A.M. Best Co. has assigned a financial strength rating (FSR) of A- (Excellent) and issuer credit rating (ICR) of “a-” to State Auto National Insurance Company (State Auto National) (domiciled in Columbus, OH), following its December 31, 2010 acquisition by Hallmark Insurance Company (Hallmark) from State Auto Financial Corporation. The outlook assigned to both ratings is stable.

The ratings reflect the benefits State Auto National will receive as being a wholly owned subsidiary of Hallmark, which includes shared services, common board control and an improved geographic footprint. In addition, State Auto National’s name is expected to change in the near term, following regulatory approval, to reflect its new ownership by Hallmark. Furthermore, it is anticipated that State Auto National will be added to Hallmark Insurance Group’s (Hallmark Group) (headquartered in Fort Worth, TX) inter-company pooling agreement.

The FSR of A- (Excellent) and ICRs of “a-” of Hallmark Group and its operating members and the ICR of “bbb-” of its holding company parent, Hallmark Financial Services, Inc. (Hallmark Financial) (Nevada) (NASDAQ: HALL), are unchanged following the acquisition.

The legal entity known as State Auto National was sold as a shell company to Hallmark. As a result, its previous FSR of A+ (Superior) and ICR of “aa-” with a negative outlook, have been withdrawn, and an NR-5 (Not Formally Followed) has been assigned to the FSR and an “nr” to the ICR. This legal entity was a member of the State Auto Insurance Companies.

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition , which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “ Rating Members of Insurance Groups”; “Natural Catastrophe Stress Test Methodology”; and “Catastrophe Risk Management Incorporated Within Rating Analysis.” Methodologies can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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