Nevada
|
87-0447375
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
|
Incorporation
or organization)
|
Identification
No.)
|
777
Main Street, Suite 1000, Fort Worth, Texas
|
76102
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨
|
Smaller
reporting company x
|
INDEX
TO FINANCIAL STATEMENTS
|
|
Page Number
|
|
Consolidated
Balance Sheets at March 31, 2008 (unaudited) and December 31,
2007
|
3
|
Consolidated
Statements of Operations (unaudited) for the three months ended March
31,
2008 and March 31, 2007
|
4
|
Consolidated
Statements of Stockholders’ Equity and Comprehensive Income (unaudited)
for the three months ended March 31, 2008 and March 31,
2007
|
5
|
Consolidated
Statements of Cash Flows (unaudited) for the three months ended March
31,
2008 and March 31, 2007
|
6
|
Notes
to Consolidated Financial Statements (unaudited)
|
7
|
March
31
|
|
December
31
|
|
||||
|
|
2008
|
|
2007
|
|||
ASSETS
|
(unaudited
|
)
|
|||||
Investments:
|
|||||||
Debt
securities, available-for-sale, at fair value
|
$
|
167,108
|
$
|
248,069
|
|||
Equity
securities, available-for-sale, at fair value
|
35,566
|
15,166
|
|||||
Short-term
investments, available-for-sale, at fair value
|
95,060
|
2,625
|
|||||
Total
investments
|
297,734
|
265,860
|
|||||
Cash
and cash equivalents
|
61,303
|
145,884
|
|||||
Restricted
cash and cash equivalents
|
4,682
|
16,043
|
|||||
Premiums
receivable
|
47,740
|
46,026
|
|||||
Accounts
receivable
|
5,344
|
5,219
|
|||||
Receivable
for securities
|
-
|
27,395
|
|||||
Prepaid
reinsurance premiums
|
2,197
|
274
|
|||||
Reinsurance
recoverable
|
4,469
|
4,952
|
|||||
Deferred
policy acquisition costs
|
20,416
|
19,757
|
|||||
Excess
of cost over fair value of net assets acquired
|
30,025
|
30,025
|
|||||
Intangible
assets
|
23,208
|
23,781
|
|||||
Deferred
federal income taxes
|
1,075
|
275
|
|||||
Prepaid
expenses
|
1,319
|
1,240
|
|||||
Other
assets
|
19,541
|
19,583
|
|||||
Total
assets
|
$
|
519,053
|
$
|
606,314
|
|||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
Liabilities:
|
|||||||
Notes
payable
|
$
|
60,921
|
$
|
60,814
|
|||
Structured
settlements
|
-
|
10,000
|
|||||
Reserves
for unpaid losses and loss adjustment expenses
|
133,748
|
125,338
|
|||||
Unearned
premiums
|
106,009
|
102,998
|
|||||
Unearned
revenue
|
2,447
|
2,949
|
|||||
Accrued
agent profit sharing
|
667
|
2,844
|
|||||
Accrued
ceding commission payable
|
12,185
|
12,099
|
|||||
Pension
liability
|
1,584
|
1,669
|
|||||
Current
federal income tax payable
|
3,418
|
630
|
|||||
Payable
for securities
|
-
|
91,401
|
|||||
Accounts
payable and other accrued expenses
|
12,410
|
16,385
|
|||||
Total
liabilities
|
333,389
|
427,127
|
|||||
Commitments
and Contingencies (Note 15)
|
|
|
|||||
Stockholders'
equity:
|
|||||||
Common
stock, $.18 par value (authorized 33,333,333 shares in 2008 and 2007;
issued 20,809,415 and 20,776,080 shares in 2008 and 2007)
