Hallmark files delayed Q1 results with $45mn goodwill write-down
US specialty insurer Hallmark Financial Services reported a small operating profit of $4.6mn in its much-delayed Q1 earnings release but fell to a $64.3mn net loss that included a $44.7mn write-down of goodwill and net investment losses of $29.3mn.
- Net loss of $64.3mn includes $44.7mn write-down of goodwill after market cap plunge
- Modest operating profit of $4.6mn (Q1 2019: $5.6mn)
- Combined ratio of 97.6% (Q1 2019: 96.5%)
- Top line growth of 8 percent boosted by rates momentum despite challenges
- Heavy investment losses of $29.3mn compared with gains of $11.9mn in prior period
The Dallas, Texas-based carrier, which is reportedly considering a sale, had generated a $5.6mn operating profit and $15.0mn net profit in the first quarter of 2019.
The goodwill impairment was triggered by a significant decline in Hallmark Financial’s market capitalisation below its shareholders’ equity as its share price plummeted in Q1. There was also a $1.3mn charge to indefinite-lived assets as at the end of the first quarter.
The insurer’s share price plunged 60 percent in less than two weeks in mid-March and is now down 91 percent for the year-to-date, with the stock trading at $3.34 compared with just above $18 at the start of 2020.
The net investment losses of $29.3mn compared with net investment gains of $11.9mn in Q1 2019 as the insurer reported a total portfolio return of negative 5.4 percent for the three months to 31 March 2020, largely as a result of the historic first quarter market declines.
Hallmark Financial reported underwriting profits with a net combined ratio of 97.6 percent compared with 96.5 percent in the prior-year period.
The Q1 2020 combined ratio included a negative 7.5 points impact from the previously announced exit from its binding primary auto book of business.
Strong momentum in rates, with increases of 13 percent across all lines and 16 percent in specialty commercial, were a factor in gross written premiums increasing by 8 percent to $201.6mn and net written premiums up 8 percent to $126.5mn.
Hallmark Financial also reported much-delayed Q4 results at the end of last month as it fell to a $36.5mn operating loss compared with earnings of $5.1mn in the prior-year period.
The insurer’s AM Best A- financial strength ratings and “a-” credit ratings remain under review with negative implications.