Q4 2020 Hartford Financial Services Group Inc Earnings Call
Okay.
True.
Okay.
[music], Inc.
Good morning, everyone and welcome to the Hartford Financial Services Group, Inc.
Perforated fourth quarter 2020 financial results webcast.
All participants will be in a listen only mode.
If you need assistance. Please signal our conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you may price.
Press Star and then one.
Please also note today's event is being recorded.
At this time I would like to turn the conference call over to MS. Susan Spivak Senior Vice President of Investor Relations Ma'am. Please go ahead. Thank.
Thank you Jamie good morning, and thank you for joining us today for our call and webcast on fourth quarter and year end 2000.
The earnings we reported our results yesterday afternoon, and posted all of the earnings related materials on our website for the call today, our speakers are Chris Swift, Chairman and CEO of the Hartford, Doug Elliot President and Beth Costello, Chief Financial Officer.
Following their prepared remarks, we will have a Q&A period, just a few final comments before Chris begins todays call includes forward looking statements as defined under the private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and actual results could be materially different we do not.
I 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.
Our commentary today includes non-GAAP financial measures explanations and reconciliations of these measures to the comparable GAAP 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 call and an official transcript will be available on the Hartford's website for one year on.
I'll now turn the call over to Chris.
Good morning, and thank you for joining us today.
Let me start by saying we have been through one of the most turbulent years in recent history.
Which has been shaped by extraordinary set of circumstances, including.
The worst pandemic in more than 100 years.
Tweaked every studying economic and emotional fallout.
The collective reckoning with ratio of quality that continues to challenge America.
And the increasingly vivid reminders that our climate is changing.
Despite these challenges the Hartford continued to deliver strong results with core earnings of $636 million.
The $1 76 per diluted share for the fourth quarter and of <unk>.
Trailing 12 month core earnings Roe of.
$12 seven.
For the year.
Core earnings were $2 1 billion or $5 78 per diluted share.
Book value per diluted share, excluding OCI was $47 16.
8% from 2019.
The Hartford performance reflects the strength of our businesses.
Our execution on strategic priorities.
And builds a solid foundation for our company's future sustainable success.
One of the thank all my colleagues across the Hartford.
I'm incredibly proud of the resiliency demonstrated by our employees and their commitment to our stakeholders. During this unusual time.
Balancing the demands of work and family.
Now turning to the business and 2021 outlook.
Property and casualty underlying underwriting results significantly improved in both of fourth quarter and for the full year 2020 with strong performances in both commercial and personal lines.
Excluding the impact of Covid commercial lines underlying margins expanded by six five points in the fourth quarter and one six points in 2020 with improvement coming from all businesses.
These results were inline or better than the guidance, we provided a year ago and were driven by higher pricing.
But hearings to our underwriting disciplines in operating efficiencies.
In commercial lines pricing on one month momentum continues across nearly all lines excluding workers' compensation.
And we expect pricing increases to continue as additional rate is needed to offset pressure from social inflation.
More frequent catastrophe events.
And the persistent low interest rate environment.
In commercial lines. Our teams are executing strongly on a number of fronts.
In global specialty book.
A strategic transaction to acquire navigators is on track.
The integration is proceeding well.
And it is providing us with expanded product growth in middle market and global specialty.
In 2020, we have met our goal of improving financial performance in the business compared to the second half of 2019.
And the acquisition was well timed from a market perspective.
Small commercial results remain excellent.
We continue to strengthen our competitive advantages and market leadership position.
The launch earlier in the year of our new business owners policy raise the bar for customer experience in buying and managing coverage.
Going forward, we have a robust strategy to grow through product innovation.
We will continue to invest to maintain our industry leading digital experience.
I am excited about what we will continue to accomplish in this business.
In middle of large commercial we completed year one of a three year plan to transform the underwriting process provide a differentiated customer experience.
And grow our specialized verticals.
In the fourth quarter underlying margins improved by four four points compared to prior year, primarily due to lower expense ratio.
In addition, our broader and deeper product set.
On an enhanced analytics.
To drive further growth and improved margins.
Moving on to personal lines.
Underlying margins improved in both of the fourth quarter and of the year benefiting from continued favorable auto frequency.
Lower non cash incurred property losses and reduced expenses.
In 2020, we extended our AARP relationship with a new contract that runs through the end of 2032.
Solidifying our unique value proposition for the 50 and over demographic.
We are also investing in of new digital platform to administer and market our products.
Doug will provide more detail.
And I am excited about the new auto and home products, we will launch in the next six months.
So in summary for P&C.
2020 performance was strong despite challenges of the pandemic and Covid losses.
In 2021, we expect continued modest COVID-19 losses in workers compensation and financial lines.
And while we are encouraged that the vaccine rollout has begun.
We are learning and it will take more time than initially projected to achieve protection across the broader population.
With this outlook.
We're expecting our commercial lines underlying combined ratio, excluding the impact of Covid in both years to improve by approximately three points.
From 2020 results to a range of 88 five to 95.
The margin expansion alone is significant.
When coupled with our business mix, it's an ambitious but achievable outcome.
In personal lines, our outlook for 2021 incorporates an assumption that driving patterns begin to return to more normal levels in.
In property results are more in line with historical trends.
The result is an expected underlying combined ratio in the range of <unk> 87 to 89.
I am very bullish about our growth potential and expect to increase our top line at a faster rate than we have experienced over.
Over the past five years.
While some of this growth reflects a positive pricing environment we.
We've seen an increasing opportunity to utilize our brand people enhanced underwriting capabilities and excellence in customer service to capture market share.
Before moving on group benefits.
I want to briefly comment upon the business interruption lawsuits brought against the Hartford and the industry.
