The Hartford is hosting a conference call and webcast to discuss their second quarter 2023 financial results. Susan Spivak Bernstein will be the host of the call, and she will be joined by Chris Swift, Chairman and CEO of The Hartford; Beth Costello, Chief Financial Officer; Jonathan Bennett, Group Benefits; Stephanie Bush, Small Commercial and Personal Lines; and Mo Tooker, Middle and Large Commercial and Global Specialty. Participants are in a listen-only mode and the call is being recorded. The call includes forward-looking statements and non-GAAP financial measures. Replays of this webcast and an official transcript will be available on The Hartford's website for one year.

Chris Swift reported strong financial and operational performance for the second quarter of the year, with Commercial Lines achieving top line growth of 12% and an underlying combined ratio of 88.3, and Group Benefits achieving fully insured premium growth of 7% and a core earnings margin of 7.6%. Investment performance was strong, with a trailing 12-month core earnings ROE of 13.6% and $484 million of capital returned to shareholders. Small Commercial's written premium of $1.3 billion and new business of $237 million were near record highs, and Spectrum new business premium was up 23%. The company remains confident in its ability to deliver a 2023 core earnings ROE in the range of 14% to 15%.

Small Commercial had a successful quarter with industry-leading products and digital capabilities, and is on track to exceed $5 billion of annual written premium in the near-term. Middle and Large Commercial had an exceptional quarter with written premiums at their highest levels ever, up 12%. Property lines saw 24% top line growth, and the company is taking steps to expand commercial property written premium to approximately $2.5 billion by year-end. Global Specialty continued to deliver outstanding results with net written premium growth of 15%.

The company is excited about their position in the wholesale market and has achieved double-digit top line increases. Underwriting discipline and enhanced capabilities have driven targeted market share gains. Commercial Lines renewal pricing rose to 5.2%, while Personal Lines renewal written pricing was 13.8% and expected to accelerate to above 20% by the fourth quarter. Homeowners renewal written pricing was 14.4%, outpaced underlying loss cost trends.

The company is actively managing its homeowners' book with sophisticated underwriting capabilities, such as not writing new business in Florida and wildfire mitigation efforts. In Group Benefits, the company is seeing strong top and bottom line performance. In Group Life, the loss ratio was up but there was strong new sales. The company is also seeing strong performance in investments, and is making advances in technology to bring a competitive advantage and superior customer experience.

The Hartford is using artificial intelligence (AI) in all parts of their business to improve customer experiences and decision-making. They have developed an award-winning medical record digestion and extraction tool to reduce distraction and lost time in their workers’ compensation business. They are also experimenting with generative AI in a controlled environment to augment their employee capabilities.

Chris has outlined the company's strategic priorities for the remainder of 2023, which focus on leveraging the competitive advantage of their product breadth, underwriting discipline, digital investments, and ROE performance. The results of these strategies have been positive, with the Commercial Lines book posting a combined ratio of 88.3 and 88.4 for the quarter and first half of the year, respectively. Small Commercial also had a strong quarter with 11% premium growth and an underlying combined ratio of 89.7.

In the quarter, the package product saw higher non-CAT property losses than the prior year, but the overall performance of the book was good, evidenced by a 12th straight quarter of an underlying combined ratio of below 90. Middle & Large Commercial achieved a record written premium of $1 billion and an underlying combined ratio of 88.7, and Global Specialty's underwriting margin was 85. In Personal Lines, core loss was $57 million with an underlying combined ratio of 101.7, and Homeowners had an underlying combined ratio of 79.6. Auto results showed liability and physical damage severity pressure, resulting in an underlying combined ratio of 111.8, 5 points higher than expected, due to a higher number of large bodily injury and uninsured motorist claims. Written premium in Personal Lines increased 6%, driven by rate actions, and auto achieved written and earned pricing increases of 13.8% and 8.5%, respectively.

In the second quarter, homeowners insurance saw the highest written and earned pricing increases in over a decade at 14.4% written and 12.7% earned, with a 2.7 point decrease in the expense ratio due to lower marketing spend. CAT losses were elevated for the industry, but Allstate’s results were only slightly higher than expectations due to effective aggregation management and underwriting discipline. In Group Benefits, core earnings were $133 million with a core earnings margin of 7.6%, and the year-to-date margin of 6.4% is at the mid-point of the full year range of 6% to 7%. The group life loss ratio increased 5.5 points due to favorable prior period reserve development and higher severity. Group disability had a loss ratio of 67%, delivering strong results.

The Hartford's expense ratio improved by 70 basis points in the second quarter, due to top line performance and expense reductions, as well as investments in new capabilities. Fully insured ongoing sales were $151 million and premium growth was 7%. The company's investment portfolio produced strong results, with net investment income of $540 million and a total annualized portfolio yield of 4% before tax. The average credit rating is A+ and the commercial mortgage loan portfolio is mostly composed of top tier office properties. Two loans were fully repaid in the quarter and manageable maturities are expected in the second half of 2023 and 2024.

Chris Swift reported that the company's property book and capabilities had improved, leading to a 23% increase in written premiums. They also discussed their catastrophe budget and expected CAT losses over the next year. They ended the call by mentioning their strategies, talent, and technology that will help them continue to succeed.

