Hallmark Announces Second Quarter 2021 Results
08/12/2021 - 04:05 PM
DALLAS, Texas, Aug. 12, 2021 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (“Hallmark”) (NASDAQ: HALL) today announced financial results for the second quarter and six months ended June 30, 2021.
Second Quarter Year-to-Date 2021 2020 2021 2020 $ in millions: Net Income (Loss) $ (0.5 ) $ 6.7 $ 8.9 $ (57.6 ) Operating Income (1) $ (3.5 ) $ 5.1 $ 1.3 $ 9.7 $ per diluted share: Net Income (Loss) $ (0.03 ) $ 0.37 $ 0.49 $ (3.18 ) Operating Income (1) $ (0.19 ) $ 0.28 $ 0.07 $ 0.53 (1) See “Non-GAAP Financial Measures” below
Highlights:
Net loss of $0.5 million , or $0.03 per share, in the second quarter of 2021 as compared to net income of $6.7 million , or $0.37 per share, for the same period of 2020. Year-to-date net income of $8.9 million , or $0.49 per share, as compared to a net loss of $57.6 million , or $3.18 per share, for the same period of 2020. Net combined ratio of 105.7% and 100.8% for the three and six months ended June 30, 2021, compared to 98.4% and 98.0% for the same periods the prior year. Specialty Commercial Segment net combined ratio of 97.2% and 92.3% for the three and six months ended June 30, 2021, compared to 96.9% and 92.3% for the same periods the prior year. Substantial rate increases achieved, particularly in the Specialty Commercial Segment, with increases for this business averaging 12% for the quarter and 13% year-to-date. Gross premiums written for the six months ended June 30, 2021 decreased 14% compared to the same period of the prior year. Excluding premiums from the exited binding primary commercial auto business, gross premiums written for the six months ended June 30, 2021 would have decreased 8% compared to the same period of the prior year. (See “Non-GAAP” Financial Measures below). Net premiums written for the six months ended June 30, 2021 decreased 23% compared to the same period of the prior year. Excluding premiums from the exited binding primary commercial auto business, gross premiums written for the six months ended June 30, 2021 would have decreased 15% compared to the same period of the prior year. (See “Non-GAAP” Financial Measures below). Net catastrophe losses were $3.7 million in the second quarter of 2021, or 3.8 points of the net combined ratio as compared to $6.6 million , or 5.2 points of the net combined ratio for the same period the prior year. Net catastrophe losses were $9.6 million for the first six months of 2021, or 4.8 points of the net combined ratio as compared to $12.6 million , or 5.0 points of the net combined ratio for the same period the prior year. Net investment gains of $3.9 million during the second quarter of 2021, which included $1.1 million of unrealized gains on equity securities, as compared to net investment gains of $2.1 million , which included $2.5 million of unrealized gains on equity and other investment securities, during the same period the prior year. Second Quarter and Year-to-Date 2021 Financial Review
Second Quarter Year-to-Date 2021 2020 % Change 2021 2020 % Change ($ in thousands) Gross premiums written 169,716 183,644 -8 % 332,734 385,233 -14 % Net premiums written 89,134 108,987 -18 % 182,281 235,492 -23 % Net premiums earned 98,611 125,596 -21 % 202,829 249,529 -19 % Investment income, net of expenses 2,353 3,196 -26 % 5,363 7,654 -30 % Investment gains (losses), net 3,876 2,058 88 % 9,655 (27,272 ) 135 % Net (loss) income (467 ) 6,701 -107 % 8,878 (57,609 ) 115 % Operating (loss) income (1) (3,529 ) 5,075 -170 % 1,251 9,659 -87 % Net (loss) income per share - basic $ (0.03 ) $ 0.37 -108 % $ 0.49 $ (3.18 ) 115 % Net (loss) income per share - diluted $ (0.03 ) $ 0.37 -108 % $ 0.49 $ (3.18 ) 115 % Operating (loss) income per share - diluted (1) $ (0.19 ) $ 0.28 -168 % $ 0.07 $ 0.53 -87 % Book value per share $ 9.84 $ 11.14 -12 % (1) See “Non-GAAP Financial Measures” below
$169.7 million and $332.7 million during the three and six months ended June 30, 2021, representing a decrease of 8% and 14% , from the $183.6 million and $385.2 million in gross premiums written for the same periods in 2020.
