Hallmark Financial Announces Fourth Quarter and Fiscal 2020 Results
03/15/2021 - 04:05 PM
DALLAS, March 15, 2021 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (“Hallmark Financial”) (NASDAQ: HALL) today announced financial results for the fourth quarter and fiscal year ended December 31, 2020.
Fourth Quarter Fiscal Year 2020 2019 2020 2019 $ in millions: Net Loss $ (6.0 ) $ (34.0 ) $ (91.7 ) $ (0.6 ) Operating Loss (1) $ (10.0 ) $ (36.5 ) $ (10.7 ) $ (16.9 ) $ per diluted share: Net Loss $ (0.33 ) $ (1.87 ) $ (5.05 ) $ (0.03 ) Operating Loss (1) $ (0.55 ) $ (2.01 ) $ (0.59 ) $ (0.93 )
(1) See “Non-GAAP Financial Measures” belowHighlights:
Net loss of $6.0 million in the fourth quarter was primarily due to adverse prior year reserve development ($25.0 million pre-tax). The adverse prior year reserve development was driven by $21.8 million from our Specialty Commercial Segment which was comprised mostly of $19.0 million from our Commercial Auto business unit. Hallmark Financial continued to achieve substantial rate increases, particularly in the Specialty Commercial Segment, with increases for this business averaging 20% for the quarter and 19% for the fiscal year. Gross premiums written decreased 24% compared to the prior year quarter ended December 31, 2019 and 12% compared to prior year. Excluding premiums from the exited binding primary commercial auto business, gross premiums written would have decreased 15% in the quarter and decreased 2% for the year, relative to the same prior year periods. (See “Non-GAAP Financial Measures” below). There were $0.8 million of net catastrophe losses in the fourth quarter, or 0.6 points of the net combined ratio, and $23.1 million for the year, or 4.8 points of the net combined ratio. The fiscal year amount includes net loss and LAE reserves of $5.0 million related to novel coronavirus (“COVID-19”) pandemic claims. Fourth Quarter and Fiscal Year 2020 Financial Review
Fourth Quarter Fiscal Year 2020 2019 % Change 2020 2019 % Change ($ in thousands) Gross premiums written 161,671 214,101 -24 % 743,368 843,831 -12 % Net premiums written 87,370 127,533 -31 % 438,973 496,552 -12 % Net premiums earned 112,709 118,849 -5 % 481,798 436,877 10 % Investment income, net of expenses 2,606 5,031 -48 % 12,920 20,604 -37 % Investment gains (losses), net (1) 5,005 3,206 56 % (22,894 ) 20,618 -211 % Net loss (6,042 ) (33,966 ) 82 % (91,655 ) (625 ) -14565 % Operating loss (2) (9,996 ) (36,499 ) 73 % (10,703 ) (16,913 ) 37 % Net loss per share - basic $ (0.33 ) $ (1.87 ) 82 % $ (5.05 ) $ (0.03 ) -16,733 % Net loss per share - diluted $ (0.33 ) $ (1.87 ) 82 % $ (5.05 ) $ (0.03 ) -16,733 % Operating loss per share - diluted (2) $ (0.55 ) $ (2.01 ) 73 % $ (0.59 ) $ (0.93 ) 37 % Book value per share $ 9.42 $ 14.53 -35 % $ 9.42 $ 14.53 -35 %
(1) For fiscal year 2020, includes $1.7 million of other-than-temporary impairment. (2) See “Non-GAAP Financial Measures” below
Gross Premiums Written
Hallmark Financial’s gross premiums written were $161.7 million and $743.4 million during the three months and fiscal year ended December 31, 2020, respectively, representing a decrease of 24% and 12% , respectively, from the $214.1 million and $843.8 million in gross premiums written for the same periods in 2019.
Net Premiums Written
Hallmark Financial’s net premiums written were $87.4 million and $439.0 million during the three months and fiscal year ended December 31, 2020, respectively, representing a decrease of 31% and 12% , respectively, from the $127.5 million and $496.6 million in net premiums written for the same periods of 2019.