|
3,746
|
3,740
|
|||||
Capital
in excess of par value
|
119,120
|
118,459
|
|||||
Retained
earnings
|
65,961
|
58,909
|
|||||
Accumulated
other comprehensive loss
|
(3,086
|
)
|
(1,844
|
)
|
|||
Treasury
stock, at cost (7,828 shares in 2008 and 2007)
|
(77
|
)
|
(77
|
)
|
|||
Total
stockholders' equity
|
185,664
|
179,187
|
|||||
$
|
519,053
|
$
|
606,314
|
Three
Months Ended
|
|
||||||
|
|
March
31
|
|
||||
|
|
|
|
||||
|
|
2008
|
|
2007
|
|||
Gross
premiums written
|
$
|
64,237
|
$
|
64,658
|
|||
Ceded
premiums written
|
(2,332
|
)
|
(3,887
|
)
|
|||
Net
premiums written
|
61,905
|
60,771
|
|||||
Change
in unearned premiums
|
(2,989
|
)
|
(9,123
|
)
|
|||
Net
premiums earned
|
58,916
|
51,648
|
|||||
Investment
income, net of expenses
|
3,625
|
2,990
|
|||||
Gain
on investments
|
859
|
53
|
|||||
Finance
charges
|
1,264
|
1,086
|
|||||
Commission
and fees
|
6,484
|
7,905
|
|||||
Processing
and service fees
|
42
|
272
|
|||||
Other
income
|
3
|
4
|
|||||
Total
revenues
|
71,193
|
63,958
|
|||||
Losses
and loss adjustment expenses
|
35,504
|
32,185
|
|||||
Other
operating expenses
|
23,465
|
22,701
|
|||||
Interest
expense
|
1,185
|
786
|
|||||
Amortization
of intangible asset
|
573
|
573
|
|||||
Total
expenses
|
60,727
|
56,245
|
|||||
Income
before tax
|
10,466
|
7,713
|
|||||
Income
tax expense
|
3,414
|
2,743
|
|||||
Net
income
|
$
|
7,052
|
$
|
4,970
|
|||
Net
income per share:
|
|||||||
Basic
|
$
|
0.34
|
$
|
0.24
|
|||
Diluted
|
$
|
0.34
|
$
|
0.24
|
Three
Months Ended
|
|
||||||
|
|
March
31,
|
|
||||
|
|
2008
|
|
2007
|
|||
Common
Stock
|
|||||||
Balance,
beginning of period
|
$
|
3,740
|
$
|
3,740
|
|||
Issuance
of common stock upon option exercises
|
6
|
-
|
|||||
Balance,
end of period
|
3,746
|
3,740
|
|||||
Additional
Paid-In Capital
|
|||||||
Balance,
beginning of period
|
118,459
|
117,932
|
|||||
Equity
based compensation
|
547
|
51
|
|||||
Exercise
of stock options
|
114
|
-
|
|||||
Balance,
end of period
|
119,120
|
117,983
|
|||||
Retained
Earnings
|
|||||||
Balance,
beginning of period
|
58,909
|
31,480
|
|||||
Net
income
|
7,052
|
4,970
|
|||||
Balance,
end of period
|
65,961
|
36,450
|
|||||
Accumulated
Other Comprehensive Loss
|
|||||||
Balance,
beginning of period
|
(1,844
|
)
|
(2,344
|
)
|
|||
Amortization
of net actuarial loss, net of tax
|
10
|
-
|
|||||
Unrealized
(losses) gains on securities, net of tax
|
(1,252
|
)
|
362
|
||||
Balance,
end of period
|
(3,086
|
)
|
(1,982
|
)
|
|||
Treasury
Stock
|
|||||||
Balance,
beginning and end of period
|
(77
|
)
|
(77
|
)
|
|||
Stockholders'
Equity
|
$
|
185,664
|
$
|
156,114
|
|||
Net
income
|
$
|
7,052
|
$
|
4,970
|
|||
Amortization
of net actuarial loss, net of tax
|
10
|
-
|
|||||
Unrealized
(losses) gains on securities, net of tax
|
(1,252
|
)
|
362
|
||||
Comprehensive
Income
|
$
|
5,810
|
$
|
5,332
|
Three
Months Ended
|
|
||||||
|
