Hallmark Announces Second Quarter 2021 Results


DALLAS, Texas, Aug. 12, 2021 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (“Hallmark”) (NASDAQ: HALL) today announced financial results for the second quarter and six months ended June 30, 2021.

 Second Quarter Year-to-Date 
  2021  2020  2021 2020  
$ in millions:      
Net Income (Loss)$(0.5)$6.7 $8.9$(57.6) 
Operating Income (1)$(3.5)$5.1 $1.3$9.7  
       
$ per diluted share:      
Net Income (Loss)$(0.03)$0.37 $0.49$(3.18) 
Operating Income (1)$(0.19)$0.28 $0.07$0.53  
(1) See “Non-GAAP Financial Measures” below 



Highlights:

  • Net loss of $0.5 million, or $0.03 per share, in the second quarter of 2021 as compared to net income of $6.7 million, or $0.37 per share, for the same period of 2020. Year-to-date net income of $8.9 million, or $0.49 per share, as compared to a net loss of $57.6 million, or $3.18 per share, for the same period of 2020.

  • Net combined ratio of 105.7% and 100.8% for the three and six months ended June 30, 2021, compared to 98.4% and 98.0% for the same periods the prior year.  

  • Specialty Commercial Segment net combined ratio of 97.2% and 92.3% for the three and six months ended June 30, 2021, compared to 96.9% and 92.3% for the same periods the prior year.

  • Substantial rate increases achieved, particularly in the Specialty Commercial Segment, with increases for this business averaging 12% for the quarter and 13% year-to-date.

  • Gross premiums written for the six months ended June 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 six months ended June 30, 2021 would have decreased 8% compared to the same period of the prior year. (See “Non-GAAP” Financial Measures below).

  • Net premiums written for the six months ended June 30, 2021 decreased 23% compared to the same period of the prior year. Excluding premiums from the exited binding primary commercial auto business, gross premiums written for the six months ended June 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 $3.7 million in the second quarter of 2021, or 3.8 points of the net combined ratio as compared to $6.6 million, or 5.2 points of the net combined ratio for the same period the prior year.   Net catastrophe losses were $9.6 million for the first six months of 2021, or 4.8 points of the net combined ratio as compared to $12.6 million, or 5.0 points of the net combined ratio for the same period the prior year.

  • Net investment gains of $3.9 million during the second quarter of 2021, which included $1.1 million of unrealized gains on equity securities, as compared to net investment gains of $2.1 million, which included $2.5 million of unrealized gains on equity and other investment securities, during the same period the prior year.

Second Quarter and Year-to-Date 2021 Financial Review

 Second Quarter Year-to-Date
  2021  2020% Change  2021 2020 % Change
($ in thousands)       
Gross premiums written 169,716  183,644-8%  332,734 385,233 -14%
Net premiums written 89,134  108,987-18%  182,281 235,492 -23%
Net premiums earned 98,611  125,596-21%  202,829 249,529 -19%
Investment income, net of expenses 2,353  3,196-26%  5,363 7,654 -30%
Investment gains (losses), net 3,876  2,05888%  9,655 (27,272)135%
Net (loss) income (467) 6,701-107%  8,878 (57,609)115%
Operating (loss) income (1) (3,529) 5,075-170%  1,251 9,659 -87%
Net (loss) income per share - basic$(0.03)$0.37-108% $0.49$(3.18)115%
Net (loss) income per share - diluted$(0.03)$0.37-108% $0.49$(3.18)115%
Operating (loss) income per share - diluted (1)$(0.19)$0.28-168% $0.07$0.53 -87%
Book value per share$9.84 $11.14-12%    
 (1) See “Non-GAAP Financial Measures” below 


Gross Premiums Written
Gross premiums written were $169.7 million and $332.7 million during the three and six months ended June 30, 2021, representing a decrease of 8% and 14%, from the $183.6 million and $385.2 million in gross premiums written for the same periods in 2020.

Net Premiums Written
Net premiums written were $89.1 million and $182.3 million during the three and six months ended June 30, 2021, representing a decrease of 18% and 23%, from the $109.0 million and $235.5 million in net premiums written for the same periods in 2020.

Net Premiums Earned
Net premiums earned were $98.6 million and $202.8 million for the three and six months ended June 30, 2021, representing a decrease of 21% and 19%, from the $125.6 million and $249.5 million in net premiums earned for the same periods in 2020.