Net Premiums Earned
Hallmark Financial’s net premiums earned were $112.7 million and $481.8 million for the three months and fiscal year ended December 31, 2020, respectively, representing a 5% decrease and a 10% increase, respectively, from the $118.8 million and $436.9 million in net premiums earned for the same periods in 2019.
Investments
Net investment income was $2.6 million and $12.9 million during the three months and fiscal year ended December 31, 2020, respectively, as compared to $5.0 million and $20.6 million during the same periods in 2019. The declines in net investment income were primarily due to lower interest rates in 2020 compared to the prior year and an increase in the proportion of short-term investments held relative to longer maturity investments.
Net investment gains were $5.0 million for the three months ended December 31, 2020 as compared to net investment gains of $3.2 million for the same period the prior year. Net investment losses were $22.9 million for the fiscal year ended December 31, 2020 as compared to net investment gains of $20.6 million for the prior year. Net investment losses for the fiscal year ended December 31, 2020 included $1.7 million of other-than-temporary impairments reported during the third quarter comprised solely of secured obligations of American Airlines, Inc. maturing in 2022 and 2023 that have since recovered to market prices in excess of 90% of par value. The remaining net investment losses in fiscal 2020 were primarily due to sales of long-held equity securities in the first quarter of 2020 during the market decline associated with the COVID-19 pandemic. These sales were a management decision to reallocate capital supporting the investment portfolio to insurance underwriting operations and were not reflective of investment views regarding the future prospects for the securities.
Hallmark Financial held fixed-income securities of $507.3 million at December 31, 2020, with a tax equivalent book yield of 2.7% compared to 3.2% as of December 31, 2019. Hallmark Financial currently maintains a cautious interest rate risk position represented by a short portfolio duration. As of December 31, 2020, the fixed-income portfolio had an average modified duration of 0.8 years and 91% of the securities had remaining time to maturity of five years or less.
Hallmark Financial held total investments of $536.7 million at December 31, 2020, with 5% of the investment portfolio invested in equity securities. Total investments, cash and cash equivalents, and restricted cash were $645.0 million , or $35.55 per share, equivalent to 3.8 times book value per share of $9.42 . Of this amount, total cash, cash equivalents and near-cash securities were $287.4 million , including cash and cash equivalents of $108.3 million , U.S. Treasury Bills with maturities of three months or less when purchased of $137.1 million and short-term investments in U.S. Treasury Notes with maturities less than 14 months of $42.0 million .
Pre-Tax Loss
Hallmark Financial had a pre-tax loss of $12.9 million for the three months ended December 31, 2020, as compared to a pre-tax loss of $43.1 million reported during the same period in 2019. The improvement in pre-tax results for the three months ended December 31, 2020 was predominately driven by lower unfavorable prior year net loss reserve development of $25.0 million as compared to $53.1 million for the same period the prior year.
Hallmark Financial had a pre-tax loss of $114.2 million for the fiscal year ended December 31, 2020, as compared to a pre-tax loss of $1.0 million reported during 2019. The decline in pre-tax results for the fiscal year ended December 31, 2020 was predominately driven by the impairment of goodwill and other intangible assets of $46.0 million , net investment losses of $22.9 million as compared to net investment gains of $20.6 million reported during 2019, a $21.7 million charge for a loss portfolio transfer reinsurance contract that closed during the third quarter of 2020, unfavorable prior year net loss reserve development of $58.3 million as compared to $60.9 million reported for the prior year and net catastrophe losses of $23.1 million as compared to $5.3 million for the prior year.
Loss and Loss Adjustment Expenses (“LAE”) and Net Combined Ratios
Hallmark Financial reported a net combined ratio of 110.7% for the fiscal year ended December 31, 2020, as compared to 108.0% for 2019. During the first quarter of 2020, the Company announced its decision to exit the binding primary automobile business. The year-to-date combined ratio was negatively impacted by 12.4 points from this discontinued line of business, which included the $21.7 million cost of a loss portfolio transfer reinsurance agreement reported as losses and LAE.
