Table of Contents

 

 

UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

Quarterly report pursuant to Section 13 or 15(d) of the

 

Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2019

 

Commission file number 001‑11252

 

Hallmark Financial Services, Inc.

 

(Exact name of registrant as specified in its charter)

 

 

 

Nevada

87-0447375

(State or other jurisdiction of

(I.R.S. Employer

Incorporation or organization)

Identification No.)

 

 

5420 Lyndon B. Johnson Freeway, Suite 1100, Dallas, Texas

75240

 

 

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (817) 348‑1600

 

777 Main Street, Suite 1000, Fort Worth, Texas 76102

(former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.18 par value

HALL

Nasdaq Global Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes    ☒      No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,  a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”  “smaller reporting company” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

 

 

 

 

Large accelerated filer ☐

Accelerated filer ☒

 

 

 

 

Non-accelerated filer ☐

Smaller reporting company ☒

Emerging growth company  ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 15(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act).  Yes ☐ No ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock, par value $.18 per share –18,123,093 shares outstanding as of August 9, 2019.

 

 

 

 

 

Table of Contents

 

PART I

FINANCIAL INFORMATION

Item 1.   Financial Statements

 

INDEX TO FINANCIAL STATEMENTS

 

 

Page
Number

 

 

Consolidated Balance Sheets at June 30, 2019 (unaudited) and December 31, 2018 

3

Consolidated Statements of Operations (unaudited) for the three months and six months ended June 30, 2019 and June 30, 2018 

4

Consolidated Statements of Comprehensive Income (unaudited) for the three months and six months ended June 30, 2019 and June 30, 2018 

5

Consolidated Statements of Stockholders’ Equity (unaudited) for the three months and six months ended June 30, 2019 and June 30, 2018 

6

Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2019 and June 30, 2018 

7

Notes to Consolidated Financial Statements (unaudited) 

8

 

 

 

2

Table of Contents

Hallmark Financial Services, Inc. and Subsidiaries

Consolidated Balance Sheets

($ in thousands, except par value)

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

December 31,

 

 

2019

 

2018

 

 

 

(unaudited)

 

 

 

ASSETS

 

 

  

 

 

  

Investments:

 

 

  

 

 

  

Debt securities, available-for-sale, at fair value (amortized cost; $530,516 in 2019 and $550,268 in 2018)

 

$

533,148

 

$

545,870

Equity securities (cost; $68,709 in 2019 and $68,709 in 2018)

 

 

94,012

 

 

80,896

Other investments (cost; $3,763 in 2019 and $3,763 in 2018)

 

 

2,585

 

 

1,148

Total investments

 

 

629,745

 

 

627,914

Cash and cash equivalents

 

 

67,670

 

 

35,594

Restricted cash

 

 

3,486

 

 

4,877

Ceded unearned premiums

 

 

150,883

 

 

133,031

Premiums receivable

 

 

144,674

 

 

119,778

Accounts receivable

 

 

1,332

 

 

1,619

Receivable for securities

 

 

2,581

 

 

3,369

Reinsurance recoverable

 

 

300,155

 

 

252,029

Deferred policy acquisition costs

 

 

20,308

 

 

14,291

Goodwill

 

 

44,695

 

 

44,695

Intangible assets, net

 

 

6,323

 

 

7,555

Deferred federal income taxes, net

 

 

 —

 

 

4,983

Prepaid expenses

 

 

3,282

 

 

2,588

Other assets

 

 

30,634

 

 

12,571

Total assets

 

$

1,405,768

 

$

1,264,894

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

  

 

 

  

Liabilities:

 

 

  

 

 

  

Revolving credit facility payable

 

$

30,000

 

$

30,000

Subordinated debt securities (less unamortized debt issuance cost of $872 in 2019 and $898 in 2018)

 

 

55,830

 

 

55,804

Reserves for unpaid losses and loss adjustment expenses

 

 

551,543

 

 

527,247

Unearned premiums

 

 

351,630

 

 

298,061

Reinsurance balances payable

 

 

73,977

 

 

67,328

Pension liability

 

 

1,946

 

 

2,018

Payable for securities

 

 

3,167

 

 

698

Federal income tax payable

 

 

870

 

 

 4

  Deferred federal income taxes, net

 

 

143

 

 

 —

Accounts payable and other accrued expenses

 

 

47,126

 

 

28,202

Total liabilities

 

 

1,116,232

 

 

1,009,362

Commitments and contingencies (Note 17)

 

 

  

 

 

  

Stockholders’ equity:

 

 

  

 

 

  

Common stock, $.18 par value, authorized 33,333,333 shares; issued 20,872,831 shares in 2019 and 2018

 

 

3,757

 

 

3,757

Additional paid-in capital

 

 

122,778

 

 

123,168

Retained earnings

 

 

189,249

 

 

161,195

Accumulated other comprehensive loss

 

 

(1,047)

 

 

(6,660)

Treasury stock (2,749,738 shares in 2019 and 2,846,131 in 2018), at cost

 

 

(25,201)

 

 

(25,928)

Total stockholders’ equity

 

 

289,536

 

 

255,532

Total liabilities and stockholders’ equity

 

$

1,405,768

 

$

1,264,894

 

The accompanying notes are an integral part of the consolidated financial statements

3

Table of Contents

Hallmark Financial Services, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

($ in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended June 30, 

 

Six Months Ended June 30, 

 

 

    

2019

    

2018

    

2019

    

2018

 

Gross premiums written

 

$

218,236

 

$

173,219

 

$

405,552

 

$

326,724

 

Ceded premiums written

 

 

(94,393)

 

 

(83,373)

 

 

(164,306)

 

 

(145,445)

 

Net premiums written

 

 

123,843

 

 

89,846

 

 

241,246

 

 

181,279

 

Change in unearned premiums

 

 

(17,344)

 

 

1,132

 

 

(35,717)

 

 

1,646

 

Net premiums earned

 

 

106,499

 

 

90,978

 

 

205,529

 

 

182,925

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment income, net of expenses

 

 

5,412

 

 

4,406

 

 

10,523

 

 

8,846

 

Investment gains (losses), net

 

 

6,817

 

 

533

 

 

18,754

 

 

(4,302)

 

Finance charges

 

 

1,797

 

 

1,161

 

 

3,531

 

 

2,201

 

Commission and fees

 

 

364

 

 

1,032

 

 

657

 

 

1,735

 

Other income

 

 

14

 

 

15

 

 

30

 

 

61

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

 

120,903

 

 

98,125

 

 

239,024

 

 

191,466

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

73,226

 

 

63,648

 

 

143,313

 

 

127,323

 

Operating expenses

 

 

29,336

 

 

26,360

 

 

56,582

 

 

53,573

 

Interest expense

 

 

1,240

 

 

1,128

 

 

2,493

 

 

2,155

 

Amortization of intangible assets

 

 

617

 

 

617

 

 

1,234

 

 

1,234

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total expenses

 

 

104,419

 

 

91,753

 

 

203,622

 

 

184,285

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before tax

 

 

16,484

 

 

6,372

 

 

35,402

 

 

7,181

 

Income tax expense

 

 

3,455

 

 

1,282

 

 

7,348

 

 

1,444

 

Net income

 

 

13,029

 

 

5,090

 

 

28,054

 

 

5,737

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

  

 

 

  

 

 

  

 

 

  

 

Basic

 

$

0.72

 

$

0.28

 

$

1.55

 

$

0.32

 

Diluted

 

$

0.71

 

$

0.28

 

$

1.54

 

$

0.31

 

 

The accompanying notes are an integral part of the consolidated financial statements

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Table of Contents

Hallmark Financial Services, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

($ in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

    

2019

    

2018

    

2019

    

2018

 

Net income

 

$

13,029

 

$

5,090

 

$

28,054

 

$

5,737

 

Other comprehensive income:

 

 

  

 

 

  

 

 

  

 

 

  

 

Change in net actuarial gain

 

 

37

 

 

26

 

 

72

 

 

53

 

Tax effect on change in net actuarial gain

 

 

(8)

 

 

(5)

 

 

(15)

 

 

(11)

 

Unrealized holding gains arising during the period

 

 

3,460

 

 

2,321

 

 

11,233

 

 

1,926

 

Tax effect on unrealized holding gains arising during the period

 

 

(727)

 

 

(487)

 

 

(2,359)

 

 

(404)

 

Reclassification adjustment for gains included in net income

 

 

(60)

 

 

(381)

 

 

(4,201)

 

 

(366)

 

Tax effect on reclassification adjustment for gains included in net income

 

 

13

 

 

80

 

 

883

 

 

77

 

Other comprehensive income, net of tax

 

 

2,715

 

 

1,554

 

 

5,613

 

 

1,275

 

Comprehensive income

 

$

15,744

 

$

6,644

 

$

33,667

 

$

7,012

 

 

The accompanying notes are an integral part of the consolidated financial statements

5

Table of Contents

Hallmark Financial Services, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity

(Unaudited)

($ in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

    

2019

    

2018

    

2019

    

2018

Common Stock

    

 

  

    

 

  

    

 

  

    

 

  

Balance, beginning of period

 

$

3,757

 

$

3,757

 

$

3,757

 

$

3,757

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, end of period

 

 

3,757

 

 

3,757

 

 

3,757

 

 

3,757

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional Paid-In Capital

 

 

  

 

 

  

 

 

  

 

 

  

Balance, beginning of period

 

 

122,638

 

 

123,224

 

 

123,168

 

 

123,180

Equity based compensation

 

 

140

 

 

(43)

 

 

197

 

 

 1

Shares issued under employee benefit plans

 

 

 —

 

 

(164)

 

 

(587)

 

 

(164)

Balance, end of period

 

 

122,778

 

 

123,017

 

 

122,778

 

 

123,017

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained Earnings

 

 

  

 

 

  

 

 

  

 

 

  

Balance, beginning of period

 

 

176,220

 

 

151,495

 

 

161,195

 

 

136,474

Cumulative effect of adoption of updated accounting guidance for equity financial instruments at January 1,2018

 

 

 —

 

 

 —

 

 

 —

 

 

16,993

Reclassification of certain tax effects from accumulated other comprehensive income at January 1,2018

 

 

 —

 

 

 —

 

 

 —

 

 

(2,619)

Net income

 

 

13,029

 

 

5,090

 

 

28,054

 

 

5,737

Balance, end of period

 

 

189,249

 

 

156,585

 

 

189,249

 

 

156,585

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated Other Comprehensive Income

 

 

  

 

 

  

 

 

  

 

 

  

Balance, beginning of period

 

 

(3,762)

 

 

(2,419)

 

 

(6,660)

 

 

12,234

Cumulative effect of adoption of updated accounting guidance for equity financial instruments at January 1,2018

 

 

 —

 

 

 —

 

 

 —

 

 

(16,993)

Reclassification of certain tax effects from accumulated other comprehensive income at January 1,2018

 

 

 —

 

 

 —

 

 

 —

 

 

2,619

Additional minimum pension liability, net of tax

 

 

29

 

 

21

 

 

57

 

 

42

Unrealized holding gains arising during period, net of tax

 

 

2,733

 

 

1,834

 

 

8,874

 

 

1,522

Reclassification adjustment for gains included in net income, net of tax

 

 

(47)

 

 

(301)

 

 

(3,318)

 

 

(289)

Balance, end of period

 

 

(1,047)

 

 

(865)

 

 

(1,047)

 

 

(865)

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury Stock

 

 

  

 

 

 

 

 

  

 

 

 

Balance, beginning of period

 

 

(25,201)

 

 

(24,904)

 

 

(25,928)

 

 

(24,527)

Acquisition of treasury stock

 

 

 —

 

 

(1,087)

 

 

(1,380)

 

 

(1,464)

Shares issued under employee benefit plans

 

 

 —

 

 

406

 

 

2,107

 

 

406

Balance, end of period

 

 

(25,201)

 

 

(25,585)

 

 

(25,201)

 

 

(25,585)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Stockholders' Equity

 

$

289,536

 

$

256,909

 

$

289,536

 

$

256,909

 

The accompanying notes are an integral part of the consolidated financial statements

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Table of Contents

Hallmark Financial Services, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

($ in thousands)

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

2019

 

2018

 

Cash flows from operating activities:

 

 

  

 

 

  

 

Net income

 

$

28,054

 

$

5,737

 

 

 

 

 

 

 

 

 

Adjustments to reconcile net income to cash provided by (used in) operating activities:

 

 

  

 

 

  

 

Depreciation and amortization expense

 

 

2,626

 

 

2,479

 

Deferred federal income taxes

 

 

3,634

 

 

(988)

 

Investment (gains) losses, net

 

 

(18,754)

 

 

4,302

 

Share-based payments expense

 

 

197

 

 

 1

 

Change in ceded unearned premiums

 

 

(17,852)

 

 

(15,181)

 

Change in premiums receivable

 

 

(24,896)

 

 

(7,815)

 

Change in accounts receivable

 

 

287

 

 

(538)

 

Change in deferred policy acquisition costs

 

 

(6,017)

 

 

1,944

 

Change in unpaid losses and loss adjustment expenses

 

 

24,296

 

 

(6,548)

 

Change in unearned premiums

 

 

53,569

 

 

13,535

 

Change in reinsurance recoverable

 

 

(48,126)

 

 

(32,117)

 

Change in reinsurance balances payable

 

 

6,649

 

 

13,072

 

Change in current federal income tax payable

 

 

866

 

 

7,719

 

Change in all other liabilities

 

 

(2,708)

 

 

2,899

 

Change in all other assets

 

 

4,860

 

 

1,604

 

Net cash provided by (used in) operating activities

 

 

6,685

 

 

(9,895)

 

Cash flows from investing activities:

 

 

  

 

 

  

 

Purchases of property and equipment

 

 

(2,447)

 

 

(1,118)

 

Purchases of investment securities

 

 

(97,292)

 

 

(97,610)

 

Maturities, sales and redemptions of investment securities

 

 

123,599

 

 

124,873

 

Net cash provided by investing activities

 

 

23,860

 

 

26,145

 

Cash flows from financing activities:

 

 

  

 

 

  

 

Proceeds from exercise of employee stock options

 

 

1,520

 

 

242

 

Purchase of treasury shares

 

 

(1,380)

 

 

(1,464)

 

Net cash provided by (used in) financing activities

 

 

140

 

 

(1,222)

 

Increase in cash and cash equivalents and restricted cash

 

 

30,685

 

 

15,028

 

Cash and cash equivalents and restricted cash at beginning of period

 

 

40,471

 

 

67,633

 

Cash and cash equivalents and restricted cash at end of period

 

$

71,156

 

$

82,661

 

 

The accompanying notes are an integral part of the consolidated financial statements

7

Table of Contents

Hallmark Financial Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

1. General

Hallmark Financial Services, Inc. (“Hallmark” and, together with subsidiaries, “we,” “us” or “our”) is an insurance holding company that offers commercial and personal insurance that serves businesses and individuals in specialty and niche markets.  We focus on marketing, distributing, underwriting and servicing property and casualty insurance products that require specialized underwriting expertise or market knowledge. We believe this approach provides us the best opportunity to achieve favorable policy terms and pricing. The insurance policies we produce are written by our six insurance company subsidiaries as well as unaffiliated insurers. We pursue our business activities primarily through subsidiaries whose operations are organized into product-specific business units that are supported by our insurance company subsidiaries. Our Commercial Auto business unit offers primary and excess commercial vehicle insurance products and services; our E&S Casualty business unit offers primary and excess liability, excess public entity liability and E&S package insurance products and services; our E&S Property business unit offers primary and excess commercial property insurance for both catastrophe and non-catastrophe exposures; our Professional Liability business unit offers healthcare and financial lines professional liability insurance products and services primarily for businesses, medical professionals, medical facilities and senior care facilities; and our Aerospace & Programs business unit offers general aviation and satellite launch property/casualty insurance products and services, as well as certain specialty programs. These products and services were previously reported as the Contract Binding and Specialty Commercial operating units. Our Commercial Accounts business unit (f/k/a Standard Commercial P&C operating unit) offers package and monoline property/casualty and occupational accident insurance products. Effective June 1, 2016 we ceased marketing new or renewal occupational accident policies.  Our former Workers Compensation operating unit specialized in small and middle market workers compensation business. Effective July 1, 2015, we no longer market or retain any risk on new or renewal workers compensation policies. Our Specialty Personal Lines business unit offers non-standard personal automobile and renters insurance products and services. Our insurance company subsidiaries supporting these business units are American Hallmark Insurance Company of Texas (“AHIC”), Hallmark Insurance Company (“HIC”), Hallmark Specialty Insurance Company (“HSIC”), Hallmark County Mutual Insurance Company, Hallmark National Insurance Company and Texas Builders Insurance Company.

 These business units are segregated into three reportable industry segments for financial accounting purposes. The Specialty Commercial Segment includes our Commercial Auto business unit, our E&S Casualty business unit, our E&S Property business unit, our Professional Liability business unit and our Aerospace & Programs business unit. The Standard Commercial Segment includes our Commercial Accounts business unit and the run-off from our former Workers Compensation operating unit. The Personal Segment consists solely of our Specialty Personal Lines business unit. The realignment of our business units did not affect the comparability of our reportable industry segments.

 

2. Basis of Presentation

Our unaudited consolidated financial statements included herein have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and include our accounts and the accounts of our subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. These unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2018 included in our Annual Report on Form 10‑K filed with the SEC.

The interim financial data as of June 30, 2019 and 2018 is unaudited. However, in the opinion of management, the interim data includes all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The results of operations for the periods ended June 30, 2019 are not necessarily indicative of the operating results to be expected for the full year.

8

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Income Taxes

We file a consolidated federal income tax return. Deferred federal income taxes reflect the future tax consequences of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year end. Deferred taxes are recognized using the liability method, whereby tax rates are applied to cumulative temporary differences based on when and how they are expected to affect the tax return. Deferred tax assets and liabilities are adjusted for tax rate changes in effect for the year in which these temporary differences are expected to be recovered or settled.

Reclassifications

Certain prior year amounts have been reclassified to conform with current year presentation.

Use of Estimates in the Preparation of the Financial Statements

Our preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect our reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the date of our consolidated financial statements, as well as our reported amounts of revenues and expenses during the reporting period. Refer to “Critical Accounting Estimates and Judgments” under Item 7 of our Annual Report on Form 10‑K for the year ended December 31, 2018 for information on accounting policies that we consider critical in preparing our consolidated financial statements. Actual results could differ materially from those estimates.

Fair Value of Financial Instruments

Fair value estimates are made at a point in time based on relevant market data as well as the best information available about the financial instruments. Fair value estimates for financial instruments for which no or limited observable market data is available are based on judgments regarding current economic conditions, credit and interest rate risk. These estimates involve significant uncertainties and judgments and cannot be determined with precision. As a result, such calculated fair value estimates may not be realizable in a current sale or immediate settlement of the instrument. In addition, changes in the underlying assumptions used in the fair value measurement technique, including discount rate and estimates of future cash flows, could significantly affect these fair value estimates.

Cash and Cash Equivalents:  The carrying amounts reported in the balance sheet for these instruments approximate their fair values.

Restricted Cash:  The carrying amount for restricted cash reported in the balance sheet approximates the fair value.

Revolving Credit Facility Payable: A revolving credit facility with Frost Bank had a carried value of $30.0 million and a fair value of $30.2 million as of June 30, 2019. This revolving credit facility would be included in Level 3 of the fair value hierarchy if it was reported at fair value.

Subordinated Debt Securities:  Our trust preferred securities have a carried value of $55.8 million and a fair value of $42.6 million as of June 30, 2019. The fair value of our trust preferred securities is based on discounted cash flows using a current yield to maturity of 8.0%, which is based on similar issues to discount future cash flows. Our trust preferred securities would be included in Level 3 of the fair value hierarchy if they were reported at fair value.

For reinsurance balances, premiums receivable, federal income tax recoverable/payable, other assets and other liabilities, the carrying amounts approximate fair value because of the short maturity of such financial instruments.

Variable Interest Entities

On June 21, 2005, we formed Hallmark Statutory Trust I (“Trust I”), an unconsolidated trust subsidiary, for the sole purpose of issuing $30.0 million in trust preferred securities. Trust I used the proceeds from the sale of these securities

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and our initial capital contribution to purchase $30.9 million of subordinated debt securities from Hallmark. The debt securities are the sole assets of Trust I, and the payments under the debt securities are the sole revenues of Trust I.

On August 23, 2007, we formed Hallmark Statutory Trust II (“Trust II”), an unconsolidated trust subsidiary, for the sole purpose of issuing $25.0 million in trust preferred securities. Trust II used the proceeds from the sale of these securities and our initial capital contribution to purchase $25.8 million of subordinated debt securities from Hallmark. The debt securities are the sole assets of Trust II, and the payments under the debt securities are the sole revenues of Trust II.

We evaluate on an ongoing basis our investments in Trust I and Trust II (collectively the “Trusts”) and have determined that we do not have a variable interest in the Trusts. Therefore, the Trusts are not included in our consolidated financial statements.

We are also involved in the normal course of business with variable interest entities (“VIE’s”) primarily as a passive investor in mortgage-backed securities and certain collateralized corporate bank loans issued by third party VIE’s. The maximum exposure to loss with respect to these investments is the investment carrying values included in the consolidated balance sheets.

Adoption of New Accounting Pronouncements

In  February 2018, the FASB issued updated guidance that allows a reclassification of the stranded tax effects in accumulated other comprehensive income (AOCI) resulting from the Tax Cuts and Jobs Act of 2017 (TCJA). Current guidance requires the effect of a change in tax laws or rates on deferred tax balances to be reported in income from continuing operations in the accounting period that includes the period of enactment, even if the related income tax effects were originally charged or credited directly to AOCI. The amount of the reclassification would include the effect of the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts and related valuation allowances, if any, at the date of the enactment of TCJA related to items in AOCI. The updated guidance was effective for reporting periods beginning after December 15, 2018 and is to be applied retrospectively to each period in which the effect of the TCJA related to items remaining in AOCI are recognized or at the beginning of the period of adoption. Early adoption is permitted. The Company adopted the updated guidance effective January 1, 2018 and elected to reclassify the income tax effects of the TCJA from AOCI to retained earnings as of January 1, 2018. This reclassification resulted in a decrease in retained earnings of $2.6 million as of January 1, 2018 and an increase in AOCI by the same amount.

In March 2017, the FASB issued ASU 2017‑08, “Premium Amortization on Purchased Callable Securities” (Subtopic 310‑20). ASU 2017‑08 is intended to enhance the accounting for amortization of premiums for purchased callable debt securities. The guidance amends the amortization period for certain purchased callable debt securities held at a premium. Securities that contain explicit, noncontingent call features that are callable at fixed prices and on preset dates should shorten the amortization period for the premium to the earliest call date (and if the call option is not exercised, the effective yield is reset using the payment terms of the debt security). The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and is to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings. The adoption of ASU 2017‑08 had no impact on our financial results and disclosures.

In January 2017, the FASB issued ASU 2017‑01, “Clarifying the Definition of a Business (Topic 715)”. ASU 2017‑01 is intended to assist entities in evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017‑01 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The adoption of this standard did not have a material impact on our financial condition or results of operations.

In January 2016, the FASB issued ASU 2016‑01, “Recognition and Measurement of Financial Assets and Financial Liabilities” (Subtopic 825‑10). ASU 2016‑01 requires equity investments that are not consolidated or accounted for under the equity method of accounting to be measured at fair value with changes in fair value recognized in net income. ASU 2016‑01 also requires us to assess the ability to realize our deferred tax assets (“DTAs”) related to an available-for-sale debt security in combination with our other DTAs. ASU 2016‑01 was effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of this guidance resulted in the

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recognition of $17.0 million of net after-tax unrealized gains on equity investments as a cumulative effect adjustment that increased retained earnings as of January 1, 2018 and decreased AOCI by the same amount. The Company elected to report changes in the fair value of equity investments in investment gains (losses) in the Consolidated Statement of Operations. At December 31, 2017, equity investments were classified as available-for-sale on the Company’s balance sheet. However, upon adoption, the updated guidance eliminated the available-for-sale balance sheet classification for equity investments.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. ASU 2016-02 requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Additionally, ASU 2016-02 modifies current guidance for lessors' accounting. ASU 2016-02 is effective for interim and annual reporting periods beginning on or after January 1, 2019, with early adoption permitted. During 2018, the FASB issued several amendments and targeted improvements to ease the application of the standard, including the addition of a transition approach that gives the Company the option of applying the standard at either the beginning of the earliest comparative period presented or the beginning of the period of adoption. We adopted the standard on its effective date of January 1, 2019. We also elected certain practical expedients that allow us not to reassess existing leases under the new guidance. As of June 30, 2019, $17.1 million of right-of-use assets and $17.6 million of lease liabilities for operating leases were added to the other assets and other liabilities line items of the balance sheet, respectively, as a result of the adoption of this update.

In August 2016, the FASB issued ASU 2016‑15, “Classification of Certain Cash Receipts and Cash Payments” (Topic 230). ASU 2016‑15 will reduce diversity in practice on how eight specific cash receipts and payments are classified on the statement of cash flows. The ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those years. The adoption of this new guidance did not have a material impact on our financial results or disclosures.

In November 2016, the FASB issued ASU 2016‑18, “Statement of Cash Flows (Topic 230): Restricted Cash.” The purpose of ASU 2016‑18 is to eliminate the diversity in classifying and presenting changes in restricted cash in the statement of cash flows. The new guidance requires restricted cash to be combined with cash and cash equivalents when reconciling the beginning and ending balances of cash on the statement of cash flows, thereby no longer requiring transactions such as transfers between restricted and unrestricted cash to be treated as a cash flow activity. Further, the new guidance requires the nature of the restrictions to be disclosed, as well as a reconciliation between the balance sheet and the statement of cash flows on how restricted and unrestricted cash are segregated. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within that fiscal year, with early adoption permitted. Effective January 1, 2018, we retrospectively adopted this new guidance which did not have a material impact on our financial results or disclosures.

In May 2014, the FASB issued ASU 2014‑09, guidance which revises the criteria for revenue recognition. Under the guidance, the transaction price is attributed to underlying performance obligations in the contract and revenue is recognized as the entity satisfies the performance obligations and transfers control of a good or service to the customer. Incremental costs of obtaining a contract may be capitalized to the extent the entity expects to recover those costs. The guidance is effective for reporting periods beginning after December 15, 2017 and is to be applied retrospectively. Revenue from insurance contracts is excluded from the scope of this new guidance. While insurance contracts are excluded from this guidance, policy fee income, billing and other fees and fee income related to property business written as a cover-holder through a Lloyds Syndicate is subject to this updated guidance. The adoption of this new guidance did not have a material impact on our financial results or disclosures.

Recently Issued Accounting Pronouncements

On August 28, 2018, the FASB issued ASU 2018-13, “Fair Value Measurement: Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurement” (Topic 820), which amends ASC 820 to add, remove, and modify fair value measurement disclosure requirements.  The requirements to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements have all been removed. However, the changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the

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reporting period must be disclosed along with the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements (or other quantitative information if it is more reasonable). Finally, for investments measured at net asset value, the requirements have been modified so that the timing of liquidation and the date when restrictions from redemption might lapse are only disclosed if the investee has communicated the timing to the entity or announced the timing publicly. This ASU is effective for annual and interim reporting periods beginning after December 15, 2019. As the amendments are only disclosure related, our financial statements will not be materially impacted by this update.

In January 2017, the FASB issued ASU 2017‑04, “Simplifying the Test for Goodwill Impairment” (Topic 350). ASU 2017‑04 requires only a one-step quantitative impairment test, whereby a goodwill impairment loss will be measured as the excess of a reporting unit’s carrying amount over its fair value (not to exceed the total goodwill allocated to that reporting unit). It eliminates Step 2 of the current two-step goodwill impairment test, under which a goodwill impairment loss is measured by comparing the implied fair value of a reporting unit’s goodwill. The ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. We are currently evaluating the impact that the adoption of ASU 2017‑04 will have on our financial results and disclosures.

In June 2016, the FASB issued ASU 2016‑13, “Measurement of Credit Losses on Financial Instruments” (Topic 326). ASU 2016‑13 requires organizations to estimate credit losses on certain types of financial instruments, including receivables and available-for-sale debt securities, by introducing an approach based on expected losses. The expected loss approach will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. ASU 2016‑13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. ASU 2016‑13 requires a modified retrospective transition method and early adoption is permitted. We are currently evaluating the impact that the adoption of this standard will have on our financial results and disclosures, but do not anticipate that any potential impact would be material.    

3. Fair Value

ASC 820 defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value measurements. ASC 820, among other things, requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. In addition, ASC 820 precludes the use of block discounts when measuring the fair value of instruments traded in an active market, which were previously applied to large holdings of publicly traded equity securities.

We determine the fair value of our financial instruments based on the fair value hierarchy established in ASC 820. In accordance with ASC 820, we utilize the following fair value hierarchy:

·

Level 1: quoted prices in active markets for identical assets;

·

Level 2: inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, inputs of identical assets for less active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument; and

·

Level 3: inputs to the valuation methodology that are unobservable for the asset or liability.

This hierarchy requires the use of observable market data when available.

Under ASC 820, we determine fair value based on the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. It is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy described above. Fair value measurements for assets and liabilities where there exists limited or no observable market data are calculated based upon our pricing policy, the economic and competitive environment, the characteristics of the asset or liability and other factors as appropriate. These estimated fair values may not be realized upon actual sale or immediate settlement of the asset or liability.

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Where quoted prices are available on active exchanges for identical instruments, investment securities are classified within Level 1 of the valuation hierarchy. Level 1 investment securities include common and preferred stock and an equity warrant classified as Other Investments.

Level 2 investment securities include corporate bonds, collateralized corporate bank loans, municipal bonds, U.S. Treasury securities, other obligations of the U.S. Government and mortgage-backed securities for which quoted prices are not available on active exchanges for identical instruments. We use third party pricing services to determine fair values for each Level 2 investment security in all asset classes. Since quoted prices in active markets for identical assets are not available, these prices are determined using observable market information such as quotes from less active markets and/or quoted prices of securities with similar characteristics, among other things. We have reviewed the processes used by the pricing services and have determined that they result in fair values consistent with the requirements of ASC 820 for Level 2 investment securities. We have not adjusted any prices received from third party pricing sources. There were no transfers between Level 1 and Level 2 securities.

In cases where there is limited activity or less transparency around inputs to the valuation, investment securities are classified within Level 3 of the valuation hierarchy. Level 3 investments are valued based on the best available data in order to approximate fair value. This data may be internally developed and consider risk premiums that a market participant would require. Investment securities classified within Level 3 include other less liquid investment securities.

The following table presents for each of the fair value hierarchy levels, our assets that are measured at fair value on a recurring basis at June 30, 2019 and December 31, 2018 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2019

 

    

Quoted Prices in

    

 

 

    

 

 

    

 

 

 

 

Active Markets for

 

 

 

 

 

 

 

 

 

 

 

Identical Assets

 

Other Observable

 

Unobservable

 

 

 

 

    

(Level 1)

    

Inputs (Level 2)

    

Inputs (Level 3)

    

Total

U.S. Treasury securities and obligations of U.S. Government

 

$

 —

 

$

48,422

 

$

 -

 

$

48,422

Corporate bonds

 

 

 —

 

 

225,810

 

 

533

 

 

226,343

Collateralized corporate bank loans

 

 

 —

 

 

132,678

 

 

 -

 

 

132,678

Municipal bonds

 

 

 —

 

 

115,849

 

 

 -

 

 

115,849

Mortgage-backed

 

 

 —

 

 

9,856

 

 

 -

 

 

9,856

Total debt securities

 

 

 —

 

 

532,615

 

 

533

 

 

533,148

Total equity securities

 

 

94,012

 

 

 —

 

 

 —

 

 

94,012

Total other investments

 

 

2,585

 

 

 —

 

 

 —

 

 

2,585

Total investments

 

$

96,597

 

$

532,615

 

$

533

 

$

629,745

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2018

 

    

Quoted Prices in

    

 

 

    

 

 

    

 

 

 

 

Active Markets for

 

 

 

 

 

 

 

 

 

 

 

Identical Assets

 

Other Observable

 

Unobservable

 

 

 

 

    

(Level 1)

    

Inputs (Level 2)

    

Inputs (Level 3)

    

Total

U.S. Treasury securities and obligations of U.S. Government

 

$

 —

 

$

48,106

 

$

 —

 

$

48,106

Corporate bonds

 

 

 —

 

 

241,861

 

 

291

 

 

242,152

Collateralized corporate bank loans

 

 

 —

 

 

126,528

 

 

 —

 

 

126,528

Municipal bonds

 

 

 —

 

 

115,527

 

 

 —

 

 

115,527

Mortgage-backed

 

 

 —

 

 

13,557

 

 

 —

 

 

13,557

Total debt securities

 

 

 —

 

 

545,579

 

 

291

 

 

545,870

Total equity securities

 

 

80,896

 

 

 —

 

 

 —

 

 

80,896

Total other investments

 

 

1,148

 

 

 —

 

 

 —

 

 

1,148

Total investments

 

$

82,044

 

$

545,579

 

$

291

 

$

627,914

 

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Due to significant unobservable inputs into the valuation model for one corporate bond as of June 30, 2019 and December 31, 2018, we classified this investment as Level 3 in the fair value hierarchy. The corporate bond is a convertible senior note and its fair value was estimated by the sum of the bond value using an income approach discounting the scheduled interest and principal payments and the conversion feature utilizing a binomial lattice model. We also estimated the fair value of the corporate bond utilizing an as-if converted basis into the underlying securities. Significant changes in the unobservable inputs in the fair value measurement of this corporate bond could result in a significant change in the fair value measurement.

