Forth Worth-based Hallmark Financial Services Inc., says its subsidiary, Hallmark Insurance Co., plans to acquire State Auto National Insurance Co. (SAN) from Ohio-based State Auto Financial Corp. (STFC).
Pursuant to a definitive agreement with Hallmark, State Auto National, a non-standard personal automobile writer, will become a wholly owned subsidiary of Hallmark.
In response to the announcement, A.M. Best reports that the financial strength rating (FSR) of A- (Excellent) and issuer credit ratings (ICR) of “a-” of Hallmark Insurance Group (Hallmark Group) and its operating members and the ICR of “bbb-” of its holding company parent, Hallmark Financial Services Inc. (Hallmark Financial) are unchanged following the announcement.
Further, the acquisition is not expected to materially impact Hallmark Group’s risk-adjusted capitalization or its earnings, and should not affect the financial leverage of Hallmark Financial.
As a result of State Auto¹s announcement of its definitive agreement to sell State Auto National to Hallmark Insurance Co., the rating agency placed under review with negative implications the financial strength rating (FSR) of A+ (Superior) and issuer credit rating (ICR) of “aa-“ of State Auto National Insurance Co. State Auto National is a member of the State Auto Insurance Cos. (State Auto), which is also part of the State Auto Financial Corp.
A.M. Best anticipates that upon the close of the transaction, State Auto National will participate in an inter-company pooling agreement with Hallmark, which should result in a downgrading of State Auto National¹s ratings.
Hallmark confirmed that the purchase price for the acquisition will be $14 million cash at closing plus an earn-out of up to $2 million, and 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, said the company.
Through its independent agents in 21 states, SAN writes approximately $37 million in non-standard automobile insurance coverage, of which approximately 80% (or $30 million) is retained by STFC under its intercompany reinsurance pooling agreement with its parent, State Automobile Mutual Insurance Co., according to information released by State Auto.
The acquisition is expected to enhance Hallmark Group’s geographic diversification efforts by providing an increased agency platform in Tennessee, Kentucky, West Virginia, Ohio and Maryland.
Hallmark President and CEO Mark Morrison stated that the acquisition of State Auto National "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."
Brooks Davis, president of Hallmark's personal lines business unit, added that while the business being acquired "is non-core to State Auto Financial Corporation, it is very complementary to Hallmark's personal lines portfolio from a product, distribution and geographic standpoint."
Davis said Hallmark expects "to benefit from a significantly expanded agency network and intend to provide these agents with additional Hallmark personal lines specialty products."
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