --------------------------------------------------

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

The information required by Item 10 of this Report with respect to directors
which will appear in the definitive proxy statement is incorporated by reference
herein.

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

The following summary sets forth certain information concerning the Company's
executive officers:

<TABLE>
<CAPTION>
                                                                                      Served in
                                                                                    Such Capacity
           Name                  Age                          Title                    Since
-------------------------     ---------   -------------------------------------     -------------
<S>                           <C>         <C>                                        <C>
Gary W. Miller                   63        Chairman, President and CEO                1983 <F1>
Joseph J. DeVito                 51        Executive Vice President                   1986 <F2>
James W. Good                    59        Executive Vice President                   1980 <F2>
G. Patrick Corydon               55        Senior Vice President and CFO              1979 <F3>
James E. Kirschner               57        Senior Vice President and Secretary        1977 <F3> <F4>

<FN>
<F1> Mr. Miller was elected Chairman and CEO of the Company in 1997.
<F2> Mr. DeVito and Mr. Good were each elected Executive Vice President in 2001.
<F3> Mr. Corydon and Mr. Kirschner were each elected Senior Vice President in
     2001.
<F4> Mr. Kirschner was elected Secretary of the Company in 1985.
</FN>
</TABLE>

ITEM 11.  EXECUTIVE COMPENSATION *
          ------------------------


<PAGE> 49
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
            OWNERS AND MANAGEMENT *
          ----------------------------------------

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS *
          -----------------------------------------------

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES *
          ----------------------------------------
* The information to be provided under Items 11, 12, 13 and 14 is omitted from
this Report because the Registrant will file with the Commission a definitive
proxy statement pursuant to Regulation 14A involving the election of directors
not later than 120 days after the close of its fiscal year. The information
required by these items of this Report which will appear in the definitive proxy
statement is incorporated by reference herein.



<PAGE> 50


                                    PART IV
                                    -------

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

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

          Consolidated Balance Sheets - December 31, 2003 and 2002

          Consolidated Statements of Income and Retained Earnings - Years ended
            December 31, 2003, 2002 and 2001

          Consolidated Statements of Changes in Equity Other Than Capital -
            Years ended December 31, 2003, 2002 and 2001

          Consolidated Statements of Cash Flows - Years ended December 31,
            2003, 2002 and 2001

          Notes to Consolidated Financial Statements

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

          Pursuant to Article 7:

          Schedule I--Summary of Investments--Other than Investments
            in Related Parties

          Schedule II--Condensed Financial Information of the Registrant

          Schedule III--Supplementary Insurance Information

          Schedule IV--Reinsurance

          Schedule VI--Supplemental Information Concerning Property/Casualty
            Insurance Operations


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



<PAGE> 51
         3. Listing of Exhibits:

    NUMBER & CAPTION
  FROM EXHIBIT TABLE OF
 ITEM 601 OF REGULATION
           S-K                        EXHIBIT NUMBER AND DESCRIPTION
 ----------------------     ---------------------------------------------------
           (3)              EXHIBIT 3(i)--
 (Articles of Incorpor-     Articles of Incorporation of Baldwin & Lyons, Inc.,
    ation & By Laws)        as amended (Incorporated as an exhibit by reference
                            to Exhibit 3(a) to the Company's Annual Report on
                            Form 10-K for the year ended December 31, 1986)


                            EXHIBIT 3(ii)--
                            By-Laws of Baldwin & Lyons, Inc., as restated
                            (Incorporated as an exhibit by reference to Exhibit
                            3 to the Company's Annual Report on Form 10-K
                            for the year ended December 31, 2000)


          (10)              EXHIBIT 10(a)--
   (Material Contracts)     1981 Employee StocK Purchase Plan (Incorporated as
                            an exhibit by reference to Exhibit A to the
                            Company's definitive Proxy Statement for its Annual
                            Meeting held May 5, 1981)


                            EXHIBIT 10(b)--
                            Baldwin & Lyons, Inc. Employee Discounted Stock
                            Option Plan  (Incorporated as an exhibit by
                            reference to Appendix A to the Company's definitive
                            Proxy Statement for its Annual Meeting held May 2,
                            1989)


