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AM Best Places Credit Ratings of Hallmark Financial Services, Inc. and Its Subsidiaries Under Review With Negative Implications

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AM Best has placed under review with negative implications the Long-Term Issuer Credit Rating (Long-Term ICR) of "bbb-" 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-" of the members of Hallmark Insurance Group (Hallmark Group). The companies' operations are headquartered in Dallas, TX. (See below for a detailed listing of the companies and ratings.)

These Credit Ratings (ratings) have been placed under review with negative implications following the announcement by Hallmark Financial that its 2019 statutory results will include pre-tax adverse prior year loss development of $63.8 million, net of reinsurance. These losses are related primarily to the binding primary auto business for the 2016 and 2017 underwriting years, with a smaller amount attributable to general liability. The company also announced its exit from the binding primary auto portfolio, which represents approximately $114 million of the company's gross written premium for 2019, and has ceased writing new business immediately. Although this book of business has achieved rate increases, performance continues to be volatile and there is increasing claim severity trends, which contributed to its decision to exit this segment of the commercial auto market. Hallmark Financial also is evaluating reinsurance options to help facilitate the orderly exit from this business, such as an adverse development cover or loss portfolio transfer to help mitigate future volatility associated with this book of business.

The under review status reflects the uncertainty regarding future changes in loss reserves and the planned underwriting actions and mitigation strategies outlined. The ratings will remain under review until AM Best has assessed the full-year reserve information to determine appropriate capital charges associated with enterprise reserves.

The FSR of A- (Excellent) and the Long-Term ICRs of "a-" have been placed under review with negative implications for the following 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 have been placed under review with negative implications:

Hallmark Financial Services, Inc.-

—"bbb-" 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-" on senior unsecured debt

—"bb+" on subordinated debt

—"bb" 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 media use of Best's Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best's Credit Ratings and AM Best Rating Action Press Releases.

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 New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2020 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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