Investments
Net investment income was $2.4 million and $5.4 million during the three and six months ended June 30, 2021, as compared to $3.2 million and $7.7 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 gains were $3.9 million and $9.7 million for the three and six months ended June 30, 2021, as compared to net investment gains of $2.1 million and net investment losses of $27.3 million, for the same periods in 2020.

Fixed-income securities were $300.7 million as of June 30, 2021, with a tax equivalent book yield of 2.8% compared to 2.2% as of June 30, 2020. As of June 30, 2021, the fixed-income portfolio had an average modified duration of 0.7 years and 79% of the securities had remaining time to maturity of five years or less. As of June 30, 2021, 14% of the investment portfolio was invested in equity securities.

Total investments were $347.7 million as of June 30, 2021. Cash and cash equivalents, including restricted cash were $332.0 million. Total investments, cash and cash equivalents, and restricted cash were $679.7 million or $37.41 per share.

Pre-Tax (Loss) Income
Pre-tax loss was $0.5 million for the three months ended June 30, 2021, as compared to pre-tax income of $5.6 million reported during the same period in 2020.   Pre-tax income was $11.2 million for the six months ended June 30, 2021, as compared to a pre-tax loss of $64.0 million for the same period the prior year. The improvement in pre-tax results for the six months ended June 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 and a $39.7 million decrease in losses and LAE, 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. The decrease in losses and LAE was primarily the result of exiting the contract binding line of the primary automobile business marketed by our Commercial Auto business unit commencing in February 2020, as well as an $18.3 million improvement in unfavorable net prior year loss reserve development. Decreased revenue for the first half of 2021 compared to the same period of the prior year was due primarily to decreased net premiums earned of $46.7 million, lower net investment income of $2.3 million and lower finance charges of $1.0 million, partially offset by $36.9 million higher net investment gains.

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

Losses and LAE for the three and six months ended June 30, 2021 decreased $17.2 million and $39.7 million, as compared to the same periods during 2020 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 $3.1 million and $1.0 million of net unfavorable prior year loss reserve development during the three and six months ended June 30, 2021 as compared to net unfavorable prior year loss reserve development of $10.8 million and $19.3 million during the same periods in 2020.   Net catastrophe losses were $3.7 million and $9.6 million during the three and six months ended June 30, 2021 as compared to $6.6 million and $12.6 million, during the same periods of 2020.

The net loss ratio was 78.8% and 73.3% for the three and six months ended June 30, 2021, as compared to 75.5% and 75.5% reported during the same periods in 2020. Catastrophe losses contributed 3.8 points and 4.8 points to the net loss ratio for the three and six months ended June 30, 2021, as compared to 5.2 points and 5.0 points for the same periods during 2020.   Net unfavorable prior year loss reserve development contributed 3.2 points and 0.5 points to the net loss ratio for the three and six months ended June 30, 2021, as compared to 8.6 points and 7.8 points contributed to the net loss ratio from net unfavorable prior year loss reserve development for the same periods during 2020.  

The expense ratio was 26.9% and 27.5% for the three and six months ended June 30, 2021, as compared to 22.9% and 22.5% during the same periods in 2020. The Company reported net combined ratios of 105.7% and 100.8% for the three and six months ended June 30, 2021, as compared to 98.4% and 98.0% for the same periods during 2020.  

Net Income (Loss)

Net loss was $0.5 million and net income was $8.9 million for the three and six months ended June 30, 2021, as compared to net income of $6.7 million and a net loss of $57.6 million for the same periods during 2020.

On a diluted basis per share, net loss was $0.03 per share and net income was $0.49 per share for the three and six months ended June 30, 2021, as compared to net income of $0.37 per share and net loss of $3.18 per share for the same periods in 2020.

Book Value Per Share

Book value per share increased 4% to $9.84 per share as of June 30, 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 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.

