Hallmark Completes Acquisition of Phoenix Indemnity

January 30, 2003

Hallmark Financial Services Inc., located in Dallas, completed its previously announced acquisition of Phoenix Indemnity Insurance Company, an Arizona-based non-standard automobile insurance company, from Millers American Group Inc.

Hallmark will accept Phoenix Indemnity stock in exchange for a $7.0 million reduction in the balance of a promissory note owed to it by Millers. The stock of Millers Insurance Company will continue to be held by Hallmark as collateral for the remaining balance of the note while the parties evaluate the recapitalization or reorganization of Millers Insurance Company.

Joseph G. Smith will continue as president of Phoenix Indemnity and the company will continue to focus its operations on non-standard automobile insurance in the states of Arizona and New Mexico. For the first nine months of 2002, Phoenix Indemnity had direct written premium of $19.2 million.

Policyholders’ surplus at September 30, 2002 was $10.9 million.

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