While we are extremely sympathetic to the difficulties faced by our Insureds.
And all business is dealing with the pandemic.
The claims against us are outside the scope of our policies.
All of our property policy subject to litigation plainly require direct physical loss or damage to trigger of coverage.
And the COVID-19 virus, clearly does not cause such loss or damage.
Although it is still early in the lifecycle of some of these cases, where.
We are pleased with the overwhelming majority of decisions to date by federal and state courts across the country.
I've held in favor of the insurance carriers and recognized that the presence of the virus does not meet the direct physical loss or damage trigger for coverage.
Given the number of lawsuits.
Not surprising that some initial rulings have gone against the industry.
Where appropriate these cases have been or will likely be appealed.
And I am confident appellate courts will properly consider the growing body of precedent in favor of the industry.
Nevertheless, a few on favorable trial court rulings.
Does not change our view of this exposure.
Or the strength of our coverage arguments.
We remain highly confident in our contract language and coverage positions.
Finally.
There has been some commentary about the number of lawsuits filed against the Hartford versus other industry players.
We do not believe simply comparing the number of lawsuits is a useful way to assess exposure.
And more appropriate ways to analyze coverage defenses.
The limit profiles portfolio mix and other variables.
Since the initial outside of wave of lawsuits against the company.
The pace of new cases against the Hartford has slowed significantly and is now in line with peers.
In the meantime, pending case counts against us had been reduced by approximately 25% to date.
Through a combination of motions and withdrawals.
Turning to group benefits.
Core earnings were down on both the fourth quarter and full year as we experienced excess mortality rates, which we believe is attributable to the ongoing impacts of the pandemic.
Obviously mortality has been impacted by desk directly attributable to Covid.
But there is also an indirect effect, which is most likely the result of patients deferring regular treatments for chronic conditions.
Or individuals tolerating warning signs of of health problem for too long before seeking care.
All cause excess mortality amounted to $152 million before tax in the quarter and included $22 million of claims related to prior quarters.
The full year impact of excess mortality was $239 million.
Which reduced our full year full year core earnings margin by three one points to six 4%.
And disability, our fourth quarter loss ratio was 65 one.
Was three one points higher than prior year.
And the fourth quarter of 2019 results included higher favorable prior year development.
For the full year 2020, the loss ratio improved by one two points to $66 one benefiting.
Benefiting from strong recoveries in two of lesser extent favorable incidence.
On the top line of fully insured ongoing premiums were down 2% in the quarter and for the full year as our clients responded to the pandemic driven economic pressures by reducing their workforce and associated payroll.
2020 fully insured ongoing sales driven by strong national accounts were up 11% to $717 million.
And persistency was slightly favorable at approximately 89%.
Sales are off to a solid start in 2021 with one one effective date of sales exceeding prior year by more than 10%.
Looking into 2021, we expect of group benefits marketplace to remain dynamic is digital transformation product innovation and customer demand is accelerating.
Our competitive advantages and future investment roadmap will strengthen our market leadership.
That said.
Many questions still surround the pandemic and its effect on mortality in the economy.
Therefore, we are basing our loss picks heavily on total mortality trends in the near term.
Rather than trying to isolate COVID-19 related deaths only.
Based on historical mortality expectations.
Excluding any pandemic related effects.
We expect the core earnings margin to be between six and 7%.
The decrease in expected margin from 2020 actual ex Covid results.
Primarily relates to lower expected favorable prior period development on LTV reserves.
In life waiver claims.
And lower net investment income.
Taking into account the uncertainties surrounding the mortality impacts of the pandemic we.
We expect core earnings margins to be reduced by two three points given the continued higher rates of all cause excess mortality.
Actual mortality rates will be impacted by the vaccine rollout pace.
Patients of the virus.
In a broader population returning to more routine medical care.
In addition, we expect to a much smaller degree elevated short term disability claims compared to historic norms.
Lastly, we expect these higher mortality in short term disability claims to impact our results predominantly in the first half of 2021.
As we close the books on 2020.
I am optimistic about the future.
At the Hartford underwriting human achievement is at the heart of what we do.
We are committed to making a sustainable and positive impact on society as an essential element of our ongoing success.
Across the Hartford, we are making this happen by always doing the right thing.
Stirring a workplace, where everyone is welcome and respected using.
Using our resources and influence to help mitigate the challenge of changing climate patterns and.
In helping to make our communities, where we live and work.
Safer and more successful.
Which has never been as important as it is today.
Heading into 2021, I am confident in our business portfolio.
People and our strategy to deliver value for all our stakeholders.
Now I'll turn the call over to Doug.
Thank you, Chris and good morning, everyone as Chris referenced 2020 was an unprecedented year for property and casualty industry and the Hartford.
The global pandemic and civil unrest losses significantly contributed to the challenges presented to our customers, we serve along with our broker and agency partners.
Our employees deserve a huge thank you for their tireless efforts throughout this difficult year tackling every obstacle that came their way.
Despite the challenges I was quite pleased with our overall performance property and casualty underlying margins improved by just over one point in 2020 and written premiums grew 3%.
During the year, we also made substantial progress on a number of key business initiatives.
In small commercial despite COVID-19 charges than expected margin compression from workers' compensation, we continued to outperform with another sub 90 underlying combined ratio.
During the last four months of the year, new business from spectrum, the hartford's industry, leading packaged product achieved record levels.
And metal on large commercial 2020 was the first year of our underwriting transformation journey intended to address profitability efficiency and customer experience.
Strong pricing and underwriting actions have driven improved profitability in the core book. In addition investments in technology and data are paying off for underwriters and distribution partners are.
