SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

Form 10-Q

Quarterly Report Pursuant to Section 13 or 15 (d)

of the Securities Exchange Act of 1934

 For Quarter Ended September 30, 2010  Commission file number 0-5534

BALDWIN & LYONS, INC.

(Exact name of registrant as specified in its charter)

INDIANA (State or other jurisdiction of  Incorporation or organization)	35-0160330 (I.R.S. Employer Identification Number)
1099 N. Meridian Street, Indianapolis, Indiana (Address of principal executive offices)	46204 (Zip Code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.  Yes  ü     No___

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ü    No ____

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 ü Non-accelerated filer ____

Small Reporting Company ____

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of November 1, 2010:

TITLE OF CLASS	NUMBER OF SHARES OUTSTANDING
Common Stock, No Par Value:
Class A (voting)	2,623,109
Class B (nonvoting)	12,191,820

Index to Exhibits located on page 26.

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PART I – FINANCIAL INFORMATION

ITEM 1  FINANCIAL STATEMENTS

Baldwin & Lyons, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except per share data)
	(Unaudited)
	September 30		December 31
	2010		2009
Assets
Investments:
Fixed maturities	$	421,220	$	379,922
Equity securities		89,785		85,886
Limited partnerships		73,100		69,436
Short-term		4,414		3,703
		588,519		538,947
Cash and cash equivalents		39,601		79,504
Accounts receivable		40,506		32,535
Reinsurance recoverable		135,753		155,451
Notes receivable from employees		1,716		2,054
Other assets		34,198		42,824
	$	840,293	$	851,315
Liabilities and shareholders' equity
Reserves for losses and loss expenses	$	345,412	$	359,031
Reserves for unearned premiums		34,696		25,912
Debt		7,000		10,000
Accounts payable and accrued expenses		69,354		71,878
Current federal income taxes		8,679		6,507
Deferred federal income taxes		2,414		5,044
		467,555		478,372
Shareholders' equity:
Common stock-no par value:
Class A voting -- authorized 3,000,000 shares;
outstanding -- 2010, 2,623,109; 2009, 2,623,109		112		112
Class B non-voting -- authorized 20,000,000 shares;
outstanding -- 2010, 12,191,820; 2009, 12,109,878		520		517
Additional paid-in capital		47,986		46,337
Unrealized net gains on investments		29,882		31,886
Retained earnings		294,238		294,091
		372,738		372,943
	$	840,293	$	851,315

See notes to condensed consolidated financial statements.

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Baldwin & Lyons, Inc. and Subsidiaries
Unaudited Consolidated Statements of Income
(in thousands, except per share data)
	Three Months Ended					Nine Months Ended
	September 30					September 30
	2010		2009			2010			2009
Revenues
Net premiums earned	$	52,588	$	45,077		$	157,277		$	130,283
Net investment income		2,865		3,256			8,833			9,993
Commissions and other income		1,603		1,722			5,024			4,847
Net realized gains on investments, excluding
impairment losses		10,271		15,460			10,618			29,359
Total other-than-temporary impairment losses on investments		-		(19	)		(15	)		(2,656	)
Net realized gains on investments		10,271		15,441			10,603			26,703
		67,327		65,496			181,737			171,826
Expenses
Losses and loss expenses incurred		36,084		26,714			110,268			72,689
Other operating expenses		17,711		17,635			51,583			50,603
		53,795		44,349			161,851			123,292
Income before federal income taxes		13,532		21,147			19,886			48,534
Federal income taxes		4,298		6,807			5,121			14,628
Net income	$	9,234	$	14,340		$	14,765		$	33,906
Per share data:
Basic and diluted earnings	$	.62	$	.97		$	1.00		$	2.30
Dividends paid to shareholders	$	.25	$	.25		$	1.00		$	.75
Reconciliation of shares outstanding:
Average shares outstanding - basic		14,794		14,733			14,779			14,744
Dilutive effect of options outstanding		15		1			30			-
Average shares outstanding - diluted		14,809		14,734			14,809			14,744

See notes to condensed consolidated financial statements.

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Baldwin & Lyons, Inc. and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
(in thousands)
	Nine Months Ended
	September 30
	2010			2009
Net cash provided by operating activities	$	36,857		$	13,822
Investing activities:
Purchases of long-term investments		(297,065	)		(173,671	)
Proceeds from sales or maturities
of long-term investments		241,158			181,291
Net sales (purchases) of short-term investments		(711	)		28,779
Other investing activities		(2,524	)		(2,620	)
Net cash provided by (used in) investing activities		(59,142	)		33,779
Financing activities:
Dividends paid to shareholders		(14,770	)		(11,061	)
Repayment on notes payable		(3,000	)		-
Cost of treasury stock		-			(880	)
Net cash used in financing activities		(17,770	)		(11,941	)
Effect of foreign exchange rates on cash and cash equivalents		152			827
Increase (decrease) in cash and cash equivalents		(39,903	)		36,487
Cash and cash equivalents at beginning of period		79,504			16,657
Cash and cash equivalents at end of period	$	39,601		$	53,144

See notes to condensed consolidated financial statements.

