DALLAS, Nov. 14, 2023 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (“Hallmark”) (NASDAQ: HALL) today filed its Form 10-Q and announced financial results for the third quarter and nine months ended September 30, 2023.

 Third Quarter Year-to-Date
 20232022 20232022
$ in millions:     
Net loss from continuing operations$(16.7)$(29.2) $(73.7)$(104.9)
Net (loss) income from discontinued operations$(4.8)$1.1  $1.1 $4.2 
Net loss$(21.5)$(28.1) $(72.6)$(100.7)
Operating loss from continuing operations(1)$(11.7)$(20.6) $(29.1)$(69.2)
      
$ per diluted share (2):     
Net loss from continuing operations$(9.16)$(16.08) $(40.53)$(57.72)
Net (loss) income from discontinued operations$(2.67)$0.60  $0.62 $2.28 
Net loss$(11.83)$(15.48) $(39.91)$(55.44)
Operating loss from continuing operations (1)$(6.43)$(11.30) $(16.00)$(38.09)
(1)   See “Non-GAAP Financial Measures” below
(2)   Per share amounts have been restated to reflect one-for-ten reverse stock split
 
  • Net loss from continuing operations in the third quarter of 2023 of $16.7 million, or $9.16 per share, includes $13.6 million, (including $2.3 million of reinstatement premiums), or $7.46 per share of current accident year CAT related activity primarily related to the Maui wildfire event as compared to a net loss of $29.2 million, or $16.08 per share for the comparable period in 2022. Year-to-date net loss from continuing operations of $73.7 million, or $40.53 per share for 2023, includes $29.24 per share related to the DARAG(a) write-off of $36.8 million to bad debt expense on the final definitive award declared on June 2, 2023 and $16.3 million, (including $2.3 of reinstatement premiums), of current accident year CAT related activity primarily related to the Maui wildfire event as compared to a net loss of $104.9 million, or $57.72 per share, for the comparable period in 2022.
  • Net loss from discontinued operations of $4.8 million, or $2.67 per share, in the third quarter of 2023 as compared to a net income from discontinued operations of $1.1 million, or $0.60 per share, for the comparable period in 2022. Year-to-date net income from discontinued operations of $1.1 million, or $0.62 per share, for 2023 as compared to net income of $4.2 million, or $2.28 per share, for the comparable period in 2022.
  • Net loss of $21.5 million, or $11.83 per share, in the third quarter of 2023 includes $13.6 million, (including $2.3 million of reinstatement premiums), or $7.46 per share of current accident year CAT related activity primarily related to the Maui wildfire event, compared to a net loss of $28.1 million, or $15.48 per share, for the comparable period in 2022. Year-to-date net loss of $72.6 million, or $39.91 per share for 2023, includes $29.24 per share related to the DARAG(a) write-off of $36.8 million to bad debt expense on the final definitive award declared on June 2, 2023 and $16.3 million, (including $2.3 of reinstatement premiums), of current accident year CAT related activity primarily related to the Maui wildfire event, as compared to a net loss of $100.7 million, or $55.44 per share, for the comparable period in 2022. See Non-GAAP Financial Measures below.
  • Net combined ratio of 150.1% for the three months ended September 30, 2023, compared to 177.1% for the same periods the prior year. Year-to-date net combined ratio for 2023 of 173.8% as compared to 184.1% for the comparable period in 2022.
  • Underlying combined ratio (excluding net prior year development, catastrophe losses and write-off of DARAG(a) receivable) of 103.6% for the three months ended September 30, 2023, compared to 115.5% for the same period the prior year. Year-to-date underlying combined ratio for 2023 of 111.1% as compared to 114.0% for the comparable period in 2022. See Non-GAAP Financial Measures below.
  • We have taken the following actions to address the profitability and the overall volatility of the property results in our Commercial Accounts business unit within our Commercial Lines Segment. Our Commercial Accounts business unit continues to achieve rate increase including during the third quarter of 2023, a 6.2% property rate and 4.2% casualty rate increases. Additionally, effective February 1, 2023, our Commercial Accounts business filed an overall countrywide rate change of 24.4% in our property line of business. Furthermore, our Commercial Accounts business unit is exiting certain unprofitable property classes and shifting marketing tactics in weather-prone states to industries and classes that are more casualty premium-driven accounts.
  • Targeted rate increases have been ongoing since 2022 in our Personal Lines Segment which included an aggregate countrywide net increase of 40% and continued into 2023 including the third quarter of 2023 which experienced personal auto rate increases in 8 states aggregating a countrywide net increase of approximately 7%.
  • Net investment income was $4.2 million during the three months ended September 30, 2023, as compared to $3.7 million during the same period in 2022. Year-to-date net investment income for 2023 of $12.6 million as compared to $8.7 million for the comparable period in 2022.
  • As of September 30, 2023, the Company has $75.7 million in cash and cash equivalents. Our debt securities were $267.7 million as of September 30, 2023 as compared to $426.6 million as of December 31, 2022. Furthermore, 94% of debt securities have maturities of five years or less and overall our debt securities portfolio has an average modified duration of 1.2 years.
  • The Company maintained a full valuation allowance of $46.4 million against its deferred tax assets.
  • On May 5, 2023, the Company entered into an agreement with an A.M. Best rated “A” insurance company to continue to write new business in circumstances that require an A.M. Best financial strength rating.
  • At the 2023 Annual Meeting of Stockholders, reconvened on October 5, 2023, all matters submitted to stockholders were approved, including the Tax Asset Protection Amendment restricting ownership of 4.99% or more of Company Securities without prior approval, and The Capital Authorization Amendment authorizing the creation of 200,000,000 shares of Class A Common Stock and 10,000,000 shares of preferred stock, with rights and preferences to be determined by the Company’s Board of Directors from time to time.
a) As previously disclosed in Hallmark’s public filings, certain of Hallmark’s subsidiaries were parties to an arbitration proceeding relating to a Loss Portfolio Transfer Reinsurance Contract with DARAG Bermuda Ltd. and DARAG Insurance Limited. On May 4, 2023, the arbitration panel rendered an interim final award, which resulted in a write-off of $32.9 million recognized during the first quarter of 2023, subject to final determination of certain amounts under settlement which may increase or decrease our total write-off. As of March 31, 2023, our consolidated balance sheet included $3.9 million of account receivable from DARAG related to cost incurred in which we contended we have right of reimbursement. On June 2, 2023, the final definitive binding award was declared by the arbitration panel which resulted in an additional write-off to Hallmark of $3.9 million, or $3.1 million if tax effected, during the second quarter of 2023. This additional write-off results in a total write-off of $36.8 million, or $29.1 million if tax effected, included in our year-to-date net loss.
   

