Q1 2020 Earnings Call

Hello, and welcome to the Hartford q1 earnings release and webcast conference call. All participants will be in listen-only mode should you need assistance, please press conference specialist pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions to ask a question. You may press * then 1 on your touchtone phone to withdraw your question, please press start to please note today's event is being recorded. Now, let's turn the conference over to Susan Smith, please go ahead. Good morning. And thank you for joining us today for our call and webcast on first quarter 2020 earnings. We reported our results yesterday afternoon and posted all of the earnings related materials on our website wage for the call today are speakers are Chris Swift chairman and CEO of the Hartford Doug Elliott president and Beth Costello Chief Financial Officer following. They're prepared Ramon. No,

We will have a Q&A. Just a few final comments before Chris begins today's call includes forward-looking statements as defined under the private Securities litigation Reform Act of 1965. These statements are not guarantees of future performance and actual results could be materially different. We do not assume any obligation to update information or forward-looking statements provided on this call investors should also consider the risks and uncertainties that could cause actual results to differ from these statements a detailed description of those risks and uncertainties can be found in our SEC filings our commentary today include non-gaap Financial measures explanations and reconciliations of these measures to the comparable measure are included in our SEC filings as well as in the news release and financial supplement.

Finally, please note that no portion of this conference call may be reproduced or rebroadcast in any form without the hartford's prior written consent replays of this website and an official transcript will be available on the hartford's website for 1 year now turn the call over to Chris.

Good morning, and Welcome to our first quarter earnings call. Well, the Hartford start at $3,020 with significant momentum since our last call on February 4th, Thursday, the society in the global economy had been fundamentally Changed by covid-19.

in light of that

Plan to spend the bulk of my time today focused on the pandemic including how we are responding and how we are preparing for what comes next.

I want to begin by recognizing the human toll the pandemic is taking on behalf of the Hartford and are more than 19,000 employees. My heart goes out to those who are affected by the virus month. I pray for a full recovery for those who are sick and extend my deepest gratitude to the Health Care Professionals caring for them along with all the other workers on the front line of this crisis.

I also want to acknowledge the millions of people who are struggling in other ways including those who have lost jobs and livelihoods those who are trying to balance working from home with child care and home schooling and those already vulnerable or suffering from the isolation brought about by physical distancing.

People in businesses are facing circumstances. They've never encountered before now more than ever. They seek strong leadership at all levels across all sectors of our society needs to navigate through this crisis in a way that protects public health and safety and steer us towards economic and social recovery at the Hartford. We are committed not doing our part.

A company took quick and appropriate action in response to the pandemic. Our first priority was to ensure the health and safety of our employees and their families.

Thanks to the Investments. We've made in our capabilities over the past several years and the extraordinary recent work of our technology team. We were able in mid-march to immediately and seamlessly transition month 95% of our employees to a virtual environment.

Since then our team has continued to provide uninterrupted support and outstanding service that our customers expect. I'm incredibly proud of the resiliency demonstrated by our employees and their commitment to our stakeholders during this crisis which speaks to the hartford's character.

We have also taken a number of steps to help our policy holders navigate through this crisis including providing payment flexibility refunding personal Auto customers and not Premium Adjustments for changes in exposure all of which double count upon further.

We have also significantly increased our communication efforts with agents Brokers and customers in the hopes of reducing some of the uncertainty they face during this unique time.

To support our communities the Hartford has donated in excess of 1 million dollars to several organizations on the front line of this crisis, including the c d c and the center for disaster philanthropy and we have enhanced and accelerated our annual campaign supporting Regional food banks like food share.

As we have reacted to the immediate impacts of the pandemic on our customers and operations in the world around us. We've maintained a strong focus on preparing for the next normal. We'd entered 2020 in a position of strength focused on execution. And in the first quarter, we continue to generate an industry-leading 12-month quarter earnings are a we have 13.3% first-quarter results in our Property and Casualty business benefited from pricing momentum lower catastrophe losses favorable non catastrophe whether wage in lower auto claim frequency as a Navigator's integration progresses underwriting actions to improve profitability coupled with rigorous execution and renewal pricing and rate increases are driving an improvement in underwriting margins compared to the second half of 2019.

the business impact

From covid-19 was approximately fifty million dollars pre-tax in the first quarter including 16 million dollars of increased claims in short-term disability and from expanded benefits under New York's revised disability and Paid Family Leave legislation a $10 reduction in estimated audit premiums receivable and a 24 million increase in the allowance for current expected credit losses. I'm premiums receivable reinsurance recoverable and other balances Doug will provide additional details on our property generally results.

Before I return to the topic of covid-19 and how we are thinking about the next normal. I'll spend a few moments addressing our first quarter group benefits performance package for the quarter group benefits posted core earnings of $115 with a margin of 7.8% These results were above expectations and reflect the strength of our book of business month persistency on the combined employers block of business was approximately 88%

It was a solid sales quarter across market segments and product lines with fully insured ongoing sales of 385 million dollars.

The overall loss ratio improved by 2.8 points driven by favorable life involuntary results, which were partially offset by increased disability loss ratio.

Excluding the effects of covid-19 previously discussed disability underlying Trends remain favorable which strong recoveries in recent accident years incidents Trends were consistent with recent experience albeit slowing year-over-year Improvement.

As we look forward we anticipate increased claims activity from covid-19 primarily in short-term disability and life insurance as well as statutory Paid Family Leave benefits in certain States.