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Notes to Condensed Unaudited Consolidated Financial Statements

(Note that all dollar amounts presented in these notes are in thousands, except per share data)

(1) Summary of Significant Accounting Policies

Basis of Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included.  Operating results for the interim periods are not necessarily indicative of the results that may be expected for the year ended December 31, 2010.  Interim financial statements should be read in conjunction with the Company’s annual audited financial statements and other disclosures included in the Company’s most recent Form 10-K.

Investments:  Carrying amounts for fixed maturity securities represent fair value and are based on quoted market prices, where available, or broker/dealer quotes for specific securities where quoted market prices are not available.  Equity securities are carried at quoted market prices (fair value).  The Company accounts for investments in limited partnerships using the equity method of accounting, which requires an investor in a limited partnership to record its proportionate share of the limited partnership’s net income.  To the extent that the limited partnership investees include both realized and unrealized investment gains or losses in the determination of net income or loss, then the Company would also recognize, through its income statement, its proportionate share of the investee’s unrealized as well as realized investment gains or losses.

Other investments, if any, are carried at either market value or cost, depending on the nature of the investment.  Short-term 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.  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.

With respect to other than temporary impairment of investments, if a fixed maturity security is in an unrealized loss position and the Company has the intent to sell the fixed maturity security, or it is more likely than not that the Company will have to sell the fixed maturity security before recovery of its amortized cost basis, the decline in value is deemed to be other-than-temporary and is recorded to net realized losses on investments in the consolidated statements of operations.   For impaired fixed maturity securities that the Company does not intend to sell or it is more likely than not that the Company will not have to sell such securities, but the Company expects

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Notes to Condensed Unaudited Consolidated Financial Statements (continued)

that it will not fully recover the amortized cost basis, the credit component of the other-than-temporary impairment is recognized in net realized losses on investments in the consolidated statements of operations and the non-credit component of the other-than-temporary impairment is recognized directly in shareholders’ equity (accumulated other comprehensive income).

The credit component of an other-than-temporary impairment is determined by comparing the net present value of projected future cash flows with the amortized cost basis of the fixed maturity security.  The net present value is calculated by discounting the Company’s best estimate of projected future cash flows at the effective interest rate implicit in the fixed maturity security at the date of acquisition.  For mortgage-backed and asset-backed securities, cash flow estimates are based on assumptions regarding the underlying collateral including prepayment speeds, vintage, type of underlying asset, geographic concentrations, default rates, recoveries and changes in value. For all other debt securities, cash flow estimates are driven by assumptions regarding probability of default, including changes in credit ratings, and estimates regarding timing and amount of recoveries associated with a default.  Furthermore, unrealized losses caused by non-credit related factors related to fixed maturity securities for which the Company expects to fully recover the amortized cost basis continue to be recognized in accumulated other comprehensive income.

The unrealized net gains or losses (net of applicable tax effect) related to equity securities are reflected directly in shareholders’ equity, unless a decline in value is determined to be other-than-temporary, in which case the loss is charged to income.  In determining if and when a decline in market value below cost is other-than-temporary, an objective analysis is made of each individual security where current market value is less than cost.   For any equity security where the unrealized loss exceeds 20% 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, subject to an evaluation as to possible future recovery.  Additionally, the Company takes into account any known subjective information in evaluating for impairment without consideration to the Company’s quantitative criteria defined above.

Reclassification:  Certain prior period balances have been reclassified to conform to the current period presentation and are of a normal recurring nature.

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Notes to Condensed Unaudited Consolidated Financial Statements (continued)

(2) Investments:

The following is a summary of available-for-sale investments at September 30, 2010 and December 31, 2009:

										Net
			Cost or		Gross		Gross			Unrealized
	Fair		Amortized		Unrealized		Unrealized			Gains
	Value		Cost		Gains		Losses			(Losses)
September 30, 2010:
U.S. government obligations	$	60,039	$	59,798	$	241	$	-		$	241
Government sponsored entities		5,311		5,287		28		(4	)		24
Residential mortgage-backed securities		40,973		40,295		962		(284	)		678
Commercial mortgage-backed securities		12,948		12,243		713		(8	)		705
Obligations of states and
political subdivisions		211,770		210,092		1,714		(36	)		1,678
Corporate debt securities		72,242		70,660		1,927		(345	)		1,582
Foreign government obligations		17,937		17,438		523		(24	)		499
Total fixed maturities		421,220		415,813		6,108		(701	)		5,407
Equity securities		89,785		49,219		41,386		(820	)		40,566
Total available-for-sale securities	$	511,005	$	465,032	$	47,494	$	(1,521	)		45,973
							Applicable federal income taxes				(16,091	)
							Net unrealized gains - net of tax			$	29,882
December 31, 2009:
U.S. government obligations	$	54,632	$	54,615	$	86	$	(69	)	$	17
Government sponsored entities		5,883		5,825		72		(14	)		58
Residential mortgage-backed securities		48,377		48,068		572		(263	)		309
Commercial mortgage-backed securities		5,652		5,655		-		(3	)		(3	)
Obligations of states and
political subdivisions		185,469		182,536		2,940		(7	)		2,933
Corporate debt securities		72,185		70,791		1,572		(178	)		1,394
Foreign government obligations		7,724		7,695		29		-			29
Total fixed maturities		379,922		375,185		5,271		(534	)		4,737
Equity securities		85,886		41,568		44,636		(318	)		44,318
Total available-for-sale securities	$	465,808	$	416,753	$	49,907	$	(852	)		49,055
							Applicable federal income taxes				(17,169	)
							Net unrealized gains - net of tax			$	31,886

The Company has no other-than-temporarily impaired fixed maturity securities at September 30, 2010.  Additionally, the Company had no other-than-temporary impairment losses relating to fixed maturity securities recognized in accumulated other comprehensive income during the nine months ended September 30, 2010 and 2009.

