HALL - Earnings call transcript Q3 2019 | Hallmark Financial Services, Inc.

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Operator

Greetings, and welcome to the Hallmark Financial Services 2019 Third Quarter Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. These instructions will be given again prior to the question-and-answer session. Instructions]. [Operator

this recorded. reminder, is conference a being As

It David Development Webb, my pleasure and your host, to introduce Senior sir. at Thank is Hallmark. now Strategy you, Vice President, Corporate

may You begin.

David Webb

is Hallmark Thank and quarter call. call on continuing welcome we the a going our you, Financial’s quarterly earnings second basis to XXXX third earnings anticipate these and This forward.

Financial are CEO; and Joining and Officer. me President on Naveen the Anand, call Passmore, Chief today Jeff

certain assumptions, the and These reflect statements. During that we statements are differ which forward-looking making will uncertainties. may from materially cautioned risks beliefs, statements. forward-looking expectations, subject call, be are actual various intentions results such and may to Investors

Please today. available our made the these GAAP Risk of measures also are of presentation refer and an the XX-K call press SEC financial and results. at reference website most of that measures A certain on non-GAAP reconciliation other containing Form to www.hallmarkgrp.com. release may on Company's copy the materially some We investor with Factors a to may affect filings quarterly in for the our recent the additional details updated

some We results, on results. call will a with with overview the the conditions begin quarter, will follow will quarter’s today of financial discuss Naveen, and Jeff our then, brief market the comments and

that, will call turn over the to With I Naveen.

Naveen Anand

Thank you, David, and good morning, everyone.

return producing $X.XX of year operating continues report an I'm basis, and were third for returns share share produce to on on Financial same XX.X%. excess beginning quarter, through period in over pleased a XX%. a Hallmark $X.XX the previous that earnings per to quarter XX% equity annualized the of Operating the year-to-date per increase

an year-to-date translates positive impact for beginning $X.XX and the was XX.X%. $X.XX that These to on per the basis, a return quarter, transformative the taken highlight of equity Net actions on results share advantage which annualized has organization, foundation of and the company years, facet has the take company touched few specialty to for market particularly insurers. favorable which the opportunities by the laid over for every the last current of income this

on establish the base, specialty focused diversified a is firmly portfolio talent company specialty presence to market as The products. building company, with of a ourselves

Our is timing good.

take the to of created dislocation space. specialty well-positioned advantage by the in market the We’re opportunity

on total focused XX% ratio of and combined which ratio generated been business combined XX.X% year-to-date. now third a have comprises our of expanding quarter specialty premiums We of in the our and XX% a

and is specialty combination conditions. limits significant increases, smaller and a our of critical while the environment terms three and severity is products of Most at of building are The seeing same and increasing. portfolio claim to conditions where time, terms improving and in rates, limits, sustaining these rate components, an deploying business profitable

I'll views over segments. our to now of our back turn results, in call come on review Passmore then for and with financial Jeff some the a

Jeff Passmore

Thank you, good Naveen, morning. and

compared to we of third year. market For the operating quarter income same the $X.X reported $X.X the $X.X the net of million our compares in XXXX the impact quarter quarter million million. last were in earnings Removing of same unrealized third changes of $X.X of securities, quarter last for This XXXX, equity the value million to year.

primarily Gross this at portfolio. at Commercial segment Commercial the with XX% last quarter our segment favorable XX%. Year-to-date, the in same of driven premium $XXX portfolio our we specialty and million written increased our Specialty our during businesses represented year. by This compared are improvement is part the relative rate XX% to $XXX large last year quarter to attributable our Personal million growth increases, in achieving to in XX% segment Standard to

quarter $XX million the for in the XX% premium last year. increased written quarter Net to to same million $XXX compared

program the changes starting related the in rate being a our reinsurance higher premiums, the of led business treaty casualty consolidation driven gross made is into structure. increase this is XXXX to single of of October in by by the much to While our growth we

the reinsurance the lines as session claim our previous reinsurance These being business write. For larger in structure company provides larger specialty the portion $X excess translating the rate of that were to to coverage retained treaties allow business, larger million. changes have specialty the rates by us certain to of a we in protection resulted amount retain higher in the of a business of in more claims against At also net time growth on which same a severity, of structure premiums. has we

rate rates at we had forward, gross past increase Going be expect over those slightly been premiums, closer will higher than to continue they the much four a should that currently but premiums quarters. the net than

inflow operations $XX.X Cash $XX.X million a of increase year-to-date, from over quarter first million for three a was a $XX.X quarters and positive the the XXXX. million inflow flow

claims and net direct basis. a was that seeking The normalized The close outflows and experienced improvements has cash result a XXXX continue. quarter more made dynamic historically. has the than current on company for anticipate organization quickly the deliberate were company to ratio in That expense and XX% now the we the will the year-to-date claim in trend of XX.X%

target careful emphasize which as usage of external expense that We management and our resources, mix of of continue expense to our or a is our ratio competitive generally peers, we We ratio believe to lower. achieved an by technology, XX% expenses, business. is relative advantage and our intelligent

