Hallmark Announces Second Quarter 2022 Results
08/15/2022 - 04:05 PM
DALLAS, Aug. 15, 2022 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (“Hallmark”) (NASDAQ: HALL) today announced financial results for the second quarter and six months ended June 30, 2022.
Second Quarter Year-to-Date 2022 2021 2022 2021 $ in millions: Net (Loss) Income $ (69.4 ) $ (0.8 ) $ (72.6 ) $ 8.1 Operating (Loss) Income (1) $ (42.4 ) $ (3.9 ) $ (45.6 ) $ 0.5 $ per diluted share: Net (Loss) Income $ (3.82 ) $ (0.05 ) $ (4.00 ) $ 0.45 Operating (Loss) Income (1) $ (2.33 ) $ (0.22 ) $ (2.51 ) $ 0.03
(1) See “Non-GAAP Financial Measures” belowHighlights:
Net loss of $69.4 million , or $3.82 per share, in the second quarter of 2022 as compared to a net loss of $0.8 million , or $0.05 per share, for the same period of 2021. Year-to-date net loss of $72.6 million , or $4.00 per share, as compared to net income of $8.1 million , or $0.45 per share, for the same period of 2021. The net loss for the second quarter and first six months of 2022 included a full valuation allowance of $23.9 million against net deferred tax assets primarily due to recent net losses, including the current period net loss. The net loss for the second quarter included a $42.7 million after-tax impact from the previously announced exited contract binding business. This impact was driven by unfavorable prior year loss reserve development of $35.6 million during the quarter, of which $29.6 million related to exceeding the aggregate limit of the loss portfolio transfer agreement entered into in fiscal 2020. Net combined ratio of 169.2% and 137.1% for the three and six months ended June 30, 2022, compared to 106.4% and 101.3% for the same periods the prior year Underlying combined ratio (excluding net prior year development and catastrophe losses) of 97.3% and 96.3% for the three and six months ended June 30, 2022, compared to 99.4% and 95.9% for the same periods the prior year. See Non-GAAP Financial Measures below. Gross premiums written for the three and six months ended June 30, 2022 increased 7.3% and 0.1% , respectively, compared to the same period the prior year. Net catastrophe losses were $2.0 million in the second quarter of 2022, or 2.5 points of the net combined ratio, as compared to $3.7 million , or 3.8 points of the net combined ratio, for the same period the prior year. Net catastrophe losses were $3.1 million for the first six months of 2022, or 1.9 points of the net combined ratio, as compared to $9.6 million , or 4.8 points of the net combined ratio, for the same period the prior year. Net investment income was $3.1 million and $5.0 million during the three and six months ended June 30, 2022, as compared to $2.4 million and $5.4 million during the same periods in 2021. Net investment losses of $4.0 million during the second quarter of 2022 as compared to net investment gains of $3.9 million during the same period the prior year. Net investment losses of $3.9 million for the six months ended June 30, 2022 as compared to net investment gains of $9.7 million during the same period the prior year. Second Quarter and Year-to-Date 2022 Financial Review
Second Quarter Year-to-Date 2022 2021 % Change 2022 2021 % Change ($ in thousands) Gross premiums written $ 182,066 $ 169,716 7 % $ 333,025 $ 332,734 0 % Net premiums written $ 84,301 $ 87,486 -4 % $ 162,622 $ 178,983 -9 % Net premiums earned $ 80,113 $ 96,584 -17 % $ 162,589 $ 198,436 -18 % Investment income, net of expenses $ 3,120 $ 2,353 33 % $ 4,979 $ 5,363 -7 % Investment (losses) gains ,net $ (3,994 ) $ 3,876 nm $ (3,943 ) $ 9,655 nm Net (loss) income $ (69,417 ) $ (845 ) nm $ (72,636 ) $ 8,125 nm Operating (loss) income (1) $ (42,374 ) $ (3,908 ) nm $ (45,633 ) $ 498 nm Net (loss) income per share - basic $ (3.82 ) $ (0.05 ) nm $ (4.00 ) $ 0.45 nm Net (loss) income per share - diluted $ (3.82 ) $ (0.05 ) nm $ (4.00 ) $ 0.45 nm Operating (loss) income per share - diluted (1) $ (2.33 ) $ (0.22 ) nm $ (2.51 ) $ 0.03 nm Book value per share $ 5.30 $ 9.63 -45 % $ 5.30 $ 9.63 -45.0 %
(1) See “Non-GAAP Financial Measures” below
Gross Premiums Written $182.1 million and $333.0 million during the three and six months ended June 30, 2022, representing an increase of 7% and 0% from the $169.7 million and $332.7 in gross premiums written for the same periods in 2021.
