<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, 2005

                              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 if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the  Securities Act.  Yes [   ]    No [ X ]

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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [   ] Accelerated filer [ X ] Non-accelerated filer [  ]

The aggregate market value of Class A and Class B Common Stock held by
non-affiliates of the Registrant as of June 30, 2005, based on the closing trade
prices on that date, was approximately $185,282,000.

The number of shares outstanding of each of the issuer's classes of common stock
as of March 8, 2006:

            Common Stock, No Par Value:
                  Class A (voting)                       2,666,666 shares
                  Class B (nonvoting)                   12,148,603 shares

The Index to Exhibits is located on pages 70 through 72.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for Annual Meeting of Shareholders to be held
May 2, 2006 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. B&L's subsidiaries are: Protective Insurance Company (referred to
herein as "Protective"), with licenses in all 50 states, the District of
Columbia and all Canadian provinces; Sagamore Insurance Company (referred to
herein as "Sagamore"), which is currently licensed in 47 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 70% of the gross direct premiums written and assumed by the
Insurance Subsidiaries during 2005 was attributable to business produced
directly by B & L. Approximately 5% of gross premium is assumed from several
non-affiliated insurance and reinsurance companies through retrocessions. The
remaining 25% consists primarily of business written by Sagamore which was
originated 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 non-affiliated 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 companies in the motor carrier industry
which retain substantial amounts of self-insurance, independent contractors
utilized by large trucking companies 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 certain 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

NON-AFFILIATED 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 impact on the Company's
operations or financial position.

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-eight states.

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

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

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

The Company discontinued marketing this product in the fourth quarter of 2004.

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 Company's ultimate net
exposure for all unpaid losses and LAE incurred through December 31 of each
year. These estimates are subject to the effects of trends in claim severity and
frequency and are continually reviewed and, as experience develops and new
information becomes known, the liability is adjusted as necessary. Such
adjustments, either positive or negative, are reflected in current operations.

The Company's reserves for losses and loss expenses ("reserves") are determined
based on evaluations of individual reported claims and by complex estimation
processes using historical experience, current economic information and, when
necessary, available industry statistics. Reserves are evaluated in three basic
categories (1) "case basis", (2) "incurred but not reported" and (3) "loss
adjustment expense" reserves. Case basis reserves, which comprise approximately
63% of total net reserves at December 31, 2005, 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 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 computed on a "bulk" basis.
Common actuarial methods are employed 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 which are not specifically
allocable to individual claims. Historical analyses of the ratio of loss
adjusting expenses to losses paid on prior closed claims and study of current
economic trends affecting loss settlement costs are used to estimate the loss
adjustment reserve needs 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 management to continuously monitor and evaluate
the life cycle of claims. Our claims range from the very routine private
passenger automobile "fender bender" to the highly complex and

<PAGE> 4

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 volatility in the reserving process for more serious claims.
Court rulings, tort reform (or lack thereof), geographic location of the claim
under consideration and trends in jury awards also play a significant role in
the estimation process of larger claims. The Company continuously reviews and
evaluates loss developments subsequent to each measurement date and adjusts its
reserve estimation assumptions, as necessary, in an effort to achieve the best
possible estimate of the ultimate remaining loss costs at any point in time.

Loss reserves related to certain permanent total disability (PTD) workers'
compensation claims have been discounted to present value using tables provided
by the National Council on Compensation Insurance which are based upon a pretax
interest rate of 3.5% and adjusted for losses retained by the insured. The loss
and LAE reserves at December 31, 2005 have been reduced by approximately $4.5
million as a result of such discounting. Had the Company not discounted loss and
LAE reserves, pretax income would have been approximately $.5 million lower for
the year ended December 31, 2005.

For policies inforce at December 31, 2005, the maximum amount for which
Protective insures a trucking risk is $10 million, less the applicable
self-insured retention. For trucking liability policies incepted after June 3,
2005, the maximum limits provided by Protective are $5 million, with the
exception of one insured for which limits of up to $10 million, less retentions,
are provided. 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 reinsurance for these coverages. After
giving effect to current treaty reinsurance arrangements Protective's maximum
exposure to loss from a single occurrence is approximately $2.3 million for the
majority of risks insured although, for certain losses, Protective's maximum
exposure could be as high as $3.9 million for a single occurrence. Reinsurance
agreements effective since June 3, 2004 include provisions for aggregate
deductibles that must be exceeded before the Company can recover under the terms
of the treaties. The Company retains a higher percentage of the direct premium
(and, therefore, cedes less premium to reinsurers) in consideration of these
deductible provisions. 2005 and 2004 net premium earned and losses incurred each
includes $11,607 and $2,278, respectively, related to such deductible
provisions. 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 3, 2006 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 current levels, as discussed above. Because Protective has, in the
past, written 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.

With respect to Sagamore's private passenger automobile and small fleet trucking
business, the Company's maximum net exposure for a single occurrence has never
exceeded $250,000.

The following table on page 5 sets forth a reconciliation of beginning and
ending loss and LAE liability balances, for 2005, 2004 and 2003. 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 2005. The table on page 11
is a summary of the re-estimated liability, before consideration of reinsurance,
for the ten years prior to 2005 as well as the related re-estimated 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,
                                                              2005           2004           2003
                                                          ------------    -----------    -----------
<S>                                                       <C>            <C>            <C>
NET OF REINSURANCE RECOVERABLE:                                         (In thousands)
-------------------------------
  Liability for losses and LAE at the
    Beginning of the year                                   $ 207,137      $ 162,424     $ 144,267

  Provision for losses and LAE:
      Claims occurring during the current year                154,314        141,254       109,324
      Claims occurring during prior years:
         Retrospectively-rated direct business                 (8,014)        (5,400)       (1,281)
         Other direct business                                 (4,468)        (6,689)      (11,663)
         Reinsurance assumed                                   (1,730)        (2,909)          399
         Involuntary residual markets                           1,018            698           618
         Environmental losses                                    (498)          (656)       (1,659)
                                                          ------------    -----------    -----------
                                                              (13,692)       (14,956)      (13,586)
                                                          ------------    -----------    -----------
                                                              140,622        126,298        95,738
  Payments of losses and LAE:
      Claims occurring during the current year                 45,286         43,351        37,625
      Claims occurring during prior years                      60,343         38,234        39,956
                                                          ------------    -----------    -----------
                                                              105,629         81,585        77,581
                                                          ------------    -----------    -----------

  Liability for losses and LAE at end of year                 242,130        207,137       162,424

Reinsurance recoverable on unpaid losses
  at end of the year                                          188,143        233,035       180,025
                                                          ------------    -----------    -----------
Liability for losses and LAE, gross of
  reinsurance recoverable, at end of the year               $ 430,273      $ 440,172     $ 342,449
                                                          ============    ===========    ===========

</TABLE>

The reconciliation above shows a $13.7 million (6.6%) savings in the liability
for losses and LAE recorded at December 31, 2004. The net savings is reflected
in 2005 losses incurred, although savings from retrospectively rated policies
are largely offset by reductions in premium earned recorded concurrently with
the reserve savings. All major product groups produced redundancies during each
of the years 2005, 2004 and 2003 with the exception of reinsurance assumed and
small business worker's compensation in 2003. The following table is a summary
of the above $13.7 million reserve savings by accident year.

<PAGE> 6

<TABLE>
<CAPTION>

 YEARS IN WHICH LOSSES           RESERVE AT          (SAVINGS) DEFICIENCY      % (SAVINGS)
     WERE INCURRED           DECEMBER 31, 2004       RECORDED DURING 2005       DEFICIENCY
-----------------------    ---------------------    ---------------------    ----------------
                                          (IN THOUSANDS)
<S>                         <C>                      <C>                     <C>
         2004                   $   97,903              $    (9,109)              (9.3%)
         2003                       41,025                   (3,659)              (8.9%)
         2002                       13,986                   (2,249)             (16.1%)
         2001                       13,289                      (32)               (.2%)
         2000                        1,172                      415               35.4%
     1999 & prior                   39,762                      942                2.4%
                             ------------------      ------------------
                                $  207,137              $   (13,692)              (6.6%)
                             ==================      ==================

</TABLE>

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

<TABLE>
<CAPTION>
                                               1999
                                              &Prior        2000          2001        2002         2003         2004
                                            -----------  -----------  -----------  -----------  -----------  -----------
<S>                                         <C>          <C>          <C>          <C>          <C>          <C>
Losses and allocated loss
  expenses developed on cases
  known to exist at December
  31, 2004                                    $   725      $    73        $(292)      $ (408)     $(1,302)     $(4,309)
Losses and allocated loss
  expenses reported on cases
  unknown at December 31,
  2004                                            699            7          211          321        1,161        6,804

Unallocated loss expenses paid                    114           17           61          313          607        1,887
Change in reserves for incurred
  but not reported losses and
  loss expenses                                (1,440)         320           86         (945)      (1,309)     (16,225)
                                            -----------  -----------  -----------  -----------  -----------  -----------
Net (savings) deficiency on
  losses from directly-produced
  business                                         98          417           66         (719)        (843)     (11,843)

(Savings)deficiency reported
  under voluntary reinsurance
  assumption agreements and
  residual markets                                844           (2)         (98)      (1,530)      (2,816)       2,734
                                            -----------  -----------  -----------  -----------  -----------  -----------

                            Net savings           942      $   415       $  (32)     $(2,249)     $(3,659)    $ (9,109)
                                            ===========  ===========  ===========  ===========  ===========  ===========

</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, 2005 for most lines of business.

<PAGE> 7

However, the average settlement amounts of severe trucking claims have tended to
increase significantly in recent years.

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, 2004, losses reported which were previously unknown at December
31, 2004 (incurred but not reported), unallocated loss expense paid related to
accident years 2004 and prior and changes in the reserves for incurred but not
reported losses and loss expenses. Bulk loss reserves are established to provide
for potential future adverse development on cases known to the Company and for
cases unknown at the reserve date. Changes in the reserves for incurred but not
reported losses and loss expenses occur based upon information received on known
and newly reported cases during the current year and the effect of that
development on the application of standard actuarial methods used by the
Company.

Also shown in the above table are amounts representing the "(savings) deficiency
reported under reinsurance assumption agreements and residual markets". These
amounts relate primarily to the Company's voluntary participation in property
catastrophe treaties. The Company records its share of losses from these
treaties based on reports from the retrocessionaires 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 2005 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                 $244,370

  Add differences:
      Reinsurance recoverable on unpaid losses and LAE                                188,143
      Additional reserve for residual market losses not
        reported to the Company at the current year end                                   360

  Deduct differences:
      Estimated salvage and subrogation recoveries recorded on
        a cash basis for SAP and on an accrual basis for GAAP                           (2,600)
                                                                                    -----------

  Liability reported on a GAAP basis                                                  $430,273
                                                                                    ===========

</TABLE>

The table on page 10 presents the development of GAAP balance sheet liabilities
for each year-end 1995 through 2005, net of all reinsurance credits. The top
line of the table shows the estimated liability for unpaid losses and LAE
recorded at the balance sheet date for each of the indicated years. This
liability represents the

<PAGE> 8

estimated amount of losses and LAE for claims arising in all prior years that
were unpaid at the respective balance sheet date, including losses that had been
incurred, but not yet reported, to the Company.

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

The "cumulative redundancy" represents the aggregate change in the estimates of
each calendar year end reserve through December 31, 2005. For example, the 1995
liability has developed a $44.0 million redundancy over ten years. That amount
has been reflected in income over those ten years, as shown on the table. The
effect on 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 years ended in the period 1986 through 2004 have produced
redundancies as of December 31, 2005. 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. To a small degree, 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 bulk reserves requires the use of historical data where
available and generally a minimum of ten years of such data is required to
provide statistically valid samples. 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 2005 is different from that which
generated much of the ten-year historical loss data used to establish reserves
in the past few years. In recent years, management has noted trends toward
significantly higher settlements and jury awards associated with the more
serious trucking liability claims. The inflationary factors affecting these
claims appear to be more subjective in nature and not in line with compensatory
equity. In addition to the factors mentioned above, 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 calendar year end liability as of the end of
each succeeding year. For example, as of December 31, 2005, the Company had paid
$88.2 million of losses and LAE that had been incurred, but not paid, as of
December 31, 1995; thus an estimated $28.8 million in losses incurred through
1995 remain unpaid as of the current financial statement date ($117.0 million
incurred less $88.2 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 1998,
but incurred in 1995, will be included in the cumulative development amount for
each of the years-end 1995, 1996, and 1997. 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

<PAGE> 9

necessarily occur in the future. Accordingly, it may not be appropriate to
extrapolate future redundancies or deficiencies based on this table.

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, 1995
through December 31, 2004 as of December 31, 2005 with a reconciliation of the
data to the net amounts shown in the table on page 10. Readers are reminded that
the gross data presented on page 11 requires significantly more subjectivity in
the estimation of incurred but not reported and loss expense reserves because of
the high limits provided by Protective to its trucking customers, much of which
is covered by reinsurance. This is particularly true of excess of loss treaties
where Protective retains risk in only the lower, more predictable, layers of
coverage. Accordingly, one would generally expect more variability in
development on a gross basis than on a net basis.

Environmental Matters: The Company's reserves for unpaid losses and loss
expenses at December 31, 2005 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. Most 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
such exclusions in many environmental cases. Beginning with the year 1994 and
through the year ended December 31, 2005, the Company has recorded a total of
$6.5 million in losses incurred with respect to environmental claims. Incurred
losses to date include a reserve for incurred but not reported environmental
losses of $1.5 million at December 31, 2005.