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Notes to Condensed Unaudited Consolidated Financial Statements (continued)

The following table summarizes, for fixed maturity and equity security investments in an unrealized loss position at September 30, 2010 and December 31, 2009, respectively, the aggregate fair value and gross unrealized loss categorized by the duration those securities have been continuously in an unrealized loss position.

	September 30, 2010							December 31, 2009
	Number of Securities		Fair Value		Gross Unrealized Loss			Number of Securities		Fair Value		Gross Unrealized Loss
Fixed maturity securities:
12 months or less		83	$	79,009	$	(692	)		109	$	70,568	$	(411	)
Greater than 12 months		8		1,658		(9	)		4		6,220		(123	)
Total fixed maturities		91		80,667		(701	)		113		76,788		(534	)
Equity securities:
12 months or less		19		2,996		(383	)		21		2,032		(147	)
Greater than 12 months		5		2,441		(437	)		8		2,913		(171	)
Total equity securities		24		5,437		(820	)		29		4,945		(318	)
Total fixed maturity and equity securities		115	$	86,104	$	(1,521	)		142	$	81,733	$	(852	)

The fair value and the cost or amortized cost of fixed maturity investments, at September 30, 2010, by contractual maturity, are shown below.  Actual maturities may ultimately differ from contractual maturities because borrowers have, in some cases, the right to call or prepay obligations with or without call or prepayment penalties. Pre-refunded municipal bonds are classified based on their pre-refunded call dates.

	Fair Value		Cost or Amortized Cost
One year or less	$	181,862	$	181,417
Excess of one year to five years		169,645		166,707
Excess of five years to ten years		9,164		8,618
Excess of ten years		6,628		6,533
Total maturities		367,299		363,275
Mortgage-backed securities		53,921		52,538
	$	421,220	$	415,813

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Notes to Condensed Unaudited Consolidated Financial Statements (continued)

Following is a summary of the components of net realized gains (losses) on investments for the periods presented in the accompanying statements of income.

	Three Months Ended						Nine Months Ended
	September 30						September 30
	2010			2009			2010			2009
Fixed maturities:
Gross gains	$	1,311		$	4,666		$	3,151		$	6,415
Gross losses		(293	)		(342	)		(976	)		(973	)
Net gains		1,018			4,324			2,175			5,442
Equity securities:
Gross gains		3,339			1,463			5,569			1,078
Gross losses		(365	)		(264	)		(1,080	)		(2,713	)
Net gains (losses)		2,974			1,199			4,489			(1,635	)
Limited partnerships - net gain		6,279			9,918			3,939			22,896
Total net gains	$	10,271		$	15,441		$	10,603		$	26,703

Gain and loss activity for investments, as shown in the previous table, include adjustments for other-than-temporary impairment as summarized below:

	Three Months Ended					Nine Months Ended
	September 30					September 30
	2010		2009			2010			2009
Realized net gains on the disposal of securities	$	3,466	$	1,843		$	6,153		$	1,364
Equity in earnings of limited partnership
investments - realized and unrealized		6,279		9,918			3,939			22,896
Impairment:
Write-downs based upon objective criteria		-		(19	)		(15	)		(2,656	)
Recovery of prior write-downs
upon sale or disposal		526		3,699			526			5,099
Totals	$	10,271	$	15,441		$	10,603		$	26,703

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Notes to Condensed Unaudited Consolidated Financial Statements (continued)

The net gain from limited partnerships for the quarter and year-to-date ending September 30, 2010 include an estimated $5,016 gain and $2,227 loss, respectively, of unrealized gains and losses reported to the Company as part of the underlying assets of the various limited partnerships.  Shareholders’ equity at September 30, 2010 includes approximately $27,130, net of deferred federal income taxes, of earnings undistributed by limited partnerships.

(3) Reinsurance:

The following table summarizes the Company’s transactions with reinsurers for the 2010 and 2009 comparative periods.

	2010		2009
Quarter ended September 30:
Premiums ceded to reinsurers	$	14,428	$	16,305
Losses and loss expenses
ceded to reinsurers		10,387		3,382
Commissions from reinsurers		2,752		1,422
Nine months ended September 30:
Premiums ceded to reinsurers		52,848		42,666
Losses and loss expenses
ceded to reinsurers		8,523		8,298
Commissions from reinsurers		7,246		3,602

(4) Comprehensive Income or Loss:

Net comprehensive income for the quarter ended September 30, 2010 was $13,525 and compares to net comprehensive income of $22,101 for the quarter ended September 30, 2009.  For the first nine months ended September 30, 2010, net comprehensive income was $12,913 and compares to net comprehensive income of $46,143 for the nine months ended September 30, 2009.