Net Premiums Written $89.1 million and $182.3 million during the three and six months ended June 30, 2021, representing a decrease of 18% and 23% , from the $109.0 million and $235.5 million in net premiums written for the same periods in 2020.
Net Premiums Earned $98.6 million and $202.8 million for the three and six months ended June 30, 2021, representing a decrease of 21% and 19% , from the $125.6 million and $249.5 million in net premiums earned for the same periods in 2020.
Investments $2.4 million and $5.4 million during the three and six months ended June 30, 2021, as compared to $3.2 million and $7.7 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 gains were $3.9 million and $9.7 million for the three and six months ended June 30, 2021, as compared to net investment gains of $2.1 million and net investment losses of $27.3 million , for the same periods in 2020.
Fixed-income securities were $300.7 million as of June 30, 2021, with a tax equivalent book yield of 2.8% compared to 2.2% as of June 30, 2020. As of June 30, 2021, the fixed-income portfolio had an average modified duration of 0.7 years and 79% of the securities had remaining time to maturity of five years or less. As of June 30, 2021, 14% of the investment portfolio was invested in equity securities.
Total investments were $347.7 million as of June 30, 2021. Cash and cash equivalents, including restricted cash were $332.0 million . Total investments, cash and cash equivalents, and restricted cash were $679.7 million or $37.41 per share.
Pre-Tax (Loss) Income $0.5 million for the three months ended June 30, 2021, as compared to pre-tax income of $5.6 million reported during the same period in 2020. Pre-tax income was $11.2 million for the six months ended June 30, 2021, as compared to a pre-tax loss of $64.0 million for the same period the prior year. The improvement in pre-tax results for the six months ended June 30, 2021 as compared to the same period 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 and a $39.7 million decrease in losses and LAE, 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. The decrease in losses and LAE was primarily the result of exiting the contract binding line of the primary automobile business marketed by our Commercial Auto business unit commencing in February 2020, as well as an $18.3 million improvement in unfavorable net prior year loss reserve development. Decreased revenue for the first half of 2021 compared to the same period of the prior year was due primarily to decreased net premiums earned of $46.7 million , lower net investment income of $2.3 million and lower finance charges of $1.0 million , partially offset by $36.9 million higher net investment gains.
Loss and Loss Adjustment Expenses (“LAE”) and Net Combined Ratios
Losses and LAE for the three and six months ended June 30, 2021 decreased $17.2 million and $39.7 million , as compared to the same periods during 2020 due to improved prior year net loss reserve development, lower net catastrophe losses and lower net premiums earned, partially offset by increases in current accident year non-catastrophe net loss trends. There was $3.1 million and $1.0 million of net unfavorable prior year loss reserve development during the three and six months ended June 30, 2021 as compared to net unfavorable prior year loss reserve development of $10.8 million and $19.3 million during the same periods in 2020. Net catastrophe losses were $3.7 million and $9.6 million during the three and six months ended June 30, 2021 as compared to $6.6 million and $12.6 million , during the same periods of 2020.
The net loss ratio was 78.8% and 73.3% for the three and six months ended June 30, 2021, as compared to 75.5% and 75.5% reported during the same periods in 2020. Catastrophe losses contributed 3.8 points and 4.8 points to the net loss ratio for the three and six months ended June 30, 2021, as compared to 5.2 points and 5.0 points for the same periods during 2020. Net unfavorable prior year loss reserve development contributed 3.2 points and 0.5 points to the net loss ratio for the three and six months ended June 30, 2021, as compared to 8.6 points and 7.8 points contributed to the net loss ratio from net unfavorable prior year loss reserve development for the same periods during 2020.