Of our pace has accelerated turnaround time by five days, which equates to about 25%.
While simultaneously improving the underwriting experience and effectiveness.
And global specially we're nearing two years since of Navigators acquisition closed and are poised to exceed core earnings and new business goals.
Underlying financial results are improving driven by exceptional pricing and book reshaping.
Continued progress to deepen relationships with retail distribution partners has delivered an additional $134 million of new premium across commercial lines that would not have been possible prior to the acquisition.
Finally on personal lines, we renew the AARP contract through 2032, and we will be launching a brand new auto product with improved digital capabilities by April.
Homeowners will be launched in the summer with both products in a number of states by year end.
Underlying results were extremely strong driven largely by the pandemic impact on driving miles, while new business remains below expectations.
Let me now pivot to summarize our financial performance for 2020, and then I'll conclude with some thoughts about 2021.
Property and casualty core earnings were $1 7 billion for the year with a combined ratio of 96 for this.
This includes covered losses of $278 million or two three points and current accident year catastrophe losses of 606 million of our five one points.
Excluding COVID-19 losses, each business reported underlying margin improvement for the year and significant improvement in the fourth quarter much of which was driven by a lower expense ratio.
Covid losses in the quarter were $28 million, including $14 million for both workers compensation and financial lines of.
The workers compensation charge includes the benefit from the pandemic related favorable frequency.
Turning to cats, we incur at $55 million on the quarter, primarily from Hurricanes and convective storms well within our expectations.
Net favorable prior year development for the year was $136 million or one one points in the fourth quarter, we reported of $184 million or six one points of net unfavorable prior year development, which Beth will cover in her remarks.
Turning now to our business line results the.
The commercial lines underlying combined ratio was 95 five for the year, improving one six points from 2019, when COVID-19 losses are excluded.
The margin improvement was driven primarily by favorable non cat property results and a lower expense ratio, partially offset by continued margin compression in small workers' compensation.
A few words on pricing U S commercial lines renewal written pricing, excluding workers' compensation was approximately 11% for the quarter, an excellent result, and consistent with the third quarter.
Middle market renewal written pricing in the U S. Excluding workers' compensation increased 10, 4% for the year nearly doubling 2019 result.
In the fourth quarter of the written price increase was stable at 10, 3%.
Property and general liability pricing remains firm in the high single digits, while auto held steady in the low double digits.
And global specially U S pricing in the quarter was a robust 19, 2% generally consistent with third quarter the.
U S. Wholesale book achieved 25 points also on line with quarter three.
Excess pricing is in the mid <unk>, while property lines of persisting in the low twenties and auto has moved into the mid teens.
Pricing gains on the international portfolio remains solid with improved results in marine on a very strong professional lines pricing.
Small and middle market workers compensation pricing in the quarter, while still negative increase 60 basis points from the third quarter driven by favorable ratings in a few states.
Overall, I'm very pleased with how effectively our team is balance the impact of the pandemic account pricing and profitability improvements in 2020.
Let me share a few more details on the businesses starting with commercial.
Small commercial had another very strong year, the underlying combined ratio was $89 two for the year, one point better than prior year when COVID-19 losses are excluded.
Lower non cat property losses, and a favorable expense ratio were partially offset by workers compensation margin compression.
Total small commercial written premium declined 3% for the year.
After a challenging second quarter due to the economic shutdown written premiums in the last six months was essentially flat to prior year.
In the fourth quarter, New business results were strong and policy retention return to historical levels are.
Our premium retention in the second half of the year was unfavorably impacted by lower premium audits and endorsements of approximately four to five points due to lower payrolls.
Fourth quarter, new business of $153 million was up 11% versus prior year. Our spectrum product is driving this growth and I am very encouraged by the improved business momentum.
Moving to middle of large commercial we posted net underlying combined ratio of 109 for the year two five points better than prior year after excluding COVID-19 losses of <unk>.
Favorable expense ratio on lower non cat property losses drove the margin improvement.
Total written premium declined by 3% for the full year <unk>.
New business in middle market was down 18% versus 2019, however, new business premium in the fourth quarter was up 2%.
Quotes quote ratio and hit ratio on the guaranteed cost book for the fourth quarter were all better than 2019 levels.
120 premium retention declined seven points versus 2019, driven by underwriting actions and lower exposures and workers' compensation.
This underwriting discipline, we start 2021 with much improved financial performance.
And global especially the underlying combined ratio was $98 three for the full year, two five points better than prior year after excluding COVID-19 losses.
We continue to be pleased with the margin expansion and global specialty excluding the impact of Covid, we've seen approximately five points of improvement from the second half of 2019 almost entirely coming from the navigators book with particularly strong results in U S wholesale and global reinsurance combined with a lower expense ratio.
Global specialty written premiums for the fourth quarter was up 9% versus prior year topline growth was driven by significant favorable pricing, partially offset by slightly lower new business levels and lower retentions, primarily in the international book due to our portfolio reshaping and underwriting actions.
Shifting over to personal lines written premiums declined 6% for the year, 4% when adjusting for the second quarter refund.
Although new business levels were below expectation auto new business was up slightly versus prior year.
Lower responses were offset by a better conversion rate.
We're excited about the launch of our new auto product in April with the countrywide rollout of both auto and home to occur over the next two years.
Despite lower growth underwriting results in 2020 were particularly strong in personal lines auto the underlying combined combined ratio of 88 was $9 nine points better than 2019 consistent.
Consistent with the industry frequency ran well below prior year during the fourth quarter of reduced frequency remained fairly stable with third quarter results.
And home the underlying combined ratio for the year of $72 five was five eight points better than prior year, driven predominantly by favorable non cat weather.
