Hallmark Financial (HALL) Q2 Earnings Miss, Revenues In Line

Hallmark Financial Services Inc. HALL posted operating earnings of 15 cents per share in the second quarter of 2016 that missed the Zacks Consensus Estimate of 20 cents. Earnings plunged 54.5% year over year. The underperformance primarily stemmed from higher catastrophe losses.

Behind the Headlines

Hallmark Financial generated total revenue of $92 million, down 5.3% year over year, mainly due lower net premium. Operating revenues were in line with the Zacks Consensus Estimate.

Total expenses of Hallmark Financial inched up 1.9% year over year to $89.6 million due to higher operating expenses.

Net loss ratio improved 80 basis points (bps) to 66.7% from 67.5% in the prior-year quarter. Combined ratio of Hallmark Financial was 95.9% as against 96.1% in the year-ago quarter. This marks an improvement of 20 bps.

Segment Update

Standard Commercial: Total revenue declined 9.5% year over year to $18.2 million due to lower net premiums written and adverse change in unearned premiums.

Pre-tax income plunged 20% to $3 million in the quarter.

Combined ratio improved 530 bps to 88%.

Specialty Commercial: Total revenue inched up 1% year over year to $63 million due to increase in net premium written.

Pre-tax income dipped 5.2% year over year to $7.3 million in the quarter.

Combined ratio remained flat year over year at 92.3%.

Personal Segment: Total revenue grew 3.4% year over year to $12.1 million in the quarter due to higher net premiums earned.

Pre-tax loss of $1 million was wider than a loss of $0.7 million incurred in the year-ago quarter. Increase in losses and loss adjustment expenses resulted in the wider loss.

Combined ratio deteriorated 610 bps to 114.5%.

Corporate: Total revenue was ($2.35) million compared with $2.97 million in the year-ago quarter.

Pre-tax loss of $7.8 million was wider than $0.8 million in the year-ago quarter.

Financial Details

Hallmark Financial exited the quarter with total investments of $618.7 million, up 6.9% from year-end 2015.

Cash and cash equivalents declined 17.7% to $101.2 million in the quarter.

Cash flow from operations was $3.6 million in the reported quarter compared with cash flow from operations of $29.2 million a year ago.

Hallmark Financial’s book value per share was $14.25 as of Jun 30, 2016, up 4.5% year over year. Stockholder’s equity was $266.1 million as against $262 million in the year-ago quarter.

Zacks Rank

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

Performance of Other Insurers

Among the other players in the insurance industry that have reported their second-quarter results so far, the bottom line at The Travelers Companies (NYSE:TRV), Inc. TRV and First American Financial Corporation FAF beat their respective Zacks Consensus Estimate, while earnings of RLI Corp. RLI missed the same.