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    1995      1996     1997      1998      1999       2000      2001      2002      2003     2004      2005
---------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S>                    <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Liability for Unpaid
  Losses and LAE, Net
  of Reinsurance
  Recoverables          $161,001  $154,039  $151,013  $143,515  $130,345  $119,905  $137,406  $144,267  $162,424  $207,137  $242,130

Liability Re-estimated
  as of:
    One Year Later       148,756   146,201   140,272   132,906   122,238   119,018   127,398   130,681   147,468  193,445
    Two Years Later      140,811   135,125   128,743   124,878   124,540   112,558   118,055   125,731   142,771
    Three Years Later    130,540   123,775   122,211   124,367   119,379   103,251   118,712   124,693
    Four Years Later     122,792   119,862   122,674   121,021   111,476   105,508   119,925
    Five Years Later     120,410   121,445   119,632   114,456   113,720   106,757
    Six Years Later      122,060   120,995   113,150   115,007   114,546
    Seven Years Later    122,162   114,660   113,917   115,321
    Eight Years Later    116,258   115,650   114,767
    Nine Years Later     117,180   116,420
    Ten Years Later      117,048

Cumulative Redundancy   $ 43,953  $ 37,619  $ 36,246  $ 28,194  $ 15,799  $ 13,148  $ 17,481  $ 19,574  $ 19,653  $ 13,692
                        ========= ========= ========= ========= ========= ========= ========= ========= ========= =========

Cumulative Amount of
  Liability Paid
  Through:
    One Year Later      $ 27,825  $ 26,934  $ 25,088  $ 30,214    30,239  $ 31,132  $ 30,249  $ 39,956  $ 38,234  $ 60,343
    Two Years Later       43,016    43,280    43,311    48,416    49,068    47,060    55,724    57,522    62,380
    Three Years Later     55,515    55,834    55,180    60,594    60,427    58,618    64,489    69,959
    Four Years Later      62,740    63,998    64,370    66,679    69,374    64,574    71,038
    Five Years Later      69,747    71,089    68,807    74,861    73,958    69,316
    Six Years Later       75,496    74,482    76,657    77,957    78,150
    Seven Years Later     78,228    79,547    79,428    81,530
    Eight Years Later     83,104    82,555    81,752
    Nine Years Later      86,096    84,653
    Ten Years Later       88,164

</TABLE>

<PAGE> 11

<TABLE>
<CAPTION>

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

YEAR ENDED DECEMBER 31   1995      1996      1997      1998      1999      2000      2001      2002      2003      2004      2005
---------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S>                    <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
DIRECT AND ASSUMED:

Liability for Unpaid
  Losses and Loss
  Adjustment Expenses   $211,032  $196,441  $196,715  $193,996  $173,115  $182,124  $246,816  $277,309  $342,449  $440,172  $430,273

Liability Re-estimated
  as of December 31,
  2005                   149,383   146,267   142,963   150,363   179,216   207,275   253,978   291,256   329,684   426,884

Cumulative (Deficiency)
Redundancy                61,649    50,174    53,752    43,633    (6,101)  (25,151)   (7,162)  (13,947)   12,765    13,288

CEDED:

Liability for Unpaid
  Losses and Loss
  Adjustment Expenses     50,031    42,402    45,702    50,481    42,770    62,219   109,410   133,042   180,025   233,035   188,143

Liability Re-estimated
  as of December 31,
  2005                    32,335    29,847    28,196    35,042    64,670   100,518   134,053   166,563   186,913   233,439

Cumulative (Deficiency)
Redundancy                17,696    12,555    17,506    15,439   (21,900)  (38,299)  (24,643)  (33,521)   (6,888)     (404)

NET:

Liability for Unpaid
  Losses and Loss
  Adjustment Expenses    161,001   154,039   151,013   143,515   130,345   119,905   137,406   144,267   162,424   207,137   242,130

Liability Re-estimated
  as of December 31,
  2005                   117,048   116,420   114,767   115,321   114,546   106,757   119,925   124,693   142,771   193,445

Cumulative Redundancy     43,953    37,619    36,246    28,194    15,799    13,148    17,481    19,574    19,653    13,692

</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 power 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.
Competitive pressures eased significantly in the period 2001 through 2003, as
competitors experienced unfavorable operating results but competition has once
again begun to increase during 2004 and 2005 (see comments under "Competition"
following). In 2005, fleet trucking products generated approximately 63% 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 estimate of its exposure to a MFL or a PML is
approximately 7% and 4% of consolidated surplus, respectively. However, this
amount is before state and federal tax credits and reinstatement premiums which
would significantly reduce the impact of a MFL or a PML on the Company's
surplus.

Since 1995, Sagamore has sold private passenger automobile insurance to
nonstandard risks. This program is currently being marketed in twenty-eight
mid-western and southern states through independent agents. 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.

Through its Commercial Division, Sagamore also offers a program of coverages for
"small fleet" trucking concerns (owner-operators generally with one to six power
units). This program is currently being marketed in thirty-one states through
independent agents. The Commercial Division shares much of the technology
utilized by the non-standard automobile division in marketing its products.

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

The Company's investment portfolio consists of (1) funds which are considered
necessary to support insurance underwriting activities and (2) excess capital
funds. In general, funds invested in fixed maturity and short-term instruments
are intended to cover underwriting operations while equity securities and
limited partnerships are utilized to invest excess capital funds. The following
discussion will concentrate on the different investment strategies for these two
major categories.

At December 31, 2005 the financial statement value of the Company's investment
portfolio was approximately $623 million, including $131 million of money market
instruments classified as cash equivalents. The adjusted cost of this portfolio
was $558 million. A comparison of the allocation of assets within the Company's
investment portfolio, using adjusted cost as a basis, is as follows:

<PAGE> 13

<TABLE>
<CAPTION>
                                                            December 31
                                                        2005           2004
                                                      --------       --------
<S>                                                   <C>            <C>
      U.S. Government obligations                        13.2%          23.5%
      Municipal bonds                                    21.1           27.7
      Corporate and other bonds                           9.4           10.3
      Short-term                                         32.7           19.1
      Mortgage-backed securities                          4.1            3.3
                                                      --------       --------
        Total fixed maturity and short-term              80.5           83.9
      Common stocks                                      11.5           12.5
      Limited partnerships                                8.0            3.1
      Preferred stocks                                      -             .5
                                                      --------       --------
                                                        100.0%         100.0%
                                                      ========       ========

</TABLE>

FIXED MATURITY AND SHORT-TERM INVESTMENTS
-----------------------------------------

The Investment Committee has determined that the Company's insurance
subsidiaries will, at all times, hold high grade fixed income securities and
short-term investments with a market value equal to at least 100% of reserves
for losses and loss expenses, net of applicable reinsurance credits. At December
31, 2005, investment grade bonds and short-term instruments held by insurance
subsidiaries equaled 158% of net loss and loss adjustment expense reserves, thus
providing a substantial margin.

The Company's concentration of fixed maturity funds in relatively short-term
investments provides it with a level of liquidity which is more than adequate to
provide for its anticipated cash flow needs. The 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. During the past several years, and
particularly during 2005, short-term yields have approximated those available
for five and ten year obligations and, accordingly, the Company has concentrated
the investment of new and maturing funds into high quality obligations with
maturities of less than one year, which are classified above as short-term.
Short-term investments classified as cash and cash equivalents in the
consolidated balance sheet include $88.4 million invested in a single money
market fund administered by The Northern Trust Company, constituting only about
1% of that fund's net assets.

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 2005. Note that the duration of the portfolio
is slightly less than the average life shown below because borrowers have, in
some cases, the right to call or prepay obligations with or without call or
prepayment penalties.

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

                                          2005         2004
                                        -------      -------
<S>                                     <C>          <C>
     Less than one year                   64.7%        57.9%
     1 to 5 years                         26.5         35.0
     5 to 10 years                         1.7          1.4
     More than 10 years                    7.1          5.7
                                        -------      -------
                                         100.0%       100.0%
                                        =======      =======

 Average life of portfolio (years)         2.3          2.2
                                        =======      =======
</TABLE>

Fixed income and short-term securities comprised 71.8% of the market value of
the Company's total invested assets at December 31, 2005. 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 $5.0 million (.8% 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, and has the intent

<PAGE> 14

and ability to hold, such investments until maturity. Exceptions exist in the
rare 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) or when valuations are considered excessive compared to alternative
investments. For example, during 2005 municipal bonds were decreased as bonds
matured and alternative taxable opportunities resulted in higher after tax
yields.

Approximately $14.3 million of fixed maturity investments (2.3% of total
invested assets) consists of bonds rated as less than investment grade at year
end. Approximately 75% 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 5.9% at December 31, 2005.

The market value of the consolidated fixed maturity portfolio was $1.4 million
less than cost at December 31, 2005, before income taxes, which compares to a
$1.8 million unrealized gain at December 31, 2004. All declines were determined
to result from interest rate increases and not from credit quality. As has been
the Company's consistent policy, 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 creditworthiness of the
issuer or the specific issue. No fixed income investments met these criteria at
December 31, 2005 or 2004. Gross unrealized losses on fixed income securities
were $2.5 million in total at December 31, 2005, an average of 1.2% of amortized
cost, with no individual issue having more than a 6.3% decline.

EQUITY SECURITIES
-----------------

Because of the large amount of high quality, short-term investments owned,
relative to the Company's loss and loss expense reserves and other liabilities,
amounts invested in equity securities are not needed to fund current operations
and, accordingly, can be committed for long periods of time. Equity securities
comprise 21.0% of the market value of the consolidated investment portfolio at
December 31, 2005, but only 11.5% of cost, as long-term holdings have
appreciated significantly. The Company's equity securities portfolio consists of
approximately 140 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 $5.0 million at December 31, 2005 (.8% 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, accounting for the large unrealized gain at the current year
end. An individual equity security will be disposed of when it is determined by
investment managers or the Investment Committee 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 only when market conditions are deemed to
dictate, regardless of the impact on current period earnings.

During 2005, 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 $8.6 million.
The net effect of other than temporary impairment adjustments included in the
investment gains from equity securities was a decrease of $.5 million, or two
cents per share, for the year. The reclassification of other than temporary
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, 2005, regardless of
the evaluation of the issuer or the potential for recovery. Net unrealized gains
on the equity security portfolio remained level with the prior year, totaling
$66.7 million at December 31, 2005. The net gain at year end consisted of $68.6
million of gross unrealized gains and $1.9 million of gross unrealized losses
with the average loss on issues where market was less than adjusted cost being
13.1%.

LIMITED PARTNERSHIPS
--------------------

For several years, the Company has invested in various limited partnerships,
consisting of real estate development, small venture capital and securities
trading activities, as an alternative to direct equity investments. The funds
used for these investments are part of the excess capital category mentioned
above. At October 31, 2004, the aggregate cost basis of these investments was
only $7.8 million. Between November 1, 2004 and December 31, 2005, the cost
basis of limited partnership investments increased to $30.9 million, net of
distributions received, with the majority of the increase allocated to limited
partnerships engaged in securities trading activities, including $15 million
committed to trading in the India stock market.

Each of these new investments experienced very favorable earnings during 2005,
with the aggregate of the Company's share of such earnings totaling
approximately $14.8 million, compared to only $.6 million during 2004. The
current year limited partnership value increase is composed of estimated
realized income of $5.1 million and estimated unrealized income of $9.7 million,
as reported to the Company by the various general partners. The Company follows
the equity method of accounting for these investments and records the change in
value as a component of net gains or losses on investments. However, readers are
cautioned that, to the extent that reported increases in equity value are
unrealized, they can be reduced or eliminated quickly by volatile market
conditions. In addition, a significant minority of the investments included in
the limited partnerships do not have readily ascertainable fair market values
and, accordingly, values assigned by the general partners may not be realizable
upon the sale or disposal of the related assets, which may not occur for several
years.

INVESTMENT YIELDS
-----------------

After seven years of declining interest rates, and hence lower investment
income, the pattern reversed in 2005. Even as the Federal Reserve discount rate
and short-term rates increased dramatically during the past eighteen months,
medium and long-term rates continue to lag and the yield curve remains flat. In
fact, during much of 2005, yields on 30 day securities were essentially equal to
those on five and ten year obligations, given the same quality considerations.
Since most of the Company's investments fell into the short end of the maturity
range, the increase in rates was instantly accretive, with pre-tax net
investment income increasing $2.6 million (21%) during 2005. A comparison of
consolidated investment yields, before consideration of investment expenses, is
as follows:

<TABLE>
<CAPTION>
                                                       2005            2004
                                                      -------        -------
<S>                                                   <C>            <C>
  Before federal tax:
     Investment income                                  3.3%           2.9%
     Investment income plus investment gains            7.8            4.9
  After federal tax:
     Investment income                                  2.4            2.2
     Investment income plus investment gains            5.4            3.5

</TABLE>

Readers are also directed to Note B to the consolidated financial statements and
to the Results of Operations on pages 21 and 22 of this document for additional
details of investment operations.

EMPLOYEES
---------

As of December 31, 2005, the Company had 276 employees, representing an increase
of 1 employee from December 31, 2004.

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.

<PAGE> 16

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.

AVAILABILITY OF DOCUMENTS
-------------------------

This Form 10-K and the Company's Code of Conduct will be sent to shareholders
without charge upon written request to the Company's Investor Contact at the
corporate address. These documents, along with all other filings with the
Securities and Exchange Commission are available for review, download or
printing from the Company's web site at www.baldwinandlyons.com.

ITEM 101(B), (C)(1)(I) AND (VII), AND (D) OF REGULATION S-K:
------------------------------------------------------------

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


ITEM 1A.  RISK FACTORS
          ------------

       -  THE COMPANY OPERATES IN THE INSURANCE INDUSTRY WHERE MANY OF ITS
          COMPETITORS ARE LARGER WITH FAR GREATER RESOURCES. Please see the
          caption "Competition" on this page above for a complete discussion of
          this risk factor.

       -  THE COMPANY, THROUGH ITS INSURANCE SUBSIDIARIES, REQUIRES COLLATERAL
          FROM ITS INSUREDS COVERING THE INSUREDS' OBLIGATIONS FOR SELF-INSURED
          RETENTIONS OR DEDUCTIBLES RELATED TO POLICIES OF INSURANCE PROVIDED.
          SHOULD THE COMPANY, AS SURETY, BECOME RESPONSIBLE FOR SUCH INSURED
          OBLIGATIONS, THE COLLATERAL HELD MAY PROVE TO BE INSUFFICIENT. For
          further discussion regarding this risk factor, see Note M to the
          consolidated financial statements on page 53 of this Form 10-K.

       -  THE COMPANY LIMITS ITS RISK TO LOSS FROM POLICIES OF INSURANCE ISSUED
          BY ITS INSURANCE SUBSIDIARIES THROUGH THE PURCHASE OF REINSURANCE
          COVERAGE FROM OTHER INSURANCE COMPANIES. SUCH REINSURANCE DOES NOT
          RELIEVE THE COMPANY FROM ITS RESPONSIBILITY TO POLICYHOLDERS SHOULD
          THE REINSURERS BE UNABLE TO MEET THEIR OBLIGATIONS TO THE COMPANY
          UNDER THE TERMS OF THE UNDERLYING REINSURANCE AGREEMENTS. For further
          discussion regarding this risk factor, see the caption REINSURANCE
          RECOVERABLE and Notes F and M to the consolidated financial statements
          on pages 26, 46 and 53, respectively, of this Form 10-K.

       -  OPERATING IN THE INSURANCE INDUSTRY, THE COMPANY IS EXPOSED TO LOSS
          FROM POLICIES OF INSURANCE ISSUED TO ITS POLICYHOLDERS. A LARGE
          PORTION OF LOSSES RECORDED BY THE COMPANY ARE ESTIMATES OF FUTURE LOSS
          PAYMENTS TO BE MADE. SUCH ESTIMATES OF FUTURE LOSS PAYMENTS MAY PROVE
          TO BE INADEQUATE. For further discussion of this risk factor, see the
          caption PROPERTY/CASUALTY LOSSES AND

<PAGE> 17

          LOSS ADJUSTMENT EXPENSES beginning on page 3, the caption Loss and
          Loss Expense Reserves beginning on page 27 and Note C to the
          consolidated financial statements beginning on page 43. All pages
          referenced are within this Form 10-K.

       -  THE COMPANY DERIVES APPROXIMATELY 28% OF ITS DIRECT PREMIUM VOLUME
          FROM A SINGLE MAJOR CUSTOMER AND ITS INDEPENDENT CONTRACTORS. LOSS OF
          THIS MAJOR CUSTOMER WOULD SEVERELY REDUCE THE COMPANY'S REVENUE AND
          EARNINGS POTENTIAL. For further discussion regarding this risk factor,
          see Notes K and M to the consolidated financial statements beginning
          on pages 50 and 53, respectively, of this Form 10-K.

       -  GIVEN THE COMPANY'S SIGNIFICANT INTEREST-BEARING INVESTMENT PORTFOLIO,
          A DROP IN INTEREST RATES COULD HAVE A MATERIAL ADVERSE IMPACT ON THE
          COMPANY'S EARNINGS. For further discussion regarding this risk factor,
          see the caption Market Risk beginning on page 29 of this Form 10-K.

       -  THE COMPANY OPERATES IN A REGULATED INDUSTRY. Changes in laws and
          regulations governing the insurance industry could have a significant
          impact on the Company's ability to generate income from its insurance
          company operations.


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 lease expires in May, 2007.

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> 18

                                     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, 2005, there were approximately 400 record holders of
Class A Common Stock and approximately 1,000 record holders of Class B Common
Stock.

The table below sets forth the range of high and low sale prices for the Class A
and Class B Common Stock for 2005 and 2004, as reported by the National
Association of Security Dealers, Inc. and published in the financial press. The
quotations reflect inter-dealer prices without retail markup, markdown or
commission and do not necessarily represent actual transactions.

