A.M. Best Co. has affirmed the financial strength rating (FSR) of A- (Excellent) and issuer credit ratings (ICR) of “a-” of the members of Hallmark Insurance Group (Hallmark Group) (headquartered in Fort Worth, TX). Additionally, A.M. Best has affirmed the ICR of “bbb-” for the group’s holding company parent, Hallmark Financial Services, Inc. (Hallmark Financial) (Nevada) [NASDAQ: HALL]. The outlook for all ratings is stable. (See below for a detailed listing of the companies.) The affirmation of the ratings reflects Hallmark Group’s adequate risk-adjusted capitalization and improved underwriting performance in 2012. Hallmark Group’s adequate risk-adjusted capitalization has been driven by its historical pattern of surplus growth through positive fee income, solid investment income and capital gains over the last five years. Furthermore, management continues to focus on improving operating performance through recently implemented underwriting corrective actions and controlled geographic diversification into markets that are viewed as less price competitive than in its primary state of Texas. Hallmark Financial’s acquisition of various agency production sources also has resulted in a greater geographic and product spread of risk for Hallmark Group. The members of Hallmark Group benefit from the financial flexibility of Hallmark Financial. These positive rating factors are partially offset by the deterioration in Hallmark Group’s operating performance in recent years, particularly in 2011, driven by sizable underwriting losses due to unfavorable Florida non-standard personal automobile loss experience, as it grew faster than expected in Florida and was impacted by inadequate rates and adverse loss reserve development, primarily in personal injury protection coverage. In addition, Hallmark Group maintains an elevated common stock investment leverage ratio. However, this risk is partially mitigated by its overall investment portfolio, which is conservative as the majority of its invested assets are invested in well diversified long-term bonds. Hallmark Group’s negative underwriting performance significantly improved in 2012 when compared with 2011. This is due primarily to recently implemented corrective actions, which included but were not limited to, completely exiting from the Floridian non-standard auto business, de-emphasizing of its personal lines book segment and rate increases. In addition, management has been exiting certain underperforming states and closing unprofitable programs and products. A.M. Best anticipates the improvement in the organization’s operating performance may continue due to management’s ongoing initiatives subject to successful execution risk associated with geographic and product expansion initiatives.