Hallmark Financial Services remains at risk of a potential credit ratings downgrade because of business troubles even though the insurer has taken steps to curb the most-pressing issues, AM Best said on Friday.
The New Jersey-based ratings agency said it removed the property and casualty insurer from being “under review with negative implications,” while keeping a negative outlook for its credit ratings.
The Dallas, Texas-based specialty insurer was placed under review with negative implications by AM Best on March 4, after it revealed it would include a $63.8 million loss, net of reinsurance, in its 2019 statutory earnings reports. The review status lingered after the company was delinquent in filing its quarterly earnings for the first quarter of 2020.
Hallmark finally published its first-quarter earnings report in July, followed by its second-quarter earnings release less than three weeks later. In September, Chief Financial Officer Jeff Passmore resigned, and has been replaced on an interim basis by Chief Accounting Officer Christopher Kenney. The company lost $57.6 million in the first half. Its second-quarter gross premiums written totaled $183.6 million, down 16% from the same period in 2019.
The status update from the ratings agency resulted from Hallmark finally coming into compliance with its NASDAQ filings, and AM Best completing a review of the company’s fiscal strength.
The agency found Hallmark to be stable, but with a shaky trajectory. AM Best assigned a negative outlook, indicating unfavorable conditions compared to its current credit rating, which it classified as an “excellent” A-. The outlook suggests Hallmark’s rating has a good chance of slipping in the future.
After finishing 2019 with a nominal loss of $625,000, Hallmark said in March that it would exit its primary auto business, which represented around $114 million in gross premiums written in 2019. It also sought to contain volatility by purchasing reinsurance from DARAG Bermuda in July.
“Despite the actions taken to reduce volatility and strengthen the balance sheet, AM Best remains concerned about whether capital will continue to support the balance sheet strength assessment of very strong as these proposed additional underwriting and operational changes are implemented,” the ratings agency said.