|
March
31
|
|
||||
|
|
2008
|
|
2007
|
|||
Cash
flows from operating activities:
|
|||||||
Net
income
|
$
|
7,052
|
$
|
4,970
|
|||
Adjustments
to reconcile net income to cash provided by operating
activities:
|
|||||||
Depreciation
and amortization expense
|
767
|
781
|
|||||
Amortization
of discount on structured settlement
|
-
|
104
|
|||||
Deferred
federal income tax expense (benefit)
|
(156
|
)
|
1,200
|
||||
Gain
on investments
|
(859
|
)
|
(53
|
)
|
|||
Change
in prepaid reinsurance premiums
|
(1,923
|
)
|
(8
|
)
|
|||
Change
in premiums receivable
|
(1,714
|
)
|
(4,853
|
)
|
|||
Change
in accounts receivable
|
(125
|
)
|
1,798
|
||||
Change
in deferred policy acquisition costs
|
(659
|
)
|
(1,784
|
)
|
|||
Change
in unpaid losses and loss adjustment expenses
|
8,410
|
13,276
|
|||||
Change
in unearned premiums
|
3,011
|
8,975
|
|||||
Change
in unearned revenue
|
(502
|
)
|
(1,226
|
)
|
|||
Change
in accrued agent profit sharing
|
(2,177
|
)
|
(1,190
|
)
|
|||
Change
in reinsurance recoverable
|
483
|
647
|
|||||
Change
in reinsurance balances payable
|
-
|
(6,143
|
)
|
||||
Change
in current federal income tax payable
|
2,788
|
(449
|
)
|
||||
Change
in accrued ceding commission payable
|
86
|
3,250
|
|||||
Change
in all other liabilities
|
(4,059
|
)
|
2,503
|
||||
Change
in all other assets
|
1,965
|
(2,836
|
)
|
||||
Net
cash provided by operating activities
|
12,388
|
18,962
|
|||||
Cash
flows from investing activities:
|
|||||||
Purchases
of property and equipment
|
(174
|
)
|
(72
|
)
|
|||
Change
in restricted cash
|
11,361
|
14,815
|
|||||
Purchases
of debt and equity securities
|
(135,411
|
)
|
(48,251
|
)
|
|||
Maturities
and redemptions of investment securities
|
129,463
|
8,643
|
|||||
Net
purchases of short-term investments
|
(92,435
|
)
|
15,000
|
||||
Net
cash used in investing activities
|
(87,196
|
)
|
(9,865
|
)
|
|||
Cash
flows from financing activities:
|
|||||||
Proceeds
from exercise of employee stock options
|
120
|
-
|
|||||
Premium
finance notes originated, net of finance notes repaid
|
107
|
252
|
|||||
Payment
of structured settlement
|
(10,000
|
)
|
(15,000
|
)
|
|||
Net
cash used by financing activities
|
(9,773
|
)
|
(14,748
|
)
|
|||
Decrease
in cash and cash equivalents
|
(84,581
|
)
|
(5,651
|
)
|
|||
Cash
and cash equivalents at beginning of period
|
145,884
|
81,474
|
|||||
Cash
and cash equivalents at end of period
|
$
|
61,303
|
$
|
75,823
|
|||
Supplemental
Cash Flow Information:
|
|||||||
Interest
paid
|
$
|
1,190
|
$
|
687
|
|||
Taxes
paid
|
$
|
781
|
$
|
1,992
|
·
|
Level
1: quoted prices in active markets for identical assets
|
·
|
Level
2: inputs to the valuation methodology include quoted prices for
similar
assets and liabilities in active markets, inputs of identical assets
for
less active markets, and inputs that are observable for the asset
or
liability, either directly or indirectly, for substantially the full
