AM Best Places Credit Ratings of Hallmark Financial Services, Inc. and Its Subsidiaries Under Review With Negative Implications
October 07 2022 - 1:12PM
Business Wire
AM Best has placed under review with negative
implications the Long-Term Issuer Credit Rating (Long-Term ICR) of
“bbb-” (Good) and the Long-Term Issue Credit Ratings (Long-Term IR)
of Hallmark Financial Services, Inc. (Hallmark Financial) [NASDAQ:
HALL]. Concurrently, AM Best has placed under review with negative
implications the Financial Strength Rating (FSR) of A- (Excellent)
and the Long-Term ICRs of “a-” (Excellent) of the members of
Hallmark Insurance Group. These companies’ operations are
headquartered in Dallas, TX and collectively referred to as
Hallmark. See below for a detailed listing of the companies and
Credit Ratings (ratings).
These ratings have been placed under review with negative
implications following the announcement that Hallmark Financial has
entered into a transaction with Core Specialty Insurance Holdings,
Inc. (Core Specialty), a specialty property/casualty insurer, to
sell its specialty business through a reinsurance transaction for a
$40 million cash consideration, plus an estimated $19.9 million
consideration for the assumption of certain net unearned premium
reserves. The transaction is comprised of nine business units
within Hallmark’s specialty commercial business segment, certain
related assets and liabilities, and the immediate transition to
Core Specialty of approximately 200 employees who produce and
support these excess & surplus (E&S) lines businesses. Core
Specialty’s acquisition and assumption of the E&S businesses
and the related assets and liabilities will be effective as of
Sept. 30, 2022.
This transaction mitigates a material capital decline in 2022
related to significant adverse reserve development on an existing
loss portfolio transaction (LPT), which took effect Jan. 1, 2020,
for accident years prior to Dec. 31, 2019, with several DARAG
subsidiaries on Hallmark’s commercial auto liability policies up to
an aggregate $240 million. In that transaction, Hallmark has
resumed the handling of the claims administration function
effective August 2022, and is in arbitration with respect to the
overall contract terms. In the event that the arbitration panel
rules favorably on Hallmark’s behalf, Hallmark could potentially
attach up to $40 million from a letter of credit posted by DARAQ,
but the final decision is not expected until the second half of
2023. While a favorable decision with the existing transaction will
help stabilize the balance sheet, AM Best notes that the LPT cover
has been breached and is no longer available, which exposes
Hallmark to further potential adverse reserve development from the
book of business.
With respect to the Core Specialty’s acquisition and assumption
of Hallmark’s E&S business, AM Best acknowledges the additional
influx of capital will be a net positive for policyholders.
However, significant execution risk remains related to restoring
profitability across Hallmark’s retained lines, particularly
standard commercial insurance and personal nonstandard auto, which
have had historically high net underwriting loss ratios.
The ratings will remain under review until AM Best can fully
assess the impacts of the aforementioned transaction, in addition
to the effects of initiatives to improve operating performance and
stem further material adverse reserve development. Critical to this
assessment will be Hallmark’s operating results for the remainder
of 2022.
The FSR of A- (Excellent) and the Long-Term ICRs of “a-”
(Excellent) have been placed under review with negative
implications for the members of Hallmark Insurance Group:
- American Hallmark Insurance Company of Texas
- Hallmark Insurance Company
- Hallmark Specialty Insurance Company
- Hallmark County Mutual Insurance Company
- Hallmark National Insurance Company
The following Long-Term IR has been placed under review with
negative implications:
Hallmark Financial Services, Inc.—
-- “bbb-” (Good) on $50 million 6.25% senior unsecured notes,
due 2029
The following indicative Long-Term IRs for securities available
under the shelf registration have been placed under review with
negative implications:
Hallmark Financial Services, Inc.—
-- “bbb-” (Good) on senior unsecured debt -- “bb+” (Fair) on
subordinated debt -- “bb” (Fair) on preferred stock
This press release relates to Credit Ratings that have been
published on AM Best’s website. For all rating information relating
to the release and pertinent disclosures, including details of the
office responsible for issuing each of the individual ratings
referenced in this release, please see AM Best’s Recent
Rating Activity web page. For additional information
regarding the use and limitations of Credit Rating opinions, please
view Guide to Best's Credit Ratings. For information
on the proper use of Best’s Credit Ratings, Best’s Performance
Assessments, Best’s Preliminary Credit Assessments and AM Best
press releases, please view Guide to Proper Use of Best’s
Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and
data analytics provider specializing in the insurance industry.
Headquartered in the United States, the company does business in
over 100 countries with regional offices in London, Amsterdam,
Dubai, Hong Kong, Singapore and Mexico City. For more information,
visit www.ambest.com.
Copyright © 2022 by A.M. Best Rating
Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221007005494/en/
Sergio Musacchio Senior Financial Analyst +1 908 439
2200, ext. 5032 sergio.musacchio@ambest.com Rosemarie
Mirabella Director +1 908 439 2200, ext. 5892
rosemarie.mirabella@ambest.com Christopher Sharkey
Manager, Public Relations +1 908 439 2200, ext. 5159
christopher.sharkey@ambest.com Al Slavin Communications
Specialist +1 908 439 2200, ext. 5098
al.slavin@ambest.com
Hallmark Financial Servi... (NASDAQ:HALL)
Historical Stock Chart
From Apr 2024 to May 2024
Hallmark Financial Servi... (NASDAQ:HALL)
Historical Stock Chart
From May 2023 to May 2024