HALLMARK FINANCIAL SERVICES, INC.
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(Exact Name of Registrant as Specified in Its Charter)
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Nevada
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(State or Other Jurisdiction of Incorporation)
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001-11252
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87-0447375
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(Commission File Number)
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(IRS Employer Identification No.)
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777 Main Street, Suite 1000, Fort Worth, Texas
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76102
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(Address of Principal Executive Offices)
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(Zip Code)
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817-348-1600
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(Registrant’s Telephone Number, Including Area Code)
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Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
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99.1
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Press release dated August 9, 2011
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HALLMARK FINANCIAL SERVICES, INC.
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||
Date: August 10, 2011
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By:
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/s/ Jeffrey R. Passmore
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Jeffrey R. Passmore, Chief Accounting
Officer
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Three Months Ended
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||||||||||||
June 30,
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||||||||||||
2011
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2010
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% Change
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||||||||||
($ in thousands, unaudited)
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||||||||||||
Produced premium (1)
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$ | 90,176 | $ | 81,768 | 10 | % | ||||||
Gross premiums written
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91,371 | 83,180 | 10 | % | ||||||||
Net premiums written
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78,956 | 73,133 | 8 | % | ||||||||
Net premiums earned
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71,578 | 69,948 | 2 | % | ||||||||
Investment income, net of expenses
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3,778 | 3,276 | 15 | % | ||||||||
Net realized gain on investments
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1,664 | 1,643 | 1 | % | ||||||||
Total revenues
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78,513 | 75,687 | 4 | % | ||||||||
Net (loss) earnings (2)
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(23 | ) | (388 | ) |
NM
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|||||||
Net (loss) earnings per share - basic
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$ | - | $ | (0.02 | ) |
NM
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||||||
Net (loss) earnings per share - diluted
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$ | - | $ | (0.02 | ) |
NM
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||||||
Book value per share
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$ | 11.23 | $ | 11.49 | -2 | % | ||||||
Cash flow from operations
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$ | 16,972 | $ | 9,242 | 84 | % |
Six Months Ended
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||||||||||||
June 30,
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||||||||||||
2011
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2010
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% Change
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||||||||||
($ in thousands, unaudited)
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||||||||||||
Produced premium (1)
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$ | 173,868 | $ | 162,278 | 7 | % | ||||||
Gross premiums written
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181,083 | 165,039 | 10 | % | ||||||||
Net premiums written
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155,190 | 145,928 | 6 | % | ||||||||
Net premiums earned
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141,691 | 136,963 | 3 | % | ||||||||
Investment income, net of expenses
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7,785 | 6,477 | 20 | % | ||||||||
Net realized gain on investments
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2,783 | 5,446 | -49 | % | ||||||||
Total revenues
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155,921 | 151,510 | 3 | % | ||||||||
Net earnings (2)
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(11,249 | ) | 5,898 |
NM
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||||||||
Net earnings per share - basic
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$ | (0.56 | ) | $ | 0.29 |
NM
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||||||
Net earnings per share - diluted
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$ | (0.56 | ) | $ | 0.29 |
NM
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||||||
Book value per share
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$ | 11.23 | $ | 11.49 | -2 | % | ||||||
Cash flow from operations
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$ | 10,992 | $ | 17,449 | -37 | % |
June 30
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December 31
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|||||||
2011
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2010
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|||||||
(unaudited)
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ASSETS
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Investments:
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||||||||
Debt securities, available-for-sale, at fair value (cost: $393,497 in 2011 and $383,530 in 2010)
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$ | 395,975 | $ | 388,399 | ||||
Equity securities, available-for-sale, at fair value (cost: $31,573 in 2011 and $32,469 in 2010)
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42,943 | 44,042 | ||||||
Total investments
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438,918 | 432,441 | ||||||
Cash and cash equivalents
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50,885 | 60,519 | ||||||
Restricted cash
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6,346 | 5,277 | ||||||
Ceded unearned premiums
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20,262 | 25,504 | ||||||
