Hallmark Announces Third Quarter 2021 Results
11/15/2021 - 04:05 PM
DALLAS, Nov. 15, 2021 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (“Hallmark”) (NASDAQ: HALL) today announced financial results for the third quarter and nine months ended September 30, 2021.
Highlights:
Pre-tax income was $4.4 million for the three months ended September 30, 2021, as compared to pre-tax loss of $37.8 million reported during the same period in 2020. Pre-tax income was $14.6 million for the nine months ended September 30, 2021, as compared to a pre-tax loss of $102.5 million for the same period the prior year. Net income was $3.4 million, or $0.19 per diluted share, in the third quarter of 2021 as compared to net loss of $28.4 million, or $1.56 per diluted share, for the same period of 2020. Year-to-date net income was $11.6 million, or $0.64 per diluted share, as compared to a net loss of $86.5 million, or $4.77 per diluted share, for the same period of 2020. Net combined ratio was 95.9% and 99.6% for the three and nine months ended September 30, 2021, compared to 132.7% and 109.4% for the same periods the prior year. Gross premiums written for the nine months ended September 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 nine months ended September 30, 2021 would have decreased 10% compared to the same period of the prior year. (See “Non-GAAP” Financial Measures below). Net premiums written for the nine months ended September 30, 2021 decreased 21% compared to the same period of the prior year. Excluding premiums from the exited binding primary commercial auto business, gross premiums written for the nine months ended September 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 $2.8 million in the third quarter of 2021, or 3.0 points of the net combined ratio as compared to $9.6 million, or 8.2 points of the net combined ratio for the same period the prior year. Net catastrophe losses were $12.4 million for the first nine months of 2021, or 4.2 points of the net combined ratio as compared to $22.2 million, or 6.1 points of the net combined ratio for the same period the prior year. Net investment gain was $9.1 million for year to date 2021, which included $3.8 million of unrealized gains on equity securities, as compared to net investment loss of $27.9 million, which included $31.8 million of unrealized losses on equity and other investment securities, during the same period the prior year. Third Quarter and Year-to-Date 2021 Financial Review
Third Quarter Year-to-Date *As Revised *As Revised 2021 2020 % Change 2021 2020 % Change ($ in thousands) Gross premiums written $ 169,104 $ 196,464 -14 % $ 501,838 $ 581,697 -14 % Net premiums written $ 90,964 $ 113,056 -20 % $ 269,947 $ 342,430 -21 % Net premiums earned $ 94,347 $ 116,720 -19 % $ 292,783 $ 362,017 -19 % Investment income, net of expenses $ 2,213 $ 2,660 -17 % $ 7,576 $ 10,314 -27 % Other-than-temporary impairment (1) $ - $ (1,692 ) nm $ - $ (1,692 ) nm Net income (loss) $ 3,445 $ (28,388 ) 112 % $ 11,571 $ (86,541 ) 113 % Operating income (loss) (2) $ 3,866 $ (10,750 ) 136 % $ 4,365 $ (1,635 ) 367 % Net income (loss) per share - basic $ 0.19 $ (1.56 ) 112 % $ 0.64 $ (4.77 ) 113 % Net income (loss) per share - diluted $ 0.19 $ (1.56 ) 112 % $ 0.64 $ (4.77 ) 113 % Operating income (loss) per share - diluted (2) $ 0.21 $ (0.59 ) 136 % $ 0.24 $ (0.09 ) 367 % Book value per share $ 9.78 $ 9.66 1.3 % * All prior period amounts have been adjusted to reflect the correction of an immaterial error relating to certain reinsurance treaties and other items related to prior periods.
(1) Other-than-temporary impairment is included in investment gains (losses), net
(2) See “Non-GAAP Financial Measures” below
Gross Premiums Written Gross premiums written were $169.1 million and $501.8 million during the three and nine months ended September 30, 2021, representing a decrease of 14% and 14%, from the $196.5 million and $581.7 million in gross premiums written for the same periods in 2020.
