Rating Action on Hallmark - Analyst Blog

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A.M. Best reiterated the issuer credit rating (ICR) of "bbb-" on Hallmark Financial Services Inc. ( HALL ). Concurrently, the rating agency also reiterated financial strength rating ( FSR ) of A- (Excellent) and ICR of "a-" of Hallmark Insurance Group and its operating subsidiaries. The outlook remains stable.

The rating affirmations of Hallmark Insurance Group and its operating subsidiaries came on the back of the strong risk-adjusted capitalization, moderate operational performance over the five years and financial support provided by Hallmark Financial. The strong risk-adjusted capitalization stemmed from impressive investment income, capital gains and other incomes, though underwriting loss somewhat muted the positives.

The rating agency also noted that Hallmark Group remains focused on expanding its exposure to less competitive markets in an effort to enhance its operational performance.

However, acquisition integration risks along with risks related to geographic and product expansion efforts are partial offsets to these positives. Hallmark Group suffered hugely in the past two years due to adverse loss experience in Florida non-standard personal automobile. In order to weather the headwind, Hallmark Group terminated new business productions, altered their policy renewal terms, and increased rates.

Besides these changes, it also expanded the potential of its personal lines claims department and enlarged the claims employee base in Florida.

The rating agency noted that no renewals were made in Florida personal automobile policies with only a small amount of claims remaining open.

Nevertheless, Hallmark Group will be subject to rating downgrades if there is further corrosion in operational performances and risk adjusted capitalization.

In the fourth quarter of 2011, Hallmark Financial reported an income of 2 cents per share, in line with the year-ago results. The quarter benefited from the strong underwriting results at Standard Commercial Segment and Specialty Commercial Segment.

The quantitative Zacks #3 Rank (short-term Hold rating) for Hallmark Financial indicates no clear directional pressure on the stock over the near term.

Headquartered in Fort Worth, Texas, Hallmark Financial Services is an insurance holding company, offering marketing, distributing, underwriting, and servicing property/casualty insurance products. The company competes with The Hartford Financial Services Group Inc. ( HIG ),  Markel Corp. ( MKL ) and The Travelers Companies Inc. ( TRV ).


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: FSR , HALL

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