Hallmark Financial Services (HALL) 11 Aug 192019 Q2 Earnings call transcript

Greetings, and welcome to the Hallmark Financial 2019 Second 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] As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, David Webb, Senior Vice President, Corporate Development and Strategy. you. Thank

begin. may You

is good basis to It quarter the is these the call. and we call to anticipate forward. currently XXXX my welcome This having Company time first you Hallmark a the an morning, you, earnings is and quarterly everyone. on pleasure earnings hosting going Thank Financial second

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

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

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

I call turn to Financial. Naveen will President Chief Executive of Hallmark now and over Officer Anand, the

our morning, results. some I good years, will then transformation our and considering begin David a today how current I'll results, these of with the on focusing you, Thank the last call meaningful driven background in improvements the Company's the market four on everyone. over past changes environment. view have provide

on up questions. and we'll call then additional Jeff for Next, quarter, will open some our results the details for provide the

and the a given progress quarterly conference our reshape company, public timing we've After initiate made diversified company. calls. to was as to several the years a operating insurance into transform decided of We company specialty the felt appropriate we've culture

I lines. and auto in company a nonstandard when auto concentration the To late with Financial Hallmark predominantly writer the perspective, business commercial joined in auto regional was XXXX, in substantial historical place this of

opportunity talent derive medium developing new an in products, the our to saw particularly technology significant infrastructure processes. from and modernizing specialty However, we investing small, in and space, benefit enterprise and

today and by units are and experienced and scientists. business Our organized channel, by supported distribution by underwriting data but not actuaries teams product

managed specialty structured in of function to and experts close quickly in-house and comprised effectively. areas of is claims the claims Our

We offering, our target where niche pricing clients. for there typically It creates ROEs. and specialized markets, barrier and by knowledge. limiting diversified the products competitors risks and need drive product value believe are and our evaluating achieved result as successful achieve specialty and service we our these results provide that we niche and we entry. importance by scale and market fewer and can we identifying In derive double-digit the we Through quality a to of markets, for distribution partners, a

took implement major it Now agents to our time and disruption without our partners. strategy to

year-to-date a However, positive continue as and half XXXX, our ratio favorable from we through with the the continuing half a In now quarter combined combined are beginning operating XX.X%, efforts impact our second for seen to to ratio XXXX and results the see see XXXX. XX.X%. over of first XXXX ratio of combined XX.X%, first the in we improvement XXXX of was and of

in Ultimately, is the long-term we to underwriting strategy beginning performance. believe that materialize of our form consistent

we portfolio, in and production decrease We to increase our having those view return products best ability allocating capital a one area the as continue for to manage where opportunity to or the our any areas segment. or

for Hallmark influenced Financial. of are an unique by our niche set be is business dynamics, accordingly ability product markets our market and scale of to flexible each As our advantage

is lines written. lines, the the The dislocation that Almost which more represent of produced experienced our products we've business many brokers about be driven of hurricanes, last conditions basis. for segment, market couple the in greatest While our losses, wildfires and wholesale there've premiums the on losses industry-wide to market as of market written this majority XX% improved XXXX seems particular West. being have of it over dislocation of Commercial as property such in our Specialty experienced E&S gross the greater in seen years all with has of in well the lines. of in by the as This course, XXXX catastrophe-exposed been

from types previously seeing certain a coverage they have new capacity by the of they reduced business being In are instances, syndicated now Though result, or we the have companies up appear in provide. significantly. a rates risk are submissions carrier, for are that has will win market. reduced these amount classes As been of as of retreated with some single

compress our at the same shared time, it we only us take limits. this book, well advantage Not to portfolio, our selective layered rates, to are more positioned dislocation. provide opportunity In property of and can really and the does push be diversify we

in very the E&S Casualty as side in product We professional on well our opportunities as are similar casualty our lines. seeing lines, portfolio

and lines, been new our solid this in Specialty produced total, rate portfolio in in increases we to XX% seeing past. In the the a businesses that know our results XX.X% ratio. tracked combined double now that overall submissions of increases digits. have XX% you Hallmark Those challenged are in have In Personal

well management. the strategic technology business from transformation, pricing through retooled approach we our As part as in our to our this as of platform everything claims

an are we grow on the Now for profit rate starting capital effectively and XXXX in positioned reallocated overall the this or in business this quarter more favorable we portfolio growth based business third manage shrink We and opportunities. saw environment. to of

of profitable a growth This quarter trajectory. that is continuation

progresses. seeing easing in decreases for are states. are year this now rate most Competitors as the generally we However, filing

line which this bottom on our so opportunity writings we achieve, accordingly focus limited, have will worked Our the become in preserving results, is to indeed does our hard we portfolio. pricing if reduce

