HALLMARK FINANCIAL SERVICES INC FILES (8-K) Disclosing Entry into a Material Definitive Agreement, Completion of Acquisition or Disposition of Assets, Other Events, Financial Statements and Exhibits - Insurance News | InsuranceNewsNet

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October 7, 2022 Newswires
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HALLMARK FINANCIAL SERVICES INC FILES (8-K) Disclosing Entry into a Material Definitive Agreement, Completion of Acquisition or Disposition of Assets, Other Events, Financial Statements and Exhibits

Edgar Glimpses

Item 1.01. Entry Into a Material Definitive Agreement.

The information set forth below in "Item 2.01 Completion of Acquisition or
Disposition of Assets" of this Current Report on Form 8-K is incorporated into
this Item 1.01 by reference.

Item 2.01. Completion of Acquisition or Disposition of Assets.

On October 7, 2022, Hallmark Financial Services, Inc. (the "Company"), and
Hallmark Specialty Underwriters, Inc. ("HSU" and, together with the Company, the
"Sellers"), entered into a Master Transaction Agreement (the "MTA") with
Starstone U.S. Holdings, Inc. ("Buyer"), an affiliate of Core Specialty
Insurance Holdings, Inc.
("Core").

Pursuant to the MTA, as of the Effective Date (as defined below), the Company
sold, and Buyer purchased, 100% of the issued and outstanding units of the
Company's agency subsidiary, Heath XS, LLC ("HXS"), and the Sellers sold certain
assets, and Buyer acquired such assets and assumed certain liabilities, of the
Sellers' excess and surplus lines operations (the "Business"), for total
consideration of $40,000,000, subject to adjustment as provided in the MTA. Also
as of the Effective Date, in exchange for the reinsurance by the Reinsurer (as
defined below) of liabilities associated with the unearned premium reserves
under the Reinsurance Agreement (as defined below), the Ceding Companies (as
defined below) delivered to the Reinsurer an amount equal to the net unearned
premium reserve of the Ceding Companies in respect of the Business (estimated to
be $86.4 million as of the Effective Date) and received a 23% ceding commission
(estimated to be $19.9 million as of the Effective Date) in consideration
therefor.

The MTA contains customary representations and warranties with respect to Buyer,
the Sellers and HXS, as well as customary post-closing covenants. Following the
closing of the transactions contemplated by the MTA, the Sellers and Buyer have
agreed to indemnify the other for breaches of representations, warranties,
covenants and certain other matters specified therein. Affiliates of Buyer and
the Sellers also entered into certain other transaction documents in order to
effectuate the transactions contemplated by the MTA.

Raymond James & Associates, Inc., the Company's financial advisor, delivered its
written opinion to the Board of Directors of the Company as to the fairness,
from a financial point of view, of the consideration received by the Company
pursuant to the MTA as of September 30, 2022.

In connection with the MTA, Hallmark Specialty Insurance Company, ("HSIC"),
American Hallmark Insurance Company of Texas ("AHIC"), Hallmark Insurance
Company
("HIC"), and Hallmark National Insurance Company ("HNIC" and, together
with HSIC, AHIC and HIC, the "Ceding Companies"), each a subsidiary of the
Company, entered into an Unearned Premium and Prospective Quota Share
Reinsurance Agreement (the "Reinsurance Agreement") with Starstone National
Insurance Company
, an affiliate of Core (the "Reinsurer"). Pursuant to the
Reinsurance Agreement, each of the Ceding Companies will cede to Reinsurer, and
Reinsurer will accept and reinsure, on a 100% quota share indemnity reinsurance
basis, unearned premium as of September 30, 2022 in respect of certain reinsured
policies of the Ceding Companies constituting the Business and business placed
by HXS with the Ceding Companies between September 30, 2022 and September 30,
2023
, and Reinsurer will provide certain administrative services on behalf of
the Ceding Companies with respect to such reinsured policies. Certain
transactions contemplated by the MTA and the Reinsurance Agreement are effective
as of September 30, 2022 (the "Effective Date").

The foregoing descriptions of the MTA, Reinsurance Agreement and transactions
contemplated by such documents do not purport to be complete and are qualified
in their entirety by reference to the full text of (i) the MTA and (ii) the
Reinsurance Agreement. Copies of the MTA and Reinsurance Agreement are filed as
Exhibits 2.1 and 10.1, respectively, and are incorporated herein by reference in
their entirety.

The MTA is not intended to provide any other factual information about the
parties thereto. In particular, the representations and warranties contained in
the MTA were made only for the purposes of the MTA as of specific dates therein
and were solely for the benefit of the parties to the MTA. The representations
and warranties contained in the MTA are subject to limitations agreed upon by
the parties thereto and are qualified by information in confidential disclosure
schedules provided in connection with the signing thereof.


 Item 8.01. Other Events.



On October 7, 2022, the Company issued a press release announcing the completion
of the transactions contemplated by the MTA and Reinsurance Agreement, a copy of
which is filed as Exhibit 99.1 to this Current Report on Form 8-K and is
incorporated herein by reference in its entirety.









Forward-Looking Statements


This Current Report on Form 8-K contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements include statements regarding the intent, belief or current
expectations of the Company and its management team. Investors are cautioned
that any such forward-looking statements speak only as of the date they are
made, are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
projected in the forward-looking statements as a result of various factors,
which may adversely affect the ability of the Company to realize the anticipated
benefits of the transaction. Important risk factors and information regarding
the Company are described under the heading "Risk Factors" in our Form 10-K
filed with the SEC on March 16, 2022, our Form 10-Q filed with the SEC on August
15, 2022
, and in subsequent filings made by us with the SEC, which are available
on the SEC's website at www.sec.gov. We caution you not to place undue reliance
on any forward-looking statements, which speak only as of the date hereof. We do
not undertake any duty to update any forward-looking statement or other
information in this Current Report on Form 8-K, except as required by U.S.
federal securities law.

Item 9.01. Financial Statements and Exhibits.





  (d) Exhibits




Exhibit No.   Description
  2.1           Master Transaction Agreement, dated as of October 7, 2022, by and
              among Hallmark Financial Services, Inc., Hallmark Specialty
              Underwriters, Inc. and Starstone U.S. Holdings, Inc.*

  10.1          Unearned Premium and Prospective Quota Share Reinsurance Agreement,
              dated as of October 7, 2022, by and among Hallmark Specialty Insurance
              Company, American Hallmark Insurance Company of Texas, Hallmark
              Insurance Company, Hallmark National Insurance Company and Starstone
              National Insurance Company.

  99.1          Press release, dated October 7, 2022.

104           Cover Page Interactive Data File (embedded within the Inline XBRL
              document).

*             Schedules have been omitted pursuant to Item 601(a)(5) of Regulation
              S-K. Hallmark Financial Services, Inc. agrees to furnish to the
              Securities and Exchange Commission a copy of such schedules and
              exhibits, or any section thereof, upon request.

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