The fibers as proven so far to be less acute for individuals under the age of 65, which is the vast majority of our business. However, it is clear that people of all age groups and demographic profiles are at some level of risk.

We expect higher claim volumes in all these lines throughout the second quarter beyond that the variables driving elevated losses are highly dependent on how well the viruses contagious and ultimately treated.

More broadly, the economic impacts of efforts to contain covid-19 is also a factor to be considered as we look forward month. We are facing a recessionary environment that was triggered by a very unique circumstance and historical correlations may not prove to be predictive. Nonetheless month disability incidents levels may increase over the next twelve months. We had been anticipating some increased previously. However, covid-19 May accelerate deep in that Trend. We are adapting rapidly to all these changes operationally and in pricing and underwriting

our most important priority

Just to meet the needs of our customers and their employees during the crisis. The group benefits business is a market leader in enters as period of uncertainty with a strong operational and financial Foundation.

I am confident. We will emerge from this pandemic and it continued strong position.

No, I'd like to make some general comments about the challenges. We face as a country the role of the insurance industry and how I think about the Hartford future.

Economic challenges. We Face are truly unprecedented the shelter at home mandates shut down entire sectors of the economy leading to a page to 25% decline in GDP in the second quarter a 25% drop in our estimated new business start-ups in the last six weeks.

Unemployment rates above 10% and historically low interest rates. We applaud the Federal Reserve the Trump Administration in Congress Force checking quick and necessary steps to assist the capital markets and support local businesses and individuals. These early steps have provided critical assistance to our economy with the American people.

Only the federal government has the tools and resources to address the extraordinary threat posed by this fast-moving Global pandemic and the economic Fallout from the necessary orders closing businesses across the country that said it will take significant partnership in coordination between federal state and local governments along with help from the private sector now for profits and the American people to defeat this virus in safely reopen the economy.

As always the insurance industry will play a critical role in helping the Country Return to growth and prosperity as an industry. We are actively paying claims resulting from covid-19 the property casually sector entered the year in a strong position, but the sharp downturn we are experiencing will pressure growth and profitability off.

Well, the industry is prepared to meet its current obligations. It cannot accept retroactive changes to its policy obligations.

There's been a lot of debate and discussion in the media and various legislatures across the country about business interruption.

Vast majority of the Hartford property policies that include business interruption in civil Authority coverage require losses to be caused by direct physical damage or damage to property.

Any effort to retroactively rewrite these contracts presume coverage or remove exclusions with threaten the very foundation of the insurance industry the sanctity of contracts under our Constitution and the principles of a free market economy doing so would threaten the ability of carriers to pay losses arising out of every day covered perils our customer will inevitably face in the months and years ahead. We understand that policymakers and Regulators are under extraordinary pressure to provide even more assistance to businesses they represent but unlawfully and unconstitutionally shifting those losses from one industry to another is not the answer.

The industry has an obligation.

To vigorously defend the terms and conditions of its insurance contracts and preserve the principle that premiums are paid for specific risks covered by the insurance policy off turning to the Hartford. Some of our businesses will be impacted more significantly than others the size and duration of the impact will depend on the pandemics ultimate effects the economy. We expect elevated claims activity in such lines as workers compensation short-term disability security and you know,

We also expect to see some exposures decline in while it's still very early. We anticipate corresponding to climbs in claims.

We also expect additional pressure on net investment income in short. We believe this to be an earnings event. Not a capital event.

Well, these days are certainly the most turbulent of Our Generation. I remain confident about the hartford's ability to manage the uncertainty of this crisis over the coming quarters. We have a strong and well-capitalized balance sheet with ample liquidity.

When we defeat this pandemic, there will be inevitably significant shifts in consumer spending habits forcing businesses to change how they operate. We will be ready with products to meet the changing needs of our customers.

Small business is the backbone of the US economy and will play an integral part in the eventual recovery the Hartford as the leading insurer of small business will continue to protect our customers against the covered losses. They face everyday allowing them to return with confidence to financial self-sufficiency and growth.

we will continue to work with the federal government to create Innovative tools the administration can use to provide assistance to those who need help we will work alongside our peers policymakers elected officials and public health experts to develop a national solution for managing pandemic risk going forward in support of a resilient and well-functioning economy

my optimism for the future of society the economy and our company is grounded in the Hartford history for more than two centuries we have navigated through a host of global crisis he's dead including multiple recessions two world wars in the 1918 influenza pandemic based on the resiliency that is Porter who we are I believe we will emerge from this crisis even stronger

As we have always done, we will continue to leverage our expertise capabilities experience to deliver on the Promises set forth in our policies.

This means prudently managing our business to ensure we are able to meet our financial obligations many years into the future. Most of all, it means approaching every customer interaction with transparency speed and empathy. Our company's purpose is clear. We underwrite human achievement. We know who we are and what we stand for circumstances have changed and we must remain agile in response, but we are unwavering in our commitment to our customers our partners our communities and our people

with the combination

Of our heritage talented and dedicated employees and our strategy for future success. I am confident that we have what we need to thrive.

Now, I'll turn the call over to Doug. Thank you, Chris and good morning everyone. I Echo your sentiment for those individuals and families impacted by covid-19 as well. As a deep appreciation for front-line workers who are protecting and supporting all of us against that backdrop. Let me share commentary on the first quarter as well as perspective on our business in the face of this pandemic.

