Hallmark Announces First Quarter 2021 Results

Fort Worth, Texas, UNITED STATES


DALLAS, May 13, 2021 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (“Hallmark”) (NASDAQ: HALL) today announced financial results for the first quarter ended March 31, 2021.

    
 First Quarter
 20212020
$ in millions:   
   Net Income (Loss)$          9.3$       (64.3)
   Operating Income (1)$          4.8$          4.6 
    
$ per diluted share:   
   Net Income (Loss)$        0.52$       (3.55)
   Operating Income (1)$        0.27$        0.25 

(1) See “Non-GAAP Financial Measures” below

Highlights:

  • Net income of $9.3 million, or $0.52 per share, in the first quarter of 2021 as compared to net loss of $64.3 million, or $3.55 per share, for the same period of 2020.
     
  • Net combined ratio of 96.1% for the first quarter of 2021 improved from 97.6% for the same period the prior year.
     
  • Substantial rate increases achieved, particularly in the Specialty Commercial Segment, with increases for this business averaging 13% for the quarter.
     
  • Gross premiums written for the quarter ended March 31, 2021 decreased 19% compared to the prior year quarter ended March 31, 2020 and increased 1% compared to the previous quarter ended December 31, 2020.  Excluding premiums from the exited binding primary commercial auto business, gross premiums written for the quarter ended March 31, 2021 would have decreased 11% compared to the prior year quarter ended March 31, 2020.  (See “Non-GAAP” Financial Measures below).
     
  • Net catastrophe losses were $5.9 million in the first quarter, or 5.7 points of the net combined ratio.  Total catastrophe losses include $5.0 million from the February winter storms, which is our maximum retention of losses per event under our catastrophe reinsurance agreement.
     
  • Net investment gains of $5.8 million during the first quarter of 2021, which included $4.4 million of unrealized gains on equity securities, as compared to net investment losses of $29.3 million, which included $35.0 million of unrealized losses on equity and other investment securities, during the same period the prior year. 

First Quarter 2021 Financial Review

 First Quarter
 20212020% Change
($ in thousands)    
Gross premiums written$163,018$201,589 -19%
Net premiums written$   93,147$126,505 -26%
Net premiums earned$104,218$123,933 -16%
Investment income, net of expenses$     3,010$     4,458 -32%
Investment gains (losses), net$     5,779$  (29,330)120%
Net income (loss)$     9,345$  (64,310)115%
Operating income (1)$     4,780$     4,584 4%
Net income (loss) per share - basic$       0.52$      (3.55)115%
Net income (loss) per share - diluted$       0.52$      (3.55)115%
Operating income per share - diluted (1)$       0.27$       0.25 8%
Book value per share$       9.89$     10.39 -5%

(1) See “Non-GAAP Financial Measures” below

Gross Premiums Written
Gross premiums written were $163.0 million during the three months ended March 31, 2021, representing a decrease of 19% from the $201.6 million in gross premiums written for the same period in 2020.

Net Premiums Written
Net premiums written were $93.1 million during the three months ended March 31, 2021, representing a decrease of 26% from the $126.5 million in net premiums written for the same period of 2020. 

Net Premiums Earned
Net premiums earned were $104.2 million for the three months ended March 31, 2021, representing a 16% decrease from the $123.9 million in net premiums earned for the same period in 2020. 

Investments
Net investment income was $3.0 million during the three months ended March 31, 2021, as compared to $4.5 million during the same period in 2020.  The decline in net investment income was primarily due to lower interest rates compared to the same period during 2020 and an increase in the proportion of short-term investments held relative to longer maturity investments.

Net investment gains were $5.8 million for the three months ended March 31, 2021 as compared to net investment losses of $29.3 million for the same period in 2020. 

Fixed-income securities were $348.5 million at March 31, 2021, with a tax equivalent book yield of 2.5% compared to 2.4% as of March 31, 2020.  As of March 31, 2021, the fixed-income portfolio had an average modified duration of 0.9 years and 85% of the securities had remaining time to maturity of five years or less.  As of March 31, 2021, 13% of the investment portfolio was invested in equity securities.

Total investments were $402.1 million at March 31, 2021.  Cash and cash equivalents, including restricted cash were $287.3 million.  Total investments, cash and cash equivalents, and restricted cash were $689.4 million or $37.94 per share.

Pre-Tax Income
Pre-tax income was $11.7 million for the three months ended March 31, 2021, as compared to a pre-tax loss of $69.6 million reported during the same period in 2020.  The improvement in pre-tax results for the three months ended March 31, 2021 was predominately driven by the absence of $46.0 million of impairment charges to goodwill and indefinite-lived intangible assets taken during the first quarter of 2020, net investment gains of $5.8 million during the first quarter of 2021 as compared to net investment losses of $29.3 million during the same period in 2020 and favorable prior year loss reserve development of $2.1 million during the first quarter of 2021 as compared to unfavorable prior year loss reserve development of $8.6 million during the same period the prior year.