Premiums receivable
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57,444 | 47,337 | ||||||
Accounts receivable
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6,020 | 7,051 | ||||||
Receivable for securities
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473 | 2,215 | ||||||
Reinsurance recoverable
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42,726 | 39,505 | ||||||
Deferred policy acquisition costs
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24,047 | 21,679 | ||||||
Goodwill
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43,564 | 43,564 | ||||||
Intangible assets, net
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28,448 | 30,241 | ||||||
Federal income tax recoverable
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13,138 | 4,093 | ||||||
Prepaid expenses
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1,699 | 1,987 | ||||||
Other assets
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13,159 | 15,207 | ||||||
Total assets
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$ | 747,129 | $ | 736,620 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY
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Liabilities:
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||||||||
Note payable
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$ | 2,800 | $ | 2,800 | ||||
Subordinated debt securities
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56,702 | 56,702 | ||||||
Reserves for unpaid losses and loss adjustment expenses
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278,894 | 251,677 | ||||||
Unearned premiums
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148,205 | 140,965 | ||||||
Unearned revenue
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93 | 116 | ||||||
Reinsurance balances payable
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5,493 | 3,122 | ||||||
Accrued agent profit sharing
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1,277 | 1,301 | ||||||
Accrued ceding commission payable
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4,230 | 4,231 | ||||||
Pension liability
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2,623 | 2,833 | ||||||
Payable for securities
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8,357 | 2,493 | ||||||
Payable for acquisition
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- | 14,000 | ||||||
Deferred federal income taxes, net
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1,836 | 3,471 | ||||||
Accounts payable and other accrued expenses
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17,005 | 15,786 | ||||||
Total liabilities
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527,515 | 499,497 | ||||||
Commitments and Contingencies
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||||||||
Redeemable non-controlling interest
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1,223 | 1,360 | ||||||
Stockholders' equity:
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||||||||
Common stock, $.18 par value, authorized 33,333,333 shares in 2011 and 2010; issued 20,872,831 in 2011 and 2010
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3,757 | 3,757 | ||||||
Additional paid-in capital
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122,292 | 121,815 | ||||||
Retained earnings
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94,567 | 105,816 | ||||||
Accumulated other comprehensive income
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7,843 | 9,637 | ||||||
Treasury stock (1,418,003 shares in 2011 and 748,662 shares in 2010), at cost
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(10,068 | ) | (5,262 | ) | ||||
Total stockholders' equity
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218,391 | 235,763 | ||||||
$ | 747,129 | $ | 736,620 |
Three Months Ended
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Six Months Ended
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|||||||||||||||
June 30
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June 30
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|||||||||||||||
2011
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2010
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2011
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2010
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|||||||||||||
Gross premiums written
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$ | 91,371 | $ | 83,180 | $ | 181,083 | $ | 165,039 | ||||||||
Ceded premiums written
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(12,415 | ) | (10,047 | ) | (25,893 | ) | (19,111 | ) | ||||||||
Net premiums written
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78,956 | 73,133 | 155,190 | 145,928 | ||||||||||||
Change in unearned premiums
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(7,378 | ) | (3,185 | ) | (13,499 | ) | (8,965 | ) | ||||||||
Net premiums earned
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71,578 | 69,948 | 141,691 | 136,963 | ||||||||||||
Investment income, net of expenses
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3,778 | 3,276 | 7,785 | 6,477 | ||||||||||||
Net realized gains
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1,664 | 1,643 | 2,783 | 5,446 | ||||||||||||
Finance charges
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1,725 | 1,771 | 3,465 | 3,414 | ||||||||||||
Commission and fees
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(243 | ) | (963 | ) | 172 | (812 | ) | |||||||||
Other income
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11 | 12 | 25 | 22 | ||||||||||||
Total revenues
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78,513 | 75,687 | 155,921 | 151,510 | ||||||||||||
Losses and loss adjustment expenses
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61,920 | 52,058 | 125,705 | 95,156 | ||||||||||||
Other operating expenses
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23,788 | 22,872 | 46,961 | 44,354 | ||||||||||||
Interest expense
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1,153 | 1,150 | 2,311 | 2,296 | ||||||||||||
Amortization of intangible assets
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896 | 916 | 1,793 | 1,832 | ||||||||||||
Total expenses
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87,757 | 76,996 | 176,770 | 143,638 | ||||||||||||
Income (loss) before tax
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(9,244 | ) | (1,309 | ) | (20,849 | ) | 7,872 | |||||||||
Income tax (benefit) expense
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(9,229 | ) | (953 | ) | (9,622 | ) | 1,937 | |||||||||
Net (loss) income
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(15 | ) | (356 | ) | (11,227 | ) | 5,935 | |||||||||
Less: Net income attributable to non-controlling interest
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8 | 32 | 22 | 37 | ||||||||||||
Net (loss) income attributable to Hallmark Financial Services, Inc.