<TABLE>
<CAPTION>

                                      CLASS A                       CLASS B               CASH
                             --------------------------    --------------------------    DIVIDENDS
                                HIGH            LOW           HIGH            LOW        DECLARED
                             -----------    -----------    -----------    -----------  ------------
<S>                          <C>            <C>            <C>            <C>          <C>
Year ended December 31:
2005:
FOURTH QUARTER                  $27.000        $24.650       $26.890         $23.330       $  .25
THIRD QUARTER                    28.510         24.760        27.700          24.250          .35
SECOND QUARTER                   31.000         24.540        26.910          24.000          .10
FIRST QUARTER                    26.500         24.610        27.550          24.347          .25

2004:
Fourth Quarter                   28.240         24.300        29.150          24.520         1.00
Third Quarter                    29.230         23.750        26.850          23.100          .15
Second Quarter                   29.750         22.750        30.680          22.200          .40
First Quarter                    29.150         22.370        30.000          25.000          .50

</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 G to the consolidated
financial statements.

The Company has paid quarterly cash dividends continuously since 1974. The
current regular quarterly dividend rate is $.10 per share. Since the fourth
quarter of 2003, the Company has paid an extra cash dividend in all but the
second quarter of 2005 in recognition of the Company's more than adequate
capitalization, the favorable income tax rates available to individuals on
dividends and excellent earnings over the past three years. Total extra
dividends paid in 2005 and 2004 were $.55 and $1.65 per share, respectively. 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> 19

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

<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31
                                                 --------------------------------------------------------------------
                                                     2005          2004          2003          2002         2001
                                                 ------------  ------------  ------------  ------------  ------------
                                                              (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                              <C>           <C>           <C>           <C>           <C>
DIRECT AND ASSUMED PREMIUMS WRITTEN                $ 222,445     $ 247,099     $ 227,614     $ 173,294     $ 120,308

NET PREMIUMS EARNED                                  186,165       172,145       146,153       104,392        83,138

NET INVESTMENT INCOME                                 14,840        12,287        12,873        14,964        17,626

NET GAINS (LOSSES) ON INVESTMENTS                     22,981         9,770         9,990       (16,445)        5,053

LOSSES AND LOSS EXPENSES INCURRED                    140,622 <F7>  126,298        95,738        68,107         81,870 <F6>

NET INCOME                                            34,223        30,306        33,075        12,366          5,390

EARNINGS PER SHARE -- NET INCOME <F1>,<F2>              2.30          2.05          2.25           .84           0.35

CASH DIVIDENDS PER SHARE <F2>,<F3>                       .95          2.05           .65           .32            .32

INVESTMENT PORTFOLIO <F4>                            622,920       577,428       515,843       448,520        439,434

TOTAL ASSETS                                         860,358       866,914       768,582       644,027        600,782

SHAREHOLDERS' EQUITY                                 346,685       326,548       324,574       284,588        288,360

COST OF TREASURY SHARES PURCHASED                          -             -             -         8,978          2,154

BOOK VALUE PER SHARE (1),(2)                           23.31         22.04         22.00         19.43          18.98

UNDERWRITING RATIOS (5):
   Losses and loss expenses                            75.5%         73.4%         65.5%         65.2%          98.5%

   Underwriting expenses                               22.0%         24.0%         26.5%         26.1%          24.3%

   Combined                                            97.5%         97.4%         92.0%         91.3%         122.8%


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

<F2> All per share amounts have been adjusted for the five-for-four stock split
     effective February 17, 2003.

<F3> Includes regular dividends of $.40 per share for each year and extra
     dividends of $.55, $1.65 and $.25 per share for 2005, 2004 and 2003,
     respectively.

<F4> Includes money market instruments classified with cash in the Consolidated
     Balance Sheets.

<F5> Data is for all coverages combined, does not include fee income and is
     presented based upon generally accepted accounting principles.

<F6> Includes $20,000 relating to the events of September 11, 2001.

<F7> Includes $17,595 relating to Hurricanes Katrina, Rita and Wilma.

</FN>
</TABLE>

<PAGE> 20

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

LIQUIDITY AND CAPITAL RESOURCES

The primary sources of the Company's liquidity are (1) funds generated from
insurance operations including net investment income, (2) proceeds from the sale
of investments and (3) proceeds from maturing investments. The Company generally
experiences positive cash flow from operations resulting from the fact that
premiums are collected on insurance policies in advance of the disbursement of
funds in payment of claims. Operating costs of the insurance subsidiaries, other
than loss and loss expense payments, generally average less than 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 2005, positive cash flow from
operations totaled $48.9 million compared to $72.3 million in 2004. The decrease
in cash flow from operations is due largely to a $24.0 million increase in net
losses paid during 2005 resulting from the settlement of several large prior
year claims.

For several years, the Company's investment philosophy has emphasized the
purchase of short-term bonds with maximum quality and liquidity. As interest
rates and yield curves have not provided a strong incentive to lengthen
maturities in recent years, the Company has maintained and, during 2005,
increased its short-term position with respect to the vast majority of its fixed
maturity investments in anticipation of interest rate increases, such as those
that occurred in 2005. The average contractual life of the Company's bond and
short-term investment portfolio has remained just above two years and the
average duration has remained slightly below two years. The Company also remains
an active participant in the equity securities market using capital which is in
excess of amounts considered necessary to fund current operations. The long-term
horizon for the Company's equity investments allows it to invest in positions
where ultimate value, and not short-term market fluctuation, is the primary
focus. Investments made by the Company's domestic insurance subsidiaries are
regulated by guidelines promulgated by the National Association of Insurance
Commissioners which are designed to provide protection for both policyholders
and shareholders.

The Company's assets at December 31, 2005 included $182.0 million in short-term
and cash equivalent investments which are readily convertible to cash without
market penalty and an additional $106.7 million of fixed income investments (at
par) 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 the event competitive conditions produce inadequate premium rates and the
Company chooses to restrict volume, the liquidity of its investment portfolio
would permit management to continue to pay claims as settlements are reached
without requiring the disposal of investments at a loss, regardless of interest
rates in effect at the time. In addition, the Company's reinsurance program is
structured to avoid serious cash drains that might accompany catastrophic
losses.

Net premiums written by the Company's U.S. insurance subsidiaries for 2005
equaled approximately 43% 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 G to the consolidated financial statements, at
December 31, 2005, $73.8 million, or 21% of shareholders' equity, represented
net assets of the Company's insurance subsidiaries which, at that time, could
not be transferred in the form of dividends, loans or advances to the parent
company because

<PAGE> 21

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 debt outstanding at December 31, 2005.


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

2005 COMPARED TO 2004

Direct premiums written for 2005 totaled $209.5 million, a decrease of $27.6
million (12%) from 2004. This decrease is primarily attributable to a decrease
in fleet trucking liability premiums of $21.2 million (17%) from 2004 levels.
Direct premium writings from the Company's private passenger automobile program
also decreased by $2.5 million (6%). Discontinued in 2004, direct premium
writings from the Company's small business workers' compensation program
decreased by $8.9 million (98%). These decreases were partially offset by
increases in the Company's independent contractor and small fleet trucking
programs of $4.0 million (9%) and $.9 million (6%), respectively. Large trucking
fleet volume decreased as the result of increased rate competition, principally
in the layers of coverage above $5 million per occurrence, which resulted in the
loss of business and the writing of lower limits for renewed accounts. Increased
competitive pressures were also responsible for the decline in premium volume
from the private passenger automobile program. The higher premium volume from
the independent contractor program resulted from the addition of contractors by
existing accounts and the increase in premium volume from the small fleet
trucking program was due to geographic expansion.

Premiums assumed from other insurers and reinsurers totaled $11.5 million during
2005, an increase of $2.8 million (32%) from 2004, including $2.0 million of
reinstatement premiums related to the 2005 hurricanes. Premium volume from
reinsurance assumed will fluctuate depending on the favorability of pricing for
the coverages provided. Further, premium volume for this segment is limited by
the Company's self-imposed limitation to loss from a single catastrophic event.

Premiums ceded to reinsurers decreased $38.9 million (50%) during 2005 to $39.7
million as the consolidated percentage of premiums ceded to direct premiums
written decreased to 19% for 2005 from 33% for 2004. This decrease is reflective
of the Company's increased retention under reinsurance treaties effective in
2004 and 2005 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.
There were no other significant changes to reinsurance treaties during 2005.

After giving effect to changes in unearned premiums, net premiums earned
increased 8% to $186.2 million for 2005 from $172.1 million for 2004. Excluding
inter-company reinsurance arrangements, net premiums earned from all
trucking-related insurance products increased by $18.8 million (17%). Net
premiums earned from non-affiliated reinsurance assumed also increased by $2.1
million (22%). These increases were partially offset by decreases in net
premiums earned from the Company's small business workers' compensation and
private passenger automobile programs of $5.3 million (66%) and $1.9 million
(5%), respectively.

The Company has maintained its portfolio of fixed income securities at an
increasingly short-term level during the past several years as long-term
interest rates were not considered to be sufficiently attractive to commit funds
for extended periods. Even as the Federal Reserve discount rate and short-term
rates increased dramatically during the past eighteen months, medium and
long-term rates continue to lag and the yield curve remains flat. In fact,
during much of 2005 yields on 30 day securities were providing yields
essentially equal to five and ten year obligations given the same quality
considerations. Since most of the Company's investments fell into the short end
of the range, the increase in rates was instantly accretive, with pre-tax net
investment income increasing $2.6 million (21%) during 2005. The impact on the
fourth quarter was even more

<PAGE> 22

pronounced, with a 35% increase in pre-tax investment income compared to 2004.
The average pre-tax yield on invested assets increased to 3.3% from 2.9% during
2004 (13%) and the after-tax yield of 2.4% compares to 2.2% in 2004. In addition
to higher yields, average invested assets increased over 5% during the year.

Net gains on investments, referred to in prior year financial statements as
"realized net gains on investments", totaled $23.0 million in 2005 compared to
only $9.8 million last year. The increase is attributable to equity in the
earnings of limited partnership investments which have increased in significance
during 2005. For several years, the Company had invested in various limited
partnership ventures, consisting of real estate development, small venture
capital and securities trading activities, with a cost basis of $7.8 million as
of October 31, 2004. Between November 1, 2004 and December 31, 2005, the cost
basis of limited partnership investments increased to $30.9 million, net of
distributions received, with the majority of the increase allocated to
securities trading activities, including $15 million committed to trading in the
India stock market. Each of these new investments experienced very favorable
earnings during 2005, with the aggregate of the Company's share of such earnings
totaling approximately $14.8 million, compared to only $.6 million during 2004.
The Company follows the equity method of accounting for its investments in
limited partnerships. To the extent that the limited partnerships include both
realized and unrealized gains or losses in their net income, the Company's
proportionate share of net income will include unrealized as well as realized
gains or losses. The current year limited partnership total is composed of
estimated realized income of $5.1 million and estimated unrealized income of
$9.7 million, as reported to the Company by the general partners. The other
component of this total, gains from direct trading of securities, was $8.2
million in 2005 compared to $9.2 million in 2004, including adjustments
attributable to "other-than-temporary impairment", as more fully explained in
Note B.

Losses and loss expenses incurred during 2005 increased $14.3 million (11%) to
$140.6 million. The increase in losses incurred is due primarily to losses from
hurricanes (Katrina, Rita, and Wilma) during 2005 of $17.6 million compared to
$5.0 million of losses attributable to the Florida hurricanes during September,
2004. The 2005 consolidated loss and loss expense ratio was 75.5% compared to
73.4% for 2004. The Company's loss and loss expense ratios for individual
product lines are summarized in following the table.

<TABLE>
<CAPTION>
Loss and loss expense ratios:
                                                 2005        2004
                                               ---------    --------
<S>                                            <C>          <C>
Fleet trucking                                    73.2%       79.3%
Private passenger automobile                       60.0        58.7
Small fleet trucking                               59.2        63.5
Voluntary reinsurance assumed                     154.0        59.8
Small business workers' compensation               62.7        92.2
All lines                                          75.5        73.4

</TABLE>

The loss and loss expense ratio for fleet trucking products for 2005 reflects a
decrease in severity of accidents, particularly in the large fleet excess
product. While overall frequency in the trucking lines has not changed
significantly, the frequency of severe losses was lower in 2005. The Company's
higher retention under recent reinsurance treaty renewals allows for more net
volatility in this line of business.

The Company produced an overall savings on the handling of prior year claims
during 2005 of $13.7 million. This net savings is included in the computation of
loss ratios shown in the table insert. Approximately $8.0 million of this
savings relates to retrospectively-rated contracts whereby return premiums were
recorded concurrently with the loss savings. The majority of the remaining $5.7
million in savings relates to the Company's large fleet trucking business,
generally consistent with, but less than, recent prior years. 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

<PAGE> 23

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 and prior year reserve development may
not be consistent year to year.

Other operating expenses for 2005, before credits for allowances from
reinsurers, decreased $4.1 million (8%) to $47.4 million. Gross expenses
decreased 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. Direct commission expense
decreased $2.3 million (18%) due to a decline in business produced by outside
agents, predominantly from the discontinued small business workers' compensation
product. Resulting primarily from the decrease in direct premium writings, taxes
other than federal income and salary-related taxes decreased $1.3 million (18%)
from 2004, Most other expense categories were level or down from the prior year
as the investment in automation during the past several years has allowed for
the handling of higher premium volume without the addition of employees.

Reinsurance ceded credits were $12.7 million (62%) lower in 2005, resulting from
the Company retaining a greater percentage of the gross premium for its own
account under recent reinsurance treaties. The loss of ceding commission
resulted in an $8.5 million increase in net operating expenses for the year.

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. The ratio of net
operating expenses of the insurance subsidiaries to net premiums earned was
22.0% during 2005 compared to 24.0% for 2004. Including the agency operations,
and after elimination of inter-company commissions, the ratio of other operating
expenses to operating revenue (defined as total revenue less gains on
investments) was 19.0% for 2005 compared with 16.2% for 2004, reflective of the
loss of more than 60% of ceding commissions from reinsurers, as discussed above.

The effective federal tax rate for consolidated operations for 2005 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 2005 was $34.2
million compared to $30.3 million for 2004. Diluted earnings per share increased
to $2.30 in 2005 from $2.05 in 2004. Earnings per share from operations, before
gains on investments, was $1.30 in 2005 compared to $1.62 in 2004 with the
hurricane losses reducing operating income by $.68 per share in 2005 versus only
$.22 in the prior year.


2004 COMPARED TO 2003

Direct premiums written for 2004 totaled $237.1 million, an increase of $21.5
million (10%) from 2003. This increase is primarily attributable to an increase
in fleet trucking liability premiums of $16.7 million (15%) from 2003 levels.
Direct premium writings from the Company's independent contractor program also
increased by $7.2 million (18%). These increases were partially offset by
decreases in the Company's private passenger automobile, small business workers'
compensation and small fleet trucking programs of $1.4 million (3%), $.6 million
(6%) and $.4 million (3%), respectively. Large trucking fleet volume increased
primarily from the addition of new accounts during 2004, increased revenues from
renewal accounts and, to a lesser degree, premium rate increases. The higher
premium volume from the independent contractor program resulted from

<PAGE> 24

the addition of contractors by existing accounts. Increased competitive
pressures are responsible for the decline in premium volume from the Sagamore
personal automobile and small fleet trucking programs. The decline in small
business workers' compensation premium resulted from management's decision to
discontinue marketing this business during the fourth quarter of 2004.

Premiums assumed from other insurers and reinsurers totaled $8.7 million during
2004, a decrease of $2.4 million (21%) from 2003 reflecting the discontinuance
of a single large program for which renewal pricing was not considered to be
favorable. Premium volume from reinsurance assumed will fluctuate depending on
the favorability of pricing for the coverages provided. Further, premium volume
for this segment is limited by the Company's self-imposed limitation to loss
from a single catastrophic event.