                            EXHIBIT 10(c)--
                            Baldwin & Lyons, Inc. Deferred Directors Fee Option
                            Plan (Incorporated as an exhibit by reference to
                            Exhibit 10(f) to the Company's Annual Report on Form
                            10-K for the year ended December 31, 1989)


                            EXHIBIT 10(d)--
                            Baldwin & Lyons, Inc. Amended Employee Discounted
                            Stock Option Plan (Incorporated as an exhibit by
                            reference to Exhibit 10(f) to the Company's Annual
                            Report on Form 10-K for the year ended December 31,
                            1992)



<PAGE> 52

   NUMBER & CAPTION
  FROM EXHIBIT TABLE OF
 ITEM 601 OF REGULATION
           S-K                        EXHIBIT NUMBER AND DESCRIPTION
 ----------------------     ---------------------------------------------------
                            EXHIBIT 10(e)--
                            Baldwin & Lyons, Inc. Restated Employee Discounted
                            Stock Option Plan. (Incorporated as an exhibit by
                            reference to Exhibit 10(f) to the Company's Annual
                            Report on Form 10-K for the year ended December 31,
                            1997)


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


          (21)              EXHIBIT 21--
  (Subsidiaries of the      Subsidiaries of Baldwin & Lyons, Inc.
       registrant)


          (23)              EXHIBIT 23--
  (Consents of experts      Consent of Ernst & Young LLP
      and counsel)


          (24)              EXHIBIT 24--
(Powers of Attorney)        Powers of Attorney for certain Officers and
                            Directors



(b)      A report on Form 8-K was filed by the Company in the fourth quarter of
         2003 to announce its third quarter earnings press release.


(c)      Exhibits.  The response to this portion of Item 15 is submitted as a
         separate section of this report.


(d)      Financial Statement Schedules.  The response to this portion of Item 15
         is submitted on pages 53 through 559 of this report.



<PAGE> 53
<TABLE>
<CAPTION>
                      SCHEDULE I -- SUMMARY OF INVESTMENTS-
                    OTHER THAN INVESTMENTS IN RELATED PARTIES

                    FORM 10-K - YEAR ENDED DECEMBER 31, 2003


                     BALDWIN & LYONS, INC. AND SUBSIDIARIES


---------------------------------------------  -----------------  ----------------  --------------------
                  Column A                          Column B          Column C            Column D
---------------------------------------------  -----------------  ----------------  --------------------
                                            (DOLLARS IN THOUSANDS)
                                                                                        Amount At
                                                                                       Which Shown
                                                                       Fair          In The Balance
             Type of Investment                       Cost             Value            Sheet <F1>
---------------------------------------------  -----------------  ----------------  -----------------
<S>                                            <C>                <C>               <C>
Fixed Maturities:
  Bonds:
    United States government and
      government agencies and
      authorities                                      $111,972          $113,359           $113,359
    Mortgage backed securities                           19,139            19,198             19,198
    States, municipalities and
      political subdivisions                            102,865           104,237            104,237
    Foreign governments                                   6,295             6,399              6,399
    Public utilities                                     10,826            11,650             11,650
    All other corporate bonds                            60,045            63,402             63,402
  Redeemable preferred stock                              2,936             2,948              2,948
                                               -----------------   ---------------   ----------------
                      Total fixed maturities            314,078           321,193            321,193

Equity Securities:
  Common Stocks:
    Public Utilities                                        171               205                205
    Banks, trust and insurance
      companies                                           9,748            25,342             25,342
    Industrial, miscellaneous
      and all other                                      51,997            98,399             98,399
  Nonredeemable preferred stocks                          6,013             6,193              6,193
                                               -----------------   ---------------   ----------------
                     Total equity securities             67,929           130,139            130,139

Short-term and Other:
  Certificates of deposit                                 1,980             1,980              1,980
  Commercial paper                                       28,459            28,459             28,459
  Other long-term investments                             6,450             6,106              6,106
                                               -----------------   ---------------   ----------------
                  Total short-term and other             36,889            36,545             36,545
                                               -----------------   ---------------   ----------------

                           Total investments          $ 418,896         $ 487,877          $ 487,877
                                               =================   ===============   ================
<FN>
<F1> All securities listed are considered available-for-sale and, accordingly,
are presented at fair value in the financial statements.
</FN>
</TABLE>


<PAGE> 54
<TABLE>
<CAPTION>
                                               SCHEDULE II
                              CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                                 FORM 10-K - YEAR ENDED DECEMBER 31, 2003


                                          BALDWIN & LYONS, INC.