Net Premiums Written Net premiums written were $91.0 million and $269.9 million during the three and nine months ended September 30, 2021, representing a decrease of 20% and 21%, from the $113.1 million and $342.4 million in net premiums written for the same periods in 2020.
Net Premiums Earned Net premiums earned were $94.3 million and $292.8 million for the three and nine months ended September 30, 2021, representing a decrease of 19% and 19%, from the $116.7 million and $362.0 million in net premiums earned for the same periods in 2020.
Investments Net investment income was $2.2 million and $7.6 million during the three and nine months ended September 30, 2021, as compared to $2.7 million and $10.3 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 loss was $0.5 million for the three months and net gain of $9.1 million for the nine months ended September 30, 2021, as compared to net investment losses of $0.6 million and $27.9 million, for the same periods in 2020.
Fixed-income securities were $317.9 million as of September 30, 2021, with a tax equivalent book yield of 2.4% compared to 2.7% as of September 30, 2020. As of September 30, 2021, the fixed-income portfolio had an average modified duration of 0.7 years and 76% of the securities had remaining time to maturity of five years or less. As of September 30, 2021, 12% of the total investment portfolio was invested in equity securities.
Total investments were $363.3 million as of September 30, 2021. Cash and cash equivalents, including restricted cash were $329.6 million. Total investments, cash and cash equivalents, and restricted cash were $692.9 million or $38.13 per share.
Pre-Tax Income (Loss) Pre-tax income was $4.4 million for the three months ended September 30, 2021, as compared to pre-tax loss of $37.8 million reported during the same period in 2020. Pre-tax income was $14.6 million for the nine months ended September 30, 2021, as compared to a pre-tax loss of $102.5 million for the same period the prior year. The improvement in pre-tax results for the nine months ended September 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, a $98.6 million decrease in losses and LAE and a $6.9 million decrease in operating expenses and a $1.4 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 Losses and LAE for the three and nine months ended September 30, 2021 decreased $58.8 million and $98.6 million, as compared to the same periods during 2020, primarily 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 $1.5 million and $2.6 million of net unfavorable prior year loss reserve development during the three and nine months ended September 30, 2021 as compared to net unfavorable prior year loss reserve development of $13.9 million and $33.3 million during the same periods in 2020. Net catastrophe losses were $2.8 million and $12.4 million during the three and nine months ended September 30, 2021 as compared to $9.6 million and $22.2 million, during the same periods of 2020.
The net loss ratio was 67.5% and 71.6% for the three and nine months ended September 30, 2021, as compared to 105.0% and 85.2% reported during the same periods in 2020. Catastrophe losses contributed 3.0 points and 4.2 points to the net loss ratio for the three and nine months ended September 30, 2021, as compared to 8.2 points and 6.1 points for the same periods during 2020. Net unfavorable prior year loss reserve development contributed 1.6 points and 0.9 points to the net loss ratio for the three and nine months ended September 30, 2021, as compared to 12.0 points and 9.2 points for the same periods during 2020.
The expense ratio was 28.4% and 28.0% for the three and nine months ended September 30, 2021, as compared to 27.7% and 24.2% during the same periods in 2020. The Company reported net combined ratios of 95.9% and 99.6% for the three and nine months ended September 30, 2021, as compared to 132.7% and 109.4% for the same periods during 2020.
Net Income (Loss) Net income was $3.4 million and $11.6 million for the three and nine months ended September 30, 2021, as compared to net losses of $28.4 million and $86.5 million for the same periods during 2020.
On a diluted basis per share, net income was $0.19 per share and $0.64 per share for the three and nine months ended September 30, 2021, as compared to net loss of $1.56 per share and $4.77 per share for the same periods in 2020.
Book Value Per Share Book value per share increased 6% to $9.78 per share as of September 30, 2021 as compared to $9.24 per share as of December 31, 2020.
