Attached files
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| 8-K - FORM 8-K - HALLMARK FINANCIAL SERVICES INC | v231448_8k.htm |
FOR IMMEDIATE RELEASE
HALLMARK FINANCIAL SERVICES, INC.
ANNOUNCES SECOND QUARTER 2011 RESULTS
FORT WORTH, Texas, (August 9, 2011) - Hallmark Financial Services, Inc. (NASDAQ: HALL) (“Hallmark”) today reported second quarter 2011 net loss of $23 thousand compared to net loss of $0.4 million reported for second quarter 2010. Year to date, Hallmark reported net loss of $11.2 million, compared to net income of $5.9 million reported for the same period the prior year. On a fully diluted basis, second quarter 2011 net loss was $0.00 per share as compared to net loss of $0.02 per share for the second quarter of 2010. Year to date, Hallmark reported net loss of $0.56 per diluted share, compared to net income of $0.29 per diluted share for the same period the prior year. Total revenues were $78.5 million for the second quarter 2011 as compared to $75.7 million for the second quarter of 2010. Year to date total revenues for 2011 were $155.9 million, up 3% from the $151.5 million reported for the same period the prior year.
Mark J. Morrison, President and Chief Executive Officer, said, “Our results for the second quarter were negatively impacted by large property losses due mostly to exceptionally high spring storm activity, as well as increased losses from adverse claims trends in our Personal lines segment brought about by our untimely expansion into the Florida non-standard auto market. The spring storms resulted in $6.4 million of net losses, or 8.9% of our net loss ratio for the quarter. In addition, our Personal lines segment produced a $4.6 million pre-tax loss for the quarter driven by an increase of four percentage points in the current accident year loss projections from last quarter.”
“We continue to take aggressive steps to address the unfavorable financial performance of our Personal lines segment, including the suspension of all new business production in Florida. We have also initiated rate reviews across all products and markets and have filed for rate increases in multiple states. As these and other actions taken in our Personal Lines business unit take effect, we expect this unit to return to an acceptable level of profitability. We are also disappointed with the second consecutive quarterly loss in our Standard Commercial segment driven in large part by the spring storm activity and large property losses. Even though we have not seen tangible signs of a hardening market, we have started to push rate increases on a measured basis, particularly for those markets and classes of business where higher rates are necessary to produce acceptable returns. We have also begun non-renewing certain classes of business that have contributed to the recent volatility in large losses.”
Mr. Morrison continued, “On a positive note, we are pleased with the organic premium growth in our Specialty Commercial segment in recent quarters. Submission activity in new business continues to be strong, particularly in commercial automobile coverages, our largest product line. With both rising prices and increased volume, we maintain a positive outlook for our Specialty Commercial segment. However, while rate trends are positive, we have noted that claim costs are also increasing. Therefore, we anticipate continuing our rate increases as the year progresses.”
Mark E. Schwarz, Executive Chairman of Hallmark, stated, “Second quarter book value per share increased 1% sequentially from the first quarter, but remains down 4% year to date. Investment income increased 15% in the second quarter and 20% year to date compared to the prior year periods. Cash flow from operations was $17 million in the second quarter and $11 million year to date.”
“Our total investments, cash and cash equivalents and restricted cash are essentially flat year to date at $496 million. However, on a per share basis, total investments, cash and cash equivalents and restricted cash have increased to an all-time high of $25.50 per share, due predominately to the repurchase of shares during the quarter. Hallmark continues to have a significant amount of cash and cash equivalents of $57 million as of the end of the quarter.”
“Hallmark repurchased 875,712 shares or 4.5% of its outstanding common stock for a total cost of $6.4 million during the second quarter to date, including shares purchased subsequent to quarter end. Since inception of the company’s buyback program, total shares repurchased are 1,625,712 or 8% of outstanding common stock. The total cost of shares repurchased to date is $11.7 million or $7.17 per share, equivalent to 64% of our second quarter book value per share of $11.23. There are approximately 2.4 million shares remaining authorized under the company’s stock buyback program.”