The following table summarizes the changes in fair value for all financial assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the six months ended June 30, 2019 and 2018 (in thousands):

 

 

 

 

Beginning balance as of January 1, 2019

    

$

291

Sales

 

 

 —

Settlements

 

 

 —

Purchases

 

 

 —

Issuances

 

 

 —

Total realized/unrealized gains included in net income

 

 

242

Net gain included in other comprehensive income

 

 

 —

Transfers into Level 3

 

 

 —

Transfers out of Level 3

 

 

 —

Ending balance as of June 30, 2019

 

$

533

 

 

 

 

 

Beginning balance as of January 1, 2018

    

$

3,757

Sales

 

 

(2,925)

Settlements

 

 

 —

Purchases

 

 

 —

Issuances

 

 

 —

Total realized/unrealized gains included in net income

 

 

104

Net gains included in other comprehensive income

 

 

 —

Transfers into Level 3

 

 

 —

Transfers out of Level 3

 

 

(621)

Ending balance as of June 30, 2018

 

$

315

 

 

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4. Investments

The amortized cost and estimated fair value of investments in debt and equity securities by category is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Gross

    

Gross

    

 

 

 

 

 

 

 

Unrealized

 

Unrealized

 

 

 

 

    

Amortized Cost

    

Gains

    

Losses

    

Fair Value

As of June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of U.S. Government

 

$

48,369

 

$

112

 

$

(59)

 

$

48,422

Corporate bonds

 

 

223,770

 

 

2,813

 

 

(240)

 

 

226,343

Collateralized corporate bank loans

 

 

133,840

 

 

59

 

 

(1,221)

 

 

132,678

Municipal bonds

 

 

114,638

 

 

1,304

 

 

(93)

 

 

115,849

Mortgage-backed

 

 

9,899

 

 

51

 

 

(94)

 

 

9,856

Total debt securities

 

 

530,516

 

 

4,339

 

 

(1,707)

 

 

533,148

Total equity securities

 

 

68,709

 

 

30,657

 

 

(5,354)

 

 

94,012

Total other investments

 

 

3,763

 

 

 —

 

 

(1,178)

 

 

2,585

Total investments

 

$

602,988

 

$

34,996

 

$

(8,239)

 

$

629,745

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2018

 

 

  

 

 

  

 

 

 

 

 

  

U.S. Treasury securities and obligations of U.S. Government

 

$

48,609

 

$

 5

 

$

(508)

 

$

48,106

Corporate bonds

 

 

243,314

 

 

440

 

 

(1,602)

 

 

242,152

Collateralized corporate bank loans

 

 

131,779

 

 

19

 

 

(5,270)

 

 

126,528

Municipal bonds

 

 

112,574

 

 

3,791

 

 

(838)

 

 

115,527

Mortgage-backed

 

 

13,992

 

 

11

 

 

(446)

 

 

13,557

Total debt securities

 

 

550,268

 

 

4,266

 

 

(8,664)

 

 

545,870

Total equity securities

 

 

68,709

 

 

20,693

 

 

(8,506)

 

 

80,896

Total other investments

 

 

3,763

 

 

 —

 

 

(2,615)

 

 

1,148

Total investments

 

$

622,740

 

$

24,959

 

$

(19,785)

 

$

627,914

 

Major categories of net investment gains (losses) on investments are summarized as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

Six Months Ended June 30, 

 

 

    

2019

    

2018

    

2019

    

2018

    

U.S. Treasury securities and obligations of U.S. Government

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

Corporate bonds

 

 

(6)

 

 

(14)

 

 

17

 

 

(22)

 

Collateralized corporate bank loans

 

 

21

 

 

35

 

 

38

 

 

47

 

Municipal bonds

 

 

46

 

 

 2

 

 

4,147

 

 

(19)

 

Mortgage-backed

 

 

(1)

 

 

(1)

 

 

(1)

 

 

 1

 

Equity securities

 

 

 —

 

 

359

 

 

 —

 

 

359

 

Gain on investments

 

 

60

 

 

381

 

 

4,201

 

 

366

 

Unrealized gains (losses) on equity securities

 

 

5,356

 

 

553

 

 

13,116

 

 

(3,904)

 

Unrealized gains (losses) on other investments

 

 

1,401

 

 

(401)

 

 

1,437

 

 

(764)

 

Investment gains (losses), net

 

$

6,817

 

$

533

 

$

18,754

 

$

(4,302)

 

 

We realized gross gains on investments of $0.2 million and $0.5 million during the three months ended June 30, 2019 and 2018, respectively and $4.4 million and $0.6 million for the six months ended June 30, 2019 and 2018, respectively. We realized gross losses on investments of $0.1 million and $0.1 million for the three months ended June 30, 2019 and 2018, respectively, and $0.2 million and $0.2 million for the six months ended June 30, 2019 and 2018, respectively. We recorded proceeds from the sale of investment securities of $0.1 million and $14.2 million during the three months ended June 30, 2019 and 2018, respectively, and $7.0 million and $14.2 million for the six months ended June 30, 2019 or 2018, respectively. Realized investment gains and losses are recognized in operations on the first in-first out method.

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The following schedules summarize the gross unrealized losses showing the length of time that investments have been continuously in an unrealized loss position as of June 30, 2019 and December 31, 2018 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2019

 

 

12 months or less

 

Longer than 12 months

 

Total

 

    

 

 

    

Unrealized

    

 

 

    

Unrealized

    

 

 

    

Unrealized

 

    

Fair Value

    

Losses

    

Fair Value

    

Losses

    

Fair Value

    

Losses

U.S. Treasury securities and obligations of U.S. Government

 

$

 —

 

$

 —

 

$

23,216

 

$

(59)

 

$

23,216

 

$

(59)

Corporate bonds

 

 

18,143

 

 

(144)

 

 

36,011

 

 

(96)

 

 

54,154

 

 

(240)

Collateralized corporate bank loans

 

 

85,804

 

 

(871)

 

 

17,564

 

 

(350)

 

 

103,368

 

 

(1,221)

Municipal bonds

 

 

10,898

 

 

(55)

 

 

5,735

 

 

(38)

 

 

16,633

 

 

(93)

Mortgage-backed

 

 

3,518

 

 

(6)

 

 

3,911

 

 

(88)

 

 

7,429

 

 

(94)

Total debt securities

 

 

118,363

 

 

(1,076)

 

 

86,437

 

 

(631)

 

 

204,800

 

 

(1,707)

Total equity securities

 

 

7,952

 

 

(1,588)

 

 

4,524

 

 

(3,766)

 

 

12,476

 

 

(5,354)

Total other investments

 

 

28

 

 

(10)

 

 

2,557

 

 

(1,168)

 

 

2,585

 

 

(1,178)

Total investments

 

$

126,343

 

$

(2,674)

 

$

93,518

 

$

(5,565)

 

$

219,861

 

$

(8,239)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2018

 

 

12 months or less

 

Longer than 12 months

 

Total

 

    

 

 

    

Unrealized

    

 

 

    

Unrealized

    

 

 

    

Unrealized

 

    

Fair Value

    

Losses

    

Fair Value

    

Losses

    

Fair Value

    

Losses

U.S. Treasury securities and obligations of U.S. Government

 

$

18,902

 

$

(181)

 

$

28,201

 

$

(327)

 

$

47,103

 

$

(508)

Corporate bonds

 

 

117,450

 

 

(907)

 

 

100,060

 

 

(695)

 

 

217,510

 

 

(1,602)

Collateralized corporate bank loans

 

 

120,410

 

 

(4,938)

 

 

4,931

 

 

(332)

 

 

125,341

 

 

(5,270)

Municipal bonds

 

 

14,281

 

 

(96)

 

 

25,891

 

 

(742)

 

 

40,172

 

 

(838)

Mortgage-backed

 

 

6,592

 

 

(60)

 

 

5,986

 

 

(386)

 

 

12,578

 

 

(446)

Total debt securities

 

 

277,635

 

 

(6,182)

 

 

165,069

 

 

(2,482)

 

 

442,704

 

 

(8,664)

Total equity securities

 

 

30,981

 

 

(3,699)

 

 

4,475

 

 

(4,807)

 

 

35,456

 

 

(8,506)

Total other investments

 

 

1,148

 

 

(2,615)

 

 

 —

 

 

 —

 

 

1,148

 

 

(2,615)

Total investments

 

$

309,764

 

$

(12,496)

 

$

169,544

 

$

(7,289)

 

$

479,308

 

$

(19,785)

 

We had a total of 173 debt securities with an unrealized loss, of which 117 were in an unrealized loss position for less than one year and 56 were in an unrealized loss position for a period of one year or greater, as of June 30, 2019.  We had a total of 328 debt securities with an unrealized loss, of which 221 were in an unrealized loss position for less than one year and 107 were in an unrealized loss position for a period of one year or greater, as of December 31, 2018.  We consider these losses as a temporary decline in value as they are predominately on securities that we do not intend to sell and do not believe we will be required to sell prior to recovery of our amortized cost basis. We see no other indications that the decline in values of these securities is other-than-temporary.

We complete a detailed analysis each quarter to assess whether any decline in the fair value of any fixed maturity investment below cost is deemed other-than-temporary. All fixed maturity investments with an unrealized loss are reviewed. We recognize an impairment loss when an investment’s value declines below cost, adjusted for accretion, amortization and previous other-than-temporary impairments, and it is determined that the decline is other-than-temporary.

We assess whether we intend to sell, or it is more likely than not that we will be required to sell, a fixed maturity investment before recovery of its amortized cost basis less any current period credit losses. For fixed maturity investments that are considered other-than-temporarily impaired and that we do not intend to sell and will not be required to sell, we separate the amount of the impairment into the amount that is credit related (credit loss component) and the amount due to all other factors. The credit loss component is recognized in earnings and is the difference between the investment’s amortized cost basis and the present value of its expected future cash flows. The remaining difference between the investment’s fair value and the present value of future expected cash flows is recognized in other comprehensive income.

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Details regarding the carrying value of the other investments portfolio as of June 30, 2019 and December 31, 2018 are as follows (in thousands):

 

 

 

 

 

 

 

 

    

June 30, 

    

December 31, 

 

    

2019

    

2018

Investment Type

 

 

  

 

 

  

Equity warrant

 

$

2,585

 

$

1,148

Total other investments

 

$

2,585

 

$

1,148

 

We acquired this warrant in an active market. The warrant entitles us to buy the underlying common stock of a publicly traded company at a fixed price until the expiration date of January 19, 2021.

The amortized cost and estimated fair value of debt securities at June 30, 2019 by contractual maturity are as follows. Expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without penalties.

 

 

 

 

 

 

 

 

    

Amortized Cost

    

Fair Value

 

 

(in thousands)

Due in one year or less

 

$

117,306

 

$

117,293

Due after one year through five years

 

 

276,397

 

 

278,718

Due after five years through ten years

 

 

96,047

 

 

95,636

Due after ten years

 

 

30,867

 

 

31,645

Mortgage-backed

 

 

9,899

 

 

9,856

 

 

$

530,516

 

$

533,148

 

 

5. Pledged Investments

We have pledged certain of our securities for the benefit of various state insurance departments and reinsurers. These securities are included with our available-for-sale debt securities because we have the ability to trade these securities. We retain the interest earned on these securities. These securities had a carrying value of $29.7 million and $29.5 million at June 30, 2019 and December 31, 2018, respectively.

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6. Reserves for Unpaid Losses and Loss Adjustment Expenses

Activity in the consolidated reserves for unpaid losses and LAE is summarized as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

June 30,

 

June 30,

 

 

 

2019

 

2018

 

Balance at January 1

 

$

527,247

 

 

527,100

 

Less reinsurance recoverable

 

 

221,716

 

 

154,612

 

Net balance at January 1

 

 

305,531

 

 

372,488

 

 

 

 

 

 

 

 

 

Incurred related to:

 

 

  

 

 

  

 

Current year

 

 

141,909

 

 

122,870

 

Prior years

 

 

1,404

 

 

4,453

 

Total incurred

 

 

143,313

 

 

127,323

 

 

 

 

 

 

 

 

 

Paid related to:

 

 

  

 

 

  

 

Current year

 

 

38,563

 

 

28,321

 

Prior years

 

 

107,899

 

 

140,339

 

Total paid

 

 

146,462

 

 

168,660

 

 

 

 

 

 

 

 

 

Net balance at June 30

 

 

302,382

 

 

331,151

 

Plus reinsurance recoverable

 

 

249,161

 

 

189,401

 

Balance at June 30

 

$

551,543

 

$

520,552

 

 

The impact from the unfavorable (favorable) net prior years’ loss development on each reporting segment is presented below:

 

 

 

 

 

 

 

 

 

June 30, 

 

 

2019

    

2018

Specialty Commercial Segment

 

$

5,203

 

$

6,861

Standard Commercial Segment

 

 

(3,583)

 

 

(1,560)

Personal Segment

 

 

(216)

 

 

(848)

Corporate

 

 

 —

 

 

 —

Total (favorable) net prior year development

 

$

1,404

 

$

4,453

 

The following describes the primary factors behind each segment’s prior accident year reserve development for the six months ended June 30, 2019 and 2018:

Six months ended June 30, 2019:

·

Specialty Commercial Segment. Our Commercial Auto business unit experienced net unfavorable development in the 2017 and prior accident years primarily in the primary commercial auto liability line of business, partially offset by net favorable development in the primary commercial auto line of business in the 2018 accident year. Our E&S Casualty business unit experienced net unfavorable development primarily in our E&S package insurance products in the 2017 and prior accident years, partially offset by net favorable development in the 2018 accident year. We experienced net favorable development in our E&S Property and Professional Liability business units, partially offset by net unfavorable development in our Aerospace & Programs business unit.

·

Standard Commercial Segment. Our Commercial Accounts business unit experienced net favorable development in the 2018, 2017, 2014 and 2012 and prior accident years primarily in the general liability line of business, partially offset by net unfavorable development primarily in the general liability line of business in the 2016 and 2015 accident years. Our Commercial Accounts business unit experienced net

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favorable development in the 2017 and 2015 accident years in the occupational accident line of business, partially offset by net unfavorable development in the 2016 accident year. The run-off from our former Workers Compensation operating unit experienced net favorable development in the 2015 and 2012 and prior accident years.

·

Personal Segment. Net favorable development in our Specialty Personal Lines business unit was mostly attributable to the 2018, 2017, 2015,  2013 and prior accident years, partially offset by unfavorable development in the 2016 and 2014 accident years.

Six months ended June 30, 2018:

·

Specialty Commercial Segment. Our Commercial Auto business unit experienced net unfavorable development in the 2016 and prior accident years primarily in the commercial auto liability line of business, partially offset by favorable development primarily in the commercial auto liability line of business in the 2017 accident year. We experienced net unfavorable development in our E&S Property, Professional Liability, E&S Casualty and Aerospace& Programs business units.

·

Standard Commercial Segment. Our  Commercial Accounts business unit experienced net favorable development in the 2016 and prior accident years primarily in the general liability line of business, partially offset by net unfavorable development primarily in the commercial property line of business in the 2017 accident year and net unfavorable development in the 2017 and prior accident years in the occupational accident line of business.

·

Personal Segment. Net favorable development in our Specialty Personal Lines operating unit was mostly attributable to the 2013 through 2017 accident years, partially offset by unfavorable development in the 2012 and prior accident years.

7. Share-Based Payment Arrangements

Our 2005 Long Term Incentive Plan (“2005 LTIP”) is a stock compensation plan for key employees and non-employee directors that was initially approved by the shareholders on May 26, 2005 and expired by its terms on May 27, 2015.  As of June 30, 2019, there were no outstanding incentive stock options and outstanding non-qualified stock options to purchase 14,157 shares of our common stock. The exercise price of all such outstanding stock options is equal to the fair market value of our common stock on the date of grant.

 

Our 2015 Long Term Incentive Plan (“2015 LTIP”) was approved by shareholders on May 29, 2015.  There are 2,000,000 shares authorized for issuance under the 2015 LTIP.  As of June 30, 2019, restricted stock units representing the right to receive up to 383,530 shares of our common stock were outstanding under the 2015 LTIP.  There were no stock option awards granted under the 2015 LTIP as of June 30, 2019.

 

Stock Options:

Incentive stock options granted under the 2005 LTIP prior to 2009 vested 10%,  20%,  30% and 40% on the first, second, third and fourth anniversary dates of the grant, respectively, and terminated five to ten years from the date of grant. Incentive stock options granted in 2009 vest in equal annual increments on each of the first seven anniversary dates and terminate ten years from the date of grant. Non-qualified stock options granted under the 2005 LTIP generally vest 100% six months after the date of grant and terminate ten years from the date of grant. One grant of 200,000 non-qualified stock options in 2009 vested in equal annual increments on each of the first seven anniversary dates and terminated ten years from the date of grant.

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A summary of the status of our stock options as of June 30, 2019 and changes during the six months then ended is presented below:

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

Average

    

 

 

 

 

 

 

 

 

 

Remaining

 

Aggregate

 

 

Number of

 

Weighted Average

 

Contractual

 

Intrinsic Value

 

    

Shares

    

Exercise Price

    

Term (Years)

    

($000)

Outstanding at January 1, 2019

 

244,157

 

$

6.63

 

  

 

 

  

Granted

 

 —

 

 

 —

 

  

 

 

  

Exercised

 

(230,000)

 

$

6.61

 

  

 

 

  

Forfeited or expired

 

 —

 

$

 —

 

  

 

 

  

Outstanding at June 30, 2019

 

14,157

 

$

6.99

 

2.5

 

$

102

Exercisable at  June 30, 2019

 

14,157

 

$

6.99

 

2.5

 

$

102

 

The following table details the intrinsic value of options exercised, total cost of share-based payments charged against income before income tax benefit and the amount of related income tax benefit recognized in income for the periods indicated (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended

 

 

Six Months Ended

 

 

June 30, 

 

 

June 30, 

 

    

2019

    

2018

 

2019

 

2018

Intrinsic value of options exercised

 

$

 —

 

$

122

 

$

845

 

$

122

Cost of share-based payments (non-cash)

 

$

 —

 

$

 —

 

$

 —

 

$

 —

Income tax benefit of share-based payments recognized in income

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

As of June 30, 2019, there was no unrecognized compensation cost related to non-vested stock options granted under our plans which is expected to be recognized in the future.

The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option pricing model. Expected volatilities are based on the historical volatility of Hallmark’s and similar companies’ common stock for a period equal to the expected term. The risk-free interest rates for periods within the contractual term of the options are based on rates for U.S. Treasury Notes with maturity dates corresponding to the options expected lives on the dates of grant. Expected term is determined based on the simplified method as we do not have sufficient historical exercise data to provide a basis for estimating the expected term. There were no stock options granted during the first six months of 2019 or 2018.

Restricted Stock Units:

Restricted stock units awarded under the 2015 LTIP represent the right to receive shares of common stock upon the satisfaction of vesting requirements, performance criteria and other terms and conditions. Restricted stock units vest and, if performance criteria have been satisfied, shares of common stock become issuable on March 31 of the third calendar year following the year of grant.

The performance criteria for all restricted stock units require that we achieve certain compound average annual growth rates in book value per share as well as certain average combined ratio percentages over the vesting period in order to receive shares of common stock in amounts ranging from 50% to 150% of the number of restricted stock units granted. Grantees of restricted stock units do not have any rights of a stockholder, and do not participate in any distributions to our common stockholders, until the award fully vests upon satisfaction of the vesting schedule, performance criteria and other conditions set forth in their award agreement. Therefore, unvested restricted stock units are not considered participating securities under ASC 260, “Earnings Per Share,” and are not included in the calculation of basic or diluted earnings per share.

Compensation cost is measured as an amount equal to the fair value of the restricted stock units on the date of grant and is expensed over the vesting period if achievement of the performance criteria is deemed probable, with the amount of the expense recognized based on our best estimate of the ultimate achievement level.  The grant date fair value

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of restricted stock units granted in 2015, 2016, 2017 and 2018 was $11.10,  $11.41,  $10.20 and $10.87 per unit, respectively.  We incurred compensation expense of $140 thousand and $197 thousand related to restricted stock units during the three months and six months ended June 30, 2019, respectively.  We incurred compensation (benefit) expense of ($43) thousand and $1 thousand related to restricted stock units during the three and six months ended June 30, 2018, respectively.  We recorded income tax benefit of $29 thousand and $41 thousand related to restricted stock units during the three months and six months ended June 30, 2019, respectively. We recorded income tax expense of $9 thousand related to restricted stock units during the three months ended June 30, 2018.  We recorded de-minimus income tax expense related to restricted stock units during the six months ended June 30, 2018.

The following table details the status of our restricted stock units as of and for the six months ended June 30, 2019 and 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Restricted Stock Units

 

 

    

2019

    

2018

 

Nonvested at January 1

 

338,897

 

385,779

 

Granted

 

 —

 

 —

 

Vested

 

 —

 

(8,198)

 

Forfeited

 

(83,210)

 

(182,743)

 

Nonvested at June 30

 

255,687

 

194,838

 

 

As of June 30, 2019, there was $1.4 million of unrecognized grant date compensation cost related to unvested restricted stock units. Based on the current performance estimate, we expect to recognize $0.9 million of compensation cost related to unvested restricted stock units, of which $0.3 million is expected to be recognized during the remainder of 2019, $0.5 million is expected to be recognized in 2020 and $0.1 million is expected to be recognized in 2021. 

 

8. Segment Information

The following is business segment information for the three and six months ended June 30, 2019 and 2018 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

    

2019

    

2018

 

2019

 

2018

 

Revenues

 

 

  

 

 

  

 

 

  

 

 

  

 

Specialty Commercial Segment

 

$

73,592

 

$

72,081

 

$

141,559

 

$

145,205

 

Standard Commercial Segment

 

 

17,310

 

 

19,247

 

 

35,683

 

 

38,122

 

Personal Segment

 

 

23,116

 

 

7,916

 

 

42,599

 

 

15,536

 

Corporate

 

 

6,885

 

 

(1,119)

 

 

19,183

 

 

(7,397)

 

Consolidated

 

$

120,903

 

$

98,125

 

$

239,024

 

$

191,466

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax income (loss)

 

 

  

 

 

  

 

 

  

 

 

  

 

Specialty Commercial Segment

 

$

10,427

 

$

8,770

 

$

18,395

 

$

18,528

 

Standard Commercial Segment

 

 

2,057

 

 

2,656

 

 

3,564

 

 

3,975

 

Personal Segment

 

 

2,441

 

 

(1)

 

 

4,014

 

 

(23)

 

Corporate

 

 

1,559

 

 

(5,053)

 

 

9,429

 

 

(15,299)

 

Consolidated

 

$

16,484

 

$

6,372

 

$

35,402

 

$

7,181

 

 

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The following is additional business segment information as of the dates indicated (in thousands):

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

Assets:

 

2019

 

2018

Specialty Commercial Segment

 

$

1,005,810

 

$

858,262

Standard Commercial Segment

 

 

184,101

 

 

158,881

Personal Segment

 

 

170,348

 

 

226,431

Corporate

 

 

45,509

 

 

21,320

 Consolidated

 

$

1,405,768

 

$

1,264,894

 

 

9. Reinsurance

We reinsure a portion of the risk we underwrite in order to control the exposure to losses and to protect capital resources. We cede to reinsurers a portion of these risks and pay premiums based upon the risk and exposure of the policies subject to such reinsurance. Ceded reinsurance involves credit risk and is generally subject to aggregate loss limits. Although the reinsurer is liable to us to the extent of the reinsurance ceded, we are ultimately liable as the direct insurer on all risks reinsured. Reinsurance recoverables are reported after allowances for uncollectible amounts. We monitor the financial condition of reinsurers on an ongoing basis and review our reinsurance arrangements periodically. Reinsurers are selected based on their financial condition, business practices and the price of their product offerings. In order to mitigate credit risk to reinsurance companies, most of our reinsurance recoverable balance as of June 30, 2019 was with reinsurers that had an A.M. Best rating of “A–” or better.

The following table shows earned premiums ceded and reinsurance loss recoveries by period (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

    

2019

    

2018

    

2019

    

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Ceded earned premiums

 

$

76,309

 

$

68,635

 

$

146,455

 

$

130,264

Reinsurance recoveries

 

$

58,975

 

$

43,989

 

$

107,564

 

$

93,427

 

 

10. Revolving Credit Facility

Our Second Restated Credit Agreement with Frost Bank (“Frost”) dated June 30, 2015, as amended to date, provides a $15.0 million revolving credit facility (“Facility A”), with a $5.0 million letter of credit sub-facility. The outstanding balance of the Facility A bears interest at a rate equal to the prime rate or LIBOR plus 2.5%, at our election. We pay an annual fee of 0.25% of the average daily unused balance of Facility A and letter of credit fees at the rate of 1.00% per annum. All principal and accrued interest on Facility A becomes due and payable on June 30, 2020. As of June 30, 2019, we had no outstanding borrowings under Facility A.

The Second Restated Credit Agreement with Frost also provides a $30.0 million revolving credit facility (“Facility B”), in addition to Facility A. We may use Facility B loan proceeds solely for the purpose of making capital contributions to AHIC and HIC. We may borrow, repay and reborrow under Facility B until December 17, 2019, at which time all amounts outstanding under Facility B are converted to a term loan. Through December 17, 2019, we pay Frost a quarterly fee of 0.25% per annum of the average daily unused balance of Facility B. Facility B bears interest at a rate equal to the prime rate or LIBOR plus 3.00%, at our election. Until December 17, 2019, interest only on amounts from time to time outstanding under Facility B are payable quarterly. Any amounts outstanding on Facility B as of December 17, 2019 are converted to a term loan payable in quarterly installments over five years based on a seven year amortization of principal plus accrued interest. All remaining principal and accrued interest on Facility B become due and payable on December 17, 2024. As of June 30, 2019, we had $30.0 million outstanding under Facility B.

The obligations under both Facility A and Facility B are secured by a security interest in the capital stock of AHIC and HIC. Both Facility A and Facility B contain covenants that, among other things, require us to maintain certain

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financial and operating ratios and restrict certain distributions, transactions and organizational changes. We are in compliance with all of these covenants.

11. Subordinated Debt Securities

On June 21, 2005, we entered into a trust preferred securities transaction pursuant to which we issued $30.9 million aggregate principal amount of subordinated debt securities due in 2035. To effect the transaction, we formed Trust I as a Delaware statutory trust. Trust I issued $30.0 million of preferred securities to investors and $0.9 million of common securities to us. Trust I used the proceeds from these issuances to purchase the subordinated debt securities. The interest rate on our Trust I subordinated debt securities was 7.725% until June 15, 2015,  after which interest adjusts quarterly to the three-month LIBOR rate plus 3.25 percentage points. Trust I pays dividends on its preferred securities at the same rate. Under the terms of our Trust I subordinated debt securities, we pay interest only each quarter and the principal of the note at maturity. The subordinated debt securities are uncollaterized and do not require maintenance of minimum financial covenants. As of June 30, 2019, the principal balance of our Trust I subordinated debt was $30.9 million and the interest rate was 5.66% per annum.

On August 23, 2007, we entered into a trust preferred securities transaction pursuant to which we issued $25.8 million aggregate principal amount of subordinated debt securities due in 2037. To effect the transaction, we formed Trust II as a Delaware statutory trust. Trust II issued $25.0 million of preferred securities to investors and $0.8 million of common securities to us. Trust II used the proceeds from these issuances to purchase the subordinated debt securities. The interest rate on our Trust II subordinated debt securities was 8.28% until September 15, 2017,  after which interest adjusts quarterly to the three-month LIBOR rate plus 2.90 percentage points. Trust II pays dividends on its preferred securities at the same rate. Under the terms of our Trust II subordinated debt securities, we pay interest only each quarter and the principal of the note at maturity. The subordinated debt securities are uncollaterized and do not require maintenance of minimum financial covenants. As of June 30, 2019, the principal balance of our Trust II subordinated debt was $25.8 million and the interest rate was 5.31% per annum.

12. Deferred Policy Acquisition Costs

The following table shows total deferred and amortized policy acquisition cost activity by period (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred

 

$

(35,871)

 

$

6,306

 

$

(47,547)

 

$

16,671

Amortized

 

 

34,788

 

 

(8,242)

 

 

41,530

 

 

(18,615)

Net

 

$

(1,083)

 

$

(1,936)

 

$

(6,017)

 

$

(1,944)

 

 

13. Earnings per Share

The following table sets forth basic and diluted weighted average shares outstanding for the periods indicated (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

    

2019

  

  

2018

    

2019

  

  

2018

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares - basic

 

18,123

 

 

18,067

 

18,090

 

 

18,116

Effect of dilutive securities

 

128

 

 

107

 

160

 

 

114

Weighted average shares - assuming dilution

 

18,251

 

 

18,174

 

18,250

 

 

18,230

 

For each of the three and six months ended June 30, 2019, no shares of common stock potentially issuable upon the exercise of employee stock options were excluded from the weighted average number of shares outstanding on a diluted

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basis.  For each of the three and six months ended June 30, 2018, 62,500 shares of common stock potentially issuable upon the exercise of employee stock options were excluded from the weighted average number of shares outstanding on a diluted basis because the effect of such options would be anti-dilutive. 

 

14. Net Periodic Pension Cost

The following table details the net periodic pension cost incurred by period (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

 

June 30, 

 

    

2019

    

2018

    

2019

    

2018

Interest cost

 

$

114

 

$

106

 

$

227

 

$

212

Amortization of net loss

 

 

36

 

 

26

 

 

72

 

 

53

Expected return on plan assets

 

 

(150)

 

 

(174)

 

 

(299)

 

 

(347)

Net periodic pension cost

 

$

 —

 

$

(42)

 

$

 —

 

$

(82)

Contributed amount

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

Refer to Note 14 to the consolidated financial statements in our Annual Report on Form 10‑K for the year ended December 31, 2018 for more discussion of our retirement plans.

15.  Income Taxes

Our effective income tax rate for the six months ended June 30, 2019 and 2018 was 20.8% and 20.1%, respectively. The effective tax rates for 2019 and 2018 were both favorably impacted by the lower statutory rate from the enactment of the Tax Cuts and Jobs Act in December 2017.

16.  Supplemental Cash Flow Information

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the consolidated balance sheet to the total of the same such amounts shown in the statement of cash flows (in thousands):

 

 

 

 

 

 

 

 

 

As of June 30,

 

    

2019

    

2018

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

67,670

 

$

79,583

Restricted cash

 

 

3,486

 

 

3,078

Total cash, cash equivalents and restricted cash shown in the statement of cash flows

 

$

71,156

 

$

82,661

 

Restricted cash represents amounts required to be set aside by a contractual agreement with a third-party insurer and amounts pledged for the benefit of various state insurance departments.

