HAF Hallmark

A.M. Best Co. has assigned a financial strength rating (FSR) of A- (Excellent) and issuer credit ratings (ICR) of "a-" to the newly formed pool, Hallmark Insurance Group (Hallmark Group) (Fort Worth, TX). The group consists of the following entities: American Hallmark Insurance Company of Texas (American Hallmark) (which previously had a stand-alone FSR of A- (Excellent) and an ICR of "a-"); Phoenix Indemnity Insurance Company (Phoenix Indemnity) (which previously had a stand-alone FSR of B+ (Very Good) and an ICR of "bbb-"); and Gulf States Insurance Company (Gulf States) (which previously had a stand-alone FSR of B+ (Very Good)). Additionally, A.M. Best has affirmed the ICR of "bbb-" of the group's holding company parent, Hallmark Financial Services, Inc. (Hallmark Financial) (AMEX: HAF) (Fort Worth, TX). The outlook for all ratings is stable. Hallmark Financial recently completed the acquisition of Texas General Agency, Inc. (TGA) and certain affiliates, including Gulf States, which previously had been placed under review with positive implications following the announcement of the acquisition. TGA is a managing general agency involved in the marketing and servicing of property/casualty insurance products with a particular emphasis on commercial automobile and general liability risks. In addition, Hallmark Financial acquired Aerospace Holdings, LLC, which through various wholly owned subsidiaries, markets and services general aviation property/casualty insurance products with a particular emphasis on private and small commercial aircraft. Both acquisitions will provide a source of business for Hallmark Group, as the newly formed pool will begin to write a substantial portion of the business currently produced by the two agencies. These transactions are in addition to significant capital-raising initiatives--in June 2005--which were utilized to support planned initiatives for American Hallmark to begin writing a commercial book of business, previously underwritten by an affiliated managing general agent and 100% retained by outside carriers. Furthermore, American Hallmark's non-standard personal automobile book was quota-shared to Phoenix Indemnity and subsequently underwritten by Phoenix Indemnity. The ratings of Hallmark Group reflect its favorable risk-adjusted capital position enhanced by the continued financial support of Hallmark Financial, generally favorable operating performance and recent acquisitions, which should provide the pooled entities with improved geographical diversification. These rating factors are partially offset by execution risk associated with the multiple acquisitions and transfer of business, as well as moderate historically unfavorable loss reserve development of the pooled entities. The ratings also contemplate the completion of a pending additional equity capital infusion. For Best's Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings. A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.