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$ | (23 | ) | $ | (388 | ) | $ | (11,249 | ) | $ | 5,898 | |||||
Net (loss) income per share attributable to Hallmark Financial
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||||||||||||||||
Services, Inc. common stockholders:
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Basic
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$ | - | $ | (0.02 | ) | $ | (0.56 | ) | $ | 0.29 | ||||||
Diluted
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$ | - | $ | (0.02 | ) | $ | (0.56 | ) | $ | 0.29 |
Three Months Ended June 30, 2011
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Standard
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Specialty
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Commercial
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Commercial
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Personal
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||||||||||||||||||
Segment
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Segment
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Segment
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Corporate
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Consolidated
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||||||||||||||||
Produced premium (1)
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$ | 18,549 | $ | 47,343 | $ | 24,284 | $ | - | $ | 90,176 | ||||||||||
Gross premiums written
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18,549 | 48,533 | 24,289 | - | 91,371 | |||||||||||||||
Ceded premiums written
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(1,392 | ) | (10,877 | ) | (146 | ) | - | (12,415 | ) | |||||||||||
Net premiums written
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17,157 | 37,656 | 24,143 | - | 78,956 | |||||||||||||||
Change in unearned premiums
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(1,796 | ) | (5,171 | ) | (411 | ) | - | (7,378 | ) | |||||||||||
Net premiums earned
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15,361 | 32,485 | 23,732 | - | 71,578 | |||||||||||||||
Total revenues
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16,241 | 34,476 | 25,869 | 1,927 | 78,513 | |||||||||||||||
Losses and loss adjustment expenses
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15,789 | 23,549 | 22,582 | - | 61,920 | |||||||||||||||
Pre-tax income (loss), net of non-controlling interest
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(4,753 | ) | 873 | (4,596 | ) | (776 | ) | (9,252 | ) | |||||||||||
Net loss ratio (2)
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102.8 | % | 72.5 | % | 95.2 | % | 86.5 | % | ||||||||||||
Net expense ratio (2)
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33.9 | % | 30.4 | % | 27.6 | % | 31.8 | % | ||||||||||||
Net combined ratio (2)
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136.7 | % | 102.9 | % | 122.8 | % | 118.3 | % |
Three Months Ended June 30, 2010
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Standard
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Specialty
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|||||||||||||||||||
Commercial
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Commercial
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Personal
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||||||||||||||||||
Segment
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Segment
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Segment
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Corporate
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Consolidated
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Produced premium (1)
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$ | 18,804 | $ | 40,351 | $ | 22,613 | $ | - | $ | 81,768 | ||||||||||
Gross premiums written
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18,792 | 41,775 | 22,613 | - | 83,180 | |||||||||||||||
Ceded premiums written
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(909 | ) | (9,123 | ) | (15 | ) | - | (10,047 | ) | |||||||||||
Net premiums written
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17,883 | 32,652 | 22,598 | - | 73,133 | |||||||||||||||
Change in unearned premiums
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(1,246 | ) | (2,036 | ) | 97 | - | (3,185 | ) | ||||||||||||
Net premiums earned
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16,637 | 30,616 | 22,695 | - | 69,948 | |||||||||||||||
Total revenues
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17,265 | 32,124 | 24,754 | 1,544 | 75,687 | |||||||||||||||
Losses and loss adjustment expenses
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13,652 | 21,231 | 17,175 | - | 52,058 | |||||||||||||||
Pre-tax income (loss), net of non-controlling interest
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(1,870 | ) | 967 | 1,132 | (1,570 | ) | (1,341 | ) | ||||||||||||
Net loss ratio (2)
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82.1 | % | 69.3 | % | 75.7 | % | 74.4 | % | ||||||||||||
Net expense ratio (2)
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32.5 | % | 29.5 | % | 22.5 | % | 30.1 | % | ||||||||||||
Net combined ratio (2)
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114.6 | % | 98.8 | % | 98.2 | % | 104.5 | % |
1
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Produced premium is a non-GAAP measurement that management uses to track total controlled premium produced by Hallmark’s operations. Hallmark believes this is a useful tool for users of its financial statements to measure premium production whether retained by Hallmark’s insurance company subsidiaries or assumed by third party insurance carriers who pay it commission revenue. Produced premium excludes unaffiliated third party premium fronted by its Hallmark County Mutual Insurance Company and Hallmark National Insurance Company subsidiaries.