CONDENSED BALANCE SHEETS
                                                                                    December 31
                                                                         ----------------------------------
                                                                              2003               2002
                                                                         ---------------    ---------------
<S>                                                                       <C>                <C>
ASSETS
Investment in subsidiaries                                                     $309,301           $275,801
Due from affiliates                                                               5,355              4,799
Investments other than subsidiaries:
   Fixed maturities                                                              12,929             13,523
   Equity maturities                                                              1,374                  -
   Short-term and other                                                          20,977              3,067
                                                                         ---------------    ---------------
                                                                                 35,280             16,591
Cash and cash equivalents                                                        17,680             26,423
Accounts receivable                                                               9,214             10,688
Notes receivable from employees                                                   4,828              7,494
Other assets                                                                      5,877              6,892
                                                                         ---------------    ---------------

                                                        TOTAL ASSETS           $387,536           $348,687
                                                                         ===============    ===============

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES:
   Premiums payable                                                             $36,283            $32,075
   Deposits from insureds                                                        20,428             18,082
   Notes payable to bank                                                              -              7,500
   Currently payable federal income taxes                                           972              1,536
   Other liabilities                                                              5,279              4,906
                                                                         ---------------    ---------------
                                                                                 62,962             64,099

SHAREHOLDERS' EQUITY:
   Common stock:
      Class A                                                                       114                114
      Class B                                                                       509                507
      Additional paid-in capital                                                 35,419             35,248
      Unrealized net gains on investments                                        44,837             29,640
      Retained earnings                                                         243,695            219,079
                                                                         ---------------    ---------------
                                                                                324,574            284,588
                                                                         ---------------    ---------------

                          TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY           $387,536           $348,687
                                                                         ===============    ===============


See notes to condensed financial statements

</TABLE>


<PAGE> 55
<TABLE>
<CAPTION>

                                   SCHEDULE II
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                    FORM 10-K - YEAR ENDED DECEMBER 31, 2003


                              BALDWIN & LYONS, INC.

CONDENSED STATEMENTS OF INCOME
                                                                                    Year Ended December 31
                                                                            2003            2002           2001
                                                                        ------------    ------------   -----------
<S>                                                                     <C>             <C>            <C>
REVENUE:
   Commissions and service fees                                             $26,565         $20,651       $11,788
   Dividends from subsidiaries                                               10,000           5,000         3,750
   Net investment income                                                        863             689         1,478
   Realized net losses on investments                                          (925)           (652)         (183)
   Other                                                                        289             323           110
                                                                        ------------    ------------   -----------
                                                                              36,792         26,011        16,943

EXPENSES:
   Salary and related items                                                   10,481          7,907         6,631
   Other                                                                       5,826          5,418         4,851
                                                                        -------------   ------------   -----------
                                                                              16,307         13,325        11,482
                                                                        -------------   ------------   -----------
                                 INCOME BEFORE FEDERAL INCOME TAXES
                                        AND EQUITY IN UNDISTRIBUTED
                                             INCOME OF SUBSIDIARIES           20,485         12,686         5,461
Federal income taxes                                                           3,637          2,715           390
                                                                        -------------   ------------   -----------
                                                                              16,848          9,971         5,071
Equity in undistributed income
   of subsidiaries                                                            16,227          2,395           319
                                                                        -------------   ------------   -----------

                                                         Net income          $33,075        $12,366        $5,390
                                                                        =============   ============   ===========


See notes to condensed financial statements

</TABLE>


<PAGE> 56
<TABLE>
<CAPTION>

                                   SCHEDULE II
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                      FORM 10-K - YEAR ENDED DECEMBER 31, 2003


                              BALDWIN & LYONS, INC.