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The following table provides supplemental cash flow information for the six months ended June 30, 2019 and 2018:

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 

 

    

2019

    

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest paid

 

$

2,527

 

$

2,145

 

 

 

 

 

 

 

Income taxes paid (recovered)

 

$

2,848

 

$

(5,287)

 

 

 

 

 

 

 

Supplemental schedule of non-cash investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Receivable for securities related to investment disposals

 

$

2,581

 

$

3,780

 

 

 

 

 

 

 

Payable for securities related to investment purchases

 

$

3,167

 

$

6,706

 

 

17. Commitments and Contingencies

We are engaged in various legal proceedings in the ordinary course of business, none of which, either individually or in the aggregate, are believed likely to have a material adverse effect on our consolidated financial position or results of operations, in the opinion of management. The various legal proceedings to which we are a party are routine in nature and incidental to our business.

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18. Changes in Accumulated Other Comprehensive Income Balances

The changes in accumulated other comprehensive income balances as of June 30, 2019 and 2018 were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

Accumulated Other

 

 

Pension

 

Unrealized

 

Comprehensive

 

    

Liability

    

Gains (Loss)

    

Income (Loss)

Balance at December 31, 2017

 

$

(2,310)

 

$

14,544

 

$

12,234

Other comprehensive income:

 

 

  

 

 

  

 

 

  

Change in net actuarial gain

 

 

53

 

 

 —

 

 

53

Tax effect on change in net actuarial gain

 

 

(11)

 

 

 —

 

 

(11)

Unrealized holding gains arising during the period

 

 

 —

 

 

1,926

 

 

1,926

Tax effect on unrealized gains arising during the period

 

 

 —

 

 

(404)

 

 

(404)

Reclassification adjustment for realized gains included in investment gains and losses

 

 

 —

 

 

(366)

 

 

(366)

Tax effect on reclassification adjustment for gains included in income tax expense

 

 

 —

 

 

77

 

 

77

Other comprehensive income, net of tax

 

 

42

 

 

1,233

 

 

1,275

Reclassification of certain tax effects from accumulated other comprehensive income at January 1, 2018

 

 

(569)

 

 

3,188

 

 

2,619

Cumulative effect of adoption of updated accounting guidance for equity financial instruments at January 1, 2018

 

 

 —

 

 

(16,993)

 

 

(16,993)

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2018

 

$

(2,837)

 

$

1,972

 

$

(865)

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

$

(3,334)

 

$

(3,326)

 

$

(6,660)

Other comprehensive income:

 

 

  

 

 

  

 

 

  

Change in net actuarial gain

 

 

72

 

 

 —

 

 

72

Tax effect on change in net actuarial gain

 

 

(15)

 

 

 —

 

 

(15)

Unrealized holding gains arising during the period

 

 

 —

 

 

11,233

 

 

11,233

Tax effect on unrealized gains arising during the period

 

 

 —

 

 

(2,359)

 

 

(2,359)

Reclassification adjustment for gains included in net realized gains

 

 

 —

 

 

(4,201)

 

 

(4,201)

Tax effect on reclassification adjustment for gains included in income tax expense

 

 

 —

 

 

883

 

 

883

Other comprehensive income, net of tax

 

 

57

 

 

5,556

 

 

5,613

Balance at June 30, 2019

 

$

(3,277)

 

$

2,230

 

$

(1,047)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19. Leases

We adopted ASU 2016-02, “Leases, (Topic 842)” on January 1, 2019, which resulted in the recognition of operating leases on the balance sheet in 2019 and going forward. See Note 2 for more information on the adoption of ASU 2016-02. Right-of-use assets are included in the other assets line item and lease liabilities are included in the other liabilities line item of the consolidated balance sheet. We also elected certain practical expedients that allow us not to reassess existing leases under the new guidance. We determine if a contract contains a lease at inception and recognize operating lease right-of-use assets and operating lease liabilities based on the present value of the future minimum lease payments at the commencement date. Since our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Lease agreements have lease and non-lease components, which are accounted for as a single lease component. Lease expense is recognized on a straight-line basis over the lease term.

 

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The Company’s operating lease obligations pertain to office leases utilized in the operation of our business. Our leases have remaining terms of 1 to 13 years, some of which include options to extend the leases. The components of lease expense and other lease information as of and during the three and six-month periods ended June 30, 2019 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

June 30, 

 

June 30, 

 

2019

 

 

2019

    

 

 

 

 

 

 

 

 

Operating lease cost

$

816

 

 

$

1,356

 

 

 

 

 

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities

 

 

 

 

 

 

 

   Operating cash flows from operating leases

$

552

 

 

$

1,103

 

 

 

 

 

 

 

 

 

Right-of-use assets obtained in exchange for new operating lease liabilities

$

 —

 

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

We incurred $16 thousand in short-term lease payments not included in our lease liability during the six months ended June 30, 2019. 

 

 

 

 

 

 

 

 

The components of lease expense and other lease information as of and during the six-month period ended June 30, 2019 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

    

2019

 

 

 

 

Operating lease right-of-use assets

 

$

17,109

 

 

 

 

Operating lease liabilities

 

$

17,619

 

 

 

 

Weighted-average remaining lease term - operating leases

 

 

10.7

 

 

 

 

Weighted-average discount rate - operating leases

 

 

5.88%

 

 

 

 

 

 

 

 

 

 

 

Future minimum lease payments under non-cancellable leases as of June 30, 2019 and December 31, 2018 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

 

December 31,

 

    

2019

 

 

2018

 

 

 

 

 

 

 

2019

 

$

786

 

$

1,889

2020

 

 

2,473

 

 

2,473

2021

 

 

2,172

 

 

2,172

2022

 

 

2,171

 

 

2,171

2023

 

 

1,885

 

 

1,885

Thereafter

 

 

15,266

 

 

15,266

Total future minimum lease payments

 

$

24,753

 

$

25,856

 

 

 

 

 

 

 

Less imputed interest

 

$

(7,134)

 

$

N/A

Total operating lease liability

 

$

17,619

 

$

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read together with our consolidated financial statements and the notes thereto.  This discussion contains forward-looking statements.  Please see “Risks Associated with Forward-Looking Statements in this Form 10‑Q” for a discussion of some of the uncertainties, risks and assumptions associated with these statements.

Introduction

Hallmark Financial Services, Inc. (“Hallmark” and, together with subsidiaries, “we,” “us” or “our”) is an insurance holding company that, through its subsidiaries, engages in the sale of property/casualty insurance products to businesses and individuals. Our business involves marketing, distributing, underwriting and servicing our insurance products, as well as providing other insurance related services.  Our business is geographically concentrated in the south central and northwest regions of the United States, except for our Specialty Commercial business which is written on a national basis.  We pursue our business activities through subsidiaries whose operations are organized into product-specific business units, which are supported by our insurance company subsidiaries.

Our non-carrier insurance activities are segregated by business units into the following reportable segments:

·

Specialty Commercial Segment. Our Specialty Commercial Segment includes our Commercial Auto business unit which offers primary and excess commercial vehicle insurance products and services; our E&S Casualty business unit which offers primary and excess liability, excess public entity liability and E&S package insurance products and services; our E&S Property business unit which offers primary and excess commercial property insurance for both catastrophe and non-catastrophe exposures; our Professional Liability business unit which offers healthcare and financial lines professional liability insurance products and services primarily for businesses, medical professionals, medical facilities and senior care facilities; and our Aerospace & Programs business unit which offers general aviation and satellite launch property/casualty insurance products and services, as well as certain specialty programs. These products were previously reported as the Contract Binding and Specialty Commercial operating units.  This realignment did not impact our reportable segments.

   

·

Standard Commercial Segment. Our Standard Commercial Segment includes the package and monoline property/casualty and occupational accident insurance products and services handled by our Commercial Accounts business unit (f/k/a Standard Commercial P&C operating unit) and the runoff of workers compensation insurance products handled by our former Workers Compensation operating unit.  Effective June 1, 2016, we ceased marketing new or renewal occupational accident policies. Effective July 1, 2015, the former Workers Compensation operating unit ceased retaining any risk on new or renewal policies.

·

Personal Segment. Our Personal Segment includes the non-standard personal automobile and renters insurance products and services handled by our Specialty Personal Lines business unit.

The retained premium produced by these reportable segments is supported by our American Hallmark Insurance Company of Texas (“AHIC”), Hallmark Specialty Insurance Company (“HSIC”), Hallmark Insurance Company (“HIC”), Hallmark National Insurance Company (“HNIC”) and Texas Builders Insurance Company (“TBIC”) insurance subsidiaries. In addition, control and management of Hallmark County Mutual (“HCM”) is maintained through our wholly owned subsidiary, CYR Insurance Management Company (“CYR”). CYR has as its primary asset a management

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agreement with HCM which provides for CYR to have management and control of HCM. HCM is used to front certain lines of business in our Specialty Commercial and Personal Segments in Texas. HCM does not retain any business.

AHIC, HIC, HSIC and HNIC have entered into a pooling arrangement pursuant to which AHIC retains 34% of the total net premiums written by any of them, HIC retains 32% of our total net premiums written by any of them, HSIC retains 24% of our total net premiums written by any of them and HNIC retains 10% of our total net premiums written by any of them.  Neither HCM nor TBIC is a party to the intercompany pooling arrangement.

Results of Operations

Management overview. During the three and six months ended June 30, 2019, our total revenues were $120.9 million and $239.0 million,  representing an increase of 23% and 25%, respectively, from the $98.1 million and $191.5 million in total revenues for the same periods of 2018. During the three and six months ended June 30, 2019, our income before tax was $16.5 million and $35.4 million, respectively, representing an increase of $10.1 million and $28.2 million,  respectively, from the income before tax of $6.4 million and $7.2 million reported during the same periods the prior year.

The increase in revenue for the three and six months ended June 30, 2019 compared to the same periods of the prior year was largely due to increased net premiums earned of $15.5 million and $22.6 million, respectively.  In addition, investment gains were $6.8 million and $18.8 million for the three and six months ended June 30, 2019 compared to investment gains of $0.5 million during the three months ended June 30, 2018 and investment losses of $4.3 million during the six months ended June 30, 2018.   Higher finance charges and net investment income also contributed to the increase in revenue, partially offset by lower commission and fees and other income during the three and six months ended June 30, 2019 as compared to the same periods during 2018.

The increase in income before tax for the three and six months ended June 30, 2019 was due primarily to the increase in revenue, partially offset by increased losses and loss adjustment expenses (“LAE”) of $9.6 million and $16.0 million, respectively,  as compared to the same periods in 2018. The increase in losses and LAE was due primarily to increased net premiums earned.  We reported $1.5 million and $1.4 million of unfavorable net prior year loss reserve development during the three and six months ended June 30, 2019 as compared to $5.0 million and $4.5 million during the same periods of 2018.

We reported net income of $13.0 million for the three months ended June 30, 2019 as compared to $5.1 million for the same period in 2018.  We reported net income of $28.1 million during the six months ended June 30, 2019 as compared to net income of $5.7 million for the same period during 2018. On a diluted basis per share, we reported net income of $0.71 per share for the three months ended June 30, 2019, as compared to $0.28 per share for the same period in 2018. On a diluted basis per share, we reported net income of $1.54 per share for the six months ended June 30, 2019, as compared to $0.31 per share for the same period in 2018. Our effective tax rate was 20.8% for the first six months of 2019 as compared to 20.1% for the same period in 2018.

 

 

 

 

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Second Quarter 2019 as Compared to Second Quarter 2018

The following is additional business segment information for the three months ended June 30, 2019 and 2018 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

 

 

Specialty Commercial

 

Standard Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment

 

Segment

 

Personal Segment

 

Corporate

 

Consolidated

 

 

    

2019

    

2018

    

2019

    

2018

    

2019

    

2018

    

2019

    

2018

    

2019

    

2018

 

Gross premiums written

 

$

172,940

 

$

136,079

 

$

21,835

 

$

21,574

 

$

23,461

 

$

15,566

 

$

 —

 

$

 —

 

$

218,236

 

$

173,219

 

Ceded premiums written

 

 

(83,370)

 

 

(72,083)

 

 

(7,170)

 

 

(2,645)

 

 

(3,853)

 

 

(8,645)

 

 

 —

 

 

 —

 

 

(94,393)

 

 

(83,373)

 

Net premiums written

 

 

89,570

 

 

63,996

 

 

14,665

 

 

18,929

 

 

19,608

 

 

6,921

 

 

 —

 

 

 —

 

 

123,843

 

 

89,846

 

Change in unearned premiums

 

 

(20,216)

 

 

2,333

 

 

1,611

 

 

(824)

 

 

1,261

 

 

(377)

 

 

 —

 

 

 —

 

 

(17,344)

 

 

1,132

 

Net premiums earned

 

 

69,354

 

 

66,329

 

 

16,276

 

 

18,105

 

 

20,869

 

 

6,544

 

 

 —

 

 

 —

 

 

106,499

 

 

90,978

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

 

73,592

 

 

72,081

 

 

17,310

 

 

19,247

 

 

23,116

 

 

7,916

 

 

6,885

 

 

(1,119)

 

 

120,903

 

 

98,125

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

48,374

 

 

48,352

 

 

10,613

 

 

10,621

 

 

14,239

 

 

4,675

 

 

 —

 

 

 —

 

 

73,226

 

 

63,648

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

Pre-tax income (loss)

 

 

10,427

 

 

8,770

 

 

2,057

 

 

2,656

 

 

2,441

 

 

(1)

 

 

1,559

 

 

(5,053)

 

 

16,484

 

 

6,372

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss ratio (1)

 

 

69.7

%  

 

72.9

%  

 

65.2

%  

 

58.7

%  

 

68.2

%  

 

71.4

%  

 

  

 

 

  

 

 

68.8

%  

 

70.0

%

Net expense ratio (1)

 

 

22.1

%  

 

22.3

%  

 

29.0

%  

 

33.2

%  

 

23.3

%  

 

33.7

%  

 

  

 

 

  

 

 

25.7

%  

 

27.0

%

Net combined ratio (1)

 

 

91.8

%  

 

95.2

%  

 

94.2

%  

 

91.9

%  

 

91.5

%  

 

105.1

%  

 

 

 

 

  

 

 

94.5

%  

 

97.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Favorable (Unfavorable) Prior Year Development

 

 

(3,277)

 

 

(5,849)

 

 

1,778

 

 

507

 

 

29

 

 

359

 

 

  

 

 

  

 

 

(1,470)

 

 

(4,983)

 


(1)

The net loss ratio is calculated as incurred losses and LAE divided by net premiums earned, each determined in accordance with GAAP. The net expense ratio is calculated as total underwriting expenses offset by agency fee income divided by net premiums earned, each determined in accordance with GAAP. Net combined ratio is calculated as the sum of the net loss ratio and the net expense ratio.

Specialty Commercial Segment

Gross premiums written for the Specialty Commercial Segment were $172.9  million for the three months ended June 30, 2019, which was $36.8 million, or 27%, more than the $136.1 million reported for the same period of 2018.  Net premiums written were $89.6 million for the three months ended June 30, 2019 as compared to $64.0 million for the same period of 2018. The increase in gross and net premiums written was primarily the result of increased premium production reflected in  our Professional Liability, E&S Property and E&S Casualty business units,  partially offset by a decline in gross premium production in our Commercial Auto business unit.

The $73.6 million of total revenue for the three months ended June 30, 2019 was $1.5 million more than the $72.1 million reported by the Specialty Commercial Segment for the same period in 2018. This increase in revenue was primarily due to higher net premiums earned of $3.0 million due to increased premium production in our Professional Liability, E&S Property and E&S Casualty business units, partially offset by lower premium production during 2018 in our Commercial Auto business unit,   as well as lower net investment income of $0.9 million and lower commission and fees of $0.6 million for the three months ended June 30, 2019 as compared to the same period of 2018.

Pre-tax income for the Specialty Commercial Segment of $10.4 million for the second quarter of 2019 was $1.6 million higher than the $8.8 million reported for the same period in 2018. The increase in pre-tax income was primarily the result of the increased revenue discussed above and lower operating expenses of $0.1 million during the three months ended June 30, 2019 as compared to the same period during  2018.

Our Specialty Commercial Segment reported stable losses and LAE as the combined result of (a) a $8.0 million decrease in losses and LAE in our Commercial Auto business unit due largely to lower net earned premiums, as well as $2.8 million of unfavorable prior year net loss reserve development recognized during the three months ended June 30, 2019 as compared to $5.9 million of unfavorable prior year net loss reserve development during the same period of 2018, (b) a $4.1 million increase in losses and LAE in our E&S Casualty  business unit due primarily to $2.6 million of

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unfavorable prior year net loss reserve development during the second quarter of 2019 as compared to $1.1 million of favorable prior year net loss reserve development during the second quarter of 2018,  (c) a $0.5 million increase in losses and LAE in our E&S Property business unit due primarily to increased net premiums earned  as well as higher current accident year loss trends, partially offset by $2.1 million of net favorable prior year loss reserve development during the second quarter of 2019 as compared to $0.3 million of unfavorable prior year net loss reserve development during the second quarter of 2018, (d) a $2.3 million increase in losses and LAE attributable to our Professional Liability business unit due primarily to increased net premiums earned, partially offset by lower current accident year loss trends, and (e)  a $1.1 million increase in losses and LAE in our Aerospace & Programs business unit due primarily to higher current accident year loss trends and higher net premiums earned.

Operating expenses decreased $0.1 million primarily as the result of lower production related expenses of $0.6 million due primarily to increased ceding commissions and decreased professional services of $0.3 million, partially offset by increased salary and related expenses of $0.4 million and increased occupancy and other operating expenses of $0.4 million.

The Specialty Commercial Segment reported a net loss ratio of 69.7% for the three months ended June 30, 2019 as compared to 72.9% for the same period in 2018. The gross loss ratio before reinsurance was 71.8%  for the three months ended June 30, 2019 as compared to 68.5% for the same period in 2018. The decrease in the net loss ratio was favorably impacted by the run-off of prior quota share reinsurance agreements as higher ceded losses are measured against lower ceded earned premium due to increased premium retention under our current quota share reinsurance agreement entered into during the fourth quarter of 2018 on certain casualty lines of business produced by the Specialty Commercial Segment.   The higher gross ratio was largely the result of higher gross current accident year loss trends predominately in our E&S Property and E&S Casualty business units. The Specialty Commercial Segment reported $3.3 million of unfavorable prior year net loss reserve development for the three months ended June 30, 2019 as compared to unfavorable prior year net loss reserve development of $5.8 million for the same period of 2018. During the three months ended June 30, 2019 the Specialty Commercial Segment reported $1.0 million of net catastrophe losses as compared to $0.6 million during the same period of 2018. The Specialty Commercial Segment reported a net expense ratio of 22.1% for the second quarter of 2019 as compared to 22.3% for the same period of 2018. The decrease in the expense ratio was due predominately to the impact of increased ceding commissions.

Standard Commercial Segment

Gross premiums written for the Standard Commercial Segment were $21.8 million for the three months ended June 30, 2019, which was $0.2 million, or 1%, more than the $21.6 million reported for the same period in 2018. The increase in gross premiums written was due to higher premium production in our Commercial Accounts business unit.   Net premiums written were $14.7 million for the three months ended June 30, 2019 as compared to $18.9 million for the same period in 2018. The decrease in net premiums written was due to increased ceded premium under a quota share reinsurance agreement entered into during the fourth quarter of 2018 on the casualty lines of business produced by the Commercial Accounts business unit.

Total revenue for the Standard Commercial Segment of $17.3 million for the three months ended June 30, 2019, was $1.9 million, or 10%, less than the $19.2 million reported for the same period in 2018. This decrease in total revenue was due to lower net premiums earned of $1.8 million due primarily to the quota share reinsurance agreement entered into during the fourth quarter of 2018 and lower commission and fees of $0.1 million for the three months ended June 30, 2019 as compared to the same period of 2018.

Our Standard Commercial Segment reported pre-tax income of $2.1 million for the three months ended June 30, 2019 as compared to $2.7 million reported for the same period of 2018. This decrease in pre-tax income was the result of the decreased revenue discussed above, partially offset by lower operating expenses of $1.3 million as the result of lower production related expenses of $1.3 million due to increased ceding commission from the reinsurance contract entered into during the fourth quarter of 2018 and lower salary and related expenses of $0.1 million, partially offset by higher professional services of $0.1 million.

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The Standard Commercial Segment reported a net loss ratio of 65.2% for the three months ended June 30, 2019 as compared to 58.7% for the same period of 2018. The gross loss ratio before reinsurance for the three months ended June 30, 2019 was 72.6% as compared to the 60.0% reported for the same period of 2018. The increase in the gross and net loss ratios  were due primarily to higher current net accident year loss trends, partially offset by higher favorable prior year reserve development.  The net loss ratio was also partially offset by higher ceded losses during the three months ended June 30, 2019 as compared to the same period during 2018. During the three months ended June 30, 2019, the Standard Commercial Segment reported favorable net loss reserve development of $1.8 million as compared to favorable net loss reserve development of $0.5 million during the same period of 2018. The Standard Commercial Segment reported $0.7 million of net catastrophe losses during the second quarter of 2019 as compared to $1.3 million of net catastrophe losses during the same period of 2018.  The Standard Commercial Segment reported a net expense ratio of 29.0% for the second quarter of 2019 as compared to 33.2% for the same period of 2018. The decrease in the expense ratio was primarily due to the impact of increased ceding commissions in our Commercial Accounts business unit.

Personal Segment

Gross premiums written for the Personal Segment were $23.5 million for the three months ended June 30, 2019 as compared to $15.6 million for the same period in the prior year. Net premiums written for our Personal Segment were $19.6 million in the second quarter of 2019, which was an increase of $12.7 million from the $6.9 million reported for the second quarter of 2018. The increase in gross written premiums was primarily due to higher premium production in our current geographical footprint. The increase in net written premiums was due to increased production as well as increased retention of business effective October 1, 2018.

Total revenue for the Personal Segment was $23.1 million for the second quarter of 2019 as compared to $7.9 million for the same period in 2018. The increase in revenue was due to an increase in net premiums earned of  $14.3 million,  increased finance charges of $0.7 million and increased investment income of $0.2 million during the second quarter of 2019 as compared to the same period during 2018.

Pre-tax income for the Personal Segment was $2.4 million for the three months ended June 30, 2019 as compared to pre-tax loss of $1 thousand for the same period of 2018. The pre-tax income was primarily the result of the increased revenue discussed above, partially offset by increased losses and LAE of $9.6 million and increased operating expenses of $3.2 million for the three months ended June 30, 2019 as compared to the same period during 2018.

The Personal Segment reported a net loss ratio of 68.2% for the three months ended June 30, 2019 as compared to 71.4% for the same period of 2018. The gross loss ratio before reinsurance was 75.9% for the three months ended June 30, 2019 as compared to 69.2% for the same period in 2018. The lower net loss ratio for the three months ended June 30, 2019 was favorably impacted by the run-off of prior quota share reinsurance agreements as higher ceded losses are measured against lower ceded earned premium due to increased premium retention under our current quota share reinsurance agreement entered into during the fourth quarter of 2018 on the casualty lines of business produced by the Personal Segment. The higher gross loss ratio was primarily the result of higher current accident year loss trends. The Personal Segment reported favorable prior year net loss reserve development of $29 thousand during the three months ended June 30, 2019 as compared to favorable net loss reserve development of $0.4 million reported during the same period of 2018. The Personal Segment reported a net expense ratio of 23.3% for the second quarter of 2019 as compared to 33.7% for the same period of 2018. The decrease in the expense ratio was due predominately to higher net premiums earned and higher finance charges, partially offset by higher production related expenses due to increased retention of business effective October 1, 2018.

Corporate

Total revenue for Corporate increased by $8.0 million for the three months ended June 30, 2019 as compared to the same period the prior year. This increase in total revenue was due predominately to investment gains of $6.8 million during the second quarter of 2019 as compared to investment gains of $0.5 million reported for the same period of 2018, as well as higher net investment income of $1.7 million for the three months ended June 30, 2019 as compared to the same period during 2018.

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Corporate pre-tax income was $1.6 million for the three months ended June 30, 2019 as compared to a pre-tax loss of $5.1 million for the same period of 2018. The pre-tax income was primarily due to the higher revenue discussed above, partially offset by higher operating expenses of $1.2 million due primarily as a result of increased salary and related expense and higher interest expense of $0.1 million.

Six Months Ended June 30, 2019 as Compared to Six Months Ended June 30, 2018

The following is additional business segment information for the six months ended June 30, 2019 and 2018 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 

 

 

 

Specialty Commercial

 

Standard Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment

 

Segment

 

Personal Segment

 

Corporate

 

Consolidated

 

 

    

2019

    

2018

    

2019

    

2018

    

2019

    

2018

    

2019

    

2018

    

2019

    

2018

 

Gross premiums written

 

$

307,339

 

$

250,892

 

$

47,363

 

$

44,371

 

$

50,850

 

$

31,461

 

$

 —

 

$

 —

 

$

405,552

 

$

326,724

 

Ceded premiums written

 

 

(140,731)

 

 

(122,741)

 

 

(15,273)

 

 

(5,200)

 

 

(8,302)

 

 

(17,504)

 

 

 —

 

 

 —

 

 

(164,306)

 

 

(145,445)

 

Net premiums written

 

 

166,608

 

 

128,151

 

 

32,090

 

 

39,171

 

 

42,548

 

 

13,957

 

 

 —

 

 

 —

 

 

241,246

 

 

181,279

 

Change in unearned premiums

 

 

(33,066)

 

 

5,868

 

 

1,560

 

 

(3,199)

 

 

(4,211)

 

 

(1,023)

 

 

 —

 

 

 —

 

 

(35,717)

 

 

1,646

 

Net premiums earned

 

 

133,542

 

 

134,019

 

 

33,650

 

 

35,972

 

 

38,337

 

 

12,934

 

 

 —

 

 

 —

 

 

205,529

 

 

182,925

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

 

141,559

 

 

145,205

 

 

35,683

 

 

38,122

 

 

42,599

 

 

15,536

 

 

19,183

 

 

(7,397)

 

 

239,024

 

 

191,466

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

94,323

 

 

95,895

 

 

22,264

 

 

22,301

 

 

26,726

 

 

9,127

 

 

 —

 

 

 —

 

 

143,313

 

 

127,323

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

  

 

 

 

 

 

  

 

Pre-tax income (loss)

 

 

18,395

 

 

18,528

 

 

3,564

 

 

3,975

 

 

4,014

 

 

(23)

 

 

9,429

 

 

(15,299)

 

 

35,402

 

 

7,181

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss ratio (1)

 

 

70.6

%  

 

71.6

%  

 

66.2

%  

 

62.0

%  

 

69.7

%  

 

70.6

%  

 

  

 

 

  

 

 

69.7

%  

 

69.6

%

Net expense ratio (1)

 

 

22.2

%  

 

23.0

%  

 

29.7

%  

 

33.2

%  

 

22.8

%  

 

34.6

%  

 

  

 

 

  

 

 

25.7

%  

 

27.5

%

Net combined ratio (1)

 

 

92.8

%  

 

94.6

%  

 

95.9

%  

 

95.2

%  

 

92.5

%  

 

105.2

%  

 

  

 

 

  

 

 

95.4

%  

 

97.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Favorable (Unfavorable) Prior Year Development

 

 

(5,203)

 

 

(6,861)

 

 

3,583

 

 

1,560

 

 

216

 

 

848

 

 

  

 

 

  

 

 

(1,404)

 

 

(4,453)

 

(1)

The net loss ratio is calculated as incurred losses and LAE divided by net premiums earned, each determined in accordance with GAAP. The net expense ratio is calculated as total underwriting expenses offset by agency fee income divided by net premiums earned, each determined in accordance with GAAP. Net combined ratio is calculated as the sum of the net loss ratio and the net expense ratio.

Specialty Commercial Segment

Gross premiums written for the Specialty Commercial Segment were $307.3  million for the six months ended June 30, 2019, which was $56.4 million, or 22%, more than the $250.9 million reported for the same period of 2018. Net premiums written were $166.6 million for the six months ended June 30, 2019 as compared to $128.2 million for the same period of 2018. The increase in gross and net premiums written was primarily the result of increased premium production reflected in our Professional Liability, E&S Property and E&S Casualty business units,  partially offset by a decline in gross premium production in our Commercial Auto business unit.

The $141.6 million of total revenue for the six months ended June 30, 2019 was $3.6 million less than the $145.2 million reported by the Specialty Commercial Segment for the same period in 2018. This decrease in revenue was primarily due to lower net premiums earned of $0.5 million due to lower premium production during 2018 and the related impact in 2019 to net earned premium in our Commercial Auto business unit, partially offset by increased net premiums earned in our Professional Liability, E&S Property and E&S Casualty business units.  Further contributing to the decrease in revenue was lower net investment income of $2.1 million and lower commission and fees of $1.0 million for the six months ended June 30, 2019 as compared to the same period of 2018.

Pre-tax income for the Specialty Commercial Segment of $18.4 million for the six months ended June 30, 2019 was $0.1 million lower than the $18.5 million reported for the same period in 2018. The decrease in pre-tax income was primarily the result of the decreased revenue discussed above, partially offset by lower losses and LAE of $1.6 million and lower operating expenses of $1.9 million during the six months ended June 30, 2019 as compared to the same period during  2018.

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Our Specialty Commercial Segment reported a $1.6 million decrease in losses and LAE which consisted of (a) a $18.0 million decrease in losses and LAE in our Commercial Auto Business unit due largely to lower net earned premiums, as well as $2.5 million of unfavorable prior year net loss reserve development recognized during the six months ended June 30, 2019 as compared to $9.5 million of unfavorable prior year net loss reserve development during the same period of 2018, (b) a $8.3 million increase in losses and LAE in our E&S Casualty business unit due primarily to $3.6 million of unfavorable prior year net loss reserve development during the six months ended June 30, 2019 as compared to $4.7 million of favorable prior year net loss reserve development during the same period of 2018,  (c) a $4.1 million increase in losses and LAE in our E&S Property business unit due to increased net premiums earned as well as higher current accident year loss trends, partially offset by $1.1 million of net favorable prior year loss reserve development during the six months ended June 30, 2019 as compared to $0.6 million of unfavorable prior year net loss reserve development during the same period of 2018, (d) a $3.9 million increase in losses and LAE attributable to our Professional Liability business unit due primarily to increased net premiums earned, partially offset by lower current accident year loss trends, and (e)  a $0.1 million increase in losses and LAE in our Aerospace & Programs business unit due primarily to higher net premiums earned.

Operating expenses decreased $1.9 million primarily as the result of lower production related expenses of $3.4 million due primarily to increased ceding commission from the reinsurance contract entered into during the fourth quarter of 2018, partially offset by increased salary and related expenses of $1.0 million and increased occupancy and other operating expenses of $0.5 million.

The Specialty Commercial Segment reported a net loss ratio of 70.6% for the six months ended June 30, 2019 as compared to 71.6% for the same period in 2018. The gross loss ratio before reinsurance was 71.3% for the six months ended June 30, 2019 as compared to 71.8% for the same period in 2018.    The lower gross and net loss ratios  were largely the result of lower gross current accident year loss trends, as well as lower unfavorable prior year loss reserve development.   During the six months ended June 30, 2019 the Specialty Commercial Segment reported $2.5 million of net catastrophe losses as compared to $0.6 million during the same period of 2018. The Specialty Commercial Segment reported $5.2 million of unfavorable prior year net loss reserve development for the six months ended June 30, 2019 as compared to unfavorable prior year net loss reserve development of $6.9 million for the same period of 2018. The Specialty Commercial Segment reported a net expense ratio of 22.2% for the six months ended June 30, 2019 as compared to 23.0% for the same period of 2018. The decrease in the expense ratio was due predominately to the impact of increased ceding commissions.

Standard Commercial Segment

Gross premiums written for the Standard Commercial Segment were $47.4 million for the six months ended June 30, 2019, which was $3.0 million, or 7%, more than the $44.4 million reported for the same period in 2018. The increase in gross premiums written was due to higher premium production in our Commercial Accounts business unit.   Net premiums written were $32.1 million for the six months ended June 30, 2019 as compared to $39.2 million for the same period in 2018. The decrease in net premiums written was due to increased ceded premium under a quota share reinsurance agreement entered into during the fourth quarter of 2018 on the casualty lines of business produced by the Commercial Accounts business unit.

Total revenue for the Standard Commercial Segment of $35.7 million for the six months ended June 30, 2019, was $2.4 million, or 6%, less than the $38.1 million reported for the same period in 2018. This decrease in total revenue was due to lower net premiums earned of $2.3 million due primarily to the quota share reinsurance agreement entered into during the fourth quarter of 2018 and lower commission and fees of $0.1 million during the six months ended June 30, 2019 as compared to the same period during 2018.

