Property and casualty firm Hallmark has sold its excess and surplus lines operations to Core Specialty.
The company said in a statement that the transaction is taking place for $40m cash, plus an estimated $19.9m consideration for the acquisition costs associated with certain net unearned premium reserves.
The transaction is comprised of nine business units, certain related assets, and liabilities, and the immediate transition to Core Specialty of approximately 200 employees who produce and support these E&S lines businesses. Core Specialty’s acquisition and assumption of the E&S businesses and the related assets and liabilities became effective at the end of last month.
The business acquired represents that portion of Hallmark’s Specialty Commercial Segment that is distributed through Hallmark E&S. Hallmark E&S produced $436m of wholesale distributed excess and surplus lines business in the twelve-month period ended June 30, 2022.
Jeff Consolino, founder, president, and chief executive officer of Core Specialty, said: “Core Specialty’s vision is to become the leading specialty insurer and the Hallmark E&S acquisition continues our very strong progress in our mission. Core Specialty has the capital to take on risk, the underwriting talent in place, a proven and decisive leadership team and a track record of making things happen fast. Collectively and in each of our specialist niche business units, we intend to operate with strong entrepreneurial spirit and drive, speed, agility, and empowered decision-making.”
He added: “Hallmark has done an admirable job of assembling and nurturing this profitable business which strongly complements Core Specialty’s business. The combined businesses are well aligned for continued profitable growth. Hallmark E&S has an excellent team and I would like to welcome Gerald Dupre and all of our new colleagues to Core Specialty.”
Certain key terms of the transaction include Hallmark insurance subsidiaries will enter a quota share reinsurance agreement with a Core Specialty insurance subsidiary to assume 100% of Hallmark’s unearned premium reserves associated with the acquired E&S businesses, net of inuring third party reinsurance.
The transaction includes the acquisition of Hallmark’s agency subsidiary Heath XS, which does business as Hallmark E&S, and all data, agency relationships, intellectual property, lease arrangements, and personnel related to the acquired E&S businesses.
Core Specialty will not acquire any insurance company entities as part of the transaction, and the transaction excludes loss reserves associated with the acquired E&S businesses, which will be retained by Hallmark.
The transaction does not include Hallmark’s Standard Commercial business segment, Personal business segment, Aerospace & Programs business unit, the exited Binding Primary Auto business, or any business produced by third-party program managers (which includes a senior care and a commercial auto program), each of which will be retained by Hallmark.
Hallmark expects the approximate $59.9m increase in statutory capital (less transaction and other expenses), gain on sale, and associated capital relief to strengthen its balance sheet and result in a more disciplined and streamlined company, better positioned to focus on the execution of its business strategies.
Hallmark will file with the Securities and Exchange Commission a Current Report on Form 8-K containing additional information concerning the Core Specialty transaction.