$X.X $X.X unrealized Net Net the $X.X during the resulting in investment year. in from period the as a prior to for million the were million income increased losses same X% quarter compared $X.X investment million net quarter million gains. to reduction

unsecured a to of of a of these as to million credit facility opportunity coupon. in our existing was achieve million public with insurance $XX premium $XX used note an proceeds market remainder contributed in to to in support the bank revolving repay issued we target. XX-year We and X.XX% growth the returns see market excess senior August, subsidiaries our the current additional we In

in increased $XXX to the cash since year-to-date premium proceeds from million and this the year-end payments, quarter, offering increased increase share. senior our of production the during our or claim valuation Total stabilization in both X% $XX.XX increase. portfolio of driven main are investment cash Improved unsecured and note drivers operating by per and investments a flows

Stockholders ended $XX quarter equity for up XXXX. at $XXX million, since million the the Group year-end

increased in nine-month since an book share $XX.XX share $XX.XX. and year-end value to per reflects not value per as timeframe. number XX.X% has is change annualized per Our over compared share the to actual This the book

to And Naveen. it with that, back like to over I'd turn

Naveen Anand

Thanks Jeff.

a results I’d and spend company's minutes the our segment we'll on level. discuss like alone to a then performance at few core

quarter was to XX.X% period combined points. XXXX improvement XX.X% of Year-to-date, ratio as the combined of almost year. for XX.X% XX.X% an compared the was compared to the same Our ratio prior two in

our to progress continue ratios. We toward make of sub-XX combined target

market weather relatively the year CAT of from the by primarily have had quiet recently Hurricane impacts our Well, CAT four X.X owing there's much minimal been has driven events, point Dorian and in two between points. Typhoon the CAT been X.X Financial discussion major a over many which Faxai, in which and is to events. historical were below quarter the for and average losses year, point Hallmark

a impactful colleagues, recent release, is our Dallas not to meaningful for in be storms CAT were area earnings the noted our and event Hallmark. to in the community as expected Also

this, for in quarter Company addressing unfavorable risk in response casualty severity we've our impacting been two X.X management. increased increased trend. the our an or year of development anticipated experienced in pricing, auto what prior the We've claims been this selection, In increase by to intent in quarter commercial auto line, particularly taken in to aggressive claims improve lines development last the years mentioning with above in steps driven and points we've severity previously X.X year-to-date. commercial and was

accident been Claim working costs as at reduce our associated years litigation. to from exposure earlier on review. management all primary XX to close reported It illustrated with you'd Slide have sought increasing like clearly if claims in close diligent where closed through for and XXXX company years claim the XX.X% of commercial to important XXXX, an strategy has Investor and commercial our auto longer part timeframes point accident been quicker to auto is evident of claims and book our our of and this Presentation claims has

on auto focused our very addressing issue the of the side been pricing also book. We’ve on

the On decisions portfolio comparison more up X% were X%. X%. since has premiums XXXX, were increases down in-force premiums are notable. recent we up are down our a while counts policy been premiums Since have while trucking XX%, XXXX, rate year-end past accounts and down primary Over XX% reduced year, just only in -- were underwriting the X% policy the of while customer impact count by

to this for improved restructured new Our predictive collection, long-term underlying will track to actions, risk in seek closure claim fast efforts, by line. claims the company position supported success models,

generated the an year quarter, and Commercial segment the of a segment a of for performing is the or our year, accident XX% In Specialty well. combined combined on very XX.X% third the segment ratio ratio XX.X% produced basis. Overall,

underwriting as helping business. we book, rate commercial In with portfolio was the addition, in to particularly into year. in product momentum excess continue liability XX%, see well the increasing professional in auto which third the of the our over across is quarter, improved as to margin evident in this is the our course segments, rate rates this drive in In great increase property average This our of E&S line. segment

particularly from conditions which to core our in broad capitalize current specialty have very in are market position We're view good to a on and the shifted our headwinds lines. tailwinds in

earlier, in minimizes I which claim Standard As Commercial are segments, and claim our XX% the in the severity. a critical less to of liability point, impact Commercial limits of At reducing both is exposure nearly our severity of limits million in our or policies in Specialty compressing mentioned greatly our one and this part our strategy market.