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Three Months Ended
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June 30,
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2011
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2010
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% Change
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||||||||||
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($ in thousands, unaudited)
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||||||||||||
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Produced premium (1)
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$ | 90,176 | $ | 81,768 | 10 | % | ||||||
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Gross premiums written
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91,371 | 83,180 | 10 | % | ||||||||
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Net premiums written
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78,956 | 73,133 | 8 | % | ||||||||
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Net premiums earned
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71,578 | 69,948 | 2 | % | ||||||||
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Investment income, net of expenses
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3,778 | 3,276 | 15 | % | ||||||||
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Net realized gain on investments
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1,664 | 1,643 | 1 | % | ||||||||
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Total revenues
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78,513 | 75,687 | 4 | % | ||||||||
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Net (loss) earnings (2)
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(23 | ) | (388 | ) |
NM
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|||||||
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Net (loss) earnings per share - basic
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$ | - | $ | (0.02 | ) |
NM
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||||||
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Net (loss) earnings per share - diluted
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$ | - | $ | (0.02 | ) |
NM
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||||||
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Book value per share
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$ | 11.23 | $ | 11.49 | -2 | % | ||||||
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Cash flow from operations
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$ | 16,972 | $ | 9,242 | 84 | % | ||||||
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Six Months Ended
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June 30,
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2011
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2010
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% Change
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||||||||||
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($ in thousands, unaudited)
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||||||||||||
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Produced premium (1)
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$ | 173,868 | $ | 162,278 | 7 | % | ||||||
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Gross premiums written
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181,083 | 165,039 | 10 | % | ||||||||
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Net premiums written
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155,190 | 145,928 | 6 | % | ||||||||
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Net premiums earned
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141,691 | 136,963 | 3 | % | ||||||||
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Investment income, net of expenses
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7,785 | 6,477 | 20 | % | ||||||||
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Net realized gain on investments
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2,783 | 5,446 | -49 | % | ||||||||
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Total revenues
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155,921 | 151,510 | 3 | % | ||||||||
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Net earnings (2)
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(11,249 | ) | 5,898 |
NM
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||||||||
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Net earnings per share - basic
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$ | (0.56 | ) | $ | 0.29 |
NM
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||||||
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Net earnings per share - diluted
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$ | (0.56 | ) | $ | 0.29 |
NM
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Book value per share
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$ | 11.23 | $ | 11.49 | -2 | % | ||||||
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Cash flow from operations
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$ | 10,992 | $ | 17,449 | -37 | % | ||||||
(1) Produced premium is a non-GAAP measurement that management uses to track total premium produced by Hallmark’s operations. Hallmark believes it is a useful tool for users of its financial statements to measure premium production whether retained by Hallmark’s insurance company subsidiaries or assumed by third party insurance carriers who pay it commission revenue. Produced premium excludes unaffiliated third party premium fronted by its Hallmark County Mutual Insurance Company and Hallmark National Insurance Company subsidiaries.
(2) Net (loss) earnings is net (loss) income attributable to Hallmark Financial Services, Inc. as reported in the consolidated statements of operations as determined in accordance with GAAP.
During the three and six months ended June 30, 2011, Hallmark’s total revenues were $78.5 million and $155.9 million, representing a 4% and 3% increase, respectively, from the $75.7 million and $151.5 million in total revenues for the same period of 2010. This increase in revenue was primarily attributable to increased earned premium due to increased production by the Personal Lines and E&S Commercial business units, increased net investment income and reduced adverse profit sharing commission revenue adjustments. These increases in revenue were partially offset by lower earned premium in the Standard Commercial Segment due to increased competition and continued soft market conditions.
Hallmark reported a net loss of $23 thousand for the three months ended June 30, 2011 as compared to a net loss of $0.4 million for the same period during 2010. Hallmark reported a net loss of $11.2 million for the six months ended June 30, 2011, which was $17.1 million lower than the net earnings of $5.9 million reported for the six months ended June 30, 2010. On a diluted basis per share, Hallmark reported a net loss of $0.00 per share for the three months ended June 30, 2011, as compared to net loss of $0.02 per share for the same period in 2010. On a diluted basis per share, net loss per share was $0.56 for the six months ended June 30, 2011 as compared to net income per share of $0.29 for the same period during 2010. The increase in revenue for the three months and six months ended June 30, 2011 was offset by increased loss and loss adjustment expenses due primarily to higher current accident year loss estimates, as well as unfavorable prior year loss development of $0.7 million and $15.8 million recognized during the three and six months ended June 30, 2011, respectively, as compared to $4.3 million and $6.5 million recognized during the three and six months ended June 30, 2010. Of the $15.8 million unfavorable development recognized for the six months ended June 30, 2011, $9.5 million was a result of adverse prior year loss reserve development in its Personal Lines Segment in Florida. In addition, the results for the six months ended June 30, 2011 include $9.4 million in net losses from weather related claims. The adverse prior year development and the losses from weather related claims contributed 17.7% to the 88.7% consolidated net loss ratio for the six months ended June 30, 2011. As a result of the pre-tax loss and an increase in the proportion of tax-exempt income relative to total pre-tax loss, the Company reported an income tax benefit of $9.6 million, or an effective income tax rate of 46.2%, for the six months ended June 30, 2011, as compared to income tax expense of $1.9 million, or an effective rate of 24.6%, for the same period during 2010.