Net Premiums Written $84.3 million and $162.6 million during the three and six months ended June 30, 2022, representing a decrease of 4% and 9% from the $87.5 million and $179.0 million in net premiums written for the same periods in 2021.
Net Premiums Earned $80.1 million and $162.6 million for the three and six months ended June 30, 2022, representing a decrease of 17% and 18% from the $96.6 million and $198.4 million in net premiums earned for the same periods in 2021.
Investments 1.1% during the second quarter of 2022. Despite both equity and fixed income portfolios outperforming benchmarks, severe declines in equity and fixed income markets during the quarter prevented investments from contributing positively to results. The total return on Hallmark’s equity portfolio was -6.0% compared to -16.1% for the S&P 500 Stock Index. The total return on Hallmark’s fixed income portfolio was -0.9% compared to -4.5% for the Bloomberg Aggregate Bond Index.
Total return on investment securities was -1.3% during the six months ended June 30, 2022, again significantly outperforming market averages. The total return on Hallmark’s equity portfolio was -3.2% compared to -20.0% for the S&P 500 Stock Index. The total return on Hallmark’s fixed income portfolio was -1.6% compared to -10.4% for the Bloomberg Aggregate Bond Index.
Beginning in second quarter of 2020, following the steep decline in interest rates resulting from COVID-19 stimulus measures, significant restraint was exercised in making new commitments to bond investments. The amount of cash held steadily increased, growing to more than $350 million by 2021 year-end. As interest rates rose significantly in the latter part of the first quarter of 2022, $154 million of cash was deployed into fixed income securities at yields comparable to, or higher than, the average yield of the existing portfolio. During the second quarter of 2022, an additional $92 million was deployed in debt securities of similar or better yields.
These actions had two primary purposes. First, the cash reserves and short duration of debt securities held provided protection to the balance sheet during what has been described as among the worst periods of performance in bond markets in U.S. history – avoiding unrealized losses in longer dated maturities that will likely persist for years. Second, opportunistic reinvestment of large sums of cash into income generating securities with comparatively attractive yields is expected to contribute to an increase in investment income in future periods.
Net investment income was $3.1 million and $5.0 million during the three and six months ended June 30, 2022, as compared to $2.4 million and $5.4 million during the same periods in 2021. The 33% increase in net investment income during the second quarter of 2022 was primarily due to the reinvestment of cash into higher yielding securities, as discussed above.
Net investment losses were $4.0 million for the second quarter of 2022 as compared to net investment gains of $3.9 million for the same period in 2021. Net realized gains on common stocks of $1.0 million were offset by a $5.0 million reduction in the amount of unrealized gains on common and preferred stocks existing at March 31, 2022.
Net investment losses were $3.9 million for the six months ended June 30, 2022 as compared to net investment gains of $9.7 million for the same period in 2021. Net realized gains on common stocks of $1.2 million were offset by a $5.1 million reduction in the amount of unrealized gains on common and preferred stocks existing at December 31, 2021.
Fixed-income securities were $435.3 million at June 30, 2022, with a tax equivalent book yield of 2.9% compared to 2.4% as of December 31, 2021. As of June 30, 2022, the fixed-income portfolio had an average modified duration of 1.0 years and 85% of the securities had remaining time to maturity of five years or less. As of June 30, 2022, 9% of the investment portfolio was invested in equity securities.
Total investments were $479.6 million at June 30, 2022. Cash and cash equivalents, including restricted cash were $117.2 million . Total investments, cash and cash equivalents, and restricted cash were $596.8 million or $32.81 per share.