Third Quarter and Year-to-Date 2023 Financial Measures



 Third Quarter Year-to-Date
  2023  2022   2023  2022 
($ in thousands)    
Gross premiums written$54,293 $52,520  $165,976 $167,857 
Net premiums written$43,738 $36,618  $129,994 $115,325 
Net premiums earned$36,779 $36,380  $108,906 $112,732 
Investment income, net of expenses$4,212 $3,721  $12,573 $8,700 
Investment gains (losses), net$144 $(2,821) $(248)$(6,764)
Net (loss) from continuing operations$(16,661)$(29,253)$(73,692)$(104,943)
Net (loss) income from discontinued operations$(4,847)$1,100  $1,133 $4,154 
Net (loss) income$(21,508)$(28,153)$(72,559)$(100,789)
Operating (loss) income from continuing operations (2)$(11,805)$(20,553)$(29,194)$(69,240)
Net (loss) income per share from continuing operations basic & diluted (1)$(9.16)$(16.08) $(40.53)$(57.72)
Net (loss) income per share from discontinued operations - basic & diluted$(2.67)$0.60  $0.62 $2.28 
Net loss per share - basic & diluted$(11.83)$(15.48) $(39.91)$(55.44)
Operating (loss) per share from continuing operations - basic & diluted (2)$(6.49)$(11.30) $(16.06)$(38.09)
Book value per share$(4.27)$36.18  $(4.27)$36.18 
(1)   Per share amounts have been restated for a reverse stock split 
(2)   See “Non-GAAP Financial Measures” below 