Losses and LAE for the fiscal year ended December 31, 2020 increased $50.7 million as compared to the prior year due primarily to the $21.7 million charge for the loss portfolio transfer reinsurance contract during the third quarter of 2020, increased net premiums earned and increased net catastrophe losses, partially offset by decreased unfavorable prior year reserve development. Hallmark Financial reported $58.3 million of net unfavorable prior year loss reserve development during the fiscal year ended December 31, 2020 as compared to net unfavorable prior year loss reserve development of $60.9 million during the prior year. Hallmark Financial also reported $23.1 million of net catastrophe losses during the fiscal year ended December 31, 2020 as compared to $5.3 million during the prior year.
Hallmark Financial had a net loss ratio of 89.0% and 85.7% , respectively, for the three months and fiscal year ended December 31, 2020 as compared to 118.1% and 82.9% , respectively, reported during the same periods in 2019. The charge for the loss portfolio reinsurance contract contributed 4.5 points to the net loss ratio for the fiscal year ended December 31, 2020. Catastrophe losses contributed 0.7 points and 4.8 points, respectively, to the net loss ratio for the three months and fiscal year ended December 31, 2020, as compared to 0.6 points and 1.2 points, respectively, for the same periods of the prior year. Included in the 2020 net catastrophe losses for the fiscal year ended December 31, 2020 are $5.0 million of net reserves for COVID-19 claims that contributed 1.0 points to the total net loss ratio. Net unfavorable prior year loss reserve development contributed 22.2 points and 12.1 points, respectively, to the net loss ratio for the three months and fiscal year ended December 31, 2020, as compared to 44.7 points and 13.9 points, respectively, for the same periods of the prior year. The following table shows the components impacting the reported 2020 losses and LAE and net loss ratio as compared to 2019 and the underlying current accident year loss ratio results excluding catastrophe losses and the charge for the loss portfolio transfer included in losses and LAE.
Fiscal Year 2020 2019 Amount Loss Ratio Amount Loss Ratio Net Premiums Earned 481,798 436,877 Reported Incurred Losses and LAE 412,851 85.7 % 362,165 82.9 % Prior Year Reserve Development (58,288 ) -12.1 % (60,900 ) -13.9 % Loss Portfolio Transfer Cost (21,700 ) -4.5 % - 0.0 % Accident Year Loss and LAE 332,863 69.1 % 301,265 69.0 % Catastrophe Losses (23,050 ) -4.8 % (5,289 ) -1.2 % Accident Year Loss and LAE ex. CATS 309,813 64.3 % 295,976 67.8 % Net Expense Ratio 25.0 % 25.1 % Accident Year CR ex. CATS 89.3 % 92.9 %
The expense ratio was 27.8% and 25.0% , respectively, for the three months and fiscal year ended December 31, 2020 as compared to 23.3% and 25.1% , respectively, reported during the same periods in 2019. The Company reported a net combined ratio of 116.8% and 110.7% , respectively, for the three months and fiscal year ended December 31, 2020 as compared to 141.4% and 108.0% , respectively, during the same periods in 2019.
Goodwill & Intangibles
In connection with its normal process for evaluating impairment triggering events during the first quarter of 2020, the Company determined that a significant decline in its market capitalization below its stockholders’ equity indicated the impairment of the goodwill and indefinite-lived intangible assets included in its balance sheet. As a result, the Company took a $44.7 million charge to goodwill and a $1.3 million charge to indefinite-lived assets as of March 31, 2020.
Net Income
Hallmark Financial reported a net loss of $6.0 million and $91.7 million , respectively, for the three months and fiscal year ended December 31, 2020 as compared to a net loss of $34.0 million and $0.6 million for the three months and fiscal year ended December 31, 2019, respectively.
On a diluted basis per share, the Company reported a net loss of $0.33 per share and $5.05 per share, respectively, for the three months and fiscal year ended December 31, 2020 as compared to a net loss of $1.87 per share and $0.03 per share, respectively, for the three months and fiscal year ended December 31, 2019.
Book Value Per Share
Hallmark Financial reported book value of $9.42 per share as of December 31, 2020 as compared to $14.53 per share as of December 31, 2019.