Pre-Tax (Loss) Income $57.6 million for the three months ended June 30, 2022, as compared to a pre-tax loss of $1.0 million reported during the same period in 2021. The decline in pre-tax results for the second quarter of 2022 compared to the same period of the prior year was predominately driven by higher loss and LAE of $35.4 million , as well as lower revenue driven by lower net premiums earned of $16.5 million , net investment losses of $4.0 million compared to net investment gains of $3.9 million the prior year, and lower finance charges of $0.1 million , partially offset by higher net investment income of $0.8 million . Lower operating expenses of $2.7 million partially offset the increase in pre-tax loss for the three months ended June 30, 2022 as compared to the same period of the prior year.
Pre-tax loss was $61.7 million for the six months ended June 30, 2022, as compared to pre-tax income of $10.2 million reported for the same period the prior year. The decline in pre-tax results for the six months ended June 30, 2022, was predominately driven by higher loss and LAE of $30.0 million , as well as lower revenue driven by decreased net premiums earned of $35.8 million , net investment losses of $3.9 million compared to net investment gains of $9.7 million the prior year, lower net investment income of $0.4 million and lower finance charges of $0.3 million , partially offset by higher commission and fees of $0.1 million . Lower operating expenses of $8.3 million partially offset the increase in pre-tax loss for the six months ended June 30, 2022 as compared to pre-tax income reported for the same period of the prior year.
Loss and Loss Adjustment Expenses (“LAE”) and Net Combined Ratios $35.4 million to $111.9 million for the three months ended June 30, 2022, as compared to the same period of the previous year. The increase in losses and LAE during the second quarter 2022 was primarily due to $55.6 million of adverse prior year loss reserve development, $35.6 million of which was from the exited contract binding line of the primary commercial automobile business, as compared to $3.1 million of unfavorable prior year loss reserve development for the same period the prior year, partially offset by lower earned premium volume and lower net catastrophe losses. Losses and LAE for the second quarter of 2022 included $2.0 million of net catastrophe losses as compared to $3.7 million during the same period of the prior year.
Losses and LAE increased by $30.0 million to $176.0 million for the six months ended June 30, 2022, as compared to the same period of the previous year. The increase in losses and LAE for the first six months of 2022 was primarily due to $63.3 million of unfavorable prior year loss reserve development, $44.4 million of which was from the exited contract binding line of the primary commercial automobile business, as compared to $1.0 million of unfavorable prior year loss reserve development for the prior year period, partially offset by lower earned premium volume and lower net catastrophe losses. Losses and LAE for the six months ended June 30, 2022, included $3.1 million of net catastrophe losses as compared to $9.6 million during the same period of the prior year.
Net (Loss) Income $69.4 million and $72.6 million for the three and six months ended June 30, 2022 as compared to net loss of $0.8 million and net income of $8.1 million for the same periods during 2021. On a diluted basis per share, net loss was $3.82 per share and $4.00 per share for the three and six months ended June 30, 2022 as compared to a net loss of $0.05 per share and net income of $0.45 per share for the three and six months ended June 30, 2021. The effective tax rate was -17.8% for the first six months of 2022 compared to 20.5% for the same period in 2021. During the second quarter of 2022 Hallmark recorded a full valuation allowance of $23.9 million against net deferred tax assets primarily due to recent net losses, including the current period net loss. The effective rate for the six months ended June 30, 2021 varied from the statutory tax rates primarily due to tax exempt interest income.
Net Loss, Expense and Combined Ratios 139.7% and 108.2% for the three and six months ended June 30, 2022, as compared to 79.2% and 73.6% reported during the same periods in 2021. Net unfavorable prior year loss reserve development contributed 69.4 points and 38.9 points to the net loss ratio for the three and six months ended June 30, 2022, respectively, as compared to 3.2 points and 0.5 points for the same periods during 2021. Catastrophe losses contributed 2.5 points and 1.9 points to the net loss ratio for the three and six months ended June 30, 2022, respectively, as compared to 3.8 points and 4.8 points for the same periods during 2021.