 


 

Non-GAAP Financial Measures

The Company’s financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”). However, the Company also presents and discusses certain non-GAAP financial measures that it believes are useful to investors as measures of operating performance. Management may also use such non-GAAP financial measures in evaluating the effectiveness of business strategies and for planning and budgeting purposes. However, these non-GAAP financial measures should not be viewed as an alternative or substitute for the results reflected in the Company’s GAAP financial statements. In addition, the Company’s definitions of these items may not be comparable to the definitions used by other companies.

Operating income and operating income per share are calculated by excluding net investment gains and losses and asset impairments or valuation allowances from GAAP net income from continuing operations. Asset impairments and valuation allowances are unusual and infrequent charges for the Company. Management believes that operating income and operating income per share provide useful information to investors about the performance of and underlying trends in the Company’s core insurance operations. Net income from continuing operations and net income per share from continuing operations are the GAAP measures that are most directly comparable to operating earnings and operating earnings per share. A reconciliation of operating income and operating income per share to the most comparable GAAP financial measures is presented below.

      
($ in thousands)Income (Loss)
from Continuing Operations
Before Tax		Less Tax
Effect		Net
After Tax		Weighted
Average
Shares Diluted		Diluted
Per Share
Third Quarter 2023     
Reported GAAP measures$(16,205)$456 $ (16,661) 1,818 $ (9.16)
Excluded deferred tax valuation allowance$- $(4,970)$4,970  1,818 $2.73 
Operating loss$(16,205)$(4,514)$ (11,691) 1,818 $ (6.43)
      
Third Quarter 2022     
Reported GAAP measures$(30,260)$(1,007)$ (29,253) 1,819 $ (16.08)
Excluded tax valuation allowance$- $(6,471)$6,471  1,819 $3.56 
Excluded investment (gains)/losses$2,821 $592 $2,229  1,819 $1.23 
Operating loss$(27,439)$(6,886)$ (20,553) 1,819 $ (11.30)
      
Year-to-Date 2023     
Reported GAAP measures$(73,903)$(211)$ (73,692) 1,818 $(40.53)
Excluded deferred tax valuation allowance$- $(15,209)$15,209  1,818 $8.37 
Excluded write-off receivable from reinsurer$36,826 $7,733 $29,093  1,818 $16.00 
Excluded investment (gains)/losses$392 $82 $310  1,818 $0.17 
Operating loss$(36,685)$(7,605)$ (29,080) 1,818 $ (16.00)
      
Year-to-Date 2022     
Reported GAAP measures$(99,701)$5,242 $ (104,943) 1,818 $ (57.72)
Excluded tax valuation allowance$- $(30,359)$30,359  1,818 $16.70 
Excluded investment (gains)/losses$6,764 $1,420 $5,344  1,818 $2.94 
Operating income$(92,937)$(23,697)$ (69,240) 1,818 $ (38.09)
      

Underlying combined ratio is calculated by excluding the impact of net favorable or unfavorable prior year loss development and catastrophe losses from the calculation of the net combined ratio. Management believes that the underlying combined ratio provides useful information to investors about the current performance of the Company's insurance operations absent historical developments and uncontrollable events. Combined ratio is the GAAP measure most comparable to underlying combined ratio. A reconciliation of the underlying combined ratio to the combined ratio is presented below.

     
 3rdQ 20233rdQ 2022YTD 2023YTD 2022
Net combined ratio150.1%177.1%173.8%184.1%
Impact on net combined ratio    
Net Unfavorable (Favorable) Prior Year Development9.7%56.7%13.9%67.3%
Catastrophes, net of reinsurance inclusive of reinstatement premium of $2.3 million36.9%5.9%15.0%2.8%
Write-off receivable from reinsurer0.0%0.0%33.8%0.0%
Underlying combined ratio103.6%114.5%111.1%114.0%
     

A copy of our Form 10-Q is available on our website at www.hallmarkgrp.com or on the SEC website at www.sec.gov. Readers are urged to review the Form 10-Q for a more complete discussion of our financial performance.