Non-GAAP Financial Measures
The Company’s financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”). However, the Company also presents and discusses certain non-GAAP financial measures that it believes are useful to investors as measures of operating performance. Management may also use such non-GAAP financial measures in evaluating the effectiveness of business strategies and for planning and budgeting purposes. However, these non-GAAP financial measures should not be viewed as an alternative or substitute for the results reflected in the Company’s GAAP financial statements. In addition, the Company’s definitions of these items may not be comparable to the definitions used by other companies.
Operating loss and operating loss per share are calculated by excluding net investment gains and losses and impairment of goodwill and other intangible assets (“Impairments”) from GAAP net income. The Impairments are unusual and infrequent charges for the Company. Management believes that operating earnings and operating earnings per share provide useful information to investors about the performance of and underlying trends in the Company’s core insurance operations. Net income and net income per share are the GAAP measures that are most directly comparable to operating earnings and operating earnings per share. A reconciliation of operating earnings and operating earnings per share to the most comparable GAAP financial measures is presented below.
Weighted Income (Loss) Less Tax Net Average Diluted ($ in thousands) Before Tax Effect After Tax Shares Diluted Per Share Third Quarter 2021 Reported GAAP measures $ 4,391 $ 946 $ 3,445 18,172 $ 0.19 Excluded investment (gains)/losses $ 533 $ 112 $ 421 18,172 $ 0.02 Operating income $ 4,924 $ 1,058 $ 3,866 18,172 $ 0.21 Third Quarter 2020 (*As Revised) Reported GAAP measures $ (37,792 ) $ (9,404 ) $ (28,388 ) 18,142 $ (1.56 ) Excluded loss portfolio transfer cost included in Losses and LAE $ 21,700 $ 4,557 $ 17,143 18,142 $ 0.94 Excluded investment (gains)/losses $ 627 $ 132 $ 495 18,142 $ 0.03 Operating loss $ (15,465 ) $ (4,715 ) $ (10,750 ) 18,142 $ (0.59 ) Year-to-Date 2021 Reported GAAP measures $ 14,608 $ 3,037 $ 11,571 18,162 $ 0.64 Excluded investment (gains)/losses $ (9,122 ) $ (1,916 ) $ (7,206 ) 18,162 $ (0.40 ) Operating income $ 5,486 $ 1,121 $ 4,365 18,162 $ 0.24 Year-to-Date 2020 (*As Revised) Reported GAAP measures $ (102,484 ) $ (15,943 ) $ (86,541 ) 18,136 $ (4.77 ) Excluded impairment of goodwill and other intangibles $ 45,996 $ 273 $ 45,723 18,136 $ 2.52 Excluded loss portfolio transfer cost included in Losses and LAE $ 21,700 $ 4,557 $ 17,143 18,136 $ 0.95 Excluded investment (gains)/losses $ 27,899 $ 5,859 $ 22,040 18,136 $ 1.22 Operating loss $ (6,889 ) $ (5,254 ) $ (1,635 ) 18,136 $ (0.09 ) * All prior period amounts have been adjusted to reflect the correction of an immaterial error relating to certain reinsurance treaties and other items related to prior periods.