Chris Swift is confident in the pricing of the portfolio, which has increased by 15%, with large properties up by 70%, wholesale properties up by 25%, and global reinsurance business up by 50%. He notes that they are not taking on CAT exposed property, but rather a broad-based property approach. He also reiterates that the fundamental thesis of the improvement between years is loss ratio improvement, expense ratio improvement, and some headwinds in the workers’ comp business, which are playing out as expected.

Hartford has a strong and highly profitable workers' compensation line of business. Competitors have noted an inflection in healthcare inflation on the medical side, which could have an impact on Hartford's business. Hartford also has underwriting initiatives and the compounding effect of rates that are expected to improve the loss ratio in the second half of the year. In the quarter, there were headwinds from non-CAT property losses and runoff business aviation war, which normalizes to half a point.

Chris Swift explains that the group benefits business is not exposed to medical inflation because they replace wages and not medical costs. He then goes on to explain that medical severity trends are lower than the 5% assumed in pricing and reserving, and they are insulated from medical CPI. Mike Zaremski then follows up with a question about lost cost trends in commercial auto and GL, and Chris Swift explains that Hartford has seen some pricing momentum and that they are still seeing some reserved deficiencies.

Chris Swift states that the net headwind for commercial lines in the quarter was a result of a net headwind of 50 basis points for non-CAT property losses and aviation war losses. He also mentions that the pricing in the personal auto industry has been a challenge due to the level of inflation pressure, stickiness of physical damage, and an increase in severity and uninsured motorist claims.

Chris is optimistic that the company is executing well on their rate plans and making the needed adjustments in a timely fashion. They expect to have a written rate increase of 20% by the end of the year and are currently eight points above their guidance for the full year. In order to get back to target profitability in early 2025, Chris believes that they will need double-digit rates between now and then.

Chris Swift and Elyse Greenspan discussed the expected rate increases in the fourth quarter and into 2024, as well as the potential tailwind on the loss ratio from the unearned rate in the book, should loss trends remain stable. Swift also mentioned that the compounding effect of rate increases, mix change, and underwriting initiatives, as well as an improved expense ratio in the second half of the year, could all contribute to targeted profitability in early 2025. He clarified that the 0.5 point of non-cat weather was for the consolidated or commercial loss ratio.

Chris Swift, Beth Costello, and Meyer Shields discussed how the personal lines impact of higher non-cat losses could be calculated by doing the math and adding both pieces together. They then discussed the expense ratio in personal lines, which is largely driven by reduced marketing, and the success the team has had in their commercial business from a new business production perspective, particularly in small business spectrums and E&S binding. Meyer asked about market conditions going out to 2024.

Chris Swift is optimistic about the market conditions for commercial property, homeowners property, commercial auto, and liability lines over the next 18 months. Stephanie Bush adds that the small commercial space is still better than pre-pandemic levels, with new business starts continuing to be strong. The company is seeing growth in policies in force in every line, and is pleased with the results in the E&S small commercial binding space, where they are writing business on their terms and price.

Chris Swift and Mo Tooker discuss the growth of their company in the middle and large commercial markets and in global specialty. They are confident in their ability to maintain growth throughout the year, and Chris believes the E&S market will remain healthy. Greg Peters then asks about technology spend and Chris responds that they are investing in projects funded by the Hartford Next program.

Chris Swift is discussing the success of their program, and how they have a continuous improvement mindset. They use a constrained model where everyone has to compete for capital, and this has resulted in significant structural savings over the long term. Chris also mentioned that they are expecting to move 100 apps to the cloud this year, and that this will generate meaningful savings in 2025 and beyond. Finally, he is proud of the team for creating business strategies and linking them to technology to create market differentiation.

Chris Swift and Brian Meredith are discussing the inflationary trends of personal auto claims and how the company is managing it. Chris states that the cost of repairing cars is increasing due to more technology in cars and more severe accidents. He adds that the company has a network of claim specialists and good data and analytics to help manage the costs.

Chris Swift responds to Tracy Benguigui's question about the margin they are building for potential future losses. He explains that they have chosen a loss trend that takes into account potential issues such as medical severity, social inflation, latent liabilities, and claims frequency. He also mentions that they are currently writing quality business in 22 states and are rolling out four more in July.

Chris Swift and Tracy Benguigui discuss the social aspects of line of business when it comes to trend picking, and how they exclude certain things, like asbestos and PFAS chemicals, in their policies. Swift states that the PFAS exclusion was put in place four or five years ago, and that they monitor the exposures for reserving and adjust when necessary. Benguigui then asks a question about why personal auto retention is going up despite price increases, to which Swift answers that it is a timing difference.

Chris Swift reaffirmed the company's confidence in their 14-15% ROE, citing the strong performance of workers' comp and disability insurance, and their slightly above expected investment yields. He also noted that the negative impact of personal lines will be muted by its size, and that the company will continue to buy back shares as they find them attractive.

At the end of the conference call, Yaron Kinar asked Beth Costello about new money rates, which had been coming down the last two quarters. Costello explained that the mix of investments can sometimes have an impact on how the sequential rate looks, but that the differential between reinvestment rate and sales and maturity yield was still very healthy and was contributing to the improvement in the fixed maturity yield. Susan Spivak Bernstein then thanked everyone for joining the call and invited them to reach out with any additional questions.

This summary was generated with AI and may contain some inaccuracies.