About Hallmark

Hallmark is a property and casualty insurance holding company with a diversified portfolio of insurance products written on a national platform. With six insurance subsidiaries, Hallmark markets, underwrites and services commercial and personal insurance in select markets. Hallmark is headquartered in Dallas, Texas and its common stock is listed on NASDAQ under the symbol "HALL."

Forward-looking statements in this release are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that actual results may differ materially from such forward-looking statements. Forward-looking statements involve risks and uncertainties including, but not limited to, continued acceptance of the Company’s products and services in the marketplace, competitive factors, interest rate trends, general economic conditions, the availability of financing, underwriting loss experience and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission.

For further information, please contact:

Chris Kenney
Chief Executive Officer
817.348.1600
www.hallmarkgrp.com

 
Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Balance Sheets    
($ in thousands, except par value) Sep. 30 Dec. 31
ASSETS 2023 2022
Investments:   
Debt securities, available-for-sale, at fair value (amortized cost: $299,544 in 2023 and $434,119 in 2022; allowance for expected credit losses of $0 in 2023)$267,684 $426,597 
Equity securities (cost: $24,284 in 2023 and $30,058 in 2022) 19,759  28,199 
Total investments 287,443  454,796 
Cash and cash equivalents 75,667  59,133 
Restricted cash 11,029  29,486 
Ceded unearned premiums 30,881  237,086 
Premiums receivable 54,393  78,355 
Accounts receivable 2,384  10,859 
Receivable from reinsurer 0  58,882 
Receivable for securities 1,981  945 
Reinsurance recoverable (net of allowance for expected credit losses of $200 in 2023) 591,936  578,424 
Deferred policy acquisition costs 14,676  8 
Federal income tax recoverable 86  2,668 
Prepaid pension assets 277  163 
Prepaid expenses 1,294  1,508 
Other assets 20,875  24,389 
Total Assets$1,092,922 $1,536,702 
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY    
Liabilities:    
Senior unsecured notes due 2029 (less unamortized debt issuance costs of $599 in 2023 and $648 in 2022)$49,426 $49,352 
Subordinated debt securities (less unamortized debt issuance costs of $666 in 2023 and $691 in 2022) 56,049  56,011 
Reserves for unpaid losses and loss adjustment expenses 719,987  880,869 
Unearned premiums 107,574  292,691 
Reinsurance payable 76,362  128,950 
Accounts payable and other liabilities 91,292  68,535 
Total Liabilities 1,100,690  1,476,408 
Commitments and contingencies    
Stockholders’ equity:    
Common stock, $1.00 par value, authorized 3,333,333 shares; issued 2,087,283 shares in 2023 and 20222,087  2,087 
Additional paid-in capital 124,913  124,740 
(Accumulated deficit) retained earnings (105,454) (33,407)
Accumulated other comprehensive loss (4,680) (8,492)
Treasury stock (268,801 shares in 2023 and 2022), at cost (24,634) (24,634)
Total Stockholders (Deficit) Equity (7,768) 60,294 
Total Liabilities & Stockholders (Deficit) Equity$1,092,922 $1,536,702 
 


     
Hallmark Financial Services, Inc. and Subsidiaries    
Consolidated Statements of OperationsThree Months Ended Year-to-Date
($ in thousands, except per share amounts)September 30, September 30,
 20232022 20232022
Gross premiums written$54,293 $52,520  $165,976 $167,857 
Ceded premiums written (10,555) (15,902)  (35,982) (52,532)
Net premiums written 43,738  36,618   129,994  115,325 
Change in unearned premiums (6,959) (238)  (21,088) (2,593)
Net premiums earned 36,779  36,380   108,906  112,732 
          