Before I turn things over to Beth I'd like to share a few thoughts about 2021.
We project of 2021 commercial lines underlying combined ratio of between 90 and 92.
This includes of Covid loss estimate of one five points.
<unk> estimate is approximately two thirds workers' compensation and one third specialty lines.
Ex Covid, we expect our 2021 underlying combined ratio at its midpoint to improved nearly three points from 2020.
Renewal written pricing in middle market is forecasted to remain strong during 2021 and largely consistent with 2020 across most lines.
We foresee global specialty renewal written rate increases to remain in the double digits.
Workers' compensation pricing is projected to be largely consistent with 2020.
In personal lines, we expect driving miles to increase as the vaccine rolls out, particularly for our AARP book contributing to an underlying combined ratio of 87 to 89.
Reflecting back on 2020 in spite of all of the challenges we faced financial results were quite strong for our property and casualty business units, we delivered year over year ex Covid margin improvement through disciplined underwriting significant portfolio reshaping and the start of Hartford next in every business.
Given the incredible challenges of 2020, I'm extremely encouraged by the improving underwriting performance.
With underwriting actions largely behind US, we are now well positioned to improve our margins and pivot toward growth.
Our team is energized for the future and confident that we have the talent tools and teamwork to deliver.
I look forward to updating you on progress throughout the year, Let me now turn the call over to Beth.
Thank you, Doug I'm going to cover results for the investment portfolio Hartford funds and corporate provide an update on our capital management plans and discuss P&C prior accident year development, including the results of our annual A&E study.
Net investment income was $556 million per the quarter up 11% from the prior year quarter for the year net investment income was $1 8 billion down 5% from 2019 due to lower reinvestment rates and lower yields on floating rate securities, partially offset by a higher level of invested assets.
Given prior to the acquisition of navigators.
The total portfolio yield for the full year was three 6% compared to four 1% in 2019.
During the year, the average reinvestment rate of two 5% compared with the sales and maturity yield of three 4%.
The annualized limited partnership return of 32% for the fourth quarter, driven by higher private equity valuations in distribution and the sale of two underlying real estate properties, resulting in LTE income of $152 million before tax in the quarter.
For the year to Lpl's of 12, 3%.
Overall, the credit performance of our investment portfolio remains very strong net.
Net unrealized gains on fixed maturities after tax increase of $2 8 billion at December 31st and $2 4 billion of September 30th.
Unrealized and realized gains on equity securities with a gain of $55 million before tax in the quarter.
Turning to Hartford funds core earnings for the quarter was $46 million up 15% from the prior year quarter.
This is primarily due to an increase in fee income and lower administrative expenses, including a reduction in state income taxes and travel expenses.
The increase in fee income, which is largely attributable to higher daily average Hartford funds Avon was partially offset by a continued shift to lower fee generating funds.
Full year core earnings were up 12% due to higher daily average assets and lower expenses, including a first quarter reduction in consideration related to the latest transaction of $12 million of our Tac.
Long term on performance remained strong with two thirds of funds, beating peers on a five year basis.
The corporate core loss was $51 million for the quarter and $178 million out of here.
For the fourth quarter of core loss of higher than the prior year quarter, primarily due to the impact of the company's investment in Talcott resolution.
For the quarter, we recorded a $1 million pre tax loss of <unk> compared to a $21 million of income in the fourth quarter of 2019.
On January 20th of Consortia net one calgon announced it was painful to a new group of investors.
We received 97% of of the proceeds on any pre closing dividends. We are very pleased with how this investment has performed and since we have been recording talcott as a result on the equity method, we do not expect significant impact to net income on clothing.
In the quarter, we continued to execute on our Hartford next initiative.
The second half of 2020, we recognize savings before program costs of $106 million and we have increased our estimate of 2021 savings of $350 million as we had been able to accelerate some of our initiatives.
Overall, we are on track to achieve annual operating expense savings of approximately $500 million by 2022, reducing of P&C expense ratio by two to two and a half point the group benefits expense ratio by one five to two point and the claim expense ratio by approximately five points as compared to 2019.
Results.
As Doug mentioned, we recognized net prior year reserve strengthening of $184 million of forecast in the fourth quarter, which included several items.
First we completed our annual asbestos and environmental Reserve review.
<unk> sessions of the adverse development cover we have in place net reserves increased by $218 million comprised of 127 million for asbestos liabilities and 91 million for environmental.
The $127 million increase in asbestos reserves was primarily due to an increase in the rate of asbestos claims settlements as well as higher than previously estimated average settlement values and defense costs.
Overall, the number of asbestos claim filings in the period covered by the 2020 study was roughly flat with the 2019 study.
The $91 million increase in environmental reserves was primarily due to an increasing number of <unk> claims as well as higher remediation and legal defense costs.
Since the completion of the A&E study brought the cumulative losses ceded to the ADC to an amount in excess of of $650 million of ceded premiums paid the company recognized a non core earnings charge of $210 million, representing a deferred gain on retroactive reinsurance.
The cumulative losses ceded to the ADC are currently 816 million, leaving $640 million of limit remaining.
Sessions of the navigator of the adverse development cover or $5 million in the fourth quarter with $91 million of limit remaining.
In the quarter, we increased reserves associated of sexual molestation by $125 million, which is one of the needed to claims asserted against the boy Scouts of America.
Offsetting these reserve increases of favorable development for prior year catastrophes of $116 million, primarily related to accident years 2017 to 2019 as well as favorable development in workers' compensation and package business.
Book value per diluted share, excluding <unk> rose, 8% for the year to $47 16.
And our 2020 core earnings ROE was 12, 7%.