Property and Casualty had a solid first-quarter earnings were slightly better than both last year and our expectations. I'm pleased with the continued pricing momentum that is critical to improving the financial performance of both Middle Market and Global specially.

Let me get right into our business results commercial lines. First quarter combined ratio is 99.1 increasing three points versus 2019. The underlying combined ratio Is 96.9 increasing 2.2 points. The deterioration was primarily due to expected compression and workers compensation margins and small commercial higher expenses and not Asian of Navigators partially offset by favorable non-property results for the quarter renewal written pricing and standard commercial lines was 3.8% up 30 basis points from fourth-quarter, excluding workers compensation pricing was 7.4% up nearly over fourth quarter including incremental monthly progress over the past three months.

In middle-market renewal written pricing in the US excluding workers compensation increased 9.4% up 180 basis points from fourth quarter and 570 basis points from first quarter of 2019, both property and general liability pricing improved over two points since the fourth quarter and are now each in the high single digits off in middle-market, excluding workers compensation. We've now achieved incremental pricing gains for five consecutive quarters.

On our last call. I provided quite a bit of texture to the pricing story and Global specially let me provide a few updates. We continue to experience strong pricing gains in both our page book as well as the international portfolio, which is primarily written in Lloyds the US wholesale book achieved 21 points of rate in the first quarter over two points better than fourth quarter several lines continue to achieve an excessive 20% including property Auto and excess casualty.

The international portfolio also had equally strong pricing gains with continued emphasis on professional lines and energy.

Additionally considerable portfolio reshaping continues including shifting industry and Geographic mix raising attachment points and reducing policy limits combining these connections with our sustained pricing work. I'm pleased with the improving profit trajectory. Let me pivot to Property and Casualty loss results catastrophes were relatively modest home and outside of the unfavorable development on us ocean marine and Lloyd Syndicate reserves that were covered by prior-year development on all other lines was insignificant in the quarter off.

covid-19

Transfer immature at March Thirty One and therefore had a limited impact on our results.

Let me share a few more details on our commercial businesses beginning with small commercial which had another very strong quarter posting an underlying combined ratio of 89.3 the current accent. Your loss can be improved of a point as favorable non-property results more than offset. The margin compression in workers compensation as discussed in the past. This expected compression was driven by negative workers compensation pricing.

In addition as you'll see across Property and Casualty segments expense ratio deterioration was driven by lower 2019 state tax assessments and a higher bad data allowance for this quarter. The bad debt allowance increase was twelve million in small commercial and eighteen million across Property and Casualty reflecting the expected impacts of higher customer defaults.

Small commercial written premium was flat to last year our new business sales for the quarter were $157 million down 10% This decrease was driven by the new business written in 2019 from the foremost renewal rights transaction middle and large commercial reported and underlying combined ratio of 100.4 in the first quarter an increase of 2.3 points off in addition to the expense items mentioned earlier approximately one point of the increase related to a higher current accident year loss pick for general liability.

Written premium increased 5% driven by strong growth in law sensitive construction and the addition of The Navigators retail access casualty business retention and new business production and standard Commercial middle-market Business. Both declined due to rate and underwriting actions were taking across the book.

And Global specially the underlying combined ratio is 96.4 improving 2.1 points from the second half of 2019.

As I mentioned earlier pricing and book re underwriting actions are drivers of the improved results in addition Global specially delivered 217 million of direct new written premium the quarter.

We remain very encouraged about the breadth of our new product offerings and the long-range core earnings forecast for Global specially.

Shifting over to personal lines were pleased with the performance producing an underlying combined ratio of 86.6 improving 2 and 1/2 points from a year ago and personalized Auto the underlying combined ratio. 90.9 was 2.7 points better than 2019 favorable frequency Trends driven by the relatively mild winter and shelter-in-place guidelines contributed to the improved results severity was largely in line with expectations.

Now, let me step back from our business results and reflect on the new challenges that covid-19 will bring over the coming quarter and into the rest of the year operationally. We executed a Flawless lie in a matter of days from decision to execution almost our entire team moved to fully remote status without missing a Beat.

the resiliency of

Our employees and their dedication to Brokers and customers during the past seven weeks has been inspiring as we look ahead to the next few months. I would offer a few key points as it relates to the global economic first. We communicated adjustments to normal business practices including providing additional time to pay premium and offering flexible payment options extending billing. Through through May 31st, and the waiver of any late fees that would otherwise apply relaxing policy were no requirements and deadlines as well as premium audit obligations adjusting policy conditions to be responsive to Extended vacancies caused by shelter-in-place guidelines in addition since mid-march. We've endorsed more than eighty thousand policies and took over 15 million.

a premium to customers

We've also announced a 15% refund of April and May's personal Auto premium due to a reduction in miles driven and lower reported claims second. We expect that off of 19 will have an impact on our premium flows. Let me start with small commercial we expect our normally strong retentions to be impacted by both reductions and exposure as well. As business closures wage reductions in exposure will likely be driven by lower customer payroll and sales primarily impacting workers compensation, but also our business owners policy Spectrum to a lesser degree wage.

Our new business activity clearly slowed in the latter half of March and into April consistent with U.S. Census Bureau statistics that point toward an approximate 25% decline in Nash new business applications. We expect a similar drop in new business premium for the full second quarter written premium could be down approximately 15% in the second quarter.

