2 nd Quarter 2018 June 30, 2018 Forward-Looking Statements Risks - PowerPoint PPT Presentation

SPECIALTY PROPERTY & CASUALTY INSURANCE SOLUTIONS 2 nd Quarter 2018 June 30, 2018

Forward-Looking Statements Risks Associated with Forward-Looking Statements Included in this presentation: This presentation contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are intended to be covered by the safe harbors created thereby. Forward-looking statements include statements which are predictive in nature, which depend upon or refer to future events or conditions, or which include words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate” or similar expressions. These statements include the plans and objectives of management for future operations, including plans and objectives relating to future growth of our business activities and availability of funds. Statements regarding the following subjects are forward-looking by their nature: • our business and growth strategies; • our performance goals; our projected financial condition and operating results; • • our understanding of our competition; • industry and market trends; • the impact of technology on our products, operations and business; and any other statements or assumptions that are not historical facts. • The forward-looking statements included in this presentation are based on current expectations that involve numerous risks and uncertainties. Assumptions relating to these forward-looking statements involve judgments with respect to, among other things, future economic, competitive and market conditions, legislative initiatives, regulatory framework, weather-related events and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the assumptions underlying these forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this presentation will prove to be accurate. In light of the significant uncertainties inherent in these forward-looking statements, the inclusion of such information should not be regarded as a representation that our objectives and plans will be achieved. More information about forward-looking statements and the risk factors associated with our company are included in our annual, quarterly and other reports filed with the Securities and Exchange Commission. The Company does not undertake to update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date of the forward-looking statements. 2

Hallmark Financial Services (NASDAQ: HALL) • Expertise-driven, diversified, niche specialty property/casualty insurer based in Dallas-Fort Worth, Texas • Market, underwrite and service over $600 million of commercial and personal insurance in selected markets Targeting U.S. focused, technical and SME risks o Focused on underserved sectors, mostly short-tailed lines o Operate in sustainable admitted and non-admitted niche markets o Diversification through multiple specialty lines of business o • Deep distribution relationships, exquisite execution and scalable platform • Demonstrated ability to identify and acquire profitable, niche businesses • “A - ” (Excellent) with a Stable Outlook - A.M. Best Financial Strength Rating. 3

Hallmark Financial Services (NASDAQ: HALL) • Market capitalization of $180.2 million , with 18.1 million shares outstanding ($9.98 market value per share) as of June 30, 2018. • Consolidated Shareholders’ Equity of $256.9 million as of June 30, 2018. • Total capitalization of $342.7 million Combined Loss Ratio Comparison Total Assets ($000,000) $14.23 $13.82 Book Value Per Share $14.28 BVPS BVPS Accident Year Combined Ratio ex CATS Catastrophe Losses $13.72 BVPS $1,200 $14.5 $13.11 BVPS Prior Year Reserve Development BVPS 107.9% $14 $1,000 97.1% 95.9% 93.9% 99.8% $13.5 11.1% $800 100% 2.2% 1.6% $13 2.1% 4.7% 3.1% 2.7% 2.4% $600 $12.5 $400 $12 80% $980 $1,076 $1,162 $1,231 $1,259 $200 $11.5 $0 $11 2014 2015 2016 2017 YTD 2018 60% Gross Written Premium ($000,000) 92.8% 93.2% 94.5% 94.7% 93.1% 40% $400 $300 20% $473 $514 $549 $604 $327 $200 $100 -1.6% -2.0% 0% $0 YTD 2018 2014 2015 2016 2017 2014 2015 2016 2017 YTD 2018 4

