Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The Hartford Financial Services Group Inc (HIG, Financial) reported outstanding second-quarter results, contributing to excellent financial performance in the first half of the year.
- Commercial lines saw top-line growth of 11% with strong renewal written pricing increases and an underlying combined ratio of 87.4%.
- Personal lines experienced top-line growth of 14%, with improving margins.
- The group benefits core earnings margin was exceptional at 10%, reflecting strong performance in Group Life and disability.
- The Board of Directors approved a new share repurchase authorization of $3.3 billion, reflecting strong capital generation.
Negative Points
- Catastrophe losses were elevated at $280 million before tax, slightly higher than expectations.
- The total personal lines expense ratio increased by 0.7 points due to higher direct marketing costs.
- There was a $32 million increase in general liability reserves, primarily related to accident years 2015 to 2019.
- Commercial auto saw a $10 million adverse reserve development related to 2022.
- The competitive environment in the group benefits market remains heightened, impacting sales growth.
Q & A Highlights
Q: Chris, you said rates improved sequentially, and I think you attribute it to GL as well as excess and umbrella responding to societal issues. Given that we've seen reserving issues emerge across the industry, would you expect that your soft pricing trends would just continue on an upward trend from here?
A: Thank you for the question, Elyse. In general, we're very pleased with our pricing as we quoted 6.6%, up 30 basis points, 9.5%, up to about 20 basis points, even with some moderating property pricing. Property still remains double-digit but is moderating. The liability lines are performing well, and our team is doing a great job getting the needed rate to keep up with and stay ahead of our loss cost trends. We will continue to be disciplined in risk selection and pushing for rate in the book.
Q: Beth, regarding the new share repurchase authorization, is the incremental uplift all being driven by dividends out of your property casualty entities, or how should we think about the incremental cash flow over the next couple of years?
A: It's really across our businesses. The increase in authorization reflects the strong earnings generation. Dividends can fluctuate as we manage various legal entities, but we feel very good about the capital generation and expect our dividends to reflect that.
Q: Can you share more about where you're growing in the specialty business, particularly in the reinsurance area?
A: Our specialty business is quite diversified, with the biggest component being wholesale E&S, which uses a full range of liability and property products. Our reinsurance business is growing about 18%, with 45% being property, growing at 24%, and non-property casualty lines growing at 12%. This business is expected to be a run rate of about $850 million this year, taking advantage of market dislocation and producing superior risk-adjusted returns.
Q: Can you talk about the potential impact of the recent legislation in Florida increasing Medicare reimbursements for doctors on workers' comp severity trends?
A: The law, effective January 1, 2025, impacts physician services with a pay increase. It doesn't materially change anything in Florida for us. We need to work with rating bureaus to ensure these loss estimates are included in their guidance and rate filings. It’s a lag, but it won't change our underwriting appetite or execution.
Q: Chris, you mentioned property is still seeing double-digit rate increases. Can you break down what it looks like from large account to small account?
A: Last quarter, property rates were up 14.1%, and this quarter, they are up 12.4%. The highest rate increases are in our small commercial E&S binding division. Everything else is in the high-single digits. We are disciplined and appropriate in these lines of business.
Q: Chris, in your comments, you said you expect to hit target margins in personal lines by 2025. Is that for the full year or mid-year?
A: We expect to achieve target margins by mid-2025. The sequential trend is impacted by expenses, particularly marketing. We ended 2023 with a loss cost trend in the mid-teens and expect it to be low double digits for the full year. We are on track for a 5 to 6 point improvement this year.
Q: Can you provide more color on the Benefits business, particularly around the 10% core margin results and sales stats?
A: We are very pleased with the 10% core margin and 8.1% for the first half, above our long-term guidance of 6% to 7%. Mortality improved this quarter, and disability continues to be steady. We expect to outperform our long-term guidance for the remainder of the year. The market is competitive, impacting sales and top line, but we are maintaining underwriting and pricing discipline.
Q: Workers' comp continues to be favorable. Are you making changes to your current view of margins, and how does that play into the stability or improvement in your commercial loss picks overall?
A: We are virtually right on where we thought we would be. We expected some modest margin contraction heading into 2024, which continues to be the case. Our frequency and severity assumptions are holding, and wage inflation is outperforming. The resulting balance sheet is healthy, and we are watching all drivers of loss cost trends closely.
Q: Can you share more about the severity and frequency trends in workers' comp and expectations?
A: We maintain a 5% long-term medical inflation trend, with medical trend slightly up from 2%-ish to 3%-ish. We don't typically discuss frequency trends in detail.
Q: Can you talk about the Hartford's continued mix shift to property and how that might help margins?
A: Generally, property has a lower loss ratio than comp. Increasing the property mix will lower the overall underlying combined ratio. We have made significant investments to compete thoughtfully and earn good returns with good risk management tools and a diversified portfolio. We are on track to reach close to $3 billion in written premium this year, up from $2 billion a couple of years back.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