Relative to Middle large and specially we expect retention and pricing Trends during the second quarter to remain generally consistent with prior quarters Risk Managers are juggling many priorities and Thursday customers will change carriers less often in this environment. This obviously means that new business levels will be off exposure reductions by way of endorsement will continue but not the extent of small business. Finally. There's been much written about losses related to the virus much of it misinformed. We continue to pay claims according to our contract terms and conditions. As Chris said we will vigorously defend against any and all attempts to unfairly disregard or broaden the terms and conditions of our policies. These contracts have former foundation for our industry over decades. We will contest retroactive changes at every corner.

As I close. Let me again express my confidence in my teammates here at the Hartford. We've built a strong foundation for our future our insurance and risk management platform is poised for greater success as both organic and new capabilities blend together. We will be thoughtful with our decisions dealing with this pandemic and we will continue to be the company. Our customers agents and shareholders can count on let me page and the call over to Beth. Thank you Doug. I will review results for the Investment Portfolio Hereford funds and corporate and cover a few other items before turning the call over four months before you begin with a discussion of our investment results. I'd like to point out that we have included new supplemental information on our Investment Portfolio this quarter in the appendix of our earnings slide presentation.

our Investment Portfolio is

Broadly, Diversified and high-quality with an overall average credit rating of a plus as the business cycle aged over the last couple of years. We were active in reducing the risk profile of them folio. And as a result have relatively small allocations to below investment-grade Securities equities and limited Partnerships. The fixed maturity portfolio is 96% of investment-grade with nearly three-quarters of that rated A or better

The corporate exposure to higher-risk Industries including energy Leisure and entertainment and Airlines is very manageable and largely investment-grade with a significant percentage in private places that offer offer covenants to better protect our investment.

We deliberately seek to diversify our corporate and Municipal risks through our allocations to Structured Products and commercial mortgage loans are structured product Holdings are very high-quality, an average rating of double A+ and 95% rated single a or higher our commercial mortgage loan portfolio is Diversified with a loan-to-value ratio of 52% off and debt service coverage of about 2.5 times coming into this crisis with no exposure to hospitality or retail malls.

In addition since the end of March we reduced our Equity exposure taking advantage of the bounce inequities to further reduce risk investing the proceeds primarily and high-quality fixed-income Investments net investment income was $459 Million for the quarter down $44 million from the fourth quarter of 2019 driven in part by lower income from making payments and mortgage loan prepayments and valuation declines on Equity Fund investments in first quarter 2020.

Where the quarter the current yield before tax, excluding limited Partnerships was 3.3% for the second quarter. We would expect the yield to be flat with the first quarter Thursday. We have taken actions to increase liquidity to offset the expected decrease in premium receipts to covid-19 including the effect of the billing release that we have provided to our policyholders wage for the second quarter yield Outlook of 3.3% The impact of this increase in liquidity is roughly offset by the assumed absence of the valuation declines and Equity Fund Investments experienced in the first quarter. The annualized limited partnership return was 13.2% in the first quarter primarily due to strong private equity valuations and life shows as a reminder LP returns are reported on a quarter lab. So we would expect to see second-quarter results negatively impacted by the market decline in the first quarter.

The net unrealized gain position of six hundred million after-tax on fixed maturities decreased by 1.1 billion from your end driven predominantly by significantly wider credits spread partially offset by lower interest rates.

unreal

My eyes and realized losses on Equity Securities net of games on Equity derivatives, which are recorded within net realized Capital losses in the income statement were 311 million before tax in the courtroom not reflecting the impact of the equity market decline during the quarter. We recorded impairments of 17 million pre-tax and are fixed maturity portfolio consisting of 12 months of credit impairments and five million of intent to sell impairments turning to Hartford funds core earnings of $44 million or up 57% from first quarter of 2019 and up four million from the fourth quarter of 2019.

Quarter earnings in the quarter included a benefit of twelve million pre-tax driven by a reduction in the contingent consideration payable related to the 2016 lattice acquisition off assets under management for our exchange-traded products on which the contingent payment is based are down significantly due to Market declines, excluding this adjustment first quarter quarter earnings would have been thirty-five million compared to twenty eight million in the 2019 first quarter reflecting higher average of 7% despite the decline in at the end of the first quarter which was down 20% from December 31st, gross sales were up significantly in the first quarter from prior periods. However, net flows were a -1.4 billion in the first quarter driven by redemptions compared to net positive Flows In first quarter 2019 of 874 million. The corporate core loss was yep.

For a million and a quarter compared to a core loss of 15 million in the first quarter of 2019.

The retained Equity interest in Talcott, which is reported on a 1/4 lab generated a three million loss after tax in first quarter 2020 compared with income of $22 million after-tax in first quarter 2019 in addition net investment income and corporate was down fifteen million before tax from the prior-year. Due to a decline in invested assets of the founding company primarily due to the acquisition of Navigators in the second quarter of 2019 and the impact of lower short term investment yields.