term
of the instrument
|
·
|
Level
3: inputs to the valuation methodology are unobservable for the asset
or
liability
|
|
Quoted Prices in
|
|
Other
|
|
|
|
|
|
|||||
|
|
Active Markets for
|
|
Observable
|
|
Unobservable
|
|
|
|
||||
|
|
Identical Assets
|
|
Inputs
|
|
Inputs
|
|
|
|
||||
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
|
|
||||
Debt
securities
|
$
|
-
|
$
|
163,108
|
$
|
4,000
|
$
|
167,108
|
|||||
Equity
securities
|
35,566
|
-
|
-
|
35,566
|
|||||||||
Short-term
investments
|
-
|
95,060
|
-
|
95,060
|
|||||||||
Total
Assets
|
$
|
35,566
|
$
|
258,168
|
$
|
4,000
|
$
|
297,734
|
Beginning
balance as of January 1, 2008
|
$
|
4,000
|
||
Purchases,
issuances, sales and settlements
|
-
|
|||
Total
realized/unrealized gains/(losses) included in net income
|
-
|
|||
Net
gains/(losses) included on other comprehensive income
|
-
|
|||
Transfers
in and/or out of Level 3
|
-
|
|||
Ending
balance as of March 31, 2008
|
$
|
4,000
|
|
|
|
|
Average
|
|
Contractual
|
|
Intrinsic
|
|
||||
|
|
Number of
|
|
Exercise
|
|
Term
|
|
Value
|
|
||||
|
|
Shares
|
|
Price
|
|
(Years)
|
|
($000)
|
|
||||
Outstanding
at January 1, 2008
|
848,000
|
$
|
10.41
|
||||||||||
Granted
|
-
|
$
|
-
|
||||||||||
Exercised
|
(33,335
|
)
|
$
|
3.61
|
|||||||||
Forfeited
or expired
|
-
|
$
|
-
|
||||||||||
Outstanding
at March 31, 2008
|
814,665
|
$
|
10.69
|
7.9
|
$
|
1,110
|
|||||||
Exercisable
at March 31, 2008
|
174,582
|
$
|
6.56
|
4.6
|
$
|
861
|
Three Months Ended
|
|||||||
March
31,
|
|||||||
2008
|
2007
|
||||||
Intrinsic
value of options exercised
|
$
|
278
|
$
|
-
|
|||
Cost
of share-based payments (non-cash)
|
$
|
547
|
$
|
51
|
|||
Income
tax benefit of share-based
|
|||||||
payments
recognized in income
|
$
|
191
|
$
|
18
|
Three Months Ended
|
|
||||||
|
|
March 31,
|
|
||||
|
|
2008
|
|
2007
|
|
||
Revenues:
|
|
|
|
|
|
||
Standard
Commercial Segment
|
$
|
21,829
|
$
|
21,767
|
|||
Specialty
Commercial Segment
|
32,087
|
28,098
|
|||||
Personal
Segment
|
15,726
|
13,773
|
|||||
Corporate
|
1,551
|
320
|
|||||
Consolidated
|
$
|
71,193
|
$
|
63,958
|
|||
Pre-tax
income (loss):
|
|||||||
Standard
Commercial Segment
|
$
|
3,881
|
$
|
2,759
|
|||
Specialty
Commercial Segment
|
5,293
|
4,686
|
|||||
Personal
Segment
|
2,590
|
2,118
|
|||||
Corporate
|
(1,298
|
)
|
(1,850
|
)
|
|||
Consolidated
|
$
|
10,466
|
$
|
7,713
|
March 31,
2008
|
December 31,
2007
|
||||||
Assets
|
|||||||
Standard
Commercial Segment
|
$
|
163,569
|
$
|
211,428
|
|||
Specialty
Commercial Segment
|
192,764
|
229,138
|
|||||
Personal
Segment
|
87,995
|
100,986
|
|||||
Corporate
|
74,725
|
64,762
|
|||||
$
|
519,053
|
$
|
606,314
|
Three Months Ended
|
|
||||||
|
|
March 31,
|
|
||||
|
|
2008
|
|
2007
|
|||
Ceded
earned premiums
|
$
|
2,310
|
$
|
3,879
|
|||
Reinsurance
recoveries
|
$
|
107
|
$
|
1,084
|
·
|
Property catastrophe.