Non-GAAP Financial Measures
The Company’s financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”). However, the Company also presents and discusses certain non-GAAP financial measures that it believes are useful to investors as measures of operating performance. Management may also use such non-GAAP financial measures in evaluating the effectiveness of business strategies and for planning and budgeting purposes. However, these non-GAAP financial measures should not be viewed as an alternative or substitute for the results reflected in the Company’s GAAP financial statements. In addition, the Company’s definitions of these items may not be comparable to the definitions used by other companies.
Operating loss and operating loss per share are calculated by excluding net investment gains and losses, impairment of goodwill and other intangible assets (“Impairments”) and the cost of the loss portfolio transfer transaction (“LPT”) entered into during the third quarter of 2020 from GAAP net income. The Impairments and LPT are unusual and infrequent charges for the Company. Management believes that operating earnings and operating earnings per share provide useful information to investors about the performance of and underlying trends in the Company’s core insurance operations. Net income and net income per share are the GAAP measures that are most directly comparable to operating earnings and operating earnings per share. A reconciliation of operating earnings and operating earnings per share to the most comparable GAAP financial measures is presented below.
Weighted Income (Loss) Less Tax Net Average Diluted ($ in thousands) Before Tax Effect After Tax Shares Diluted Per Share Fourth Quarter 2020 Reported GAAP measures $ (12,853 ) $ (6,811 ) $ (6,042 ) 18,142 $ (0.33 ) Excluded investment (gains)/losses $ (5,005 ) $ (1,051 ) $ (3,954 ) 18,142 $ (0.22 ) Operating loss $ (17,858 ) $ (7,862 ) $ (9,996 ) 18,142 $ (0.55 ) Fourth Quarter 2019 Reported GAAP measures $ (43,094 ) $ (9,128 ) $ (33,966 ) 18,123 $ (1.87 ) Excluded investment (gains)/losses $ (3,206 ) $ (673 ) $ (2,533 ) 18,123 $ (0.14 ) Operating loss $ (46,300 ) $ (9,801 ) $ (36,499 ) 18,123 $ (2.01 ) Fiscal 2020 Reported GAAP measures $ (114,162 ) $ (22,507 ) $ (91,655 ) 18,137 $ (5.05 ) Excluded impairment of goodwill and other intangible assets $ 45,996 $ 273 $ 45,723 18,137 $ 2.52 Excluded loss portfolio transfer cost included in Losses and LAE $ 21,700 $ 4,557 $ 17,143 18,137 $ 0.95 Excluded investment (gains)/losses $ 22,894 $ 4,808 $ 18,086 18,137 $ 0.99 Operating loss $ (23,572 ) $ (12,869 ) $ (10,703 ) 18,137 $ (0.59 ) Fiscal 2019 Reported GAAP measures $ (1,032 ) $ (407 ) $ (625 ) 18,107 $ (0.03 ) Excluded investment (gains)/losses $ (20,618 ) $ (4,330 ) $ (16,288 ) 18,107 $ (0.90 ) Operating loss $ (21,650 ) $ (4,737 ) $ (16,913 ) 18,107 $ (0.93 )
Fourth Quarter Fiscal Year 2020 2019 % Change 2020 2019 % Change ($ in thousands) Reported gross premiums written 161,671 214,101 -24 % 743,368 843,831 -12 % Less primary binding commercial auto 622 23,784 -97 % 25,420 114,947 -78 % Gross premiums written excluding primary binding commercial auto 161,049 190,317 -15 % 717,948 728,884 -2 %
About Hallmark Financial
Hallmark Financial 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 Financial markets, underwrites and services commercial and personal insurance in select markets. Hallmark Financial 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:
David Webb Senior Vice President, Corporate Development and Strategy 817.348.1600www.hallmarkgrp.com
Hallmark Financial Services, Inc. and Subsidiaries Consolidated Balance Sheets ($ in thousands, except par value) Dec. 31 Dec. 31 ASSETS 2020 2019 Investments: Debt securities, available-for-sale, at fair value (amortized cost: $502,167 in 2020 and $569,498 in 2019) $ 507,279 $ 574,279 Equity securities (cost: $26,988 in 2020 and $71,895 in 2019) 29,388 99,215 Other investment (cost: $-0 - in 2020 and $3,763 in 2019) - 2,169 Total investments 536,667 675,663 Cash and cash equivalents 102,580 53,336 Restricted cash 5,728 1,612 Ceded unearned premiums 138,926 164,221 Premiums receivable 120,332 148,288 Accounts receivable 5,967 4,286 Receivable for securities 913 12,581 Reinsurance recoverable 490,231 315,466 Deferred policy acquisition costs 17,840 22,994 Goodwill - 44,695 Intangible assets, net 1,322 5,087 Federal income tax recoverable 25,642 8,995 Deferred federal income taxes, net 8,724 2,185 Prepaid expenses 2,648 2,603 Other assets 28,013 33,262 Total Assets $ 1,485,533 $ 1,495,274 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Senior unsecured notes due 2029 (less unamortized debt issuance cost of $844 in 2020 and $942 in 2019) $ 49,156 $ 49,058 Subordinated debt securities (less unamortized debt issuance cost of $795 in 2020 and $846 in 2019) 55,907 55,856 Reserves for unpaid losses and loss adjustment expenses 789,768 620,355 Unearned premiums 320,806 388,926 Reinsurance balances payable 46,700 59,274 Pension liability 1,859 1,388 Payable for securities - 1,648 Accounts payable and other accrued expenses 50,415 55,487 Total Liabilities 1,314,611 1,231,992 Commitments and contingencies Stockholders' equity: Common stock, $.18 par value, authorized 33,333,333 shares; issued 20,872,831 shares in 2020 and 2019 3,757 3,757 Additional paid-in capital 122,893 123,468 Retained earnings 68,915 160,570 Accumulated other comprehensive income 383 688 Treasury stock (2,730,673 shares in 2020 and 2,749,738 shares in 2019), at cost (25,026 ) (25,201 ) Total Stockholders' Equity 170,922 263,282 Total Liabilities & Stockholders' Equity $ 1,485,533 $ 1,495,274
Hallmark Financial Services, Inc. and Subsidiaries Consolidated Statements of Operations Three Months Ended Fiscal Year Ended ($ in thousands, except per share amounts) December 31, December 31, 2020 2019 2020 2019 Gross premiums written $ 161,671 $ 214,101 $ 743,368 $ 843,831 Ceded premiums written (74,301 ) (86,568 ) (304,395 ) (347,279 ) Net premiums written 87,370 127,533 438,973 496,552 Change in unearned premiums 25,339 (8,684 ) 42,825 (59,675 ) Net premiums earned 112,709 118,849 481,798 436,877 Investment income, net of expenses 2,606 5,031 12,920 20,604 Investment (losses) gains, net 5,005 3,206 (22,894 ) 20,618 Finance charges 1,217 1,717 5,705 7,026 Commission and fees 363 246 1,156 1,190 Other income 12 13 60 56 Total revenues 121,912 129,062 478,745 486,371 Losses and loss adjustment expenses 100,320 140,304 412,851 362,165 Operating expenses 32,563 29,704 126,266 117,360 Interest expense 1,265 1,531 5,326 5,410 Impairment of goodwill and other intangible assets - - 45,996 - Amortization of intangible assets 617 617 2,468 2,468 Total expenses 134,765 172,156 592,907 487,403 (Loss) income before tax (12,853 ) (43,094 ) (114,162 ) (1,032 ) Income tax expense (6,811 ) (9,128 ) (22,507 ) (407 ) Net (loss) income $ (6,042 ) $ (33,966 ) $ (91,655 ) $ (625 ) Net (loss) income per share: Basic $ (0.33 ) $ (1.87 ) $ (5.05 ) $ (0.03 ) Diluted $ (0.33 ) $ (1.87 ) $ (5.05 ) $ (0.03 )