(5) Reportable Segments:

The Company has two reportable business segments in its operations:  Property and Casualty Insurance and Reinsurance.

The Property and Casualty Insurance segment provides multiple line insurance coverage primarily to fleet transportation companies as well as to independent contractors who contract with fleet transportation companies.  In addition, the Company provides private passenger automobile products to individuals, and writes commercial multi-peril and professional liability products on a limited basis.

The Reinsurance segment accepts property and casualty cessions from other insurance companies as well as retrocessions from selected reinsurance companies, principally reinsuring against catastrophes.   Beginning in 2010, the Reinsurance segment accepts selected professional liability cessions from other insurance companies.

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Notes to Condensed Unaudited Consolidated Financial Statements (continued)

The following table provides certain revenue and profit and loss information for each reportable segment.  All amounts presented are computed based upon U.S. generally accepted accounting principles.  Segment profit for Property and Casualty Insurance includes the direct marketing agency operations conducted by the parent company for this segment and is computed after elimination of inter-company commissions.

	2010							2009
	Direct and Assumed Premium Written		Net Premium Earned		Segment Profit (Loss)			Direct and Assumed Premium Written		Net Premium Earned		Segment Profit (Loss)
Three months ended September 30:
Property and Casualty Insurance	$	59,084	$	42,917	$	4,942		$	54,507	$	35,804	$	5,826
Reinsurance		11,671		9,671		(1,476	)		9,327		9,273		415
Totals	$	70,755	$	52,588	$	3,466		$	63,834	$	45,077	$	6,241
Nine months ended September 30:
Property and Casualty Insurance	$	185,847	$	128,225	$	18,780		$	149,023	$	101,525	$	15,300
Reinsurance		33,059		29,052		(9,088	)		29,467		28,758		7,659
Totals	$	218,906	$	157,277	$	9,692		$	178,490	$	130,283	$	22,959

The following table reconciles reportable segment profit to the Company’s consolidated income before federal income taxes, respectively.

	Three Months Ended						Nine Months Ended
	September 30						September 30
	2010			2009			2010			2009
Profit:
Segment profit	$	3,466		$	6,241		$	9,692		$	22,959
Net investment income		2,865			3,256			8,833			9,993
Net realized gains on investments		10,271			15,441			10,603			26,703
Corporate expenses		(3,070	)		(3,791	)		(9,242	)		(11,121	)
Income before federal income taxes	$	13,532		$	21,147		$	19,886		$	48,534

Segment profit includes both net premiums earned and fees and other income associated with the business conducted by the segment.

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.

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Notes to Condensed Unaudited Consolidated Financial Statements (continued)

(6) Loans to Employees:

From 2000 through 2002, the Company provided loans to certain employees for the sole purpose of purchasing the Company’s Class B common stock in the open market.  Principal and interest totaling $1,716 relating to such loans remains outstanding at September 30, 2010 and carry interest rates between 4.75% and 6%, payable annually on the loan anniversary date.  The underlying securities serve as collateral for these loans, which must be repaid no later than 10 years from the date of issue. No additional loans will be made under this program.

(7) Debt:

The Company has $7,000 outstanding as of September 30, 2010 and $10,000 outstanding as of December 31, 2009, under a revolving line of credit at variable interest rates detailed below.  The Company has $13,000 remaining unused under the revolving line of credit at September 30, 2010.  The borrowings were used principally for treasury stock repurchases.

Description	Maturity	2010		2009		Interest Rate
Revolving line of credit	June 23, 2011	$	2,000	$	5,000		0.85	%
Revolving line of credit	June 23, 2011		5,000		5,000		0.99	%
Total Debt		$	7,000	$	10,000

(8) Taxes:

As of September 30, 2010, the Company’s 2005 and subsequent tax years remain subject to examination by the IRS.  The effective rate differs from the normal statutory rate primarily as a result of tax-exempt investment income.

(Space intentionally left blank)

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Notes to Condensed Unaudited Consolidated Financial Statements (continued)

(9) Fair Value:

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

As of September 30, 2010:
Description	Total		Level 1		Level 2		Level 3
U.S. government obligations	$	60,039	$	-	$	60,039	$	-
Government sponsored entities		5,311		-		5,311		-
Residential mortgage-backed securities		40,973		-		40,973		-
Commercial mortgage-backed securities		12,948		-		12,948		-
Obligations of states and
political subdivisions		211,770		-		211,770		-
Corporate securities		72,242		-		55,222		17,020
Foreign government obligations		17,937		-		17,937		-
Total fixed maturities		421,220		-		404,200		17,020
Equity securities		89,785		89,785		-		-
Cash equivalents		39,674		-		39,674		-
	$	550,679	$	89,785	$	443,874	$	17,020

As of December 31, 2009:
Description	Total		Level 1		Level 2		Level 3
U.S. government obligations	$	54,632	$	-	$	54,632	$	-
Government sponsored entities		5,883		-		5,883		-
Residential mortgage-backed securities		48,377		-		48,377		-
Commercial mortgage-backed securities		5,652		-		5,652		-
Obligations of states and
political subdivisions		185,469		-		185,469		-
Corporate securities		72,185		-		57,298		14,887
Foreign government obligations		7,724		-		7,724		-
Total fixed maturities		379,922		-		365,035		14,887
Equity securities		85,886		85,886		-		-
Cash equivalents		83,138		-		83,138		-
	$	548,946	$	85,886	$	448,173	$	14,887