CONDENSED STATEMENTS OF CASH FLOWS
                                                                                         Year Ended December 31
                                                                                  2003            2002            2001
                                                                               ------------    ------------    ------------
<S>                                                                            <C>             <C>             <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES                                          $27,024         $33,039         $11,566

INVESTING ACTIVITIES:
   Net purchases of short-term investments                                         (19,982)              -               -
   Purchases of long-term investments                                               (2,967)         (8,290)         (3,757)
   (Increase) decrease in notes receivable from employees                            2,676          (4,976)           (532)
   Sales or maturities of long-term investments                                      2,981           1,285           2,348
   Distributions from limited partnerships                                              25             612           9,844
   Net purchases of property and equipment                                            (808)           (528)         (1,727)
   Other                                                                               130             128              38
                                                                               ------------    ------------    ------------
                       NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIEs         (17,945)        (11,769)          6,214

FINANCING ACTIVITIES:
   Cost of treasury shares                                                               -          (8,419)           (528)
   Dividends paid to shareholders                                                  (10,353)         (5,070)         (5,260)
   Drawing on line of credit                                                             -          10,000               -
   Repayment on line of credit                                                      (7,500)         (2,500)         (5,411)
   Other                                                                                31               2               3
                                                                               ------------    ------------    ------------
                                     NET CASH USED IN FINANCING ACTIVITIES         (17,822)         (5,987)        (11,196)
                                                                               ------------    ------------    ------------
                          INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS          (8,743)         15,283           6,583
Cash and cash equivalents at begininng of year                                      26,423          11,140           4,556
                                                                               ------------    ------------    ------------
                                  CASH AND CASH EQUIVALENTS AT END OF YEAR         $17,680         $26,423         $11,140
                                                                               ============    ============    ============


See notes to condensed financial statements

<FN>
NOTE TO CONDENSED FINANCIAL STATEMENTS--BASIS OF PRESENTATION

The Company's investment in subsidiaries is stated at cost plus equity in the
undistributed earnings of subsidiaries since the date of acquisition. The
Company's share of net income of its subsidiaries is included in income using
the equity method. These financial statements should be read in conjunction with
the Company's consolidated financial statements.
</FN>
</TABLE>


<PAGE> 57
<TABLE>
<CAPTION>
                                         SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION

                                               FORM 10-K - YEAR ENDED DECEMBER 31, 2003

                                                BALDWIN & LYONS, INC. AND SUBSIDIARIES

                                                        (DOLLARS IN THOUSANDS)


------------------------------------------------------------------------------------------------------------------------------------
   Column A          Column B   Column C   Column D   Column E   Column F   Column G   Column H   Column I   Column J   Column K
------------------------------------------------------------------------------------------------------------------------------------

                                       As of December 31,                                  Year Ended December 31,
                  -------------------------------------------------------- ---------------------------------------------------------
                               Reserves
                               for Unpaid               Other                          Benefits, Amortization
                   Deferred     Claims                 Policy                           Claims,  of Deferred
                    Policy     and Claim             Claims and    Net        Net     Losses and    Policy       Other       Net
                  Acquisition  Adjustment  Unearned   Benefits   Premium   Investment Settlement  Acquisition  Operating   Premiums
    Segment         Costs       Expenses   Premiums   Payable     Earned     Income    Expenses     Costs       Expenses   Written
---------------- ------------ ----------- ---------- ---------- ---------- ---------- ---------- ------------  ---------- ----------
                                                                              <F1>       <F1>                  <F1> <F2>
<S>              <C>          <C>         <C>        <C>        <C>        <C>        <C>        <C>           <C>        <C>
Property/Casualty
 Insurance
    2003          $    5,309   $ 343,724   $ 36,803      ---     $146,153   $ 12,873   $ 95,738   $   15,667    $ (1,770)  $154,114

    2002               4,177     277,744     29,016      ---      104,392     14,964     68,107       12,072      (3,483)   109,453

    2001               3,523     247,143     23,914      ---       83,138     17,626     81,870        9,692          45     82,645


<FN>
<F1>     Allocations of certain expenses have been made to investment income,
         settlement expenses and other operating expenses and are based on a
         number of assumptions and estimates. Results among these catagories
         would change if different methods were applied.