Loss and Loss Adjustment Expenses (“LAE”) and Net Combined Ratios

The net combined ratio was 96.1% for the quarter ended March 31, 2021, as compared to 97.6% for the same period during 2020. 

Losses and LAE for the quarter ended March 31, 2021 decreased $22.5 million as compared to the same period during 2020 due to improved prior year loss reserve development and  lower net premiums earned, partially offset by increases in current accident year loss trends due primarily to the February winter storms.   There was $2.1 million of net favorable prior year loss reserve development during the quarter ended March 31, 2021 as compared to net unfavorable prior year loss reserve development of $8.6 million during the same period in 2020.  Net catastrophe losses were $5.9 million during the first quarter ended March 31, 2021 as compared to $6.0 million during 2020.

The net loss ratio was 68.0% for the three months ended March 31, 2021 as compared to 75.4% reported during the same period in 2020.  Catastrophe losses contributed 5.7 points to the net loss ratio for the three months ended March 31, 2021, as compared to 4.9 points for the same period during 2020.  Net favorable prior year loss reserve development reduced the net loss ratio by 2.0 points for the three months ended March 31, 2021, as compared to 6.9 points contributed to the net loss ratio from net unfavorable prior year loss reserve development for the same period during 2020. 

The expense ratio was 28.1% for the three months ended March 31, 2021 as compared to 22.2% during the same period in 2020.  The Company reported a net combined ratio of 96.1% for the three months ended March 31, 2021 as compared to 97.6% during the same period in 2020.

Net Income (Loss)

Net income was $9.3 million for the three months ended March 31, 2021 as compared to a net loss of $64.3 million for the same period during 2020. 

On a diluted basis per share, net income was $0.52 per share for the three months ended March 31, 2021 as compared to a net loss of $3.55 per share for the three months ended March 31, 2020.

Book Value Per Share

Book value per share increased 5% to $9.89 per share as of March 31, 2021 as compared to $9.42 per share as of December 31, 2020.

Non-GAAP Financial Measures

The Company’s financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”).  However, the Company also presents and discusses certain non-GAAP financial measures that it believes are useful to investors as measures of operating performance. Management may also use such non-GAAP financial measures in evaluating the effectiveness of business strategies and for planning and budgeting purposes.  However, these non-GAAP financial measures should not be viewed as an alternative or substitute for the results reflected in the Company’s GAAP financial statements.  In addition, the Company’s definitions of these items may not be comparable to the definitions used by other companies. 

Operating income and operating income 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 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 income and operating income per share. A reconciliation of operating income and operating income per share to the most comparable GAAP financial measures is presented below.

          
       Weighted  
 Income (Loss) Less Tax Net AverageDiluted 
($ in thousands)Before Tax Effect After Tax Shares DilutedPer Share 
First Quarter 2021         
Reported GAAP measures$11,700 $2,355 $           9,345 18,142$             0.52 
Excluded investment (gains)/losses$(5,779)$(1,214)$(4,565)18,142$(0.25)
Operating income$5,921 $1,141 $           4,780 18,142$             0.27 
          
First Quarter 2020         
Reported GAAP measures$(69,586)$(5,276)$       (64,310)18,123$           (3.55)
Excluded impairment of goodwill         
and other intangible assets$45,996 $273 $45,723 18,123$2.52 
Excluded investment (gains)/losses$29,330 $6,159 $23,171 18,123$1.28 
Operating income$5,740 $1,156 $           4,584 18,123$             0.25 
          

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 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 GAAP gross premiums written to gross premiums written excluding the contract binding line of the primary automobile business is presented below.

 First Quarter
 20212020% Change
($ in thousands)   
Reported gross premiums written    $       163,018$       201,589-19%
Less primary binding commercial auto$              132$         18,432-99%
Gross premiums written excluding    
  primary binding commercial auto$       162,886$       183,157-11%


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 Accounting Officer
817.348.1600
www.hallmarkgrp.com

