Hallmark Announces Fourth Quarter and Fiscal 2021 Results
03/16/2022 - 04:05 PM
DALLAS, March 16, 2022 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (“Hallmark”) (NASDAQ: HALL) today announced financial results for the fourth quarter and fiscal year ended December 31, 2021.
Highlights:
Pre-tax loss was ($3.1) million for the three months ended December 31, 2021, as compared to pre-tax loss of ($13.3) million reported during the same period in 2020. Pre-tax income was $11.5 million for the fiscal year ended December 31, 2021, as compared to a pre-tax loss of ($115.8) million for fiscal 2020. Net loss was ($2.5) million , or ($0.14) per diluted share, in the fourth quarter of 2021 as compared to net loss of ($7.8) million , or ($0.43) per diluted share, for the same period of 2020. Fiscal 2021 net income was $9.0 million , or $0.50 per diluted share, as compared to a net loss of ($94.4) million , or ($5.20) per diluted share, for fiscal 2020. Net combined ratio was 106.1% and 101.1% for the three months and fiscal year ended December 31, 2021, compared to 117.7% and 111.3% for the same periods the prior year. Gross premiums written for fiscal 2021 decreased 12% compared to fiscal 2020. Excluding premiums from the exited binding primary commercial auto business, gross premiums written for fiscal 2021 would have decreased 9% compared to the same period of the prior year. (See “Non-GAAP” Financial Measures below). Net premiums written for fiscal 2021 decreased 21% compared to fiscal 2020. Excluding premiums from the exited binding primary commercial auto business, gross premiums written for fiscal 2021 would have decreased 16% compared to fiscal 2020. (See “Non-GAAP” Financial Measures below). Net catastrophe losses were $5.9 million in the fourth quarter of 2021, or 6.8 points of the net combined ratio as compared to $0.8 million , or 0.8 points of the net combined ratio for the same period the prior year. Net catastrophe losses were $18.3 million for fiscal 2021, or 4.8 points of the net combined ratio as compared to $23.1 million , or 4.9 points of the net combined ratio for fiscal 2020. Net investment gain was $10.2 million for fiscal 2021, which included $4.2 million of unrealized gains on equity securities, as compared to net investment loss of $22.9 million , which included $23.3 million of unrealized losses on equity and other investment securities, during fiscal 2020. Fourth Quarter and Fiscal 2021 Financial Review
Fourth Quarter Fiscal Year 2021 2020 % Change 2021 2020 % Change ($ in thousands) Gross premiums written $ 151,915 $ 161,671 -6 % $ 653,754 $ 743,368 -12 % Net premiums written $ 69,975 $ 85,903 -19 % $ 339,924 $ 428,332 -21 % Net premiums earned $ 86,509 $ 109,884 -21 % $ 379,290 $ 471,901 -20 % Investment income, net of expenses $ 2,139 $ 2,606 -18 % $ 9,715 $ 12,920 -25 % Investment (losses) gains, net $ 1,100 $ 5,005 -78 % $ 10,222 $ (22,894 ) 145 % Net income (loss) $ (2,545 ) $ (7,810 ) 67 % $ 9,004 $ (94,351 ) 110 % Operating income (loss) (2) $ (3,436 ) $ (11,764 ) 71 % $ 929 $ (13,399 ) 107 % Net income (loss) per share - basic $ (0.14 ) $ (0.43 ) 67 % $ 0.50 $ (5.20 ) 110 % Net income (loss) per share - diluted $ (0.14 ) $ (0.43 ) 67 % $ 0.50 $ (5.20 ) 110 % Operating income (loss) per share - diluted (2) $ (0.19 ) $ (0.65 ) 71 % $ 0.05 $ (0.74 ) 107 % Book value per share $ 9.66 $ 9.24 4.5 %
(1) Other-than-temporary impairment is included in investment gains (losses), net
(2) See “Non-GAAP Financial Measures” below
Gross Premiums Written $151.9 million and $653.8 million during the three months ended and fiscal year ended December 31, 2021, respectively, representing a decrease of 6% and 12% , from the $161.7 million and $743.4 million in gross premiums written for the same periods in 2020.
Net Premiums Written $70.0 million and $339.9 million during the three months ended and fiscal year ended December 31, 2021, representing a decrease of 19% and 21% , from the $85.9 million and $428.3 million in net premiums written for the same periods in 2020.