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2
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The net loss ratio is calculated as incurred losses and LAE divided by net premiums earned, each determined in accordance with GAAP. The net expense ratio is calculated for the business units that retain 100% of produced premium as total operating expenses for the unit offset by agency fee income divided by net premiums earned, each determined in accordance with GAAP. For the business units that do not retain 100% of the produced premium, the net expense ratio is calculated as underwriting expenses of the insurance company subsidiaries for the unit 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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Six Months Ended June 30, 2011
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||||||||||||||||||||
Standard
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Specialty
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|||||||||||||||||||
Commercial
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Commercial
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Personal
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||||||||||||||||||
Segment
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Segment
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Segment
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Corporate
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Consolidated
|
||||||||||||||||
Produced premium (1)
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$ | 36,004 | $ | 85,877 | $ | 51,987 | $ | - | $ | 173,868 | ||||||||||
Gross premiums written
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36,004 | 88,615 | 56,464 | - | 181,083 | |||||||||||||||
Ceded premiums written
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(2,564 | ) | (18,597 | ) | (4,732 | ) | - | (25,893 | ) | |||||||||||
Net premiums written
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33,440 | 70,018 | 51,732 | - | 155,190 | |||||||||||||||
Change in unearned premiums
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(2,187 | ) | (6,318 | ) | (4,994 | ) | - | (13,499 | ) | |||||||||||
Net premiums earned
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31,253 | 63,700 | 46,738 | - | 141,691 | |||||||||||||||
Total revenues
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33,668 | 67,619 | 50,919 | 3,715 | 155,921 | |||||||||||||||
Losses and loss adjustment expenses
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28,414 | 43,350 | 53,941 | - | 125,705 | |||||||||||||||
Pre-tax income (loss), net of non-controlling interest
|
(5,133 | ) | 4,331 | (17,810 | ) | (2,259 | ) | (20,871 | ) | |||||||||||
Net loss ratio (2)
|
90.9 | % | 68.1 | % | 115.4 | % | 88.7 | % | ||||||||||||
Net expense ratio (2)
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32.6 | % | 30.2 | % | 25.8 | % | 31.2 | % | ||||||||||||
Net combined ratio (2)
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123.5 | % | 98.3 | % | 141.2 | % | 119.9 | % |
Six Months Ended June 30, 2010
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||||||||||||||||||||
Standard
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Specialty
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|||||||||||||||||||
Commercial
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Commercial
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Personal
|
||||||||||||||||||
Segment
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Segment
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Segment
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Corporate
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Consolidated
|
||||||||||||||||
Produced premium (1)
|
$ | 36,901 | $ | 75,633 | $ | 49,744 | $ | - | $ | 162,278 | ||||||||||
Gross premiums written
|
36,889 | 78,406 | 49,744 | - | 165,039 | |||||||||||||||
Ceded premiums written
|
(1,945 | ) | (17,147 | ) | (19 | ) | - | (19,111 | ) | |||||||||||
Net premiums written
|
34,944 | 61,259 | 49,725 | - | 145,928 | |||||||||||||||
Change in unearned premiums
|
(1,426 | ) | 80 | (7,619 | ) | - | (8,965 | ) | ||||||||||||
Net premiums earned
|
33,518 | 61,339 | 42,106 | - | 136,963 | |||||||||||||||
Total revenues
|
35,299 | 64,611 | 45,968 | 5,632 | 151,510 | |||||||||||||||
Losses and loss adjustment expenses
|
27,268 | 37,627 | 30,261 | - | 95,156 | |||||||||||||||
Pre-tax income (loss), net of non-controlling interest
|
(2,809 | ) | 7,314 | 3,782 | (452 | ) | 7,835 | |||||||||||||
Net loss ratio (2)
|
81.4 | % | 61.3 | % | 71.9 | % | 69.5 | % | ||||||||||||
Net expense ratio (2)
|
31.7 | % | 28.8 | % | 22.1 | % | 29.5 | % | ||||||||||||
Net combined ratio (2)
|
113.1 | % | 90.1 | % | 94.0 | % | 99.0 | % |
1
|
Produced premium is a non-GAAP measurement that management uses to track total controlled premium produced by Hallmark’s operations. Hallmark believes this is a useful tool for users of its financial statements to measure premium production whether retained by Hallmark’s insurance company subsidiaries or assumed by third party insurance carriers who pay it commission revenue. Produced premium excludes unaffiliated third party premium fronted by its Hallmark County Mutual Insurance Company and Hallmark National Insurance Company subsidiaries.
|
2
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The net loss ratio is calculated as incurred losses and LAE divided by net premiums earned, each determined in accordance with GAAP. The net expense ratio is calculated for the business units that retain 100% of produced premium as total operating expenses for the unit offset by agency fee income divided by net premiums earned, each determined in accordance with GAAP. For the business units that do not retain 100% of the produced premium, the net expense ratio is calculated as underwriting expenses of the insurance company subsidiaries for the unit 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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