Our Standard Commercial Segment reported pre-tax income of $3.6 million for the six months ended June 30, 2019 as compared to $4.0 million reported for the same period of 2018. The decrease in pre-tax income was the result of decreased revenue discussed above, partially offset by lower operating expenses of $2.0 million largely as the result of lower production related expenses of $2.4 million due to increased ceding commission from the reinsurance contract entered into during the fourth quarter of 2018 and lower other general expenses of $0.1 million, partially offset by higher salary and related expenses of $0.3 million and higher professional service fees of $0.2 million.

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The Standard Commercial Segment reported a net loss ratio of 66.2% for the six months ended June 30, 2019 as compared to 62.0% for the same period of 2018. The gross loss ratio before reinsurance for the six months ended June 30, 2019 was 70.3% as compared to the 65.1% reported for the same period of 2018. The increase in the gross and net loss ratios was due to higher current net accident year loss trends, partially offset by higher net favorable prior year reserve development. During the six months ended June 30, 2019, the Standard Commercial Segment reported favorable net loss reserve development of $3.6 million as compared to favorable net loss reserve development of $1.6 million during the same period of 2018. The Standard Commercial Segment reported $1.1 million of net catastrophe losses during the second quarter of 2019 as compared to $2.3 million of net catastrophe losses during the same period of 2018.  The Standard Commercial Segment reported a net expense ratio of 29.7% for the six months ended June 30, 2019 as compared to 33.2% for the same period of 2018. The decrease in the expense ratio was primarily due to the impact of increased ceding commissions in our Commercial Accounts business unit.

Personal Segment

Gross premiums written for the Personal Segment were $50.9 million for the six months ended June 30, 2019 as compared to $31.5 million for the same period in the prior year. Net premiums written for our Personal Segment were $42.5 million for the six months ended June 30, 2019, which was an increase of $28.5 million from the $14.0 million reported for the same period in 2018. The increase in gross written premiums was primarily due to higher premium production in our current geographical footprint. The increase in net written premiums was due to increased production as well as increased retention of business effective October 1, 2018.

Total revenue for the Personal Segment was $42.6 million for the six months ended June 30, 2019 as compared to $15.5 million for the same period in 2018. The increase in revenue was due to an increase in net premiums earned of  $25.4 million, increased finance charges of  $1.4 million and increased investment income of $0.3 million during the six months ended June 30, 2019 as compared to the same period during 2018.

Pre-tax income for the Personal Segment was $4.0 million for the six months ended June 30, 2019 as compared to pre-tax loss of $23 thousand for the same period of 2018. The pre-tax income was primarily the result of the increased revenue discussed above, partially offset by increased losses and LAE of $17.6 million and increased operating expenses of $5.5 million for the six months ended June 30, 2019 as compared to the same period during 2018.

The Personal Segment reported a net loss ratio of 69.7%  for the six months ended June 30, 2019 as compared to 70.6% for the same period of 2018. The gross loss ratio before reinsurance was 73.4% for the six months ended June 30, 2019 as compared to 69.0% for the same period in 2018. The lower net loss ratio for the six months ended June 30, 2019 was favorably impacted by the run-off of prior quota share reinsurance agreements as higher ceded losses are measured against lower ceded earned premium due to increased premium retention under our current quota share reinsurance agreement entered into during the fourth quarter of 2018 on the casualty lines of business produced by the Personal Segment. The higher gross loss ratio was primarily the result of lower favorable prior year loss reserve development   during the six months ended June 30, 2019 as compared to the same period of 2018. The Personal Segment reported favorable net loss reserve development of $0.2 million for the six months ended June 30, 2019 as compared to favorable net loss reserve development of $0.8 million during the same period of 2018. The Personal Segment reported a net expense ratio of 22.8% for the six months ended June 30, 2019 as compared to 34.6% for the same period of 2018. The decrease in the expense ratio was due predominately to higher net premiums earned and higher finance charges, partially offset by higher production related expenses due to increased retention of business effective October 1, 2018.

Corporate

Total revenue for Corporate increased by $26.6 million for the six months ended June 30, 2019 as compared to the same period the prior year. This increase in total revenue was due predominately to investment gains of $18.8 million during the six months ended June 30, 2019 as compared to investment losses of $4.3 million reported for the same period of 2018, as well as higher net investment income of $3.5 million for the six months ended June 30, 2019 as compared to the same period during 2018.

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Corporate pre-tax income was $9.4 million for the six months ended June 30, 2019 as compared to a pre-tax loss of $15.3 million for the same period of 2018. The pre-tax income was primarily due to the higher revenue discussed above, partially offset by higher operating expenses of $1.6 million due primarily as a result of increased salary and related expenses and higher interest expense of $0.3 million.

Financial Condition and Liquidity

Sources and Uses of Funds

Our sources of funds are from insurance-related operations, financing activities and investing activities. Major sources of funds from operations include premiums collected (net of policy cancellations and premiums ceded), commissions, and processing and service fees. As a holding company, Hallmark is dependent on dividend payments and management fees from its subsidiaries to meet operating expenses and debt obligations. As of June 30, 2019, we had $21.6 million in unrestricted cash and cash equivalents, as well as $0.9 million in debt securities, at the holding company and our non-insurance subsidiaries. As of that date, our insurance subsidiaries held $46.1 million of unrestricted cash and cash equivalents, as well as $532.2 million in debt securities with an average modified duration of 1.6 years. Accordingly, we do not anticipate selling long-term debt instruments to meet any liquidity needs.

AHIC and TBIC, domiciled in Texas, are limited in the payment of dividends to their stockholders in any 12‑month period, without the prior written consent of the Texas Department of Insurance, to the greater of statutory net income for the prior calendar year or 10% of statutory policyholders’ surplus as of the prior year end.  Dividends may only be paid from unassigned surplus funds. HIC and HNIC, both domiciled in Arizona, are limited in the payment of dividends to the lesser of 10% of prior year policyholders’ surplus or prior year’s  statutory net income, without prior written approval from the Arizona Department of Insurance. HSIC, domiciled in Oklahoma, is limited in the payment of dividends to the greater of 10% of prior year policyholders’ surplus or prior year’s statutory net income, not including realized capital gains, without prior written approval from the Oklahoma Insurance Department. During 2019, the aggregate ordinary dividend capacity of these subsidiaries is $33.9 million, of which $22.9 million is available to Hallmark. As a county mutual, dividends from HCM are payable to policyholders. During the first six months of 2019 and 2018, our insurance company subsidiaries paid $10.0 million and $3.6 million in dividends to Hallmark, respectively.

Comparison of June 30, 2019 to December 31, 2018

On a consolidated basis, our cash (excluding restricted cash) and investments at June 30, 2019 were $697.4 million compared to $663.5 million at December 31, 2018. The primary reasons for this increase in unrestricted cash and investments were cash provided by operations, increases in investment fair values and proceeds from the exercise of employee stock options, partially offset by purchases of fixed assets and repurchases of our common stock.

Comparison of Six Months Ended June 30, 2019 and June 30, 2018

During the six months ended June 30, 2019, our cash flow provided by operations was $6.7 million compared to cash flow used by operations of $9.9 million during the same period the prior year. The  cash flow provided by operations during the first half of 2019 was driven by an increase in collected net premiums,  higher collected investment income and higher collected finance charges. These increases in operating cash flow were partially offset by increased paid operating expense, increased federal income taxes paid and higher paid claims during the six months ended June 30, 2019 as compared to the same period the prior year.

Net cash provided by investing activities during the first six months of 2019 was $23.9 million as compared to net cash provided by investing activities of $26.1 million during the first six months of 2018. The $2.2 million decline in net cash provided by investing activities during the first six months of 2019 as compared to the prior year was comprised of a $1.2 million decrease in maturities, sales and redemptions of investment securities and a $1.3 million increase in purchases of fixed assets, partially offset by a $0.3 million decrease in purchases of debt and equity securities.

 

Cash provided by financing activities during the first six months of 2019 was $0.1 million primarily as a result of proceeds from the exercise of employee stock options of $1.5  million, partially offset by $1.4 million in repurchases of

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our common stock. Cash used in financing activities during the first six months of 2018 was $1.2 million primarily as a result of repurchases of our common stock.

Credit Facilities

Our Second Restated Credit Agreement with Frost Bank (“Frost”) dated June 30, 2015, as amended to date, provides a $15.0 million revolving credit facility (“Facility A”), with a $5.0 million letter of credit sub-facility. The outstanding balance of the Facility A bears interest at a rate equal to the prime rate or LIBOR plus 2.5%, at our election. We pay an annual fee of 0.25% of the average daily unused balance of Facility A and letter of credit fees at the rate of 1.00% per annum.  All principal and accrued interest on Facility A becomes due and payable on June 30, 2020. As of June  30, 2019, we had no outstanding borrowings under Facility A.

The Second Restated Credit Agreement with Frost also provides a $30.0 million revolving credit facility (“Facility B”), in addition to Facility A.  We may use Facility B loan proceeds solely for the purpose of making capital contributions to AHIC and HIC. We may borrow, repay and reborrow under Facility B until December 17, 2019, at which time all amounts outstanding under Facility B are converted to a term loan. Through December 17, 2019, we pay Frost a quarterly fee of 0.25% per annum of the average daily unused balance of Facility B. Facility B bears interest at a rate equal to the prime rate or LIBOR plus 3.00%, at our election. Until December 17, 2019, interest only on amounts from time to time outstanding under Facility B are payable quarterly. Any amounts outstanding on Facility B as of December 17, 2019 are converted to a term loan payable in quarterly installments over five years based on a seven year amortization of principal plus accrued interest. All remaining principal and accrued interest on Facility B become due and payable on December 17, 2024. As of June 30, 2019, we had $30.0 million outstanding under Facility B.

The obligations under both Facility A and Facility B are secured by a security interest in the capital stock of AHIC and HIC.  Both Facility A and Facility B contain covenants that, among other things, require us to maintain certain financial and operating ratios and restrict certain distributions, transactions and organizational changes. We are in compliance with all of these covenants.

Subordinated Debt Securities

On June 21, 2005, we entered into a trust preferred securities transaction pursuant to which we issued $30.9 million aggregate principal amount of subordinated debt securities due in 2035.  To effect the transaction, we formed a Delaware statutory trust, Hallmark Statutory Trust I (“Trust I”).  Trust I issued $30.0 million of preferred securities to investors and $0.9 million of common securities to us.  Trust I used the proceeds from these issuances to purchase the subordinated debt securities.  The initial interest rate on our Trust I subordinated debt securities was 7.725% until June 15, 2015, after which interest adjusts quarterly to the three-month LIBOR rate plus 3.25 percentage points.  Trust I pays dividends on its preferred securities at the same rate.  Under the terms of our Trust I subordinated debt securities, we pay interest only each quarter and the principal of the note at maturity.  The subordinated debt securities are uncollaterized and do not require maintenance of minimum financial covenants. As of June 30, 2019, the principal balance of our Trust I subordinated debt was $30.9 million and the interest rate was 5.66% per annum.

On August 23, 2007, we entered into a trust preferred securities transaction pursuant to which we issued $25.8 million aggregate principal amount of subordinated debt securities due in 2037.  To effect the transaction, we formed a Delaware statutory trust, Hallmark Statutory Trust II (“Trust II”).  Trust II issued $25.0 million of preferred securities to investors and $0.8 million of common securities to us.  Trust II used the proceeds from these issuances to purchase the subordinated debt securities. The initial interest rate on our Trust II subordinated debt securities was 8.28% until September 15, 2017, after which interest adjusts quarterly to the three-month LIBOR rate plus 2.90 percentage points.  Trust II pays dividends on its preferred securities at the same rate.  Under the terms of our Trust II subordinated debt securities, we pay interest only each quarter and the principal of the note at maturity.  The subordinated debt securities are uncollaterized and do not require maintenance of minimum financial covenants. As of June 30, 2019, the principal balance of our Trust II subordinated debt was $25.8 million and the interest rate was 5.31% per annum.

37

Table of Contents

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Not required for smaller reporting company.

Item 4.  Controls and Procedures.

The principal executive officer and principal financial officer of Hallmark have evaluated our disclosure controls and procedures and have concluded that, as of the end of the period covered by this report, such disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is timely recorded, processed, summarized and reported. The principal executive officer and principal financial officer also concluded that such disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under such Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. During the most recent fiscal quarter, there have been no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Risks Associated with Forward-Looking Statements Included in this Form 10‑Q

This Form 10‑Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created thereby.  These statements 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.  The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties.  Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, 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.  Although we believe that the assumptions underlying the 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 Form 10‑Q will prove to be accurate.  In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved.

38

Table of Contents

PART II

OTHER INFORMATION

Item 1.   Legal Proceedings.

We are engaged in various legal proceedings that are routine in nature and incidental to our business. None of these proceedings, either individually or in the aggregate, are believed, in our opinion, to have a material adverse effect on our consolidated financial position or our results of operations.

Item 1A.  Risk Factors.

There have been no material changes to the risk factors discussed in Item 1A to Part I of our Form 10-K for the fiscal year ended December 31, 2018.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

Our stock buyback program initially announced on April 18, 2008, authorized the repurchase of up to 1,000,000 shares of our common stock in the open market or in privately negotiated transactions (the “Stock Repurchase Plan”). On January 24, 2011, we announced an increased authorization to repurchase up to an additional 3,000,000 shares.  The Stock Repurchase Plan does not have an expiration date.  We did not repurchase any shares of our common stock during the three months ended June 30, 2019.

 

Item 3.  Defaults Upon Senior Securities.

None.

Item 4.  Mine Safety Disclosures.

None.

Item 5.  Other Information.

None.

39

Table of Contents

Item 6.  Exhibits.

The following exhibits are filed herewith or incorporated herein by reference:

Exhibit
Number

    

Description

3(a)

 

Restated Articles of Incorporation of the registrant, as amended (incorporated by reference to Exhibit 3.1 to the registrant’s Registration Statement on Form S‑1 [Registration No. 333‑136414] filed September 8, 2006).

 

 

 

3(b)

 

Amended and Restated By-Laws of the registrant (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8‑K filed March 28, 2017).

 

 

 

 

 

 

31(a)

 

Certification of principal executive officer required by Rule 13a‑14(a) or Rule 15d‑14(a).

 

 

 

31(b)

 

Certification of principal financial officer required by Rule 13a‑14(a) or Rule 15d‑14(a).

 

 

 

32(a)

 

Certification of principal executive officer Pursuant to 18 U.S.C. § 1350.

 

 

 

32(b)

 

Certification of principal financial officer Pursuant to 18 U.S.C. § 1350.

 

 

 

101 INS+

 

XBRL Instance Document.

 

 

 

101 SCH+

 

XBRL Taxonomy Extension Schema Document.

 

 

 

101 CAL+

 

XBRL Taxonomy Extension Calculation Linkbase Document.

 

 

 

101 LAB+

 

XBRL Taxonomy Extension Label Linkbase Document.

 

 

 

101 PRE+

 

XBRL Taxonomy Extension Presentation Linkbase Document.

 

 

 

101 DEF+

 

XBRL Taxonomy Extension Definition Linkbase Document.

 

 

 

+

 

Filed with this Quarterly Report on Form 10-Q and included in Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018, (ii) Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018, (iii) Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2019 and 2018, (iv) Consolidated Statements of Stockholder’s Equity for the three and six months ended June 30, 2019 and 2018, (v) Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 and (vi) related notes.

 

 

40

Table of Contents

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

HALLMARK FINANCIAL SERVICES, INC.

(Registrant)

 

 

 

 

Date: August 9, 2019

/s/ Naveen Anand

 

Naveen Anand, Chief Executive Officer and President

 

 

 

 

Date: August 9, 2019

/s/ Jeffrey R. Passmore

 

Jeffrey R. Passmore, Chief Financial Officer and Senior Vice President

 

 

 

41

hall_Ex31_(a)

Exhibit 31 (a)

 

CERTIFICATION

 

I, Naveen Anand, certify that:

 

1.     I have reviewed this quarterly report on Form 10-Q of  Hallmark Financial Services, Inc.;

 

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

 

4.     The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures [as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)] and internal control over financial reporting [as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)] for the Registrant and have:

 

a)            designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)           designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)            evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)           disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

 

5.     The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

 

a)            all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

 

b)           any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

 

 

 

Date:      August 9, 2019

/s/ Naveen Anand

 

Naveen Anand,

 

Chief Executive Officer

 

(principal executive officer)

 

hall_Ex31_(b)

Exhibit 31 (b)

 

CERTIFICATION

 

I, Jeffrey R. Passmore, certify that:

 

1.     I have reviewed this quarterly report on Form 10-Q of Hallmark Financial Services, Inc.;

 

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

 

4.     The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures [as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)] and internal control over financial reporting [as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)] for the Registrant and have:

 

a)            designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)           designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)            evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)           disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

 

5.     The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

 

a)            all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

 

b)           any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

 

 

 

Date:      August 9, 2019

/s/Jeffrey R. Passmore

 

Jeffrey R. Passmore

 

Chief Financial Officer

 

(principal financial officer)

 

 

hall_Ex32_(a)

Exhibit 32(a)

 

CERTIFICATION PURSUANT TO 18 U.S.C. § 1350

 

I, Naveen Anand, Chief Executive Officer of Hallmark Financial Services, Inc. (the "Company"), hereby certify that the accompanying report on Form 10-Q for the quarter ended June 30, 2019, and filed with the Securities and Exchange Commission on the date hereof (the "Report"), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended. I further certify that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

Date:    August 9, 2019

/s/ Naveen Anand

 

Naveen Anand,

 

Chief Executive Officer

 

(principal executive officer)

 

 

 

hall_Ex32_(b)

Exhibit 32(b)

 

CERTIFICATION PURSUANT TO 18 U.S.C. § 1350

 

I, Jeffrey R. Passmore, Chief Accounting Officer of Hallmark Financial Services, Inc. (the "Company"), hereby certify that the accompanying report on Form 10-Q for the quarter ended June 30, 2019 and filed with the Securities and Exchange Commission on the date hereof (the "Report"), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended. I further certify that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

Date:    August 9, 2019

/s/Jeffrey R. Passmore

 

Jeffrey R. Passmore

 

Chief Financial Officer

 

(principal financial officer)

 

 

v3.19.2
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2019
Aug. 09, 2019
Document and Entity Information [Abstract]    
Document Type 10-Q  
Document Period End Date Jun. 30, 2019  
Entity Registrant Name HALLMARK FINANCIAL SERVICES INC  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   18,123,093
Entity Central Index Key 0000819913  
Current Fiscal Year End Date --12-31  
Document Fiscal Period Focus Q2  
Document Fiscal Year Focus 2019  
Amendment Flag false  
v3.19.2
Consolidated Balance Sheets - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
ASSETS    
Debt securities, available-for-sale, at fair value (amortized cost; $530,516 in 2019 and $550,268 in 2018) $ 533,148 $ 545,870
Equity securities (cost; $68,709 in 2019 and $68,709 in 2018) 94,012 80,896
Other investments (cost; $3,763 in 2019 and $3,763 in 2018) 2,585 1,148
Total investments 629,745 627,914
Cash and cash equivalents 67,670 35,594
Restricted cash 3,486 4,877
Ceded unearned premiums 150,883 133,031
Premiums receivable 144,674 119,778
Accounts receivable 1,332 1,619
Receivable for securities 2,581 3,369
Reinsurance recoverable 300,155 252,029
Deferred policy acquisition costs 20,308 14,291
Goodwill 44,695 44,695
Intangible assets, net 6,323 7,555
Deferred federal income taxes, net   4,983
Prepaid expenses 3,282 2,588
Other assets 30,634 12,571
Total assets 1,405,768 1,264,894
Liabilities:    
Revolving credit facility payable 30,000 30,000
Subordinated debt securities (less unamortized debt issuance cost of $872 in 2019 and $898 in 2018) 55,830 55,804
Reserves for unpaid losses and loss adjustment expenses 551,543 527,247
Unearned premiums 351,630 298,061
Reinsurance balances payable 73,977 67,328
Pension liability 1,946 2,018
Payable for securities 3,167 698
Federal income tax payable 870 4
Deferred federal income taxes, net 143  
Accounts payable and other accrued expenses 47,126 28,202
Total liabilities 1,116,232 1,009,362
Commitments and contingencies (Note 17)
Stockholders' equity:    
Common stock, $.18 par value, authorized 33,333,333 shares; issued 20,872,831 shares in 2019 and 2018 3,757 3,757
Additional paid-in capital 122,778 123,168
Retained earnings 189,249 161,195
Accumulated other comprehensive loss (1,047) (6,660)
Treasury stock (2,749,738 shares in 2019 and 2,846,131 in 2018), at cost (25,201) (25,928)
Total stockholders' equity 289,536 255,532
Total liabilities and stockholders' equity $ 1,405,768 $ 1,264,894
v3.19.2
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Consolidated Balance Sheets Parenthetical [Abstract]    
Debt securities, available-for-sale, cost (in dollars) $ 530,516 $ 550,268
Equity securities, available for sale, cost (in dollars) 68,709 68,709
Other investments, cost 3,763 3,763
Subordinated debt securities, unamortized debt issuance cost (in dollars) $ 872 $ 898
Common stock, par value (in dollars per share) $ 0.18 $ 0.18
Common stock, authorized shares 33,333,333 33,333,333
Common stock, issued shares 20,872,831 20,872,831
Treasury stock, shares 2,749,738 2,846,131
v3.19.2
Consolidated Statements of Operations - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Consolidated Statements of Operations [Abstract]        
Gross premiums written $ 218,236 $ 173,219 $ 405,552 $ 326,724
Ceded premiums written (94,393) (83,373) (164,306) (145,445)
Net premiums written 123,843 89,846 241,246 181,279
Change in unearned premiums (17,344) 1,132 (35,717) 1,646
Net premiums earned 106,499 90,978 205,529 182,925
Investment income, net of expenses 5,412 4,406 10,523 8,846
Investment gains (losses), net 6,817 533 18,754 (4,302)
Finance charges 1,797 1,161 3,531 2,201
Commission and fees 364 1,032 657 1,735
Other income 14 15 30 61
Total revenues 120,903 98,125 239,024 191,466
Losses and loss adjustment expenses 73,226 63,648 143,313 127,323
Operating expenses 29,336 26,360 56,582 53,573
Interest expense 1,240 1,128 2,493 2,155
Amortization of intangible assets 617 617 1,234 1,234
Total expenses 104,419 91,753 203,622 184,285
Income before tax 16,484 6,372 35,402 7,181
Income tax expense 3,455 1,282 7,348 1,444
Net income $ 13,029 $ 5,090 $ 28,054 $ 5,737
Net income per share:        
Basic (in dollars per share) $ 0.72 $ 0.28 $ 1.55 $ 0.32
Diluted (in dollars per share) $ 0.71 $ 0.28 $ 1.54 $ 0.31
v3.19.2
Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Consolidated Statements of Comprehensive Income [Abstract]        
Net income $ 13,029 $ 5,090 $ 28,054 $ 5,737
Other comprehensive income:        
Change in net actuarial gain 37 26 72 53
Tax effect on change in net actuarial gain (8) (5) (15) (11)
Unrealized holding gains arising during the period 3,460 2,321 11,233 1,926
Tax effect on unrealized holding gains arising during the period (727) (487) (2,359) (404)
Reclassification adjustment for gains included in net income (60) (381) (4,201) (366)
Tax effect on reclassification adjustment for gains included in net income 13 80 883 77
Other comprehensive income, net of tax 2,715 1,554 5,613 1,275
Comprehensive income $ 15,744 $ 6,644 $ 33,667 $ 7,012
v3.19.2
Consolidated Statements of Stockholders' Equity - USD ($)
$ in Thousands
Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Treasury Stock [Member]
Total
Cumulative effect of adoption of updated accounting guidance for equity financial instruments at January 1,2018 | Accounting Standards Update 2016-01 [Member]     $ 16,993 $ (16,993)    
Reclassification of certain tax effects from accumulated other comprehensive income at January 1,2018     (2,619) 2,619    
Balance at Dec. 31, 2017 $ 3,757 $ 123,180 136,474 12,234 $ (24,527)  
Equity based compensation   1        
Acquisition of treasury stock         (1,464)  
Shares issued under employee benefit plans         406  
Shares issued under employee benefit plans (value)   (164)        
Net income     5,737     $ 5,737
Additional minimum pension liability, net of tax       42    
Unrealized holding gains (losses) arising during period, net of tax       1,522    
Reclassification adjustment for (gains) losses included in net income, net of tax       (289)    
Balance at Jun. 30, 2018 3,757 123,017 156,585 (865) (25,585) 256,909
Balance at Mar. 31, 2018 3,757 123,224 151,495 (2,419) (24,904)  
Equity based compensation   (43)        
Acquisition of treasury stock         (1,087)  
Shares issued under employee benefit plans         406  
Shares issued under employee benefit plans (value)   (164)        
Net income     5,090     5,090
Additional minimum pension liability, net of tax       21    
Unrealized holding gains (losses) arising during period, net of tax       1,834    
Reclassification adjustment for (gains) losses included in net income, net of tax       (301)    
Balance at Jun. 30, 2018 3,757 123,017 156,585 (865) (25,585) 256,909
Balance at Dec. 31, 2018 3,757 123,168 161,195 (6,660) (25,928) 255,532
Equity based compensation   197        
Acquisition of treasury stock         (1,380)  
Shares issued under employee benefit plans         2,107  
Shares issued under employee benefit plans (value)   (587)        
Net income     28,054     28,054
Additional minimum pension liability, net of tax       57    
Unrealized holding gains (losses) arising during period, net of tax       8,874    
Reclassification adjustment for (gains) losses included in net income, net of tax       (3,318)    
Balance at Jun. 30, 2019 3,757 122,778 189,249 (1,047) (25,201) 289,536
Balance at Mar. 31, 2019 3,757 122,638 176,220 (3,762) (25,201)  
Equity based compensation   140        
Net income     13,029     13,029
Additional minimum pension liability, net of tax       29    
Unrealized holding gains (losses) arising during period, net of tax       2,733    
Reclassification adjustment for (gains) losses included in net income, net of tax       (47)    
Balance at Jun. 30, 2019 $ 3,757 $ 122,778 $ 189,249 $ (1,047) $ (25,201) $ 289,536
v3.19.2
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Cash flows from operating activities:    
Net income $ 28,054 $ 5,737
Adjustments to reconcile net income to cash provided by (used in) operating activities:    
Depreciation and amortization expense 2,626 2,479
Deferred federal income taxes 3,634 (988)
Investment (gains) losses, net (18,754) 4,302
Share-based payments expense 197 1
Change in ceded unearned premiums (17,852) (15,181)
Change in premiums receivable (24,896) (7,815)
Change in accounts receivable 287 (538)
Change in deferred policy acquisition costs (6,017) 1,944
Change in unpaid losses and loss adjustment expenses 24,296 (6,548)
Change in unearned premiums 53,569 13,535
Change in reinsurance recoverable (48,126) (32,117)
Change in reinsurance balances payable 6,649 13,072
Change in current federal income tax payable 866 7,719
Change in all other liabilities (2,708) 2,899
Change in all other assets 4,860 1,604
Net cash provided by (used in) operating activities 6,685 (9,895)
Cash flows from investing activities:    
Purchases of property and equipment (2,447) (1,118)
Purchases of investment securities (97,292) (97,610)
Maturities, sales and redemptions of investment securities 123,599 124,873
Net cash provided by investing activities 23,860 26,145
Cash flows from financing activities:    
Proceeds from exercise of employee stock options 1,520 242
Purchase of treasury shares (1,380) (1,464)
Net cash provided by (used in) financing activities 140 (1,222)
Increase in cash and cash equivalents and restricted cash 30,685 15,028
Cash and cash equivalents and restricted cash at beginning of period 40,471 67,633
Cash and cash equivalents and restricted cash at end of period $ 71,156 $ 82,661
v3.19.2
General
6 Months Ended
Jun. 30, 2019
General [Abstract]  
General

1. General

Hallmark Financial Services, Inc. (“Hallmark” and, together with subsidiaries, “we,” “us” or “our”) is an insurance holding company that offers commercial and personal insurance that serves businesses and individuals in specialty and niche markets.  We focus on marketing, distributing, underwriting and servicing property and casualty insurance products that require specialized underwriting expertise or market knowledge. We believe this approach provides us the best opportunity to achieve favorable policy terms and pricing. The insurance policies we produce are written by our six insurance company subsidiaries as well as unaffiliated insurers. We pursue our business activities primarily through subsidiaries whose operations are organized into product-specific business units that are supported by our insurance company subsidiaries. Our Commercial Auto business unit offers primary and excess commercial vehicle insurance products and services; our E&S Casualty business unit offers primary and excess liability, excess public entity liability and E&S package insurance products and services; our E&S Property business unit offers primary and excess commercial property insurance for both catastrophe and non-catastrophe exposures; our Professional Liability business unit offers healthcare and financial lines professional liability insurance products and services primarily for businesses, medical professionals, medical facilities and senior care facilities; and our Aerospace & Programs business unit offers general aviation and satellite launch property/casualty insurance products and services, as well as certain specialty programs. These products and services were previously reported as the Contract Binding and Specialty Commercial operating units. Our Commercial Accounts business unit (f/k/a Standard Commercial P&C operating unit) offers package and monoline property/casualty and occupational accident insurance products. Effective June 1, 2016 we ceased marketing new or renewal occupational accident policies.  Our former Workers Compensation operating unit specialized in small and middle market workers compensation business. Effective July 1, 2015, we no longer market or retain any risk on new or renewal workers compensation policies. Our Specialty Personal Lines business unit offers non-standard personal automobile and renters insurance products and services. Our insurance company subsidiaries supporting these business units are American Hallmark Insurance Company of Texas (“AHIC”), Hallmark Insurance Company (“HIC”), Hallmark Specialty Insurance Company (“HSIC”), Hallmark County Mutual Insurance Company, Hallmark National Insurance Company and Texas Builders Insurance Company.

 These business units are segregated into three reportable industry segments for financial accounting purposes. The Specialty Commercial Segment includes our Commercial Auto business unit, our E&S Casualty business unit, our E&S Property business unit, our Professional Liability business unit and our Aerospace & Programs business unit. The Standard Commercial Segment includes our Commercial Accounts business unit and the run-off from our former Workers Compensation operating unit. The Personal Segment consists solely of our Specialty Personal Lines business unit. The realignment of our business units did not affect the comparability of our reportable industry segments.

v3.19.2
Basis of Presentation
6 Months Ended
Jun. 30, 2019
Basis of Presentation [Abstract]  
Basis of Presentation

2. Basis of Presentation

Our unaudited consolidated financial statements included herein have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and include our accounts and the accounts of our subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. These unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2018 included in our Annual Report on Form 10‑K filed with the SEC.

The interim financial data as of June 30, 2019 and 2018 is unaudited. However, in the opinion of management, the interim data includes all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The results of operations for the periods ended June 30, 2019 are not necessarily indicative of the operating results to be expected for the full year.

Income Taxes

We file a consolidated federal income tax return. Deferred federal income taxes reflect the future tax consequences of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year end. Deferred taxes are recognized using the liability method, whereby tax rates are applied to cumulative temporary differences based on when and how they are expected to affect the tax return. Deferred tax assets and liabilities are adjusted for tax rate changes in effect for the year in which these temporary differences are expected to be recovered or settled.

Reclassifications

Certain prior year amounts have been reclassified to conform with current year presentation.

Use of Estimates in the Preparation of the Financial Statements

Our preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect our reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the date of our consolidated financial statements, as well as our reported amounts of revenues and expenses during the reporting period. Refer to “Critical Accounting Estimates and Judgments” under Item 7 of our Annual Report on Form 10‑K for the year ended December 31, 2018 for information on accounting policies that we consider critical in preparing our consolidated financial statements. Actual results could differ materially from those estimates.

Fair Value of Financial Instruments

Fair value estimates are made at a point in time based on relevant market data as well as the best information available about the financial instruments. Fair value estimates for financial instruments for which no or limited observable market data is available are based on judgments regarding current economic conditions, credit and interest rate risk. These estimates involve significant uncertainties and judgments and cannot be determined with precision. As a result, such calculated fair value estimates may not be realizable in a current sale or immediate settlement of the instrument. In addition, changes in the underlying assumptions used in the fair value measurement technique, including discount rate and estimates of future cash flows, could significantly affect these fair value estimates.