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 $ 501,838 $ 581,697 -14 % $ 269,947 $ 342,430 -21 % Less primary binding commercial auto $ 218 $ 24,798 -99 % $ 48 $ 23,250 -100 % Written premium excluding primary binding commercial auto $ 501,620 $ 556,899 -10 % $ 269,899 $ 319,180 -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 Kenney Chief Financial Officer 817.348.1600www.hallmarkgrp.com
Hallmark Financial Services, Inc. and Subsidiaries Consolidated Balance Sheets ($ in thousands, except par value) Sep. 30 Dec. 31 ASSETS 2021 2020 Investments: (unaudited) * As Revised Debt securities, available-for-sale, at fair value (amortized cost: $315,029 in 2021 and $502,167 in 2020) $ 317,916 $ 507,279 Equity securities (cost: $39,129 in 2021 and $26,988 in 2020) 45,362 29,388 Total investments 363,278 536,667 Cash and cash equivalents 325,833 102,580 Restricted cash 3,793 5,728 Ceded unearned premiums 145,858 143,446 Premiums receivable 85,177 120,332 Accounts receivable 6,595 5,967 Receivable for securities 5,613 913 Reinsurance recoverable 515,088 497,846 Deferred policy acquisition costs 10,494 17,840 Intangible assets, net 944 1,322 Federal income tax recoverable 17,347 24,691 Deferred federal income taxes, net 9,326 8,724 Prepaid expenses 4,683 2,648 Other assets 26,179 28,013 Total Assets $ 1,520,208 $ 1,496,717 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Senior unsecured notes due 2029 (less unamortized debt issuance costs of $770 in 2021 and $844 in 2020) $ 49,230 $ 49,156 Subordinated debt securities (less unamortized debt issuance costs of $757 in 2021 and $795 in 2020) 55,946 55,907 Reserves for unpaid losses and loss adjustment expenses 815,381 789,768 Unearned premiums 300,383 320,806 Reinsurance payable 71,183 61,100 Pension liability 1,530 1,859 Payable for securities 1,047 - Accounts payable and other accrued expenses 47,728 50,415 Total Liabilities 1,342,428 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 122,773 122,893 Retained earnings 77,270 65,699 Accumulated other comprehensive income (1,272 ) 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 177,780 167,706 Total Liabilities & Stockholders Equity $ 1,520,208 $ 1,496,717 *All prior period amounts have been adjusted to reflect the correction of an immaterial error relating to certain reinsurance treaties and other items related to prior periods.
Hallmark Financial Services, Inc. and Subsidiaries Consolidated Statements of Operations Three Months Ended Nine Months Ended ($ in thousands, except per share amounts, unaudited) September 30, September 30, *As Revised *As Revised 2021 2020 2021 2020 Gross premiums written $ 169,104 $ 196,464 $ 501,838 $ 581,697 Ceded premiums written (78,140 ) (83,408 ) (231,891 ) (239,267 ) Net premiums written 90,964 113,056 269,947 342,430 Change in unearned premiums 3,383 3,664 22,836 19,587 Net premiums earned 94,347 116,720 292,783 362,017 Investment income, net of expenses 2,213 2,660 7,576 10,314 Investment (losses) gains, net (533 ) (627 ) 9,122 (27,899 ) Finance charges 1,076 1,316 3,318 4,488 Commission and fees 232 209 742 793 Other income 15 15 50 48 Total revenues 97,350 120,293 313,591 349,761 Losses and loss adjustment expenses 63,706 122,555 209,674 308,278 Operating expenses 27,882 33,640 85,188 92,059 Interest expense 1,245 1,273 3,743 4,061 Impairment of goodwill and other intangible assets 0 0 0 45,996 Amortization of intangible assets 126 617 378 1,851 Total expenses 92,959 158,085 298,983 452,245 Income (loss) before tax 4,391 (37,792 ) 14,608 (102,484 ) Income tax expense (benefit) 946 (9,404 ) 3,037 (15,943 ) Net (loss) income $ 3,445 $ (28,388 ) $ 11,571 $ (86,541 ) Net (loss) income per share: Basic $ 0.19 $ (1.56 ) $ 0.64 $ (4.77 ) Diluted $ 0.19 $ (1.56 ) $ 0.64 $ (4.77 ) * All prior period amounts have been adjusted to reflect the correction of an immaterial error relating to certain reinsurance treaties and other items related to prior periods.