Book value per diluted share excluding with $44.07 up 1% from your end 2019 quarter earnings our Ally over the last 12 months was 33.3% We ended the quarter with approximately 800 million and holding company resources in March. We repaid $500 million of maturing debt with a coupon 5.5% in the first quarter. We repurchased 2.67 million shares for a hundred and fifty million dollars. We have assessed our capital and liquidity positions under a number of stress scenarios and are very confident in our ability to manage through this. Nonetheless in light of the uncertainty in the current environment. We have paused our share repurchase activity and we'll evaluate the appropriate time to resume repurchases as the impact of covid-19 become more known including lost cost Trends potential reduction written premium and the impact of extending payment birth.

comes to our policy holders

Since March we have focused as a company on managing the dynamic conditions of this pandemic. We have taken action to increase the quiddity on our balance sheet further reduced risk in our Investment, Portfolio and proactively support our customers in this difficult time. We will continue to monitor the external environment including economic developments and take appropriate actions as we navigate through life changing Landscapes. I'll now turn the call over to Susan so we can begin the Q&A session. Thank you Beth. We have about 30 minutes. For questions. I'd ask. If you could please repeat the instructions operator for asking a question. Absolutely. We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If I need speaker phone, please pick up your handset before pressing the keys to enjoy your question, please press * then two at this time. We will pause momentarily to assemble the roster.

and today's first question customer Brian Meredith was

Yeah, thank you. A couple of questions here first Christian. Could you perhaps comment on the business Interruption coverage is specifically how much of your business, property and the bar business has a virus endorsement on it. So where your exposure there is and then additionally could you comment on what percentage of your policies actually on a specific virus exclusion with respect to the business Interruption coverage. Thank you. Hope you're well. So I I I would say a couple of things one. I'm extremely confident in our underwriting and contractual terms and we really done an exhaustive review over last 6 7 8 of all our policies including Navigators and I and I would just you know tell you straight up that the vast vast majority of our contracts do have a virus exclusion.

Do have a virus exclusion and that there could be a handful of occasions where in essence we've offered business Interruption coverage without tied to a physical damage or or property loss. But again a handful and those policies actually came from our our Navigators acquisition. So wage. I think we got our arms around our our policies our exposures our teams have you know, really scrubbed everything over and over but Doug that's what I would I would share with Brian Smith. That's a good summary Chris.

It did you did you book those ones with the with the endorsement in the quarter? And if you know what I'm saying when we closed out the quarter, obviously, we booked what we knew wage. And that's why we it took the actions you you saw where we did from a from a receivable side of credit side from you know, the the group benefits side.

and

That's what that's what we booked and we booked what we saw what we were aware of and I would say specifically know there was no specific provision for them all those policies that I referred to that you do have, you know bi but relatively, you know, I'll call it modest in in in totality.

Gotcha, and then second question. Could you comment on the impact of the expanded kind of covered presumption? We're seeing and workers comp in various States, you know, lots of numbers being thrown out there by some of the wrong kind of industry, you know ncci cetera et cetera. What are your thoughts on that? What's the potential impact on the Hartford? Etcetera? Yeah. Well, it's as you said it's been active and and again as I said in my prepared comments, I I understand that, you know, people are trying to you know, take care of people in their states employees and and things like that, but if you really studied the the history of the workers comp environment over the last, you know fifty years, it's a Well functioning well understood a business activity that I think fairly compensates, you know people's that had been injured or obviously get you know, sick at at work and we've had some prior experience with this, you know particularly with Ebola.

So I think the rules of the road are generally understood and to expand presumptions to relax documentation to sort of change. The equation I think wage is you see it could be very disruptive to the industry that said I guess I do have some personal sensitivities and you know for front-line health-care workers and you know, those that are treating, you know, the sick out of this, you know virus and maybe there's a accommodations or things that we could you know do there but broad-based projections for many classes of business is Brian just doesn't make sense to me brand new only thing I would add is that you know, several states are are talking about this presumption Dynamics workers comp. I'm not sure of states that are the same. So it's a variety across the states and secondly, we're working with our trades to come together as a group to try to figure out responsible answers as we step forward in this crisis.

Great. Thank you.

Thank you. And the next question comes from Meijer shield with KBW a couple of questions one big one in your prepared remarks. There is I guess misinformed Terry it was hoping you could talk about what what commentary you're seeing out there. That doesn't match your your perceptions.

Yeah, I don't think it's appropriate for me to comment Mayer about specific Suite we treat each and every claim on its own merits. We're looking at all the claims as they come in. We've been responsive we're working through all the variety of lines and coverages et cetera. So I think our claim group has done an outstanding job. It just frustrates me at times when I feel like sometimes the Press Lounge looks at us and doesn't give us the credit that I believe we deserve for what we do and how we support the marketplace.

Okay.

Twisted second question. Can you give us some insight in terms of changes to commercial auto claim frequency that you've seen over the last six weeks or so we have our home I'll say this our claim counts have been down both across personal and Commercial.

When it was clear by the end of March that they were down for that two-week period and expected to continue into the second quarter Beth and I and Stephanie Bush our entire group sat and worked through and ended up with the the 15% refund for April and May that approximates fifty million dollars plus or minus and money going back to customers and in commercial. We've also seen them to a lesser degree, but we've also seen fewer claim notices. We will watch that carefully. We're discussing and debating our commercial book as we speak and as we come to any conclusions, we will certainly share it with you and all parties.

Okay, sure nothing. Thank you for all of the clarifications morning. Thanks.

Thank you. And the next question comes from David tanen with that ever Gore. Hi. Thank you. Good morning. Just a question for Chris and Doug. I guess just wanted to dig in a little bit. Just thinking about the potential reserves that may need to take heading into next quarter. Is there anyway you can help them as the limit at risk in Navigators for the policies that don't require the the property damage from the virus and then um in your ten Q it sounds like you do expect to get re insurance coverage on the occurrence treaties, but it sounds like you expect limited recoveries given your current estimates of losses. Should I take that to mean that you expect the losses and to to be under $150?