Hallmark's consolidated net loss ratio was 86.5% and 88.7% for the three and six months ended June 30, 2011 as compared to 74.4% and 69.5% for the same periods in 2010. Hallmark's net expense ratio was 31.8% and 31.2% for the three and six months ended June 30, 2011 as compared to 30.1% and 29.5% for the same periods in 2010. Hallmark’s net combined ratio was 118.3% and 119.9% for the three and six months ended June 30, 2011 as compared to 104.5% and 99.0% for the same periods in 2010.
Hallmark Financial Services, Inc. is an insurance holding company which, through its subsidiaries, engages in the sale of property/casualty insurance products to businesses and individuals. Hallmark’s business involves marketing, distributing, underwriting and servicing commercial insurance, personal insurance and general aviation insurance, as well as providing other insurance related services. The Company is headquartered in Fort Worth, Texas and its common stock is listed on NASDAQ under the symbol "HALL."
Forward-looking statements in this release are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that actual results may differ substantially from such forward-looking statements. Forward-looking statements involve risks and uncertainties including, but not limited to, continued acceptance of the Company’s products and services in the marketplace, competitive factors, interest rate trends, general economic conditions, the availability of financing, underwriting loss experience and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission.
For further information, please contact:
Mark J. Morrison, President and Chief Executive Officer at 817.348.1600
www.hallmarkgrp.com
Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Balance Sheets
($ in thousands, except share amounts)
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June 30
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December 31
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2011
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2010
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(unaudited)
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ASSETS
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Investments:
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Debt securities, available-for-sale, at fair value (cost: $393,497 in 2011 and $383,530 in 2010)
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$ | 395,975 | $ | 388,399 | ||||
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Equity securities, available-for-sale, at fair value (cost: $31,573 in 2011 and $32,469 in 2010)
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42,943 | 44,042 | ||||||
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Total investments
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438,918 | 432,441 | ||||||
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Cash and cash equivalents
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50,885 | 60,519 | ||||||
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Restricted cash
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6,346 | 5,277 | ||||||
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Ceded unearned premiums
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20,262 | 25,504 | ||||||
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Premiums receivable
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57,444 | 47,337 | ||||||
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Accounts receivable
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6,020 | 7,051 | ||||||
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Receivable for securities
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473 | 2,215 | ||||||
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Reinsurance recoverable
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42,726 | 39,505 | ||||||
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Deferred policy acquisition costs
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24,047 | 21,679 | ||||||
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Goodwill
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43,564 | 43,564 | ||||||
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Intangible assets, net
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28,448 | 30,241 | ||||||
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Federal income tax recoverable
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13,138 | 4,093 | ||||||
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Prepaid expenses
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1,699 | 1,987 | ||||||
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Other assets
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13,159 | 15,207 | ||||||
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Total assets
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$ | 747,129 | $ | 736,620 | ||||
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Liabilities:
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Note payable
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$ | 2,800 | $ | 2,800 | ||||
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Subordinated debt securities
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56,702 | 56,702 | ||||||
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Reserves for unpaid losses and loss adjustment expenses
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278,894 | 251,677 | ||||||
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Unearned premiums
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148,205 | 140,965 | ||||||
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Unearned revenue
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93 | 116 | ||||||
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Reinsurance balances payable
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5,493 | 3,122 | ||||||
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Accrued agent profit sharing
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1,277 | 1,301 | ||||||
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Accrued ceding commission payable
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4,230 | 4,231 | ||||||
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Pension liability
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2,623 | 2,833 | ||||||
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Payable for securities