<F2>     Commissions paid to the Parent Company have been eliminated for this
         presentation. Commission allowances relating to reinsurance ceded are
         offset against other operating expenses. These allowances substantially
         or totally offset other operating expenses incurred.
</FN>
</TABLE>


<PAGE> 58

<TABLE>
<CAPTION>
                                                 SCHEDULE IV -- REINSURANCE

                                          FORM 10-K - YEAR ENDED DECEMBER 31, 2003

                                           BALDWIN & LYONS, INC. AND SUBSIDIARIES

                                                   (DOLLARS IN THOUSANDS)

------------------------------   -----------------  -----------------  ----------------  ----------------  ---------------
           Column A                   Column B           Column C          Column D          Column E          Column F
------------------------------   -----------------  -----------------  ----------------  ----------------  ---------------
                                                                                                                % of
                                                          Ceded             Assumed                            Amount
                                       Direct            to Other         from Other           Net            Assumed to
                                      Premiums          Companies          Companies         Amount              Net
                                 -----------------  -----------------  ----------------  ----------------  ---------------
<S>                               <C>                <C>                <C>               <C>               <C>
Premiums Earned -
 Property/casualty insurance:
     Years Ended December 31:

                        2003         $ 208,282           $ 73,676            $ 11,547         $ 146,153            7.9

                        2002           160,035             63,790               8,147           104,392            7.8

                        2001           114,913             37,706               5,931            83,138            7.1

</TABLE>


<PAGE> 59
<TABLE>
<CAPTION>

                                               SCHEDULE VI--SUPPLEMENTAL INFORMATION
                                          CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS

                                              FORM 10-K - YEAR ENDED DECEMBER 31, 2003

                                               BALDWIN & LYONS, INC. AND SUBSIDIARIES

                                                        (DOLLARS IN THOUSANDS)

------------------------------------------------------------------------------------------------------------------------------------
  Column A     Column B   Column C   Column D  Column E   Column F  Column G      Column H      Column I   Column J   Column K
------------------------------------------------------------------------------------------------------------------------------------
                           As of December 31,                                 Year Ended December 31,
              ----------------------------------------- ----------------------------------------------------------------------------
                                                                              Claims and Claim
                           Reserves                                         Adjustment Expenses   Amortiza-
                          for Unpaid  Discount,                             Incurred Related to    tion of
               Deferred     Claims     if any                               --------------------   Deferred   Paid Claims
 AFFILIATION    Policy     and Claim  Deducted                      Net        (1)        (2)       Policy    and Claim      Net
    WITH       Acquisi-   Adjustment     in    Unearned   Earned  Investment   Current    Prior   Acquisition Adjustment   Premiums
 REGISTRANT   tion Costs   Expenses   Column C Premiums  Premiums   Income      Year      Years     Costs      Expenses    Written
------------- ---------- ----------- --------- -------- --------- ---------- ---------- --------- ----------- ----------- ---------
Consolidated Property/                  <F1>
Casualty Subsidiaries:
<S>           <C>         <C>        <C>       <C>      <C>       <C>        <C>        <C>       <C>         <C>         <C>
    2003         $5,309    $343,724    $5,549   $36,803  $146,153    $12,873  $109,324  ($13,586)    $15,667     $77,581   $154,114

    2002          4,177     277,744     6,396    29,016   104,392     14,964    78,115   (10,008)     12,072      61,246    109,453

    2001          3,523     247,143     4,724    23,914    83,138     17,626    82,757    (887)        9,692      64,369     82,645

<FN>
<F1> Loss reserves on certain reinsurance assumed and permanent total disability
worker's compensation claims have been discounted to present value using pretax
interest rates not exceeding 3.5%.
</FN>
</TABLE>


<PAGE> 60

                                   SIGNATURES


Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                           BALDWIN & LYONS, INC.