The Hallmark Track Record Gross Premiums Investment Adjusted Pre-tax Operating Year-End GAAP Equity GAAP BVPS Produced Income Income Cash Flow Stock Price (3) ROAE (2)(3) % Chg (2) % Chg (1)(3) $ 1,386 $ 7,339 $ 32,656 20% $ 5.37 $ 119,305 $ 7.20 2004 $ 8,602 2005 10% $ 118,066 $ 3,836 $ 29,654 $ 85,188 16% $ 5.89 $ 8.16 13% $ 13,468 2006 $ 10,461 $ 75,962 $ 150,731 13% $ 7.26 23% $ 293,304 $ 9.91 21% $ 23,950 2007 $ 297,904 $ 13,180 $ 85,684 $ 179,621 17% $ 8.65 19% 60% $ 15.86 $ 41,769 2008 $ 16,049 $ 48,712 7% 0% $ 287,081 $ 179,412 $ 8.61 $ 8.77 (45%) $ 21,124 2009 $ 14,947 $ 61,698 $ 226,517 12% $ 11.26 31% (9%) $ 288,450 $ 7.96 $ 33,257 2010 4% $ 314,857 $ 14,849 $ 36,360 $ 235,278 3% $ 11.69 14% $ 9.10 $ 8,371 2011 $ 15,880 $ 24,610 $ 215,572 (7%) $ 11.19 (4%) $ 344,379 $ 6.99 (23%) $ (19,787) 2012 $ 384,231 $ 15,293 $ 33,682 $ 220,537 2% $ 11.45 2% 34% $ 9.39 $ 3,374 2013 $ 12,884 $ 68,338 4% 8% $ 454,981 $ 238,118 $ 12.36 $ 8.89 (5%) $ 11,080 2014 $ 12,383 $ 33,684 $ 252,037 5% $ 13.11 6% 36% $ 468,442 $ 12.09 $ 18,782 2015 5% $ 509,188 $ 13,969 $ 52,936 $ 262,026 9% $ 13.72 (3%) $ 11.69 $ 31,886 2016 $ 16,342 $ 30,854 2% 4% $ 544,968 $ 265,736 $ 14.28 $ 11.63 (1%) $ 8,478 2017 $ 600,243 $ 18,874 $ 7,199 $ 251,118 -4% $ 13.82 -3% (10%) $ 10.43 $ (16,572) YTD 2018 $ 8,846 $ (9,895) 1% 3% $ 325,099 $ 256,909 $ 14.23 $ 9.98 (4%) $ 7,181 TOTAL $ 189,179 $ 586,137 $ 5,350,498 $ 194,963 Last 14 Years (2004-2017) 17% 8% 3% (205%) (1%) 22% CAGR 13% (1) Adjusted pre-tax income is income before noncash interest expense from amortization of deemed discount on convertible notes, income tax and non-controlling interest. (2) Stock prices and BVPS prior to 2006 have been adjusted for the one for six stock split which took place during the Q3 2006. Year-end stock price for YTD 2018 is as of June 30, 2018. (3) FY2010 and FY2011 adjusted pre-tax income, equity and BVPS have been restated for change in accounting principal related to deferred acquisition costs. 5 5

Strategic Focus UNDERWRITING STRATEGY INVESTMENT STRATEGY Hallmark views Investment Operations as a Core Disciplined Underwriting Strategy in Specialty Competency. Hallmark has achieved above average Niche Market Segments. results and expense savings through internal • Underserved markets – limited competition management of its investments . • Highly customized products to meet unique • Employ a disciplined, value based investment needs of insureds strategy • Low price sensitivity • Investment process focuses on individual • Mostly low-severity and/or short-tailed security selection exposures • Seek to outperform market benchmarks on • Underwriting expertise critical: Underwriters average vs. consistently beating the market every year have an average of 15 years of experience • • Underwriters’ bonuses based on underwriting Total return approach values all components of performance — emphasizes bottom-line investment return equally, whether reported profitability over top-line growth as interest and dividends on the income statements or recognized as comprehensive • Sustain strong, consistent underwriting income on the balance sheet performance • Seek to maximize total return on an after tax • Reinsurance used to reduce operating basis through investment in tax-exempt volatility and to protect shareholders capital securities and compounding of unrealized gains 6

Strategic Initiatives • Investment in Talent • Develop and Diversify Specialty Product Offerings • Refocus Strategy for Standard Commercial P&C and Personal Lines Segments • Grow and Diversify Geographic Reach • Deepen Key Distribution Relationships • Technology Upgrades • Sharpen Pricing Tools and Capital Allocation Focus • Improve Data and Analytics at the Point of Sale (POS) • Strengthen Our Control Environment o Claims, Operations, IT, Actuarial Departments • Engage External Capital Providers to support Product Expansion 7