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Notes to Condensed Unaudited Consolidated Financial Statements (continued)

Level inputs, as defined by FASB Fair Value Measurements, are as follows:

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

The Level 3 assets consist of an investment portfolio of insurance-linked securities.  The insurance-linked securities are valued using the average of estimated market quotes from multiple insurance-linked securities brokers.  The broker quotes include Level 3 inputs which are significant to the valuation of the insurance-linked securities. A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using Level 3 inputs is as follows:

	Three Months Ended					Nine Months Ended
	September 30					September 30
	2010		2009			2010			2009
Beginning of period balance	$	14,965	$	15,683		$	14,887		$	14,981
Total gain or losses (realized or unrealized)
Included in earnings (or changes in net assets)		600		191			1,498			932
Included in other comprehensive income		615		638			(314	)		599
Purchases, issuances, and settlements		840		(497	)		949			(497	)
Transfers in and/or out of Level 3		-		-			-			-
End of period balance	$	17,020	$	16,015		$	17,020		$	16,015

Quoted market prices are obtained for these disclosures whenever possible.  Where quoted market prices are not available, fair values are estimated using present value or other valuation techniques.  These techniques are significantly affected by our assumptions, including discount rates and estimates of future cash flows.  Potential taxes and other transaction costs have not been considered in estimating fair values.

Non-financial instruments such as real estate, property and equipment, other assets, deferred income taxes and intangible assets, and certain financial instruments such as policy reserve liabilities are excluded from the fair value disclosures.  Therefore, the fair value amounts cannot be aggregated to determine the underlying economic value to the Company.

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Notes to Condensed Unaudited Consolidated Financial Statements (continued)

The carrying amounts reported in the consolidated balance sheets for cash, accounts receivables, reinsurance recoverable, notes receivable, accounts payable and accrued expenses, income taxes payable, short term borrowings and unearned income approximate fair value because of the short term nature of these items.

There were no significant transfers of assets between level 1 and level 2 during the nine months ended September 30, 2010 and 2009.

(10) Restricted Stock:

Effective June 11, 2009, the Company issued 20,900 shares of class B restricted stock to the Company’s outside directors.  The restricted shares became fully vested on May 5, 2010 and were paid in an equal number of shares of the Company’s class B stock.  The shares represent the annual retainer compensation for the outside directors for the period July 1, 2009 through June 30, 2010.  Each share was valued at $21.05 per share representing a total value of $440.  Compensation expense related to the above stock grant was recognized over the period in which the directors rendered the services.

Effective February 9, 2010, the Company issued 40,061 shares of class B restricted stock to certain of the Company’s executives.  The restricted shares will be paid solely in the Company’s class B stock.  The restricted shares represent compensation to certain executives under the Company’s 2009 Executive Incentive Bonus Plan and additional stock awards approved by the Board of Directors.  The restricted shares will vest ratably over a three year period from the date of grant and are accelerated for retirement eligible recipients due to the non-substantive post-grant date vesting clause per ASC 715, Compensation-Retirement Benefits.  Restricted stock was valued based on the closing price of the stock on the day the award was granted. Non-vested restricted shares will be forfeited should an executive’s employment terminate for any reason other than death, disability, or retirement as defined by the Compensation Committee.

Effective May 4, 2010, the Company issued 17,754 shares of class B restricted stock to the Company’s outside directors.  The restricted shares will be paid solely in the Company’s class B stock.  These restricted shares represent the annual retainer compensation for the outside directors for the period July 1, 2010 through June 30, 2011 and will vest on May 4, 2011.  Vesting will be accelerated only on the condition of death, disability, or change in control of the Company.  Each restricted share is valued at $24.78 per share representing a total value of $440.  Compensation expense related to the above stock grant is to be recognized over the period in which the directors render the services which will also coincide with the vesting period.

On November 2, 2010, the Company declared a regular quarterly dividend of $.25 per share on the Company’s Class A and Class B Common Stock.  The dividend per share will be payable November 30, 2010 to shareholders of record on November 16, 2010.

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Notes to Condensed Unaudited Consolidated Financial Statements (continued)

(11) Subsequent Events:

We have evaluated subsequent events for recognition or disclosure in the consolidated financial statements filed on Form 10-Q with the SEC and no events have occurred subsequent to September 30, 2010 that require recognition or disclosure.

(12) Pending Accounting Standards:

In October 2010, the FASB issued updated guidance to address the diversity in practice for the accounting for costs associated with acquiring or renewing insurance contracts. This guidance modifies the definition of acquisition costs to specify that a cost must be directly related to the successful acquisition of a new or renewal insurance contract in order to be deferred. If application of this guidance would result in the capitalization of acquisition costs that had not previously been capitalized by a reporting entity, the entity may elect not to capitalize those costs. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2011. We are currently evaluating the impact the adoption of the guidance effective January 1, 2012, will have on our consolidated financial statements.

