Hallmark Financial Beats on Q3 Earnings

Zacks Equity Research

Hallmark Financial Services Inc. (HALL) delivered operating net income of 9 cents per share in the third quarter of 2013, which comfortably surpassed the Zacks Consensus Estimate of 5 cents. Earnings dropped a massive 50% year over year, attributable to increase in expenses.

Including net realized gains of 23 cents per share, Hallmark Financial reported net income came in at 32 cents per share, up 78% year over year.

Behind the Headlines

Hallmark Financial generated total revenues of $108.6 million, up 5% year over year. Additionally, results breezed past the Zacks Consensus Estimate of $95 million. The improvement was fueled by higher premiums at Standard Commercial as well as Specialty Commercial.  However, lower net investment income was partial offset.

Total expenses of Hallmark Financial amounted to $99.1 million, escalating 23% year over year. The increase was attributable to higher loss and loss adjustment expenses and other operating expenses.

Net loss ratio was 69.9% in the third quarter, higher than 65.7% in the prior-year quarter. Combined ratio of Hallmark Financial was 98.8%, deteriorating from 95.8% a year ago.

Segment Update

Standard Commercial: Total revenues came in at $21.2 million, up 19.1% year over year.

Pretax income was $1.16 million, rebounding from a loss of $0.5 million in the year-ago quarter.

Combined ratio improved 400 basis points (bps) to 100.4% in the quarter.

Specialty Commercial: Total revenues improved 31% year over year to $60.8 million.

Pretax income declined 8.7% year over year to $7.6 million in the quarter.

Combined ratio deteriorated 630 bps to 92.2% in the quarter.

Personal Segment: Total revenues inched up 0.4% year over year to $21.3 million in the quarter.

Pretax loss widened to $1.6 million from $0.3 million loss incurred in the year-ago quarter.

Combined ratio deteriorated 510 bps to 111.1% in the quarter.

Corporate: Total revenues reported were $5.4 million compared with $0.3 million in the comparable year-ago period.

Pretax income was $2.4 million compared to a loss of $2.7 million in the year-ago quarter.

Financial Details

Hallmark Financial exited the quarter with $160.4 million in cash and cash equivalents, improving from $93.8 million at the 2012 end-level.

Cash from operations of Hallmark Financial surged to $29.5 million from $10.9 million in the year-ago period.

Hallmark Financial’s book value per share improved 5% year over year to $11.94 in the third quarter.

Performances of Other Property and Casualty Insurers

Aspen Insurance Holdings Ltd. (AHL) reported third-quarter 2013 operating net income of $1.05 per share, which surpassed the Zacks Consensus Estimate of 80 cents by 31.2%. However, the results lagged the year-ago quarter number by 21.6%.

Cincinnati Financial Corp. (CINF) reported third quarter 2013 operating earnings of 70 cents per share, significantly exceeding the Zacks Consensus Estimate of 55 cents per share. Earnings also grew 9.4% year over year.

Allied World Assurance Company Holdings, AG (AWH) reported its third-quarter 2013 operating net income of $2.93 per share, surpassing the Zacks Consensus Estimate by 37.5%. The results also climbed 35.6% from the year-ago quarter results.

Zacks Rank

Hallmark Financial presently carries a Zacks Rank #3 (Hold).

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