which period the this is a company's in a our quarter weather-related ratio ratio lines overall over of an claims, segment XXX.X% same last XX.X% combined resulting PCS experience while loss of is year. improvement of combined saw personal both the an generating last in over the five a point In other terms ratio of year. good, the uptick the XX.X%, same Year-to-date, for was book segments, over and quarter increase CAT non-PCs

year-to-date. activity for attritional XX.X% Our combined This non-CAT Standard an increase and in resulted the -- CAT in insurance. XXX.X% small experienced conduct property a loss activity quarter. quarter as loss in some severe from Commercial of includes non also as the ratio well This some losses business

we're conditions I'm in and to past how specialty and favorable lines pleased market XXXX, able few the over Hallmark done with that we’re work business the advantage from all that take the we've of prides. we're Overall, in the years, benefiting positioned of

place, the balanced people discipline. maintaining With driving growth, also right the pricing in and

With it questions. that, for open up operator, let's

Operator

we the conducting Thank and now will question-and-answer be you. gentlemen, Ladies Instructions]. [Operator session.

you. Thank

with from proceed your James. Peters Raymond first comes Greg Please with question Our question.

Marcus Aiello

Hi, good Marcus Greg. is for Aiello This morning.

and now an quarters guys was could this You of and pronounced I market about a been dynamic give dislocations for minute update now? us marketplace a hoping in talking the where more you couple spend right is

Naveen Anand

Good morning, Marcus.

a are seeing couple that the we're in overall, place taking market. things So of

the much dislocation that some didn't those move E&S that at of more growth, think months, six where time limits. seeing XXXX, dislocation of so certainly line, saw Standard has lines about E&S lines from of and lines type We XX%. Line property growing segment our E&S are into type we're E&S of I E&S through the seeing out carriers seeing grown, it the a or to back in E&S perspective it’s XXXX. and We're in more see syndication the was overall, businesses coming XX% of last

would And a fill kind sort as as cases of pricing ladder, which to is required and towers, cases tower the up carriers program. in opposite a where result, some expect. inverted more of some seeing you we’re higher a is get many of you in what So

Professional -- segments. it segments, seeing segments, on small well We're auto, seeing of in more our both our excess. also segment both those much primary and lighter much and as financial the our small Liability a customer our commercial business as in but so it as we're the as well in on healthcare excess lines casualty more in our small, We're the

of the that probably Standard by a Now, earlier coming markets the is I kind the driven combination segment. more moving back of and Lines business out being as of lines changes E&S biggest this are impact. into mentioned That's

from they risk as away situations in are Second and with is has individual those the versus Lloyds. program coming binding into risks changes Lloyds at market authorities walked particularly as sort were individual Lloyds of now smaller

standpoint. in account And national terms some of global of AIG others us overall limits an then in little changes necessarily less we making that that that the extent only impactful market from to their certain for because profiles. large That’s focus are a and on of don't sort loan

Marcus Aiello

for down like you near see combined expense would ratio average and running Thank that year-to-date, you on year, in little it. XX. your a remarkable and Slide have you And color. Florida here higher. My broken Got in you target your improvement can next be but is seems question ratio XX% have CAT an a that you're

of target? So I to loss towards core us some guess, order where expense for give maybe you'd so and see perspective hit that you can in you ratio your heading

Naveen Anand

Yes.

-- conditions that the our business are terms, ratio, ratio see mix see we loss accident rate we that improve. the we expect accident into portfolio we to as our So the changes to continue our going evolves, of and in marketplace, and as that add continue

to a growth -- in at and and expense the the to this expense standpoint, see as grow more point we improvement an from continue some as ratio. from of capacity XX think from we're we'll I XX.X range XX, growth benefit XX, further

projects any perspective lot work don't are four necessarily course to that, horizon, of from that CapEx that done sort We things have been on of that's a the years. last impact and over the like the of has going major a

going two little accident three and expense from and to a years. scenario, loss margin ratio year points a last perspective around even to been leading bit CAT the a continued with come the over with it's combination normalized So has improvement which in of from ratio