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ITEM 2  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

              AND RESULTS OF OPERATIONS

Liquidity and Capital Resources

The Company generally experiences positive cash flow from operations resulting from the fact that premiums are collected on insurance policies in advance of the disbursement of funds in payment of claims.  Operating costs of the property/casualty insurance subsidiaries, other than loss and loss expense payments and commissions paid to related agency companies, generally average less than 30% of premiums earned and the remaining amount is available for investment for varying periods of time pending the settlement of claims relating to the insurance coverage provided. The Company’s cash flow relating to premiums is significantly affected by reinsurance programs in effect from time-to-time whereby the Company cedes both premium and risk to other insurance and reinsurance companies.  These programs vary significantly among products. For the first nine months of 2010, the Company experienced positive cash flow from operations totaling $36.9 million which compares to positive cash flow from operations of $13.8 million generated during the first nine months of 2009.  The $23.1 million improvement in cash flow from the 2009 period is primarily due to higher net premiums received that was partially offset by a decline in investment income received.

For several years, the Company's investment philosophy has emphasized the purchase of relatively short-term instruments with maximum quality and liquidity.  The average life of the Company's fixed income (bond and short-term investment) portfolio, using contractual maturities applied to par value, was 3.9 years at September 30, 2010, which is substantially shorter than the Company’s liability average life.

Financing activity for the first nine months of 2010 included regular and extra dividend payments of $14.8 million ($1.00 per share) and the repayment of $3.0 million under the Company’s line of credit.

The Company’s assets at September 30, 2010 included $39.7 million in investments classified as cash equivalents that were readily convertible to cash without significant market penalty.  An additional $185.4 million of fixed maturity investments will mature within the twelve-month period following September 30, 2010.   The Company believes that these liquid investments are more than sufficient to provide for projected claim payments and operating cost demands.

Consolidated shareholders’ equity is composed largely of GAAP shareholders’ equity of the insurance subsidiaries.  As such, there are statutory restrictions on the transfer of portions of this equity to the parent holding company.  At September 30, 2010, $43.7 million may be transferred by dividend or loan to the parent company during the remainder of 2010 without approval by, or prior notification to, regulatory authorities.  An additional $241.6 million of shareholder’s equity of the insurance subsidiaries could, theoretically, be advanced or loaned to the parent holding company with prior notification to, and approval from, regulatory authorities, although it is unlikely that transfers of this size would be practical.  The Company believes that these restrictions pose no material liquidity concerns to the Company.  The Company also believes that the financial strength and stability of the subsidiaries would permit ready access by the parent

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company to short-term and long-term sources of credit.  The parent company had cash and marketable securities valued at $7.2 million at September 30, 2010.

The Company’s annualized premium writing to surplus ratio for the first nine months of 2010 was approximately 62%.  Regulatory guidelines generally allow for writings of at least 100% ofsurplus.  Accordingly, the Company could increase premium writings significantly with no need to raise additional capital.  Further, the insurance subsidiaries’ individual capital levels are several times higher than the minimum amounts designated by the National Association of Insurance Commissioners.

Results of Operations

Comparison of Third Quarter, 2010 to Third Quarter, 2009

Net premiums earned during the third quarter of 2010 increased $7.5 million (16.7%) as compared to the same period of 2009.  The Company’s Property and Casualty Insurance segment reported an increase of 19.9% while the Reinsurance segment reported an increase of 4.3%.  These changes are in line with expectations and result from product expansion and continuing marketing efforts in the Property and Casualty Insurance segment and from program changes, effective January 1, 2010, in the Reinsurance segment and introduction of professional liability reinsurance in 2010.  The following table provides information regarding premiums written and earned for major product lines for the quarter ended September 30 (dollars in thousands):

	2010
	Direct and Assumed Premium Written		Net Premium Written		Net Premium Earned
Property and Casualty Insurance:
Fleet Transportation	$	45,840	$	31,831	$	31,753
Private Passenger Automobile		6,074		5,984		7,058
Commercial Mult-Peril		6,426		6,795		3,820
Residual Market and All Other		744		360		286
Total Property and Casualty Insurance		59,084		44,970		42,917
Reinsurance:
Property		8,967		8,654		8,769
Casualty		2,704		2,704		902
Total Reinsurance		11,671		11,358		9,671
Totals	$	70,755	$	56,328	$	52,588

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	2009
Property and Casualty Insurance:
Fleet Transportation	$	40,791	$	28,223	$	28,716
Private Passenger Automobile		6,406		6,327		5,971
Commercial Mult-Peril		7,069		3,462		863
Residual Market and All Other		241		244		254
Total Property and Casualty Insurance		54,507		38,256		35,804
Reinsurance:
Property		9,327		9,272		9,273
Casualty		-		-		-
Total Reinsurance		9,327		9,272		9,273
Totals	$	63,834	$	47,528	$	45,077

Premium ceded to reinsurers on insurance business produced by the Property and Casualty Insurance segment averaged 30.4% of premium earned for the current quarter compared to 26.6% a year earlier reflecting higher reinsurance placements on new products and changes in the mix of business.

