Hallmark Financial Services, Inc. · OTC:HALL
Hallmark Financial Services — 2007 Summer Investment Forum
26 slides from Hallmark Financial Services's conference presentation, Aug 23, 2007
Slide 1: 2007 Summer Investment Forum
> FIALLMARIX FINANGIAL SERVIGES, ING. 2007 Summer Investment Forum August 23, 2007
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 differ. These statements are intended as “forward-looking statements” under the Private Securities Litigat
Slide 3: Overview
| Overview FALLMARI< FINANCIAL SERVICES, ING.
Slide 4: Who We Are
Who We Are Q Diversified specialty property/casualty insurer Q Market, distribute, underwrite and service personal and commercial insurance in selected markets = Focused on short-tailed lines in underserved sectors Q) Four Operating Units: ©) HGA Operating Unit: Standard commercial insurance {=| TGA
Slide 5: Geographic Spread of Premiums Produced
Geographic Spread of Premiums Produced WA NV uT co ND EP) NE KS MN 0. wi 1A IL MO AR Ms MI VT PA OH wy VA ky Nc sc GA <1% HALLMARIC
Slide 6: Our History
Our History Mark Expand non- sole Diversity || standard auto ||| C@Pital Plan: tie | becomes co Speco. | to increase Partners ||| Chairman) oo. ercia sees business makes brings new bak retention & i Lines with || acquisition of first direction, secure AM. " iveshucts a acquisition Phoenix Best ratin
Slide 7: Our Philosophy
Our Philosophy Create a Premier Specialty Insurer Focused on Underwriting Profitability and Long Term Growth of Shareholders Equity Y Build strong management team with interests aligned to shareholders v Concentrate on specialty insurance niches v Create well diversified business lines v Selectively
Slide 8: Our Management Team
Our Management Team Name Mark Schwarz Mark Morrison Jeff Passmore Kevin Kasitz Brooks Davis Don Meyer Curtis Donnell Position Executive Chairman Chief Executive Officer Chief Accounting Officer EVP Commercial Lines President — HGA EVP Personal Lines President — Phoenix President — TGA President — Ae
Slide 9: Business Strategy: Specialty/Niche Insurance
Business Strategy: Specialty/Niche Insurance Property/Casualty Insurance Products: v v v v v 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: v v
Slide 10: Culture Based on Underwriting
Culture Based on Underwriting Goal: Generate an Underwriting Profit on All Business v¥ Emphasis on bottom-line profitability over top-line growth v¥ Underwriters’ bonuses based on underwriting performance v¥ Underwriters’ average experience is over 15 years v Reinsurance used to manage earnings vola
Slide 11: Business Review
| Business Review FALLMARI< FINANGIAL SERVIGES, ING.
Slide 12: Organizational Overview
| Organizational Overview Hallmark Financial Services, In Commercial Standard Specialty Commercial Kevin Kasitz Personal Lines Brooks Davis TGA HGA Phoenix Don Meyer Kevin Kasitz Brookland Davis Goatees Meso Curtis Donnell Rich Gibson Kristen Lagunes HALLMARIC 12
Slide 13: HGA Operating Unit
HGA Operating Unit Gross Premiums Produced By Operating Unit HGA TGA (1%) (43%) Phoenix (16%) Aerospace (10%) [ $293 million for FY 2006 ] = Specialty: ¥ Small, low-hazard commercial package business v Focused on rural and suburban markets = Agency Relationships: ¥ Long-standing relationships Y Sele
Slide 14: TGA Operating Unit
TGA Operating Unit Gross Premiums Produced By Operating Unit HGA (31%) TGA (43%) [ $293 million for FY 2006 ] or v_ Difficult-to-place small business risk v Primarily commercial auto and general liability = Specialty: = Agency Relationships: v 53 independent general agencies in TX, LA, OK & AK v 768
Slide 15: Aerospace Operating Unit
Aerospace Operating Unit KEROSPACE] P: Pp g er Gross Premiums Produced = Specialty: By Operating Unit v General aviation: small airports and small airplanes vy New/transitional pilots and nar older aircraft (31%) = Agency Relationships: ¥ 229 specialty aviation brokers in 47 states = Growth Opportun
Slide 16: Phoenix Operating Unit
Phoenix Operating Unit Noe PHOENIX| Gross Premiums Produced « Specialty: By Operating Unit y Non-standard personal auto = Agency Relationships: ¥ 2,346 independent retail agent offices in TX, NM, AZ, HGA OK, AR, LA, ID, OR, MT, MO (31%) & WA y Focus on ease of doing business through technology Aeros
Slide 17: Key Growth Drivers
Key Growth Drivers Increased Retention: ¥ Significantly increase revenue on existing production Y_ Existing book of business highly profitable v_ Provides low-risk earnings growth potential through 2009 Organic Growth: Y xpand existing businesses into new geographies v Opportunity to sell products a
Slide 18: Key Growth Driver #1: Increased Retention
Key Growth Driver #1: Increased Retention Q Significantly increase earnings potential through retention of current business Q Retained only 69% of premiums produced in 2006. Aon ; Q Goal: Increase retention to 100% of production over next three years Q Target combined ratio in the low 90%'s during a
Slide 19: Financial Overview
| Financial Overview FIALLMARI< FINANCIAL SERVICES, INC.
Slide 20: Summary Income Statement
Summary Income Statement Six Months Ended ($ in thousands, except per share data) Year Ended December 31, June 30 it _n____ 2006 2006 2007 Gross Premiums Produced 3 119,405 “$118,066 “S 203,304 5 143,280 S$ 150,988 Gross Premiums Written 33,389 89,467 213,045 95,611 131,235 Net Premiums Eamed 32,445
Slide 21: Select Financial Highlights
| Select Financial Highlights Gross Premiums Written $ Net Premiums Eamed Total Revenues Net Income Loss Ratio (GAAP) Expense Ratio (GAAP) Combined Ratio (GAAP) EPS - Basic $ EPS - Diluted $ Return on Average Equity Adjusted Net Income (7) Adjusted EPS - Basic (7) $ Adjusted EPS - Diluted (7) $ Adju
Slide 22: Capitalization
Capitalization Capital structure designed to maximize ROE, sustain current financial strength ratings and provide flexibility for future working capital needs. As of 6/30/07 Debt: Short-term Debt $ 13,996 Long-term Debt 30,928 Trust Account Securing Structured Settlements (9,794) Total Debt 35,130 T
Slide 23: Investment Portfolio
Investment Portfolio Investment Portfolio as of June 30, 2007 ($ in millions) Cash & Equivalents ($ 52) Short Term ($ 64) Debt Securities ($ 161) Objective: Maximize total return while maintaining safety of capital v¥ 10% invested in equities v Tax equivalent yield on fixed-income portfolio of appro
Slide 24: Investment Considerations
Investment Considerations Q Management's interests aligned with shareholders Q Substantial low-risk growth potential through retention of existing business—geographic expansion—and acquisitions Disciplined underwriting strategy focused on profitability uM M Track record of strong underwriting perfor
Slide 25: Hallmark Financial Services, Inc.
FIALLMARI<X FINANGIAL SERVICES, INC. NASDAQ: HALL
Slide 26: Non-GAAP Measure Reconciliation
| Non-GAAP Measure Reconciliation The following reconciles Hallmark's 2006 year to date net income, diluted earnings per share and return on average equity without interest expense from amortization attributable to the deemed discount on convertible promissory notes to its reported results (in thous
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