Investment income, net of expenses 4,212  3,721   12,573  8,700 
Investment gains (losses), net 144  (2,821)  (248) (6,764)
Finance charges 836  937   2,347  2,900 
Other income (72) 15   62  45 
Total revenues 41,899  38,232   123,640  117,613 
          
Losses and loss adjustment expenses 39,473  49,141   105,989  161,168 
Operating expenses 16,595  17,816   85,682  51,967 
Interest expense 2,036  1,528   5,872  4,158 
Amortization of intangible assets 0  7   0  21 
Total expenses 58,104  68,492   197,543  217,314 
          
Loss from continuing operations before tax (16,205) (30,260)  (73,903) (99,701)
Income tax expense (benefit) from continuing operations 456  (1,007)  (211) 5,242 
Net (loss) income from continuing operations$(16,661)$(29,253) $(73,692)$(104,943)
          
Discontinued operations:         
Total pretax (loss) income from discontinued operations$(4,847)$2,801  $1,133 $10,573 
Income tax expense on discontinued operations -  1,701   -  6,419 
(Loss) income (loss) from discontinued operations, net of tax$(4,847)$1,100  $1,133 $4,154 
          
Net loss$(21,508)$(28,153) $(72,559)$(100,789)
          
Net (loss) basic income per share:         
Net loss from continuing operations$(9.16)$(16.08) $(40.53)$(57.72)
Net (loss) income from discontinued operations (2.67) 0.60   0.62  2.28 
Basic net (loss) income per share$(11.83)$(15.48) $(39.91)$(55.44)
          
Net (loss) diluted income per share:         
Net loss from continuing operations$(9.16)$(16.08) $(40.53)$(57.72)
Net (loss) income from discontinued operations (2.67) 0.60   0.62  2.28 
Diluted net (loss) income per share$(11.83)$(15.48) $(39.91)$(55.44)
          




Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Segment Data    
Three Months Ended Sep. 30          
 Commercial Lines SegmentPersonal Lines SegmentRunoff Specialty SegmentCorporateConsolidated
($ in thousands, unaudited) 2023  2022  2023  2022  2023  2022  2023 2022  2023  2022 
Gross premiums written$31,096 $34,557 $23,194 $15,638 $3 $2,325 $-$- $54,293 $52,520 
Ceded premiums written (10,461) (15,801) (105) (76) 11  (25) - -  (10,555) (15,902)
Net premiums written 20,635  18,756  23,089  15,562  14  2,300  - -  43,738  36,618 
Change in unearned premiums 617  (207) (7,577) 38  1  (69) - -  (6,959) (238)
Net premiums earned 21,252  18,549  15,512  15,600  15  2,231  - -  36,779  36,380 
           
Total revenues 21,271  18,574  16,343  16,529  (71) 2,229  4,356 900  41,899  38,232 
           
Losses and loss adjustment expenses 26,070  14,484  11,826  14,735  1,577  19,922  - -  39,473  49,141 
           
Pre-tax (loss) income$(13,654)$(2,762)$(773)$(3,637)$(2,041)$(19,612)$263$(4,249)$(16,205)$(30,260)
           
Net loss ratio (1) 122.7% 78.1% 76.2% 94.5%N/A (2) 893.0%   107.3% 135.1%
Net expense ratio (1) 41.6% 37.9% 28.8% 30.3%N/A (2) 45.1%   42.8% 42.0%
Net combined ratio (1) 164.3% 116.0% 105.0% 124.8%N/A (2) 938.1%   150.1% 177.1%
           
Impact on net combined ratio          
Net Unfavorable (Favorable) Prior Year Development 3.9% 1.6% 6.4% 11.6%N/A (2) 830.5%   9.7% 56.7%
Catastrophes, net of reinsurance including reinstatement premium 61.5% 10.9% 3.2% 0.8%N/A (2) 0.0%   36.9% 4.9%
Write-off receivable from reinsurer 0.0% 0.0% 0.0% 0.0%N/A (2) 0.0%   0.0% 0.0%
Underlying combined ratio (1) 98.9% 103.5% 95.4% 112.4%N/A (2) 107.6%   103.6% 115.5%
           