Yeah, David. Thanks for joining us. I think what you're reading and interpreting in the queue is really off base just fundamentally off base. I think about how we've always prepared. Our excuse is I mean, we we try to describe risk factors. We try to describe, you know conditions, you know, so that that there there is a level of clarity you should not read anything of the queue is predicting a loss an attachment point a session that we expect at this point in time. I think all we were pointed out though is like any property loss. We do have a certain levels of reinsurance on an Aggregate and risk basis, but do not do not interpret that as a loss limit or you know trying to Signal, you know anything. That's just good disclosure second birth.

A call at The Navigators, you know. Peace Doug we're not going to get into the specific.

But all I would say again handful of policies that there's aggregate limits in all of them.

You know for for for for we knew it's a we we knew about the program. It's a program geared towards the entertainment industry jobs. And you know, once we come up with, you know, final final estimates that will tell you when we we booked them in the second quarter. I would just add to that Chris when I think about the Navigator property book it is very insignificant compared to the size of our overall property book. So less less than one half of one percent relative to policy count and their book is both primary and excess in their primary book. Generally, they do not have virus exclusions, but across our entire property base again, I go back to you know, the vast majority of our policies with the virus exclusion and we will work through those claims during the course of the second and third quarters and come to our estimates as we close out next quarter. Yeah, the only the only thing that I'll I'll add to the first part.

Of the question and I agree with with Chris's comments as it relates to things that we commented on in our our risk factors. I think you may have been asking specifically about our property catastrophe treaty and we did specifically say that pandemic is not excluded from that treaty and you know, obviously given the level of losses that would have to be in order for us to hit that we see that as as very unlikely. So I think that that was the specific disclosure that you were may have been referring to that's right. But thank you for clarifying. I appreciate that. And then I appreciate the the response from everyone and I just wanted to also follow up just on just the inputting the new money yield into cash or money into cash. I guess. How long do you expect this to continue? And what what are you specifically looking for? What do you need to see to start deploying that back in to approve?

duration bonds

Yeah, David, thanks. I would just you know give you the context of what we did in in lie, and it really is just a classic crisis Playbook. Right? I mean you have to admit or welcome to the crisis. And and when we started looking at things late February early March solver spreads were going and in the markets it just, you know, Game Theory and took other conditions, you know, we wanted as much liquidity and flexibility as as as possible. So we decided it took the action to not reinvest principal and interest coming off the portfolio into the new credit exposures at that time because you you saw the FED didn't act to at least a 2 or 3 weeks later and it was a defensive cautionary position and I think all Beth and I really want to do which is tell you what we did why in the potential impacts on a run-rate yield or nii? You know.

from you know managing your

Expectations about but that's what I would say. Yeah. I I think that's a good summary. I mean again, I think if you go back and look over what's happened over the last couple of months is it's Chris said when we looked at this wage, you know beginning of March. It was really more a reaction of the fact that we saw markets and specifically, you know credit markets were, you know feeling stressed and we didn't want to be investing into that long usually go through March and then we get towards the end of March and April. We have more shelter in place orders and so forth and some of the actions that were taking to provide relief to our customers in a receipt of of a premium payments causes to continue to want to build a quiddity and so our view is as we go through the second quarter and we start to see some stability in life. You know, what we're seeing relative to top-line and those those receipts we'd look to start then reinvesting again, but I really characterize this as as moving from a you know, creating a position of strength

Rather than any sign of weakness as it relates to overall balance sheet.

Okay. Thanks for the clarification. I appreciate it.

Thank you. And the next question comes from your least Greenspan with Wells Fargo.

I guess good morning. My first question. I was hoping within your workers comp. You can no break down the exposure to health care and other front-line workers and then maybe more sort of Industries like supermarkets et cetera and just give us a sense of you know, the areas and the exposure within your book that you think wrong, you know are most likely to see, you know, losses wage that mine improve it.

At least I think the only detail I'm comfortable sharing with you is for our small commercial and middle-market book. How how you would Define a healthcare how we would Define health care which excludes dentist and optometrist, you know that we would ensure

our Healthcare exposure to those on the front line basis is less than 5% of our premium. It's the only day two point. I'd like to give you at this point time, you know break down our entire, you know book of business for you and give all our competitors opportunities to Sherry picket. So again, very little minor front-line health-care worker exposure in our in our book of business.

Okay, that's helpful. And then my second question in terms of Navigators a couple of questions. Can you comment on what accident year is the development? I needed to the ABC came from in the quarter and then second question related to Navigators. Can you just comment on you know how the margin was in q1 relative loss know to the, you know, five to six points of improvement that you guys have laid out, you know that you would expect it for twenty twenty.

Yeah, I I'm just waiting for the team to respond. Yeah, so on the The Navigators peace, you know, we really are looking at you know, a 2018 and prior and I can't remember the exact year that it was involved but it's you know, it's in that in that bucket. Obviously that's covered by by the ATC wage at least as far as the Improvement looked at Doug dad his color too, but I'm pleased with the trajectory the improvements again, we've talked about that 5 to 6, you know a point a combined ratio Improvement and I'm extremely confident we will achieve that in the in the time frames that you know, we've talked about but I thought we had good progress did so we look at you know our numbers into first quarter and compare them to a more normalized run rate. Which got than I keep looking back at I would say the Improvement is in the 3 and 1/2 range 3 and 1/2 off.

