Hallmark (HALL) Stock Declines 24% Since Q3 Earnings Miss

Shares of Hallmark Financial Services, Inc. HALL have lost about 24% in the last couple of trading sessions as the insurer incurred a wider-than-expected loss as well as generated lower revenues.

The insurer incurred an operating loss of $1.13 per share in the third quarter of 2022, wider than the Zacks Consensus Estimate of a loss of 19 cents per share. The insurer had posted earnings of 21 cents in the year-ago quarter.

A decline in the top line and higher expenses weighed on quarterly results.

Quarterly Operational Update

Total revenues declined 59% year over year to $40.1 million in the quarter under review. The top line missed the Zacks Consensus Estimate by 52.5%.

Gross premiums written decreased 5% year over year to $52.5 million.

Net premiums written increased 9.2% year over year to $36.6 million, attributable to higher premiums in the Standard Commercial segment.

Net investment income was $3.7 million, up 68.2% year over year, primarily due to the reinvestment of cash into higher-yielding securities.

The net combined ratio deteriorated 7160 basis points (bps) to 177.1.

The expense ratio of 42 deteriorated 100 bps year over year.

Total expenses increased 44.6% year over year to $68.5 million due to higher losses and loss adjustment expenses and interest expenses.

Net catastrophe losses were $1.8 million in the quarter, wider than $0.6 million loss incurred in the year-ago quarter.

Segmental Update

Standard Commercial: Net premiums written increased 4% year over year to $18.8 million. The combined ratio deteriorated 2400 bps to 116.

Personal: Net premiums decreased 10.5% year over year to $15.6 million. The combined ratio of 124.8 was flat year over year.

Runoff Specialty: Net premiums written was $2.3 million versus negative $1.9 million in the year-ago quarter. The combined ratio was 938.1 compared with 25.1 in the year-ago quarter.

Corporate: Total revenues were $51 million versus $152 million in the year-ago quarter. The pre-tax loss was $5.1 million, wider than $4.5 million incurred in the year-ago quarter.

Financial Position

As of third-quarter 2022 end, cash and cash equivalents were $129.5 million, down 63.3% from 2021 end.

Shareholder equity decreased 62.5% from 2021 end to $65.8 million at second-quarter 2022 end.

Book value per share decreased 63% year over year to $3.62 at third-quarter 2022 end.

Zacks Rank

Hallmark Financial currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Some Other P&C Insurers

Of the insurance industry players that have reported third-quarter results so far, The Travelers Companies TRV and RLI Corporation RLI beat the respective Zacks Consensus Estimate for earnings, while The Progressive Corporation PGR missed the mark.

Travelers’ third-quarter 2022 core income of $2.20 per share beat the Zacks Consensus Estimate by 24.3% but decreased 15.4% year over year. Total revenues increased 6.8% from the year-ago quarter to $9.4 billion and beat the Zacks Consensus Estimate by 2.5%.

TRV’s net written premiums increased 110% year over year to $9.2 billion. Underwriting gain of $115 million increased 53.3% year over year in the reported quarter. The combined ratio improved 40 bps year over year to 98.2.

RLI’s third-quarter 2022 operating earnings of 50 cents per share beat the Zacks Consensus Estimate by 51.5% but declined 23.1% from the prior-year quarter. Operating revenues were $312.7 million, up 15.3% year over year but missed the Zacks Consensus Estimate by 1.3%.

RLI’s gross written premiums increased 13.3% year over year to $403.8 million. Underwriting income of $8.8 million decreased 35.8% while the combined ratio deteriorated 240 bps year over year to 97.

Progressive’s earnings per share of 49 cents missed the Zacks Consensus Estimate of $1.24 as well as our estimate of $1.38. The bottom line, however, improved more than threefold from 14 cents earned in the year-ago quarter.

PGR’s net written premiums were $13 billion in the quarter, up 5% from $11.7 billion a year ago but missed our estimate of $14.2 billion. The combined ratio — the percentage of premiums paid out as claims and expenses — improved 120 bps from the prior-year quarter’s level to 99.2.

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