A.M. Best Upgrades FSR for American Hallmark Insurance Co. of Texas, Phoenix Indemnity Insurance Co.

A.M. Best Co. has upgraded the financial strength rating to A- (Excellent) from B (Fair) of American Hallmark Insurance Company of Texas (American Hallmark) (Dallas) and the financial strength rating to B+ (Very Good) from B- (Fair) of Phoenix Indemnity Insurance Company (Phoenix Indemnity) (Phoenix).

Additionally, A.M. Best has assigned an issuer credit rating (ICR) of “a-” to American Hallmark and an ICR of “bbb-” to Phoenix Indemnity, as well as an ICR of “bbb-” to the holding company parent, Hallmark Financial Services, Inc. (Hallmark Financial) [AMEX: HAF]. The rating outlooks are stable.

Hallmark Financial completed various capital raising initiatives in June of 2005, totaling $75 million, of which $45 million was funded from an additional equity offering and $30 million from debt instruments. The funds were subsequently contributed to the insurance entities, with $55 million contributed to American Hallmark and $20 million contributed to Phoenix Indemnity. The capital contributions will be used to support planned initiatives for American Hallmark to begin writing a commercial book of business, which has historically been underwritten by its affiliated Managing General Agent and 100% ceded to an outside carrier.

In addition, American Hallmark’s current Texas non-standard personal automobile book will be quota-shared to Phoenix Indemnity. Subsequently Phoenix Indemnity will underwrite this Texas automobile book of business via assumption from a non-affiliated Texas County Mutual.

The rating of American Hallmark reflects the favorable capital position enhanced by the recent capital contributions, improved operating performance and improving geographical diversification initiatives. These rating factors are partially offset by inconsistent loss reserve development trends and modest execution risk regarding the transfer of business.

Phoenix Indemnity’s rating also reflects an enhanced capital position from the recent capital raising initiatives, continued expansion of its non-standard personal automobile products and improved operating performance, somewhat offset by inconsistent loss reserve development trends.