The expense ratio was 26.9% and 27.5% for the three and six months ended June 30, 2021, as compared to 22.9% and 22.5% during the same periods in 2020. The Company reported net combined ratios of 105.7% and 100.8% for the three and six months ended June 30, 2021, as compared to 98.4% and 98.0% for the same periods during 2020.
Net Income (Loss)
Net loss was $0.5 million and net income was $8.9 million for the three and six months ended June 30, 2021, as compared to net income of $6.7 million and a net loss of $57.6 million for the same periods during 2020.
On a diluted basis per share, net loss was $0.03 per share and net income was $0.49 per share for the three and six months ended June 30, 2021, as compared to net income of $0.37 per share and net loss of $3.18 per share for the same periods in 2020.
Book Value Per Share
Book value per share increased 4% to $9.84 per share as of June 30, 2021 as compared to $9.42 per share as of December 31, 2020.
Non-GAAP Financial Measures
The Company’s financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”). However, the Company also presents and discusses certain non-GAAP financial measures that it believes are useful to investors as measures of operating performance. Management may also use such non-GAAP financial measures in evaluating the effectiveness of business strategies and for planning and budgeting purposes. However, these non-GAAP financial measures should not be viewed as an alternative or substitute for the results reflected in the Company’s GAAP financial statements. In addition, the Company’s definitions of these items may not be comparable to the definitions used by other companies.
Operating loss and operating loss per share are calculated by excluding net investment gains and losses and impairment of goodwill and other intangible assets (“Impairments”) from GAAP net income. The Impairments are unusual and infrequent charges for the Company. Management believes that operating earnings and operating earnings per share provide useful information to investors about the performance of and underlying trends in the Company’s core insurance operations. Net income and net income per share are the GAAP measures that are most directly comparable to operating earnings and operating earnings per share. A reconciliation of operating earnings and operating earnings per share to the most comparable GAAP financial measures is presented below.
Hallmark Financial Services, Inc. and Subsidiaries Non-GAAP Financial Measures Reconciliation Weighted Average Income (Loss) Less Tax Net Shares Diluted ($ in thousands) Before Tax Effect After Tax Diluted Per Share Second Quarter 2021 Reported GAAP measures $ (532 ) $ (65 ) $ (467 ) 18,171 $ (0.03 ) Excluded investment (gains)/losses $ (3,876 ) $ (814 ) $ (3,062 ) 18,171 $ (0.17 ) Operating income $ (4,408 ) $ (879 ) $ (3,529 ) 18,171 $ (0.19 ) Second Quarter 2020 Reported GAAP measures $ 5,583 $ (1,118 ) $ 6,701 18,141 $ 0.37 Excluded investment (gains)/losses $ (2,058 ) $ (432 ) $ (1,626 ) 18,141 $ (0.09 ) Operating income $ 3,525 $ (1,550 ) $ 5,075 18,141 $ 0.28 Year-to-Date 2021 Reported GAAP measures $ 11,168 $ 2,290 $ 8,878 18,157 $ 0.49 Excluded investment (gains)/losses $ (9,655 ) $ (2,028 ) $ (7,627 ) 18,157 $ (0.42 ) Operating income $ 1,513 $ 262 $ 1,251 18,157 $ 0.07 Year-to-Date 2020 Reported GAAP measures $ (64,003 ) $ (6,394 ) $ (57,609 ) 18,132 $ (3.18 ) Excluded impairment of goodwill and other intangible assets $ 45,996 $ 273 $ 45,723 18,132 $ 2.52 Excluded investment (gains)/losses $ 27,272 $ 5,727 $ 21,545 18,132 $ 1.19 Operating income $ 9,265 $ (394 ) $ 9,659 18,132 $ 0.53
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.