Our property catastrophe reinsurance reduces the financial impact
a
catastrophe could have on our commercial property insurance lines.
Catastrophes might include multiple claims and policyholders. Catastrophes
include hurricanes, windstorms, earthquakes, hailstorms, explosions,
severe winter weather and fires. Our property catastrophe reinsurance
is
excess-of-loss reinsurance, which provides us reinsurance coverage
for
losses in excess of an agreed-upon amount. We utilize catastrophe
models
to assist in determining appropriate retention and limits to purchase.
The
terms of our property catastrophe reinsurance, effective July 1,
2007,
are:
|
o
|
We
retain the first $2.0 million of property catastrophe losses; and
|
o
|
Our
reinsurers reimburse us 100% for each $1.00 of loss in excess of
our $2.0
million retention up to $28.0 million for each catastrophic occurrence,
subject to a maximum of two events for the contractual
term.
|
·
|
Commercial
property. Our
commercial property reinsurance is excess-of-loss coverage intended
to
reduce the financial impact a single-event or catastrophic loss may
have
on our results. The terms of the commercial property reinsurance,
effective July 1, 2007, are:
|
o
|
We
retain the first $1.0 million of loss for each commercial property
risk;
|
o
|
Our
reinsurers reimburse us for the next $5.0 million for each commercial
property risk; and
|
o
|
Individual
risk facultative reinsurance is purchased on any commercial property
with
limits above $6.0 million.
|
·
|
Commercial
casualty. Our
commercial casualty reinsurance is excess-of-loss coverage intended
to
reduce the financial impact a single-event loss may have on our results.
The terms of our commercial casualty reinsurance, effective July
1, 2007,
are:
|
o
|
We
retain the first $1.0 million of loss for each commercial casualty
risk;
and
|
o
|
Our
reinsurers reimburse us for the next $5.0 million for each commercial
casualty risk.
|
·
|
Aviation.
We purchase reinsurance specific to the aviation risks underwritten
by our
Aerospace Operating Unit. This reinsurance provides aircraft hull
and
liability coverage and airport liability coverage on a per occurrence
basis on the following terms:
|
o
|
We
retain the first $350,000 of each aircraft hull or liability or airport
liability loss;
|
o
|
Our
reinsurers reimburse us for the next $1.15 million of each aircraft
hull
or liability loss and for the next $650,000 of each airport liability
loss; and
|
o
|
Our
reinsurers provide additional reimbursement of $4.0 million for each
airport liability loss and aircraft liability loss, excluding passenger
liability.
|
Three Months Ended
|
|||||||
March 31,
|
|||||||
2008
|
2007
|
||||||
Deferred
|
$
|
(14,405
|
)
|
$
|
(12,360
|
)
|
|
Amortized
|
13,746
|
10,576
|
|||||
Net
|
$
|
(659
|
)
|
$
|
(1,784
|
)
|
Three Months Ended
|
|||||||
March
31,
|
|||||||
2008
|
2007
|
||||||
Weighted
average shares - basic
|
20,781
|
20,768
|
|||||
Effect
of dilutive securities
|
106
|
23
|
|||||
Weighted
average shares - assuming dilution
|
20,887
|
20,791
|
Three Months Ended
|
|||||||
March
31,
|
|||||||
2008
|
2007
|
||||||
Interest
cost
|
$
|
167
|
$
|
180
|
|||
Amortization
of net (gain) loss
|
(168
|
)
|
50
|
||||
Expected
return on plan assets
|
16
|
(161
|
)
|
||||
Net
periodic pension cost
|
$
|
15
|
$
|
69
|
·
|
Standard
Commercial Segment.