Hallmark Financial Services, Inc. and Subsidiaries Consolidated Segment Data Three Months Ended Dec. 31 Specialty Commercial Segment Standard Commercial Segment Personal Segment Corporate Consolidated ($ in thousands, unaudited) 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Gross premiums written $ 122,188 $ 169,879 $ 23,104 $ 21,719 $ 16,379 $ 22,503 $ - $ - $ 161,671 $ 214,101 Ceded premiums written (66,602 ) (76,766 ) (7,882 ) (6,666 ) 183 (3,136 ) - - (74,301 ) (86,568 ) Net premiums written 55,586 93,113 15,222 15,053 16,562 19,367 - - 87,370 127,533 Change in unearned premiums 22,167 (10,350 ) 1,801 108 1,371 1,558 - - 25,339 (8,684 ) Net premiums earned 77,753 82,763 17,023 15,161 17,933 20,925 - - 112,709 118,849 Total revenues 80,579 86,719 17,689 16,152 19,430 22,683 4,214 3,508 121,912 129,062 Losses and loss adjustment expenses 67,470 104,351 15,165 16,339 17,685 19,614 - - 100,320 140,304 Pre-tax income (loss) (1,569 ) (34,532 ) (2,885 ) (4,467 ) (4,502 ) (2,847 ) (3,897 ) (1,248 ) (12,853 ) (43,094 ) Net loss ratio (1) 86.8 % 126.1 % 69.3 % 107.8 % 98.6 % 93.7 % 89.0 % 118.1 % Net expense ratio (1) 19.4 % 21.1 % 33.0 % 28.5 % 29.2 % 21.2 % 27.8 % 23.3 % Net combined ratio (1) 106.2 % 147.2 % 102.3 % 136.3 % 127.8 % 114.9 % 116.8 % 141.4 % Favorable (Unfavorable) Prior Year Development (21,847 ) (48,906 ) (1,007 ) (4,234 ) (2,175 ) 21 - - (25,029 ) (53,119 )
(1) The net loss ratio is calculated as incurred losses and loss adjustment expenses divided by net premiums earned, each determined in accordance with GAAP. The net expense ratio is calculated as total underwriting expenses offset by agency fee income divided by net premiums earned, each determined in accordance with GAAP. The net combined ratio is calculated as the sum of the net loss ratio and the net expense ratio.
Hallmark Financial Services, Inc. and Subsidiaries Consolidated Segment Data Fiscal Year Ended Dec. 31 Specialty Commercial Segment Standard Commercial Segment Personal Segment Corporate Consolidated ($ in thousands, unaudited) 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Gross premiums written $ 560,301 $ 651,913 $ 98,048 $ 92,645 $ 85,019 $ 99,273 $ - $ - $ 743,368 $ 843,831 Ceded premiums written (265,128 ) (301,866 ) (29,652 ) (29,753 ) (9,615 ) (15,660 ) - - (304,395 ) (347,279 ) Net premiums written 295,173 350,047 68,396 62,892 75,404 83,613 - - 438,973 496,552 Change in unearned premiums 41,747 (57,459 ) (1,842 ) 1,078 2,920 (3,294 ) - - 42,825 (59,675 ) Net premiums earned 336,920 292,588 66,554 63,970 78,324 80,319 - - 481,798 436,877 Total revenues 350,412 309,619 69,819 68,179 84,730 88,225 (26,216 ) 20,348 478,745 486,371 Losses and loss adjustment expenses 291,938 248,781 52,478 50,036 68,435 63,348 - - 412,851 362,165 Pre-tax income (loss) (6,146 ) (1,371 ) (3,039 ) (841 ) (10,338 ) 427 (94,639 ) 753 (114,162 ) (1,032 ) Net loss ratio (1) 86.6 % 85.0 % 78.9 % 78.2 % 87.4 % 78.9 % 85.7 % 82.9 % Net expense ratio (1) 19.4 % 21.8 % 31.1 % 30.0 % 27.5 % 22.7 % 25.0 % 25.1 % Net combined ratio (1) 106.0 % 106.8 % 110.0 % 108.2 % 114.9 % 101.6 % 110.7 % 108.0 % Net Favorable (Unfavorable) Prior Year Development (45,808 ) (60,138 ) (3,357 ) (726 ) (9,123 ) (36 ) (58,288 ) (60,900 )
(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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