Premiums ceded to reinsurers increased $5.1 million (7%) during 2004 to $78.6
million. However, the consolidated percentage of premiums ceded to direct
premiums written decreased to 33% for 2004 from 34% for 2003. This decrease is
reflective of the Company's increased exposure under reinsurance treaties
effective in 2003 and 2004 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. There were no other significant changes to reinsurance treaties
during 2004.

After giving effect to changes in unearned premiums, net premiums earned
increased 18% to $172.1 million for 2004 from $146.2 million for 2003. Excluding
inter-company reinsurance arrangements, net premiums earned from all
trucking-related insurance products increased by $21.7 million (24%). Net
premiums earned from the Company's private passenger automobile and small
workers' compensation programs also increased $3.4 million (9%) and $1.9 million
(31%), respectively. These increases were partially offset by a decrease in net
premium earned from non-affiliated reinsurance assumed of $1.3 million (12%)
from 2003.

Net investment income decreased $.6 million (5%) during 2004 reflecting lower
overall pre-tax yields while average invested assets increased 11%. The average
pre-tax yield on invested assets dropped to 2.9% this year from 3.3% during 2003
(13%). The decline in yields occurred entirely within the bond portfolio which
averaged 3.2% during 2004 compared to 3.9% last year. A portion of this decline
in pre-tax yield is attributable to the increased use of tax-exempt bonds during
2004. Yields on equity securities and short-term investments increased to 3.3%
and 1.2%, respectively, from 3.1% and 1.0%, respectively, during 2003, partially
offsetting the decline in bond yields. After-tax yields were 2.2% and 2.4% for
2004 and 2003, respectively.

Investment gains were $9.8 million in 2004 compared to gains of $10.0 million
for 2003. The current year's net gain consisted of gains on equity securities of
$8.5 million, gains on fixed maturities of $1.9 million, and losses on other
investments of $.6 million. Net gains for the current year include a net gain of
$1.2 million attributable to the process of accounting for "other than temporary
impairment" in the investment portfolio. The net gain includes $2.4 million
representing subsequent appreciation on previously written down securities
disposed of during 2004 offset by additional write downs during the year.

Losses and loss expenses incurred during 2004 increased $30.6 million (32%) to
$126.3 million. The increase in losses incurred is reflective of the 18%
increase in net premiums earned, and primarily the 24% increase in premiums from
trucking-related products, as previously discussed, and from $5.0 million of
losses attributable to the Florida hurricanes during September, 2004. The 2004
consolidated loss and loss expense ratio was 73.4% compared to 65.5% for 2003.
The loss and loss expense ratio for fleet trucking products for 2004 reflects an
increase in severity of accidents, particularly in the large fleet excess
product. While overall frequency in the trucking lines has not increased
significantly, the frequency of severe losses was higher in 2004. Part of the
increase in severity is attributable to social inflation factors which result in
higher jury awards and settlements on serious accidents. The Company's higher
retention under recent reinsurance treaty renewals also allows for more net
volatility in this line of business. The loss and loss expense ratio for
reinsurance assumed increased by 8 percentage points, and relates primarily to
hurricane losses in 2004. The small business

<PAGE> 25

workers' compensation program continued to perform poorly. This continued
unsatisfactory performance prompted management to discontinue this product in
the current year fourth quarter.

The Company produced an overall savings on the handling of prior year claims
during 2004 of $15.0 million, including $5.4 million attributable to
retrospectively-rated policies. Approximately $6.7 million of the remainder is
attributable to the Company's direct business, principally large fleet trucking
products. See comments regarding prior year savings in the comparison of 2005 to
2004.

Other operating expenses for 2004, before credits for allowances from
reinsurers, increased $.9 million (2%) to $51.5 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.
Direct commission expense increased $.8 million (7%) due to growth in business
produced by outside agents. Resulting primarily from the increase in premium
earned, taxes other than federal income and salary-related taxes increased $.7
million (12%) from 2003. Most other expense categories were level or down from
the prior year.

Reinsurance ceded credits were $.4 million (2%) higher in 2004, in line with
higher reinsurance ceded premiums. While the dollars of reinsurance ceded
credits were higher this year, the ratio of reinsurance ceded credits to gross
acquisition costs declined because Protective is retaining a greater percentage
of the gross premium for its own account under recent reinsurance treaties.

The ratio of net operating expenses of the insurance subsidiaries to net
premiums earned was 24.0% during 2004 compared to 26.5% for 2003. Including the
agency operations, and after elimination of inter-company commissions, the ratio
of other operating expenses to operating revenue (defined as total revenue less
gains on investments) was 16.2% for 2004 compared with 18.4% for 2003, and
reflects the fixed nature of certain of the Company's expenses, as discussed
above.

The effective federal tax rate for consolidated operations for 2004 was 31.1%.
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 2004 was $30.3
million compared to $33.1 million for 2003. Diluted earnings per share decreased
to $2.05 in 2004 from $2.25 in 2003. Earnings per share from operations, before
gains on investments, was $1.62 in 2004 compared to $1.81 in 2003.


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 material and/or
subject to significant degrees of judgment.


INVESTMENT VALUATION

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

Approximately 72% of the Company's assets are composed of investments at
December 31, 2005. Approximately 93% of these investments are publicly-traded,
owned directly and have readily-ascertainable market values. The remaining 7% of
investments are composed of minority interests in thirteen limited partnerships.
These limited partnerships are engaged in the trading of public and non-public
equity securities and debt, hedging transactions, real estate development and
venture capital investment. These partnerships, themselves, do not have
readily-determinable market values. Rather, the fair values recorded are those
provided to the Company by the respective partnerships based on the underlying
assets of the partnerships. While the majority of the underlying assets at
December 31, 2005 are publicly-traded securities, a significant minority have
been valued by the partnerships using their experience and judgment. In
addition, approximately

<PAGE> 26

$14.3 million of fixed maturity investments (2% 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, under the terms
of the fund, the average bond quality 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, except where substantial recovery to cost has actually occurred
prior to the issuance of the financial statements. For individual issues where
the decline in value is less than 20% but the amount of the decline is
considered significant, we will also evaluate the market conditions, trends of
earnings, price multiples and other key measures for the securities to determine
if it appears that the decline is other than temporary. In those instances, the
Company also considers its intent and ability to hold investments until recovery
or maturity. For any decline which is considered to be other than temporary, we
recognize an impairment loss in the current period earnings as an investment
loss. Declines which are considered to be temporary are recorded as a reduction
in shareholders' equity, net of related federal income tax credits.

It is important to note that all 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 of or sold. At December 31, 2005, unrealized gains include $6.0 million
of appreciation on investments previously adjusted for other than temporary
impairment, compared to a $5.1 million of impairment write-downs at that date.
See Note B to the consolidated financial statements for additional detail with
respect to this process. 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, 2005, 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, 2005, the total gross unrealized loss
included in the Company's investment portfolio was less than $4.5 million. No
individual issue constituted a material amount of this total. Had this entire
amount been considered other than temporary at December 31, 2005, investment
gains would have decreased by $.19 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, 2005.


REINSURANCE RECOVERABLE

Amounts recoverable under the terms of reinsurance contracts comprise
approximately 22% of total Company assets as of December 31, 2005. 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

<PAGE> 27

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 reinsurer's portion of the
loss. 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. See Notes F and M to the
consolidated financial statements, on pages 46 and 52, for further discussion of
reinsurance and concentrations of credit risk with respect to reinsurance
recoverable.


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.
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 employed 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 management 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

<PAGE> 28

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 volatility 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 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 reported at December 31, 2005 and 2004 consisted of:

<TABLE>
<CAPTION>
                                        2005           2004
                                    -------------  ------------
<S>                                 <C>            <C>
Total deferred tax liabilities         $ 29,109      $ 26,630
Total deferred tax assets                15,055        14,553
                                    -------------  ------------
Net deferred tax liabilities           $ 14,054      $ 12,077
                                    =============  ============

</TABLE>

Deferred tax assets at December 31, 2005, include approximately $12,176 related
to policy liability discounts required by the Internal Revenue Code which are
perpetual in nature and, in the absence of the termination of business, will not
reverse to a material degree in the foreseeable future. An additional $1,775
relates to impairment adjustments made to investments, as required by accounting
regulations. The sizable unrealized gains in the Company's investment portfolios
would allow for the recovery of this deferred tax at any time. The balance of
deferred tax assets, approximately $1,104, consists of various normal operating
expense accruals and is not considered to be material. As a result of its
analysis, management does not believe that any of these assets are impaired at
December 31, 2005.

<PAGE> 29

IMPACT OF INFLATION
-------------------

To the extent possible, the Company attempts to recover the costs of inflation
by increasing the premiums it charges. Within the fleet trucking business, 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's short-term and fixed investment portfolios are
structured in direct response to available interest rates over the yield curve.
As available market interest rates fluctuate in response to the presence or
absence of inflation, the yields on the Company's investments are impacted.
Further, as inflation affects current market rates of return, previously
committed investments 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 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 far lesser extent, foreign currency rate fluctuations.
All of the Company's invested assets, with the exception of investments in
limited partnerships, are classified as available for sale 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,
2005 was $130.8 million or approximately 21% of invested assets. This market
valuation includes $66.7 million of appreciation over the cost basis of the
equity security investments. Funds invested in the equities market are not
considered to be assets necessary for the Company to conduct its daily
operations and, therefore, can be committed for extended periods of time. The
long-term nature of the Company's equity investments allows it to invest in
positions where ultimate value, and not short-term market fluctuations, is the
primary focus.

The Company's fixed maturity portfolio totaled $265.4 million at December 31,
2005. Approximately 80% of this portfolio is made up of U. S. Government and
government agency obligations and state and municipal debt securities; 84% of
the portfolio matures within 5 years; and the average life of the Company's
fixed maturity investments is approximately 2.4 years. Although the Company is
exposed to interest rate risk on its fixed maturity investments, given the
anticipated duration of the Company's liabilities (principally insurance loss
and loss expense reserves) relative to investment maturities, even a 100 to 200
basis point increase in interest rates would not have even a moderate impact on
the Company's ability to conduct daily operations or to meet its obligations.

Reference is made to the discussion of limited partnership investments in the
Critical Accounting Policies portion of this report. All of the market risks
attendant to equity securities apply to the underlying assets in these
partnerships, and to a greater degree because of the generally more aggressive
investment philosophies utilized by the partnerships. In addition, these
investments are illiquid. There is no primary or secondary market on which these
limited partnerships trade and, in most cases, the Company is prohibited from
disposing of its limited partnership interests for some period of time and must
seek approval from the general partner for any such disposal. Distributions of
earnings from these partnerships are largely at the sole discretion of the

<PAGE> 30

general partners and distributions are generally not received by the Company for
many years after the earnings have been reported. Finally, through the
application of the equity method of accounting, the Company's share of net
income reported by the limited partnerships may include significant amounts of
unrealized appreciation on the underlying investments. As such, the likelihood
that reported income from limited partnership investments will be ultimately
returned to the Company in the form of cash is markedly lower than the Company's
other investments, where income is reported only when a security is actually
sold.

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 $4.2 million at December 31, 2005. 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 $4.0 million at
December 31, 2005. 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 2006 is equal to more than 100% of net
loss and loss expense reserves at December 31, 2005.

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


CONTRACTUAL OBLIGATIONS
-----------------------

The table below sets forth the amounts of the Company's contractual obligations
at December 31, 2005.

<TABLE>
<CAPTION>
                                                                PAYMENTS DUE BY PERIOD
                                         ----------------------------------------------------------------------
                                           TOTAL       LESS THAN 1        1 - 3         3 - 5       MORE THAN
                                                           YEAR           YEARS         YEARS        5 YEARS
                                         ----------   -------------     ----------    ----------   -----------
                                                                 (DOLLARS IN MILLIONS)
<S>                                      <C>          <C>               <C>           <C>          <C>
Loss and loss expense reserves             $ 430.3        $ 116.2        $ 111.9         $ 50.3       $ 151.9

Investment commitments                         3.6            3.6              -              -             -

Operating leases                               3.2            1.2            2.0              -             -
                                         ----------    -------------    ----------    ----------    -----------

                               Total       $ 437.1        $ 121.0        $ 113.9         $ 50.3       $ 151.9
                                         ==========    =============    ==========    ==========    ===========

</TABLE>

The Company's loss and loss expense reserves do not have contractual maturity
dates and the exact timing of the payment of claims cannot be predicted with
certainty. However, based upon historical payment patterns, we have included an
estimate of when we might expect our direct loss and loss expense reserves
(without the benefit of reinsurance recoveries) to be paid in the preceding
table. Timing of the collection of the related reinsurance recoverable,
estimated to be $186.1 million at December 31, 2005, would approximate that of
the above projected direct reserve payout.

The investment commitments in the above table relate to maximum unfunded capital
obligations for limited partnership investments the Company owned at December
31, 2005.

<PAGE> 31







                           ANNUAL REPORT ON FORM 10-K






               ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA









                          YEAR ENDED DECEMBER 31, 2004

                              BALDWIN & LYONS, INC.

                              INDIANAPOLIS, INDIANA







<PAGE> 32

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



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

We have audited the accompanying consolidated balance sheets of Baldwin & Lyons,
Inc. and subsidiaries as of December 31, 2005 and 2004, 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, 2005.
Our audits also included the financial statement schedules listed in the Index
at Item 15(a). These financial statements and schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedules based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Baldwin & Lyons,
Inc. and subsidiaries at December 31, 2005 and 2004, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2005, in conformity with U.S. generally accepted
accounting principles. 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.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Baldwin &
Lyons, Inc.'s internal control over financial reporting as of December 31, 2005,
based on criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated March 10, 2006 expressed an unqualified opinion thereon.




                                                       /s/ ERNST & YOUNG LLP

Indianapolis, Indiana
March 10, 2006

<PAGE> 33

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


                                                                                                December 31
                                                                                        2005                 2004
                                                                                   ----------------     ---------------
                                                                                           (DOLLARS IN THOUSANDS)
<S>                                                                                <C>                  <C>
ASSETS:
Investments:
    Fixed maturities                                                                     $ 265,419           $ 331,281
    Equity securities                                                                      130,785             133,042
    Limited partnerships                                                                    44,727              15,765
    Short-term and other                                                                    51,060              36,630
                                                                                   ----------------     ---------------
                                                                                           491,991             516,718

Cash and cash equivalents                                                                  126,551              57,384
Accounts receivable--less allowance
   (2005, $1,046; 2004, $1,161)                                                             30,270              33,481
Accrued investment income                                                                    3,513               3,774
Reinsurance recoverable                                                                    191,440             234,817
Prepaid reinsurance premiums                                                                     -               5,000
Deferred policy acquisition costs                                                            4,376               4,797
Property and equipment--less accumulated depreciation
    (2005, $9,079; 2004, $9,696)                                                             5,396               5,236
Notes receivable from employees                                                              2,339               2,514
Other assets                                                                                 4,482               3,193
                                                                                   ----------------     ---------------
                                                                                         $ 860,358           $ 866,914
                                                                                   ================     ===============

LIABILITIES AND SHAREHOLDERS' EQUITY:
Reserves:
    Losses and loss expenses                                                             $ 430,273           $ 440,172
    Unearned premiums                                                                       29,688              33,233
                                                                                   ----------------     ---------------
                                                                                           459,961             473,405

Reinsurance payable                                                                            342               4,899
Note payable                                                                                     -               6,000
Accounts payable and other liabilities                                                      37,435              43,325
Current federal income taxes                                                                 1,881                 660
Deferred federal income taxes                                                               14,054              12,077
                                                                                   ----------------     ---------------
                                                                                           513,673             540,366
Shareholders' equity:
    Common stock, no par value:
       Class A voting -- authorized 3,000,000 shares;
            outstanding -- 2005 and 2004, 2,666,666 shares                                     114                 114
       Class B non-voting -- authorized 20,000,000 shares;
            outstanding -- 2005, 12,135,671 shares; 2004, 12,056,124 shares                    518                 514
    Additional paid-in capital                                                              38,894              37,083
    Unrealized net gains on investments                                                     42,440              44,497
    Retained earnings                                                                      264,719             244,340
                                                                                   ----------------     ---------------
                                                                                           346,685             326,548
                                                                                   ----------------     ---------------
                                                                                         $ 860,358           $ 866,914
                                                                                   ================     ===============
See notes to consolidated financial statements.