We ended 2020 with a debt and preferred stock capitalization ratio ex Aoc I of 21, 6%.
All of us to keep debt leverage within the low to mid 20% range.
Turning to capital as of December 31, holding company resources totaled $1 8 billion.
As we look at 2021, we expect dividends on the operating companies to total $850 million to 900 million for P&C $250 million to $295 million for group benefits and 125 million to $150 million for Hartford funds.
Yesterday, we announced an 8% increase in our common quarterly dividend to <unk> 35 per share.
In December we announced a new share repurchase authorization of one 5 billion effective January one 2021 through December 31 2022.
Although we have not had any repurchase activity to date, our expectation is terrific presume repurchases over the remaining weeks of this quarter.
To wrap up our businesses performed strongly in a challenging year. We are pleased to see the benefit of our initiatives coming through in our results as.
As we manage it depend on Nick and continued to execute across all of our businesses. We will generate further improvement in our results and enhance value for all of our stakeholders on.
Now I'll turn the call over to Susan So we can begin the Q&A session. Thank you Beth we have about 30 minutes for questions operator could you.
The first question.
Ladies and gentlemen at this time well begin the question and answer session.
I ask a question you May press Star and then one two of die or questions. You May Press star two.
If you are using a speaker phone or do you ask you. Please pick up the handset before pressing the numbers to ensure the best sound quality.
Again that is star and then one task of quiet.
And our first question today comes from Elyse Greenspan from Wells Fargo. Please go ahead with your question.
Hi, Thanks. Good morning. My first question is on on your guidance for 2021 per <unk>.
Marcel PMT.
Within that point on.
On your line margin improvement of Covid.
You get a sense of what's embedded in there of stemming from a loss.
The expense ratio and then also are you assuming net margins look bad within small middle of <unk>.
And also on specialty in 2021.
At least let me tackle that question the first point relative to the three points roughly two thirds of that is coming through the loss area. So yes, Theres Hartford next benefit in there it's about eight tenths of a point.
Second component is that primarily the loss improvement is coming from middle market and global specialty. So are our businesses that have been leveraged by the portfolio reshaping in the heavy pricing are driving.
A disproportionate amount of that increase year over year small commercial is still very very profitable, but they will feel a challenging workers' comp environment again in 'twenty, one and we balance that as we put the complete plan together.
Okay.
Thought about.
2020 were there any like.
It seemed like there was some non cat weather, but for the most part of it neutralized. So we're just kind of thinking about the loss ratio.
Mention the two Baird primarily on them.
On the way.
<unk> exceeding loss trend with debt.
On the middle and specialty book.
That's correct.
Yeah. It was a pretty good property non cat year for us and I would say that some of the compares.
We had higher levels of debt non cat weather activity in 2019, so that drove some of the quarter to quarter on year over year change on lease.
Okay, Great and then my second question is on the capital side of things.
One $5 billion buyback program in December.
He sees that you'll be back in the market.
Earnings starting to buyback your stock, but how do we think about that between the two years is it market dependent on.
I know you gave on dividend up from the start of this year, but we do expect that even over the two years or is there something else.
When you kind of walk towards that buyback program.
Elyse, it's Chris I'll, let Beth and her point of view, but.
Generally we've been.
Proportional pro rata.
A lot of our.
Buyback programs.
A multiple year period of time, so philosophically I don't see much different for us, but what would you add.
Yes, I would agree with that.
I think how do you think about it on <unk>.
Being half on half between the two years is as.
At reasonable expectation again, it's dependent on a lot of factors and market conditions that kind of going into how we think about executing a plan like that on that.
Highlight how do you think about it.
Okay. Thanks for the color.
Our next question comes from Brian Meredith from UBS. Please go ahead with your question.
Yes. Thanks. So first question here for Chris Doug I'm, just curious as I look at your guidance for commercial lines underlying what is your assumption with respect to the headwind from workers' comp margins in 2021 and on that topic too. What do you think he is going to happen with loss cost trends for workers' compensation economy reopens.
Yes.
While it is a big question Brian.
First off on the pricing side as I mentioned in my script.
Expect the 2021 year to look largely consistent with 2020 from a pricing perspective, yeah, we're seeing on bottomed bottoming of the workers' comp curve, but I still expect some downward pressure on minus pressure on small commercial on.
In middle market flat to maybe up a point or two so that's the pricing side of it.
The loss trend piece is very complicated and we're not going to go through a roll forward for everybody today, but essentially the 2020 year look so unlike any year, we've ever had before because of the pandemic so as.
As we complete 2020, obviously of frequency has been in very good shape.
And you're seeing that come through our adjustments, but the flip side is we're watching carefully severity and so we're watching durations or watching medical treatment. We're watching the extended impacts of what may or may not happen with COVID-19 of victims. So we're being careful.
With severity, we've moved our picks up a little bit in the 2020 accident year was kept on there for 'twenty one.
But again when we look through workers' comp we look through these two years, we're still on our long term <unk>. We think over time. This of line that should run at five on the severity side and flattish for frequency based on everything we see in the next few years.
Great. Thanks, and then the second question is I'm just curious on your guidance with respect of Covid losses, particularly on the TV side.
How should we think about the timing of that coming through I would think that first quarter much.
Much higher particularly for the GB and then just the dissipating per during the course of the year is that kind of the way we should think about things.
Yes, Brian I tried to say that in my prepared remarks out of it wasn't.
Clear but of.
The $160 million.
Of life Covid losses, I'd say, 75% would be a good number for first quarter.
Okay.
And what about with respect to the commercial lines.