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8,357 | 2,493 | ||||||
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Payable for acquisition
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- | 14,000 | ||||||
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Deferred federal income taxes, net
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1,836 | 3,471 | ||||||
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Accounts payable and other accrued expenses
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17,005 | 15,786 | ||||||
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Total liabilities
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527,515 | 499,497 | ||||||
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Commitments and Contingencies
|
||||||||
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Redeemable non-controlling interest
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1,223 | 1,360 | ||||||
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Stockholders' equity:
|
||||||||
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Common stock, $.18 par value, authorized 33,333,333 shares in 2011 and 2010; issued 20,872,831 in 2011 and 2010
|
3,757 | 3,757 | ||||||
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Additional paid-in capital
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122,292 | 121,815 | ||||||
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Retained earnings
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94,567 | 105,816 | ||||||
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Accumulated other comprehensive income
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7,843 | 9,637 | ||||||
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Treasury stock (1,418,003 shares in 2011 and 748,662 shares in 2010), at cost
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(10,068 | ) | (5,262 | ) | ||||
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Total stockholders' equity
|
218,391 | 235,763 | ||||||
| $ | 747,129 | $ | 736,620 | |||||
Hallmark Financial Services, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
($ in thousands, except per share amounts)
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Three Months Ended
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Six Months Ended
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June 30
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June 30
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|||||||||||||||
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2011
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2010
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2011
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2010
|
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Gross premiums written
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$ | 91,371 | $ | 83,180 | $ | 181,083 | $ | 165,039 | ||||||||
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Ceded premiums written
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(12,415 | ) | (10,047 | ) | (25,893 | ) | (19,111 | ) | ||||||||
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Net premiums written
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78,956 | 73,133 | 155,190 | 145,928 | ||||||||||||
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Change in unearned premiums
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(7,378 | ) | (3,185 | ) | (13,499 | ) | (8,965 | ) | ||||||||
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Net premiums earned
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71,578 | 69,948 | 141,691 | 136,963 | ||||||||||||
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Investment income, net of expenses
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3,778 | 3,276 | 7,785 | 6,477 | ||||||||||||
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Net realized gains
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1,664 | 1,643 | 2,783 | 5,446 | ||||||||||||
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Finance charges
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1,725 | 1,771 | 3,465 | 3,414 | ||||||||||||
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Commission and fees
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(243 | ) | (963 | ) | 172 | (812 | ) | |||||||||
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Other income
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11 | 12 | 25 | 22 | ||||||||||||
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Total revenues
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78,513 | 75,687 | 155,921 | 151,510 | ||||||||||||
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Losses and loss adjustment expenses
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61,920 | 52,058 | 125,705 | 95,156 | ||||||||||||
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Other operating expenses
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23,788 | 22,872 | 46,961 | 44,354 | ||||||||||||
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Interest expense
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1,153 | 1,150 | 2,311 | 2,296 | ||||||||||||
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Amortization of intangible assets
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896 | 916 | 1,793 | 1,832 | ||||||||||||
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Total expenses
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87,757 | 76,996 | 176,770 | 143,638 | ||||||||||||
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Income (loss) before tax
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(9,244 | ) | (1,309 | ) | (20,849 | ) | 7,872 | |||||||||
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Income tax (benefit) expense
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(9,229 | ) | (953 | ) | (9,622 | ) | 1,937 | |||||||||
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Net (loss) income
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(15 | ) | (356 | ) | (11,227 | ) | 5,935 | |||||||||
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Less: Net income attributable to non-controlling interest
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8 | 32 | 22 | 37 | ||||||||||||
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Net (loss) income attributable to Hallmark Financial Services, Inc.