Net Premiums Earned $86.5 million and $379.3 million for the three months ended and fiscal year ended December 31, 2021, representing a decrease of 21% and 20% , from the $109.9 million and $471.9 million in net premiums earned for the same periods in 2020.
Investments $2.1 million and $9.7 million during the three months ended and fiscal year ended December 31, 2021, as compared to $2.6 million and $12.9 million during the same periods in 2020. The decline in net investment income was primarily due to lower interest rates compared to the same periods during 2020 and an increase in the proportion of cash and short-term investments held relative to longer maturity investments.
Net investment gain was $1.1 million for the three months and $10.2 million for the fiscal year ended December 31, 2021, as compared to net investment gain of $5.0 million and net investment losses of $22.9 million , for the same periods in 2020. Net investment losses for the fiscal year ended December 31, 2020 included $1.7 million of other-than-temporary impairments reported during the third quarter comprised solely of secured obligations of American Airlines, Inc. maturing in 2022 and 2023 that have since recovered to market prices in excess of 90% of par value. The remaining net investment losses in fiscal 2020 were primarily due to sales of long-held equity securities in the first quarter of 2020 during the market decline associated with the COVID-19 pandemic. These sales were a management decision to reallocate capital supporting the investment portfolio to insurance underwriting operations and were not reflective of investment views regarding the future prospects for the securities.
Fixed-income securities were $290.0 million as of December 31, 2021 as compared to $507.3 million as of December 31, 2020, with a tax equivalent book yield of 2.4% compared to 2.7% as of December 31, 2020. As of December 31, 2021, the fixed-income portfolio had an average modified duration of 0.6 years and 74% of the securities had remaining time to maturity of five years or less. As of December 31, 2020, the fixed-income portfolio had an average modified duration of 0.8 years and 91% of the securities had remaining time to maturity of five years or less. As of December 31, 2021, 14% of the total investment portfolio was invested in equity securities as compared to 5% as of December 31, 2020.
Total investments were $338.8 million as of December 31, 2021. Cash and cash equivalents, including restricted cash were $356.7 million . Total investments, cash and cash equivalents, and restricted cash were $695.5 million or $38.27 per share.
Pre-Tax Income (Loss) $3.1) million for the three months ended December 31, 2021, as compared to pre-tax loss of ($13.3) million reported during the same period in 2020. Pre-tax income was $11.5 million for fiscal 2021, as compared to a pre-tax loss of ($115.8) million for fiscal 2020. The improvement in pre-tax results for fiscal 2021 as compared to the prior year was primarily due to the absence of $46.0 million of impairment charges to goodwill and indefinite-lived intangible assets taken during the first quarter of 2020, a $131.7 million decrease in losses and LAE and a $11.5 million decrease in operating expenses and a $2.0 million decrease in amortization of intangible assets, partially offset by decreased revenue. The impairment charges during the first quarter of 2020 resulted from our determination that a significant decline in market capitalization below stockholders’ equity indicated the impairment of the goodwill and indefinite-lived intangible assets included in our balance sheet.
Loss and Loss Adjustment Expenses (“LAE”) and Net Combined Ratios $33.1 million and $131.7 million , as compared to the same periods during 2020, primarily due to improved prior year net loss reserve development, lower fiscal year net catastrophe losses and lower net premiums earned. There was $4.2 million and $6.0 million of net unfavorable prior year loss reserve development during the three months and fiscal year ended December 31, 2021 as compared to net unfavorable prior year loss reserve development of $25.0 million and $58.3 million during the same periods in 2020. Net catastrophe losses were $5.9 million and $18.3 million during the three months and fiscal year ended December 31, 2021 as compared to $0.8 million and $23.1 million , during the same periods of 2020.
The net loss ratio was 75.8% and 72.6% for the three months and fiscal year ended December 31, 2021, as compared to 89.8% and 86.2% reported during the same periods in 2020. Catastrophe losses contributed 6.8 points and 4.8 points to the net loss ratio for the three months and fiscal year ended December 31, 2021, as compared to 0.8 points and 4.9 points for the same periods during 2020. Net unfavorable prior year loss reserve development contributed 4.9 points and 1.6 points to the net loss ratio for the three months and fiscal year ended December 31, 2021, as compared to 22.8 points and 12.4 points for the same periods during 2020.