</TABLE>

<PAGE> 34

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



                                                                                          Year Ended December 31
                                                                              2005                 2004                 2003
                                                                         ----------------     ----------------     ---------------
                                                                              (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                                      <C>                  <C>                  <C>
REVENUE:
    Net premiums earned                                                     $   186,165          $   172,145         $   146,153
    Net investment income                                                        14,840               12,287              12,873
    Net gains on investments                                                     22,981                9,770               9,990
    Commissions, service fees and other income                                    6,918                7,131               6,232
                                                                         ----------------     ----------------     ---------------
                                                                                230,904              201,333             175,248
EXPENSES:
    Losses and loss expenses incurred                                           140,622              126,298              95,738
    Other operating expenses                                                     39,607               31,046              30,477
                                                                         ----------------     ----------------     ---------------
                                                                                180,229              157,344             126,215
                                                                         ----------------     ----------------     ---------------
                                  INCOME BEFORE FEDERAL INCOME TAXES             50,675               43,989              49,033

Federal income taxes                                                             16,452               13,683              15,958
                                                                         ----------------     ----------------     ---------------
                                                          NET INCOME        $    34,223          $    30,306          $   33,075
                                                                         ================     ================     ===============

Per share data:
                                                    DILUTED EARNINGS        $      2.30          $      2.05          $     2.25
                                                                         ================     ================     ===============

                                                      BASIC EARNINGS        $      2.32          $      2.07          $     2.27
                                                                         ================     ================     ===============

                                                           DIVIDENDS        $       .95          $      2.05          $      .65
                                                                         ================     ================     ===============

See notes to consolidated financial statements.

</TABLE>

<PAGE> 35

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


                                                                            2005                 2004                 2003
                                                                       ----------------     ----------------     ---------------
                                                                                        (DOLLARS IN THOUSANDS)
<S>                                                                    <C>                  <C>                  <C>
BALANCES AT BEGINNING OF YEAR:
    Retained earnings                                                      $  244,340          $  243,695           $  219,079
    Unrealized gains on investments                                            44,497              44,837               29,640
                                                                       ----------------     ----------------     ---------------
                                                                              288,837             288,532              248,719

CHANGES ARISING FROM INCOME-PRODUCING ACTIVITIES:
    Net income                                                                 34,223              30,306               33,075

    Gains on investments:
        Pre-tax holding gains arising during period,
            excluding limited partnerships                                      4,987               8,619               33,170
        Federal income taxes                                                    1,746               3,017               11,609
                                                                       ----------------     ----------------     ---------------
                                                                                3,241               5,602               21,561

        Pre-tax gains during period included in net income,
            excluding limited partnerships                                     (8,150)             (9,143)              (9,790)
        Federal income taxes                                                   (2,852)             (3,201)              (3,426)
                                                                       ----------------     ----------------     ---------------
                                                                               (5,298)             (5,942)              (6,364)
                                                                       ----------------     ----------------     ---------------

        Change in unrealized gains on investments                              (2,057)               (340)              15,197

    Foreign exchange adjustment                                                   186                 413                1,011
                                                                       ----------------     ----------------     ---------------

                             TOTAL REALIZED AND UNREALIZED INCOME              32,352              30,379               49,283

OTHER CHANGES AFFECTING RETAINED EARNINGS:
    Cash dividends paid to shareholders                                       (14,030)            (30,074)              (9,470)
                                                                       ----------------     ----------------     ---------------
                                                    TOTAL CHANGES              18,322                 305               39,813
                                                                       ----------------     ----------------     ---------------

BALANCES AT END OF YEAR:
    Retained earnings                                                         264,719             244,340              243,695
    Unrealized gains on investments                                            42,440              44,497               44,837
                                                                       ----------------     ----------------     ---------------
                                                                           $  307,159          $  288,837           $  288,532
                                                                       ================     ================     ===============

See notes to consolidated financial statements.

</TABLE>

<PAGE> 36

<TABLE>
<CAPTION>

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

                                                                                        Year Ended December 31
                                                                                 2005            2004            2003
                                                                            --------------  --------------  --------------
                                                                                        (DOLLARS IN THOUSANDS)
<S>                                                                         <C>             <C>             <C>
OPERATING ACTIVITIES:
   Net income                                                                   $ 34,223        $ 30,306        $ 33,075
   Adjustments to reconcile net income to net cash
      provided by operating activities:
         Change in accounts receivable and unearned premium                         (162)            211           4,275
         Change in accrued investment income                                         261              74             213
         Change in reinsurance recoverable on paid losses                         (2,127)          2,073             779
         Change in loss and loss expense reserves net of reinsurance              35,433          45,087          17,439
         Change in other assets, other liabilities and current income taxes       (4,389)         (1,626)          7,252
         Amortization of net policy acquisition costs                              6,259          (3,512)         (4,431)
         Net policy acquisition costs deferred                                    (5,839)          4,024           3,299
         Provision for deferred income taxes                                       3,084            (940)           (743)
         Bond amortization                                                         2,858           3,722           2,802
         Loss on sale of property                                                     16              14              17
         Depreciation                                                              2,045           2,425           2,741
         Net gains on investments                                                (22,981)         (9,770)         (9,990)
         Compensation expense related to discounted stock options                    197             256             143
                                                                            --------------  --------------  --------------
                              NET CASH PROVIDED BY OPERATING ACTIVITIES           48,878          72,344          56,871

INVESTING ACTIVITIES:
   Purchases of fixed maturities and equity securities                          (133,625)       (177,257)       (205,251)
   Purchases of limited partnership interests                                    (16,433)         (9,643)           (890)
   Proceeds from maturities                                                      124,480          95,136          85,429
   Proceeds from sales of fixed maturities                                        35,559          17,279          34,492
   Proceeds from sales of equity securities                                       43,123          56,684          61,764
   Net purchases of short-term investments                                       (14,654)         (5,967)        (27,529)
   Distributions from limited partnerships                                         2,302             637              63
   Decrease in principal balance of
      notes receivable from employees                                                169           2,223           2,676
   Purchases of property and equipment                                            (2,420)         (1,580)         (2,437)
   Proceeds from disposals of property and equipment                                 200             111             130
                                                                            --------------  --------------  --------------
                    NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES           38,701         (22,377)        (51,553)

FINANCING ACTIVITIES:
   Dividends paid to shareholders                                                (14,030)        (30,074)         (9,470)
   Proceeds from sale of common stock                                              1,618           1,413              31
   Drawing on line of credit                                                           -           6,000               -
   Repayment on line of credit                                                    (6,000)              -          (7,500)
                                                                            --------------  --------------  --------------
                                  NET CASH USED IN FINANCING ACTIVITIES          (18,412)        (22,661)        (16,939)
                                                                            --------------  --------------  --------------
                       INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS           69,167          27,306         (11,621)
Cash and cash equivalents at beginning of year                                    57,384          30,078          41,699
                                                                            --------------  --------------  --------------
                               CASH AND CASH EQUIVALENTS AT END OF YEAR        $ 126,551        $ 57,384        $ 30,078
                                                                            ==============  ==============  ==============

See notes to consolidated financial statements.

</TABLE>

<PAGE> 37

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 inter-company transactions and accounts have been
eliminated in consolidation.

USE OF ESTIMATES: Preparation of the consolidated financial statements requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
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 (non-redeemable
preferred stocks and common stocks) are carried at quoted market prices (fair
value). Limited partnerships are accounted for using the equity method with the
corresponding change in value recorded as a component of net gains or losses on
investments. Other investments are carried at either market value or cost,
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. In determining if and
when a decline in market value below cost is other than temporary, an objective
analysis is made of each individual security where current market value is less
than cost. For any 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. Although the Company
has classified fixed maturity investments as available for sale, it has the
ability to, and generally does, 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, minor portions of which are discounted, are determined using case
basis evaluations and statistical analyses and represent estimates of the
ultimate cost of all reported and unreported losses which are unpaid at year
end. These reserves include estimates of future trends in claim severity and
frequency and other factors which could vary as the losses are ultimately
settled. 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 premium
taxes applicable to unearned premiums are deferred and expensed as the related
premiums are earned. The Company does not defer acquisition costs which are not
directly variable with the production of premium and are not refundable in the
event of policy cancellation. If it is determined that expected losses and
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. In
the event that the expected premium deficiency exceeds deferred policy
acquisition costs, an additional liability would be recorded with a
corresponding expense to current operations for the amount of the excess premium
deficiency. Anticipated investment income is considered in determining
recoverability of deferred acquisition costs.

<PAGE> 38

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

REINSURANCE: Reinsurance premiums, commissions, expense reimbursements and
reserves related to reinsured business are accounted for on bases consistent
with those used in accounting for the original policies issued and the terms of
the reinsurance contracts. Premiums ceded to other insurers have been reported
as a reduction of premium earned. Amounts applicable to reinsurance ceded for
unearned premium and claim loss reserves have been reported as reinsurance
recoverable assets. Certain reinsurance contracts provide for additional or
return premiums and commissions based upon profits or losses to the reinsurer
over prescribed periods. Estimates of additional or return premiums and
commissions are adjusted quarterly to recognize actual loss experience to date
as well as projected loss experience applicable to the various contract periods.
Estimates of reinstatement premiums on reinsurance assumed contracts covering
catastrophic events are recorded concurrently with the related loss.

Should impairment in the ability of a reinsurer to satisfy its obligations to
the Company be determined to exist, current year operations would be charged in
amounts sufficient to provide for the Company's additional liability. Such
charges, when incurred, are included in other operating expenses, rather than
losses and loss expenses incurred, since the inability of the Company to collect
from reinsurers is a credit risk rather than a deficiency associated with the
loss reserving process.

The Company accounts for foreign reinsurance assumed using the periodic method.
Under the periodic method, premiums from foreign reinsurance assumed are
recognized as revenue over the contract term, and claims, including an estimate
of claims incurred but not reported, are recognized as they occur.

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

STOCK-BASED COMPENSATION: The Company uses the "fair value method" to account
for options granted to employees and non-employee directors in accordance with
Statement of Financial Accounting Standards No. 123, Stock-Based Compensation,
as amended by Statement of Financial Accounting Standards No. 148, Accounting
for Stock-Based Compensation - Transition and Disclosure.

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

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
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> 39

NOTE B - INVESTMENTS
The following is a summary of investments at December 31:

<TABLE>
<CAPTION>
                                                                                                                NET
                                                               COST OR         GROSS           GROSS         UNREALIZED
                                                FAIR          AMORTIZED      UNREALIZED      UNREALIZED        GAINS
                                                VALUE           COST           GAINS           LOSSES         (LOSSES)
                                            --------------  -------------  --------------  --------------  -------------
<S>                                         <C>             <C>            <C>             <C>             <C>
2005:
   U. S. government obligations                $ 72,913        $ 73,552       $      2       $    (641)      $    (639)
   Mortgage-backed securities                    22,678          23,079             15            (416)           (401)
   Obligations of states and
       political subdivisions                   117,766         118,001            765          (1,000)           (235)
   Corporate securities                          45,260          45,402            286            (428)           (142)
   Foreign government obligations                 6,802           6,746             56               -              56
                                            --------------  -------------  --------------  --------------  -------------
      Total fixed maturities                    265,419         266,780          1,124          (2,485)         (1,361)
   Equity securities                            130,785          64,131         68,597          (1,943)         66,654
   Limited partnerships                          44,727          44,727              -               -               -
   Short-term                                    51,060          51,060              -               -               -
                                            --------------  -------------  --------------  --------------  -------------
      Total available-for-sale securities     $ 491,991       $ 426,698      $  69,721       $  (4,428)         65,293
                                            ==============  =============  ==============  ==============
                                                                        Applicable federal income taxes        (22,853)
                                                                                                           -------------
                                                                     Net unrealized gains - net of tax      $   42,440
                                                                                                           =============
2004:
   U. S. government obligations               $ 119,469       $ 119,529       $    393      $     (453)       $    (60)
   Mortgage-backed securities                    16,505          16,559            126            (180)            (54)
   Obligations of states and
       political subdivisions                   141,436         140,908            898            (370)            528
   Corporate securities                          46,962          45,799          1,350            (187)          1,163
   Foreign government obligations                 6,909           6,735            174               -             174
                                            --------------  -------------  --------------  --------------  -------------
      Total fixed maturities                    331,281         329,530          2,941          (1,190)          1,751
   Equity securities                            133,042          66,320         67,302            (580)         66,722
   Limited partnerships                          15,765          15,765              -               -               -
   Short-term and other                          36,630          36,646              -             (16)            (16)
                                            --------------  -------------  --------------  --------------  -------------
      Total available-for-sale securities     $ 516,718       $ 448,261      $  70,243     $    (1,786)         68,457
                                            ==============  =============  ==============  ==============
                                                                       Applicable federal income taxes         (23,960)
                                                                                                           -------------
                                                                     Net unrealized gains - net of tax      $   44,497
                                                                                                           =============

</TABLE>

<PAGE> 40

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

<TABLE>
<CAPTION>
                                                       2005                                    2004
                                    ---------------------------------------    -----------------------------------------
                                                                  GROSS                                       GROSS
                                     NUMBER OF                 UNREALIZED       NUMBER OF                   UNREALIZED
                                    SECURITIES   FAIR VALUE       LOSS         SECURITIES    FAIR VALUE        LOSS
                                    ----------  ------------  -------------    -----------  -------------  -------------
<S>                                 <C>         <C>           <C>              <C>          <C>            <C>
Fixed maturity securities:
 12 months of less                         97     $ 237,130    $    (937)             104    $ 160,416       $   (747)
 Greater than 12 months                    68         9,969       (1,548)              13       22,973           (443)
                                    ----------  ------------  -------------    -----------  -------------  -------------
       Total fixed maturities             165       247,099       (2,485)             117      183,389         (1,190)
Equity securities:
 12 months of less                         22         7,188       (1,779)              13        5,036           (580)
 Greater than 12 months                     3         1,143         (164)               -            -              -
                                    ----------  ------------  -------------    -----------  -------------  -------------
      Total equity securities              25         8,331       (1,943)              13        5,036           (580)
                                    ----------  ------------  -------------    -----------  -------------  -------------
     Total fixed maturity and
            equity securities             190     $ 255,430    $  (4,428)             130    $ 188,425      $  (1,770)
                                    ==========  ============  =============    ===========  =============  =============

</TABLE>

The fair value and the cost or amortized cost of fixed maturity investments at
December 31, 2005, 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
                                                                                                 Amortized
                                                                                Fair Value          Cost
                                                                                ------------    -------------
<S>                                                                             <C>             <C>
One year or less                                                                  $ 106,984        $ 106,715
Excess of one year to five years                                                    116,289          117,260
Excess of five years to ten years                                                     4,849            4,921
Excess of ten years                                                                  14,619           14,805
                                                                                ------------    -------------
   Total maturities                                                                 242,741          243,701
Mortgage-backed securities                                                           22,678           23,079
                                                                                ------------    -------------
                                                                                  $ 265,419        $ 266,780
                                                                                ============    =============

</TABLE>

There is no primary or secondary market for the Company's investments in limited
partnerships and, in most cases, the Company is prohibited from disposing of its
limited partnership interests for some period of time and must seek approval
from the general partner for any such disposal. Distributions of earnings from
these partnerships are largely at the sole discretion of the general partners
and distributions are generally not received by the Company for many years after
the earnings have been reported. The Company has commitments to contribute an
additional $3.6 million to various limited partnerships as of December 31, 2005.