Net investment income, before tax, during the third quarter of 2010 was 12.0% lower than the third quarter of 2009 due primarily to lower available interest rates.  Pre-tax yields averaged 2.6% during the current quarter compared to 3.1% for the prior year period.  Overall after-tax yields decreased from 2.5% to 1.9%.  The short term nature of the Company’s fixed income portfolio causes changes in available yields to be quickly reflected in investment income.

The third quarter 2010 net realized investment gains of $10.3 million resulted primarily from $6.3 million in gains on limited partnerships and $4.0 million in gains on disposal of securities.  Comparative third quarter 2009 investment gains were $15.4 million; however, investment gains occur based on decisions regarding the sale of individual securities and the change in total value of limited partnerships and, as such, are not expected to be comparable from period to period.  See footnote 2 to the enclosed financial statements for a more detailed discussion regarding the accounting policies and the net gains reported for the Company’s investments in limited partnerships.

Losses and loss expenses incurred during the third quarter of 2010 were $9.4 million higher than that experienced during the third quarter of 2009 due primarily to property reinsurance and private passenger automobile losses.  Loss ratios for each of the Company’s major product lines were as follows:

	2010			2009
Fleet Transportation		62.6	%		57.4	%
Private Passenger Automobile		85.7			67.4
Commercial Multi-Peril		49.8			46.5
Reinsurance - Property		85.5			61.0
Reinsurance - Casualty		60.0			N/A
All Lines		68.6			59.3

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Other operating expenses, for the third quarter of 2010 were flat from the third quarter of 2009.  The ratio of consolidated other operating expenses to operating revenue decreased to 31.0% during the third quarter of 2010 compared to 35.2% for the 2009 third quarter, the decline being reflective of the impact of higher premium on largely fixed operating costs and the impact of higher ceding commission offsets related to increased reinsurance ceded.

The effective federal tax rate on consolidated income for the third quarter of 2010 was 31.8%.  The effective rate differs from the normal statutory rate primarily as a result of tax-exempt investment income.

As a result of the factors mentioned above, net income decreased $5.1 million during the third quarter of 2010 as compared to the 2009 period.

Comparison of Nine Months Ended September 30, 2010 to Nine Months Ended September 30, 2009

Net premiums earned during the first nine months of 2010 increased $27.0 million (20.7%) as compared to the same period of 2009.  The Company’s Property and Casualty Insurance and Reinsurance segments reported increases of 26.3% and 1.0%, respectively, for the same reasons noted in the quarterly comparison above.  The following table provides information regarding premiums written and earned for major product lines for the nine months ended September 30 (dollars in thousands):

	2010
	Direct and Assumed Premium Written		Net Premium Written		Net Premium Earned
Property and Casualty Insurance:
Fleet Transportation	$	137,551	$	96,855	$	96,378
Private Passenger Automobile		22,598		22,345		20,910
Commercial Mult-Peril		23,981		13,662		10,048
Residual Market and All Other		1,717		1,078		889
Total Property and Casualty Insurance		185,847		133,940		128,225
Reinsurance:
Property		28,357		27,419		27,419
Casualty		4,702		4,702		1,633
Total Reinsurance		33,059		32,121		29,052
Totals	$	218,906	$	166,061	$	157,277

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	2009
Property and Casualty Insurance:
Fleet Transportation	$	116,520	$	80,927	$	82,414
Private Passenger Automobile		20,372		20,153		17,048
Commercial Mult-Peril		10,953		4,834		1,001
Residual Market and All Other		1,178		1,179		1,062
Total Property and Casualty Insurance		149,023		107,093		101,525
Reinsurance:
Property		29,467		28,733		28,758
Casualty		-		-		-
Total Reinsurance		29,467		28,733		28,758
Totals	$	178,490	$	135,826	$	130,283

Premium ceded to reinsurers on insurance business produced by the Property and Casualty Insurance segment averaged 30.0% of premium earned for the current year period compared to 27.9% a year earlier reflecting higher reinsurance placements on new products and changes in the mix of business.

Net investment income, before tax, during the first nine months of 2010 was 11.6% lower than the first nine months of 2009 for the same reasons noted in the quarterly comparison.  Pre-tax yields averaged 2.7% during the current period compared to 3.2% for the prior year period.  Overall after-tax yields decreased from 2.7% to 2.0%.

Net realized investment gains for the first nine months of 2010 were $10.6 million, resulting from a $6.7 million gain on disposal of securities and a $3.9 million gain on limited partnerships.  Net realized investment gains were $26.7 million for the same period in 2009; however, investment gains occur based on decisions regarding the sale of individual securities and the change in total value of limited partnerships and, as such, are not expected to be comparable from period to period.  See footnote 2 to the enclosed financial statements for a more detailed discussion regarding the accounting policies and the net gains reported for the Company’s investments in limited partnerships.