March 12, 2004        By   /s/ Gary W. Miller
                           -------------------------------
                           Gary W. Miller, Chairman
                             and CEO
                           (Chief Operating Officer)

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


March 12, 2004        By   /s/ Gary W. Miller
                           -------------------------------
                           Gary W. Miller, Chairman
                           and CEO; Director



March 12, 2004        By   /s/ G. Patrick Corydon
                           -------------------------------
                           G. Patrick Corydon, Senior Vice
                           President - Finance and CFO
                           (Principal Financial Officer and
                           Principal Accounting Officer)



March 12, 2004        By   /s/ Joseph DeVito
                           -------------------------------
                           Joseph DeVito, Director and
                           ExecutiveVice President



March 12, 2004        By   /s/ James Good
                           -------------------------------
                           James Good, Director and
                           Executive Vice President



March 12, 2004        By   /s/ Stuart D. Bilton         (*)
                           -------------------------------
                           Stuart D. Bilton, Director



March 12, 2004        By   /s/ Otto N. Frenzel III      (*)
                           -------------------------------
                           Otto N. Frenzel III, Director



<PAGE> 61

                             SIGNATURES (CONTINUED)


March 12, 2004        By   /s/ John M. O'Mara          (*)
                           -------------------------------
                           John M. O'Mara, Director


March 12, 2004        By  /s/ Thomas H. Patrick        (*)
                          --------------------------------
                          Thomas H. Patrick, Director


March 12, 2004        By  /s/ Nathan Shapiro           (*)
                          --------------------------------
                          Nathan Shapiro, Director


March 12, 2004        By  /s/ Norton Shapiro           (*)
                          --------------------------------
                          Norton Shapiro, Director


March 12, 2004        By  /s/ John D. Weil             (*)
                          --------------------------------
                          John D. Weil, Director


March 12, 2004        By  /s/ Robert Shapiro           (*)
                          --------------------------------
                          Robert Shapiro, Director


March 12, 2004        By  /s/ John Pigott              (*)
                          --------------------------------
                          John Pigott, Director



(*) By Gary W. Miller, Attorney-in-Fact



<PAGE> 62


                              BALDWIN & Lyons, Inc.
                           CERTIFICATIONS PURSUANT TO
                                 SECTION 302 OF
                         THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION
-------------

I, Gary W. Miller, certify that:

1. I have reviewed this annual report on Form 10-K of Baldwin & Lyons, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material
     information relating to the registrant, including its consolidated
     subsidiaries, is made known to us by others within those entities,
     particularly during the period in which this annual report is being
     prepared;

     b) evaluated the effectiveness of the registrant's disclosure controls and
     procedures as of a date within 90 days prior to the filing date of this
     annual report (the "Evaluation Date"); and

     c) presented in this annual report our conclusions about the effectiveness
     of the disclosure controls and procedures based on our evaluation as of the
     Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

     a) all significant deficiencies in the design or operation of internal
     controls which could adversely affect the registrant's ability to record,
     process, summarize and report financial data and have identified for the
     registrant's auditors any material weaknesses in internal controls; and

     b) any fraud, whether or not material, that involves management or other
     employees who have a significant role in the registrant's internal
     controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.



<PAGE> 63

Date: March 12, 2004



/s/ Gary W. Miller
-----------------------------
Gary W. Miller
Chairman of the Board
   and Chief Executive Officer


CERTIFICATION
-------------

I, G. Patrick Corydon, certify that:

1. I have reviewed this annual report on Form 10-K of Baldwin & Lyons, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material
     information relating to the registrant, including its consolidated
     subsidiaries, is made known to us by others within those entities,
     particularly during the period in which this annual report is being
     prepared;

     b) evaluated the effectiveness of the registrant's disclosure controls and
     procedures as of a date within 90 days prior to the filing date of this
     annual report (the "Evaluation Date"); and

     c) presented in this annual report our conclusions about the effectiveness
     of the disclosure controls and procedures based on our evaluation as of the
     Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

     a) all significant deficiencies in the design or operation of internal
     controls which could adversely affect the registrant's ability to record,
     process, summarize and report financial data and have identified for the
     registrant's auditors any material weaknesses in internal controls; and

     b) any fraud, whether or not material, that involves management or other
     employees who have a significant role in the registrant's internal
     controls; and



