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Hallmark Financial Services, Inc. To Acquire State Auto National Insurance Company

FORT WORTH, Texas, Aug. 9, 2010 (GLOBE NEWSWIRE) -- Hallmark Financial Services, Inc. (Nasdaq:HALL) today announced the execution of an agreement for its wholly-owned subsidiary, Hallmark Insurance Company, to acquire State Auto National Insurance Company from State Auto Financial Corporation. State Auto National is an Ohio domiciled insurance company which annually writes approximately $37 million in non-standard personal automobile policies through independent agents in 21 states. Closing of the acquisition is subject to regulatory approval and other customary closing conditions.

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The purchase price for the acquisition will be $14 million cash at closing plus an earn-out of up to $2 million. Hallmark expects to fund the acquisition out of working capital. The cash portion of the purchase price is subject to post-closing adjustment to the extent the statutory capital and surplus of SAN is greater or less than $10 million. The earn-out is payable quarterly in an amount equal to 2% of gross collected premiums on new or renewal personal lines insurance policies written by SAN agents during the three years following closing. In connection with the closing, State Auto National will enter into reinsurance agreements with an affiliate of the seller pursuant to which the affiliate will handle all claims and assume all liabilities arising under policies issued by State Auto National prior to the closing and during a transition period of up to six months following the closing.

Mark J. Morrison, President and Chief Executive Officer, said, "The purchase of State Auto National Insurance Company as a clean statutory entity, along with the policy renewals of its existing book of non-standard personal automobile business, will significantly expand our Personal Lines business unit into new states through an already existing agency distribution. The structure of the transaction allows us to realize immediately the benefit of our highly efficient personal lines platform that is tailor-made to meet the needs of the non-standard personal auto marketplace. Additionally, this transaction entails very little integration risk, as we will not be assuming any staff, operating platforms or run-off exposure from State Auto Financial Corporation's existing operations.

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