Losses and loss expenses incurred during the first nine months of 2010 were $37.6 million higher than that experienced during the first nine months of 2009 with the majority of the increase attributable to catastrophe losses from major earthquakes and windstorms occurring during the first and third quarters of 2010 totaling $24.1 million with the remainder attributable to increased premium volume.  Loss ratios for each of the Company’s major product lines were as follows:

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	2010			2009
Fleet Transportation		57.6	%		57.1	%
Private Passenger Automobile		84.6			68.3
Commercial Multi-Peril		52.9			51.0
Reinsurance - Property		109.2			44.1
Reinsurance - Casualty		60.0			N/A
All Lines		70.1			55.8

Other operating expenses, for the first nine months of 2010, increased $1.0 million, or 1.9%, from the 2009 nine-month period.  The majority of this increase relates to expenses that vary directly with increased premium volume.  The ratio of consolidated other operating expenses to operating revenue was 30.1% during the 2010 period compared to 34.9% for the 2009 period, the decline being reflective of the impact of higher premium on largely fixed operating costs, higher ceding commission offsets related to increased reinsurance ceded and the impact of first and third quarter catastrophe losses on contingent commissions due to retrocessionaires (higher losses result in the loss of contingency profit sharing recorded as commission expense).

The effective federal tax rate on consolidated income for the first nine months of 2010 was 25.8%.  The effective rate differs from the normal statutory rate primarily as a result of tax-exempt investment income.

As a result of the factors mentioned above, net income decreased by $19.1 million as compared with the 2009 period.

Forward-Looking Information

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

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Critical Accounting Policies

There have been no changes in the Company's critical accounting policies as disclosed in the Form 10-K filed for the year ended December 31, 2009.

Concentrations of Credit Risk

The insurance subsidiaries cede portions of their gross premiums to numerous reinsurers under quota share and excess of loss treaties as well as facultative placements.  These reinsurers assume commensurate portions of the risk of loss covered by the contracts.  As losses are reported and reserved, portions of the gross losses attributable to reinsurers are established as receivable assets and losses incurred are reduced.  At September 30, 2010, amounts due from reinsurers on paid and unpaid losses, are estimated to total approximately $136 million.  Of this total, approximately $55 million (40%) represents the Company’s provision for incurred but not reported losses and loss adjustment expenses attributable to reinsurers.  Because of the large policy limits reinsured by the Company, the ultimate amount of incurred but not reported losses attributable to reinsurers could vary significantly from the estimate provided; however, such variance would not result in changes in net claim losses incurred by the Company.

At September 30, 2010, limited partnership investments include approximately $52.9 million consisting of three partnerships which are managed by organizations in which certain of the Company’s directors are officers, directors, general partners or owners.  Each of these investments contains profit sharing agreements to the affiliated organizations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our exposure to market risk since the disclosure in our Form 10-K for the year ended December 31, 2009.

ITEM 4. CONTROLS AND PROCEDURES

(a)  The Corporation's Chief Executive Officer and Chief Financial Officer evaluated the disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Corporation's disclosure controls and procedures are effective.

(b)  There were no significant changes in the Corporation's internal control over financial reporting identified in connection with the foregoing evaluation that occurred during the Corporation's last fiscal quarter that have affected, or are reasonably likely to materially affect, the Corporation's internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 5. OTHER INFORMATION

Nothing to report.

ITEM 6 (a)  EXHIBITS

Number and caption from Exhibit

Table of Regulation S-K Item 601                                                                                                 Exhibit No.

(31.1)      Certification of CEO                                                                                EXHIBIT 31.1

pursuant to Section 302 of the                                                              Certification of CEO

Sarbanes-Oxley Act of 2002

(31.2)      Certification of CFO                                                                                EXHIBIT 31.2

pursuant to Section 302 of the                                                              Certification of CFO

Sarbanes-Oxley Act of 2002

(32.1)      Certification of CEO                                                                                EXHIBIT 32.1

pursuant to 18 U.S.C. 1350, as                                                              Certification of CEO

adopted pursuant to Section 906

of the Sarbanes-Oxley Act of 2002

(32.2)      Certification of CFO                                                                                EXHIBIT 32.2

pursuant to 18 U.S.C. 1350, as                                                              Certification of CFO

adopted pursuant to Section 906

of the Sarbanes-Oxley Act of 2002

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SIGNATURES

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

 BALDWIN & LYONS, INC.

Date     November 4, 2010                                                                       By  /s/ Gary W. Miller

Gary W. Miller, Chairman and CEO

Date     November 4, 2010                                                                       By  /s/ G. Patrick Corydon

G. Patrick Corydon,

Executive Vice President – Finance

(Principal Financial and

  Accounting Officer)

- 25 -

BALDWIN & LYONS, INC.

Form 10-Q for the fiscal quarter ended September 30, 2010

INDEX TO EXHIBITS

Begins on sequential

page number of Form

Exhibit Number                                                                                   10-Q           

EXHIBIT 31.1                                                                 electronically filed herewith

Certification of CEO

pursuant to Section 302 of the

Sarbanes-Oxley Act

EXHIBIT 31.2                                                                 electronically filed herewith

Certification of CFO

pursuant to Section 302 of the

Sarbanes-Oxley Act

EXHIBIT 32.1                                                                 electronically filed herewith

Certification of CEO

pursuant to 18 U.S.C. 1350,

as adopted pursuant to Section

906 of the Sarbanes-Oxley Act

EXHIBIT 32.2                                                                 electronically filed herewith

Certification of CFO

pursuant to 18 U.S.C. 1350,

as adopted pursuant to Section

906 of the Sarbanes-Oxley Act

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