 
Hallmark Financial Services, Inc. and Subsidiaries
Non-GAAP Financial Measures Reconciliation
     Weighted 
    Average
 
 Income (Loss)Less TaxNetShares 
Diluted
($ in thousands)Before TaxEffectAfter TaxDilutedPer Share
Second Quarter 2021     
Reported GAAP measures$(532)$(65)$ (467)18,171$ (0.03)
Excluded investment (gains)/losses$(3,876)$(814)$(3,062)18,171$(0.17)
Operating income$(4,408)$(879)$ (3,529)18,171$ (0.19)
      
Second Quarter 2020     
Reported GAAP measures$5,583 $(1,118)$ 6,701 18,141$ 0.37 
Excluded investment (gains)/losses$(2,058)$(432)$(1,626)18,141$(0.09)
Operating income$3,525 $(1,550)$ 5,075 18,141$ 0.28 
      
Year-to-Date 2021     
Reported GAAP measures$11,168 $2,290 $ 8,878 18,157$ 0.49 
Excluded investment (gains)/losses$(9,655)$(2,028)$(7,627)18,157$(0.42)
Operating income$1,513 $262 $ 1,251 18,157$ 0.07 
      
Year-to-Date 2020     
Reported GAAP measures$(64,003)$(6,394)$ (57,609)18,132$ (3.18)
Excluded impairment of goodwill and other intangible assets$45,996 $273 $45,723 18,132$2.52 
Excluded investment (gains)/losses$27,272 $5,727 $21,545 18,132$1.19 
Operating income$9,265 $(394)$ 9,659 18,132$ 0.53 
      

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
 20212020% Change 20212020% Change
($ in thousands)       
Reported written premium332,734385,233-14% 182,281235,492-23%
Less primary binding commercial auto22622,013-99% 9721,077-100%
Written premium excluding primary binding commercial auto332,508363,220-8% 182,184214,415-15%
          

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) Jun. 30  Dec. 31
ASSETS 2021   2020 
Investments: (unaudited) 
Debt securities, available-for-sale, at fair value (amortized cost: $297,066 in 2021 and $502,167 in 2020)$300,737  $507,279 
Equity securities (cost: $39,124 in 2021 and $26,988 in 2020) 46,948   29,388 
Total investments 347,685   536,667 
Cash and cash equivalents 326,558   102,580 
Restricted cash 5,474   5,728 
Ceded unearned premiums 139,609   138,926 
Premiums receivable 105,792   120,332 
Accounts receivable 4,524   5,967 
Receivable for securities 7,037   913 
Reinsurance recoverable 494,473   490,231 
Deferred policy acquisition costs 13,291   17,840 
Intangible assets, net 1,070   1,322 
Federal income tax recoverable 20,025   25,642 
Deferred federal income taxes, net 8,190   8,724 
Prepaid expenses 5,598   2,648 
Other assets 27,368   28,013 
Total Assets$1,506,694  $1,485,533 
LIABILITIES AND STOCKHOLDERS' EQUITY     
Liabilities:     
Senior unsecured notes due 2029 (less unamortized debt issuance costs of $795 in 2021 and $844 in 2020)$49,205  $49,156 
Subordinated debt securities (less unamortized debt issuance costs of $769 in 2021 and $795 in 2020) 55,933   55,907 
Reserves for unpaid losses and loss adjustment expenses 810,749   789,768 
Unearned premiums 300,941   320,806 
Reinsurance payable 51,921   46,700 
Pension liability 1,640   1,859 
Payable for securities 5,774   - 
Accounts payable and other accrued expenses 51,647   50,415 
Total Liabilities 1,327,810   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 20203,757   3,757 
Additional paid-in capital 122,782   122,893 
Retained earnings 77,793   68,915 
Accumulated other comprehensive income (687)  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 178,884   170,922 
Total Liabilities & Stockholders Equity$1,506,694  $1,485,533 
 


Hallmark Financial Services, Inc. and Subsidiaries    
Consolidated Statements of OperationsThree Months Ended Six Months Ended
($ in thousands, except per share amounts, unaudited)June 30, June 30,
 2021 2020  2021 2020 
Gross premiums written$169,716 $183,644  $332,734 $385,233 
Ceded premiums written (80,582) (74,657)  (150,453) (149,741)
Net premiums written 89,134  108,987   182,281  235,492 
Change in unearned premiums 9,477  16,609   20,548  14,037 
Net premiums earned 98,611  125,596   202,829  249,529 
          
Investment income, net of expenses 2,353  3,196   5,363  7,654 
Investment gains (losses), net 3,876  2,058   9,655  (27,272)
Finance charges 1,109  1,528   2,242  3,172 
Commission and fees 250  260   510  584 
Other income 16  14   35  33 
Total revenues 106,215  132,652   220,634  233,700 
          