Marcus Aiello

your Got Thank some be comment on opportunity you guess seeing there. about that. just can if on the numbers come position capital to a you market guess for there repurchase talk And balance capital. excess I the I it's is last shares? back then question of it. would growth you’re guys on good to for my any perspective and And capital staggering you pretty maybe intention and growth, your to

Naveen Anand

Yes.

out that but so X.X between above X.X, leverage company not that a feel now fairly this little at we a And range. times, comfortable has terms far range. to past X.X my we the with generally within of And times well of ratio in is target the quite of right capital that but ratios, we kind leverage in have. higher been level The comfort stays bit really

debt net our and range point, this did will public At our recently to from as premium adequately kind X.X, we perspective, expectations $XX a it a X.X noted, offering of capitalized, the million companies, profitability, what add from keep within our on from this Jeff generate projections leverage we based resulting into we're of meets at point. CAT capital that the of range insurance

recall a we of it, $XXX The pull in point. we $XXX at have we -- million did of million available $XXX file I’m Universal as Shelf, as May this $XX down may million sorry back you million, at it,

profitability enough market. support at choose we step But have step the something on we based do like We to the do a outlook from this some the we point, see growth of So optionality. ambitions road. we're generating down to perspective as perspective feel capital and our

Operator

Thank you. Instructions]. [Operator

Boenning with your question. Scattergood. Bob comes Please question from Farnam Our and with next proceed

Bob Farnam

tether morning. a more good commercial detail if auto bit to see can reserves. little there, I'd I maybe like on Hey,

represent? the closed we many from that So you how that been many need exact talking I from how still XX.X% era? does X.X% just open? that open claims much XX claims still of accident that are of and years prior, say don't now have How an are claims are number kind ballpark, about

Naveen Anand

that question address Bob. of kind parts, So, in two

where an from those at prior in and we the our of drove used case So saw of this than claims charges the in the was terms XXXX less and point. XX were accident adequate reserve reserved the perspective. primarily dislocation which years kind past all And area most open

overall company, from XXXX we case adequately from highest key the an is, claims We hundred our have feel reserve the our perspective open over perspective, probably history, case seen level, but feel we've they're point reserve, between a XXXX little claim reserved. and we and couple are in at in

pace we get claims volatility some based volatility. But as that the the to our some closer we as on of thought basis, we're have. do closing of we prudent seeing get reserves continue was on we kind we out to it that out add claims, the And the of to closing

Bob Farnam

have, these limit million claims are key? that they policies the a is have that And on predominantly are them $X on

Naveen Anand

all that Yes, That's is primary. correct.

Bob Farnam

Okay.

Naveen Anand

A million $X limit.

Bob Farnam

as is how that for reserved how much not like much but at And they details a are of at may the I'm sounds you in in so XXX you limit so, -- so the on of the there, sorry, those of limit that claims? potential know -- up terms claims have what there percentage again, it around going so to the XXX, percentage is terms remaining area, do

Naveen Anand

Yes.

the basis, few average at already, case-by-case so it’s of that -- terms of information to reserves a anymore. to what quite don't are we pretty follow-on. specific of But those, that But that, have reserves losses develop what again terms in feel as happy reserve I they're are adequate but So at case case a in does. limits not average a a basis, there's going provide that I'm on in case terms

Bob Farnam

I year? you detailed development developed been the minutia there. commercial it of favorably But frequency I little like because Sorry, curious But than just hammer mean about again stuff XXXX quarter. or basically was or is in auto expected with this to a driving adverse just like thus didn't what's severity improvement that the stuff lower far, XXXX like accident looks the has

Naveen Anand

But a through both Now, in XXXX Obviously the a just in this reduction also second-generation base we've in selection our risk predictive in we of on been of of of XXXX standpoint improvement and capability. portfolio from put a making pricing, our large company. all changes things. started model changes the are coming couple exposure made lot of and has terms our

XX points continued reduction reference improvement of portfolio some portion Deck, on that you put we policies policies that Investor the you rate look well. continues and give when on policies been Page portfolio from at the a our as on in just share the So XXXX into improvement and XXXX driving enforced has standpoint

Bob Farnam

not but claim type been a policy. there to mean, trying claim Is you've specific policy I of

You problematic of? have called more you've getting enforced policies, quite that a been of been has policy the type rid of bit your what

Naveen Anand

A couple things. of

process we a on and problematic variables are exit. truckers give models insight deeper the newer in risk been terms in of and at type of the general big of that in And looking terms, we're so quality. to So part that's our lot us some and through better risk profile quality venture risk noted a that of