<PAGE> 41

NOTE B - INVESTMENTS (CONTINUED)

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

<TABLE>
<CAPTION>
                                           2005              2004              2003
                                      ---------------    --------------    -------------
<S>                                   <C>                <C>               <C>
Fixed maturities                           $   9,847        $   10,231       $   11,275
Equity securities                              2,117             2,443            2,367
Money market funds                             2,595               540              354
Short-term and other                           1,722               493              311
                                      ---------------    --------------    -------------
                                              16,281            13,707           14,307
Investment expenses                           (1,441)           (1,420)          (1,434)
                                      ---------------    --------------    -------------
               NET INVESTMENT INCOME      $   14,840        $   12,287       $   12,873
                                      ===============    ==============    =============

</TABLE>

Gains and losses on investments, including equity method earnings from limited
partnerships, for the years ended December 31 are summarized below:

<TABLE>
<CAPTION>
                                           2005             2004            2003
                                      ---------------  --------------  -------------
<S>                                   <C>              <C>             <C>
Fixed maturities:
   Gross gains                            $    265       $    2,214      $   1,122
   Gross losses                               (586)            (364)          (584)
                                      ---------------  --------------  -------------
      Net gains (losses)                      (321)           1,850            538

Equity securities:
   Gross gains                              10,094           10,534         15,754
   Gross losses                             (1,529)          (1,994)        (6,502)
                                      ---------------  --------------  -------------
      Net gains                              8,565            8,540          9,252

Limited partnerships - net gain             14,831              626            200

Other - net loss                               (94)          (1,246)             -
                                      ---------------  --------------  -------------
        TOTAL NET GAINS (LOSSES)       $    22,981        $   9,770      $   9,990
                                      ===============  ==============  =============

</TABLE>

The 2005 net gains from limited partnerships, as shown in the above table,
include approximately $9.7 million of unrealized gains as reported in the net
income of the various partnerships. Shareholders' equity includes approximately
$8.9 million, net of deferred federal income taxes, of earnings yet
undistributed by limited partnerships as of December 31, 2005.

Gain and loss activity for fixed maturity and equity security investments, as
shown in the above table, include adjustments for other than temporary
impairment for the years ended December 31 and is summarized as follows:

Activity with respect to other than temporary impairment of investments for the
years ended December 31 is summarized as follows:

<TABLE>
<CAPTION>
                                                                       2005            2004            2003
                                                                   ------------    -------------   -------------
<S>                                                                <C>             <C>             <C>
Cumulative charges to income at beginning of year                    $  4,523        $   5,765        $  7,234
Write-downs based on objective criteria                                 1,260            1,143           2,394
Recovery of prior write-downs upon sale or disposal                      (713)          (2,385)         (3,863)
                                                                   ------------    -------------   -------------
Cumulative charges to income at end of year                          $  5,070        $   4,523        $  5,765
                                                                   ============    =============   =============

Net pre-tax realized gain (loss)                                    ($    547)       $   1,242        $  1,469
                                                                   ============    =============   =============

Addition (reduction) to earnings per share                           $   (.02)       $     .05        $    .06
                                                                   ============    =============   =============

Unrealized gain on investments previously
   written down at end of the year - see note below                  $  5,957        $   4,201        $  4,319
                                                                   ============    =============   =============
<FN>
Note: Recovery in market value of an investment which has previously been
adjusted for other than temporary impairment is treated as an unrealized gain
until the investment is disposed of.
</FN>
</TABLE>

<PAGE> 42

During the three years ended December 31, 2005, substantially all of the
Company's fixed income portfolio was managed by ABN AMRO Asset Management (ABN).
A director of the Company is an executive officer of ABN. Management fees paid
to ABN were $232, $379 and $366 during 2005, 2004 and 2003, respectively. The
agreement with ABN was terminated effective October 1, 2005 and management of
this portion of the Company's investment portfolio was transferred to a new,
non-affiliated, manager.

The Company utilized the services of a broker-dealer firm of which a director of
the Company is an executive officer and owner. This broker-dealer serves as
agent for purchases and sales of securities and manages an equity securities
portfolio and fixed income portfolio with market values of approximately $4,092
and $16,455, respectively, at December 31, 2005. The Company has been informed
that commission and management rates charged by this broker-dealer to the
Company are commensurate with rates charged to non-affiliated customers for
similar investments. Total commissions and fees earned by the broker-dealer and
affiliates on these transactions and for advice and consulting were
approximately $279, $151 and $151 during 2005, 2004 and 2003, respectively. The
Company had previously entered into an agreement with an associate of this
broker-dealer for management of a portion of its equity securities portfolio.
That agreement was terminated during the third quarter of 2005. That associate
earned performance-based compensation and management services fees and expense
reimbursements totaling approximately $90, $307 and $2,333 during 2005, 2004 and
2003, respectively. The Company has been informed that the broker-dealer
retained none of this compensation for its own account.

The Company has invested a total of $24,000 in three limited partnerships
managed by organizations in which two directors of the Company are executive
officers, directors and owners. The Company's ownership interest in these
limited partnerships ranges from 6% to 31%. These limited partnerships have an
aggregate market value of $31,292 at December 31, 2005 and contributed $7,145 to
equity method earnings in 2005. During 2005, the Company has recorded $481 in
management fees and $1,687 in performance-based fees to these organizations for
management of these limited partnerships. Fees paid in 2004 and 2003, for
management of only one limited partnership, were $21 and $46, respectively. The
Company has been informed that the fee rates applied to its investments in these
limited partnerships are the same as, or lower than, the fee rates charged to
unaffiliated customers for similar investments.

The fair value of regulatory deposits with various insurance departments in the
United States and Canada totaled $22,317 at December 31, 2005.

<PAGE> 43

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,
                                                                                   2005            2004             2003
                                                                               -------------    ------------    -------------
<S>                                                                            <C>              <C>             <C>
Reserves at the beginning of the year                                             $207,137         $162,424       $144,267

Provision for losses and loss expenses:
   Claims occurring during the current year                                        154,314          141,254        109,324
   Claims occurring during prior years                                             (13,692)         (14,956)       (13,586)
                                                                               -------------    ------------    -------------
      Total incurred                                                               140,622          126,298         95,738

Loss and loss expense payments:
   Claims occurring during the current year                                         45,286           43,351         37,625
   Claims occurring during prior years                                              60,343           38,234         39,956
                                                                               -------------    ------------    -------------
      Total paid                                                                   105,629           81,585         77,581
                                                                               -------------    ------------    -------------

Reserves at the end of the year                                                    242,130          207,137        162,424

Reinsurance recoverable on reserves at the end of the year                         188,143          233,035        180,025
                                                                               -------------    ------------    -------------
Reserves, gross of reinsurance
    recoverables, at the end of the year                                          $430,273         $440,172       $342,449
                                                                               =============    ============    =============

</TABLE>

The reserves for losses and loss expenses, net of related reinsurance
recoverables, at December 31, 2004, 2003 and 2002 were decreased by $13,692,
$14,956 and $13,586, 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.

The major components of the developments shown above are as follows:

<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                                         2005           2004            2003
                                                     ------------  -------------  ------------
<S>                                                  <C>           <C>            <C>
Retrospectively-rated direct business                    ($8,014)      ($5,400)      ($1,281)
Environmental                                               (498)         (656)       (1,659)
Other direct business                                     (4,468)       (6,689)      (11,663)
Reinsurance assumed                                       (1,730)       (2,909)          399
Involuntary residual markets                               1,018           698           618
                                                     ------------  -------------  ------------
                                Totals                  ($13,692)     ($14,956)     ($13,586)
                                                     ============  =============  ============

</TABLE>

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. Reserve savings developed related
to retrospectively-rated accident and health business resulted in the concurrent
recording of return premiums of approximately $4,484, $2,700 and $1,512 for the
years ended December 31, 2005, 2004 and 2003, respectively. As more fully
discussed in Note E, the Company has increased it's per occurrence retention of
risk related to trucking liability business over the past several years. The
increased net retention per occurrence is reflected in the favorable
developments during 2005 and 2004. These trends were considered in the
establishment of the Company's reserves at December 31, 2005.

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 $11.1 million to
date and carries a remaining reserve of $8.9 million at December 31, 2005.

<PAGE> 44

NOTE C - LOSS AND LOSS EXPENSE RESERVES (CONTINUED)

The Company participates in mandatory residual market pools in various states.
The Company records the results from participation in these pools as the
information is reported to the Company and also 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, 2005 and 2004, loss reserves have been reduced by
approximately $4,476 and $3,932, 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 $3,374 and $3,462 at December 31, 2005 and 2004, respectively.


NOTE D - 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 2005, 2004 and 2003 were
$1,093, $1,053 and $978, respectively.


NOTE E - 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>
                                                                                      2005             2004
                                                                                  -------------  -------------
<S>                                                                               <C>            <C>
DEFERRED TAX LIABILITIES:
   Unrealized gain on fixed income and equity security investments                     $22,853        $23,960
   Limited partnership investments                                                       3,407              -
   Deferred acquisition costs                                                            1,532          1,693
   Other                                                                                 1,317            977
                                                                                  -------------  -------------
      Total deferred tax liabilities                                                    29,109         26,630
                                                                                  -------------  -------------

DEFERRED TAX ASSETS:
   Discounts of loss and loss expense reserves                                          10,098          8,629
   Unearned premiums                                                                     2,078          2,314
   Other than temporary investment declines                                              1,775          1,583
   Deferred compensation                                                                   883          1,577
   Other                                                                                   221            450
                                                                                  -------------  -------------
      Total deferred tax assets                                                         15,055         14,553
                                                                                  -------------  -------------

      NET DEFERRED TAX LIABILITIES                                                     $14,054       $ 12,077
                                                                                  =============  =============

</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>
                                                                     2005             2004             2003
                                                                 -------------    -------------    -------------
<S>                                                              <C>              <C>              <C>
Statutory federal income rate applied to
   pretax income                                                  $   17,736       $   15,396       $   17,162
Tax effect of (deduction):
   Tax-exempt investment income                                       (1,410)          (1,440)          (1,174)
   Other                                                                 126             (273)             (30)
                                                                 -------------    -------------    -------------
Federal income tax expense                                        $   16,452       $   13,683       $   15,958
                                                                 =============    =============    =============

</TABLE>

<PAGE> 45

NOTE E - INCOME TAXES (CONTINUED)

Federal income tax expense consists of the following:

<TABLE>
<CAPTION>
                                                                     2005             2004             2003
                                                                 -------------    -------------    --------------
<S>                                                              <C>              <C>              <C>
Taxes (credits) on pre-tax income:
   Current                                                        $   13,368       $   14,624        $   16,701
   Deferred                                                            3,084             (941)             (743)
                                                                 -------------    -------------    --------------
                                                                  $   16,452       $   13,683        $   15,958
                                                                 =============    =============    ==============

</TABLE>

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

<TABLE>
<CAPTION>
                                                                     2005             2004             2003
                                                                 --------------    ------------    --------------
<S>                                                              <C>               <C>             <C>
Discounts of loss and loss expense reserves                        $   (1,469)       $  (2,336)      $    (1,179)
Limited partnerships                                                    3,600               97              (44)
Unearned premium disallowance                                             236              255             (557)
Deferred compensation                                                     694              882              (41)
Other than temporary investment declines                                 (191)             435              514
Other                                                                     214             (274)             564
                                                                 --------------    ------------    --------------
                   Provision for deferred federal income tax       $    3,084        $    (941)      $     (743)
                                                                 ==============    ============    ==============

</TABLE>

Cash flows related to federal income taxes paid, net of refunds received, for
2005, 2004 and 2003 were $12,147, $14,865 and $14,100, respectively.

The Company is required to establish a valuation allowance for any portion of
the gross deferred tax asset that management believes will not be realized.
Management has determined that no such valuation allowance is necessary at
December 31, 2005.

NOTE F - 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. Management determines the amount of net
exposure it is willing to accept generally on a product line basis. Certain
treaties covering large fleet trucking include annual deductibles which must be
exceeded before the Company can recover under the terms of the treaty. In these
cases, the Company retains a higher percentage of the direct premium in
consideration of the deductible provisions. The Company remains liable to the
extent the reinsuring companies are unable to meet their obligations under
reinsurance contracts.

The Company also serves as an assuming reinsurer under retrocessions from
certain other reinsurers. These retrocessions include individual risks but are
comprised primarily of high layer 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. Historically, the operation of these
assigned risk pools have resulted in net losses allocated to the Company
although such losses have generally not been material in relation to the
Company's direct and voluntary assumed operations.

<PAGE> 46

NOTE F - REINSURANCE (CONTINUED)

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
                        -------------------------------------------------    -------------------------------------------------
                             2005              2004             2003              2005             2004              2003
                        --------------    -------------    --------------    -------------    --------------    --------------
<S>                     <C>               <C>              <C>               <C>              <C>               <C>
Direct                   $   209,527       $   237,130       $  215,576       $   212,997      $   240,111        $  208,282
Assumed                       12,918             9,969           12,038            12,993           10,559            11,547
Ceded                        (39,652)          (78,596)         (73,501)          (39,825)         (78,525)          (73,676)
                        --------------    -------------    --------------    -------------    --------------    --------------
               Net       $   182,793       $   168,503       $  154,113       $   186,165      $   172,145        $  146,153
                        ==============    =============    ==============    =============    ==============    ==============

</TABLE>

Net losses and loss expenses incurred for 2005, 2004 and 2003 have been reduced
by ceded reinsurance recoveries of approximately $39,389, $103,579 and $96,592,
respectively. Ceded reinsurance premiums and loss recoveries for catastrophe
reinsurance contracts were not material.

Net losses and loss expenses incurred for 2005, 2004 and 2003 include
approximately $20,152, $6,349 and $5,732 relating to reinsurance assumed from
non-affiliated insurance or reinsurance companies, including involuntary
residual market pools. The assumed reinsurance losses in 2005 included $17,595
related to hurricanes Katrina and Wilma and 2004 assumed losses included $5,000
related to hurricanes, all before reinstatement premium.

Components of reinsurance recoverable at December 31 are as follows:

<TABLE>
<CAPTION>
                                                                                          2005            2004
                                                                                      -------------    ------------
<S>                                                                                   <C>              <C>
Unpaid losses and loss expenses, net of valuation allowance                               $186,054        $231,386
Paid losses and loss expenses                                                                5,381           3,253
Unearned premiums                                                                                5             178
                                                                                      -------------    ------------
                                                                                          $191,440        $234,817
                                                                                      =============    ============

</TABLE>


NOTE G - 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, 2003                            2,666,666         $ 114       11,882,813         $ 507         $ 35,248
   Stock options issued                                       -             -                -             -              142
   Stock options exercised                                    -             -           41,541             2               29
                                                   -------------     ---------    -------------    ----------    -------------
Balance at December 31, 2003                          2,666,666           114       11,924,354           509           35,419
   Stock options issued                                       -             -                -             -              256
   Stock options exercised                                    -             -          131,770             5            1,408
                                                   -------------     ---------    -------------    ----------    -------------
Balance at December 31, 2004                          2,666,666           114       12,056,124           514           37,083
   Stock options issued                                       -             -                -             -              197
   Stock options exercised                                    -             -           79,547             4            1,614
                                                   -------------     ---------    -------------    ----------    -------------
Balance at December 31, 2005                          2,666,666         $ 114       12,135,671         $ 518         $ 38,894
                                                   =============     =========    =============    ==========    =============

</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, 2005 includes $338,573 representing GAAP
shareholder's equity of insurance subsidiaries, of which $50,695 may be
transferred by dividend or loan to the parent company with proper notification
to, but without approval from, regulatory authorities. An additional $214,065 of

<PAGE> 47

NOTE G - SHAREHOLDERS' EQUITY (CONTINUED)

shareholder's equity of such insurance subsidiaries may be advanced or loaned to
the parent 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 $18,221, $19,941 and $22,851 for 2005, 2004
and 2003, respectively. Consolidated statutory shareholder's equity for these
subsidiaries was $331,738 and $319,436 at December 31, 2005 and 2004,
respectively. Minimum statutory surplus necessary for the insurance subsidiaries
to satisfy statutory risk based capital requirements was $65,691 at December 31,
2005.

