Hallmark loses 60% of market cap in less than two weeks

Hallmark Financial shares slumped another 30 percent today as it also announced the appointment of a new accountant for its 2019 results in the wake of a reserve charge and binding primary commercial auto exit.

The fall means that the Dallas, Texas-based specialty insurer’s share price has dropped by 60 percent since it announced the $63.8mn charge and said it was putting the book into run off earlier this month, significantly outpacing the wider equities market sell-off.

AM Best responded to the exit and reserve charge by putting the carrier’s A- ratings under review with negative implications.

And in an SEC filing today, Hallmark revealed its audit committee has engaged Baker Tilly Virchow Krause as its new accountant for the fiscal year ended 31 December 2019.

The company has not yet released its Q4 and full-year 2019 results.

The company’s shares were trading at $14.33 on 2 March having already dropped 24 percent since 21 January. The stock closed today at just $5.71, compared to a 52-week-high of $20.30.

The slump means that Hallmark is now trading at around 0.36x book value.

As previously reported, the carrier announced earlier this month that it was putting its $114mn binding primary auto book into run-off after experiencing increased claims severity from prior accident years.

Hallmark’s president and CEO Naveen Anand said at the time that the company will look at reinsurance solutions such as an adverse development cover or loss portfolio transfer “to mitigate future volatility associated with this book of business”.

The reserve charge equates to around $2.40 a share after tax and is “sizeable” compared with the insurer’s book value per share of $16.36 at 30 September 2019.

Hallmark said that the book it is exiting has been responsible for all of the company’s aggregate adverse prior-year reserve development over the past five years.

It also revealed that the reserve charge primarily related to deterioration on the 2016 and 2017 years and acknowledged that several years of pushing through rate increases and policy changes had not been enough to overhaul claims inflation on prior-year underwriting.