A.M. Best Assigns Ratings to Hallmark Insurance Group

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.