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Hallmark Announces Third Quarter 2021 Results

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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 TaxNetAverage
Diluted
($ in thousands)Before TaxEffectAfter TaxShares 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
817.348.1600
www.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 OperationsThree 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 SegmentCorporateConsolidated
  * 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 SegmentCorporateConsolidated
  * 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.

https://www.globenewswire.com/NewsRoom/AttachmentNg/5a72e132-5d9d-45a6-9d0a-77177ace18f6


Hallmark Financial Services, Inc

NASDAQ:HALL

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Other Direct Insurance (except Life, Health, and Medical) Carriers
Finance and Insurance
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Finance, Property/Casualty Insurance, Other Direct Insurance (except Life, Health, and Medical) Carriers , Finance and Insurance
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Fort Worth

About HALL

hallmark financial services, inc. is an insurance holding company which, through its subsidiaries, engages in the sale of property/casualty insurance products to businesses and individuals. hallmark's business involves marketing, distributing, underwriting and servicing commercial and personal lines of property/casualty insurance products, as well as providing other insurance related services. hallmark is headquartered in fort worth, texas and its common stock is listed on nasdaq under the symbol "hall."