Hallmark Financial Services, Inc. · OTC:HALL
Hallmark Financial Services — Investor Presentation (November 2006)
28 slides from Hallmark Financial Services's investor presentation, Nov 27, 2006
Slide 1: Investor Conference Presentation, November 2006
4 HALLMARK FINANCIAL Bb SERVICES, INC. Investor Conference Presentation November 2006
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation includes certain forward-looking statements regarding our expected performance for future periods and actual results for such periods may materially ciffer. ‘These statements are intended as “forward-looking statements” under the Private Securities Litiga
Slide 3: Overview
Overview Mark Schwarz Executive Chairman
Slide 4: Who We Are
Who We Are « Diversified specialty property/casualty insurer + Market, distribute, underwrite and service personal and commercial insurance in selected markets —Focused on short-tailed lines in underserved sectors + Four Operating Units: — HGA Operating Unit: Standard commercial insurance Ka -1GA Op
Slide 5: Our History
Our History 1990 2002 2006 Legacy insurance operations begin, focusing on Texas non-standard auto market Newcastle Partners makes first investment Mark Schwarz becomes Chairman — Brings new direction, new management team Diversify into commercial lines with acquisition of Hallmark General Agency Exp
Slide 6: Our Philosophy
Our Philosophy Create a Premier Specialty Insurer Focused on Profitability and Long Term Growth of Shareholder Equity Build strong management team with interests aligned to shareholders Concentrate on specialty insurance niches Create well diversified business lines Selectively acquire well position
Slide 7: Our Management Team
Our Management Team Name Corporate Mark Schwarz Mark Morrison Jeff Passmore Operating Kevin Kasitz Don Meyer Brooks Davis Curtis Donnell Position Executive Chairman Chief Executive Officer Chief Accounting Officer President - HGA President - TGA President — Phoenix President — Aerospace Industry Exp
Slide 8: Business Strategy: Specialty/Niche Insurance
Business Strategy: Specialty/Niche Insurance + Property/casualty insurance products: — Underserved markets — limited competition — Highly customized products to meet unique needs of insureds — Low price sensitivity — Low-severity and short-tailed — Underwriting expertise critical + Operating Units:
Slide 9: Culture Based on Underwriting
Culture Based on Underwriting + Goal: Generate an underwriting profit on all business + Emphasis on bottom-line profitability over top-line growth + Underwriters’ bonuses based on underwriting performance + Underwriters’ average experience is over 15 years + Reinsurance used to manage earnings volat
Slide 10: Business Review
Business Review Mark Morrison President & CEO
Slide 11: HGA Operating Unit
HGA Operating Unit 4 4 Gross Premiums Produced + Specialty: By Operating Unit — Small, low-hazard commercial package business — Focused on rural and suburban markets + Agency Relationships: — Long-standing relationships — Selectively chosen group of 165 independent retail agents in TX, NM, OR, ID, M
Slide 12: TGA Operating Unit
TGA Operating Unit Gross Premiums Produced + Specialty: — Difficult-to-place small business risk — Primarily commercial auto and general liability + Agency Relationships: — 36 independent general agencies in TX, OK and LA — 825 retail agents in TX + Growth Opportunities: By Operating Unit ese — Incr
Slide 13: Aerospace Operating Unit
Aerospace Operating Unit Gross Premiums Produced By Operating Unit [ $219 million as of 9/06YTD ] Specialty: — General aviation: airports and small AEROSPACE 4 small airplanes — NewdAransitional pilots and older aircraft Agency Relationships: — 215 specialty aviation brokers in 48 states Growth Oppo
Slide 14: Phoenix Operating Unit
Phoenix Operating Unit nati Gross Premiums Produced + Specialty: By Operating Unit — Non-standard personal auto + Agency Relationships: — 920 independent retail agents in TX, NM, AZ, OK and ID — Focus on ease of doing business through technology + Growth Opportunities: — Expand into new geographical
Slide 15: Key Growth Drivers