For what we see into twenty-twenty. I would also say to you that I'm very encouraged by our pricing progress and some of our book Management Programs as well. So as we can work our way through 2020 into twenty Twenty-One. I feel like those goals are certainly attainable and I feel like we've made really good strides down that path at least.

Okay, and then one last question, I know you guys know and others in the industry mentioned, right the desire right not to have let you have to changes to policy language. We've also heard a lot of chatter about uh, potential prospective plan, you know, government backstop to provide pandemic coverage on a go-forward basis. Um, do you have any thoughts there? And I guess how long do you think that's in terms of a time frame? Is that something I know there's a lot

Got a lease is alluded to in my you know prepared comments. We are working with our trade group and and across the industry to develop if we can get this view on options and solutions, you know for the future. So I think it's premature to comment upon anything, you know right now other than the desire to contribute to a solution going forward from from the industry perspective and I think I've talked quite a bit of my peers in in the industry and there there is a desire to that I think creatively and and come up with options and and potential Solutions and then at least I just to follow up I was able to find the accident years at Seventeen and eighteen is related to those Marine losses.

Thank you, and the next question comes from Michael with Credit Suisse.

Hey, good morning. Thanks. First question. I know we've talked about workers comp a lot of reddy maybe digging a little bit more. If you can elaborate on your comments regarding the potential cause elevated claims in that line, you know, maybe any you know fraud comments and on how this recession could maybe play out differently than the last I know there was one commercial carrier which said last week they you know, maybe changed the reserving place even a little bit and they they released last reserves to be a little more conservative view that they can do accounts. You know, that's the last recession of surprised them a little bit on the back end which I believe may have also kind of happened industry-wide into Harper as well. Thanks Mike. Good morning, We start with a few comments to frame this I'd start by saying that, you know, our accounts are down but as you know, we are also working day by day on exposure changes.

With our policy holders. So until we we get that exposure base where it needs to be. It's very difficult to

Predict frequency, but I expect over the short-term will see improvements in claim counts. If nothing else. We understand across, you know, our manufacturing book may be more experienced workers as as people thin their ranks, what will tend to see would be more experienced workers on those on those lines and as such they will get injured less frequently Thursday. We're watching careful medical severity. We think there will be a little bit of pressure on duration and also a medical severity is an awful lot of medical attention this country right now dealing with covid-19 and as such, you know, we're slightly concerned that maybe all the people that need medical attention for other job-related injuries are stacking up in the queue. So there are sort of things relative to workers compensation. We're keeping an eye on some good and some pressure points to watch even putting, you know, the presumption discussion to the side.

Like I would just give you a larger picture perspective in that I mean, if you're looking back to the Great Recession or other, you know recessions that the US economy sucks. Just it is true that obviously unemployment in GDP is going to shrink but one of those other recessions were caused by structural issues, whether it be, you know, credit overextended org imbalances, you know in the economy remember this was a shock to our to our US economy and the and the real hope in in belief at least I have is with the great advances in the medical community in in some of the things that everyone's talking about and working on we could remove the shock factor and go back to it a structurally sound consumer orientated, you know economy that isn't stretched, you know, financially isn't out of balance in any way shape or form. So but it's true that might take some time to get the medical advantages.

Necessary to relieve the shock, you know that the economy is experiencing.

Great that that's helpful. My last question is regarding more broadly commercial pricing, you know, do you do you feel that you've been seeing a pricing industry-wide continue to move North Tire given the kind of uncertainty surrounding a lot of issues or our our, you know, our Lifeline contraction causing more broadly kind of pricing to to to move move downwards a bit, and I'm speaking specifically to commercial pricing, but if you have that is on also personal lines pricing given that seems to be a good area to be a a be open to those as well. Thank you.

Taco commercial first I would suggest that the early look at April April is not complete that it will be tonight. But the early luck suggest, you know consistency with what we saw in March. So the early part of the second quarter, I think will exhibit similar patterns to what finished quarter one and we'll obviously continue to watch this and not just on a month-to-month basis as we move into court or two personal lines, you know, I think they're a lot of things going on in personalized including the fact that you know, there is a fair amount of customer premium refunding going on in Q2 month and a lot happening.

based on miles driven

But also now the potential turn on turn back on of the economy and one of the things we've debated amongst ourselves is you know, I think we expect to see potentially a bounce back in miles driven over the course of the summer as people return to more normal living conditions. We expect miles driven to go up as a result may be fewer airline miles traveled but more within their wages are so those are all thoughts over the ensuing three to four months, but at the moment yes miles are are down and we expect that to change.

Okay, great. Thank you so much, and hope y'all y'all. Hope you're right about return to to normalcy in the coming months. Thanks.

Thank you. And the next question comes from Ryan to assist with autonomous research.

I think so. I had a question for dog in a group benefits question, which I guess might also be for dog, but I just recovered the property tax stuff on reinsurance. Could you give us some indication of how some of the page or Risk insurance or the quota share? We're might not respond to any potential covid-19 suits.