Our Standard Commercial Segment includes the standard lines commercial
property/casualty insurance products and services handled by our
HGA
Operating Unit which is comprised of our American Hallmark Insurance
Services, Inc. and Effective Claims Management, Inc. subsidiaries.
|
·
|
Specialty
Commercial Segment.
Our Specialty Commercial Segment includes the excess and surplus
lines
commercial property/casualty insurance products and services handled
by
our TGA Operating Unit and the general aviation insurance products
and
services handled by our Aerospace Operating Unit. Our TGA Operating
Unit
is comprised of our TGA Insurance Managers, Inc., Pan American Acceptance
Corporation (“PAAC”) and TGA Special Risk, Inc. subsidiaries. Our
Aerospace Operating Unit is comprised of our Aerospace Insurance
Managers,
Inc., Aerospace Special Risk, Inc. and Aerospace Claims Management
Group,
Inc. subsidiaries.
|
·
|
Personal
Segment.
Our Personal Segment includes the non-standard personal automobile
insurance products and services handled by our Phoenix Operating
Unit
which is comprised solely of American Hallmark General Agency, Inc.,
which
does business as Phoenix Indemnity Insurance
Company.
|
·
|
American
Hallmark Insurance Company of Texas (“AHIC”) presently
retains all of the risks on the commercial property/casualty policies
marketed by our HGA Operating Unit, assumes a portion of the risks
on the
commercial property/casualty policies marketed by our TGA Operating
Unit
and assumes a portion of the risks on the aviation property/casualty
products marketed by our Aerospace Operating Unit.
|
·
|
Hallmark
Specialty Insurance Company (“HSIC”) presently
assumes a portion of the risks on the commercial property/casualty
policies marketed by our TGA Operating
Unit.
|
·
|
Hallmark
Insurance Company (“HIC”) (formerly known as Phoenix Indemnity Insurance
Company)
presently assumes all of the risks on the non-standard personal automobile
policies marketed by our Phoenix Operating Unit and assumes a portion
of
the risks on the aviation property/casualty products marketed by
our
Aerospace Operating Unit.
|
|
Three
Months Ended March 31, 2008
|
|
||||||||||||||
|
|
Standard
|
|
Specialty
|
|
|
|
|
|
|
|
|||||
|
|
Commercial
|
|
Commercial
|
|
Personal
|
|
|
|
|
|
|||||
|
|
Segment
|
|
Segment
|
|
Segment
|
|
Corporate
|
|
Consolidated
|
|
|||||
Produced
premium
|
$
|
21,749
|
$
|
32,020
|
$
|
17,727
|
$
|
-
|
$
|
71,496
|
||||||
Gross
premiums written
|
21,749
|
24,761
|
17,727
|
-
|
64,237
|
|||||||||||
Ceded
premiums written
|
(1,364
|
)
|
(968
|
)
|
-
|
-
|
(2,332
|
)
|
||||||||
Net
premiums written
|
20,385
|
23,793
|
17,727
|
-
|
61,905
|
|||||||||||
Change
in unearned premiums
|
404
|
(155
|
)
|
(3,238
|
)
|
-
|
(2,989
|
)
|
||||||||
Net
premiums earned
|
20,789
|
23,638
|
14,489
|
-
|
58,916
|
|||||||||||
Total
revenues
|
21,829
|
32,087
|
15,726
|
1,551
|
71,193
|
|||||||||||
Losses
and loss adjustment expenses
|
11,310
|
15,003
|
9,191
|
-
|
35,504
|
|||||||||||
Pre-tax
income (loss)
|
3,881
|
5,293
|
2,590
|
(1,298
|
)
|
10,466
|
||||||||||
Net
loss ratio (1)
|
54.4
|
%
|
63.5
|
%
|
63.4
|
%
|
60.3
|
%
|
||||||||
Net
expense ratio (1)
|
27.4
|
%
|
30.7
|
%
|
22.5
|
%
|
29.0
|
%
|
||||||||
Net
combined ratio (1)
|
81.8
|
%
|
94.2
|
%
|
85.9
|
%
|
89.3
|
%
|
||||||||
|
Three
Months Ended March 31, 2007
|
|
||||||||||||||
|