Some classes of flatbed trucking goods of specific hauled hauled. are problematic; of kind down to it's and type areas

of been problematic all travel they Some that's done the understand to we've really that some regions have coming the high in the truckers our seen of some activity where modeling we've through performance and and portfolio. that regional of activity, of

and So and were were out and from we really are we've for also Louisiana providing XXXX, in then, broadly in states XXXX, those those two unprofitable completed a of that challenging and and we states renewal exited the we exited those, standpoint. us, business states Mississippi speaking, think stop exit in which new

Operator

you. Thank

comes question Hoffman Sam from with next Our Please your with Lincoln question. Square. proceed

Sam Hoffman

my Hey, to happened nature quarter. the one-time the events the or nature question ongoing the some that of surround in of

had loss in XX% the of is combined the four entire what on been do the quarter to first quarters prior as below going personal expect you in it ratio my be the non-CAT the So was sort And or CAT given weather? question and ratio of due to forward? range excess lines, the

Naveen Anand

impact. expense related of of increase was had points. a the There of the by in a bit that that of couple also movement, quarter little a we ratio weather preponderance losses the was the biggest So on part higher higher to

in impact. the of to run I sort more a up on terms portfolio target to think quarterly our of XX% expect portfolio and that rate do a that flows But line ebbs kind I to basis. -- for on come in target be of and goes

Sam Hoffman

from claims developments which strengthenings on like Travelers is from And would implied because we we've I being take from? years. Terrific. it on recent coming was years. view came just accident of you've get coming the be wanted one-time. closed more years commentary prior-year the this it auto, It since your companies your could their seen And then as some this on older to commercial more like sounds more where But exactly

Naveen Anand

we we leftover on at years recent is we're of actually, reserves this And added that's this focused are closing that you will, the it out. is to ones number more have prior, prudent based did where XXXX on the additions the to claims volatility, what's leftover and was which and and -- those onto those and point years more that as on again, So open, reserve said was you we thought out years we we're that the But out, saw are that of the claims, settled the the much pretty in at closing XXXX I if point. claims of we're are which put XXXX, basis. that some those on earlier, some which where

Sam Hoffman

Okay. you quarter? XXXX But in or XXXX have the didn't

Naveen Anand

correct. that No, is

Sam Hoffman

question last that ratio for XX% Okay, equity, is, and the then believe and do XX% XXXX return on you achievable beyond? And combined still is terrific.

Naveen Anand

sheet the asset So we at do on feel us leverage based the XX% for walk from based is in leverage about on being to that, a financing as current as ability that basis. premium all a good organization sustain generally guidance balance current leverage, And on leverage, look net give XX% well of position through rate, But or good. is our year go-forward don't or and better relatively of metrics we debt or our standpoint, to better basis. generally in if well broad as our on both you of we're of view terms the ratios, kind of of targeting ratio, a kind combined our that kind

Operator

Instructions]. you. [Operator Thank

question. Andrew with proceed Our comes Please from next Fenimore. question your Boord with

Andrew Boord

morning, Thank quarter. a obviously guys, good you. Good is

but premiums down surprised if I'm was changing there you explain Thank out hit, the congratulations. down risk would earned, range I net $XX these And a Commercial question on to arms the here I I'm which around are you good My guys all pulling something have anything anything thanks for it. million it's putting you. that may in is it just for is sure get trying little days. is out anything. apologize or It not segment, there the or I of data that. Standard missed my helps. And So already really

Naveen Anand

Andrew, so it's by primarily we treaty. in good Yes, morning, made driven changes reinsurance the the

So, been treaty restructured retaining casualty we that of of specialty and our that seeding the not the and risks. we some we that's as and we more last broad the before have were see year, portfolio some liability and so -- we more

And optimizing allocation, capital from so about it's perspective capital allocation really our been and our optimize standpoint. to that returns

this that that basis that's change. on driving So is really

Operator

appears this questions you. Thank It additional no have we time. at

So to the over concluding back floor comments. for pass Mr. Anand to any additional I'd like

Naveen Anand

again your for to time this thank and just we quarter. you Well again speaking participation Thank We Hallmark appreciate next and everyone interest your Great. in you. you morning. with look forward

Operator

your at today's for lines teleconference. and thank conclude we participation time. you gentlemen, does this disconnect you Again this and Ladies may your

Hallmark Financial Services (HALL) 8 Nov 192019 Q3 Earnings call transcript