HALL - Hallmark Financial Services, Inc.

[Ballinvarosig Investors]

Schwarz used the word 'cheap' in a public setting to describe the shares when they were at 73% of BV in February ($8.5 vs BV of $11.70).  Today they closed at 64% of BV ($7.05 vs. BV of $11.10).    Given that HALL management has enough cash to make the $23mm purchase and that they hold all the cards with respect to the current state of reserves, they are in the best position to buy.  I have no idea what will happen but their degree of participation in the purchase will speak volumes about their confidence in the business going forward.

Like Ragnar said, tangible book value is 0.95, as opposed to the 0.64 figure that you're quoting. Like I said when this thread was created, underwriting performance is awful, reserving is as bad (still is). Why should anyone pay close to book value for a turd, when only a few months ago they could have bought a gem (SUR) for even less?

 

Honestly, this looks like a stock to avoid until they actually decide to run this company as an insurance operation, as opposed to a hedge fund.

SUR and HALL are in different businesses with different loss expectations but also different growth expectations. That's a general statement rather than specific to this particular company.

 

It's interesting that the NPW in personal lines increased despite the statement that unprofitable agent relationships were discontinued. Instead smaller premiums written, the expense ratio rose, apparently due to more claims staff. I wonder about the details behind "complexity related to Florida personal injury protection claims."

Rabbit, there's nothing wrong with having a crappier underwriting quarter, no one is perfect. The problem is when you start stringing a couple of crappy quarters together, you cease to be able to use bad luck as an excuse. I really don't like to run an idea down, but HALL looked like a turd 7 months ago, and has peformed like one since (the market for insurers is up about 15%, as opposed to HALL which is down 15%.). Maybe I have been too influenced by Harry Long and his kitsch and old-fashioned ways about how insurers should have a history in profitable underwriting?

[Ballinvarosig Investors]

Like Ragnar said, tangible book value is 0.95, as opposed to the 0.64 figure that you're quoting.

 

I wasn't quoting to TBV, I was quoting to the BV number expressed in the earnings release.  Either way, the point I was making was that if the CEO liked it in February, he should like it even more today.

onyx1, I apologise. I am merely trying to show that HALL have are carrying a fairly significant degree of goodwill due to previous acquisitions. My thoughts are generally to err on the side of caution and to just write it off.

[Rabbitisrich]

Schwarz used the word 'cheap' in a public setting to describe the shares when they were at 73% of BV in February ($8.5 vs BV of $11.70).  Today they closed at 64% of BV ($7.05 vs. BV of $11.10).    Given that HALL management has enough cash to make the $23mm purchase and that they hold all the cards with respect to the current state of reserves, they are in the best position to buy.  I have no idea what will happen but their degree of participation in the purchase will speak volumes about their confidence in the business going forward.

Like Ragnar said, tangible book value is 0.95, as opposed to the 0.64 figure that you're quoting. Like I said when this thread was created, underwriting performance is awful, reserving is as bad (still is). Why should anyone pay close to book value for a turd, when only a few months ago they could have bought a gem (SUR) for even less?

 

Honestly, this looks like a stock to avoid until they actually decide to run this company as an insurance operation, as opposed to a hedge fund.

SUR and HALL are in different businesses with different loss expectations but also different growth expectations. That's a general statement rather than specific to this particular company.

 

It's interesting that the NPW in personal lines increased despite the statement that unprofitable agent relationships were discontinued. Instead smaller premiums written, the expense ratio rose, apparently due to more claims staff. I wonder about the details behind "complexity related to Florida personal injury protection claims."

Rabbit, there's nothing wrong with having a crappier underwriting quarter, no one is perfect. The problem is when you start stringing a couple of crappy quarters together, you cease to be able to use bad luck as an excuse. I really don't like to run an idea down, but HALL looked like a turd 7 months ago, and has peformed like one since (the market for insurers is up about 15%, as opposed to HALL which is down 15%.). Maybe I have been too influenced by Harry Long and his kitsch and old-fashioned ways about how insurers should have a history in profitable underwriting?

 

The point is that these are not competing industries. You could purchase a surety business and a P & C business without worrying about going double down on an industry. For example, consider the difference between your statement, and the statement "Why would anyone purchase CNA at book when they could purchase WRB at book?"

 

Though I wouldn't disagree that the results look turdish.

[onyx1]

It's interesting that the NPW in personal lines increased despite the statement that unprofitable agent relationships were discontinued. Instead smaller premiums written, the expense ratio rose, apparently due to more claims staff. I wonder about the details behind "complexity related to Florida personal injury protection claims."

 

FLA is only one of many states where they offer personal lines so maybe the increase in NPW came from established markets?  It is hard for me to tell from the information in the Q.

 

I read "complexity related to Florida personal injury protection claims" as the PIP fraud.  No idea why they didn't come right out and say it since fraud rings have become almost a cottage industry in FLA the last few years and include not only the drivers and the passengers but unsavory attorneys, medical clinics, chiropractors, and diagnostic centers.  And FLA is ground zero for fraud because it is a no-fault state and every driver is required to get PIP insurance that pays up to $10,000 for lost wages and medical treatment for each person in an accident regardless of who is at fault.  Pack ten people in two cars, stage a fender-bender and there is $100,000!!

 

http://www.myfoxtampabay.com/dpp/news/investigates/crackdown-on-staged-car-accident-fraud-05122011

 

Really, how could they not have seen this coming?

 

 

[onyx1]

Like Ragnar said, tangible book value is 0.95, as opposed to the 0.64 figure that you're quoting.

 

I wasn't quoting to TBV, I was quoting to the BV number expressed in the earnings release.  Either way, the point I was making was that if the CEO liked it in February, he should like it even more today.

onyx1, I apologise. I am merely trying to show that HALL have are carrying a fairly significant degree of goodwill due to previous acquisitions. My thoughts are generally to err on the side of caution and to just write it off.