GAAP heavy first half of it depends on vaccines and Rollouts, but yeah. I think we expect first quarter to look similar to probably fourth quarter and then our hopes on optimism of our shared across the country of the second quarter on third quarter improve on.
Italy.
Terrific. Thank you.
Our next question comes from Ryan Tunis from Autonomous Research. Please go ahead with your question.
Yes. Thanks.
I guess, just a follow up on the on the capital management.
<unk>.
I mean, it would seem like given.
On the fact, you didn't manage much capital in 2020, and the dividend capabilities of these businesses over the next couple of years.
But you'll be generating I guess, well in excess of where you all of them.
Available a lot more than you.
Once in place on the buyback income and BBB. So I guess, if maybe you could comment on.
Are you thinking about doing any M&A or what you might be using other excess capital for.
Yeah, Ryan I'll start and I'll, let Beth.
Getting out of her color yes.
We feel very fortunate to be sitting on excess capital that obviously were.
Planning to return to shareholders of vis vis a dividend increase that you just saw on and then obviously our buyback program.
Our priorities for cash.
Our capital or a really consistent we want to return capital to grow our businesses.
We do see good growth opportunities going forward.
And then make sure we have a financially.
Solid balance sheet with sufficient.
Margins to absorb any future shocks.
Obviously, we are moving through these days.
So.
We think about returning excess piece of the share buyback to their shareholders from there I think I've said before M&A has a lower priority for US right now I think.
My language, we have everything we need to compete in the building these days and it's maturing and it's growing at.
Working with our distribution partners to make sure. They know all of our capabilities. So M&A is a low low priority right now.
Beth would you add anything no I think you've covered it very very well.
Thanks, and then a follow up on Bev.
It sounds like lower net investment income and just kind of showed in the group benefits.
How are you thinking about.
The portfolio yield headwind on the P&C side in terms of.
How we should be thinking about NII next year there.
Yes, so a couple of things.
Obviously, one of the things that's included in the in the group benefits the margin guidance is the more normal.
Normal planning assumption for limited partnerships and obviously this year, we were well above that.
Think about the portfolio of sort of ex partnerships on.
And when you look at where we were Q4 with a portfolio yield of about three 2% overall I see about probably 10 points of pressure on that as we look forward into 2021.
And our next question comes from payment of dealer from Jpmorgan. Please go ahead with your question.
Hi, Good morning. So first just set of question on the workers go on pricing and I think Doug you mentioned youre expecting it to be consistent.
Last year are you seeing debt in the market actually or is that just more of it.
Yep.
On the non workers.
I would separate the market's.
As I think about small commercial largely of.
File.
With little deviation and we're seeing flat to negative pricing I think the final trends across the Bureau of States next year are off four to five points. So I think that environment will.
Continue to exist as it has in the last couple of years, although slightly improved.
Negative right, we were probably eight or nine of two and three years ago on our alpha So that's encouraging in the middle market space.
Actually a very competitive marketplace.
To remain competitive over the last 12 15 months and I think we will continue to battle of the out of the account by account. We're thoughtful about accounts. We we think about our tools, where you look at the accounts straight up and we make.
Decision. So I don't see a lot of change in that middle market worker's comp environment going forward at least in the next year.
Okay, and what was the impetus for the reserve and group for molestation claims.
Jimmy what what.
I would say is.
Okay.
We've talked about in the past.
Sexual molestation claims of revival statutes. They all go together here.
Particularly in this quarter.
As Beth mentioned related to the Boy Scouts.
They're in bankruptcy going through trying to reorganize.
And the amount of additional claims.
Net were reported.
To us this past November far exceeded.
Our initial expectation so.
Now.
Really sympathetic to sort of the the real victims here, but there are some serious questions about the validity of all the all of the claims that were reported nevertheless.
We felt it prudent just given the magnitude to increase our reserve position and we did.
Okay, and then just lastly on business interruption losses, obviously in the U S for the most part of the courts are siding with insurers.
Net flow in international markets. So is your view on your exposure.
Consistent in Europe, as well or in the UK market or do you think you might actually have a little bit more of it.
Yes, I would say in the U S first.
You heard my prepared remarks.
<unk>.
We're debating and finding out in the courts and litigating. So nothing fundamentally has changed our views on <unk> exposures, we have not put up.
Any reserves other than for our.
Policies debt.
Does not have direct physical loss.
Requirement of <unk>.
Spence reserves remains the same I mean, where is it.
Spending money to defend ourselves, which is why we put it up and then I would say the UK judgment doesn't affect us at all here in the U S. As you know and it does not impact of.
In any way in our Lloyd's Syndicate, we're just we didn't participate in those types of policies.
Okay. Thanks.
And our next question comes from Mike Zaremski from Credit Suisse. Please go ahead with your question.
Okay.
Hey, good morning. Thanks.
Thinking about maybe for Beth.
We saw that.
Sale of <unk> was announced can you remind us how.
How much capital on Hartford has remaining.
And also maybe can you remind us.
Do you expect that.
Hartford or expect to get any kind of.
Cash tax benefits from any remaining.
<unk> of our A&P is.
Yeah, So I'll take it in two pieces kind of as it relates to the Talcott investment overall kind of an on X of Mci basis, it's about $185 million on our balance sheet on.
And again, it's an investment so like all of our investments are part of our capital base.
How do you think about this is creating sort of in excess of capital.
On capacity, there's obviously some risk charges that would go away, but it's all part of our capital base and then as it relates to DTA as an AMT tax.
Tax credits, we have monetized all of those through 2020. So we are really in a position now where it's just north of where our normal <unk>.
<unk> per and very pleased to have been able to.
Recoup all of those are those balances.
Okay excellent and one follow up.
