Texas Insurer Hallmark Financial Exiting Binding Primary Commercial Auto Business

Citing loss development for prior underwriting years, Dallas-based specialty property/casualty insurer Hallmark Financial Services Inc., is exiting its Binding Primary Auto business.

The commercial auto product the company is exiting is primary coverage written through brokers, who have binding authority once the company decides to issue a quote.

In a media release, Hallmark Financial said it continued to experience increasing claim severity in the business from prior accident years, despite several years of implementing proactive rate actions and policy changes. Its in-force policies will be placed into run-off and non-renewed in accordance with applicable state requirements, the company said.

Naveen Anand, president and CEO of Hallmark Financial, stated, “Over the past few years, we have worked diligently to diversify our business mix in specialty insurance, while continuing to work to improve our binding auto results to a level of sustainable profitability. Ultimately, we have seen greater than expected claim severity throughout all of commercial auto and made the decision to fully focus on our growing specialty lines.”

Anand added the company will “work with our agency partners to assist in the transition from binding auto, and evaluate reinsurance options that help to facilitate an orderly exit, such as an adverse development cover or loss portfolio transfer, to mitigate future volatility associated with this book of business.”

Hallmark Financial said its annual insurance statutory reports, filed on March 2, include pre-tax adverse prior year loss development of $63.8 million, net of reinsurance, for fiscal 2019, as provided in Schedule P, of which $56.1 million was recorded in the fourth quarter of 2019. These losses are primarily related to the Binding Primary Auto business for the 2016 and 2017 underwriting years, with a smaller remainder largely attributable to general liability. These amounts are unaudited and based on statutory requirements rather than generally accepted accounting principles.

Hallmark Financial’s Binding Primary Auto portfolio represented approximately $114 million of the company’s gross written premiums for 2019 and has ceased writing new business.

The company scaled back its Binding Primary Auto line of business in recent years, including a reduction of 60% in total policies in-force since 2016 (from over 10,000 to approximately 4,200 at year-end 2019).

In line with state regulatory guidelines, the company will non-renew all policies and expects this business to fully run-off by the second quarter of 2021.

The adverse prior year reserve development taken for the fourth quarter of 2019 was driven by increasing claim severity, particularly in the Binding Primary Auto market segment.

Over the past five years, Binding Primary Auto has been responsible for over 100% of the company’s aggregate adverse prior year reserve development.

Favorable market conditions persist in the company’s specialty businesses, which continue to see improvements in rates, terms and conditions, and reductions in policy limits, the company said.

Hallmark Financial began writing Binding Primary Auto in 2006 with the purchase of Texas General Agency. This business is focused on small fleet (1 to 10 units) Primary Commercial Auto Liability and Physical Damage policies produced through a binding arrangement with general agents.

Business production peaked in 2016, with the company writing over 10,000 policies that year, and generating $185 million in gross premiums written. By 2019, this business had been scaled back to approximately $114 million in gross premiums written, with an in-force policy count totaling around 4,200 (a reduction of approximately 60% since 2016).

At year-end 2019, the Binding Primary Auto business operated in only four states: Texas, Oklahoma, Arkansas and Missouri, with a heavy concentration (87%) in Texas. The company previously withdrew its Binding Primary Auto business from Louisiana and Mississippi in 2016.

Despite achieving significant rate increases in this portfolio and improving the overall risk profile of the book, the performance of this business continued to be volatile. Over the past five years, the Binding Primary Auto business was responsible for over 100% of the company’s aggregate adverse reserve development.

The company will continue to write Brokerage Primary Auto and Excess Auto focused on specialized classes of middle market transportation-for-hire trucking and business auto fleets operated by professional drivers, placed through a limited number of wholesale brokers. Brokerage Primary Auto is currently authorized to write in 39 states, and Excess Auto is written in 50 states. The company does not write any ridesharing, livery, taxi, or public transportation business.

Hallmark Financial is a specialty property and casualty insurance company with a diversified portfolio of insurance products written on a national platform. With six insurance subsidiaries and offices in Dallas-Fort Worth, Atlanta, Chicago, Jersey City, and San Antonio, Hallmark Financial markets, underwrites and services over $750 million annually in commercial and personal insurance premiums in select markets.

Source: Hallmark Financial Services Inc.