<PAGE> 64

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 12, 2004


/s/ G. Patrick Corydon
-------------------------
G. Patrick Corydon
Senior Vice President and
Chief Financial Officer



<PAGE> 65









                           ANNUAL REPORT ON FORM 10-K





                          ITEM 15(c)--CERTAIN EXHIBITS


                          YEAR ENDED DECEMBER 31, 2003

                              BALDWIN & LYONS, INC.

                              INDIANAPOLIS, INDIANA










<PAGE> 66

                              BALDWIN & LYONS, INC.
                          Form 10-K for the Fiscal Year
                             Ended December 31, 2003


                                INDEX TO EXHIBITS
                                -----------------



                                               BEGINS ON SEQUENTIAL PAGE
         EXHIBIT NO.                               NUMBER OF FORM 10-K
--------------------------------------         -------------------------

EXHIBIT 3(i)--
Articles of Incorporation of
Baldwin & Lyons, Inc. as amended
(Incorporated as an exhibit by
reference to Exhibit 3(a) to the
Company's Annual Report on Form
10-K for the year ended December
31, 1986)                                                 N/A

EXHIBIT 3(ii)--
By-Laws of Baldwin & Lyons, Inc.,
as restated (Incorporated as
an exhibit by reference to Exhibit 3
to the Company's Annual Report on
Form 10-K for the year ended December
31, 2000)                                                 N/A

EXHIBIT 10(a)--
1981 Employees Stock Purchase Plan
(Incorporated as an exhibit by
reference to Exhibit A to the Company's
definitive Proxy Statement for its
Annual Meeting held May 5, 1981)                          N/A

EXHIBIT 10(b)--
Baldwin & Lyons, Inc. Employee
Discounted Stock Option Plan
(Incorporated as an exhibit by reference
to Appendix A to the Company's definitive
Proxy Statement for its Annual Meeting
held May 2, 1989)                                         N/A

EXHIBIT 10(c)--
Baldwin & Lyons, Inc. Deferred Directors
Fee Option Plan (Incorporated as an
exhibit by reference to Exhibit 10(f)
to the Company's Annual Report on Form
10-K for the year ended December 31, 1989)                N/A



                          INDEX TO EXHIBITS (CONTINUED)
                          -----------------------------



                                               BEGINS ON SEQUENTIAL PAGE
             EXHIBIT NO.                           NUMBER OF FORM 10-K
------------------------------------------     ----------------------------

EXHIBIT 10(d)--
Baldwin & Lyons, Inc. Amended Employee
Discounted Stock Option Plan (Incorporated
as an exhibit by reference to Exhibit
10(f) to the Company's Annual Report on
Form 10-K for the year ended December 31,
1989)                                                     N/A

EXHIBIT 10(e)--
Baldwin & Lyons, Inc. Restated Employee
Discounted Stock Option Plan (Incorporated
as an exhibit by reference to Exhibit
10(f) to the Company's Annual Report on
Form 10-K for the year ended December
31, 1997)                                                 N/A

EXHIBIT 11--
Computation of Per Share Earnings              filed herewith electronically

EXHIBIT 21--
Subsidiaries of Baldwin & Lyons, Inc.          filed herewith electronically

EXHIBIT 23--
Consent of Ernst & Young LLP                   filed herewith electronically

EXHIBIT 24--
Powers of Attorney for certain
Officers and Directors                         filed herewith electronically

EXHIBIT 99.1--
Certification of CEO pursuant to 18
U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley
Act of 2002.                                   filed herewith electronically

EXHIBIT 99.1--
Certification of CFO pursuant to 18
U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley
Act of 2002.                                   filed herewith electronically