|
Standard
|
|
Specialty
|
|
|
|
|
|
|
|
|||||
|
|
Commercial
|
|
Commercial
|
|
Personal
|
|
|
|
|
|
|||||
|
|
Segment
|
|
Segment
|
|
Segment
|
|
Corporate
|
|
Consolidated
|
|
|||||
Produced
premium
|
$
|
23,550
|
$
|
39,357
|
$
|
15,076
|
$
|
-
|
$
|
77,983
|
||||||
Gross
premiums written
|
23,481
|
26,101
|
15,076
|
-
|
64,658
|
|||||||||||
Ceded
premiums written
|
(2,635
|
)
|
(1,252
|
)
|
-
|
-
|
(3,887
|
)
|
||||||||
Net
premiums written
|
20,846
|
24,849
|
15,076
|
-
|
60,771
|
|||||||||||
Change
in unearned premiums
|
(924
|
)
|
(5,756
|
)
|
(2,443
|
)
|
-
|
(9,123
|
)
|
|||||||
Net
premiums earned
|
19,922
|
19,093
|
12,633
|
-
|
51,648
|
|||||||||||
Total
revenues
|
21,767
|
28,098
|
13,773
|
320
|
63,958
|
|||||||||||
Losses
and loss adjustment expenses
|
12,841
|
11,081
|
8,267
|
(4
|
)
|
32,185
|
||||||||||
Pre-tax
income (loss)
|
2,759
|
4,686
|
2,118
|
(1,850
|
)
|
7,713
|
||||||||||
Net
loss ratio (1)
|
64.5
|
%
|
58.0
|
%
|
65.4
|
%
|
62.3
|
%
|
||||||||
Net
expense ratio (1)
|
28.0
|
%
|
31.5
|
%
|
23.6
|
%
|
28.2
|
%
|
||||||||
Net
combined ratio (1)
|
92.5
|
%
|
89.5
|
%
|
89.0
|
%
|
90.5
|
%
|
• |
the
availability of sufficient reliable data and our ability to properly
analyze available data;
|
• |
the
uncertainties that inherently characterize estimates and
assumptions;
|
• |
our
selection and application of appropriate pricing techniques;
and
|
• |
changes
in applicable legal liability standards and in the civil litigation
system
generally.
|
• |
approval
of policy forms and rates;
|
• |
licensing
of insurers and their agents;
|
• |
restrictions
on the nature, quality and concentration of
investments;
|
• |
restrictions
on the ability of insurance company subsidiaries to pay
dividends;
|
• |
restrictions
on transactions between insurance company subsidiaries and their
affiliates;
|
• |
requiring
certain methods of accounting;
|
• |
periodic
examinations of operations and finances;
|
• |
the
use of non-public consumer information and related privacy
issues;
|
• |
the
use of credit history in underwriting and rating;
|
• |
limitations
on the ability to charge policy fees;
|
• |
the
acquisition or disposition of an insurance company or of any company
controlling an insurance
company;
|
• |
involuntary
assignments of high-risk policies, participation in reinsurance facilities
and underwriting associations, assessments and other governmental
charges;
|
• |
restrictions
on the cancellation or non-renewal of policies and, in certain
jurisdictions, withdrawal from writing certain lines of
business;
|
• |
prescribing
the form and content of records of financial condition to be
filed;
|
• |
requiring
reserves for unearned premium, losses and other purposes;
and
|
Exhibit
Number
|
Description
|
|
3(a)
|
Restated
Articles of Incorporation of the registrant, as amended (incorporated
by
reference to Exhibit 3.1 to the registrant’s Registration Statement on
Form S-1 [Registration No. 333-136414] filed September 8,
2006.
|
|
3(b)
|
Amended
and Restated By-Laws of the registrant (incorporated by reference
to
Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed October
1, 2007).
|
|
4(a)
|
Specimen
certificate for Common Stock, $0.18 par value per share, of the registrant
(incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the
registrant’s Registration Statement on Form S-1 [Registration No.