down four XX.X%, in rate a by of but losses. change Commercial flat modest, we our were that in last in well. combined structure starting the on few points includes portfolio in XX% will Net Our to Jeff result made catastrophe head good, driven ratio provide which direction was business a premiums were Standard for year, details and which quarter the more increases this segment was the minutes. the as right in a reinsurance Overall of

positioned advantage overall, we're nearly comprise current which of portfolio. opportunities, well Commercial now believe, to market of the our take our I in particularly products, Specialty XX%

rates. expertise the have additional to and risks to for We in better underwrite place push

growth We access enjoy strong driving want the very to agents And business and pricing with our relationships discipline. still drive maintaining pleased overall, brokers our to and balanced write. to how while we we I'm with

here on Chief Financial opportunity this Officer Passmore promotion his I'd like year. to Jeff congratulate take to earlier the to

With of that, results Jeff in our the more for call I'll to turn over a detail. review financial

Thank you, morning, good and everyone. Naveen,

with pleased which improvements have results, reflect We made our continue quarterly we continues in our businesses. to the very to be

million, value last equity for of For of year. of XX% $X.X that in quarter year. million, operating quarter the our second reported second the compared XXXX same a in to the $X.X XXX% Removing last the in the net million earnings quarter $XX increase to the quarter were securities, $X.X impact compared market a million changes of increase unrealized income XXXX, we same of as

last quarter increased Gross same and to current year relative $XXX.X compared in particularly attributable in advantage continue Specialty as last we've we year. significant to including our businesses to the multiple of growth, of at lines premium opportunities million achievement This in million the and written scale been gain our additional effective many quarter taking of business. market rate of as is to the during improvement XX% factors to the $XXX.X

lines. we each total On Overall, policy Specialty for and see in Standard XXXX. continued our Commercial gross our a basis, our Segment and increases our runway XX% XX% segment of our for rate represented of represented Personal new portfolio and product of growth Commercial many year-to-date portfolio

of written XX% to XXXX. premium for compared Net the $XX.X for quarter second $XXX.X million the to million increased second XXXX quarter

XXXX. growth While consolidation the a this gross premiums, to our X, October is being business changes of that Casualty much began structure the is of with in the program reinsurance of increase on the single related driven rate our by into higher treaty and

cession in rate premiums. company, being continue the impact to third through by new will transition should of previous structure this normalize. were a treaty begin Specialty which has the to net to certain lines, retained a Business resulted growth which the our For business treaties to after in translating rates larger of and portion quarter larger XXXX, higher, the of

million Cash unfavorable of change increase half the with the the company a payment over of cash inflow closing flow overall claims $X.X deliberate was term, few first quarter the In of the of outflows organization. the positive measures of past the the increasing from reserves costs the the operations various improvements resulted Seeking $X.X quickly. in inflow the we second outflows. made million and focus accelerating the million XXXX The result claim a reduce $X.X possibility a seen a that and has lower payment pattern, in to XXXX, over and this with quarters implemented cash half on claims net direct XXXX. of first for near claims in and for development,

claims to this accident anticipate We now both pattern and beginning are cash is see and bringing years older flow claim this normalizing. strategy to after new settle

the current years accident However, the prior comparable payment reserve to not due these claim and for changes, will to years. be patterns accident

underwriting. to Moving

X.X% reported same prior XXXX XX% second ratio loss was basis. the compared year development was the of XXXX prior only quarter period. for for second combined second net to company of a Our at in million ratio is period on the for and quarter or year-to-date quarter there to the premiums minimal the of The the XX.X% of XX% year. Prior compared of X.X% the XXXX XX.X% $X.X in

the also The XXXX cat quarter of of second the ratio at with X.X%. much was XXXX. expense XX.X% activity ratio for of the cat the for We our quarter for second coming in quarter avoided

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

quarter XX% during the second the Net million period same to investment income prior increased $X.X the million in to compared year. $X.X

equivalent We one portfolio in cash, year less. maintain with our in portfolio XX.X% maturity liquidity significant in investment our securities or continue or $XXX.X or to cash of million

On are market equity of a or XXXX, $XX.X operating unrealized our second basis market million. X% value In XXXX, million. of in year-to-date or for market securities by the calculation increased the the XX.X% by of earnings. quarter equity in The value $X.X the changes excluded securities increased value of impact the of

the book $XX.XX a and Our of XX.X% XXXX the share second of was This is book quarter $XX.XX X.X% share first an over the per of increase of end the at per value quarter. actual value value XXXX. increase in per These end at are six-month per and respectively. annualized book the reflect value year change three-month $XX.XX the over timeframes book share and over percentages not share of

half of annualized beginning during the X.X% to return compared similar operating prior year. tangible on was the equity for of Additionally, XXXX the first period XX.X%