The net expense ratio was 30.3% and 28.5% for the three months and fiscal year ended December 31, 2021, as compared to 27.9% and 25.1% during the same periods in 2020. The Company reported net combined ratios of 106.1% and 101.1% for the three months and fiscal year ended December 31, 2021, as compared to 117.7% and 111.3% for the same periods during 2020. The increase in the expense ratio during the quarter includes $1.6 million of previously capitalized expenses related to the decision to discontinue pursuit of an initial public offering of a non-controlling ownership stake in the core business of its Specialty Commercial business segment. This expense added 1.8 points and 0.4 points to the expense ratio during the three months and fiscal year ended December 31, 2021, respectively.
Net Income (Loss) $2.5) million for the three months ended December 31, 2021 and net income was $9.0 million for the fiscal year ended December 31, 2021, as compared to net losses of ($7.8) million and ($94.4) million for the same periods during 2020.
On a diluted basis per share, net loss was ($0.14) per share for the three months ended December 31, 2021 and net income was $0.50 per share for the fiscal year ended December 31, 2021, as compared to net loss of ($0.43) per share and ($5.20) per share for the same periods in 2020.
Book Value Per Share 5% to $9.66 per share as of December 31, 2021 as compared to $9.24 per share as of December 31, 2020.
Non-GAAP Financial Measures
The Company’s financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”). However, the Company also presents and discusses certain non-GAAP financial measures that it believes are useful to investors as measures of operating performance. Management may also use such non-GAAP financial measures in evaluating the effectiveness of business strategies and for planning and budgeting purposes. However, these non-GAAP financial measures should not be viewed as an alternative or substitute for the results reflected in the Company’s GAAP financial statements. In addition, the Company’s definitions of these items may not be comparable to the definitions used by other companies.
Operating loss and operating loss per share are calculated by excluding net investment gains and losses and impairment of goodwill and other intangible assets (collectively, “Impairments”) from GAAP net income. The Impairments are unusual and infrequent charges for the Company. Management believes that operating earnings and operating earnings per share provide useful information to investors about the performance of and underlying trends in the Company’s core insurance operations. Net income and net income per share are the GAAP measures that are most directly comparable to operating earnings and operating earnings per share. A reconciliation of operating earnings and operating earnings per share to the most comparable GAAP financial measures is presented below.
Weighted Income (Loss) Less Tax Net Average Diluted ($ in thousands) Before Tax Effect After Tax Shares Diluted Per Share Fourth Quarter 2021 Reported GAAP measures $ (3,113 ) $ (546 ) $ (2,567 ) 18,172 $ (0.14 ) Excluded investment (gains)/losses $ (1,100 ) $ (231 ) $ (869 ) 18,172 $ (0.05 ) Operating income $ (4,213 ) $ (777 ) $ (3,436 ) 18,172 $ (0.19 ) Fourth Quarter 2020 Reported GAAP measures $ (13,284 ) $ (5,474 ) $ (7,810 ) 18,142 $ (0.43 ) Excluded investment (gains)/losses $ (5,005 ) $ (1,051 ) $ (3,954 ) 18,142 $ (0.22 ) Operating loss $ (18,289 ) $ (6,525 ) $ (11,764 ) 18,142 $ (0.65 ) Fiscal 2021 Reported GAAP measures $ 11,495 $ 2,491 $ 9,004 18,165 $ 0.50 Excluded investment (gains)/losses $ (10,222 ) $ (2,147 ) $ (8,075 ) 18,165 $ (0.44 ) Operating income $ 1,273 $ 344 $ 929 18,165 $ 0.05 Fiscal 2020 Reported GAAP measures $ (115,768 ) $ (21,417 ) $ (94,351 ) 18,137 $ (5.20 ) Excluded impairment of goodwill and other intangibles $ 45,996 $ 273 $ 45,723 18,137 $ 2.52 Excluded loss portfolio transfer cost included in Losses and LAE $ 21,700 $ 4,557 $ 17,143 18,137 $ 0.95 Excluded investment (gains)/losses $ 22,894 $ 4,808 $ 18,086 18,137 $ 1.00 Operating loss $ (25,178 ) $ (11,779 ) $ (13,399 ) 18,137 $ (0.74 )
In February 2020, Hallmark made the strategic decision to exit the contract binding line of the primary automobile business as a result of increasing claim severity and limited opportunity for meaningful rate increases. At that time, the Company began the process of non-renewing policies and placing in-force policies in runoff in accordance with state regulatory guidelines. Management believes that presenting gross and net premiums written excluding the contract binding line of the primary automobile business provides useful information to investors about the impact of this decision. A reconciliation of year-to-date GAAP gross and net premiums written to gross and net premiums written excluding the contract binding line of the primary automobile business is presented below.