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

<TABLE>
<CAPTION>
                                                                             2005              2004             2003
                                                                         --------------    -------------    --------------
<S>                                                                      <C>               <C>              <C>
Amortization of deferred policy acquisition costs                             $14,066          $16,946           $15,667
Other underwriting expenses                                                    17,656           18,115            18,329
Expense allowances from reinsurers                                             (7,806)         (20,458)          (20,099)
                                                                         --------------    -------------    --------------
                                        TOTAL UNDERWRITING EXPENSES            23,916           14,603            13,897

Operating expenses of non-insurance companies                                  15,691           16,443            16,580
                                                                         --------------    -------------    --------------
                                     TOTAL OTHER OPERATING EXPENSES           $39,607          $31,046           $30,477
                                                                         ==============    =============    ==============

</TABLE>


NOTE I - 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>
                                                                          2005              2004              2003
                                                                     ---------------   ---------------   ---------------
<S>                                                                  <C>               <C>               <C>
Average share outstanding for basic earnings per share                  14,753,133       14,641,300        14,562,310

Dilutive effect of options                                                 109,554          147,824           135,659
                                                                     ---------------   ---------------   ---------------

Average shares outstanding for diluted earnings per share               14,862,687       14,789,124        14,697,969
                                                                     ===============   ===============   ===============

</TABLE>

Options to purchase 35,422 shares of the Company's Class B common stock were
excluded in 2005 from the above reconciliation in that inclusion would have an
anti-dilutive effect.


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, 2005 there were 158,503 shares
(Class A) and 438,583 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, 2005. All employee options outstanding at
December 31, 2005 are exercisable. Options granted to directors are generally
not exercisable for one year from the date of grant. All discounted options
expire ten years after the date of grant. Market value options granted to
directors as part of their regular annual directors' fees expire seven years
after the date of grant. All of the Company's option plans have received
shareholder approval. Approximately 283,000 of such options are available for
future grants.

<PAGE> 48

NOTE J - STOCK PURCHASE AND OPTION PLANS (CONTINUED)

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

<TABLE>
<CAPTION>
                                                      2005                          2004                          2003
                                         ----------------------------  ----------------------------  ----------------------------
                                                           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              546,689     $   20.156        655,561      $  18.357        690,162      $  17.475

Granted:
   At exercise prices below market              4,742          1.000          7,898          1.000          6,938           .946
   At exercise prices at market                15,000         25.710         15,000         26.000              -              -
Exercised                                      79,547         20.339        131,770         10.724         41,539           .736
                                         --------------                 -------------                 -------------
Outstanding at end of year                    486,884         20.110        546,689         20.156        655,561         18.357
                                         ==============                 =============                 =============

Exercisable at end of year                    467,142         20.125        523,791         20.277        648,623         18.543

Weighted average fair value
  of options granted during the year:
   At exercise prices below market              4,742         25.101          7,898         25.709          6,938         20.538
   At exercise prices at market                15,000          5.330         15,000          4.700              -              -

</TABLE>

Exercise prices for 20,134 options outstanding as of December 31, 2005 were
either $.80 or $1.00 and averaged $.93 with a weighted-average remaining
contractual life of 7.0 years. Exercise prices for 466,750 ranged from $20.60 to
$26.00 and averaged $20.94 with a weighted average remaining contractual life of
2.3 years. The weighted average exercise price for 15,392 options exercisable at
either $.80 or $1.00 at December 31, 2005 was $.91. The weighted average
exercise price for 451,750 options exercisable at either $20.60 or $26.00 at
December 31, 2005 was $20.78.

Prior to May, 2005, discounted options were granted to non-employee directors in
lieu of cash directors' fees. In addition, during 2005, non-employee directors
were each granted 1,500 options at market value on the date of grant as part of
their regular annual directors' fees. The fair value of the market value options
granted during 2005 and 2004 was determined using a Black-Scholes-Merton option
pricing model with the following assumptions: risk-free interest rate of 3.0%
and 1.0%, respectively; dividend yield of 1.6%; volatility factor of the
expected market price of the Company's common stock of .30; and an expected life
of the option of 7 years. During 2005 and 2004, the Company recorded expense,
net of federal income tax, of $78 and $53, respectively, for these market value
options using the straight-line method based upon a one-year vesting period for
each grant. The compensation cost that has been charged against income for all
stock-based compensation plans, consisting of directors' fees only, was $197,
$256 and $143 for 2004, 2003 and 2002, 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. $2,339 and $2,514 of such loans were issued and outstanding at December
31, 2005 and 2004, respectively, and carry interest rates ranging from 4.75% to
6%, payable annually on the loan anniversary date. The underlying securities,
with value in excess of the related debt, serve as collateral for these
full-recourse loans, which must be repaid no later than 10 years from the date
of issue. This loan program was terminated in 2002.

<PAGE>

NOTE K - REPORTABLE SEGMENTS

The Company and its consolidated subsidiaries market and underwrite casualty
insurance in four major specialty areas (reportable segments): (1) fleet
trucking, (2) nonstandard private passenger automobile, (3) small fleet trucking
and (4) the assumption of reinsurance. A fifth segment, small business workers'
compensation, was placed in runoff status effective during the fourth quarter of
2004 and is shown in the following table only for comparative purposes. 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 formerly provided 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 other than small business workers'
compensation.

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 or gains or losses on the Company's
investment portfolio. All investment-related revenues are managed at the
corporate level. Underwriting gain or loss for the 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> 50

Note K - Reportable Segments (continued)

The following table provides certain profit and loss information for each
reportable segment for the years ended December 31:

<TABLE>
<CAPTION>

                                                             2005               2004               2003
                                                        ---------------    ---------------    ----------------
<S>                                                     <C>                <C>                <C>
DIRECT AND ASSUMED PREMIUM WRITTEN:
  Fleet trucking                                             $ 155,201          $ 172,406         $ 148,482
  Non-standard private passenger automobile                     38,498             40,976            42,342
  Small fleet trucking                                          15,631             14,689            15,086
  Voluntary reinsurance assumed                                 11,519              8,740            11,121
  Small business workers' compensation                             197              9,058             9,665
  All Other                                                      1,400              1,230               918
                                                        ---------------    ---------------    ----------------
                                               Totals        $ 222,446           $ 247,099         $ 227,614
                                                        ===============    ===============    ================

NET PREMIUM EARNED AND FEE INCOME:
  Fleet trucking                                             $ 123,101           $ 103,624          $ 82,545
  Non-standard private passenger automobile                     42,818              44,671            40,695
  Small fleet trucking                                           9,362              10,440             9,301
  Voluntary reinsurance assumed                                 13,144              11,070            11,994
  Small business workers' compensation                           2,752               8,046             6,132
  All Other                                                      1,423               1,095               806
                                                        ---------------    ---------------    ----------------
                                               Totals        $ 192,600           $ 178,946         $ 151,473
                                                        ===============    ===============    ================

UNDERWRITING GAIN (LOSS)
  Fleet trucking                                              $ 25,658            $ 25,783          $ 29,778
  Non-standard private passenger automobile                      5,131               6,052             4,476
  Small fleet trucking                                             380                 360               123
  Voluntary reinsurance assumed                                 (8,292)              2,545             3,463
  Small business workers' compensation                             102              (1,955)           (1,830)
  All Other                                                       (519)             (1,247)              213
                                                        ---------------    ---------------    ----------------
                                               Totals         $ 22,460            $ 31,538          $ 36,223
                                                        ===============    ===============    ================

</TABLE>

For 2005, 2004 and 2003, the above amounts for voluntary reinsurance assumed
include certain intersegment reinsurance agreements. Intersegment premiums
earned during 2005, 2004 and 2003 were $1,570, $1,609 and $1,239, respectively.
Intersegment losses and loss expenses incurred during 2005, 2004 and 2003 were
$1,595, $1,270 and $1,357, respectively.

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>
                                                             2005               2004               2003
                                                       ---------------    ---------------    ---------------
<S>                                                    <C>                <C>                <C>
REVENUE:
  Net premium earned and fee income                         $ 192,600         $ 178,946           $ 151,473
  Net investment income                                        14,840            12,287              12,873
  Net gains on investments                                     22,981             9,770               9,990
  Other income                                                    483               330                 912
                                                       ---------------    ---------------    ---------------
                         Total consolidated revenue         $ 230,904         $ 201,333           $ 175,248
                                                       ===============    ===============    ===============

PROFIT:
  Underwriting gain                                         $  22,460         $  31,538           $  36,223
  Net investment income                                        14,840            12,287              12,873
  Net gains on investments                                     22,981             9,770               9,990
  Corporate expenses                                           (9,490)           (9,525)             (9,952)
  Interest expense                                               (116)              (81)               (101)
                                                       ---------------    ---------------    ---------------
                 Income before federal income taxes         $  50,675         $  43,989           $  49,033
                                                       ===============    ===============    ===============

</TABLE>

<PAGE> 51

NOTE K - 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 $62,570,
$57,767 and $47,693 of the Company's consolidated direct and assumed premium
written in 2005, 2004 and 2003, respectively.


NOTE L - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Quarterly results of operations are as follows:

<TABLE>
<CAPTION>
                                                                        RESULTS BY QUARTER
                                 ------------------------------------------------------------------------------------------------
                                                      2005                                             2004
                                 -----------------------------------------------   ----------------------------------------------
                                    1ST         2ND        3RD           4TH          1ST         2ND         3RD          4TH
                                 ---------  ---------- ----------    ----------    ----------  ----------  ----------   ----------
<S>                              <C>        <C>        <C>           <C>           <C>         <C>         <C>          <C>
Net premiums earned               $46,659     $43,473    $49,848       $46,185       $38,497     $43,403     $44,384      $45,861
Net investment income               3,308       3,547      3,734         4,251         3,172       3,008       2,958        3,149
Net gains on investments            4,936       3,188      8,346         6,511         5,818       2,290          27        1,635
Losses and loss
  expenses incurred                31,612      27,972     46,827        34,211        25,246      29,735      36,923       34,394

Net income                         10,346       9,199      4,651 <F1>   10,027 <F2>   10,899       8,864       3,460 <F3>   7,083

   Net income per share
     - diluted                       $.70        $.62       $.31 <F1>     $.67 <F2>     $.74        $.60        $.23 <F3>    $.48

<FN>
<F1> Includes approximately $13.0 million ($8.5 million and $.57 per share,
     after tax) in losses from hurricanes Katrina and Rita.
<F2> Includes approximately $2.6 million ($1.7 million and $.11 per share, after
     tax) in losses from hurricanes Katrina and Wilma.
<F3> Includes approximately $5.0 million ($3.3 million and $.22 per share, after
     tax) in losses from hurricanes affecting Florida and other southeastern
     states.
</FN>
</TABLE>


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, 2005, the Company held collateral in the aggregate amount of
$238,249. 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. The Company estimates its uncollateralized exposure related to this
Fortune 500 company to be as much as 25% of shareholders' equity at December 31,
2005.

<PAGE> 52

NOTE M - CONCENTRATIONS OF CREDIT RISK (CONTINUED)

In addition, the Company has recorded paid and unpaid amounts recoverable from
reinsurers under various agreements totaling $191,435 at December 31, 2005, as
more fully discussed in Note F - Reinsurance. With minor exception, these
recoverables are uncollateralized. Estimated amounts recoverable from three
reinsurers in the group, each exceeding 10% of the total amount recoverable from
all reinsurers, totaled $67,171 at December 31, 2005.

Included in the above recoverable amount are case basis and estimated IBNR
losses of approximately $20.5 million due from Converium Insurance (North
America) Inc., $5.5 million due from Quanta Re., $5.3 million due from PMA Re.
and $.7 million due from Trenwick Re., each of which have reported substantial
reserve strengthening and/or impairment of assets which have negatively affected
their reported financial positions. All amounts due from these reinsurers on
paid claims as of December 31, 2005 are current and the Company has no
information at this time to indicate that all obligations of these reinsurers
will not be met.

Cash and cash equivalents includes $88,351 invested in the Northern Funds Money
Market Fund which approximates 1% of the fund's net assets.


NOTE N - 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.


NOTE O - NEW ACCOUNTING PRONOUNCEMENT

In December 2004, the Financial  Accounting  Standards Board ("FASB") issued
Statement of Financial  Accounting  Standards No. 123 (revised  2004), SHARE-
BASED PAYMENT ("SFAS No. 123R"), which is a revision of SFAS No. 123, ACCOUNTING
FOR STOCK-BASED COMPENSATION ("SFAS No. 123") and supersedes APB Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. SFAS No. 123R requires all share-based
payments to employees, including grants of employee stock options, to be
recognized in the financial statements based on their fair values.  Pro forma
disclosure is no longer an alternative.

The company adopted the fair-value-based method of accounting for share-based
payments effective with grants of market value options to non-employee directors
during 2004 using the "modified prospective method" described in SFAS No. 148,
ACCOUNTING FOR STOCK-BASED COMPENSATION--TRANSITION AND DISCLOSURE. Currently,
the company uses a Black-Scholes-Merton model to estimate the value of stock
options granted to non-employee directors and expects to continue to use this
acceptable option valuation model upon the required adoption of SFAS No. 123R on
January 1, 2006. The company does not anticipate that adoption of SFAS No. 123R
will have a material impact on its results of operations or its financial
position. However, SFAS No. 123R also requires that the benefits of tax
deductions in excess of recognized compensation cost to be reported as a
financing cash flow, rather than as an operating cash flow as required under
current literature. This requirement will reduce net operating cash flows and
increase net financing cash flows in periods after the effective date. While the
company cannot estimate what those amounts will be in the future (because they
depend on, among other things, when option exercises occur), the amount of
operating cash flows recognized in prior periods for such excess tax deductions
were $5, $226, and $147 in 2005, 2004 and 2003, respectively.

<PAGE> 53

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE
         ------------------------------------------------

No response to this item is required.

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

The Company's management, under the direction of our Chief Executive Officer
("CEO") and Chief Financial Officer ("CFO"), has performed an evaluation of its
disclosure controls and procedures (as defined by Exchange Act rules 13a-15(e)
and 15d-15(e)) within 90 days of the date of the filing of this report. Based on
this evaluation, the Company's CEO and CFO have concluded that the Company's
disclosure controls and procedures were 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. However, the Company made
appropriate changes to its accounting policy for limited partnership investments
during the fourth quarter, as reported in Forms 10-Q/A for the quarters ended
June 30, 2005 and September 30, 2005, in January, 2006.

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS

Management is responsible for the preparation of the Company's consolidated
financial statements and related information appearing in this report.
Management believes that the consolidated financial statements fairly reflect
the form and substance of transactions and that the financial statements
reasonably present the Company's financial position and results of operations in
conformity with generally accepted accounting principles. Management has
included in the Company's financial statements amounts that are based upon
estimates and judgments which it believes are reasonable under the
circumstances.

Ernst & Young LLP, an independent registered public accounting firm, audits the
Company's consolidated financial statements in accordance with the standards of
the Public Company Accounting Oversight Board and provides an objective,
independent review of the fairness of reported operating results and financial
position.