Cash and Cash Equivalents:  The carrying amounts reported in the balance sheet for these instruments approximate their fair values.

Restricted Cash:  The carrying amount for restricted cash reported in the balance sheet approximates the fair value.

Revolving Credit Facility Payable: A revolving credit facility with Frost Bank had a carried value of $30.0 million and a fair value of $30.2 million as of June 30, 2019. This revolving credit facility would be included in Level 3 of the fair value hierarchy if it was reported at fair value.

Subordinated Debt Securities:  Our trust preferred securities have a carried value of $55.8 million and a fair value of $42.6 million as of June 30, 2019. The fair value of our trust preferred securities is based on discounted cash flows using a current yield to maturity of 8.0%, which is based on similar issues to discount future cash flows. Our trust preferred securities would be included in Level 3 of the fair value hierarchy if they were reported at fair value.

For reinsurance balances, premiums receivable, federal income tax recoverable/payable, other assets and other liabilities, the carrying amounts approximate fair value because of the short maturity of such financial instruments.

Variable Interest Entities

On June 21, 2005, we formed Hallmark Statutory Trust I (“Trust I”), an unconsolidated trust subsidiary, for the sole purpose of issuing $30.0 million in trust preferred securities. Trust I used the proceeds from the sale of these securities and our initial capital contribution to purchase $30.9 million of subordinated debt securities from Hallmark. The debt securities are the sole assets of Trust I, and the payments under the debt securities are the sole revenues of Trust I.

On August 23, 2007, we formed Hallmark Statutory Trust II (“Trust II”), an unconsolidated trust subsidiary, for the sole purpose of issuing $25.0 million in trust preferred securities. Trust II used the proceeds from the sale of these securities and our initial capital contribution to purchase $25.8 million of subordinated debt securities from Hallmark. The debt securities are the sole assets of Trust II, and the payments under the debt securities are the sole revenues of Trust II.

We evaluate on an ongoing basis our investments in Trust I and Trust II (collectively the “Trusts”) and have determined that we do not have a variable interest in the Trusts. Therefore, the Trusts are not included in our consolidated financial statements.

We are also involved in the normal course of business with variable interest entities (“VIE’s”) primarily as a passive investor in mortgage-backed securities and certain collateralized corporate bank loans issued by third party VIE’s. The maximum exposure to loss with respect to these investments is the investment carrying values included in the consolidated balance sheets.

Adoption of New Accounting Pronouncements

In February 2018, the FASB issued updated guidance that allows a reclassification of the stranded tax effects in accumulated other comprehensive income (AOCI) resulting from the Tax Cuts and Jobs Act of 2017 (TCJA). Current guidance requires the effect of a change in tax laws or rates on deferred tax balances to be reported in income from continuing operations in the accounting period that includes the period of enactment, even if the related income tax effects were originally charged or credited directly to AOCI. The amount of the reclassification would include the effect of the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts and related valuation allowances, if any, at the date of the enactment of TCJA related to items in AOCI. The updated guidance was effective for reporting periods beginning after December 15, 2018 and is to be applied retrospectively to each period in which the effect of the TCJA related to items remaining in AOCI are recognized or at the beginning of the period of adoption. Early adoption is permitted. The Company adopted the updated guidance effective January 1, 2018 and elected to reclassify the income tax effects of the TCJA from AOCI to retained earnings as of January 1, 2018. This reclassification resulted in a decrease in retained earnings of $2.6 million as of January 1, 2018 and an increase in AOCI by the same amount.

In March 2017, the FASB issued ASU 2017‑08, “Premium Amortization on Purchased Callable Securities” (Subtopic 310‑20). ASU 2017‑08 is intended to enhance the accounting for amortization of premiums for purchased callable debt securities. The guidance amends the amortization period for certain purchased callable debt securities held at a premium. Securities that contain explicit, noncontingent call features that are callable at fixed prices and on preset dates should shorten the amortization period for the premium to the earliest call date (and if the call option is not exercised, the effective yield is reset using the payment terms of the debt security). The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and is to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings. The adoption of ASU 2017‑08 had no impact on our financial results and disclosures.

In January 2017, the FASB issued ASU 2017‑01, “Clarifying the Definition of a Business (Topic 715)”. ASU 2017‑01 is intended to assist entities in evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017‑01 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The adoption of this standard did not have a material impact on our financial condition or results of operations.

In January 2016, the FASB issued ASU 2016‑01, “Recognition and Measurement of Financial Assets and Financial Liabilities” (Subtopic 825‑10). ASU 2016‑01 requires equity investments that are not consolidated or accounted for under the equity method of accounting to be measured at fair value with changes in fair value recognized in net income. ASU 2016‑01 also requires us to assess the ability to realize our deferred tax assets (“DTAs”) related to an available-for-sale debt security in combination with our other DTAs. ASU 2016‑01 was effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of this guidance resulted in the recognition of $17.0 million of net after-tax unrealized gains on equity investments as a cumulative effect adjustment that increased retained earnings as of January 1, 2018 and decreased AOCI by the same amount. The Company elected to report changes in the fair value of equity investments in investment gains (losses) in the Consolidated Statement of Operations. At December 31, 2017, equity investments were classified as available-for-sale on the Company’s balance sheet. However, upon adoption, the updated guidance eliminated the available-for-sale balance sheet classification for equity investments.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. ASU 2016-02 requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Additionally, ASU 2016-02 modifies current guidance for lessors' accounting. ASU 2016-02 is effective for interim and annual reporting periods beginning on or after January 1, 2019, with early adoption permitted. During 2018, the FASB issued several amendments and targeted improvements to ease the application of the standard, including the addition of a transition approach that gives the Company the option of applying the standard at either the beginning of the earliest comparative period presented or the beginning of the period of adoption. We adopted the standard on its effective date of January 1, 2019. We also elected certain practical expedients that allow us not to reassess existing leases under the new guidance. As of June 30, 2019, $17.1 million of right-of-use assets and $17.6 million of lease liabilities for operating leases were added to the other assets and other liabilities line items of the balance sheet, respectively, as a result of the adoption of this update.

In August 2016, the FASB issued ASU 2016‑15, “Classification of Certain Cash Receipts and Cash Payments” (Topic 230). ASU 2016‑15 will reduce diversity in practice on how eight specific cash receipts and payments are classified on the statement of cash flows. The ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those years. The adoption of this new guidance did not have a material impact on our financial results or disclosures.

In November 2016, the FASB issued ASU 2016‑18, “Statement of Cash Flows (Topic 230): Restricted Cash.” The purpose of ASU 2016‑18 is to eliminate the diversity in classifying and presenting changes in restricted cash in the statement of cash flows. The new guidance requires restricted cash to be combined with cash and cash equivalents when reconciling the beginning and ending balances of cash on the statement of cash flows, thereby no longer requiring transactions such as transfers between restricted and unrestricted cash to be treated as a cash flow activity. Further, the new guidance requires the nature of the restrictions to be disclosed, as well as a reconciliation between the balance sheet and the statement of cash flows on how restricted and unrestricted cash are segregated. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within that fiscal year, with early adoption permitted. Effective January 1, 2018, we retrospectively adopted this new guidance which did not have a material impact on our financial results or disclosures.

In May 2014, the FASB issued ASU 2014‑09, guidance which revises the criteria for revenue recognition. Under the guidance, the transaction price is attributed to underlying performance obligations in the contract and revenue is recognized as the entity satisfies the performance obligations and transfers control of a good or service to the customer. Incremental costs of obtaining a contract may be capitalized to the extent the entity expects to recover those costs. The guidance is effective for reporting periods beginning after December 15, 2017 and is to be applied retrospectively. Revenue from insurance contracts is excluded from the scope of this new guidance. While insurance contracts are excluded from this guidance, policy fee income, billing and other fees and fee income related to property business written as a cover-holder through a Lloyds Syndicate is subject to this updated guidance. The adoption of this new guidance did not have a material impact on our financial results or disclosures.

Recently Issued Accounting Pronouncements

On August 28, 2018, the FASB issued ASU 2018-13, “Fair Value Measurement: Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurement” (Topic 820), which amends ASC 820 to add, remove, and modify fair value measurement disclosure requirements.  The requirements to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements have all been removed. However, the changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period must be disclosed along with the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements (or other quantitative information if it is more reasonable). Finally, for investments measured at net asset value, the requirements have been modified so that the timing of liquidation and the date when restrictions from redemption might lapse are only disclosed if the investee has communicated the timing to the entity or announced the timing publicly. This ASU is effective for annual and interim reporting periods beginning after December 15, 2019. As the amendments are only disclosure related, our financial statements will not be materially impacted by this update.

In January 2017, the FASB issued ASU 2017‑04, “Simplifying the Test for Goodwill Impairment” (Topic 350). ASU 2017‑04 requires only a one-step quantitative impairment test, whereby a goodwill impairment loss will be measured as the excess of a reporting unit’s carrying amount over its fair value (not to exceed the total goodwill allocated to that reporting unit). It eliminates Step 2 of the current two-step goodwill impairment test, under which a goodwill impairment loss is measured by comparing the implied fair value of a reporting unit’s goodwill. The ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. We are currently evaluating the impact that the adoption of ASU 2017‑04 will have on our financial results and disclosures.

In June 2016, the FASB issued ASU 2016‑13, “Measurement of Credit Losses on Financial Instruments” (Topic 326). ASU 2016‑13 requires organizations to estimate credit losses on certain types of financial instruments, including receivables and available-for-sale debt securities, by introducing an approach based on expected losses. The expected loss approach will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. ASU 2016‑13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. ASU 2016‑13 requires a modified retrospective transition method and early adoption is permitted. We are currently evaluating the impact that the adoption of this standard will have on our financial results and disclosures, but do not anticipate that any potential impact would be material.    

v3.19.2
Fair Value
6 Months Ended
Jun. 30, 2019
Fair Value [Abstract]  
Fair Value

3. Fair Value

ASC 820 defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value measurements. ASC 820, among other things, requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. In addition, ASC 820 precludes the use of block discounts when measuring the fair value of instruments traded in an active market, which were previously applied to large holdings of publicly traded equity securities.

We determine the fair value of our financial instruments based on the fair value hierarchy established in ASC 820. In accordance with ASC 820, we utilize the following fair value hierarchy:

·

Level 1: quoted prices in active markets for identical assets;

·

Level 2: inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, inputs of identical assets for less active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument; and

·

Level 3: inputs to the valuation methodology that are unobservable for the asset or liability.

This hierarchy requires the use of observable market data when available.

Under ASC 820, we determine fair value based on the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. It is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy described above. Fair value measurements for assets and liabilities where there exists limited or no observable market data are calculated based upon our pricing policy, the economic and competitive environment, the characteristics of the asset or liability and other factors as appropriate. These estimated fair values may not be realized upon actual sale or immediate settlement of the asset or liability.

Where quoted prices are available on active exchanges for identical instruments, investment securities are classified within Level 1 of the valuation hierarchy. Level 1 investment securities include common and preferred stock and an equity warrant classified as Other Investments.

Level 2 investment securities include corporate bonds, collateralized corporate bank loans, municipal bonds, U.S. Treasury securities, other obligations of the U.S. Government and mortgage-backed securities for which quoted prices are not available on active exchanges for identical instruments. We use third party pricing services to determine fair values for each Level 2 investment security in all asset classes. Since quoted prices in active markets for identical assets are not available, these prices are determined using observable market information such as quotes from less active markets and/or quoted prices of securities with similar characteristics, among other things. We have reviewed the processes used by the pricing services and have determined that they result in fair values consistent with the requirements of ASC 820 for Level 2 investment securities. We have not adjusted any prices received from third party pricing sources. There were no transfers between Level 1 and Level 2 securities.

In cases where there is limited activity or less transparency around inputs to the valuation, investment securities are classified within Level 3 of the valuation hierarchy. Level 3 investments are valued based on the best available data in order to approximate fair value. This data may be internally developed and consider risk premiums that a market participant would require. Investment securities classified within Level 3 include other less liquid investment securities.

The following table presents for each of the fair value hierarchy levels, our assets that are measured at fair value on a recurring basis at June 30, 2019 and December 31, 2018 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2019

 

    

Quoted Prices in

    

 

 

    

 

 

    

 

 

 

 

Active Markets for

 

 

 

 

 

 

 

 

 

 

 

Identical Assets

 

Other Observable

 

Unobservable

 

 

 

 

    

(Level 1)

    

Inputs (Level 2)

    

Inputs (Level 3)

    

Total

U.S. Treasury securities and obligations of U.S. Government

 

$

 —

 

$

48,422

 

$

 -

 

$

48,422

Corporate bonds

 

 

 —

 

 

225,810

 

 

533

 

 

226,343

Collateralized corporate bank loans

 

 

 —

 

 

132,678

 

 

 -

 

 

132,678

Municipal bonds

 

 

 —

 

 

115,849

 

 

 -

 

 

115,849

Mortgage-backed

 

 

 —

 

 

9,856

 

 

 -

 

 

9,856

Total debt securities

 

 

 —

 

 

532,615

 

 

533

 

 

533,148

Total equity securities

 

 

94,012

 

 

 —

 

 

 —

 

 

94,012

Total other investments

 

 

2,585

 

 

 —

 

 

 —

 

 

2,585

Total investments

 

$

96,597

 

$

532,615

 

$

533

 

$

629,745

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2018

 

    

Quoted Prices in

    

 

 

    

 

 

    

 

 

 

 

Active Markets for

 

 

 

 

 

 

 

 

 

 

 

Identical Assets

 

Other Observable

 

Unobservable

 

 

 

 

    

(Level 1)

    

Inputs (Level 2)

    

Inputs (Level 3)

    

Total

U.S. Treasury securities and obligations of U.S. Government

 

$

 —

 

$

48,106

 

$

 —

 

$

48,106

Corporate bonds

 

 

 —

 

 

241,861

 

 

291

 

 

242,152

Collateralized corporate bank loans

 

 

 —

 

 

126,528

 

 

 —

 

 

126,528

Municipal bonds

 

 

 —

 

 

115,527

 

 

 —

 

 

115,527

Mortgage-backed

 

 

 —

 

 

13,557

 

 

 —

 

 

13,557

Total debt securities

 

 

 —

 

 

545,579

 

 

291

 

 

545,870

Total equity securities

 

 

80,896

 

 

 —

 

 

 —

 

 

80,896

Total other investments

 

 

1,148

 

 

 —

 

 

 —

 

 

1,148

Total investments

 

$

82,044

 

$

545,579

 

$

291

 

$

627,914

 

Due to significant unobservable inputs into the valuation model for one corporate bond as of June 30, 2019 and December 31, 2018, we classified this investment as Level 3 in the fair value hierarchy. The corporate bond is a convertible senior note and its fair value was estimated by the sum of the bond value using an income approach discounting the scheduled interest and principal payments and the conversion feature utilizing a binomial lattice model. We also estimated the fair value of the corporate bond utilizing an as-if converted basis into the underlying securities. Significant changes in the unobservable inputs in the fair value measurement of this corporate bond could result in a significant change in the fair value measurement.

The following table summarizes the changes in fair value for all financial assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the six months ended June 30, 2019 and 2018 (in thousands):

 

 

 

 

Beginning balance as of January 1, 2019

    

$

291

Sales

 

 

 —

Settlements

 

 

 —

Purchases

 

 

 —

Issuances

 

 

 —

Total realized/unrealized gains included in net income

 

 

242

Net gain included in other comprehensive income

 

 

 —

Transfers into Level 3

 

 

 —

Transfers out of Level 3

 

 

 —

Ending balance as of June 30, 2019

 

$

533

 

 

 

 

 

Beginning balance as of January 1, 2018

    

$

3,757

Sales

 

 

(2,925)

Settlements

 

 

 —

Purchases

 

 

 —

Issuances

 

 

 —

Total realized/unrealized gains included in net income

 

 

104

Net gains included in other comprehensive income

 

 

 —

Transfers into Level 3

 

 

 —

Transfers out of Level 3

 

 

(621)

Ending balance as of June 30, 2018

 

$

315

 

v3.19.2
Investments
6 Months Ended
Jun. 30, 2019
Investments [Abstract]  
Investments

4. Investments

The amortized cost and estimated fair value of investments in debt and equity securities by category is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Gross

    

Gross

    

 

 

 

 

 

 

 

Unrealized

 

Unrealized

 

 

 

 

    

Amortized Cost

    

Gains

    

Losses

    

Fair Value

As of June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of U.S. Government

 

$

48,369

 

$

112

 

$

(59)

 

$

48,422

Corporate bonds

 

 

223,770

 

 

2,813

 

 

(240)

 

 

226,343

Collateralized corporate bank loans

 

 

133,840

 

 

59

 

 

(1,221)

 

 

132,678

Municipal bonds

 

 

114,638

 

 

1,304

 

 

(93)

 

 

115,849

Mortgage-backed

 

 

9,899

 

 

51

 

 

(94)

 

 

9,856

Total debt securities

 

 

530,516

 

 

4,339

 

 

(1,707)

 

 

533,148

Total equity securities

 

 

68,709

 

 

30,657

 

 

(5,354)

 

 

94,012

Total other investments

 

 

3,763

 

 

 —

 

 

(1,178)

 

 

2,585

Total investments

 

$

602,988

 

$

34,996

 

$

(8,239)

 

$

629,745

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2018

 

 

  

 

 

  

 

 

 

 

 

  

U.S. Treasury securities and obligations of U.S. Government

 

$

48,609

 

$

 5

 

$

(508)

 

$

48,106

Corporate bonds

 

 

243,314

 

 

440

 

 

(1,602)

 

 

242,152

Collateralized corporate bank loans

 

 

131,779

 

 

19

 

 

(5,270)

 

 

126,528

Municipal bonds

 

 

112,574

 

 

3,791

 

 

(838)

 

 

115,527

Mortgage-backed

 

 

13,992

 

 

11

 

 

(446)

 

 

13,557

Total debt securities

 

 

550,268

 

 

4,266

 

 

(8,664)

 

 

545,870

Total equity securities

 

 

68,709

 

 

20,693

 

 

(8,506)

 

 

80,896

Total other investments

 

 

3,763

 

 

 —

 

 

(2,615)

 

 

1,148

Total investments

 

$

622,740

 

$

24,959

 

$

(19,785)

 

$

627,914

 

Major categories of net investment gains (losses) on investments are summarized as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

Six Months Ended June 30, 

 

 

    

2019

    

2018

    

2019

    

2018

    

U.S. Treasury securities and obligations of U.S. Government

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

Corporate bonds

 

 

(6)

 

 

(14)

 

 

17

 

 

(22)

 

Collateralized corporate bank loans

 

 

21

 

 

35

 

 

38

 

 

47

 

Municipal bonds

 

 

46

 

 

 2

 

 

4,147

 

 

(19)

 

Mortgage-backed

 

 

(1)

 

 

(1)

 

 

(1)

 

 

 1

 

Equity securities

 

 

 —

 

 

359

 

 

 —

 

 

359

 

Gain on investments

 

 

60

 

 

381

 

 

4,201

 

 

366

 

Unrealized gains (losses) on equity securities

 

 

5,356

 

 

553

 

 

13,116

 

 

(3,904)

 

Unrealized gains (losses) on other investments

 

 

1,401

 

 

(401)

 

 

1,437

 

 

(764)

 

Investment gains (losses), net

 

$

6,817

 

$

533

 

$

18,754

 

$

(4,302)

 

 

We realized gross gains on investments of $0.2 million and $0.5 million during the three months ended June 30, 2019 and 2018, respectively and $4.4 million and $0.6 million for the six months ended June 30, 2019 and 2018, respectively. We realized gross losses on investments of $0.1 million and $0.1 million for the three months ended June 30, 2019 and 2018, respectively, and $0.2 million and $0.2 million for the six months ended June 30, 2019 and 2018, respectively. We recorded proceeds from the sale of investment securities of $0.1 million and $14.2 million during the three months ended June 30, 2019 and 2018, respectively, and $7.0 million and $14.2 million for the six months ended June 30, 2019 or 2018, respectively. Realized investment gains and losses are recognized in operations on the first in-first out method.

The following schedules summarize the gross unrealized losses showing the length of time that investments have been continuously in an unrealized loss position as of June 30, 2019 and December 31, 2018 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2019

 

 

12 months or less

 

Longer than 12 months

 

Total

 

    

 

 

    

Unrealized

    

 

 

    

Unrealized

    

 

 

    

Unrealized

 

    

Fair Value

    

Losses

    

Fair Value

    

Losses

    

Fair Value

    

Losses

U.S. Treasury securities and obligations of U.S. Government

 

$

 —

 

$

 —

 

$

23,216

 

$

(59)

 

$

23,216

 

$

(59)

Corporate bonds

 

 

18,143

 

 

(144)

 

 

36,011

 

 

(96)

 

 

54,154

 

 

(240)

Collateralized corporate bank loans

 

 

85,804

 

 

(871)

 

 

17,564

 

 

(350)

 

 

103,368

 

 

(1,221)

Municipal bonds

 

 

10,898

 

 

(55)

 

 

5,735

 

 

(38)

 

 

16,633

 

 

(93)

Mortgage-backed

 

 

3,518

 

 

(6)

 

 

3,911

 

 

(88)

 

 

7,429

 

 

(94)

Total debt securities

 

 

118,363

 

 

(1,076)

 

 

86,437

 

 

(631)

 

 

204,800

 

 

(1,707)

Total equity securities

 

 

7,952

 

 

(1,588)

 

 

4,524

 

 

(3,766)

 

 

12,476

 

 

(5,354)

Total other investments

 

 

28

 

 

(10)

 

 

2,557

 

 

(1,168)

 

 

2,585

 

 

(1,178)

Total investments

 

$

126,343

 

$

(2,674)

 

$

93,518

 

$

(5,565)

 

$

219,861

 

$

(8,239)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2018

 

 

12 months or less

 

Longer than 12 months

 

Total

 

    

 

 

    

Unrealized

    

 

 

    

Unrealized

    

 

 

    

Unrealized

 

    

Fair Value

    

Losses

    

Fair Value

    

Losses

    

Fair Value

    

Losses

U.S. Treasury securities and obligations of U.S. Government

 

$

18,902

 

$

(181)

 

$

28,201

 

$

(327)

 

$

47,103

 

$

(508)

Corporate bonds

 

 

117,450

 

 

(907)

 

 

100,060

 

 

(695)

 

 

217,510

 

 

(1,602)

Collateralized corporate bank loans

 

 

120,410

 

 

(4,938)

 

 

4,931

 

 

(332)

 

 

125,341

 

 

(5,270)

Municipal bonds

 

 

14,281

 

 

(96)

 

 

25,891

 

 

(742)

 

 

40,172

 

 

(838)

Mortgage-backed

 

 

6,592

 

 

(60)

 

 

5,986

 

 

(386)

 

 

12,578

 

 

(446)

Total debt securities

 

 

277,635

 

 

(6,182)

 

 

165,069

 

 

(2,482)

 

 

442,704

 

 

(8,664)

Total equity securities

 

 

30,981

 

 

(3,699)

 

 

4,475

 

 

(4,807)

 

 

35,456

 

 

(8,506)

Total other investments

 

 

1,148

 

 

(2,615)

 

 

 —

 

 

 —

 

 

1,148

 

 

(2,615)

Total investments

 

$

309,764

 

$

(12,496)

 

$

169,544

 

$

(7,289)

 

$

479,308

 

$

(19,785)

 

We had a total of 173 debt securities with an unrealized loss, of which 117 were in an unrealized loss position for less than one year and 56 were in an unrealized loss position for a period of one year or greater, as of June 30, 2019.  We had a total of 328 debt securities with an unrealized loss, of which 221 were in an unrealized loss position for less than one year and 107 were in an unrealized loss position for a period of one year or greater, as of December 31, 2018.  We consider these losses as a temporary decline in value as they are predominately on securities that we do not intend to sell and do not believe we will be required to sell prior to recovery of our amortized cost basis. We see no other indications that the decline in values of these securities is other-than-temporary.

We complete a detailed analysis each quarter to assess whether any decline in the fair value of any fixed maturity investment below cost is deemed other-than-temporary. All fixed maturity investments with an unrealized loss are reviewed. We recognize an impairment loss when an investment’s value declines below cost, adjusted for accretion, amortization and previous other-than-temporary impairments, and it is determined that the decline is other-than-temporary.

We assess whether we intend to sell, or it is more likely than not that we will be required to sell, a fixed maturity investment before recovery of its amortized cost basis less any current period credit losses. For fixed maturity investments that are considered other-than-temporarily impaired and that we do not intend to sell and will not be required to sell, we separate the amount of the impairment into the amount that is credit related (credit loss component) and the amount due to all other factors. The credit loss component is recognized in earnings and is the difference between the investment’s amortized cost basis and the present value of its expected future cash flows. The remaining difference between the investment’s fair value and the present value of future expected cash flows is recognized in other comprehensive income.

Details regarding the carrying value of the other investments portfolio as of June 30, 2019 and December 31, 2018 are as follows (in thousands):

 

 

 

 

 

 

 

 

    

June 30, 

    

December 31, 

 

    

2019

    

2018

Investment Type

 

 

  

 

 

  

Equity warrant

 

$

2,585

 

$

1,148

Total other investments

 

$

2,585

 

$

1,148

 

We acquired this warrant in an active market. The warrant entitles us to buy the underlying common stock of a publicly traded company at a fixed price until the expiration date of January 19, 2021.

The amortized cost and estimated fair value of debt securities at June 30, 2019 by contractual maturity are as follows. Expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without penalties.

 

 

 

 

 

 

 

 

    

Amortized Cost

    

Fair Value

 

 

(in thousands)

Due in one year or less

 

$

117,306

 

$

117,293

Due after one year through five years

 

 

276,397

 

 

278,718

Due after five years through ten years

 

 

96,047

 

 

95,636

Due after ten years

 

 

30,867

 

 

31,645

Mortgage-backed

 

 

9,899

 

 

9,856

 

 

$

530,516

 

$

533,148

 

v3.19.2
Pledged Investments
6 Months Ended
Jun. 30, 2019
Pledged Investments [Abstract]  
Pledged Investments

5. Pledged Investments

We have pledged certain of our securities for the benefit of various state insurance departments and reinsurers. These securities are included with our available-for-sale debt securities because we have the ability to trade these securities. We retain the interest earned on these securities. These securities had a carrying value of $29.7 million and $29.5 million at June 30, 2019 and December 31, 2018, respectively.

v3.19.2
Reserves for Unpaid Losses and Loss Adjustment Expenses
6 Months Ended
Jun. 30, 2019
Reserves for Unpaid Losses and Loss Adjustment Expenses [Abstract]  
Reserves for Unpaid Losses and Loss Adjustment Expenses

6. Reserves for Unpaid Losses and Loss Adjustment Expenses

Activity in the consolidated reserves for unpaid losses and LAE is summarized as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

June 30,

 

June 30,

 

 

 

2019

 

2018

 

Balance at January 1

 

$

527,247

 

 

527,100

 

Less reinsurance recoverable

 

 

221,716

 

 

154,612

 

Net balance at January 1

 

 

305,531

 

 

372,488

 

 

 

 

 

 

 

 

 

Incurred related to:

 

 

  

 

 

  

 

Current year

 

 

141,909

 

 

122,870

 

Prior years

 

 

1,404

 

 

4,453

 

Total incurred

 

 

143,313

 

 

127,323

 

 

 

 

 

 

 

 

 

Paid related to:

 

 

  

 

 

  

 

Current year

 

 

38,563

 

 

28,321

 

Prior years

 

 

107,899

 

 

140,339

 

Total paid

 

 

146,462

 

 

168,660

 

 

 

 

 

 

 

 

 

Net balance at June 30

 

 

302,382

 

 

331,151

 

Plus reinsurance recoverable

 

 

249,161

 

 

189,401

 

Balance at June 30

 

$

551,543

 

$

520,552

 

 

The impact from the unfavorable (favorable) net prior years’ loss development on each reporting segment is presented below:

 

 

 

 

 

 

 

 

 

June 30, 

 

 

2019

    

2018

Specialty Commercial Segment

 

$

5,203

 

$

6,861

Standard Commercial Segment

 

 

(3,583)

 

 

(1,560)

Personal Segment

 

 

(216)

 

 

(848)

Corporate

 

 

 —

 

 

 —

Total (favorable) net prior year development

 

$

1,404

 

$

4,453

 

The following describes the primary factors behind each segment’s prior accident year reserve development for the six months ended June 30, 2019 and 2018:

Six months ended June 30, 2019:

·

Specialty Commercial Segment. Our Commercial Auto business unit experienced net unfavorable development in the 2017 and prior accident years primarily in the primary commercial auto liability line of business, partially offset by net favorable development in the primary commercial auto line of business in the 2018 accident year. Our E&S Casualty business unit experienced net unfavorable development primarily in our E&S package insurance products in the 2017 and prior accident years, partially offset by net favorable development in the 2018 accident year. We experienced net favorable development in our E&S Property and Professional Liability business units, partially offset by net unfavorable development in our Aerospace & Programs business unit.

·

Standard Commercial Segment. Our Commercial Accounts business unit experienced net favorable development in the 2018, 2017, 2014 and 2012 and prior accident years primarily in the general liability line of business, partially offset by net unfavorable development primarily in the general liability line of business in the 2016 and 2015 accident years. Our Commercial Accounts business unit experienced net favorable development in the 2017 and 2015 accident years in the occupational accident line of business, partially offset by net unfavorable development in the 2016 accident year. The run-off from our former Workers Compensation operating unit experienced net favorable development in the 2015 and 2012 and prior accident years.

·

Personal Segment. Net favorable development in our Specialty Personal Lines business unit was mostly attributable to the 2018, 2017, 2015, 2013 and prior accident years, partially offset by unfavorable development in the 2016 and 2014 accident years.

Six months ended June 30, 2018:

·

Specialty Commercial Segment. Our Commercial Auto business unit experienced net unfavorable development in the 2016 and prior accident years primarily in the commercial auto liability line of business, partially offset by favorable development primarily in the commercial auto liability line of business in the 2017 accident year. We experienced net unfavorable development in our E&S Property, Professional Liability, E&S Casualty and Aerospace& Programs business units.

·

Standard Commercial Segment. Our Commercial Accounts business unit experienced net favorable development in the 2016 and prior accident years primarily in the general liability line of business, partially offset by net unfavorable development primarily in the commercial property line of business in the 2017 accident year and net unfavorable development in the 2017 and prior accident years in the occupational accident line of business.

·

Personal Segment. Net favorable development in our Specialty Personal Lines operating unit was mostly attributable to the 2013 through 2017 accident years, partially offset by unfavorable development in the 2012 and prior accident years.

v3.19.2
Share-based Payment Arrangements
6 Months Ended
Jun. 30, 2019
Share-Based Payment Arrangements [Abstract]  
Share-Based Payment Arrangements

7. Share-Based Payment Arrangements

Our 2005 Long Term Incentive Plan (“2005 LTIP”) is a stock compensation plan for key employees and non-employee directors that was initially approved by the shareholders on May 26, 2005 and expired by its terms on May 27, 2015.  As of June 30, 2019, there were no outstanding incentive stock options and outstanding non-qualified stock options to purchase 14,157 shares of our common stock. The exercise price of all such outstanding stock options is equal to the fair market value of our common stock on the date of grant.

 

Our 2015 Long Term Incentive Plan (“2015 LTIP”) was approved by shareholders on May 29, 2015.  There are 2,000,000 shares authorized for issuance under the 2015 LTIP.  As of June 30, 2019, restricted stock units representing the right to receive up to 383,530 shares of our common stock were outstanding under the 2015 LTIP.  There were no stock option awards granted under the 2015 LTIP as of June 30, 2019.

 

Stock Options:

Incentive stock options granted under the 2005 LTIP prior to 2009 vested 10%,  20%,  30% and 40% on the first, second, third and fourth anniversary dates of the grant, respectively, and terminated five to ten years from the date of grant. Incentive stock options granted in 2009 vest in equal annual increments on each of the first seven anniversary dates and terminate ten years from the date of grant. Non-qualified stock options granted under the 2005 LTIP generally vest 100% six months after the date of grant and terminate ten years from the date of grant. One grant of 200,000 non-qualified stock options in 2009 vested in equal annual increments on each of the first seven anniversary dates and terminated ten years from the date of grant.