YTD Gross Written Premium YTD Net Written Premium 2021 2020 % Change 2021 2020 % Change ($ in thousands) Reported written premium 332,734 385,233 -14 % 182,281 235,492 -23 % Less primary binding commercial auto 226 22,013 -99 % 97 21,077 -100 % Written premium excluding primary binding commercial auto 332,508 363,220 -8 % 182,184 214,415 -15 %
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) Jun. 30 Dec. 31 ASSETS 2021 2020 Investments: (unaudited) Debt securities, available-for-sale, at fair value (amortized cost: $297,066 in 2021 and $502,167 in 2020) $ 300,737 $ 507,279 Equity securities (cost: $39,124 in 2021 and $26,988 in 2020) 46,948 29,388 Total investments 347,685 536,667 Cash and cash equivalents 326,558 102,580 Restricted cash 5,474 5,728 Ceded unearned premiums 139,609 138,926 Premiums receivable 105,792 120,332 Accounts receivable 4,524 5,967 Receivable for securities 7,037 913 Reinsurance recoverable 494,473 490,231 Deferred policy acquisition costs 13,291 17,840 Intangible assets, net 1,070 1,322 Federal income tax recoverable 20,025 25,642 Deferred federal income taxes, net 8,190 8,724 Prepaid expenses 5,598 2,648 Other assets 27,368 28,013 Total Assets $ 1,506,694 $ 1,485,533 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Senior unsecured notes due 2029 (less unamortized debt issuance costs of $795 in 2021 and $844 in 2020) $ 49,205 $ 49,156 Subordinated debt securities (less unamortized debt issuance costs of $769 in 2021 and $795 in 2020) 55,933 55,907 Reserves for unpaid losses and loss adjustment expenses 810,749 789,768 Unearned premiums 300,941 320,806 Reinsurance payable 51,921 46,700 Pension liability 1,640 1,859 Payable for securities 5,774 - Accounts payable and other accrued expenses 51,647 50,415 Total Liabilities 1,327,810 1,314,611 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 122,782 122,893 Retained earnings 77,793 68,915 Accumulated other comprehensive income (687 ) 383 Treasury stock (2,701,799 shares in 2021 and 2,730,673 shares in 2020), at cost (24,761 ) (25,026 ) Total Stockholders Equity 178,884 170,922 Total Liabilities & Stockholders Equity $ 1,506,694 $ 1,485,533
Hallmark Financial Services, Inc. and Subsidiaries Consolidated Statements of Operations Three Months Ended Six Months Ended ($ in thousands, except per share amounts, unaudited) June 30, June 30, 2021 2020 2021 2020 Gross premiums written $ 169,716 $ 183,644 $ 332,734 $ 385,233 Ceded premiums written (80,582 ) (74,657 ) (150,453 ) (149,741 ) Net premiums written 89,134 108,987 182,281 235,492 Change in unearned premiums 9,477 16,609 20,548 14,037 Net premiums earned 98,611 125,596 202,829 249,529 Investment income, net of expenses 2,353 3,196 5,363 7,654 Investment gains (losses), net 3,876 2,058 9,655 (27,272 ) Finance charges 1,109 1,528 2,242 3,172 Commission and fees 250 260 510 584 Other income 16 14 35 33 Total revenues 106,215 132,652 220,634 233,700 Losses and loss adjustment expenses 77,719 94,873 148,622 188,278 Operating expenses 27,653 30,259 58,094 