333-136414] filed September 8, 2006).
|
|
4(b)
|
Indenture
dated as of June 21, 2005, between Hallmark Financial Services, Inc.
and
JPMorgan Chase Bank, National Association (incorporated by reference
to
Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed June 27,
2005).
|
|
4(c)
|
Amended
and Restated Declaration of Trust of Hallmark Statutory Trust I dated
as
of June 21, 2005, among Hallmark Financial Services, Inc., as sponsor,
Chase Bank USA, National Association, as Delaware trustee, and JPMorgan
Chase Bank, National Association, as institutional trustee, and Mark
Schwarz and Mark Morrison, as administrators (incorporated by reference
to
Exhibit 4.2 to the registrant’s Current Report on Form 8-K filed June 27,
2005).
|
|
4(d)
|
Form
of Junior Subordinated Debt Security Due 2035 (incorporated by reference
to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed June
27, 2005).
|
|
4(e)
|
Form
of Capital Security Certificate (incorporated by reference to Exhibit
4.2
to the registrant’s Current Report on Form 8-K filed June 27,
2005).
|
|
4(f)
|
First
Restated Credit Agreement dated January 27, 2006, between Hallmark
Financial Services, Inc. and The Frost National Bank (incorporated
by
reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K
filed February 2, 2006).
|
|
4(g)
|
Form
of Registration Rights Agreement dated January 27, 2006, between
Hallmark
Financial Services, Inc. and Newcastle Special Opportunity Fund I,
L.P.
and Newcastle Special Opportunity Fund II, L.P. (incorporated by
reference
to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed
February 2, 2006).
|
|
4(h)
|
Indenture
dated as of August 23, 2007, between Hallmark Financial Services,
Inc. and
The Bank of New York Trust Company, National Association (incorporated
by
reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K
filed August 24, 2007).
|
|
4(i)
|
Amended
and Restated Declaration of Trust of Hallmark Statutory Trust II
dated as
of August 23, 2007, among Hallmark Financial Services, Inc., as sponsor,
The Bank of New York (Delaware), as Delaware trustee, and The Bank
of New
York Trust Company, National Association, as institutional trustee,
and
Mark Schwarz and Mark Morrison, as administrators (incorporated by
reference to Exhibit 4.2 to the registrant’s Current Report on Form 8-K
filed August 24, 2007).
|
Exhibit
Number
|
Description
|
|
4(j)
|
Form
of Junior Subordinated Debt Security Due 2037 (incorporated by reference
to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed August
24, 2007).
|
|
4(k)
|
Form
of Capital Security Certificate (incorporated by reference to Exhibit
4.2
to the registrant’s Current Report on Form 8-K filed August 24,
2007).
|
|
31(a)
|
Certification
of principal executive officer required by Rule 13a-14(a) or Rule
15d-14(a).
|
|
31(b)
|
Certification
of principal financial officer required by Rule 13a-14(a) or Rule
15d-14(a).
|
|
32(a)
|
Certification
of principal executive officer Pursuant to 18 U.S.C.
1350.
|
|
32(b)
|
Certification
of principal financial officer Pursuant to 18 U.S.C.
1350.
|
HALLMARK
FINANCIAL SERVICES, INC.
(Registrant)
|
||
Date:
May 15, 2008
|
/s/ Mark J. Morrison | |
|
Mark
J. Morrison, Chief Executive Officer and President
(Principal
Executive Officer)
|
|
Date:
May 15, 2008
|
/s/ Jeffrey R. Passmore | |
|
Jeffrey
R. Passmore, Chief Accounting Officer and Senior Vice
President
|
|
(Principal
Financial Officer)
|