Gross Written Premium Net Written Premium 2021 2020 % Change 2021 2020 % Change ($ in thousands) Reported written premium $ 653,754 $ 743,368 -12 % $ 339,924 $ 428,332 -21 % Less primary binding commercial auto $ 218 $ 25,420 -99 % $ 48 $ 23,694 -100 % Written premium excluding primary binding commercial auto $ 653,536 $ 717,948 -9 % $ 339,876 $ 404,638 -16 %
About Hallmark
Hallmark is a specialty 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 Kenneywww.hallmarkgrp.com
Hallmark Financial Services, Inc. and Subsidiaries Consolidated Balance Sheets ($ in thousands, except par value) Dec. 31 Dec. 31 ASSETS 2021 2020 Investments: Debt securities, available-for-sale, at fair value (amortized cost: $288,175 in 2021 and $502,167 in 2020) $ 290,073 $ 507,279 Equity securities (cost: $42,120 in 2021 and $26,988 in 2020) 48,695 29,388 Total investments 338,768 536,667 Cash and cash equivalents 352,867 102,580 Restricted cash 3,810 5,728 Ceded unearned premiums 146,433 143,446 Premiums receivable 90,621 120,332 Accounts receivable 6,914 5,967 Receivable for securities 1,326 913 Reinsurance recoverable 549,964 497,846 Deferred policy acquisition costs 6,811 17,840 Intangible assets, net 819 1,322 Federal income tax recoverable 18,217 24,691 Deferred federal income taxes, net 8,906 8,724 Prepaid expenses 2,389 2,648 Other assets 25,753 28,013 Total Assets $ 1,553,598 $ 1,496,717 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Senior unsecured notes due 2029 (less unamortized debt issuance costs of $746 in 2021 and $844 in 2020) $ 49,254 $ 49,156 Subordinated debt securities (less unamortized debt issuance costs of $744. in 2021 and $795 in 2020) 55,959 55,907 Reserves for unpaid losses and loss adjustment expenses 816,681 789,768 Unearned premiums 284,427 320,806 Reinsurance payable 117,908 61,100 Pension liability 174 1,859 Payable for securities 3,280 - Accounts payable and other accrued expenses 50,394 50,415 Total Liabilities 1,378,077 1,329,011 Commitments and contingencies Stockholders' equity: Common stock, $.18 par value, authorized 33,333,333 shares; issued 20,872,831 shares in 2021 and 2020 3,757 3,757 Additional paid-in capital 122,844 122,893 Retained earnings 74,703 65,699 Accumulated other comprehensive income (1,035 ) 383 Treasury stock (2,700,364 shares in 2021 and 2,730,673 shares in 2020), at cost (24,748 ) (25,026 ) Total Stockholders Equity 175,521 167,706 Total Liabilities & Stockholders Equity $ 1,553,598 $ 1,496,717
Hallmark Financial Services, Inc. and Subsidiaries Consolidated Statements of Operations Three Months Ended Fiscal Year Ended ($ in thousands, except per share amounts) December 31, December 31, 2021 2020 2021 2020 Gross premiums written $ 151,916 $ 161,671 $ 653,754 $ 743,368 Ceded premiums written (81,939 ) (75,768 ) (313,830 ) (315,036 ) Net premiums written 69,977 85,903 339,924 428,332 Change in unearned premiums 16,530 23,981 39,366 43,569 Net premiums earned 86,507 109,884 379,290 471,901 Investment income, net of expenses 2,139 2,606 9,715 12,920 Investment (losses) gains, net 1,100 5,005 10,222 (22,894 ) Finance charges 1,026 1,217 4,344 5,705 Commission and fees 327 363 1,069 1,156 Other income 13 12 63 60 Total revenues 91,112 119,087 404,703 468,848 Losses and loss adjustment expenses 65,570 98,629 275,244 406,907 Operating expenses 27,279 31,860 112,467 123,919 Interest expense 1,250 1,265 4,993 5,326 Impairment of goodwill and other intangible assets 0 0 0 45,996 Amortization of intangible assets 126 617 504 2,468 Total expenses 94,225 132,371 393,208 584,616 (Loss) income before tax (3,113 ) (13,284 ) 11,495 (115,768 ) Income tax (benefit) expense (546 ) (5,474 ) 2,491 (21,417 ) Net (loss) income $ (2,567 ) $ (7,810 ) $ 9,004 $ (94,351 ) Net (loss) income per share: Basic $ (0.14 ) $ (0.43 ) $ 0.50 $ (5.20 ) Diluted $ (0.14 ) $ (0.43 ) $ 0.50 $ (5.20 )