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

been result move execution It's you, of a to these member Thank happen that I'd by the like continue to Hallmark's acknowledge work the forward. results we accident. as result our strategy, didn’t learned continue every of as Jeff. we of of team. of by our this we expect hard see will And impact lot

We positive and business. consistent grow how in deliver results being are to quarterly results the operating our and earnings working while the in with manage pleased we disciplined trend are

let’s for that, it With open up questions.

session. we will Peters [Operator from time, be James. conducting your At this Instructions] Please question. question-and-answer state Our Raymond comes Greg first a you. with question Thank

curious A price you, can you years. feel you of your some about maybe your seeing on Or morning. your around for more increases you're that year If of you just some low? comments Specialty strong I'm loss the to accident suggest the how rate loss year questions lines are business. in for couple Good of accident market's picks perspective provide picks your does that. giving too that recent the maybe regarding

taking advantage is with think appropriate. dislocation, the obviously rate accident We going good dislocation loss and ratios Sure, our Greg. the are earning of year be good perspective think of the Naveen. market Good market we're we portfolio. Overall, would the kind into we're which on morning. that This is

relatively And conservative flattened selection. years overall, from we relatively have an accident been think our and year accident

be And this XX helpful If has in of was improving earned move quarter, obviously of accident of at to results trend forward which year you been. again at we've exceeded where with in. for as look kind ratios rate overall plan, terms line we loss rate the as we that in going

dislocation So what's the seeing? you're

of business the that large on combination that of terms so carriers with a million, cases, those certain tending at syndicate Lloyds and limits, companies areas, now syndicate right, has limits. made We are changes been seeing those the Lloyds large in $XX of in swaps of accounts. changes, compress putting some are of were limits in different limits, lot the up changes made have those And against limits $XX individual they million to with

not by we're the for Casualty And to And so leave particularly – those really just dislocation, on of going some of carrier look it's things a in seeing done to E&S one that is overall E&S particularly in in overall, kind one five of is the it's what combination E&S the area, all that's lines. for you lines, was so markets. available at when all, some out now of being carriers resulting product And our market certain participate on. markets four – certain before Property,

forward clearly under because might changes property you're on of going increased offering from lines of what's you to that in property business exposures? about? dovetail limits going we that aspects reinsurance So out talking presume going due around that what of in that guys a volatility the these kind earnings with you the there the also you are have comment pressure can should more forward, of is market some market, And

Sure.

to still our of terms conservative so terms approach program in does we standpoint. of from our that mitigate relatively the of So some volatility are – reinsurance and that in

the program last our have And we've a million something for we as $X corporate years. reminder Just maintained catastrophe retention everyone, few to that's a on today.

– also of perspective. approach so E&S an share relatively property XX% cede our business a have about that again, from portfolio where quota today on We overall, we conservative overall

capacity we catastrophe million then corporate it. XX% $X our on out sits In that about we Again, program terms capacity the standpoint. cat But to lower of offer gross than we the limits tends lot obviously $X a is basis. that's maximum of it. be offered, $X in the on critical that range generally our to working maximum have working our cat ceded that's that of million top But and capacity a is of offer. capacity to million capacity And

Great. you. Thank

you negative to, deck was this I XXXX, I I to rereading XX and And was changed. there know where paid column remarks loss the by in in Just I a of don't that patterns, year. run your cash operating the investor night, I Slide you struck think the a flow I'm payment flow But looking cited company's and I operating bit last question. in have about Jeff, Can flow lot cash think through that, numbers transcript. cash changing since you digest think operating pivot and materially the prepared little last to claim commented specifically, you got last your so but forward this

So on. the maybe just bridge going for there or you can what's help understand me me gap to help

Sure, Greg.

end our negative ahead. as really claims, the seeing. we reserves development And normalization of a what in our future position negative see the you're kind In flow of really to working the get flow. to cash inventory standpoint. as Our year, since the we're of happening inventory the of get that's behind claims to past off from clients changed, the the and tail so shift with us, development the that's what quarters just to well of the were loss out really operating starting in And a mix avoid those that paid out we're any Good is getting our kind XXXX as of XXXX. cash in as basis, has seeing pattern shift older and gross them particularly significantly our several and cleared on our that's this

to what interrupted sorry, Jeff. going you, I'm I Finish you’re say.

our was I mean going just that did just in see paid significant I to No, repeat. losses. we was to say I going increase

So of there of then you some claims. how cite we of phrase you inventory I gauge Is can out use the can so the old to out word, sort old sort – that said been you used closed should the claims of metric some think claims? of that have that the inventory or clear percentage –

we Greg, about also specifically the presentation in Yes. Auto. – have Commercial that you talked the it's that on

Yes.

claims year those Auto, track What XX of from those and implemented claims. Commercial function we've XXXX, prior at then we we've process. out it's the fast claims done XXXX in We of of end out closed of on the where the XX% XX% Slide accident claims, and the closed roughly today

Excellent.