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$ | (23 | ) | $ | (388 | ) | $ | (11,249 | ) | $ | 5,898 | |||||
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Net (loss) income per share attributable to Hallmark Financial
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||||||||||||||||
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Services, Inc. common stockholders:
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||||||||||||||||
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Basic
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$ | - | $ | (0.02 | ) | $ | (0.56 | ) | $ | 0.29 | ||||||
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Diluted
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$ | - | $ | (0.02 | ) | $ | (0.56 | ) | $ | 0.29 | ||||||
Consolidated Segment Data
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Three Months Ended June 30, 2011
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Standard
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Specialty
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Commercial
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Commercial
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Personal
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Segment
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Segment
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Segment
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Corporate
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Consolidated
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Produced premium (1)
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$ | 18,549 | $ | 47,343 | $ | 24,284 | $ | - | $ | 90,176 | ||||||||||
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Gross premiums written
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18,549 | 48,533 | 24,289 | - | 91,371 | |||||||||||||||
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Ceded premiums written
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(1,392 | ) | (10,877 | ) | (146 | ) | - | (12,415 | ) | |||||||||||
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Net premiums written
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17,157 | 37,656 | 24,143 | - | 78,956 | |||||||||||||||
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Change in unearned premiums
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(1,796 | ) | (5,171 | ) | (411 | ) | - | (7,378 | ) | |||||||||||
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Net premiums earned
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15,361 | 32,485 | 23,732 | - | 71,578 | |||||||||||||||
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Total revenues
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16,241 | 34,476 | 25,869 | 1,927 | 78,513 | |||||||||||||||
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Losses and loss adjustment expenses
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15,789 | 23,549 | 22,582 | - | 61,920 | |||||||||||||||
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Pre-tax income (loss), net of non-controlling interest
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(4,753 | ) | 873 | (4,596 | ) | (776 | ) | (9,252 | ) | |||||||||||
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Net loss ratio (2)
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102.8 | % | 72.5 | % | 95.2 | % | 86.5 | % | ||||||||||||
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Net expense ratio (2)
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33.9 | % | 30.4 | % | 27.6 | % | 31.8 | % | ||||||||||||
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Net combined ratio (2)
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136.7 | % | 102.9 | % | 122.8 | % | 118.3 | % | ||||||||||||
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Three Months Ended June 30, 2010
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Standard
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Specialty
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Commercial
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Commercial
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Personal
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Segment
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Segment
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Segment
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Corporate
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Consolidated
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Produced premium (1)
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$ | 18,804 | $ | 40,351 | $ | 22,613 | $ | - | $ | 81,768 | ||||||||||
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Gross premiums written
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18,792 | 41,775 | 22,613 | - | 83,180 | |||||||||||||||
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Ceded premiums written
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(909 | ) | (9,123 | ) | (15 | ) | - | (10,047 | ) | |||||||||||
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Net premiums written
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17,883 | 32,652 | 22,598 | - | 73,133 | |||||||||||||||
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Change in unearned premiums
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(1,246 | ) | (2,036 | ) | 97 | - | (3,185 | ) | ||||||||||||
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Net premiums earned
|
16,637 | 30,616 | 22,695 | - | 69,948 | |||||||||||||||
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Total revenues
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17,265 | 32,124 | 24,754 | 1,544 | 75,687 | |||||||||||||||
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Losses and loss adjustment expenses
|
13,652 | 21,231 | 17,175 | - | 52,058 | |||||||||||||||
|
Pre-tax income (loss), net of non-controlling interest
|
(1,870 | ) | 967 | 1,132 | (1,570 | ) | (1,341 | ) | ||||||||||||
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Net loss ratio (2)
|
82.1 | % | 69.3 | % | 75.7 | % | 74.4 | % | ||||||||||||
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Net expense ratio (2)
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32.5 | % | 29.5 | % | 22.5 | % | 30.1 | % | ||||||||||||
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Net combined ratio (2)
|
114.6 | % | 98.8 | % | 98.2 | % | 104.5 | % | ||||||||||||
|
1
|
Produced premium is a non-GAAP measurement that management uses to track total controlled premium produced by Hallmark’s operations. Hallmark believes this is a useful tool for users of its financial statements to measure premium production whether retained by Hallmark’s insurance company subsidiaries or assumed by third party insurance carriers who pay it commission revenue. Produced premium excludes unaffiliated third party premium fronted by its Hallmark County Mutual Insurance Company and Hallmark National Insurance Company subsidiaries.
|
|
2
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The net loss ratio is calculated as incurred losses and LAE divided by net premiums earned, each determined in accordance with GAAP. The net expense ratio is calculated for the business units that retain 100% of produced premium as total operating expenses for the unit offset by agency fee income divided by net premiums earned, each determined in accordance with GAAP. For the business units that do not retain 100% of the produced premium, the net expense ratio is calculated as underwriting expenses of the insurance company subsidiaries for the unit offset by agency fee income, divided by net premiums earned, each determined in accordance with GAAP. The net combined ratio is calculated as the sum of the net loss ratio and the net expense ratio.
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Hallmark Financial Services, Inc.