 
Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Balance Sheets    
($ in thousands, except par value) Mar. 31  Dec. 31 
ASSETS 2021  2020 
Investments: (unaudited)   
Debt securities, available-for-sale, at fair value (amortized cost: $344,232 in 2021 and $502,167 in 2020)$348,525 $507,279 
Equity securities (cost: $46,847 in 2021 and $26,988 in 2020) 53,621  29,388 
Total investments 402,146  536,667 
Cash and cash equivalents 281,849  102,580 
Restricted cash 5,434  5,728 
Ceded unearned premiums 134,206  138,926 
Premiums receivable 109,799  120,332 
Accounts receivable 4,625  5,967 
Receivable for securities 1,382  913 
Reinsurance recoverable 494,815  490,231 
Deferred policy acquisition costs 16,386  17,840 
Intangible assets, net 1,196  1,322 
Federal income tax recoverable 23,855  25,642 
Deferred federal income taxes, net 8,319  8,724 
Prepaid expenses 6,679  2,648 
Other assets 26,852  28,013 
Total Assets$1,517,543 $1,485,533 
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Liabilities:      
Senior unsecured notes due 2029 (less unamortized debt issuance costs of $819 in 2021 and $844 in 2020)$49,180 $49,156 
Subordinated debt securities (less unamortized debt issuance costs of $782 in 2021 and $795 in 2020) 55,920  55,907 
Reserves for unpaid losses and loss adjustment expenses 812,272  789,768 
Unearned premiums 305,015  320,806 
Reinsurance payable 51,673  46,700 
Pension liability 1,749  1,859 
Payable for securities 10,979  - 
Accounts payable and other accrued expenses 51,003  50,415 
Total Liabilities 1,337,791  1,314,611 
Commitments and contingencies      
Stockholders’ equity:      
Common stock, $.18 par value, authorized 33,333,333 shares; issued 20,872,831 shares in 2021 and 2020 3,757  3,757 
Additional paid-in capital 122,725  122,893 
Retained earnings 78,260  68,915 
Accumulated other comprehensive income (229) 383 
Treasury stock (2,701,799 shares in 2021 and 2,730,673 shares in 2020), at cost (24,761) (25,026)
Total Stockholders Equity 179,752  170,922 
Total Liabilities & Stockholders Equity$1,517,543 $1,485,533 
   


Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Statements of OperationsThree Months Ended 
($ in thousands, except per share amounts, unaudited)March 31, 
 2021 2020 
Gross premiums written$163,018 $201,589 
Ceded premiums written (69,871) (75,084)
Net premiums written 93,147  126,505 
Change in unearned premiums 11,071  (2,572)
Net premiums earned 104,218  123,933 
       
Investment income, net of expenses 3,010  4,458 
Investment gains (losses), net 5,779  (29,330)
Finance charges 1,133  1,644 
Commission and fees 260  324 
Other income 19  19 
Total revenues 114,419  101,048 
       
Losses and loss adjustment expenses 70,903  93,405 
Operating expenses 30,441  29,148 
Interest expense 1,249  1,468 
Impairment of goodwill and other intangible assets -  45,996 
Amortization of intangible assets 126  617 
Total expenses 102,719  170,634 
       
Income (loss) before tax 11,700  (69,586)
Income tax expense (benefit) 2,355  (5,276)
Net income (loss)$9,345 $(64,310)
       
Net income (loss) per share:      
Basic$0.52 $(3.55)
Diluted$0.52 $(3.55)


 
Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Segment Data
Three Months Ended Mar. 31 
 
 Specialty Commercial
Segment
Standard Commercial
Segment
Personal SegmentCorporateConsolidated
($ in thousands, unaudited)2021 2020 2021 2020 2021 2020  2021 2020 2021 2020 
Gross premiums written$113,990 $149,470 $29,735 $26,376 $19,293 $25,743 $-$- $163,018 $201,589 
Ceded premiums written(59,554)(63,964)(10,250)(7,463)(67)(3,657) - - (69,871)(75,084)
Net premiums written54,436 85,506 19,485 18,913 19,226 22,086  - - 93,147 126,505 
Change in unearned premiums15,141 1,466 (2,419)(2,495)(1,651)(1,543) - - 11,071 (2,572)
Net premiums earned69,577 86,972 17,066 16,418 17,575 20,543  - - 104,218 123,933 
                      
Total revenues71,965 92,120 17,688 17,636 18,959 22,323  5,807 (31,031)114,419 101,048 
                      
Losses and loss adjustment expenses44,407 60,883 12,091 11,855 14,405 20,667  - - 70,903 93,405 
                      
Pre-tax income (loss)11,821 16,292 366 716 (1,623)(5,655) 1,136 (80,939)11,700 (69,586)
                      
Net loss ratio (1)63.8%70.0%70.8%72.2%82.0%100.6%     68.0%75.4%
Net expense ratio (1)24.0%17.7%31.6%32.5%30.4%28.4%     28.1%22.2%
Net combined ratio (1)87.8%87.7%102.4%104.7%112.4%129.0%     96.1%97.6%
                      
Net Favorable (Unfavorable) Prior Year Development1,899 (3,153)1,361 (125)(1,174)(5,281)     2,086 (8,559)

(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.

A photo accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/91031801-8d9a-498c-aa90-8e5be6b3a0c6


Hallmark Financial Services, Inc.