The expense ratio was 29.5% and 28.9% for the three and six months ended June 30, 2022, as compared to 27.2% and 27.7% during the same periods in 2021. The net combined ratio was 169.2% and 137.1% for the three and six months ended June 30, 2022, as compared to 106.4% and 101.3% for the same periods during 2021. The exited contract binding business adversely impacted the net combined ratio by 45.2 points and 27.6 points during the three and six months ended June 30, 2022.
Book Value Per Share 45% to $5.30 per share as of June 30, 2022 as compared to $9.66 per share as of December 31, 2021.
Non-GAAP Financial Measures
The Company’s financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”). However, the Company also presents and discusses certain non-GAAP financial measures that it believes are useful to investors as measures of operating performance. Management may also use such non-GAAP financial measures in evaluating the effectiveness of business strategies and for planning and budgeting purposes. However, these non-GAAP financial measures should not be viewed as an alternative or substitute for the results reflected in the Company’s GAAP financial statements. In addition, the Company’s definitions of these items may not be comparable to the definitions used by other companies.
Operating income and operating income per share are calculated by excluding net investment gains and losses and asset impairments or valuation allowances from GAAP net income. Asset impairments and valuation allowances are unusual and infrequent charges for the Company. Management believes that operating income and operating income per share provide useful information to investors about the performance of and underlying trends in the Company’s core insurance operations. Net income and net income per share are the GAAP measures that are most directly comparable to operating earnings and operating earnings per share. A reconciliation of operating income and operating income per share to the most comparable GAAP financial measures is presented below.
Hallmark Financial Services, Inc. and Subsidiaries Non-GAAP Financial Measures Reconciliation Weighted Income (Loss) Less Tax Net Average Diluted ($ in thousands) Before Tax Effect After Tax Shares Diluted Per Share Second Quarter 2022 Reported GAAP measures $ (57,550 ) $ 11,867 $ (69,417 ) 18,186 $ (3.82 ) Excluded deferred tax valuation allowance $ - $ (23,888 ) $ 23,888 18,186 $ 1.31 Excluded investment (gains)/losses $ 3,994 $ 839 $ 3,155 18,186 $ 0.17 Operating loss $ (53,556 ) $ (11,182 ) $ (42,374 ) 18,186 $ (2.33 ) Second Quarter 2021 Reported GAAP measures $ (1,011 ) $ (165 ) $ (846 ) 18,171 $ (0.05 ) Excluded investment (gains)/losses $ (3,876 ) $ (814 ) $ (3,062 ) 18,171 $ (0.17 ) Operating loss $ (4,887 ) $ (979 ) $ (3,908 ) 18,171 $ (0.22 ) Year-to-Date 2022 Reported GAAP measures $ (61,669 ) $ 10,967 $ (72,636 ) 18,179 $ (4.00 ) Excluded deferred tax valuation allowance $ - $ (23,888 ) $ 23,888 18,179 $ 1.31 Excluded investment (gains)/losses $ 3,943 $ 828 $ 3,115 18,179 $ 0.17 Operating loss $ (57,726 ) $ (12,093 ) $ (45,633 ) 18,179 $ (2.51 ) Year-to-Date 2021 Reported GAAP measures $ 10,216 $ 2,091 $ 8,125 18,157 $ 0.45 Excluded investment (gains)/losses $ (9,655 ) $ (2,028 ) $ (7,627 ) 18,157 $ (0.42 ) Operating income $ 561 $ 63 $ 498 18,157 $ 0.03