Well, you're right. We do have per Risk insurance inside our core property book. And obviously that would be on a risk by risk basis. It would depend on severity of risk. Both those plans are in place and they're no virus exclusions attached to those programs. So that stands as is there also an assortment of other programs including Navigators has a quota share program across their property booked heavily heavily reinsured. So you'd almost need the specific circumstance of the loss trying to figure out how it applies. But number one, I would say, I believe we've got sound underwriting on our primary name and number two. I think we've got a well thought-out reinsurance program that will respond if indeed it's called to

So the other thing I wanted to hit on I guess is in group benefits. It seems like the short-term disability dwarf the impact of workers comp know that's what everyone's been talking about. Is it safe to think that if you know conditions remain like this that that 16 million for half a month, uh home would have that type of proportional impact, I guess and ensuing quarters, right? It's it's Chris. I would say no, I would not do that and I'll tell you why if you if you sort of break down, you know, what we bought ten million was for Paid Family Leave six million was for STD off.

I would say when we booked and made our estimates, you know, for the quarter. We had a claim count estimate, you know, adoration estimate and then you know, it's it's simple math from there the claim count that actually emerged again New York Paid Family Leave primarily is our risk product. There is just significant down from what we expected. So it's not to say it can't come back. It's not to say it couldn't Spike, you know as as as as people look at all the benefits package available to him, but that that claim count projection was off by a factor of at least fifty percent and STD I would share with you took the view that we had again is changed a little bit as we got into April and that the the impact that we booked was for increased covid-19 off.

STDs and to remind you

There's usually a 7-Day elimination. And again, then if someone goes on STD because of covid-19, generally what we're seeing is is a 10-day to gain benefit But there again the data that emerged in April is that yeah, covid-19 claims are up but everything else is down quite substantially wage, you know, so the the normal STD claims or the planned absence STD claims, you know, everyone is sort of delaying, you know normal activities as it would be related to change coverages. So net-net the total claim, you know projection or the claims of how their emerging in April is basically flat to slightly down with with historical Trends now that $2,000 but it as it reverses, I think we would have less covid-19 claims, you know going forward so I would not project it on a Runway basis and we'll we'll give you a job.

Transparency to what we do in the second quarter, but at least right now there's offsetting factors that that you know should mitigate losses.

Got it. I guess the one followed by the head is kind of a mechanical one probably for dog as well. But some of these comps studies were seeing where when it's the ncci where you're coming up with a group of workers comp lost estimate. What are some of these we should be thinking about in terms of you know, how deductible that in reality how that makes its way through a lawsuit an insurance company like the the impact that a company deductible might have to mitigate that or you know, the fact that that might not even make it to workers comp right? I guess it could become a short-term disability claim maybe health insurance might cover it. I'm just trying to understand like try to get that down to know it's gross numbers. What are some things we should be thinking about

Just a few comments. It's so hard to project here. But yes the national account customer segment.

Fortune two thousand plus

Many have some form of lost responsive program where there's either deductible attached some kind of retention Arrangement. So yes, that would not all just fed directly into accomplices in terms of Main Street America much of middle-market America. I think those contracts are largely guaranteed costs. So those are risk transfer programs. And again, I'm not going to be a state-by-state dynamic but I would think much of that content change would show up in the p&l of insurers overtime. Then the last thought I have for you is that you know, the fundamental way we run this business is that we take historical losses and we run them through our actual model and then we develop rates going forward based on all the risks we're taking and I would expect whether we're talking workers comp or property as we come out of this covid-19 experience will be doing exactly that with those losses paid.

and

Thank you. And the next question comes from Michael Phillips with Morgan Stanley.

Thank you. Good morning, buddy. Just Chris. Is it simply that it was just it's too early. Just curious. I guess the rationale for not putting out any kind of expected number Front on the sidewalk veloster's right now.

Yeah, again, we reacted to what we know what we saw, you know, if you really think about it was, you know, two weeks of of the month and it really what I'd like you to take away from it is there isn't any big surprises out there that we we don't we don't see or understand meaning we're not in certain lines of business that if people took you know, a lot of reserves, I mean, we're not in the event cancellation business. We don't have material Trade Credit exposures or anything along those lines, but you don't have a travel business so long, we have our our core products in our core capabilities. And yeah, I mean two weeks for you know into the the virus to sort of make a any type of wage adjustment and and the accounting is I mean, we can't book second quarter events in the first quarter, right? I mean, it's got to be sort of a a known and exposed first quarter event. So yeah. We'll see. Yep.

Develops here and in the second quarter, but uh, we're not setting out anything big in my judgment.

Okay. No, thanks appreciate that. And then I guess lastly any thought you could share on expectations for learning through the rest of the year for for the top business.

Yeah, well, let's get through the crisis and the immediate events here. I mean, we're not going to re project or give new guidance at this point in time. So I'm asking for

I just for the rest of the year like how God he's so excuse me. So yeah, so that's hard that's hard to to predict. Obviously, you know, as we said we we record Talcott earnings on 1/4 cup. So we typically get their financial statements, you know, forty-five fifty days after quarter and you know, I'd expect that given their, you know, the hedging profile of that that entity that we're likely to see gains from the first quarter and I point you to look at first quarter of 2019 when you know, they have recorded the the impact of the fourth quarter of 2018 compact of hedging gains that we saw there and then as far as predicting dividends, I mean that that gets difficult to do we were pleased to get a dividend last year and we know that their plan is, you know to continue to pay dividends, but you know until we get the cash and the door we don't we don't count it. It's not included in any of our holding company projections of of cash flows. Thank you, ma'am.

Yes.

Thank you. And that does conclude the question-and-answer sessions like to return the forces and feedback for any closing comments.

Thanks.

You we appreciate all of you joining us this morning. Please don't hesitate to contact us if you have any follow-up questions.

Thank you. The conference has now concluded thank you for today's presentation, you know disconnect your lines.