59,407 Interest expense 1,249 1,320 2,498 2,788 Impairment of goodwill and other intangible assets 0 0 0 45,996 Amortization of intangible assets 126 617 252 1,234 Total expenses 106,747 127,069 209,466 297,703 (Loss) income before tax (532 ) 5,583 11,168 (64,003 ) Income tax (benefit) expense (65 ) (1,118 ) 2,290 (6,394 ) Net (loss) income $ (467 ) $ 6,701 $ 8,878 $ (57,609 ) Net (loss) income per share: Basic $ (0.03 ) $ 0.37 $ 0.49 $ (3.18 ) Diluted $ (0.03 ) $ 0.37 $ 0.49 $ (3.18 )
Hallmark Financial Services, Inc. and Subsidiaries Consolidated Segment Data Three Months Ended Jun. 30 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 $ 126,190 $ 138,627 $ 27,712 $ 23,842 $ 15,814 $ 21,175 $ - $ - $ 169,716 $ 183,644 Ceded premiums written (70,157 ) (64,640 ) (10,330 ) (7,037 ) (95 ) (2,980 ) - - (80,582 ) (74,657 ) Net premiums written 56,033 73,987 17,382 16,805 15,719 18,195 - - 89,134 108,987 Change in unearned premiums 8,316 14,350 (835 ) (404 ) 1,996 2,663 - - 9,477 16,609 Net premiums earned 64,349 88,337 16,547 16,401 17,715 20,858 - - 98,611 125,596 Total revenues 66,918 91,124 17,240 17,096 19,115 22,464 2,943 1,968 106,216 132,652 Losses and loss adjustment expenses 47,342 69,262 14,138 10,775 16,239 14,836 - - 77,719 94,873 Pre-tax income (loss) 5,327 5,882 (1,976 ) 802 (2,766 ) 1,884 (1,117 ) (2,985 ) (532 ) 5,583 Net loss ratio (1) 73.6 % 78.4 % 85.4 % 65.7 % 91.7 % 71.1 % 78.8 % 75.5 % Net expense ratio (1) 23.6 % 18.5 % 31.7 % 34.4 % 27.2 % 21.0 % 26.9 % 22.9 % Net combined ratio (1) 97.2 % 96.9 % 117.1 % 100.1 % 118.9 % 92.1 % 105.7 % 98.4 % Favorable (Unfavorable) Prior Year Development (1,127 ) (9,315 ) (18 ) (794 ) (1,985 ) (680 ) - - (3,130 ) (10,789 )
(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 Six Months Ended Jun. 30 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 $ 240,180 $ 288,097 $ 57,447 $ 50,218 $ 35,107 $ 46,918 $ - $ - $ 332,734 $ 385,233 Ceded premiums written (129,711 ) (128,604 ) (20,580 ) (14,500 ) (162 ) (6,637 ) - - (150,453 ) (149,741 ) Net premiums written 110,469 159,493 36,867 35,718 34,945 40,281 - - 182,281 235,492 Change in unearned premiums 23,457 15,816 (3,254 ) (2,899 ) 345 1,120 - - 20,548 14,037 Net premiums earned 133,926 175,309 33,613 32,819 35,290 41,401 - - 202,829 249,529 Total revenues 138,883 183,244 34,928 34,732 38,074 44,787 8,750 (29,063 ) 220,635 233,700 Losses and loss adjustment expenses 91,749 130,145 26,229 22,630 30,644 35,503 - - 148,622 188,278 Pre-tax income (loss) 17,148 22,174 (1,610 ) 1,518 (4,389 ) (3,771 ) 19 (83,924 ) 11,168 (64,003 ) Net loss ratio (1) 68.5 % 74.2 % 78.0 % 69.0 % 86.8 % 85.8 % 73.3 % 75.5 % Net expense ratio (1) 23.8 % 18.1 % 31.7 % 32.9 % 28.8 % 24.7 % 27.5 % 22.5 % Net combined ratio (1) 92.3 % 92.3 % 109.7 % 101.9 % 115.6 % 110.5 % 100.8 % 98.0 % Net Favorable (Unfavorable) Prior Year Development 772 (12,468 ) 1,343 (919 ) (3,159 ) (5,961 ) (1,044 ) (19,348 )
(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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