Those are longer… no

for the answers. you Thank Great.

welcome. You're

comes question with Farnam Our Instructions] Please next Bob Boenning and your [Operator from state question. Scattergood.

little Commercial I development that guess a and Jeff, adverse Specialty to? Hi lines, of I those so there, What attributed Yes. morning. in had bit – good was just you along lines. the

Large losses predominantly.

any or no? In particular line

particular our Not line. – in I on casualty mean some property. any book and we've seen our on some

Okay.

how terms know for that the I was Naveen, Like your trying about the through kind talked In has I'm expense just transformation low of out to are transformation It's the the you? transformation, of number digital much cost? a is. it figure kind impact that you've of far as process How digital remarkable has now. years had? as expense what ratio of ratio

So see built is part ratio ratio cost what standpoint. our so our it's within from already an the for you into expense expense most

the us. behind changes Our are platform expenditures major around

most over made XXXX we investments XXXX those for and point. at platform three So part this XXXX, the and major complete are

And three in had platforms lines those plus We what's our XXXX. to we in us those transitioning is we are had. of of some back our one platforms legacy which XX the company platforms, over helping most of decommission that legacy

our of from that So baked this expense sort our already in point perspective, into run at CapEx rate. of terms it's a in ratio

like the process is mostly was that All guess my right. through. it question you Yes, that sounds fact think the I

a expenses Is those benefit as what expense much get the ratio already was forward I So you’re going have of of to going not at. that's kind to to get occurred. trying

a correct. as to much in than future business scale at our scale business. And before the put place. we business ratio expense frankly That’s The costs continue of will come the variable through into now continued benefit our platforms those scale lower us allow combination to we platforms

Okay.

sounds be a of amount you it poised for submissions of if pretty like stuff. the you're a So getting growth could good and lot

in have that tempting you to taking I be are profitable? how sure the have what XX% So XX%, guys increase careful are writing. risks ensure to you might but that mean, you're I'm still do be this you very submissions,

that's question. of our business, important the great most on we're a to that's appropriate. Bob, is end Yes. sure day, part At the of that the make the putting right, books

We have balances and a within lot in controls organization. of the checks

that handful of controls that and look feedback, spoken in we of have sit evaluate of pricing Today I actuarial a I've in here, business with I They our the before, think our constant units. actuaries embedded we business of – of One about each group. had is when we've cited got our provide sort people accounts. each units

a provides approach of affects rates put with we to with We've achieve need against pricing that check pricing models. terms technical what place in hurdle units each and in we're in and our It that technical that and is capital what business rate hurdle our from our impact terms how balance that standpoint. allocating to and of business models capital of

so And of monitoring those continually issues. we're type

portfolios with line make that's the looking business taking overall sure place underwriting of we're and And the the our standpoint. in then and quality in that desire mix from of appropriate writing to underwriting on at is top an that,

us other continue it this that, to to thing us limits. benefiting is one the I compress that think to allows market from places, addition In

exposed of in our we're lines E&S our average the come of businesses seeing in actually down So limit lines. most

the putting putting price on point. that actually less more at and getting out we limit per are out million So limit we're this

for last one guess I And me. Great. question

terms more guess with shares less the you, In because I ahead any concerned share And repurchases you're did keeping of the do you likely share two growth now, potential One, are parts. two, quarter? repurchase repurchases in you to check? during would leverage of

in We're our purchased opportunities our have see we this capital whether and of any valuation haven't this have not shares we normal that'll the of marketplace, just January Yes. of allocation from we be shares Really part and go year, any the decision to I be into see position stock just going that standpoint. the opportunistically Bob. of our continue marketplace since to take advantage and mindful purchased quarter. mean capital to

having it Okay. for Thanks Great. call That's though. me. again for the

Sure.

Ladies you. questions this [Operator there further at for back gentlemen, Instructions] no turn it and time. management to Thank are I'll remarks. closing

you quarter. Thank forward Hallmark, appreciate this participation your you morning. speaking time look your Thank your you all to and very with in and interest again much. next we We for

and this day. disconnect. Have Thank you. great gentlemen, today's concludes All Ladies conference. participants, a