Chris in your prepared remarks, I think that was a great statistic.
No.
Approximately 25% decline in business interruption related case counts I'm, just kind of curious since we get a lot of questions on this as kind of a tail risk topic do you think directionally Thats also of the trend for the industry and that the kind of of plaintiffs' bar is seeing that debt.
You know that of policy wording is strong.
Yes, I can't speak to the 25% for the rest of the industry. Obviously, that's our our statistics, but I think anecdotally I mean, you could tell.
Many of the judgments coming out of federal and State Court.
Aligned with three of the industry's position on interpreting the language of direct physical loss or damage. So.
<unk>.
As we sit here today I feel pretty good about.
We're all of the judgments are coming out so.
That's what I would share Mike.
Thank you.
And our next question comes from David.
Mud of Madden from Evercore ISI. Please go ahead with your question.
Hi, Good morning, I had a follow up question for Beth.
Just on the capital side and guidance that you gave.
Just on the on the P&C side.
In.
On the bat stable with prior years.
But if I look at the earnings power of the P&C business.
It looks like it's up 40% since we last changed it so I'm wondering why the remittances havent moved much.
In 2019.
Yeah, Great Great question, I mean, again I think in all of our philosophy is to.
Be in a position of where we're taking steady dividends out of the subsidiaries you're right. If you look at 2018, but if you also look back of 2016 of 2017 the amount of dividends that we were taking out are far exceeding our statutory earnings. So on balance I think where we are at 900 is very comfortable and I think to date.
And that we continue to generate earnings at the level that we're at that Theres the opportunity for that to increase but we tend to be pretty steady as we as we think about our.
Our dividends out of our subsidiary.
Yeah.
Okay got it that's helpful. And then a question for Chris and Doug just on the on the outlook.
And on I'm thinking a bit more from a from a top line perspective.
Just just thinking about how you guys are expecting top line and commercial P&C, specifically as we progress.
Throughout the course of 2021.
What you guys are thinking for growth there and maybe maybe Doug. If you can just talk a little bit more about the spectrum policy because that seems like that had some really good net new business trends this corner.
Yes, David I'll start and then obviously of double it providers.
Colors. So I think the first starting point is just the macro.
We're still living in a pandemic right and.
There's only been vaccinated, what's 10% of our population so that the first half of 'twenty, one and the second half of 'twenty, one could look I.
I would say dramatically different.
Second point is I think you've always heard us.
We're fairly unemployment or employment centric firm with our large.
Comp book and our large disability book so as.
Employment levels rise and we were encouraged to see the employment numbers. This morning, obviously come down we'll have to digest really of what that means from a absolute number of workers, but again heading heading in the right direction to sort of rebuild.
Payrolls.
Which obviously then it provides a lift from there.
Third I would say again, hopefully you could feel it true Doug and myself debt.
We are optimistic about what we can achieve in the marketplace with our expanded product capabilities, our new industry verticals.
Environment, where rates are going to continue I think at the pace they are.
At least for the next 12 to 18 months. So you put all of that together and I'm refraining from giving you an exact number so don't ask for an exact number.
But I think it points to an increasing top line down compared to what we've experienced over prior years, Yeah. I would just add that on the spectrum question, we launched a terrific.
Very contemporary product right at the end of 2019, we're feeling terrific about the prospects of that and we barely get in market and Covid hits in March. So you really kind of take that five or six month period out where we know that sales were off quite substantially in the second quarter. So I am deeply encouraged by what happened.
Last four months of the year I think it's a terrific product I think the ease of use the reaction from CSR is on customers around the country is exactly what we wanted I think that holds prospects for growth going forward again in light of the economic turn back on that will be a big condition for us and small, but I'm confident that we're heading of really good direction.
Lastly, relative to global specialty of middle and large commercial we had some significant.
<unk> activities on the underwriting side of that needed to happen this year to get back where we wanted to be.
Profit turnaround, if you will and I feel really good about those actions that were taken so as I pivot into 'twenty. One I think largely many of those actions are behind us not all but many of the large block of that and so I'm encouraged that there is opportunities for growth I feel really good about our verticals of level at the navigator breath has meant to our franchise and we're just began.
To explore I think the full dynamic of that so I'm bullish about what we're gonna do heading forward.
Okay.
And our next question comes from.
Comes from Tracy.
From Barclays. Please go ahead with your question.
Thank you and good morning.
Come on talk a bit your underlying combined ratio improvement expectation that are included on your 2021 outlook I mean based on your commentary and other driver of rate increases to get ahead of loss trend.
You cited personal inflation.
Could you provide some color on the direction of your current year loss pick.
Couple of that with the rate increases your equity.
To achieve.
Let's start with what we said in the past, which is with the exception of.
Workers' compensation.
All of the rest of our lines in commercial.
Exceeding our loss cost trends I think that still holds right and as such the work and the pricing activity on a written basis that we would achieve this year plus what we expect next year leads us to believe on an earned basis, we're going to see earned improvement in our loss ratios across commercial for all lines ex workers' comp.
Some margin compression in small just as we battle true in 2020, but the aggregate of what we've been able to achieve in global especially in middle market pricing.
<unk> made of feel confident that the driver of loss ratio change on those two businesses will carry the incremental improvement that we express and our guidance for 'twenty one.
Personal lines is a different story right. We had a very positive low driving miles of year period of nine months. If you will and we expect those driving miles to return back more to normal so.
The personal lines margin and loss ratio will come back toward a more normal level and that's why you see the pick that we've selected here for <unk>.
'twenty one so if you put personal and commercial together overall, we're still encouraged and feel improvement, but there are mixed stories inside that just have to be aware of.