A summary of the status of our stock options as of June 30, 2019 and changes during the six months then ended is presented below:

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

Average

    

 

 

 

 

 

 

 

 

 

Remaining

 

Aggregate

 

 

Number of

 

Weighted Average

 

Contractual

 

Intrinsic Value

 

    

Shares

    

Exercise Price

    

Term (Years)

    

($000)

Outstanding at January 1, 2019

 

244,157

 

$

6.63

 

  

 

 

  

Granted

 

 —

 

 

 —

 

  

 

 

  

Exercised

 

(230,000)

 

$

6.61

 

  

 

 

  

Forfeited or expired

 

 —

 

$

 —

 

  

 

 

  

Outstanding at June 30, 2019

 

14,157

 

$

6.99

 

2.5

 

$

102

Exercisable at  June 30, 2019

 

14,157

 

$

6.99

 

2.5

 

$

102

 

The following table details the intrinsic value of options exercised, total cost of share-based payments charged against income before income tax benefit and the amount of related income tax benefit recognized in income for the periods indicated (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended

 

 

Six Months Ended

 

 

June 30, 

 

 

June 30, 

 

    

2019

    

2018

 

2019

 

2018

Intrinsic value of options exercised

 

$

 —

 

$

122

 

$

845

 

$

122

Cost of share-based payments (non-cash)

 

$

 —

 

$

 —

 

$

 —

 

$

 —

Income tax benefit of share-based payments recognized in income

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

As of June 30, 2019, there was no unrecognized compensation cost related to non-vested stock options granted under our plans which is expected to be recognized in the future.

The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option pricing model. Expected volatilities are based on the historical volatility of Hallmark’s and similar companies’ common stock for a period equal to the expected term. The risk-free interest rates for periods within the contractual term of the options are based on rates for U.S. Treasury Notes with maturity dates corresponding to the options expected lives on the dates of grant. Expected term is determined based on the simplified method as we do not have sufficient historical exercise data to provide a basis for estimating the expected term. There were no stock options granted during the first six months of 2019 or 2018.

Restricted Stock Units:

Restricted stock units awarded under the 2015 LTIP represent the right to receive shares of common stock upon the satisfaction of vesting requirements, performance criteria and other terms and conditions. Restricted stock units vest and, if performance criteria have been satisfied, shares of common stock become issuable on March 31 of the third calendar year following the year of grant.

The performance criteria for all restricted stock units require that we achieve certain compound average annual growth rates in book value per share as well as certain average combined ratio percentages over the vesting period in order to receive shares of common stock in amounts ranging from 50% to 150% of the number of restricted stock units granted. Grantees of restricted stock units do not have any rights of a stockholder, and do not participate in any distributions to our common stockholders, until the award fully vests upon satisfaction of the vesting schedule, performance criteria and other conditions set forth in their award agreement. Therefore, unvested restricted stock units are not considered participating securities under ASC 260, “Earnings Per Share,” and are not included in the calculation of basic or diluted earnings per share.

Compensation cost is measured as an amount equal to the fair value of the restricted stock units on the date of grant and is expensed over the vesting period if achievement of the performance criteria is deemed probable, with the amount of the expense recognized based on our best estimate of the ultimate achievement level.  The grant date fair value of restricted stock units granted in 2015, 2016, 2017 and 2018 was $11.10,  $11.41,  $10.20 and $10.87 per unit, respectively.  We incurred compensation expense of $140 thousand and $197 thousand related to restricted stock units during the three months and six months ended June 30, 2019, respectively.  We incurred compensation (benefit) expense of ($43) thousand and $1 thousand related to restricted stock units during the three and six months ended June 30, 2018, respectively.  We recorded income tax benefit of $29 thousand and $41 thousand related to restricted stock units during the three months and six months ended June 30, 2019, respectively. We recorded income tax expense of $9 thousand related to restricted stock units during the three months ended June 30, 2018.  We recorded de-minimus income tax expense related to restricted stock units during the six months ended June 30, 2018.

The following table details the status of our restricted stock units as of and for the six months ended June 30, 2019 and 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Restricted Stock Units

 

 

    

2019

    

2018

 

Nonvested at January 1

 

338,897

 

385,779

 

Granted

 

 —

 

 —

 

Vested

 

 —

 

(8,198)

 

Forfeited

 

(83,210)

 

(182,743)

 

Nonvested at June 30

 

255,687

 

194,838

 

 

As of June 30, 2019, there was $1.4 million of unrecognized grant date compensation cost related to unvested restricted stock units. Based on the current performance estimate, we expect to recognize $0.9 million of compensation cost related to unvested restricted stock units, of which $0.3 million is expected to be recognized during the remainder of 2019, $0.5 million is expected to be recognized in 2020 and $0.1 million is expected to be recognized in 2021. 

v3.19.2
Segment Information
6 Months Ended
Jun. 30, 2019
Segment Information [Abstract]  
Segment Information

8. Segment Information

The following is business segment information for the three and six months ended June 30, 2019 and 2018 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

    

2019

    

2018

 

2019

 

2018

 

Revenues

 

 

  

 

 

  

 

 

  

 

 

  

 

Specialty Commercial Segment

 

$

73,592

 

$

72,081

 

$

141,559

 

$

145,205

 

Standard Commercial Segment

 

 

17,310

 

 

19,247

 

 

35,683

 

 

38,122

 

Personal Segment

 

 

23,116

 

 

7,916

 

 

42,599

 

 

15,536

 

Corporate

 

 

6,885

 

 

(1,119)

 

 

19,183

 

 

(7,397)

 

Consolidated

 

$

120,903

 

$

98,125

 

$

239,024

 

$

191,466

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax income (loss)

 

 

  

 

 

  

 

 

  

 

 

  

 

Specialty Commercial Segment

 

$

10,427

 

$

8,770

 

$

18,395

 

$

18,528

 

Standard Commercial Segment

 

 

2,057

 

 

2,656

 

 

3,564

 

 

3,975

 

Personal Segment

 

 

2,441

 

 

(1)

 

 

4,014

 

 

(23)

 

Corporate

 

 

1,559

 

 

(5,053)

 

 

9,429

 

 

(15,299)

 

Consolidated

 

$

16,484

 

$

6,372

 

$

35,402

 

$

7,181

 

 

The following is additional business segment information as of the dates indicated (in thousands):

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

Assets:

 

2019

 

2018

Specialty Commercial Segment

 

$

1,005,810

 

$

858,262

Standard Commercial Segment

 

 

184,101

 

 

158,881

Personal Segment

 

 

170,348

 

 

226,431

Corporate

 

 

45,509

 

 

21,320

 Consolidated

 

$

1,405,768

 

$

1,264,894

 

v3.19.2
Reinsurance
6 Months Ended
Jun. 30, 2019
Reinsurance [Abstract]  
Reinsurance

9. Reinsurance

We reinsure a portion of the risk we underwrite in order to control the exposure to losses and to protect capital resources. We cede to reinsurers a portion of these risks and pay premiums based upon the risk and exposure of the policies subject to such reinsurance. Ceded reinsurance involves credit risk and is generally subject to aggregate loss limits. Although the reinsurer is liable to us to the extent of the reinsurance ceded, we are ultimately liable as the direct insurer on all risks reinsured. Reinsurance recoverables are reported after allowances for uncollectible amounts. We monitor the financial condition of reinsurers on an ongoing basis and review our reinsurance arrangements periodically. Reinsurers are selected based on their financial condition, business practices and the price of their product offerings. In order to mitigate credit risk to reinsurance companies, most of our reinsurance recoverable balance as of June 30, 2019 was with reinsurers that had an A.M. Best rating of “A–” or better.

The following table shows earned premiums ceded and reinsurance loss recoveries by period (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

    

2019

    

2018

    

2019

    

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Ceded earned premiums

 

$

76,309

 

$

68,635

 

$

146,455

 

$

130,264

Reinsurance recoveries

 

$

58,975

 

$

43,989

 

$

107,564

 

$

93,427

 

v3.19.2
Revolving Credit Facility
6 Months Ended
Jun. 30, 2019
Revolving Credit Facility [Abstract]  
Revolving Credit Facility

10. Revolving Credit Facility

Our Second Restated Credit Agreement with Frost Bank (“Frost”) dated June 30, 2015, as amended to date, provides a $15.0 million revolving credit facility (“Facility A”), with a $5.0 million letter of credit sub-facility. The outstanding balance of the Facility A bears interest at a rate equal to the prime rate or LIBOR plus 2.5%, at our election. We pay an annual fee of 0.25% of the average daily unused balance of Facility A and letter of credit fees at the rate of 1.00% per annum. All principal and accrued interest on Facility A becomes due and payable on June 30, 2020. As of June 30, 2019, we had no outstanding borrowings under Facility A.

The Second Restated Credit Agreement with Frost also provides a $30.0 million revolving credit facility (“Facility B”), in addition to Facility A. We may use Facility B loan proceeds solely for the purpose of making capital contributions to AHIC and HIC. We may borrow, repay and reborrow under Facility B until December 17, 2019, at which time all amounts outstanding under Facility B are converted to a term loan. Through December 17, 2019, we pay Frost a quarterly fee of 0.25% per annum of the average daily unused balance of Facility B. Facility B bears interest at a rate equal to the prime rate or LIBOR plus 3.00%, at our election. Until December 17, 2019, interest only on amounts from time to time outstanding under Facility B are payable quarterly. Any amounts outstanding on Facility B as of December 17, 2019 are converted to a term loan payable in quarterly installments over five years based on a seven year amortization of principal plus accrued interest. All remaining principal and accrued interest on Facility B become due and payable on December 17, 2024. As of June 30, 2019, we had $30.0 million outstanding under Facility B.

The obligations under both Facility A and Facility B are secured by a security interest in the capital stock of AHIC and HIC. Both Facility A and Facility B contain covenants that, among other things, require us to maintain certain financial and operating ratios and restrict certain distributions, transactions and organizational changes. We are in compliance with all of these covenants.

v3.19.2
Subordinated Debt Securities
6 Months Ended
Jun. 30, 2019
Subordinated Debt Securities [Abstract]  
Subordinated Debt Securities

11. Subordinated Debt Securities

On June 21, 2005, we entered into a trust preferred securities transaction pursuant to which we issued $30.9 million aggregate principal amount of subordinated debt securities due in 2035. To effect the transaction, we formed Trust I as a Delaware statutory trust. Trust I issued $30.0 million of preferred securities to investors and $0.9 million of common securities to us. Trust I used the proceeds from these issuances to purchase the subordinated debt securities. The interest rate on our Trust I subordinated debt securities was 7.725% until June 15, 2015,  after which interest adjusts quarterly to the three-month LIBOR rate plus 3.25 percentage points. Trust I pays dividends on its preferred securities at the same rate. Under the terms of our Trust I subordinated debt securities, we pay interest only each quarter and the principal of the note at maturity. The subordinated debt securities are uncollaterized and do not require maintenance of minimum financial covenants. As of June 30, 2019, the principal balance of our Trust I subordinated debt was $30.9 million and the interest rate was 5.66% per annum.

On August 23, 2007, we entered into a trust preferred securities transaction pursuant to which we issued $25.8 million aggregate principal amount of subordinated debt securities due in 2037. To effect the transaction, we formed Trust II as a Delaware statutory trust. Trust II issued $25.0 million of preferred securities to investors and $0.8 million of common securities to us. Trust II used the proceeds from these issuances to purchase the subordinated debt securities. The interest rate on our Trust II subordinated debt securities was 8.28% until September 15, 2017,  after which interest adjusts quarterly to the three-month LIBOR rate plus 2.90 percentage points. Trust II pays dividends on its preferred securities at the same rate. Under the terms of our Trust II subordinated debt securities, we pay interest only each quarter and the principal of the note at maturity. The subordinated debt securities are uncollaterized and do not require maintenance of minimum financial covenants. As of June 30, 2019, the principal balance of our Trust II subordinated debt was $25.8 million and the interest rate was 5.31% per annum.

v3.19.2
Deferred Policy Acquisition Costs
6 Months Ended
Jun. 30, 2019
Deferred Policy Acquisition Costs [Abstract]  
Deferred Policy Acquisition Costs

12. Deferred Policy Acquisition Costs

The following table shows total deferred and amortized policy acquisition cost activity by period (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred

 

$

(35,871)

 

$

6,306

 

$

(47,547)

 

$

16,671

Amortized

 

 

34,788

 

 

(8,242)

 

 

41,530

 

 

(18,615)

Net

 

$

(1,083)

 

$

(1,936)

 

$

(6,017)

 

$

(1,944)

 

v3.19.2
Earnings Per Share
6 Months Ended
Jun. 30, 2019
Earnings per Share [Abstract]  
Earnings per Share

13. Earnings per Share

The following table sets forth basic and diluted weighted average shares outstanding for the periods indicated (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

    

2019

  

  

2018

    

2019

  

  

2018

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares - basic

 

18,123

 

 

18,067

 

18,090

 

 

18,116

Effect of dilutive securities

 

128

 

 

107

 

160

 

 

114

Weighted average shares - assuming dilution

 

18,251

 

 

18,174

 

18,250

 

 

18,230

 

For each of the three and six months ended June 30, 2019, no shares of common stock potentially issuable upon the exercise of employee stock options were excluded from the weighted average number of shares outstanding on a diluted basis.  For each of the three and six months ended June 30, 2018, 62,500 shares of common stock potentially issuable upon the exercise of employee stock options were excluded from the weighted average number of shares outstanding on a diluted basis because the effect of such options would be anti-dilutive. 

v3.19.2
Net Periodic Pension Cost
6 Months Ended
Jun. 30, 2019
Net Periodic Pension Cost [Abstract]  
Net Periodic Pension Cost

14. Net Periodic Pension Cost

The following table details the net periodic pension cost incurred by period (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

 

June 30, 

 

    

2019

    

2018

    

2019

    

2018

Interest cost

 

$

114

 

$

106

 

$

227

 

$

212

Amortization of net loss

 

 

36

 

 

26

 

 

72

 

 

53

Expected return on plan assets

 

 

(150)

 

 

(174)

 

 

(299)

 

 

(347)

Net periodic pension cost

 

$

 —

 

$

(42)

 

$

 —

 

$

(82)

Contributed amount

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

Refer to Note 14 to the consolidated financial statements in our Annual Report on Form 10‑K for the year ended December 31, 2018 for more discussion of our retirement plans.

v3.19.2
Income Taxes
6 Months Ended
Jun. 30, 2019
Income Taxes [Abstract]  
Income Taxes

15.  Income Taxes

Our effective income tax rate for the six months ended June 30, 2019 and 2018 was 20.8% and 20.1%, respectively. The effective tax rates for 2019 and 2018 were both favorably impacted by the lower statutory rate from the enactment of the Tax Cuts and Jobs Act in December 2017.

v3.19.2
Supplemental Cash Flow Information
6 Months Ended
Jun. 30, 2019
Supplemental Cash Flow Information [Abstract]  
Supplemental Cash Flow Information

16.  Supplemental Cash Flow Information

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the consolidated balance sheet to the total of the same such amounts shown in the statement of cash flows (in thousands):

 

 

 

 

 

 

 

 

 

As of June 30,

 

    

2019

    

2018

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

67,670

 

$

79,583

Restricted cash

 

 

3,486

 

 

3,078

Total cash, cash equivalents and restricted cash shown in the statement of cash flows

 

$

71,156

 

$

82,661

 

Restricted cash represents amounts required to be set aside by a contractual agreement with a third-party insurer and amounts pledged for the benefit of various state insurance departments.

The following table provides supplemental cash flow information for the six months ended June 30, 2019 and 2018:

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 

 

    

2019

    

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest paid

 

$

2,527

 

$

2,145

 

 

 

 

 

 

 

Income taxes paid (recovered)

 

$

2,848

 

$

(5,287)

 

 

 

 

 

 

 

Supplemental schedule of non-cash investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Receivable for securities related to investment disposals

 

$

2,581

 

$

3,780

 

 

 

 

 

 

 

Payable for securities related to investment purchases

 

$

3,167

 

$

6,706

 

v3.19.2
Commitments and Contingencies
6 Months Ended
Jun. 30, 2019
Commitments and Contingencies [Abstract]  
Commitments and Contingencies

17. Commitments and Contingencies

We are engaged in various legal proceedings in the ordinary course of business, none of which, either individually or in the aggregate, are believed likely to have a material adverse effect on our consolidated financial position or results of operations, in the opinion of management. The various legal proceedings to which we are a party are routine in nature and incidental to our business.

v3.19.2
Changes in Accumulated Other Comprehensive Income Balances
6 Months Ended
Jun. 30, 2019
Changes in Accumulated Other Comprehensive Income Balances [Abstract]  
Changes in Accumulated Other Comprehensive Income Balances

18. Changes in Accumulated Other Comprehensive Income Balances

The changes in accumulated other comprehensive income balances as of June 30, 2019 and 2018 were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

Accumulated Other

 

 

Pension

 

Unrealized

 

Comprehensive

 

    

Liability

    

Gains (Loss)

    

Income (Loss)

Balance at December 31, 2017

 

$

(2,310)

 

$

14,544

 

$

12,234

Other comprehensive income:

 

 

  

 

 

  

 

 

  

Change in net actuarial gain

 

 

53

 

 

 —

 

 

53

Tax effect on change in net actuarial gain

 

 

(11)

 

 

 —

 

 

(11)

Unrealized holding gains arising during the period

 

 

 —

 

 

1,926

 

 

1,926

Tax effect on unrealized gains arising during the period

 

 

 —

 

 

(404)

 

 

(404)

Reclassification adjustment for realized gains included in investment gains and losses

 

 

 —

 

 

(366)

 

 

(366)

Tax effect on reclassification adjustment for gains included in income tax expense

 

 

 —

 

 

77

 

 

77

Other comprehensive income, net of tax

 

 

42

 

 

1,233

 

 

1,275

Reclassification of certain tax effects from accumulated other comprehensive income at January 1, 2018

 

 

(569)

 

 

3,188

 

 

2,619

Cumulative effect of adoption of updated accounting guidance for equity financial instruments at January 1, 2018

 

 

 —

 

 

(16,993)

 

 

(16,993)

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2018

 

$

(2,837)

 

$

1,972

 

$

(865)

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

$

(3,334)

 

$

(3,326)

 

$

(6,660)

Other comprehensive income:

 

 

  

 

 

  

 

 

  

Change in net actuarial gain

 

 

72

 

 

 —

 

 

72

Tax effect on change in net actuarial gain

 

 

(15)

 

 

 —

 

 

(15)

Unrealized holding gains arising during the period

 

 

 —

 

 

11,233

 

 

11,233

Tax effect on unrealized gains arising during the period

 

 

 —

 

 

(2,359)

 

 

(2,359)

Reclassification adjustment for gains included in net realized gains

 

 

 —

 

 

(4,201)

 

 

(4,201)

Tax effect on reclassification adjustment for gains included in income tax expense

 

 

 —

 

 

883

 

 

883

Other comprehensive income, net of tax

 

 

57

 

 

5,556

 

 

5,613

Balance at June 30, 2019

 

$

(3,277)

 

$

2,230

 

$

(1,047)

 

 

 

 

v3.19.2
Leases
6 Months Ended
Jun. 30, 2019
Leases [Abstract]  
Leases

 

19. Leases

We adopted ASU 2016-02, “Leases, (Topic 842)” on January 1, 2019, which resulted in the recognition of operating leases on the balance sheet in 2019 and going forward. See Note 2 for more information on the adoption of ASU 2016-02. Right-of-use assets are included in the other assets line item and lease liabilities are included in the other liabilities line item of the consolidated balance sheet. We also elected certain practical expedients that allow us not to reassess existing leases under the new guidance. We determine if a contract contains a lease at inception and recognize operating lease right-of-use assets and operating lease liabilities based on the present value of the future minimum lease payments at the commencement date. Since our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Lease agreements have lease and non-lease components, which are accounted for as a single lease component. Lease expense is recognized on a straight-line basis over the lease term.

 

The Company’s operating lease obligations pertain to office leases utilized in the operation of our business. Our leases have remaining terms of 1 to 13 years, some of which include options to extend the leases. The components of lease expense and other lease information as of and during the three and six-month periods ended June 30, 2019 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

June 30, 

 

June 30, 

 

2019

 

 

2019

    

 

 

 

 

 

 

 

 

Operating lease cost

$

816

 

 

$

1,356

 

 

 

 

 

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities

 

 

 

 

 

 

 

   Operating cash flows from operating leases

$

552

 

 

$

1,103

 

 

 

 

 

 

 

 

 

Right-of-use assets obtained in exchange for new operating lease liabilities

$

 —

 

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

We incurred $16 thousand in short-term lease payments not included in our lease liability during the six months ended June 30, 2019. 

 

 

 

 

 

 

 

 

The components of lease expense and other lease information as of and during the six-month period ended June 30, 2019 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

    

2019

 

 

 

 

Operating lease right-of-use assets

 

$

17,109

 

 

 

 

Operating lease liabilities

 

$

17,619

 

 

 

 

Weighted-average remaining lease term - operating leases

 

 

10.7

 

 

 

 

Weighted-average discount rate - operating leases

 

 

5.88%

 

 

 

 

 

 

 

 

 

 

 

Future minimum lease payments under non-cancellable leases as of June 30, 2019 and December 31, 2018 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

 

December 31,

 

    

2019

 

 

2018

 

 

 

 

 

 

 

2019

 

$

786

 

$

1,889

2020

 

 

2,473

 

 

2,473

2021

 

 

2,172

 

 

2,172

2022

 

 

2,171

 

 

2,171

2023

 

 

1,885

 

 

1,885

Thereafter

 

 

15,266

 

 

15,266

Total future minimum lease payments

 

$

24,753

 

$

25,856

 

 

 

 

 

 

 

Less imputed interest

 

$

(7,134)

 

$

N/A

Total operating lease liability

 

$

17,619

 

$

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

v3.19.2
Basis of Presentation (Policy)
6 Months Ended
Jun. 30, 2019
Basis of Presentation [Abstract]  
Income Taxes

Income Taxes

We file a consolidated federal income tax return. Deferred federal income taxes reflect the future tax consequences of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year end. Deferred taxes are recognized using the liability method, whereby tax rates are applied to cumulative temporary differences based on when and how they are expected to affect the tax return. Deferred tax assets and liabilities are adjusted for tax rate changes in effect for the year in which these temporary differences are expected to be recovered or settled.

Reclassifications

Reclassifications

Certain prior year amounts have been reclassified to conform with current year presentation.

Use of Estimates in the Preparation of the Financial Statements

Use of Estimates in the Preparation of the Financial Statements

Our preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect our reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the date of our consolidated financial statements, as well as our reported amounts of revenues and expenses during the reporting period. Refer to “Critical Accounting Estimates and Judgments” under Item 7 of our Annual Report on Form 10‑K for the year ended December 31, 2018 for information on accounting policies that we consider critical in preparing our consolidated financial statements. Actual results could differ materially from those estimates.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

Fair value estimates are made at a point in time based on relevant market data as well as the best information available about the financial instruments. Fair value estimates for financial instruments for which no or limited observable market data is available are based on judgments regarding current economic conditions, credit and interest rate risk. These estimates involve significant uncertainties and judgments and cannot be determined with precision. As a result, such calculated fair value estimates may not be realizable in a current sale or immediate settlement of the instrument. In addition, changes in the underlying assumptions used in the fair value measurement technique, including discount rate and estimates of future cash flows, could significantly affect these fair value estimates.

Cash and Cash Equivalents:  The carrying amounts reported in the balance sheet for these instruments approximate their fair values.

Restricted Cash:  The carrying amount for restricted cash reported in the balance sheet approximates the fair value.

Revolving Credit Facility Payable: A revolving credit facility with Frost Bank had a carried value of $30.0 million and a fair value of $30.2 million as of June 30, 2019. This revolving credit facility would be included in Level 3 of the fair value hierarchy if it was reported at fair value.

Subordinated Debt Securities:  Our trust preferred securities have a carried value of $55.8 million and a fair value of $42.6 million as of June 30, 2019. The fair value of our trust preferred securities is based on discounted cash flows using a current yield to maturity of 8.0%, which is based on similar issues to discount future cash flows. Our trust preferred securities would be included in Level 3 of the fair value hierarchy if they were reported at fair value.

For reinsurance balances, premiums receivable, federal income tax recoverable/payable, other assets and other liabilities, the carrying amounts approximate fair value because of the short maturity of such financial instruments.

Variable Interest Entities

Variable Interest Entities

On June 21, 2005, we formed Hallmark Statutory Trust I (“Trust I”), an unconsolidated trust subsidiary, for the sole purpose of issuing $30.0 million in trust preferred securities. Trust I used the proceeds from the sale of these securities and our initial capital contribution to purchase $30.9 million of subordinated debt securities from Hallmark. The debt securities are the sole assets of Trust I, and the payments under the debt securities are the sole revenues of Trust I.

On August 23, 2007, we formed Hallmark Statutory Trust II (“Trust II”), an unconsolidated trust subsidiary, for the sole purpose of issuing $25.0 million in trust preferred securities. Trust II used the proceeds from the sale of these securities and our initial capital contribution to purchase $25.8 million of subordinated debt securities from Hallmark. The debt securities are the sole assets of Trust II, and the payments under the debt securities are the sole revenues of Trust II.

We evaluate on an ongoing basis our investments in Trust I and Trust II (collectively the “Trusts”) and have determined that we do not have a variable interest in the Trusts. Therefore, the Trusts are not included in our consolidated financial statements.

We are also involved in the normal course of business with variable interest entities (“VIE’s”) primarily as a passive investor in mortgage-backed securities and certain collateralized corporate bank loans issued by third party VIE’s. The maximum exposure to loss with respect to these investments is the investment carrying values included in the consolidated balance sheets.

Adoption of New Accounting Pronouncements

Adoption of New Accounting Pronouncements

In February 2018, the FASB issued updated guidance that allows a reclassification of the stranded tax effects in accumulated other comprehensive income (AOCI) resulting from the Tax Cuts and Jobs Act of 2017 (TCJA). Current guidance requires the effect of a change in tax laws or rates on deferred tax balances to be reported in income from continuing operations in the accounting period that includes the period of enactment, even if the related income tax effects were originally charged or credited directly to AOCI. The amount of the reclassification would include the effect of the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts and related valuation allowances, if any, at the date of the enactment of TCJA related to items in AOCI. The updated guidance was effective for reporting periods beginning after December 15, 2018 and is to be applied retrospectively to each period in which the effect of the TCJA related to items remaining in AOCI are recognized or at the beginning of the period of adoption. Early adoption is permitted. The Company adopted the updated guidance effective January 1, 2018 and elected to reclassify the income tax effects of the TCJA from AOCI to retained earnings as of January 1, 2018. This reclassification resulted in a decrease in retained earnings of $2.6 million as of January 1, 2018 and an increase in AOCI by the same amount.

In March 2017, the FASB issued ASU 2017‑08, “Premium Amortization on Purchased Callable Securities” (Subtopic 310‑20). ASU 2017‑08 is intended to enhance the accounting for amortization of premiums for purchased callable debt securities. The guidance amends the amortization period for certain purchased callable debt securities held at a premium. Securities that contain explicit, noncontingent call features that are callable at fixed prices and on preset dates should shorten the amortization period for the premium to the earliest call date (and if the call option is not exercised, the effective yield is reset using the payment terms of the debt security). The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and is to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings. The adoption of ASU 2017‑08 had no impact on our financial results and disclosures.

In January 2017, the FASB issued ASU 2017‑01, “Clarifying the Definition of a Business (Topic 715)”. ASU 2017‑01 is intended to assist entities in evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017‑01 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The adoption of this standard did not have a material impact on our financial condition or results of operations.

In January 2016, the FASB issued ASU 2016‑01, “Recognition and Measurement of Financial Assets and Financial Liabilities” (Subtopic 825‑10). ASU 2016‑01 requires equity investments that are not consolidated or accounted for under the equity method of accounting to be measured at fair value with changes in fair value recognized in net income. ASU 2016‑01 also requires us to assess the ability to realize our deferred tax assets (“DTAs”) related to an available-for-sale debt security in combination with our other DTAs. ASU 2016‑01 was effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of this guidance resulted in the recognition of $17.0 million of net after-tax unrealized gains on equity investments as a cumulative effect adjustment that increased retained earnings as of January 1, 2018 and decreased AOCI by the same amount. The Company elected to report changes in the fair value of equity investments in investment gains (losses) in the Consolidated Statement of Operations. At December 31, 2017, equity investments were classified as available-for-sale on the Company’s balance sheet. However, upon adoption, the updated guidance eliminated the available-for-sale balance sheet classification for equity investments.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. ASU 2016-02 requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Additionally, ASU 2016-02 modifies current guidance for lessors' accounting. ASU 2016-02 is effective for interim and annual reporting periods beginning on or after January 1, 2019, with early adoption permitted. During 2018, the FASB issued several amendments and targeted improvements to ease the application of the standard, including the addition of a transition approach that gives the Company the option of applying the standard at either the beginning of the earliest comparative period presented or the beginning of the period of adoption. We adopted the standard on its effective date of January 1, 2019. We also elected certain practical expedients that allow us not to reassess existing leases under the new guidance. As of June 30, 2019, $17.1 million of right-of-use assets and $17.6 million of lease liabilities for operating leases were added to the other assets and other liabilities line items of the balance sheet, respectively, as a result of the adoption of this update.

In August 2016, the FASB issued ASU 2016‑15, “Classification of Certain Cash Receipts and Cash Payments” (Topic 230). ASU 2016‑15 will reduce diversity in practice on how eight specific cash receipts and payments are classified on the statement of cash flows. The ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those years. The adoption of this new guidance did not have a material impact on our financial results or disclosures.

In November 2016, the FASB issued ASU 2016‑18, “Statement of Cash Flows (Topic 230): Restricted Cash.” The purpose of ASU 2016‑18 is to eliminate the diversity in classifying and presenting changes in restricted cash in the statement of cash flows. The new guidance requires restricted cash to be combined with cash and cash equivalents when reconciling the beginning and ending balances of cash on the statement of cash flows, thereby no longer requiring transactions such as transfers between restricted and unrestricted cash to be treated as a cash flow activity. Further, the new guidance requires the nature of the restrictions to be disclosed, as well as a reconciliation between the balance sheet and the statement of cash flows on how restricted and unrestricted cash are segregated. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within that fiscal year, with early adoption permitted. Effective January 1, 2018, we retrospectively adopted this new guidance which did not have a material impact on our financial results or disclosures.

In May 2014, the FASB issued ASU 2014‑09, guidance which revises the criteria for revenue recognition. Under the guidance, the transaction price is attributed to underlying performance obligations in the contract and revenue is recognized as the entity satisfies the performance obligations and transfers control of a good or service to the customer. Incremental costs of obtaining a contract may be capitalized to the extent the entity expects to recover those costs. The guidance is effective for reporting periods beginning after December 15, 2017 and is to be applied retrospectively. Revenue from insurance contracts is excluded from the scope of this new guidance. While insurance contracts are excluded from this guidance, policy fee income, billing and other fees and fee income related to property business written as a cover-holder through a Lloyds Syndicate is subject to this updated guidance. The adoption of this new guidance did not have a material impact on our financial results or disclosures.

Recently Issued Accounting Pronouncements

On August 28, 2018, the FASB issued ASU 2018-13, “Fair Value Measurement: Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurement” (Topic 820), which amends ASC 820 to add, remove, and modify fair value measurement disclosure requirements.  The requirements to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements have all been removed. However, the changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period must be disclosed along with the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements (or other quantitative information if it is more reasonable). Finally, for investments measured at net asset value, the requirements have been modified so that the timing of liquidation and the date when restrictions from redemption might lapse are only disclosed if the investee has communicated the timing to the entity or announced the timing publicly. This ASU is effective for annual and interim reporting periods beginning after December 15, 2019. As the amendments are only disclosure related, our financial statements will not be materially impacted by this update.

In January 2017, the FASB issued ASU 2017‑04, “Simplifying the Test for Goodwill Impairment” (Topic 350). ASU 2017‑04 requires only a one-step quantitative impairment test, whereby a goodwill impairment loss will be measured as the excess of a reporting unit’s carrying amount over its fair value (not to exceed the total goodwill allocated to that reporting unit). It eliminates Step 2 of the current two-step goodwill impairment test, under which a goodwill impairment loss is measured by comparing the implied fair value of a reporting unit’s goodwill. The ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. We are currently evaluating the impact that the adoption of ASU 2017‑04 will have on our financial results and disclosures.