The Board of Directors of the Company has an Audit Committee composed of three
non-management Directors. The committee meets periodically with financial
management, the internal auditors and the independent registered public
accounting firm to review accounting, control, auditing and financial reporting
matters.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Company's management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in
Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the
participation of management, including the chief executive officer and the chief
financial officer, the Company conducted an evaluation of the effectiveness of
its internal control over financial reporting based on the framework in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our evaluation under this
framework, management concluded that the Company's internal control over
financial reporting was effective as of December 31, 2005. Management's
assessment of the effectiveness of the Company's internal control over financial
reporting as of December 31, 2005 has been audited by Ernst & Young LLP, an
independent registered public accounting firm, as stated in their report which
is included herein.

<PAGE> 54

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that Baldwin &
Lyons, Inc. maintained effective internal control over financial reporting as of
December 31, 2005, based on criteria established in Internal Control--Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Baldwin & Lyons, Inc.'s management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management's
assessment and an opinion on the effectiveness of the Company's internal control
over financial reporting based on our audit.

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

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

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

In our opinion, management's assessment that Baldwin & Lyons, Inc. maintained
effective internal control over financial reporting as of December 31, 2005, is
fairly stated, in all material respects, based on the COSO criteria. Also, in
our opinion, Baldwin & Lyons, Inc. maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2005,
based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the 2005 consolidated financial
statements of Baldwin & Lyons, Inc. and subsidiaries and our report dated March
10, 2006 expressed an unqualified opinion thereon.



                                                 /s/ ERNST & YOUNG LLP
Indianapolis, Indiana
March 10, 2006

<PAGE> 55

                                    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                   65        Chairman, President and CEO                        1983 <F1>
Joseph J. DeVito                 54        Executive Vice President                           1986 <F2>
James W. Good                    62        Executive Vice President                           1980 <F2>
G. Patrick Corydon               57        Senior Vice President and CFO                      1979 <F3>
James E. Kirschner               59        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 *
          ----------------------


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> 56


                                     PART IV


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


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

         Consolidated Balance Sheets - December 31, 2005 and 2004

         Consolidated Statements of Income and Retained Earnings - Years ended
             December 31, 2005, 2004 and 2003

         Consolidated Statements of Changes in Equity Other Than Capital - Years
             ended December 31, 2005, 2004 and 2003

         Consolidated Statements of Cash Flows - Years ended December 31,
             2005, 2004 and 2003

         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>

      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
                            99.1 to the Company's Current Report on Form 8-K
                            dated May 4, 2004)

         (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> 58

    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)


         (14)               EXHIBIT 14--
   (Code of ethics)         Code of Business Conduct of Baldwin & Lyons, Inc.


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


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


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


         (31)               EXHIBIT 31.1
   (Certification)          Certification of CEO pursuant to Section 302 of the
                            Sarbanes-Oxley Act

                            EXHIBIT 31.2
                            Certification of CFO pursuant to Section 302 of the
                            Sarbanes-Oxley Act


        (32)                EXHIBIT 32.1
   (Certification)          Certification of CEO pursuant to Section 906 of the
                            Sarbanes-Oxley Act and 18 U.S.C. 1350

                            EXHIBIT 32.2
                            Certification of CFO pursuant to Section 906 of the
                            Sarbanes-Oxley Act and 18 U.S.C. 1350

<PAGE> 59

(b)      A report on Form 8-K was filed by the Company in the fourth quarter of
         2005 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 60 through 66 of this report.

<PAGE> 60

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

                    FORM 10-K - YEAR ENDED DECEMBER 31, 2005

                     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                                    $  73,552          $  72,913           $  72,913
    Mortgage backed securities                          23,079             22,678              22,678
    States, municipalities and
      political subdivisions                           118,001            117,766             117,766
    Foreign governments                                  6,746              6,802               6,802
    Public utilities                                     2,935              3,014               3,014
    All other corporate bonds                           42,467             42,246              42,246
                                               -----------------  -----------------  --------------------
                      Total fixed maturities           266,780            265,419             265,419

Equity Securities:
  Common Stocks:
    Public Utilities                                       350                608                 608
    Banks, trust and insurance
      companies                                          6,660             23,243              23,243
    Industrial, miscellaneous
      and all other                                     57,121            106,934             106,934
  Nonredeemable preferred stocks                             -                  -                   0
                                               -----------------  -----------------  --------------------
                     Total equity securities            64,131            130,785             130,785

Limited partnerships                                    44,727             44,727              44,727

Short-term:
  Certificates of deposit                                2,122              2,122               2,122
  Commercial paper                                      48,938             48,938              48,938
                                               -----------------  -----------------  --------------------
                  Total short-term and other            51,060             51,060              51,060
                                               -----------------  -----------------  --------------------

                           Total investments         $ 426,698          $ 491,991           $ 491,991
                                               =================  =================  ====================
<FN>
<F1> All securities listed are considered available-for-sale and, accordingly,
are presented at fair value in the financial statements. Investments presented
above do not include $130,928 of money market funds classified with cash and
cash equivalents in the balance sheet.
</FN>
</TABLE>

<PAGE>

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

                                 FORM 10-K - YEAR ENDED DECEMBER 31, 2005


                                          BALDWIN & LYONS, INC.

CONDENSED BALANCE SHEETS
                                                                                    DECEMBER 31
                                                                         ----------------------------------
                                                                              2005               2004
                                                                         ---------------    ---------------
<S>                                                                      <C>                <C>
ASSETS:
Investment in subsidiaries                                                  $  337,352         $  321,602
Due from affiliates                                                              2,350              4,461
Investments other than subsidiaries:
   Fixed maturities                                                              6,684             11,940
   Equity maturities                                                                48              1,641
   Limited partnerships                                                          4,386                865
   Short-term                                                                   14,865             19,961
                                                                         ---------------    ---------------
                                                                                25,984             34,407
Cash and cash equivalents                                                       22,853             28,286
Accounts receivable                                                             12,837              7,404
Notes receivable from employees                                                  2,338              2,514
Other assets                                                                     3,573              4,607
                                                                         ---------------    ---------------

                                                        TOTAL ASSETS        $  407,287         $  403,281
                                                                         ===============    ===============

LIABILITIES AND SHAREHOLDERS' EQUITY:

LIABILITIES:
   Premiums payable                                                          $  35,935          $  42,771
   Deposits from insureds                                                       20,833             22,723
   Notes payable to bank                                                             -              6,000
   Current payable federal income taxes                                              -                100
   Deferred payable federal income taxes                                           378                  -
   Other liabilities                                                             3,456              5,139
                                                                         ---------------    ---------------
                                                                                60,602             76,733

SHAREHOLDERS' EQUITY:
   Common stock:
      Class A                                                                      114                114
      Class B                                                                      518                514
      Additional paid-in capital                                                38,894             37,083
      Unrealized net gains on investments                                       42,440             44,497
      Retained earnings                                                        264,719            244,340
                                                                         ---------------    ---------------
                                                                               346,685            326,548
                                                                         ---------------    ---------------

                          TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY        $  407,287         $  403,281
                                                                         ===============    ===============


See notes to condensed financial statements
</TABLE>

<PAGE> 62

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

                    FORM 10-K - YEAR ENDED DECEMBER 31, 2005


                              BALDWIN & LYONS, INC.

CONDENSED STATEMENTS OF INCOME
                                                                                   YEAR ENDED DECEMBER 31
                                                                         2005              2004               2003
                                                                     --------------    --------------    ---------------
<S>                                                                  <C>               <C>               <C>
REVENUE:
   Commissions and service fees                                         $  18,640         $  28,419          $  26,565
   Dividends from subsidiaries                                             10,000            10,000             10,000
   Net investment income                                                    1,339               960                863
   Net gains (losses) on investments                                        5,632              (227)              (925)
   Other                                                                      103               166                289
                                                                     --------------    ---------------   --------------
                                                                           35,714            39,318             36,792

EXPENSES:
   Salary and related items                                                10,672            10,756             10,481
   Other                                                                    4,683             5,352              5,826
                                                                     --------------    ---------------   --------------
                                                                           15,355            16,108             16,307
                                                                     --------------    --------------    ---------------
                              INCOME BEFORE FEDERAL INCOME TAXES
                                     AND EQUITY IN UNDISTRIBUTED
                                          INCOME OF SUBSIDIARIES           20,359            23,210             20,485
Federal income taxes                                                        3,551             4,460              3,637
                                                                     --------------    ---------------   --------------
                                                                           16,808            18,750             16,848
Equity in undistributed income
   of subsidiaries                                                         17,415            11,556             16,227
                                                                     --------------    ---------------   --------------

                                                      NET INCOME        $  34,223         $  30,306          $  33,075
                                                                     ==============    ==============    ===============

See notes to condensed financial statements

</TABLE>

<PAGE> 63

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

                                               FORM 10-K - YEAR ENDED DECEMBER 31, 2005


                                                        BALDWIN & LYONS, INC.

CONDENSED STATEMENTS OF CASH FLOWS
                                                                                YEAR ENDED DECEMBER 31
                                                                      2005               2004              2003
                                                                ---------------    ---------------    --------------
<S>                                                             <C>                <C>                <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES                             ($  493)         $  31,474         $  27,024

INVESTING ACTIVITIES:
   Purchases of long-term investments                                  (3,047)            (5,548)           (2,967)
   Sales or maturities of long-term investments                         9,965              5,928             2,981
   Net sales (purchases) of short-term investments                      5,096                 20           (19,982)
   Decrease in notes receivable from employees                            169              2,223             2,676
   Distributions from limited partnerships                              1,633                193                25
   Net purchases of property and equipment                               (544)              (456)             (808)
   Other                                                                  199                112               130
                                                                ---------------    ---------------    --------------
        NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES            13,471              2,472           (17,945)

FINANCING ACTIVITIES:
   Dividends paid to shareholders                                     (14,029)           (30,753)          (10,353)
   Drawing on line of credit                                                -              6,000                 -
   Repayment on line of credit                                         (6,000)                 -            (7,500)
   Stock option exercises and other                                     1,618              1,413                31
                                                                ---------------    ---------------    --------------
                      NET CASH USED IN FINANCING ACTIVITIES           (18,411)           (23,340)          (17,822)
                                                                ---------------    ---------------    --------------
           INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS            (5,433)            10,606            (8,743)
Cash and cash equivalents at beginning of year                         28,286             17,680            26,423
                                                                ---------------    ---------------    --------------
                   CASH AND CASH EQUIVALENTS AT END OF YEAR         $  22,853          $  28,286         $  17,680
                                                                ===============    ===============    ==============

See notes to condensed financial statements

</TABLE>

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.

<PAGE> 64

<TABLE>
<CAPTION>

                                     SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION

                                            FORM 10-K - YEAR ENDED DECEMBER 31, 2005

                                             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

      2005          $ 4,376    $ 430,273    $ 29,688        ---   $ 186,165   $ 14,840    $ 140,622   $ 14,066   $ 9,850  $ 182,793

      2004            4,797      440,172      33,233        ---     172,145     12,287      126,298     16,946    (2,343)   168,503

      2003            5,309      342,449      36,803        ---     146,153     12,873       95,738     15,667    (1,770)   154,114

<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 categories 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. For 2004 and
              2003, these allowances substantially or totally offset other
              operating expenses incurred.
</FN>
</TABLE>

<PAGE> 65

<TABLE>
<CAPTION>
                                             SCHEDULE IV -- REINSURANCE

                                      FORM 10-K - YEAR ENDED DECEMBER 31, 2005

                                        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:

              2005                     $212,997           $39,825            $12,993          $186,165           7.0

              2004                      240,111            78,525             10,559           172,145           6.1

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

</TABLE>

<PAGE> 66

<TABLE>
<CAPTION>
                                        SCHEDULE VI--SUPPLEMENTAL INFORMATION
                                  CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS

                                       FORM 10-K - YEAR ENDED DECEMBER 31, 2005

                                        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    <F1>                                   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
----------- ---------- ---------- --------- -------- ---------- ---------- --------- --------- ----------- ------------ -----------
<S>         <C>        <C>        <C>       <C>      <C>        <C>        <C>       <C>       <C>         <C>          <C>
Consolidated Property/Casualty
Subsidiaries:
    2005      $4,376    $430,273   $4,476    $29,688  $186,165   $14,840    $154,314 ($13,692)   $14,066    $105,629      $182,793

    2004       4,797     441,821    3,932     33,233   172,145    12,287     141,254  (14,956)    16,946      81,585       168,503

    2003       5,309     343,724    5,549     36,803   146,153    12,873     109,324  (13,586)    15,667      77,581       154,114

<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> 67

                                   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 14, 2006              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 14, 2006              By   /s/ GARY W. MILLER
                                -----------------------------------
                                Gary W. Miller, Chairman
                                and CEO; Director



March 14, 2006              By  /s/ G. PATRICK CORYDON
                                -----------------------------------
                                G. Patrick Corydon, Senior Vice
                                President - Finance and CFO
                                (Principal Financial Officer and
                                Principal Accounting Officer)



March 14, 2006              By  /s/ JOSEPH DEVITO
                                -----------------------------------
                                Joseph DeVito, Director and
                                ExecutiveVice President



March 14, 2006              By  /s/ JAMES GOOD
                                -----------------------------------
                                James Good, Director and
                                Executive Vice President



March 14, 2006              By  /s/ STUART D. BILTON               (*)
                                ------------------------------------
                                Stuart D. Bilton, Director



March 14, 2006              By  /s/ OTTO N. FRENZEL III             (*)
                                ------------------------------------
                                Otto N. Frenzel III, Director

<PAGE> 68


                             SIGNATURES (CONTINUED)



March 14, 2006              By  /s/ JOHN M. O'MARA                  (*)
                                ------------------------------------
                                John M. O'Mara, Director




March 14, 2006              By  /s/ THOMAS H. PATRICK               (*)
                                ------------------------------------
                                Thomas H. Patrick, Director


March 14, 2006              By  /s/ NATHAN SHAPIRO                  (*)
                                ------------------------------------
                                Nathan Shapiro, Director



March 14, 2006              By  /s/ NORTON SHAPIRO                  (*)
                                ------------------------------------
                                Norton Shapiro, Director



March 14, 2006              By  /s/ JOHN D. WEIL                    (*)
                               -------------------------------------
                               John D. Weil, Director




March 14, 2006              By  /s/ ROBERT SHAPIRO                  (*)
                                ------------------------------------
                                Robert Shapiro, Director



March 14, 2006              By  /s/ JOHN PIGOTT                     (*)
                                ------------------------------------
                                John Pigott, Director



March 14, 2006              By  /s/ JON MILLS                       (*)
                                ------------------------------------
                                Jon Mills, Director


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


<PAGE> 69




                           ANNUAL REPORT ON FORM 10-K



                          ITEM 15(c)--CERTAIN EXHIBITS



                          YEAR ENDED DECEMBER 31, 2005

                              BALDWIN & LYONS, INC.

                              INDIANAPOLIS, INDIANA




<PAGE> 70

                              BALDWIN & LYONS, INC.
                          Form 10-K for the Fiscal Year
                             Ended December 31, 2005


                                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 99.1 to the
Company's Current Report on Form
8-K dated May 4, 2004)                                   N/A

EXHIBIT 10(a)-- 1981 Employees Stock P
urchase 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

<PAGE> 71


                          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 14--
Code of Business Conduct, as amended
May 3, 2005                                   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 31.1--
Certification of CEO pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.        Filed herewith electronically

EXHIBIT 31.2--
Certification of CFO pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.        Filed herewith electronically

EXHIBIT 32.1--
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




                          INDEX TO EXHIBITS (CONTINUED)



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

EXHIBIT 32.2--
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