SPECIALTY PROPERTY & CASUALTY INSURANCE SOLUTIONS Investor Presentation Q3 2019
Safe Harbor Risks Associated with Forward-Looking Statements Included in this Presentation: This presentation contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are intended to be covered by the safe harbors created thereby. Forward-looking statements include statements which are predictive in nature, which depend upon or refer to future events or conditions, or which include words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate” or similar expressions. These statements may include the plans and objectives of management for future operations, including plans and objectives relating to future growth of our business activities and availability of funds. Statements regarding the following subjects are forward-looking by their nature: • our business and growth strategies; • our performance goals; • our projected financial condition and operating results; • our understanding of our competition; • industry and market trends; • the impact of technology on our products, operations and business; and • any other statements or assumptions that are not historical facts. The forward-looking statements included in this presentation are based on current expectations that involve numerous risks and uncertainties. Assumptions relating to these forward-looking statements involve judgments with respect to, among other things, future economic, competitive and market conditions, legislative initiatives, regulatory framework, weather-related events and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. These forward-looking statements are not guarantees of future performance, and a variety of factors could cause our actual results to differ materially from the anticipated or expected results expressed in these forward-looking statements. Although we believe that the assumptions underlying these forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this presentation will prove to be accurate. In light of the significant uncertainties inherent in these forward-looking statements, the inclusion of such information should not be regarded as a representation that our objectives and plans will be achieved. More information about forward-looking statements and the risk factors associated with our company are included in our annual, quarterly and other reports filed with the Securities and Exchange Commission. The Company does not undertake to update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date of the forward-looking statements. 2
Q3 2019 Highlights Q3 2019 Year-to-Date Net Income: $33.3 million or Net Income: $5.3 million or $1.82 per share 1 $0.29 per share 1 Operating Earnings 2 : $19.6 million or Operating Earnings 2 : $6.3 million or $1.07 per share 1 $0.35 per share 1 Combined Ratio: 95.6% Combined Ratio: 95.8% Gross Premiums Written: +27% Gross Premiums Written: +33% Net Premiums Written: +37% Net Premiums Written: +45% Book Value Per Share +15.5% to $16.36 Annualized Return on Beginning Equity 2 : 17.4% Annualized Operating Return on Beginning Equity 2 : 10.2% (1) Calculated based on Diluted Shares (2) Non-GAAP reconciliation provided in the appendix 3 Note: all percentage changes on this page are in comparison to the same period the prior year
Company Overview Value Proposition Key Attributes Company Overview • Specialty insurance company headquartered in Dallas, TX with 450+ employees • Targeting primarily Excess & Surplus lines for small $347M (1) $797M to mid-sized enterprise (SME) risks in specialty and Market Capitalization LTM Gross Premiums niche markets where there is an opportunity to achieve higher returns on capital • Operating through several unique strategies and organized by product line, the Company is well- “A-” positioned to take advantage of the current market (Stable Outlook) $16.36 opportunities A.M. Best Financial Book Value Per Share Strength Rating • Company undertook a comprehensive transformation , starting in 2014: Overhauled existing businesses Organically developed new specialty products $730M $1.5B Attracted new talent and expertise throughout the Cash & Investments Total Assets company Modernized & centralized Claims, IT and Actuarial functions; strengthened the control environment (1) Market data as of September 30, 2019 4
Business Approach We believe we can consistently achieve higher ROEs than the general insurance market by combining top- quartile underwriting results with conservative investment returns • A Diversified Specialty Portfolio provides flexibility to Compete in Specialized or Underserved market segments, react quickly and adjust capacity within our product SPECIALTY where expertise and service groups to maximize returns based on market offerings provide a competitive MARKETS opportunities advantage and ability to achieve above average returns • Use of Data & Analytics . Underwriting decisions, led by teams of underwriting experts, incorporate multiple data points into the evaluation of risk, assisted by Employ and empower Specialists to EXPERTISE technology platforms, internal and external data underwrite, analyze, and deliver value to clients through diversified sources, and actuarial support teams embedded DRIVEN product verticals and technology- throughout the organization enabled platforms • A Low Expense Ratio is a competitive advantage that allows us to adjust premiums accordingly and provides Value our strong relationships with the ability to achieve larger returns while being CLIENT producers and continue to competitive in the market. Technological differentiate products and enhance FOCUSED value proposition by delivering improvements have been a key component of the exceptional Customer Service expense ratio decline over the past 4 years • In-house Claims Management . Claims is a core competency of the organization and enables the Approach investment management INVESTMENT company to implement its philosophy of driving claims as a Core Competency with the to a quick closure while providing real-time feedback objective to maximize long-term, DISCIPLINE risk adjusted after-tax total returns to underwriting and actuarial teams 5
Seasoned Executive Team President & CEO Naveen Anand Chief Financial Officer Jeffrey Passmore SVP, Corporate Development David Webb Chief Actuary Ken Krissinger Chief Claims Officer Charles Stauber CIO & Head of Operations Tarek Timol SVP, Human Resources David Miller VP, Group Counsel Elena Banfi 6
Business Profile Hallmark Financial has a diversified portfolio with a balanced risk profile and a growing national footprint Lines of Business Geography Other Commercial 4% Multi-Peril 8% General & All Others Personal Excess Liability 26% Auto Liability 25% TX 8% 30% Other All 8% GL/EL CMP Others 20% Medical 11% 28% Professional PAL TX 2014 IN 2% 2014 Liability 11% 50% MT 2% IL 2% 9% MPL 1% OK 3% CAL OR 3% PA 2% 36% NM 3% APD 11% AZ 4% OH 2% Property 2% Auto LA 5% NJ 2% Physical WA 2% CA Damage Commercial 9% NY 2% 10% Auto Liability NM 2% 23% GA AZ Property OR OK FL 3% 5% 15% 3% 3% 5% We are a casualty focused company, and continue to We write business in all 50 states, and continue to diversify beyond Commercial and Personal Auto grow our premium base nationally to capitalize on new opportunities and improve our geographic spread of risk *Outer charts based on Gross Premiums Written for 2019Q3 LTM 7
Product Groups Our Product Groups are organized by products and distribution channel, led by experienced underwriting teams and supported by actuaries and data scientists • Each of these product lines were targeted based on profitability and market opportunity • Incentive structure is based on underwriting profitability STANDARD SPECIALTY COMMERCIAL PERSONAL COMMERCIAL E&S Pro – Commercial Commercial E&S E&S Pro – Specialty Personal Contract Financial Programs Accounts Auto Casualty Property Healthcare Aviation Lines Binding Lines (CIS) GL for SME Medical risks with a Commercial Small E&S Professional Personal & Trucking focus on Shared & Business Package for Non- Accounts D&O and Liability for Small (targeting Construction, Layered produced by SME risks standard (GL & E&O for Hospitals, Aircraft; specialty Light Mfg., Property specialist within Auto & Commercial SME risks Medical Airport classes) Products & Risks MGAs targeted Renters Package) Facilities and Liability Premises specialties Physicians Liability Wholesale / Retail Retail Retail Wholesale Wholesale Wholesale Wholesale Wholesale Wholesale MGAs Agents Agents Agents Admitted & Admitted & E&S E&S E&S E&S E&S Admitted Admitted Admitted E&S E&S 77% 12% 11% *Percentages based on Gross Premiums Written for 2019Q3 YTD 8
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