Okay. Thank you you've already provided some good color on workers comp and by segment I'm wondering if you could highlight any other business line, where youre seeing on.
More rate increases.
Tracey the certainly in our specialty businesses as demonstrated by the numbers terrific progress.
You know near 20 on the quarter and across certain lines excellent progress I do think when I look at property.
I'm very pleased about property, we have been working on our property book on a by parallel pricing basis now for a couple of years, but I am encouraged that our E&S property book was in the low twenties are large property book, which is not included in the calc and the supplement was in the low twenties, our core middle market smaller property book.
High high single digits. So I'm very encouraged by the progress, we're making kind of line by line and feel like that sets up for an improving story on 'twenty, one, which we share with you and are optimistic guidance.
Thank you for taking the question.
Thank you.
Yes.
Our next question comes from Meyer Shields from CDW. Please go ahead with your question.
Great. Thanks, a question per bag I was hoping you could share within I guess.
<unk> your appetite really really large accounts, we're hearing obviously that that's where pricing is most dramatic just wanted to get of bad debt, how much of that you're interested in or willing to underwrite.
By our portfolio of appetite now extends across the segments right. So we're on.
Obviously, a strong position in small growing strength and middle with verticals are really solid national account franchise, primarily around workers' compensation and an assortment of specialty products that.
Vince and his team attack.
Both large accounts middle market accounts et cetera, terrific wholesale distribution that is an added element of the navigators acquisition. So.
I feel like we're coming at the market in all phases, all products all segments, all geographies and I really like that approach and as I suggested on my remarks, we've had some nice early wins that I think will just be the beginning of how we mature this broad product breadth into our family of of.
What we bring to market.
I would say again like a lot of things we do around here.
We're centered on small and middle market enterprises that doesn't mean, we don't know.
Service.
And find opportunities into larger segments of the market, but I would have you leave with that most of our.
Property capabilities are geared towards the middle and upper middle market.
And the multibillion dollar.
Property schedules.
We might have opportunities to participate but.
Again.
In terms of core middle market to upper middle market as well.
Well, we like to focus in.
Try to try to win business.
Yes.
Okay, No that's very helpful.
I guess my follow up unrelated question for debt, but you've got really really strong limited partnership results.
Do you have the possibility of you say okay, let's.
Cash out of here or.
It would be sort of proportion of commitment.
Within the investment portfolio of something we should think of it being unchanged.
Okay.
On.
Yes.
<unk> and these partnerships.
We do obviously still have outstanding commitments that are there and.
And we see this as an asset class that we want to continue to participate and so on.
We've been very pleased that the overall returns there and how our investment.
Team has has manage that so I wouldn't how do you think about us trying to cash out and in many instances you're limited in your ability to do that based on how these partnerships are structured.
Okay, but it's fair to assume what do you think of the other side that'd be expected returns, we're still planning on higher value add.
Yearend.
Yeah.
So our expectation of overtime is that we think that the yields that were wary outlook to us is what one would see start to see outsize return on some of them more season.
Portfolios and then as we're investing in new funds those would tend to draw in a lower yield.
Originally so you're kind of thinking about the balance of the two but again you can look at our results over time, our partnerships have performed very strongly that we typically look at them over the long term at that sort of 6% level.
Okay.
Okay got it thank you very much.
And our next question comes from Yaron <unk> from Goldman Sachs. Please go ahead with your question.
Hi, good morning, everybody.
My first question just comes back on our group benefits.
And the mortality there.
Concerned about its a younger block of.
Bye bye and age.
From an Asia perspective can.
Could you maybe talk a little bit about what concentration of you may be seeing there.
By age cohort by region by.
Maybe line of industry from where Youre seeing.
Elevated mortality rates I guess I was just a little surprised to see.
This level of mortality pro forma on active employee force.
Yes, I would share with you.
On that more.
Mortality.
The increases is fairly consistent amongst all age cohorts.
Obviously the rate of mortality is different.
Each cohort but.
Increase is fairly consistent.
I'd also share with you again.
Six or 7% of our.
Insured population of 60 and older. So.
So we don't we don't have a.
A big concentration in.
And I'll call it the mature segment of the marketplace.
So I mean, the direct and indirect effects of Covid is it's pretty spread across all cohorts all regions.
On the country, we're not.
Seen any of any particular trend at this point in time other than the indirect clauses.
As we try to analyze it we just think it's people deferring and not taking care of themselves during the pandemic and we see her.
Art disease stroke and cancer deaths up.
It's not directly related to COVID-19, but indirectly related.
Okay.
Helpful color.
And then.
Okay.
I think we felt very limited utilization of the navigators ADC this quarter.
So do you think of kind of gone reserves there to cause of <unk>.
<unk> of level, you want them to be at.
We've kind of turned the corner.
Any thoughts on that yes.
Yes.
Yes.
Go back to what we've said before glad we purchased it it was part of our strategy is.
As we thought about.
Financing of overall navigators transaction.
Obviously, it slowed down this quarter, but.
There are you know in this business you can never predict with certainty.
What's going to happen in the future with some of these.
Claims, but the sufficient access level that we have of the sufficiency of remaining and it gives me a great deal of confidence that.
Yes.
It's it's.
It's not going to go through the top and bottom line.
Got it thank you.
And ladies and gentlemen, with that we'll conclude today's conference call I'd like to turn the conference call back over to Ms. <unk>.
That Bernstein for any closing remarks.
We really appreciate all of the of joining US today, if we did not get to your question. Please don't hesitate to contact us and we'll be happy to answer any follow up questions. Thank you.
Ladies and gentlemen, with that we'll conclude today's conference call. We do thank you for attending you may now disconnect your lines.