In June 2016, the FASB issued ASU 2016‑13, “Measurement of Credit Losses on Financial Instruments” (Topic 326). ASU 2016‑13 requires organizations to estimate credit losses on certain types of financial instruments, including receivables and available-for-sale debt securities, by introducing an approach based on expected losses. The expected loss approach will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. ASU 2016‑13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. ASU 2016‑13 requires a modified retrospective transition method and early adoption is permitted. We are currently evaluating the impact that the adoption of this standard will have on our financial results and disclosures, but do not anticipate that any potential impact would be material.    

v3.19.2
Fair Value (Tables)
6 Months Ended
Jun. 30, 2019
Fair Value [Abstract]  
Fair Value, Assets Measured on Recurring Basis

The following table presents for each of the fair value hierarchy levels, our assets that are measured at fair value on a recurring basis at June 30, 2019 and December 31, 2018 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2019

 

    

Quoted Prices in

    

 

 

    

 

 

    

 

 

 

 

Active Markets for

 

 

 

 

 

 

 

 

 

 

 

Identical Assets

 

Other Observable

 

Unobservable

 

 

 

 

    

(Level 1)

    

Inputs (Level 2)

    

Inputs (Level 3)

    

Total

U.S. Treasury securities and obligations of U.S. Government

 

$

 —

 

$

48,422

 

$

 -

 

$

48,422

Corporate bonds

 

 

 —

 

 

225,810

 

 

533

 

 

226,343

Collateralized corporate bank loans

 

 

 —

 

 

132,678

 

 

 -

 

 

132,678

Municipal bonds

 

 

 —

 

 

115,849

 

 

 -

 

 

115,849

Mortgage-backed

 

 

 —

 

 

9,856

 

 

 -

 

 

9,856

Total debt securities

 

 

 —

 

 

532,615

 

 

533

 

 

533,148

Total equity securities

 

 

94,012

 

 

 —

 

 

 —

 

 

94,012

Total other investments

 

 

2,585

 

 

 —

 

 

 —

 

 

2,585

Total investments

 

$

96,597

 

$

532,615

 

$

533

 

$

629,745

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2018

 

    

Quoted Prices in

    

 

 

    

 

 

    

 

 

 

 

Active Markets for

 

 

 

 

 

 

 

 

 

 

 

Identical Assets

 

Other Observable

 

Unobservable

 

 

 

 

    

(Level 1)

    

Inputs (Level 2)

    

Inputs (Level 3)

    

Total

U.S. Treasury securities and obligations of U.S. Government

 

$

 —

 

$

48,106

 

$

 —

 

$

48,106

Corporate bonds

 

 

 —

 

 

241,861

 

 

291

 

 

242,152

Collateralized corporate bank loans

 

 

 —

 

 

126,528

 

 

 —

 

 

126,528

Municipal bonds

 

 

 —

 

 

115,527

 

 

 —

 

 

115,527

Mortgage-backed

 

 

 —

 

 

13,557

 

 

 —

 

 

13,557

Total debt securities

 

 

 —

 

 

545,579

 

 

291

 

 

545,870

Total equity securities

 

 

80,896

 

 

 —

 

 

 —

 

 

80,896

Total other investments

 

 

1,148

 

 

 —

 

 

 —

 

 

1,148

Total investments

 

$

82,044

 

$

545,579

 

$

291

 

$

627,914

 

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation

The following table summarizes the changes in fair value for all financial assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the six months ended June 30, 2019 and 2018 (in thousands):

 

 

 

 

Beginning balance as of January 1, 2019

    

$

291

Sales

 

 

 —

Settlements

 

 

 —

Purchases

 

 

 —

Issuances

 

 

 —

Total realized/unrealized gains included in net income

 

 

242

Net gain included in other comprehensive income

 

 

 —

Transfers into Level 3

 

 

 —

Transfers out of Level 3

 

 

 —

Ending balance as of June 30, 2019

 

$

533

 

 

 

 

 

Beginning balance as of January 1, 2018

    

$

3,757

Sales

 

 

(2,925)

Settlements

 

 

 —

Purchases

 

 

 —

Issuances

 

 

 —

Total realized/unrealized gains included in net income

 

 

104

Net gains included in other comprehensive income

 

 

 —

Transfers into Level 3

 

 

 —

Transfers out of Level 3

 

 

(621)

Ending balance as of June 30, 2018

 

$

315

 

v3.19.2
Investments (Tables)
6 Months Ended
Jun. 30, 2019
Investments [Abstract]  
Amortized Cost and Estimated Fair Value of Investments in Debt and Equity Securities by Category

The amortized cost and estimated fair value of investments in debt and equity securities by category is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Gross

    

Gross

    

 

 

 

 

 

 

 

Unrealized

 

Unrealized

 

 

 

 

    

Amortized Cost

    

Gains

    

Losses

    

Fair Value

As of June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of U.S. Government

 

$

48,369

 

$

112

 

$

(59)

 

$

48,422

Corporate bonds

 

 

223,770

 

 

2,813

 

 

(240)

 

 

226,343

Collateralized corporate bank loans

 

 

133,840

 

 

59

 

 

(1,221)

 

 

132,678

Municipal bonds

 

 

114,638

 

 

1,304

 

 

(93)

 

 

115,849

Mortgage-backed

 

 

9,899

 

 

51

 

 

(94)

 

 

9,856

Total debt securities

 

 

530,516

 

 

4,339

 

 

(1,707)

 

 

533,148

Total equity securities

 

 

68,709

 

 

30,657

 

 

(5,354)

 

 

94,012

Total other investments

 

 

3,763

 

 

 —

 

 

(1,178)

 

 

2,585

Total investments

 

$

602,988

 

$

34,996

 

$

(8,239)

 

$

629,745

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2018

 

 

  

 

 

  

 

 

 

 

 

  

U.S. Treasury securities and obligations of U.S. Government

 

$

48,609

 

$

 5

 

$

(508)

 

$

48,106

Corporate bonds

 

 

243,314

 

 

440

 

 

(1,602)

 

 

242,152

Collateralized corporate bank loans

 

 

131,779

 

 

19

 

 

(5,270)

 

 

126,528

Municipal bonds

 

 

112,574

 

 

3,791

 

 

(838)

 

 

115,527

Mortgage-backed

 

 

13,992

 

 

11

 

 

(446)

 

 

13,557

Total debt securities

 

 

550,268

 

 

4,266

 

 

(8,664)

 

 

545,870

Total equity securities

 

 

68,709

 

 

20,693

 

 

(8,506)

 

 

80,896

Total other investments

 

 

3,763

 

 

 —

 

 

(2,615)

 

 

1,148

Total investments

 

$

622,740

 

$

24,959

 

$

(19,785)

 

$

627,914

 

Major Categories of Net Investment Gains (Losses) on Investments

Major categories of net investment gains (losses) on investments are summarized as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

Six Months Ended June 30, 

 

 

    

2019

    

2018

    

2019

    

2018

    

U.S. Treasury securities and obligations of U.S. Government

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

Corporate bonds

 

 

(6)

 

 

(14)

 

 

17

 

 

(22)

 

Collateralized corporate bank loans

 

 

21

 

 

35

 

 

38

 

 

47

 

Municipal bonds

 

 

46

 

 

 2

 

 

4,147

 

 

(19)

 

Mortgage-backed

 

 

(1)

 

 

(1)

 

 

(1)

 

 

 1

 

Equity securities

 

 

 —

 

 

359

 

 

 —

 

 

359

 

Gain on investments

 

 

60

 

 

381

 

 

4,201

 

 

366

 

Unrealized gains (losses) on equity securities

 

 

5,356

 

 

553

 

 

13,116

 

 

(3,904)

 

Unrealized gains (losses) on other investments

 

 

1,401

 

 

(401)

 

 

1,437

 

 

(764)

 

Investment gains (losses), net

 

$

6,817

 

$

533

 

$

18,754

 

$

(4,302)

 

 

Summary of Gross Unrealized Gain (Loss) on Investments

The following schedules summarize the gross unrealized losses showing the length of time that investments have been continuously in an unrealized loss position as of June 30, 2019 and December 31, 2018 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2019

 

 

12 months or less

 

Longer than 12 months

 

Total

 

    

 

 

    

Unrealized

    

 

 

    

Unrealized

    

 

 

    

Unrealized

 

    

Fair Value

    

Losses

    

Fair Value

    

Losses

    

Fair Value

    

Losses

U.S. Treasury securities and obligations of U.S. Government

 

$

 —

 

$

 —

 

$

23,216

 

$

(59)

 

$

23,216

 

$

(59)

Corporate bonds

 

 

18,143

 

 

(144)

 

 

36,011

 

 

(96)

 

 

54,154

 

 

(240)

Collateralized corporate bank loans

 

 

85,804

 

 

(871)

 

 

17,564

 

 

(350)

 

 

103,368

 

 

(1,221)

Municipal bonds

 

 

10,898

 

 

(55)

 

 

5,735

 

 

(38)

 

 

16,633

 

 

(93)

Mortgage-backed

 

 

3,518

 

 

(6)

 

 

3,911

 

 

(88)

 

 

7,429

 

 

(94)

Total debt securities

 

 

118,363

 

 

(1,076)

 

 

86,437

 

 

(631)

 

 

204,800

 

 

(1,707)

Total equity securities

 

 

7,952

 

 

(1,588)

 

 

4,524

 

 

(3,766)

 

 

12,476

 

 

(5,354)

Total other investments

 

 

28

 

 

(10)

 

 

2,557

 

 

(1,168)

 

 

2,585

 

 

(1,178)

Total investments

 

$

126,343

 

$

(2,674)

 

$

93,518

 

$

(5,565)

 

$

219,861

 

$

(8,239)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2018

 

 

12 months or less

 

Longer than 12 months

 

Total

 

    

 

 

    

Unrealized

    

 

 

    

Unrealized

    

 

 

    

Unrealized

 

    

Fair Value

    

Losses

    

Fair Value

    

Losses

    

Fair Value

    

Losses

U.S. Treasury securities and obligations of U.S. Government

 

$

18,902

 

$

(181)

 

$

28,201

 

$

(327)

 

$

47,103

 

$

(508)

Corporate bonds

 

 

117,450

 

 

(907)

 

 

100,060

 

 

(695)

 

 

217,510

 

 

(1,602)

Collateralized corporate bank loans

 

 

120,410

 

 

(4,938)

 

 

4,931

 

 

(332)

 

 

125,341

 

 

(5,270)

Municipal bonds

 

 

14,281

 

 

(96)

 

 

25,891

 

 

(742)

 

 

40,172

 

 

(838)

Mortgage-backed

 

 

6,592

 

 

(60)

 

 

5,986

 

 

(386)

 

 

12,578

 

 

(446)

Total debt securities

 

 

277,635

 

 

(6,182)

 

 

165,069

 

 

(2,482)

 

 

442,704

 

 

(8,664)

Total equity securities

 

 

30,981

 

 

(3,699)

 

 

4,475

 

 

(4,807)

 

 

35,456

 

 

(8,506)

Total other investments

 

 

1,148

 

 

(2,615)

 

 

 —

 

 

 —

 

 

1,148

 

 

(2,615)

Total investments

 

$

309,764

 

$

(12,496)

 

$

169,544

 

$

(7,289)

 

$

479,308

 

$

(19,785)

 

Carrying Value of Other Invested Assets Portfolio

Details regarding the carrying value of the other investments portfolio as of June 30, 2019 and December 31, 2018 are as follows (in thousands):

 

 

 

 

 

 

 

 

    

June 30, 

    

December 31, 

 

    

2019

    

2018

Investment Type

 

 

  

 

 

  

Equity warrant

 

$

2,585

 

$

1,148

Total other investments

 

$

2,585

 

$

1,148

 

Schedule of Amortized Cost and Estimated Fair Value of Debt Securities by Contractual Maturities

 

 

 

 

 

 

 

 

    

Amortized Cost

    

Fair Value

 

 

(in thousands)

Due in one year or less

 

$

117,306

 

$

117,293

Due after one year through five years

 

 

276,397

 

 

278,718

Due after five years through ten years

 

 

96,047

 

 

95,636

Due after ten years

 

 

30,867

 

 

31,645

Mortgage-backed

 

 

9,899

 

 

9,856

 

 

$

530,516

 

$

533,148

 

v3.19.2
Reserves for Unpaid Losses and Loss Adjustment Expenses (Tables)
6 Months Ended
Jun. 30, 2019
Reserves for Unpaid Losses and Loss Adjustment Expenses [Abstract]  
Summary of Activity in Reserves for Unpaid Losses and LAE

Activity in the consolidated reserves for unpaid losses and LAE is summarized as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

June 30,

 

June 30,

 

 

 

2019

 

2018

 

Balance at January 1

 

$

527,247

 

 

527,100

 

Less reinsurance recoverable

 

 

221,716

 

 

154,612

 

Net balance at January 1

 

 

305,531

 

 

372,488

 

 

 

 

 

 

 

 

 

Incurred related to:

 

 

  

 

 

  

 

Current year

 

 

141,909

 

 

122,870

 

Prior years

 

 

1,404

 

 

4,453

 

Total incurred

 

 

143,313

 

 

127,323

 

 

 

 

 

 

 

 

 

Paid related to:

 

 

  

 

 

  

 

Current year

 

 

38,563

 

 

28,321

 

Prior years

 

 

107,899

 

 

140,339

 

Total paid

 

 

146,462

 

 

168,660

 

 

 

 

 

 

 

 

 

Net balance at June 30

 

 

302,382

 

 

331,151

 

Plus reinsurance recoverable

 

 

249,161

 

 

189,401

 

Balance at June 30

 

$

551,543

 

$

520,552

 

 

Impact of Net Prior Years Loss Development by Segment

 

 

 

 

 

 

 

 

 

June 30, 

 

 

2019

    

2018

Specialty Commercial Segment

 

$

5,203

 

$

6,861

Standard Commercial Segment

 

 

(3,583)

 

 

(1,560)

Personal Segment

 

 

(216)

 

 

(848)

Corporate

 

 

 —

 

 

 —

Total (favorable) net prior year development

 

$

1,404

 

$

4,453

 

v3.19.2
Share-Based Payment Arrangements (Tables)
6 Months Ended
Jun. 30, 2019
Share-Based Payment Arrangements [Abstract]  
Summary of the Status of Stock Options

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

Average

    

 

 

 

 

 

 

 

 

 

Remaining

 

Aggregate

 

 

Number of

 

Weighted Average

 

Contractual

 

Intrinsic Value

 

    

Shares

    

Exercise Price

    

Term (Years)

    

($000)

Outstanding at January 1, 2019

 

244,157

 

$

6.63

 

  

 

 

  

Granted

 

 —

 

 

 —

 

  

 

 

  

Exercised

 

(230,000)

 

$

6.61

 

  

 

 

  

Forfeited or expired

 

 —

 

$

 —

 

  

 

 

  

Outstanding at June 30, 2019

 

14,157

 

$

6.99

 

2.5

 

$

102

Exercisable at  June 30, 2019

 

14,157

 

$

6.99

 

2.5

 

$

102

 

Schedule of Options, Grants in Period and Grant Date Intrinsic Value

The following table details the intrinsic value of options exercised, total cost of share-based payments charged against income before income tax benefit and the amount of related income tax benefit recognized in income for the periods indicated (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended

 

 

Six Months Ended

 

 

June 30, 

 

 

June 30, 

 

    

2019

    

2018

 

2019

 

2018

Intrinsic value of options exercised

 

$

 —

 

$

122

 

$

845

 

$

122

Cost of share-based payments (non-cash)

 

$

 —

 

$

 —

 

$

 —

 

$

 —

Income tax benefit of share-based payments recognized in income

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

Summary of the Status of Restricted Stock Units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Restricted Stock Units

 

 

    

2019

    

2018

 

Nonvested at January 1

 

338,897

 

385,779

 

Granted

 

 —

 

 —

 

Vested

 

 —

 

(8,198)

 

Forfeited

 

(83,210)

 

(182,743)

 

Nonvested at June 30

 

255,687

 

194,838

 

 

v3.19.2
Segment Information (Tables)
6 Months Ended
Jun. 30, 2019
Segment Information [Abstract]  
Schedule of Business Segment Information

The following is business segment information for the three and six months ended June 30, 2019 and 2018 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

    

2019

    

2018

 

2019

 

2018

 

Revenues

 

 

  

 

 

  

 

 

  

 

 

  

 

Specialty Commercial Segment

 

$

73,592

 

$

72,081

 

$

141,559

 

$

145,205

 

Standard Commercial Segment

 

 

17,310

 

 

19,247

 

 

35,683

 

 

38,122

 

Personal Segment

 

 

23,116

 

 

7,916

 

 

42,599

 

 

15,536

 

Corporate

 

 

6,885

 

 

(1,119)

 

 

19,183

 

 

(7,397)

 

Consolidated

 

$

120,903

 

$

98,125

 

$

239,024

 

$

191,466

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax income (loss)

 

 

  

 

 

  

 

 

  

 

 

  

 

Specialty Commercial Segment

 

$

10,427

 

$

8,770

 

$

18,395

 

$

18,528

 

Standard Commercial Segment

 

 

2,057

 

 

2,656

 

 

3,564

 

 

3,975

 

Personal Segment

 

 

2,441

 

 

(1)

 

 

4,014

 

 

(23)

 

Corporate

 

 

1,559

 

 

(5,053)

 

 

9,429

 

 

(15,299)

 

Consolidated

 

$

16,484

 

$

6,372

 

$

35,402

 

$

7,181

 

 

Schedule of Additional Business Segment Information

The following is additional business segment information as of the dates indicated (in thousands):

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

Assets:

 

2019

 

2018

Specialty Commercial Segment

 

$

1,005,810

 

$

858,262

Standard Commercial Segment

 

 

184,101

 

 

158,881

Personal Segment

 

 

170,348

 

 

226,431

Corporate

 

 

45,509

 

 

21,320

 Consolidated

 

$

1,405,768

 

$

1,264,894

 

v3.19.2
Reinsurance (Tables)
6 Months Ended
Jun. 30, 2019
Reinsurance [Abstract]  
Schedule of Reinsurance Ceded and Recoveries

The following table shows earned premiums ceded and reinsurance loss recoveries by period (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

    

2019

    

2018

    

2019

    

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Ceded earned premiums

 

$

76,309

 

$

68,635

 

$

146,455

 

$

130,264

Reinsurance recoveries

 

$

58,975

 

$

43,989

 

$

107,564

 

$

93,427

 

v3.19.2
Deferred Policy Acquisition Costs (Tables)
6 Months Ended
Jun. 30, 2019
Deferred Policy Acquisition Costs [Abstract]  
Deferred Amortized Policy Acquisition Costs

The following table shows total deferred and amortized policy acquisition cost activity by period (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred

 

$

(35,871)

 

$

6,306

 

$

(47,547)

 

$

16,671

Amortized

 

 

34,788

 

 

(8,242)

 

 

41,530

 

 

(18,615)

Net

 

$

(1,083)

 

$

(1,936)

 

$

(6,017)

 

$

(1,944)

 

v3.19.2
Earnings per Share (Tables)
6 Months Ended
Jun. 30, 2019
Earnings per Share [Abstract]  
Schedule of Weighted Average Number of Shares Outstanding

The following table sets forth basic and diluted weighted average shares outstanding for the periods indicated (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

    

2019

  

  

2018

    

2019

  

  

2018

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares - basic

 

18,123

 

 

18,067

 

18,090

 

 

18,116

Effect of dilutive securities

 

128

 

 

107

 

160

 

 

114

Weighted average shares - assuming dilution

 

18,251

 

 

18,174

 

18,250

 

 

18,230

 

v3.19.2
Net Periodic Pension Cost (Tables)
6 Months Ended
Jun. 30, 2019
Net Periodic Pension Cost [Abstract]  
Schedule of Net Benefit Costs

The following table details the net periodic pension cost incurred by period (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

 

June 30, 

 

    

2019

    

2018

    

2019

    

2018

Interest cost

 

$

114

 

$

106

 

$

227

 

$

212

Amortization of net loss

 

 

36

 

 

26

 

 

72

 

 

53

Expected return on plan assets

 

 

(150)

 

 

(174)

 

 

(299)

 

 

(347)

Net periodic pension cost

 

$

 —

 

$

(42)

 

$

 —

 

$

(82)

Contributed amount

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

v3.19.2
Supplemental Cash Flow Information (Tables)
6 Months Ended
Jun. 30, 2019
Supplemental Cash Flow Information [Abstract]  
Reconciliation of Cash, Cash Equivalents and Restricted Cash in Balance Sheet to Cash Flows

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the consolidated balance sheet to the total of the same such amounts shown in the statement of cash flows (in thousands):

 

 

 

 

 

 

 

 

 

As of June 30,

 

    

2019

    

2018

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

67,670

 

$

79,583

Restricted cash

 

 

3,486

 

 

3,078

Total cash, cash equivalents and restricted cash shown in the statement of cash flows

 

$

71,156

 

$

82,661

 

Supplemental Cash Flow Information

The following table provides supplemental cash flow information for the six months ended June 30, 2019 and 2018:

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 

 

    

2019

    

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest paid

 

$

2,527

 

$

2,145

 

 

 

 

 

 

 

Income taxes paid (recovered)

 

$

2,848

 

$

(5,287)

 

 

 

 

 

 

 

Supplemental schedule of non-cash investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Receivable for securities related to investment disposals

 

$

2,581

 

$

3,780

 

 

 

 

 

 

 

Payable for securities related to investment purchases

 

$

3,167

 

$

6,706

 

v3.19.2
Changes in Accumulated Other Comprehensive Income Balances (Tables)
6 Months Ended
Jun. 30, 2019
Changes in Accumulated Other Comprehensive Income Balances [Abstract]  
Schedule of Changes in Accumulated Other Comprehensive Income

The changes in accumulated other comprehensive income balances as of June 30, 2019 and 2018 were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

Accumulated Other

 

 

Pension

 

Unrealized

 

Comprehensive

 

    

Liability

    

Gains (Loss)

    

Income (Loss)

Balance at December 31, 2017

 

$

(2,310)

 

$

14,544

 

$

12,234

Other comprehensive income:

 

 

  

 

 

  

 

 

  

Change in net actuarial gain

 

 

53

 

 

 —

 

 

53

Tax effect on change in net actuarial gain

 

 

(11)

 

 

 —

 

 

(11)

Unrealized holding gains arising during the period

 

 

 —

 

 

1,926

 

 

1,926

Tax effect on unrealized gains arising during the period

 

 

 —

 

 

(404)

 

 

(404)

Reclassification adjustment for realized gains included in investment gains and losses

 

 

 —

 

 

(366)

 

 

(366)

Tax effect on reclassification adjustment for gains included in income tax expense

 

 

 —

 

 

77

 

 

77

Other comprehensive income, net of tax

 

 

42

 

 

1,233

 

 

1,275

Reclassification of certain tax effects from accumulated other comprehensive income at January 1, 2018

 

 

(569)

 

 

3,188

 

 

2,619

Cumulative effect of adoption of updated accounting guidance for equity financial instruments at January 1, 2018

 

 

 —

 

 

(16,993)

 

 

(16,993)

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2018

 

$

(2,837)

 

$

1,972

 

$

(865)

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

$

(3,334)

 

$

(3,326)

 

$

(6,660)

Other comprehensive income:

 

 

  

 

 

  

 

 

  

Change in net actuarial gain

 

 

72

 

 

 —

 

 

72

Tax effect on change in net actuarial gain

 

 

(15)

 

 

 —

 

 

(15)

Unrealized holding gains arising during the period

 

 

 —

 

 

11,233

 

 

11,233

Tax effect on unrealized gains arising during the period

 

 

 —

 

 

(2,359)

 

 

(2,359)

Reclassification adjustment for gains included in net realized gains

 

 

 —

 

 

(4,201)

 

 

(4,201)

Tax effect on reclassification adjustment for gains included in income tax expense

 

 

 —

 

 

883

 

 

883

Other comprehensive income, net of tax

 

 

57

 

 

5,556

 

 

5,613

Balance at June 30, 2019

 

$

(3,277)

 

$

2,230

 

$

(1,047)

 

v3.19.2
Leases (Tables)
6 Months Ended
Jun. 30, 2019
Leases [Abstract]  
Summary of components of lease expense and other lease information

The components of lease expense and other lease information as of and during the three and six-month periods ended June 30, 2019 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

June 30, 

 

June 30, 

 

2019

 

 

2019

    

 

 

 

 

 

 

 

 

Operating lease cost

$

816

 

 

$

1,356

 

 

 

 

 

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities

 

 

 

 

 

 

 

   Operating cash flows from operating leases

$

552

 

 

$

1,103

 

 

 

 

 

 

 

 

 

Right-of-use assets obtained in exchange for new operating lease liabilities

$

 —

 

 

$

 —

 

 

Summary of balance sheet components

The components of lease expense and other lease information as of and during the six-month period ended June 30, 2019 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

    

2019

 

 

 

 

Operating lease right-of-use assets

 

$

17,109

 

 

 

 

Operating lease liabilities

 

$

17,619

 

 

 

 

Weighted-average remaining lease term - operating leases

 

 

10.7

 

 

 

 

Weighted-average discount rate - operating leases

 

 

5.88%

 

Summary of future minimum lease payments under non-cancellable leases as of March 31, 2019

 

 

 

 

 

 

 

 

 

June 30, 

 

 

December 31,

 

    

2019

 

 

2018

 

 

 

 

 

 

 

2019

 

$

786

 

$

1,889

2020

 

 

2,473

 

 

2,473

2021

 

 

2,172

 

 

2,172

2022

 

 

2,171

 

 

2,171

2023

 

 

1,885

 

 

1,885

Thereafter

 

 

15,266

 

 

15,266

Total future minimum lease payments

 

$

24,753

 

$

25,856

 

 

 

 

 

 

 

Less imputed interest

 

$

(7,134)

 

$

N/A

Total operating lease liability

 

$

17,619

 

$

N/A

 

