Hallmark Financial Services, a real estate / accident specialist company, announced on Thursday that it is exploring the separation of its specialized commercial operations to unlock its value and improve access to capital.
Currently, the company consists of three business segments: specialized commercial, standard commercial and personal.
The specialized commercial segment accounted for 75 percent of the company's gross written premium (68 percent of net written premium) during the first nine months of 2020. The segment's diversified portfolio of products is placed almost exclusively through wholesale brokers, the vast majority of which majority is written on a redundant and redundant lines basis.
An initial assessment of the possible separation by the Hallmark Financial board of directors indicates that the action could create significant value by separating the operating structures from the segments.
Each segment currently operates under a unique business model, uses its own distribution channels and has a different return profile. The Board believes that the creation of two separate companies can provide a more appropriate aggregated valuation and improve access to capital.
The news comes just over a week after the board of directors appointed Executive Chair Mark E. Schwarz to take on the role of president and chief executive officer and take on a position vacated by Naveen Anand, who joined on January 11. 2021 has filed his resignation, citing family and personal reasons. Schwarz was previously CEO from January 2003 to August 2006, and from November 2003 to March 2006, he became executive chairman in August 2006.
Last year was a difficult year for the company. Following the announcement of its departure from its binding primary commercial auto business in March 2020, the company received several overdue tax returns from NASDAQ in subsequent years. Following the filing of the 2019 annual financial results, which were adversely affected by the previous year's development at the end of June, the NASDAQ regulatory compliance issue closed in July.
In September, Hallmark Financial announced that its chief financial officer, Jeff Passmore, had resigned.
In November, the company reported that its third quarter results were impacted by the costs of a loss portfolio transfer ($ 21.7 million pre-tax) and an unfavorable development of prior years reserve ($ 13.9 million pre-tax), primarily sourced from the commercial auto industry. . Basically, the loss in the third quarter was $ 28 million and for nine months it was $ 85.6 million, compared to a $ 33.3 million profit in the first nine months of 2019.
The board of directors and executive management team work on the separation of commercial specialties with the help of financial, business and legal advisers Raymond James & Associates, Inc., Willis Re Inc., Olshan Frome Wolosky LLP and McGuire, Craddock & Strother, PC . they will evaluate the current structure of the company and the strategic, operational, capital and tax implications of the possible separation.
In addition, the board of directors engaged Chicago-based executive search firm Reilly Partners to identify qualified candidates to serve as CEO of an independent specialist commercial firm.
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