Hallmark Financial Services, Inc. and Subsidiaries Consolidated Segment Data Three Months Ended Dec. 31 Specialty Commercial Segment Standard Commercial Segment Personal Segment Corporate Consolidated ($ in thousands, unaudited) 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 Gross premiums written $ 114,086 $ 122,188 $ 23,178 $ 23,104 $ 14,652 $ 16,379 $ - $ - $ 151,916 $ 161,671 Ceded premiums written (73,242 ) (68,069 ) (8,627 ) (7,882 ) (70 ) 183 - - (81,939 ) (75,768 ) Net premiums written 40,844 54,119 14,551 15,222 14,582 16,562 - - 69,977 85,903 Change in unearned premiums 11,883 20,809 2,951 1,801 1,696 1,371 - - 16,530 23,981 Net premiums earned 52,727 74,928 17,502 17,023 16,278 17,933 - - 86,507 109,884 Total revenues 55,386 77,754 18,211 17,689 17,578 19,430 (63 ) 4,214 91,112 119,087 Losses and loss adjustment expenses 39,074 65,779 12,512 15,165 13,984 17,685 - - 65,570 98,629 Pre-tax income (loss) 4,098 (2,000 ) (377 ) (2,885 ) (1,679 ) (4,502 ) (5,155 ) (3,897 ) (3,113 ) (13,284 ) Net loss ratio (1) 74.1 % 87.8 % 71.5 % 69.3 % 85.9 % 98.6 % 75.8 % 89.8 % Net expense ratio (1) 24.9 % 19.2 % 35.6 % 33.0 % 27.9 % 29.2 % 30.3 % 27.9 % Net combined ratio (1) 99.0 % 107.0 % 107.1 % 102.3 % 113.8 % 127.8 % 106.1 % 117.7 % Net (Unfavorable) Favorable Prior Year Development (2,881 ) (21,847 ) (815 ) (1,007 ) (535 ) (2,175 ) (4,231 ) (25,029 )
(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.
Hallmark Financial Services, Inc. and Subsidiaries Consolidated Segment Data Fiscal Year Ended Dec. 31 Specialty Commercial Segment Standard Commercial Segment Personal Segment Corporate Consolidated ($ in thousands, unaudited) 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 Gross premiums written $ 480,981 $ 560,301 $ 105,560 $ 98,048 $ 67,213 $ 85,019 $ - $ - $ 653,754 $ 743,368 Ceded premiums written (275,677 ) (275,769 ) (37,850 ) (29,652 ) (303 ) (9,615 ) - - (313,830 ) (315,036 ) Net premiums written 205,304 284,532 67,710 68,396 66,910 75,404 - - 339,924 428,332 Change in unearned premiums 36,868 42,491 874 (1,842 ) 1,624 2,920 - - 39,366 43,569 Net premiums earned 242,172 327,023 68,584 66,554 68,534 78,324 - - 379,290 471,901 Total revenues 252,368 340,515 71,295 69,819 73,969 84,730 7,071 (26,216 ) 404,703 468,848 Losses and loss adjustment expenses 164,729 285,994 49,152 52,478 61,363 68,435 - - 275,244 406,907 Pre-tax income (loss) 32,915 (7,752 ) (30 ) (3,039 ) (9,955 ) (10,338 ) (11,435 ) (94,639 ) 11,495 (115,768 ) Net loss ratio (1) 68.0 % 87.5 % 71.7 % 78.9 % 89.5 % 87.4 % 72.6 % 86.2 % Net expense ratio (1) 23.7 % 19.3 % 33.0 % 31.1 % 27.9 % 27.5 % 28.5 % 25.1 % Net combined ratio (1) 91.7 % 106.8 % 104.7 % 110.0 % 117.4 % 114.9 % 101.1 % 111.3 % Net (Unfavorable) Favorable Prior Year Development (2,670 ) (45,808 ) 1,521 (3,357 ) (4,891 ) (9,123 ) (6,040 ) (58,288 )
(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.
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