Hallmark Financial Services, Inc. and Subsidiaries Consolidated Segment Data Three Months Ended Sep. 30 Specialty Commercial Segment Standard Commercial Segment Personal Segment Corporate Consolidated * As Revised * As Revised ($ in thousands, unaudited) 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 Gross premiums written $ 126,716 $ 150,016 $ 24,935 $ 24,726 $ 17,453 $ 21,722 $ - $ - $ 169,104 $ 196,464 Ceded premiums written (69,424 ) (72,977 ) (8,644 ) (7,270 ) (72 ) (3,161 ) - - (78,140 ) (83,408 ) Net premiums written 57,292 77,039 16,291 17,456 17,381 18,561 - - 90,964 113,056 Change in unearned premiums 2,623 3,979 1,177 (744 ) (417 ) 429 - - 3,383 3,664 Net premiums earned 59,915 81,018 17,468 16,712 16,964 18,990 - - 94,347 116,720 Total revenues 62,493 83,749 18,156 17,398 18,316 20,513 (1,616 ) (1,367 ) 97,349 120,293 Losses and loss adjustment expenses 36,560 92,625 10,411 14,683 16,735 15,247 - - 63,706 122,555 Pre-tax income (loss) 12,620 (27,237 ) 1,957 (1,672 ) (3,887 ) (2,065 ) (6,299 ) (6,818 ) 4,391 (37,792 ) Net loss ratio (1) 61.0 % 114.3 % 59.6 % 87.9 % 98.7 % 80.3 % 67.5 % 105.0 % Net expense ratio (1) 22.0 % 22.2 % 32.9 % 26.1 % 26.1 % 32.0 % 28.4 % 27.7 % Net combined ratio (1) 83.0 % 136.5 % 92.5 % 114.0 % 124.8 % 112.3 % 95.9 % 132.7 % Net (Unfavorable) Favorable Prior Year Development (1,305 ) (11,493 ) 993 (1,431 ) (1,197 ) (987 ) (1,509 ) (13,911 )
(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.
* All prior period amounts have been adjusted to reflect the correction of an immaterial error relating to certain reinsurance treaties and other items related to prior periods.
Hallmark Financial Services, Inc. and Subsidiaries Consolidated Segment Data Nine Months Ended Sep. 30 Specialty Commercial Segment Standard Commercial Segment Personal Segment Corporate Consolidated * As Revised * As Revised ($ in thousands, unaudited) 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 Gross premiums written $ 366,896 $ 438,113 $ 82,382 $ 74,944 $ 52,560 $ 68,640 $ - $ - $ 501,838 $ 581,697 Ceded premiums written (202,433 ) (207,699 ) (29,224 ) (21,770 ) (234 ) (9,798 ) - - (231,891 ) (239,267 ) Net premiums written 164,463 230,414 53,158 53,174 52,326 58,842 - - 269,947 342,430 Change in unearned premiums 24,985 21,681 (2,077 ) (3,643 ) (72 ) 1,549 - - 22,836 19,587 Net premiums earned 189,448 252,095 51,081 49,531 52,254 60,391 - - 292,783 362,017 Total revenues 196,982 262,761 53,084 52,130 56,390 65,300 7,134 (30,430 ) 313,590 349,761 Losses and loss adjustment expenses 125,655 220,215 36,640 37,313 47,379 50,750 - - 209,674 308,278 Pre-tax income (loss) 28,816 (5,752 ) 347 (154 ) (8,275 ) (5,836 ) (6,280 ) (90,742 ) 14,608 (102,484 ) Net loss ratio (1) 66.3 % 87.4 % 71.7 % 75.3 % 90.7 % 84.0 % 71.6 % 85.2 % Net expense ratio (1) 23.4 % 19.3 % 32.1 % 30.6 % 27.9 % 27.0 % 28.0 % 24.2 % Net combined ratio (1) 89.7 % 106.7 % 103.8 % 105.9 % 118.6 % 111.0 % 99.6 % 109.4 % Net (Unfavorable) Favorable Prior Year Development (533 ) (23,961 ) 2,336 (2,350 ) (4,356 ) (6,948 ) (2,553 ) (33,259 )
(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.
* All prior period amounts have been adjusted to reflect the correction of an immaterial error relating to certain reinsurance treaties and other items related to prior periods.
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