2ndQ 2022 2ndQ 2021 YTD 2022 YTD 2021 Net combined ratio 169.2 % 106.4 % 137.1 % 101.3 % Impact on net combined ratio Net Unfavorable (Favorable) Prior Year Development 69.4 % 3.2 % 38.9 % 0.5 % Catastrophes, net of reinsurance 2.5 % 3.8 % 1.9 % 4.9 % Underlying combined ratio 97.3 % 99.4 % 96.3 % 95.9 %
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 2022 2021 Investments: (unaudited) Debt securities, available-for-sale, at fair value (amortized cost: $442,218 in 2022 and $288,175 in 2021) $ 435,266 $ 290,073 Equity securities (cost: $42,856 in 2022 and $42,120 in 2021) 44,325 48,695 Total investments 479,591 338,768 Cash and cash equivalents 113,207 352,867 Restricted cash 4,019 3,810 Ceded unearned premiums 158,634 146,433 Premiums receivable 99,994 90,621 Accounts receivable 4,413 6,914 Receivable from reinsurer 38,645 - Receivable for securities 3,970 1,326 Reinsurance recoverable 522,957 549,964 Deferred policy acquisition costs 5,318 6,811 Intangible assets, net 567 819 Federal income tax recoverable 2,906 18,217 Deferred federal income taxes, net - 8,906 Prepaid pension 57 - Prepaid expenses 4,141 2,389 Other assets 27,584 25,753 Total Assets $ 1,466,003 $ 1,553,598 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Senior unsecured notes due 2029 (less unamortized debt issuance costs of $697 in 2022 and $746 in 2021) $ 49,303 $ 49,254 Subordinated debt securities (less unamortized debt issuance costs of $717 in 2022 and $744 in 2021) 55,985 55,959 Reserves for unpaid losses and loss adjustment expenses 848,207 816,681 Unearned premiums 296,662 284,427 Reinsurance payable 64,466 117,908 Pension liability - 174 Payable for securities 1,078 3,280 Accounts payable and other liabilities 53,930 50,394 Total Liabilities 1,369,631 1,378,077 Commitments and contingencies Stockholders' equity: Common stock, $.18 par value, authorized 33,333,333 shares; issued 20,872,831 shares in 2022 and 2021 3,757 3,757 Additional paid-in capital 123,166 122,844 Retained earnings 2,067 74,703 Accumulated other comprehensive loss (7,984 ) (1,035 ) Treasury stock (2,688,007 shares in 2022 and 2,700,364 shares in 2021), at cost (24,634 ) (24,748 ) Total Stockholders Equity 96,372 175,521 Total Liabilities & Stockholders Equity $ 1,466,003 $ 1,553,598
Hallmark Financial Services, Inc. and Subsidiaries Consolidated Statements of Operations Three Months Ended Year-to-Date ($ in thousands, except per share amounts, unaudited) June 30, June 30, 2022 2021 2022 2021 Gross premiums written $ 182,066 $ 169,716 $ 333,025 $ 332,734 Ceded premiums written (97,765 ) (82,230 ) (170,403 ) (153,751 ) Net premiums written 84,301 87,486 162,622 178,983 Change in unearned premiums (4,188 ) 9,098 (33 ) 19,453 Net premiums earned 80,113 96,584 162,589 198,436 Investment income, net of expenses 3,120 2,353 4,979 5,363 Investment (losses) gains, net (3,994 ) 3,876 (3,943 ) 9,655 Finance charges 980 1,109 1,963 2,242 Commission and fees 283 250 570 510 Other income 12 16 28 35 Total revenues 80,514 104,188 166,186 216,241 Losses and loss adjustment expenses 111,933 76,489 175,957 145,968 Operating expenses 24,639 27,335 49,016 57,307 Interest expense 1,366 1,249 2,630 2,498 Amortization of intangible assets 126 126 252 252 Total expenses 138,064 105,199 227,855 206,025 (Loss) income before tax (57,550 ) (1,011 ) (61,669 ) 10,216 Income tax expense (benefit) 11,867 (165 ) 10,967 2,091 Net (loss) income $ (69,417 ) $ (846 ) $ (72,636 ) $ 8,125 Net (loss) income per share: Basic $ (3.82 ) $ (0.05 ) $ (4.00 ) $ 0.45 Diluted $ (3.82 ) $ (0.05 ) $ (4.00 ) $ 0.45