Losses and loss adjustment expenses 77,719  94,873   148,622  188,278 
Operating expenses 27,653  30,259   58,094  59,407 
Interest expense 1,249  1,320   2,498  2,788 
Impairment of goodwill and other intangible assets 0  0   0  45,996 
Amortization of intangible assets 126  617   252  1,234 
Total expenses 106,747  127,069   209,466  297,703 
          
(Loss) income before tax (532) 5,583   11,168  (64,003)
Income tax (benefit) expense (65) (1,118)  2,290  (6,394)
Net (loss) income$(467)$6,701  $8,878 $(57,609)
          
Net (loss) income per share:         
Basic$(0.03)$0.37  $0.49 $(3.18)
Diluted$(0.03)$0.37  $0.49 $(3.18)
      


Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Segment Data    
Three Months Ended Jun. 30          
 Specialty Commercial SegmentStandard Commercial SegmentPersonal SegmentCorporateConsolidated
($ in thousands, unaudited) 2021  2020  2021  2020  2021  2020  2021  2020  2021  2020 
Gross premiums written$126,190 $138,627 $27,712 $23,842 $15,814 $21,175 $- $- $169,716 $183,644 
Ceded premiums written (70,157) (64,640) (10,330) (7,037) (95) (2,980) -  -  (80,582) (74,657)
Net premiums written 56,033  73,987  17,382  16,805  15,719  18,195  -  -  89,134  108,987 
Change in unearned premiums 8,316  14,350  (835) (404) 1,996  2,663  -  -  9,477  16,609 
Net premiums earned 64,349  88,337  16,547  16,401  17,715  20,858  -  -  98,611  125,596 
           
Total revenues 66,918  91,124  17,240  17,096  19,115  22,464  2,943  1,968  106,216  132,652 
           
Losses and loss adjustment expenses 47,342  69,262  14,138  10,775  16,239  14,836  -  -  77,719  94,873 
           
Pre-tax income (loss) 5,327  5,882  (1,976) 802  (2,766) 1,884  (1,117) (2,985) (532) 5,583 
           
Net loss ratio (1) 73.6% 78.4% 85.4% 65.7% 91.7% 71.1%   78.8% 75.5%
Net expense ratio (1) 23.6% 18.5% 31.7% 34.4% 27.2% 21.0%   26.9% 22.9%
Net combined ratio (1) 97.2% 96.9% 117.1% 100.1% 118.9% 92.1%   105.7% 98.4%
           
Favorable (Unfavorable) Prior Year Development (1,127) (9,315) (18) (794) (1,985) (680) -  -  (3,130) (10,789)


(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    
Six Months Ended Jun. 30          
 Specialty Commercial SegmentStandard Commercial SegmentPersonal SegmentCorporateConsolidated
($ in thousands, unaudited) 2021  2020  2021  2020  2021  2020  2021 2020  2021  2020 
Gross premiums written$240,180 $288,097 $57,447 $50,218 $35,107 $46,918 $-$- $332,734 $385,233 
Ceded premiums written (129,711) (128,604) (20,580) (14,500) (162) (6,637) - -  (150,453) (149,741)
Net premiums written 110,469  159,493  36,867  35,718  34,945  40,281  - -  182,281  235,492 
Change in unearned premiums 23,457  15,816  (3,254) (2,899) 345  1,120  - -  20,548  14,037 
Net premiums earned 133,926  175,309  33,613  32,819  35,290  41,401  - -  202,829  249,529 
           
Total revenues 138,883  183,244  34,928  34,732  38,074  44,787  8,750 (29,063) 220,635  233,700 
           
Losses and loss adjustment expenses 91,749  130,145  26,229  22,630  30,644  35,503  - -  148,622  188,278 
           
Pre-tax income (loss) 17,148  22,174  (1,610) 1,518  (4,389) (3,771) 19 (83,924) 11,168  (64,003)
           
Net loss ratio (1) 68.5% 74.2% 78.0% 69.0% 86.8% 85.8%   73.3% 75.5%
Net expense ratio (1) 23.8% 18.1% 31.7% 32.9% 28.8% 24.7%   27.5% 22.5%
Net combined ratio (1) 92.3% 92.3% 109.7% 101.9% 115.6% 110.5%   100.8% 98.0%
           
Net Favorable (Unfavorable) Prior Year Development 772  (12,468) 1,343  (919) (3,159) (5,961)   (1,044) (19,348)


(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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Hallmark Financial Services, Inc.