Key Growth Drivers 1. Increased Retention: - Significantly increase revenue on existing production — Existing book of business highly profitable — Provides low-risk earnings growth potential through 2009 2. Organic Growth: — Expand existing businesses into new geographies — Opportunity to sell produ
Slide 16: Key Growth Driver #1: Increased Retention
Key Growth Driver #1: Increased Retention Gross Premium Retention oe - * Significantly increase As of September 2006 earnings potential through retention of (8 in Millions ) current business + Retained only 67% of premiums produced in 2006. + Goal: Increase retention to 100% of production over next
Slide 17: Financial Overview
Financial Overview
Slide 18: Summary Income Statement
Summary Income Statement Nine Months Ended (Sin nousands, accept per share data) ‘Year Ended December 31, September 20, 7003 7004 2005 7005 2006 Gross Premiums Produced $124,264 $119,308 $118,056 $00,217 — $219,083 Gross Premiums Written 4338 -35.389 88,487 62,985 153,718 Net Premiums Eamed 975-2445
Slide 19: Select Financial Highlights
Select Financial Highlights Nhe Months Ended cage ‘Year Ended December 31 September 30 T2Morths 9-Manthe 2008 2004 2005 Zan. 2006 _ 2006-05 2006-06 Gross premiums written $493,538 $ 33,989 § 89,67 $ 62,905 $153,718 106% «144% Net premiums eamed 41975 «2445 SO,L84 B,727 104,887 9% «171% Total revenue
Slide 20: Pro Forma Capitalization
Pro Forma Capitalization Capital structure designed to maximize ROE, sustain current financial strength ratings and provide flexibility for future working capital needs. (8 in thousands) As of September 30,2006 Actual ‘As Adjusted Debt Short term Debt $29,840 $17,340 Long-term Debt 55 516 43,316 Tru
Slide 21: Investment Portfolio
Investment Portfolio Investment Portfolio Objective: Maximize total return As of September 2006 Short-Term Investments, $40.2Nn while maintaining safety of capital — 2% of portfolio invested in equities — Tax equivalent yield on fixed-income portfolio of approximately 4.8% — Weighted-average duratio
Slide 22: Investment Considerations
Investment Considerations + Management's interests aligned with shareholders + Substantial low-risk growth potential through retention of existing business—geographic expansion—and acquisitions + Disciplined underwriting strategy focused on profitability + Track record of strong underwriting perform
Slide 23: Analysts' consensus forecasts for Hallmark and peer group (table)
The following table presents independent analysts’ consensus forecasts for Hallmark and its peer group of companies. Hallmark does not provide guidance with respect to future earnings and this analysis should not be construed as such Mat ey __poe" prey Gp _ eo naa we te 14 18 3 x0 a Naked rio 23 Pis
Slide 24: Analysts' consensus forecasts for Hallmark and peer group (graph)
24 The following graph presents independent analysts’ consensus forecasts for Hallmark and its peer group of companies. Hallmark does not provide guidance with respect to future earnings and this analysis should not be construed as such 4 HALLMARK FINANCIAL. pees ive
Slide 25: Analysts' consensus forecasts for Hallmark and peer group (graph)
26 The following graph presents independent analysts’ consensus forecasts for Hallmark and its peer group of companies. Hallmark does not provide guidance with respect to future earnings and this analysis should not be construed as such 4 HALLMARK FINANCIAL. pees ive
Slide 26: Three-year stock performance of Hallmark vs. S&P 500
The following chart shows the three year stock performance of Hallmark (NASDAQ: HALL) against Standard & Poor's 500 index. KF (Wath | Aa80E =) Hallmark Financial S&P 500 Eee 4 HALLMARK FINANCIAL. pees ive
Slide 27: Hallmark Financial Services, Inc.
4 HALLMARK FINANCIAL | SERVICES, INC. NASDAQ: HALL
Slide 28: Searchable text of slide show follows
SEARCHABLE text of Slide Show Follows: Slide # 01 HALLMARK FINANCIAL SERVICES, INC. Investor Conference Presentation November 2006 Slide # 02 Forward-Looking Statements This presentation includes certain forward-looking statements regarding our expected performance for future periods and actual resu
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