Consolidated Segment Data
|
Six Months Ended June 30, 2011
|
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Standard
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Specialty
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Commercial
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Commercial
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Personal
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Segment
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Segment
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Segment
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Corporate
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Consolidated
|
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Produced premium (1)
|
$ | 36,004 | $ | 85,877 | $ | 51,987 | $ | - | $ | 173,868 | ||||||||||
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Gross premiums written
|
36,004 | 88,615 | 56,464 | - | 181,083 | |||||||||||||||
|
Ceded premiums written
|
(2,564 | ) | (18,597 | ) | (4,732 | ) | - | (25,893 | ) | |||||||||||
|
Net premiums written
|
33,440 | 70,018 | 51,732 | - | 155,190 | |||||||||||||||
|
Change in unearned premiums
|
(2,187 | ) | (6,318 | ) | (4,994 | ) | - | (13,499 | ) | |||||||||||
|
Net premiums earned
|
31,253 | 63,700 | 46,738 | - | 141,691 | |||||||||||||||
|
Total revenues
|
33,668 | 67,619 | 50,919 | 3,715 | 155,921 | |||||||||||||||
|
Losses and loss adjustment expenses
|
28,414 | 43,350 | 53,941 | - | 125,705 | |||||||||||||||
|
Pre-tax income (loss), net of non-controlling interest
|
(5,133 | ) | 4,331 | (17,810 | ) | (2,259 | ) | (20,871 | ) | |||||||||||
|
Net loss ratio (2)
|
90.9 | % | 68.1 | % | 115.4 | % | 88.7 | % | ||||||||||||
|
Net expense ratio (2)
|
32.6 | % | 30.2 | % | 25.8 | % | 31.2 | % | ||||||||||||
|
Net combined ratio (2)
|
123.5 | % | 98.3 | % | 141.2 | % | 119.9 | % | ||||||||||||
|
Six Months Ended June 30, 2010
|
||||||||||||||||||||
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Standard
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Specialty
|
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|
Commercial
|
Commercial
|
Personal
|
||||||||||||||||||
|
Segment
|
Segment
|
Segment
|
Corporate
|
Consolidated
|
||||||||||||||||
|
Produced premium (1)
|
$ | 36,901 | $ | 75,633 | $ | 49,744 | $ | - | $ | 162,278 | ||||||||||
|
Gross premiums written
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36,889 | 78,406 | 49,744 | - | 165,039 | |||||||||||||||
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Ceded premiums written
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(1,945 | ) | (17,147 | ) | (19 | ) | - | (19,111 | ) | |||||||||||
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Net premiums written
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34,944 | 61,259 | 49,725 | - | 145,928 | |||||||||||||||
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Change in unearned premiums
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(1,426 | ) | 80 | (7,619 | ) | - | (8,965 | ) | ||||||||||||
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Net premiums earned
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33,518 | 61,339 | 42,106 | - | 136,963 | |||||||||||||||
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Total revenues
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35,299 | 64,611 | 45,968 | 5,632 | 151,510 | |||||||||||||||
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Losses and loss adjustment expenses
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27,268 | 37,627 | 30,261 | - | 95,156 | |||||||||||||||
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Pre-tax income (loss), net of non-controlling interest
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(2,809 | ) | 7,314 | 3,782 | (452 | ) | 7,835 | |||||||||||||
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Net loss ratio (2)
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81.4 | % | 61.3 | % | 71.9 | % | 69.5 | % | ||||||||||||
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Net expense ratio (2)
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31.7 | % | 28.8 | % | 22.1 | % | 29.5 | % | ||||||||||||
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Net combined ratio (2)
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113.1 | % | 90.1 | % | 94.0 | % | 99.0 | % | ||||||||||||
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1
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Produced premium is a non-GAAP measurement that management uses to track total controlled premium produced by Hallmark’s operations. Hallmark believes this is a useful tool for users of its financial statements to measure premium production whether retained by Hallmark’s insurance company subsidiaries or assumed by third party insurance carriers who pay it commission revenue. Produced premium excludes unaffiliated third party premium fronted by its Hallmark County Mutual Insurance Company and Hallmark National Insurance Company subsidiaries.
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2
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The net loss ratio is calculated as incurred losses and LAE divided by net premiums earned, each determined in accordance with GAAP. The net expense ratio is calculated for the business units that retain 100% of produced premium as total operating expenses for the unit offset by agency fee income divided by net premiums earned, each determined in accordance with GAAP. For the business units that do not retain 100% of the produced premium, the net expense ratio is calculated as underwriting expenses of the insurance company subsidiaries for the unit offset by agency fee income, divided by net premiums earned, each determined in accordance with GAAP. The net combined ratio is calculated as the sum of the net loss ratio and the net expense ratio.
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