AM Best has placed under review with developing implications the Long-Term Issuer Credit Rating (Long-Term ICR) of “bbb-” and the Long-Term Issue Credit Rating (Long-Term IR) of Hallmark Financial Services, Inc. (Hallmark Financial) [NASDAQ:HALL]. Concurrently, AM Best has placed under review with developing implications the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term ICRs of “a-” of the members of Hallmark Insurance Group (Hallmark Group). The companies’ operations are headquartered in Dallas, TX. (See below for a detailed listing of the companies and Credit Ratings [ratings].)

These ratings have been placed under review with developing implications following the announcement by Hallmark Financial that it intends to pursue an initial public offering (IPO) of its specialty commercial business. Hallmark Financial plans to offer a non-controlling ownership stake in the core business of its specialty commercial business segment, as a separate company named Hallmark Specialty Group, Inc. (Hallmark Specialty). The number of shares and price range for Hallmark Specialty has yet to be determined; however, the offered shares are expected to represent an economic ownership stake of approximately 50% as Hallmark Financial intends to retain a majority of the combined vote power of Hallmark Specialty. The IPO process is expected to be completed during the third quarter of 2021.

The under review status reflects the uncertainty surrounding the amount and utilization of capital that will be generated from the IPO process. In addition, the IPO is dependent upon a number of factors and uncertainties heightening execution risk inherent with this transaction. Should the IPO be unsuccessful in raising sufficient funds, Hallmark Group’s risk-adjusted capital may fall below AM Best’s expectations. However, the benefits of the proposed transaction would allow Hallmark Financial and Hallmark Specialty to focus on respective seasoned books of business and profitability to achieve strategic priorities. The ratings will remain under review until AM Best has assessed the ultimate organizational structure of the group and its risk-adjusted capital position, following completion of the IPO.

The FSR of A- (Excellent) and the Long-Term ICRs of “a-” have been placed under review with developing implications for the following members of Hallmark Insurance Group:

• American Hallmark Insurance Company of Texas
• Hallmark Insurance Company
• Hallmark Specialty Insurance Company
• Hallmark County Mutual Insurance Company
• Hallmark National Insurance Company

The following Long-Term IR has been placed under review with developing implications:

Hallmark Financial Services, Inc.—

• “bbb-” on $50 million 6.25% senior unsecured notes, due 2029

The following indicative Long-Term IRs for securities available under the shelf registration have been placed under review with developing implications:

Hallmark Financial Services, Inc.—

• “bbb-” on senior unsecured debt
• “bb+” on subordinated debt
• “bb” on preferred stock

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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