 

No worries....Based on their results from organic expansion in FLA, maybe they should stick to growth from acquisitions!  :D

[Rabbitisrich]

It's interesting that the NPW in personal lines increased despite the statement that unprofitable agent relationships were discontinued. Instead smaller premiums written, the expense ratio rose, apparently due to more claims staff. I wonder about the details behind "complexity related to Florida personal injury protection claims."

 

FLA is only one of many states where they offer personal lines so maybe the increase in NPW came from established markets?  It is hard for me to tell from the information in the Q.

 

I read "complexity related to Florida personal injury protection claims" as the PIP fraud.  No idea why they didn't come right out and say it since fraud rings have become almost a cottage industry in FLA the last few years and include not only the drivers and the passengers but unsavory attorneys, medical clinics, chiropractors, and diagnostic centers.  And FLA is ground zero for fraud because it is a no-fault state and every driver is required to get PIP insurance that pays up to $10,000 for lost wages and medical treatment for each person in an accident regardless of who is at fault.  Pack ten people in two cars, stage a fender-bender and there is $100,000!!

 

http://www.myfoxtampabay.com/dpp/news/investigates/crackdown-on-staged-car-accident-fraud-05122011

 

Really, how could they not have seen this coming?

 

 

 

Definitely worrisome. Even without Florida, the loss ratio would have been 94%, and this after creeping up by 10% a year since 2009.

[onyx1]

Even without Florida, the loss ratio would have been 94%.

 

True.  And without any prior adverse development the personal lines 1Q 2011 accident year loss ratio is 81%, and a CR of 104% after adding 24% in expenses.

This compares to 2010's 67% (loss) + 22% (exp) = 89% (CR).  NWP was constant so why all the additional losses in the current accident year?  I'm left wondering if they completely re-evaluated and added reserves across the board in the Personal Segment after the losses in FLA. 

[link01]

[quote}

It looks like HALL is doing a 180 and getting out of FLA.  The experience has been so bad, though that it wouldn't surprise me to see a management change.  Anyone who underprices policies by 100%-200% has no underwriting credibility, despite what historically has been a pretty good record for the firm overall.

 

 

yea, i think its time to look for new mngt. hall's underwriting began its deterioration after the hire in 06 of morrison. its a shame because they are really strong on the asset mngt side....a relative rarity in insurance. in spite of a disastrous 2011 book val only dropped 4% & cash & investments actually increased, especially on a per share basis:

 

Mr. Morrison continued, "As we discussed last quarter, we have taken and continue to take aggressive steps to address the unfavorable financial performance of our Personal Lines Segment. As these actions take effect over the next few quarters, we expect this unit to return to an acceptable level of profitability."

 

Mark E. Schwarz, Executive Chairman of Hallmark, stated, "Book value per share increased 2% during the fourth quarter but declined 4% for fiscal 2011. Investment income increased 7% to $15.9 million for fiscal 2011 compared to fiscal 2010. Cash flow from operations was $10 million in the fourth quarter and $25 million for fiscal 2011."

 

"Hallmark utilized $6.4 million of its cash during the year to repurchase 875,712 shares or 4% of its outstanding common stock and also deployed $13.3 million net cash during the year for the acquisitions of Hallmark National Insurance Company and Texas Builders Insurance Company. Additionally, total cash and investments increased 2% during fiscal 2011 to $508 million. On a per share basis, total cash and investments increased at a greater rate of 7% during fiscal 2011 to an all-time high of $26.40 per share, due to the repurchase of shares during the year. Hallmark continues to have a significant amount of cash of $83.8 million as of the end of the year," said Mr. Schwarz.>>

 

 

 

[LowIQinvestor]

Blast from the past:

I just pulled up their recent 10-Q and they now have a combined ratio of 97% and trade at about a 30% discount to Book Value. They indicated an interest in buying back a ton of shares in their last earnings call.

 

Anyone taking another look at HALL?

 

Annual Meeting presentation:

http://www.snl.com/Cache/1001187552.PDF?Y=&O=PDF&D=&FID=1001187552&T=&IID=103415

 

They also just hired a new CEO:

On August 13, 2014, the Board of Directors of Hallmark Financial Services, Inc. (the “Company”) appointed Naveen Anand to serve as President and Chief Executive Officer of the Company commencing September 8, 2014. Mr. Anand, age 47, has over 25 years of experience in the property/casualty insurance industry.

[LowIQinvestor]

resurrecting this idea. HALL

 

Anyone still follow it?

 

Surface level look shows decent combined ratios (consistently hovering around low 90%)

 

Still a large discount to BV despite improved results:

http://www.snl.com/Cache/1500087164.PDF?Y=&O=PDF&D=&FID=1500087164&T=&IID=103415

 

"Starting in the last half of

2010 and continuing

through mid 2012, adverse

results from Personal Auto

business in Florida drove

significant underwriting

losses. Since then, accident

ratios have trended

downward."

[Spekulatius]

As far as BV is concerned, there is quite are bit of intangibles in the balance sheet, so I think tangible book is only slightly above the current share price.

Intangibles on an insurers balance sheet are typically not worth much and for a comparison, I would just compare the tangible book value rather than the stated book.

[LowIQinvestor]

I agree,

 

But given their improving combined ratios over the past few years and more diverse book of insurance businesses it seems like it deserves at least book value.

 

 

[wescobrk]

4 year old post

Current book value is $11. Anyone still following? Looks like they are cleaning up their underwriting.

[villainx]

I'm going to take a closer look.

[keerthiprasad]

I believe there is a more recent thread on this one.