Net Unfavorable (Favorable) Prior Year Development 825  300  990  1,810  1,764  18,528  - -  3,579  20,638 


(1) The net loss ratio is calculated as incurred losses and loss adjustment expenses divided by net premiums earned, each determined in accordance with GAAP. The net expense ratio is calculated as total underwriting expenses offset by agency fee income divided by net premiums earned, each determined in accordance with GAAP. The net combined ratio is calculated as the sum of the net loss ratio and the net expense ratio. The underlying combined ratio is the net combined ratio excluding the impact of net prior year reserve development and catastrophes and excluding the write-off of a receivable from reinsurer.
 (2) The Company’s Runoff Segment has reached a point of maturity that earned premium is minimal and renders any ratios no longer meaningful.
   


Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Segment Data
Year-to-Date Ended Sep. 30          
 Commercial Lines
Segment		Personal Lines
Segment		Runoff
Segment		CorporateConsolidated
($ in thousands, unaudited)2023202220232022202320222023202220232022
Gross premiums written$113,733 $110,013 $51,919 $47,589 $324 $10,255 $- $- $165,976 $167,857 
Ceded premiums written (35,460) (51,434) (316) (226) (206) (872) -  -  (35,982) (52,532)
Net premiums written 78,273  58,579  51,603  47,363  118  9,383  -  -  129,994  115,325 
Change in unearned premiums (12,239) (3,584) (8,859) (350) 10  1,341  -  -  (21,088) (2,593)
Net premiums earned 66,034  54,995  42,744  47,013  128  10,724  -  -  108,906  112,732 
           
Total revenues 66,082  55,064  45,087  49,889  42  10,724  12,429  1,936  123,640  117,613 
           
Losses and loss adjustment expenses 59,483  40,398  36,469  41,408  10,037  79,362  -  -  105,989  161,168 
           
Pre-tax (loss) income$(15,151)$(4,261)$(7,265)$(7,989)$(49,266)$(73,929)$(2,221)$(13,522)$(73,903)$(99,701)
           
Net loss ratio (1) 90.1% 73.5% 85.3% 88.1%N/A (2) 740.0%   97.3% 143.0%
Net expense ratio (1) 32.9% 35.7% 31.8% 30.3%N/A (2) 40.3%   76.5% 41.1%
Net combined ratio (1) 123.0% 109.2% 117.1% 118.4%N/A (2) 780.3%   173.8% 184.1%
           
Impact on net combined ratio          
Net Unfavorable (Favorable) Prior Year Development 2.4% 0.5% 9.3% 11.1%N/A (2) 656.1%   13.9% 67.3%
Catastrophes, net of reinsurance including reinstatement premium 23.4% 5.4% 2.1% 0.4%N/A (2) 0.0%   15.0% 2.8%
Write-off receivable from reinsurer 0.0% 0.0% 0.0% 0.0%N/A (2) 0.0%   33.8% 0.0%
Underlying combined ratio (1) 97.2% 103.3% 105.7% 106.9%N/A (2) 124.2%   111.1% 114.0%
           
Net Unfavorable (Favorable) Prior Year Development 1,594  250  3,982  5,218  9,603  70,365    15,179  75,833 

 

(1) The net loss ratio is calculated as incurred losses and loss adjustment expenses divided by net premiums earned, each determined in accordance with GAAP. The net expense ratio is calculated as total underwriting expenses offset by agency fee income divided by net premiums earned, each determined in accordance with GAAP. The net combined ratio is calculated as the sum of the net loss ratio and the net expense ratio. The underlying combined ratio is the net combined ratio excluding the impact of net prior year reserve development and catastrophes and excluding the write-off of a receivable from reinsurer.
 (2) The Company’s Runoff Segment has reached a point of maturity that earned premium is minimal and renders any ratios no longer meaningful.
   

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