v3.19.2
General (Narrative) (Details)
6 Months Ended
Jun. 30, 2019
segment
subsidiary
General [Abstract]  
Number of subsidiaries | subsidiary 6
Number of reportable segments | segment 3
v3.19.2
Basis of Presentation (Narrative) (Details) - USD ($)
$ in Thousands
6 Months Ended
Jan. 01, 2018
Aug. 23, 2007
Jun. 21, 2005
Jun. 30, 2019
Dec. 31, 2017
Variable Interest Entity [Line Items]          
Equity Securities, FV-NI, Unrealized Gain $ 17,000        
Reclassification out of AOCI as a result of Tax Act $ (2,600)        
Right-of-use assets       $ 17,109  
Lease liabilities       17,619  
Accumulated Other Comprehensive Income (Loss) [Member]          
Variable Interest Entity [Line Items]          
Reclassification out of AOCI as a result of Tax Act         $ 2,619
Retained Earnings [Member]          
Variable Interest Entity [Line Items]          
Reclassification out of AOCI as a result of Tax Act         (2,619)
Accounting Standards Update 2016-01 [Member] | Accumulated Other Comprehensive Income (Loss) [Member]          
Variable Interest Entity [Line Items]          
Cumulative effect of new accounting principle in period of adoption         (16,993)
Accounting Standards Update 2016-01 [Member] | Retained Earnings [Member]          
Variable Interest Entity [Line Items]          
Cumulative effect of new accounting principle in period of adoption         $ 16,993
Revolving Credit Facility B [Member]          
Variable Interest Entity [Line Items]          
Credit facility, amount outstanding       30,000  
Credit facility, fair value       30,200  
Hallmark Statutory Trust I [Member]          
Variable Interest Entity [Line Items]          
Proceeds from issuance of trust preferred securities     $ 30,000    
Hallmark Statutory Trust II [Member]          
Variable Interest Entity [Line Items]          
Proceeds from issuance of trust preferred securities   $ 25,000      
Subordinated Debt [Member]          
Variable Interest Entity [Line Items]          
Trust preferred securities, carrying value       55,800  
Trust preferred securities, fair value       $ 42,600  
Current yield to maturity percentage       8.00%  
Subordinated Debt [Member] | Hallmark Statutory Trust I [Member]          
Variable Interest Entity [Line Items]          
Payments to acquire trust preferred investments     $ 30,900    
Subordinated Debt [Member] | Hallmark Statutory Trust II [Member]          
Variable Interest Entity [Line Items]          
Payments to acquire trust preferred investments   $ 25,800      
v3.19.2
Fair Value (Narrative) (Details)
$ in Thousands
Jun. 30, 2019
USD ($)
Fair Value [Abstract]  
Transfer of assets from level 1 to level 2 $ 0
Transfer of assets from level 2 to level 1 0
Transfer of liabilities from level 1 to level 2 0
Transfer of liabilities from level 2 to level 1 $ 0
v3.19.2
Fair Value (Fair Value of Assets Measured on a Recurring Basis) (Details) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Total debt securities $ 533,148 $ 545,870
Total equity securities 94,012 80,896
Total investments 629,745 627,914
Equity Securities [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Total equity securities 94,012 80,896
Other Investments [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Total equity securities 2,585 1,148
Mortgage Backed [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Total debt securities 9,856  
Fair Value, Recurring [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Total debt securities 533,148 545,870
Total investments 629,745 627,914
Fair Value, Recurring [Member] | Equity Securities [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Total equity securities 94,012 80,896
Fair Value, Recurring [Member] | Other Investments [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Total equity securities 2,585 1,148
Fair Value, Recurring [Member] | U.S. Treasury Securities and Obligations of U.S. Government [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Total debt securities 48,422 48,106
Fair Value, Recurring [Member] | Corporate Bonds [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Total debt securities 226,343 242,152
Fair Value, Recurring [Member] | Collateralized Corporate Bank Loans [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Total debt securities 132,678 126,528
Fair Value, Recurring [Member] | Municipal Bonds [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Total debt securities 115,849 115,527
Fair Value, Recurring [Member] | Mortgage Backed [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Total debt securities 9,856 13,557
Quoted Prices in Active Markets for Identical Assets, Level 1 [Member] | Fair Value, Recurring [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Total investments 96,597 82,044
Quoted Prices in Active Markets for Identical Assets, Level 1 [Member] | Fair Value, Recurring [Member] | Equity Securities [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Total equity securities 94,012 80,896
Quoted Prices in Active Markets for Identical Assets, Level 1 [Member] | Fair Value, Recurring [Member] | Other Investments [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Total equity securities 2,585 1,148
Other Observable Inputs, Level 2 [Member] | Fair Value, Recurring [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Total debt securities 532,615 545,579
Total investments 532,615 545,579
Other Observable Inputs, Level 2 [Member] | Fair Value, Recurring [Member] | U.S. Treasury Securities and Obligations of U.S. Government [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Total debt securities 48,422 48,106
Other Observable Inputs, Level 2 [Member] | Fair Value, Recurring [Member] | Corporate Bonds [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Total debt securities 225,810 241,861
Other Observable Inputs, Level 2 [Member] | Fair Value, Recurring [Member] | Collateralized Corporate Bank Loans [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Total debt securities 132,678 126,528
Other Observable Inputs, Level 2 [Member] | Fair Value, Recurring [Member] | Municipal Bonds [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Total debt securities 115,849 115,527
Other Observable Inputs, Level 2 [Member] | Fair Value, Recurring [Member] | Mortgage Backed [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Total debt securities 9,856 13,557
Unobservable Inputs, Level 3 [Member] | Fair Value, Recurring [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Total debt securities 533 291
Total investments 533 291
Unobservable Inputs, Level 3 [Member] | Fair Value, Recurring [Member] | Corporate Bonds [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Total debt securities $ 533 $ 291
v3.19.2
Fair Value (Fair Value, Assets Measured on Recurring Basis Using Significant Unobservable Inputs (Level 3)) (Details) - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]    
Beginning balance $ 291 $ 3,757
Sales   2,925
Settlements  
Purchases  
Issuances
Total realized/unrealized gains included in net income 242 104
Net gains included in other comprehensive income  
Transfers into Level 3
Transfers out of Level 3   (621)
Ending balance $ 533 $ 315
v3.19.2
Investments (Narrative) (Details)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
USD ($)
security
Jun. 30, 2018
USD ($)
Jun. 30, 2019
USD ($)
security
Jun. 30, 2018
USD ($)
Dec. 31, 2018
security
Schedule of Available-for-sale Securities [Line Items]          
Gross gains on investments $ 200 $ 500 $ 4,400 $ 600  
Gross losses on investments 100 100 200 200  
Proceeds from sale of investment securities $ 100 $ 14,200 7,000 $ 14,200  
Debt Securities, Available-for-sale, Continuous Unrealized Loss Position, Number of Positions [Abstract]          
Other-than-temporary impairment     $ 0    
Debt Securities [Member]          
Debt Securities, Available-for-sale, Continuous Unrealized Loss Position, Number of Positions [Abstract]          
Number of debt securities with unrealized loss | security 173   173   328
Number of debt securities with unrealized loss, less than 12 months | security 117   117   221
Number of debt securities with unrealized loss, greater than 12 months | security 56   56   107
v3.19.2
Investments (Amortized Cost and Estimated Fair Value of Investments in Debt and Equity Securities by Category) (Details) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Debt Securities, Available-for-sale, Fair Value to Amortized Cost [Abstract]    
Debt securities, Amortized Cost $ 530,516 $ 550,268
Total debt securities 533,148 545,870
Equity Securities, Available-for-sale, Fair Value to Amortized Cost [Abstract]    
Equity securities, Amortized Cost 68,709 68,709
Total equity securities 94,012 80,896
Investments, Available-for-sale, Fair Value to Amortized Cost [Abstract]    
Investments, Amortized cost 602,988 622,740
Investments, Gross Unrealized Gains 34,996 24,959
Investments, Gross Unrealized Losses (8,239) (19,785)
Investments, Fair value 629,745 627,914
Mortgage Backed [Member]    
Debt Securities, Available-for-sale, Fair Value to Amortized Cost [Abstract]    
Debt securities, Amortized Cost 9,899  
Total debt securities 9,856  
Debt Securities [Member]    
Debt Securities, Available-for-sale, Fair Value to Amortized Cost [Abstract]    
Debt securities, Amortized Cost 530,516 550,268
Debt securities, Gross Unrealized Gain 4,339 4,266
Debt securities, Gross Unrealized Loss (1,707) (8,664)
Total debt securities 533,148 545,870
Debt Securities [Member] | U.S. Treasury Securities and Obligations of U.S. Government [Member]    
Debt Securities, Available-for-sale, Fair Value to Amortized Cost [Abstract]    
Debt securities, Amortized Cost 48,369 48,609
Debt securities, Gross Unrealized Gain 112 5
Debt securities, Gross Unrealized Loss (59) (508)
Total debt securities 48,422 48,106
Debt Securities [Member] | Corporate Bonds [Member]    
Debt Securities, Available-for-sale, Fair Value to Amortized Cost [Abstract]    
Debt securities, Amortized Cost 223,770 243,314
Debt securities, Gross Unrealized Gain 2,813 440
Debt securities, Gross Unrealized Loss (240) (1,602)
Total debt securities 226,343 242,152
Debt Securities [Member] | Collateralized Corporate Bank Loans [Member]    
Debt Securities, Available-for-sale, Fair Value to Amortized Cost [Abstract]    
Debt securities, Amortized Cost 133,840 131,779
Debt securities, Gross Unrealized Gain 59 19
Debt securities, Gross Unrealized Loss (1,221) (5,270)
Total debt securities 132,678 126,528
Debt Securities [Member] | Municipal Bonds [Member]    
Debt Securities, Available-for-sale, Fair Value to Amortized Cost [Abstract]    
Debt securities, Amortized Cost 114,638 112,574
Debt securities, Gross Unrealized Gain 1,304 3,791
Debt securities, Gross Unrealized Loss (93) (838)
Total debt securities 115,849 115,527
Debt Securities [Member] | Mortgage Backed [Member]    
Debt Securities, Available-for-sale, Fair Value to Amortized Cost [Abstract]    
Debt securities, Amortized Cost 9,899 13,992
Debt securities, Gross Unrealized Gain 51 11
Debt securities, Gross Unrealized Loss (94) (446)
Total debt securities 9,856 13,557
Equity Securities [Member]    
Equity Securities, Available-for-sale, Fair Value to Amortized Cost [Abstract]    
Equity securities, Amortized Cost 68,709 68,709
Equity Securities, Gross Unrealized Gains 30,657 20,693
Equity Securities, Gross Unrealized Losses (5,354) (8,506)
Total equity securities 94,012 80,896
Other Investments [Member]    
Equity Securities, Available-for-sale, Fair Value to Amortized Cost [Abstract]    
Equity securities, Amortized Cost 3,763 3,763
Equity Securities, Gross Unrealized Losses (1,178) (2,615)
Total equity securities $ 2,585 $ 1,148
v3.19.2
Investments (Major Categories of Net Investment Gains (Losses) on Investments) (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Gain (Loss) on Securities [Line Items]        
Investment gains (losses), net $ 6,817 $ 533 $ 18,754 $ (4,302)
Debt Securities [Member]        
Gain (Loss) on Securities [Line Items]        
Gain (loss) on investments 60 381 4,201 366
Equity Securities [Member]        
Gain (Loss) on Securities [Line Items]        
Gain (loss) on equity securities   359   359
Unrealized gains (losses) on equity securities 5,356 553 13,116 (3,904)
Other Investments [Member]        
Gain (Loss) on Securities [Line Items]        
Unrealized gains (losses) on equity securities 1,401 (401) 1,437 (764)
U.S. Treasury Securities and Obligations of U.S. Government [Member] | Debt Securities [Member]        
Gain (Loss) on Securities [Line Items]        
Gain (loss) on investments
Corporate Bonds [Member] | Debt Securities [Member]        
Gain (Loss) on Securities [Line Items]        
Gain (loss) on investments (6) (14) 17 (22)
Collateralized Corporate Bank Loans [Member] | Debt Securities [Member]        
Gain (Loss) on Securities [Line Items]        
Gain (loss) on investments 21 35 38 47
Municipal Bonds [Member] | Debt Securities [Member]        
Gain (Loss) on Securities [Line Items]        
Gain (loss) on investments 46 2 4,147 (19)
Mortgage Backed [Member] | Debt Securities [Member]        
Gain (Loss) on Securities [Line Items]        
Gain (loss) on investments $ (1) $ (1) $ (1) $ 1
v3.19.2
Investments (Summary of Gross Unrealized Gain (Loss) on Investments) (Details) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Investments, Unrealized Loss Position, Fair Value    
Investments, Fair Value 12 months or less $ 126,343 $ 309,764
Investments, Fair Value Longer than 12 months 93,518 169,544
Investments, Total Fair Value 219,861 479,308
Investments, Unrealized Losses    
Investments, Unrealized Losses 12 months or less (2,674) (12,496)
Investments, Unrealized Losses Longer than 12 months (5,565) (7,289)
Investments, Total Unrealized Losses (8,239) (19,785)
Debt Securities [Member]    
Debt Securities, Unrealized Loss Position, Fair Value    
Debt securities, Fair Value 12 months or less 118,363 277,635
Debt securities, Fair Value Longer than 12 months 86,437 165,069
Debt securities, Total Fair Value 204,800 442,704
Debt securities, Unrealized Losses    
Debt securities, Unrealized Losses 12 months or less (1,076) (6,182)
Debt securities, Unrealized Losses Longer than 12 months (631) (2,482)
Debt securities, Total Unrealized Losses 1,707 8,664
Debt Securities [Member] | U.S. Treasury Securities and Obligations of U.S. Government [Member]    
Debt Securities, Unrealized Loss Position, Fair Value    
Debt securities, Fair Value 12 months or less   18,902
Debt securities, Fair Value Longer than 12 months 23,216 28,201
Debt securities, Total Fair Value 23,216 47,103
Debt securities, Unrealized Losses    
Debt securities, Unrealized Losses 12 months or less   (181)
Debt securities, Unrealized Losses Longer than 12 months (59) (327)
Debt securities, Total Unrealized Losses 59 508
Debt Securities [Member] | Corporate Bonds [Member]    
Debt Securities, Unrealized Loss Position, Fair Value    
Debt securities, Fair Value 12 months or less 18,143 117,450
Debt securities, Fair Value Longer than 12 months 36,011 100,060
Debt securities, Total Fair Value 54,154 217,510
Debt securities, Unrealized Losses    
Debt securities, Unrealized Losses 12 months or less (144) (907)
Debt securities, Unrealized Losses Longer than 12 months (96) (695)
Debt securities, Total Unrealized Losses 240 1,602
Debt Securities [Member] | Collateralized Corporate Bank Loans [Member]    
Debt Securities, Unrealized Loss Position, Fair Value    
Debt securities, Fair Value 12 months or less 85,804 120,410
Debt securities, Fair Value Longer than 12 months 17,564 4,931
Debt securities, Total Fair Value 103,368 125,341
Debt securities, Unrealized Losses    
Debt securities, Unrealized Losses 12 months or less (871) (4,938)
Debt securities, Unrealized Losses Longer than 12 months (350) (332)
Debt securities, Total Unrealized Losses 1,221 5,270
Debt Securities [Member] | Municipal Bonds [Member]    
Debt Securities, Unrealized Loss Position, Fair Value    
Debt securities, Fair Value 12 months or less 10,898 14,281
Debt securities, Fair Value Longer than 12 months 5,735 25,891
Debt securities, Total Fair Value 16,633 40,172
Debt securities, Unrealized Losses    
Debt securities, Unrealized Losses 12 months or less (55) (96)
Debt securities, Unrealized Losses Longer than 12 months (38) (742)
Debt securities, Total Unrealized Losses 93 838
Debt Securities [Member] | Mortgage Backed [Member]    
Debt Securities, Unrealized Loss Position, Fair Value    
Debt securities, Fair Value 12 months or less 3,518 6,592
Debt securities, Fair Value Longer than 12 months 3,911 5,986
Debt securities, Total Fair Value 7,429 12,578
Debt securities, Unrealized Losses    
Debt securities, Unrealized Losses 12 months or less (6) (60)
Debt securities, Unrealized Losses Longer than 12 months (88) (386)
Debt securities, Total Unrealized Losses 94 446
Equity Securities [Member]    
Equity Securities, Unrealized Loss Position, Fair Value    
Equity securities, Fair Value 12 months or less 7,952 30,981
Equity securities, Fair Value Longer than 12 months 4,524 4,475
Equity securities, Total Fair Value 12,476 35,456
Equity Securities, Unrealized Loss    
Equity securities, Unrealized Losses 12 months or less (1,588) (3,699)
Equity securities, Unrealized Losses Longer than 12 months (3,766) (4,807)
Equity securities, Total Unrealized Losses (5,354) (8,506)
Other Investments [Member]    
Equity Securities, Unrealized Loss Position, Fair Value    
Equity securities, Fair Value 12 months or less 28 1,148
Equity securities, Fair Value Longer than 12 months 2,557  
Equity securities, Total Fair Value 2,585 1,148
Equity Securities, Unrealized Loss    
Equity securities, Unrealized Losses 12 months or less (10)  
Equity securities, Unrealized Losses Longer than 12 months (1,168) (2,615)
Equity securities, Total Unrealized Losses $ (1,178) $ (2,615)
v3.19.2
Investments (Carrying Value of Other Invested Assets Portfolio) (Details) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Investments [Abstract]    
Equity warrant $ 2,585 $ 1,148
Total other investments $ 2,585 $ 1,148
v3.19.2
Investments (Schedule of Amortized Cost and Estimated Fair Value of Debt Securities by Contractual Maturities) (Details) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Schedule of Available-for-sale Securities [Line Items]    
Amortized Cost, Due in one year or less $ 117,306  
Amortized Cost, Due after one year through five years 276,397  
Amortized Cost, Due after five years through ten years 96,047  
Amortized Cost, Amortized Cost Due after ten years 30,867  
Debt Maturities, Amortized Cost 530,516 $ 550,268
Fair Value, Due in one year or less 117,293  
Fair Value, Due after one year through five years 278,718  
Fair Value, Due after five years through ten years 95,636  
Fair Value, Due after ten years 31,645  
Total debt securities 533,148 $ 545,870
Mortgage Backed [Member]    
Schedule of Available-for-sale Securities [Line Items]    
Debt Maturities, Amortized Cost 9,899  
Total debt securities $ 9,856  
v3.19.2
Pledged Investments (Narrative) (Details) - USD ($)
$ in Millions
Jun. 30, 2019
Dec. 31, 2018
Pledged Investments [Abstract]    
Securities available-for-sale pledged, carrying value $ 29.7 $ 29.5
v3.19.2
Reserves for Unpaid Losses and Loss Adjustment Expenses (Activity in the Reserves for Unpaid Losses and Loss Adjustment Expense) (Details) - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Reserves for Unpaid Losses and Loss Adjustment Expenses [Abstract]    
Balance at January 1 $ 527,247 $ 527,100
Less reinsurance recoverable 221,716 154,612
Net balance at January 1 305,531 372,488
Incurred related to:    
Current year 141,909 122,870
Prior years 1,404 4,453
Total incurred 143,313 127,323
Paid related to:    
Current year 38,563 28,321
Prior years 107,899 140,339
Total paid 146,462 168,660
Net balance at June 30 302,382 331,151
Plus reinsurance recoverable 249,161 189,401
Balance at June 30 $ 551,543 $ 520,552
v3.19.2
Reserves for Unpaid Losses and Loss Adjustment Expenses (Causes for Prior Accident Year Reserve Development by Segment) (Details) - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]    
Total (favorable) net prior year development $ 1,404 $ 4,453
Specialty Commercial Segment [Member]    
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]    
Total (favorable) net prior year development 5,203 6,861
Standard Commercial Segment [Member]    
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]    
Total (favorable) net prior year development (3,583) (1,560)
Personal Segment [Member]    
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]    
Total (favorable) net prior year development $ (216) $ (848)
v3.19.2
Share-Based Payment Arrangements (Narrative) (Details) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                
Stock options, Granted     0 0        
Long Term Incentive Plan 2005 [Member]                
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                
Number of incentive stock options outstanding     0          
Share-based compensation arrangement by share-based payment award, non-qualified stock options to purchase number of shares     14,157          
Long Term Incentive Plan 2015 [Member]                
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                
Share-based compensation arrangement by share-based payment award, number of shares authorized 2,000,000   2,000,000          
Share-based compensation arrangement by share-based payment award, restricted stock options to purchase number of shares     383,530          
Stock options, Granted     0          
Long Term Incentive Plan 2005 and 2015 [Member]                
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                
Unrecognized compensation cost related to non-vested share-based compensation arrangements $ 0   $ 0          
Prior To 2009 Incentive Stock Options [Member] | Long Term Incentive Plan 2005 [Member] | First Anniversary [Member]                
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Percentage 10.00%   10.00%          
Prior To 2009 Incentive Stock Options [Member] | Long Term Incentive Plan 2005 [Member] | Second Anniversary [Member]                
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Percentage 20.00%   20.00%          
Prior To 2009 Incentive Stock Options [Member] | Long Term Incentive Plan 2005 [Member] | Third Anniversary [Member]                
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Percentage 30.00%   30.00%          
Prior To 2009 Incentive Stock Options [Member] | Long Term Incentive Plan 2005 [Member] | Fourth Anniversary [Member]                
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Percentage 40.00%   40.00%          
Prior To 2009 Incentive Stock Options [Member] | Long Term Incentive Plan 2005 [Member] | Minimum [Member]                
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                
Stock-based compensation incentive stock options grant under incentive plan termination period     5 years          
Prior To 2009 Incentive Stock Options [Member] | Long Term Incentive Plan 2005 [Member] | Maximum [Member]                
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                
Stock-based compensation incentive stock options grant under incentive plan termination period     10 years          
Incentive Stock Options 2010 [Member] | Long Term Incentive Plan 2005 [Member]                
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                
Stock-based compensation incentive stock options grant under incentive plan termination period     10 years          
Non Qualified Stock Options [Member] | Long Term Incentive Plan 2005 [Member]                
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                
Share-based compensation arrangement by share-based payment award, award vesting rights, percentage     100.00%          
Stock-based compensation incentive stock options grant under incentive plan termination period     10 years          
Share-based payment, award vesting period     6 months          
Non Qualified Stock Options [Member] | Long Term Incentive Plan 2005 [Member] | 200,000 Grant [Member]                
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                
Stock-based compensation incentive stock options grant under incentive plan termination period     10 years          
Number of options vested or expected to vest 200,000   200,000          
Restricted Stock Units (RSUs) [Member]                
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                
Unrecognized compensation cost related to non-vested share-based compensation arrangements $ 1,400   $ 1,400          
Employee Service Share-based Compensation Nonvested Awards, Total Compensation Cost Expected To Recognize During Remainder Of Year     300          
Employee Service Share-based Compensation Nonvested Awards, Total Compensation Cost Expected to Recognize During Remainder of Year Two     500          
Employee Service Share-based Compensation Nonvested Awards, Total Compensation Cost Expected to Recognize During Year Three     100          
Employee Service Share-based Compensation Nonvested Awards, Total Compensation Cost Expected to Recognized     $ 900          
Other than options, forfeited     83,210 182,743        
Vested       8,198        
Allocated share-based compensation expense 140 $ (43) $ 197 $ 1        
Income tax benefit of share-based payments recognized in income $ 29 $ 9 $ 41          
Restricted Stock Units (RSUs) [Member] | Minimum [Member]                
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                
Percentage of restricted stock units granted as result of meeting growth rates 50.00%   50.00%          
Restricted Stock Units (RSUs) [Member] | Maximum [Member]                
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                
Percentage of restricted stock units granted as result of meeting growth rates 150.00%   150.00%          
Restricted Stock Units (RSUs) [Member] | Long Term Incentive Plan 2015 [Member]                
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                
Other than options, grant date fair value         $ 10.87 $ 10.20 $ 11.41 $ 11.10
v3.19.2
Share-Based Payment Arrangements (Summary of the Status of Stock Options) (Details) - USD ($)
$ / shares in Units, $ in Thousands
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Share-Based Payment Arrangements [Abstract]    
Stock Options, Outstanding at January 1, 2019 244,157  
Stock options, Granted 0 0
Stock Options, Exercised (230,000)  
Stock Options, Forfeited or Expired  
Stock Options, Outstanding at June 30,2019 14,157  
Stock Options, Exercisable at June 30, 2019 14,157  
Weighted Average Exercise Price, Outstanding at January 1, 2019 $ 6.63  
Weighted Average Exercise Price, Exercised 6.61  
Weighted Average Exercise Price, Forfeited or Expired  
Weighted Average Exercise Price, Outstanding at June 30, 2019 6.99  
Weighted Average Exercise Price, Exercisable at June 30, 2019 $ 6.99  
Average Remaining Contractual Term, Outstanding at June 30, 2019 2 years 6 months  
Average Remaining Contractual Term, Exercisable at June 30, 2019 2 years 6 months  
Aggregate Intrinsic Value, Outstanding at June 30, 2019 $ 102  
Aggregate Intrinsic Value, Exercisable at June 30, 2019 $ 102  
v3.19.2
Share-Based Payment Arrangements (Schedule of Options, Grants in Period and Grant Date Intrinsic Value) (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Cost of share-based payments (non-cash)     $ 197 $ 1
Employee Stock Option [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Intrinsic value of options exercised   $ 122 845 122
Cost of share-based payments (non-cash)
Income tax benefit of share-based payments recognized in income
v3.19.2
Share-Based Payment Arrangements (Summary of the Status of Restricted Stock Units) (Details) - Restricted Stock Units (RSUs) [Member] - shares
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Nonvested at January 1 338,897 385,779
Vested   (8,198)
Forfeited (83,210) (182,743)
Nonvested at June 30 255,687 194,838
v3.19.2
Segment Information (Schedule of Business Segment Information) (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Revenues [Abstract]        
Revenues $ 120,903 $ 98,125 $ 239,024 $ 191,466
Pre-Tax Income (Loss) [Abstract]        
Pre-tax income (loss) 16,484 6,372 35,402 7,181
Specialty Commercial Segment [Member]        
Revenues [Abstract]        
Revenues 73,592 72,081 141,559 145,205
Pre-Tax Income (Loss) [Abstract]        
Pre-tax income (loss) 10,427 8,770 18,395 18,528
Standard Commercial Segment [Member]        
Revenues [Abstract]        
Revenues 17,310 19,247 35,683 38,122
Pre-Tax Income (Loss) [Abstract]        
Pre-tax income (loss) 2,057 2,656 3,564 3,975
Personal Segment [Member]        
Revenues [Abstract]        
Revenues 23,116 7,916 42,599 15,536
Pre-Tax Income (Loss) [Abstract]        
Pre-tax income (loss) 2,441 (1) 4,014 (23)
Corporate [Member]        
Revenues [Abstract]        
Revenues 6,885 (1,119) 19,183 (7,397)
Pre-Tax Income (Loss) [Abstract]        
Pre-tax income (loss) $ 1,559 $ (5,053) $ 9,429 $ (15,299)
v3.19.2
Segment Information (Schedule of Additional Business Segment Information) (Details) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Segment Reporting Information [Line Items]    
Assets $ 1,405,768 $ 1,264,894
Specialty Commercial Segment [Member]    
Segment Reporting Information [Line Items]    
Assets 1,005,810 858,262
Standard Commercial Segment [Member]    
Segment Reporting Information [Line Items]    
Assets 184,101 158,881
Personal Segment [Member]    
Segment Reporting Information [Line Items]    
Assets 170,348 226,431
Corporate [Member]    
Segment Reporting Information [Line Items]    
Assets $ 45,509 $ 21,320
v3.19.2
Reinsurance (Schedule of Reinsurance Ceded and Recoveries) (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Reinsurance [Abstract]        
Ceded earned premiums $ 76,309 $ 68,635 $ 146,455 $ 130,264
Reinsurance recoveries $ 58,975 $ 43,989 $ 107,564 $ 93,427
v3.19.2
Revolving Credit Facility (Narrative) (Details)
$ in Millions
6 Months Ended
Jun. 30, 2019
USD ($)
Facility A Revolving Credit Facility [Member]  
Line of Credit Facility [Line Items]  
Line of credit facility, maximum borrowing capacity $ 15.0
Line of credit facility, unused capacity, commitment fee percentage 0.25%
Line of credit facility, amount outstanding $ 0.0
Facility A Revolving Credit Sub-Facility [Member]  
Line of Credit Facility [Line Items]  
Line of credit facility, maximum borrowing capacity $ 5.0
Line of credit facility, unused capacity, commitment fee percentage 1.00%
Facility B Revolving Credit Facility [Member]  
Line of Credit Facility [Line Items]  
Line of credit facility, maximum borrowing capacity $ 30.0
Line of credit facility, unused capacity, commitment fee percentage 0.25%
Line of credit facility, amount outstanding $ 30.0
London Interbank Offered Rate (LIBOR) [Member] | Facility A Revolving Credit Facility [Member]  
Line of Credit Facility [Line Items]  
Line of credit facility, interest rate during period 2.50%
London Interbank Offered Rate (LIBOR) [Member] | Facility B Revolving Credit Facility [Member]  
Line of Credit Facility [Line Items]  
Line of credit facility, unused capacity, commitment fee percentage 3.00%
v3.19.2
Subordinated Debt Securities (Narrative) (Details) - USD ($)
$ in Millions
6 Months Ended
Aug. 23, 2007
Jun. 21, 2005
Jun. 30, 2019
Hallmark Statutory Trust I [Member] | Subordinated Debt Due In 2035 [Member]      
Subordinated Borrowing [Line Items]      
Long-term debt, gross   $ 30.9 $ 30.9
Proceeds from issuance of trust preferred securities   30.0  
Proceeds from issuance of common stock   $ 0.9  
Subordinated borrowing, interest rate   7.725% 5.66%
Debt instrument, interest rate fixed to floating date   Jun. 15, 2015  
Debt instrument, maturity date   Jun. 15, 2015  
Debt instrument, description of variable rate basis     interest adjusts quarterly to the three-month LIBOR rate plus 3.25 percentage points
Hallmark Statutory Trust II [Member] | Subordinated Debt Due In 2037 [Member]      
Subordinated Borrowing [Line Items]      
Long-term debt, gross $ 25.8   $ 25.8
Proceeds from issuance of trust preferred securities 25.0    
Proceeds from issuance of common stock $ 0.8    
Subordinated borrowing, interest rate 8.28%   5.31%
Debt instrument, interest rate fixed to floating date Sep. 15, 2017    
Debt instrument, maturity date Sep. 15, 2017    
Debt instrument, description of variable rate basis     three-month LIBOR rate plus 2.90 percentage points
London Interbank Offered Rate (LIBOR) [Member] | Hallmark Statutory Trust I [Member] | Subordinated Debt Due In 2035 [Member]      
Subordinated Borrowing [Line Items]      
Debt instrument, basis spread on variable rate     3.25%
London Interbank Offered Rate (LIBOR) [Member] | Hallmark Statutory Trust II [Member] | Subordinated Debt Due In 2037 [Member]      
Subordinated Borrowing [Line Items]      
Subordinated borrowing, interest rate     2.90%
v3.19.2
Deferred Policy Acquisition Costs (Deferred Amortized Policy Acquisition Costs) (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Document and Entity Information [Abstract]        
Deferred, additions   $ 6,306   $ 16,671
Deferred, disposition $ (35,871)   $ (47,547)  
Amortized 34,788 (8,242) 41,530 (18,615)
Net $ (1,083) $ (1,936) $ (6,017) $ (1,944)
v3.19.2
Earnings Per Share (Narrative) (Details) - shares
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Earnings per Share [Abstract]        
Antidilutive securities excluded from computation of earnings per share 0 62,500 0 62,500
v3.19.2
Earnings Per Share (Schedule of Earnings Per Share, Basic and Diluted) (Details) - shares
shares in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Earnings per Share [Abstract]        
Weighted average shares - basic 18,123 18,067 18,090 18,116
Effect of dilutive securities 128 107 160 114
Weighted average shares - assuming dilution 18,251 18,174 18,250 18,230
v3.19.2
Net Periodic Pension Cost (Schedule of Net Benefit Costs) (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Net Periodic Pension Cost [Abstract]        
Interest cost $ 114 $ 106 $ 227 $ 212
Amortization of net loss 36 26 72 53
Expected return on plan assets (150) (174) (299) (347)
Net periodic pension cost   (42)   (82)
Contributed amount
v3.19.2
Income Taxes (Narrative) (Details)
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Income Taxes [Abstract]    
Effective income tax rate, continuing operations 20.80% 20.10%
v3.19.2
Supplemental Cash Flow Information (Reconciliation of Cash, Cash Equivalents and Restricted Cash to Statement of Cash Flows) (Details) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Jun. 30, 2018
Dec. 31, 2017
Supplemental Cash Flow Information [Abstract]        
Cash and cash equivalents $ 67,670 $ 35,594 $ 79,583  
Restricted cash 3,486 4,877 3,078  
Total cash, cash equivalents and restricted cash shown in the statement of cash flows $ 71,156 $ 40,471 $ 82,661 $ 67,633
v3.19.2
Supplemental Cash Flow Information (Supplemental Cash Flow Information) (Details) - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Supplemental Cash Flow Information [Abstract]    
Interest paid $ 2,527 $ 2,145
Income taxes paid (recovered) 2,848 (5,287)
Receivable for securities related to investment disposals 2,581 3,780
Payable for securities related to investment purchases $ 3,167 $ 6,706
v3.19.2
Changes in Accumulated Other Comprehensive Income Balances (Schedule of Accumulated Other Comprehensive Income (Loss)) (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Jan. 01, 2018
Dec. 31, 2017
Accumulated Other Comprehensive Income (Loss) [Line Items]            
Beginning Balance     $ (6,660)      
Other comprehensive income:            
Change in net actuarial gain $ 37 $ 26 72 $ 53    
Tax effect on change in net actuarial gain (8) (5) (15) (11)    
Unrealized holding gains (losses) arising during the period 3,460 2,321 11,233 1,926    
Tax effect on unrealized gains arising during the period (727) (487) (2,359) (404)    
Reclassification adjustment for realized (gain) losses included in investment gains and losses (60) (381) (4,201) (366)    
Tax effect on reclassification adjustment for gains (losses) included in income tax expense 13 80 883 77    
Other comprehensive income, net of tax 2,715 1,554 5,613 1,275    
Reclassification of certain tax effects from accumulated other comprehensive income at January 1,2018         $ (2,600)  
Ending Balance (1,047)   (1,047)      
Pension Liability [Member]            
Accumulated Other Comprehensive Income (Loss) [Line Items]            
Beginning Balance     (3,334) (2,310)    
Other comprehensive income:            
Change in net actuarial gain     72 53    
Tax effect on change in net actuarial gain     (15) (11)    
Other comprehensive income, net of tax     57 42    
Reclassification of certain tax effects from accumulated other comprehensive income at January 1,2018           $ (569)
Ending Balance (3,277) (2,837) (3,277) (2,837)    
Unrealized Gain (Loss) [Member]            
Accumulated Other Comprehensive Income (Loss) [Line Items]            
Beginning Balance     (3,326) 14,544    
Other comprehensive income:            
Unrealized holding gains (losses) arising during the period     11,233 1,926    
Tax effect on unrealized gains arising during the period     (2,359) (404)    
Reclassification adjustment for realized (gain) losses included in investment gains and losses     (4,201) (366)    
Tax effect on reclassification adjustment for gains (losses) included in income tax expense     883 77    
Other comprehensive income, net of tax     5,556 1,233    
Reclassification of certain tax effects from accumulated other comprehensive income at January 1,2018           3,188
Ending Balance 2,230 1,972 2,230 1,972    
Unrealized Gain (Loss) [Member] | Accounting Standards Update 2016-01 [Member]            
Other comprehensive income:            
Cumulative effect of adoption of updated accounting guidance for equity financial instruments at January 1,2018           (16,993)
Accumulated Other Comprehensive Income (Loss) [Member]            
Accumulated Other Comprehensive Income (Loss) [Line Items]            
Beginning Balance     (6,660) 12,234    
Other comprehensive income:            
Change in net actuarial gain     72 53    
Tax effect on change in net actuarial gain     (15) (11)    
Unrealized holding gains (losses) arising during the period     11,233 1,926    
Tax effect on unrealized gains arising during the period     (2,359) (404)    
Reclassification adjustment for realized (gain) losses included in investment gains and losses     (4,201) (366)    
Tax effect on reclassification adjustment for gains (losses) included in income tax expense     883 77    
Other comprehensive income, net of tax     5,613 1,275    
Reclassification of certain tax effects from accumulated other comprehensive income at January 1,2018           2,619
Ending Balance $ (1,047) $ (865) $ (1,047) $ (865)    
Accumulated Other Comprehensive Income (Loss) [Member] | Accounting Standards Update 2016-01 [Member]            
Other comprehensive income:            
Cumulative effect of adoption of updated accounting guidance for equity financial instruments at January 1,2018           $ (16,993)
v3.19.2
Leases (Narrative) (Details)
6 Months Ended
Jun. 30, 2019
Lessee, Lease, Description [Line Items]  
Lease, Practical Expedients true
Options to extend true
Minimum [Member]  
Lessee, Lease, Description [Line Items]  
Remaining lease term 1 year
Maximum [Member]  
Lessee, Lease, Description [Line Items]  
Remaining lease term 13 years
v3.19.2
Leases (Components of Lease Expense and Other Lease Information) (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2019
Leases [Abstract]    
Operating Lease Cost $ 816 $ 1,356
Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases 552 1,103
Right-of-use assets obtained in exchange for new operating lease liabilities
Short-term lease payments   $ 16
v3.19.2
Leases (Component of Lease and Other Information) (Details)
$ in Thousands
Jun. 30, 2019
USD ($)
Leases [Abstract]  
Operating lease right-of-use assets $ 17,109
Operating lease liabilities $ 17,619
Weighted-average remaining lease term - operating leases 10 years 8 months 12 days
Weighted-average discount rate - operating leases 5.88%
v3.19.2
Leases (Maturities) (Details) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Future minimum lease payments under non-cancellable leases as of June30, 2019    
2019 $ 786  
2020 2,473  
2021 2,172  
2022 2,171  
2023 1,885  
Thereafter 15,266  
Total future minimum lease payments 24,753  
Less imputed interest (7,134)  
Operating lease liabilities $ 17,619  
Future minimum lease payments under non-cancellable leases as of December 31, 2018    
2019   $ 1,889
2020   2,473
2021   2,172
2022   2,171
2023   1,885
Thereafter   15,266
Total future minimum lease payments   $ 25,856