AM Best has removed from under review with negative implications and affirmed 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 removed from under review with negative implications and affirmed 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 outlook assigned to the Credit Ratings (ratings) is negative. The companies’ operations are headquartered in Dallas, TX. (See below for a detailed listing of the companies and ratings.)
These ratings were placed under review with negative implications on March 4, 2020, 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. Subsequently, AM Best maintained the under review with negative implications status following Hallmark Financial’s announcement that it received notice from NASDAQ on May 13, 2020, due to the company’s failure to timely file its Form 10-Q for the period ending March 31, 2020, and because it remained delinquent in filing its Form 10-K for the year ended Dec. 31, 2019. While the company had until May 28, 2020, to submit an update to its original plan to regain compliance with filing requirements, NASDAQ has granted an extension up to Sept. 14, 2020, to regain compliance to file the 2019 Form 10-K and Form 10-Q for first-quarter 2020.
The ratings have been removed from under review as the company is in compliance with NASDAQ filings and AM Best has completed its assessments of full-year reserve information.
The ratings reflect Hallmark Group’s balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The negative outlooks reflect a declining trend in Hallmark Group’s risk-adjusted capital, as measured by Best’s Capital Adequacy Ratio (BCAR). Year-end 2019 results were negatively impacted by adverse prior-year loss development, while more recent results have been impacted by unrealized capital losses. The group has entered into a loss portfolio reinsurance transaction to limit the potential impact of further reserve volatility and disassociate discontinued lines of business from ongoing operations. In addition, the group exited the binding primary auto book of business, a driver of the adverse loss development, and de-risk its investment portfolio. Despite the actions taken to reduce volatility and strengthen the balance sheet, AM Best remains concerned about whether capital will continue to support the balance sheet strength assessment of very strong as these proposed additional underwriting and operational changes are implemented. AM Best will continue to monitor volatility within the group’s balance sheet. In addition, AM Best also will monitor the execution of risk management-related corrective actions the group has initiated to determine if further negative rating action is warranted.
The FSR of A- (Excellent) and the Long-Term ICRs of "a-" have been removed from under review with negative implications and affirmed 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 has been removed from under review with negative implications and affirmed:
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 removed from under review with negative implications and affirmed:
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.
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