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) 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 Gross premiums written $ 138,379 $ 126,190 $ 28,569 $ 27,712 $ 15,118 $ 15,814 $ - $ - $ 182,066 $ 169,716 Ceded premiums written (86,846 ) (71,805 ) (10,845 ) (10,330 ) (74 ) (95 ) - - (97,765 ) (82,230 ) Net premiums written 51,533 54,385 17,724 17,382 15,044 15,719 - - 84,301 87,486 Change in unearned premiums (3,838 ) 7,937 (1,160 ) (835 ) 810 1,996 - - (4,188 ) 9,098 Net premiums earned 47,695 62,322 16,564 16,547 15,854 17,715 - - 80,113 96,584 Total revenues 49,087 64,890 16,888 17,240 17,048 19,115 (2,509 ) 2,943 80,514 104,188 Losses and loss adjustment expenses 85,765 46,112 12,074 14,138 14,094 16,239 - - 111,933 76,489 Pre-tax income (loss) (45,907 ) 4,848 (786 ) (1,976 ) (2,819 ) (2,766 ) (8,038 ) (1,117 ) (57,550 ) (1,011 ) Net loss ratio (1) 179.8 % 74.0 % 72.9 % 85.4 % 88.9 % 91.7 % 139.7 % 79.2 % Net expense ratio (1) 19.2 % 23.8 % 34.5 % 31.7 % 31.6 % 27.2 % 29.5 % 27.2 % Net combined ratio (1) 199.0 % 97.8 % 107.4 % 117.1 % 120.5 % 118.9 % 169.2 % 106.4 % Impact on net combined ratio Net Unfavorable (Favorable) Prior Year Development 111.7 % 1.8 % 2.8 % 0.1 % 11.6 % 11.2 % 69.4 % 3.2 % Catastrophes, net of reinsurance 2.4 % 0.2 % 4.7 % 19.3 % 0.4 % 2.3 % 2.5 % 3.8 % Underlying combined ratio (1) 84.9 % 95.8 % 99.9 % 97.7 % 108.5 % 105.4 % 97.3 % 99.4 % Net Unfavorable (Favorable) Prior Year Development 53,278 1,127 470 18 1,835 1,985 - - 55,583 3,130
(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.
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) 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 Gross premiums written $ 242,229 $ 240,180 $ 58,846 $ 57,447 $ 31,950 $ 35,107 $ - $ - $ 333,025 $ 332,734 Ceded premiums written (147,915 ) (133,009 ) (22,338 ) (20,580 ) (150 ) (162 ) - - (170,403 ) (153,751 ) Net premiums written 94,314 107,171 36,508 36,867 31,800 34,945 - - 162,622 178,983 Change in unearned premiums 3,591 22,362 (3,237 ) (3,254 ) (387 ) 345 - - (33 ) 19,453 Net premiums earned 97,905 129,533 33,271 33,613 31,413 35,290 - - 162,589 198,436 Total revenues 100,998 134,489 34,016 34,928 33,867 38,074 (2,695 ) 8,750 166,186 216,241 Losses and loss adjustment expenses 125,077 89,095 24,207 26,229 26,673 30,644 - - 175,957 145,968 Pre-tax income (loss) (43,342 ) 16,196 (1,478 ) (1,610 ) (3,845 ) (4,389 ) (13,004 ) 19 (61,669 ) 10,216 Net loss ratio (1) 127.8 % 68.8 % 72.8 % 78.0 % 84.9 % 86.8 % 108.2 % 73.6 % Net expense ratio (1) 20.7 % 24.0 % 34.6 % 31.7 % 30.3 % 28.8 % 28.9 % 27.7 % Net combined ratio (1) 148.5 % 92.8 % 107.4 % 109.7 % 115.2 % 115.6 % 137.1 % 101.3 % Impact on net combined ratio Net Unfavorable (Favorable) Prior Year Development 60.9 % -0.6 % 0.6 % -0.6 % 8.7 % -4.0 % 38.9 % 0.5 % Catastrophes, net of reinsurance 2.1 % 2.8 % 2.9 % 2.8 % 0.3 % 15.4 % 1.9 % 4.9 % Underlying combined ratio (1) 85.5 % 90.6 % 103.9 % 107.5 % 106.2 % 104.2 % 96.3 % 95.9 % Net Unfavorable (Favorable) Prior Year Development 59,658 (772 ) 208 (1,343 ) 3,408 3,159 63,274 1,044
(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.
