Q2 2021 Hartford Financial Services Group Inc Earnings Call
Conciliation of these measures to the comparable GAAP measure are included in our SEC filings as well as the news release on financial supplement.
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On an official transcript will be available on the Hartford's website for 1 year on.
I'll now turn it over to Chris.
Thank you for joining us this morning.
Last quarter, I share, but I've never been more excited about the future of the Hartford.
Our second quarter results support that optimism.
Slept how all of our components of our strategy are coming together to deliver growth margin expansion and operating efficiencies.
In the second quarter, we reported core earnings of $836 million for $2.33 per diluted share.
Percent growth in year over year diluted book value per share excluding.
Hi.
On a trailing 12 month core earnings ROE of 13, 1%.
In addition, we returned $694 million to shareholders in the quarter from share repurchases and common dividends.
The outstanding financial performance of the Hartford reflects strong execution.
And success of our strategy to focus on high return businesses, where we have market leadership in sustainable competitive advantages.
Economic growth is measured by GDP reached a record level in the second quarter and while moderation as expected the overall trend will remain elevated.
Through 2021.
This economic expansion will grow the premium base of our employment centric businesses and other lines of.
They benefit from job creation of new business formation.
Meanwhile, we are closely monitoring the recent elevated inflation data.
And remain confident that our loss ratio assumptions are sufficient against this backdrop in 2021.
At the same time, we are considering pricing actions as we gauge inflation trends going forward.
Finally, our investment portfolio is well diversified and positioned.
<unk> for.
The evolving macroeconomic environment.
As we enter the second half of 'twenty 1.
While watching developments with COVID-19 of inflation.
I am very confident that the Hartford franchise has never been better positioned to continue to generate industry leading returns.
And enhanced.
For all our stakeholders.
Let me now make some high level comments about the results within the business.
And property casually improved results were driven by higher investment income.
And a very strong contribution from commercial lines with double digit topline growth on.
Underlying margin expansion.
<unk> spending and reduced Covid impact.
For nearly 40 years, we have been a leader in the small commercial market and have consistently generated highly profitable margins.
Our results continued to be exceptional.
Our differentiated products and digital capabilities are driving a.
A superior customer experience, which contribute to higher written premium levels as we capture more profitable market share.
For the second consecutive quarter, our Nextgen spectrum, new sales reached record levels.
In middle and large commercial our team has done a tremendous job.
Job of improving margins, while growing the topline as demonstrated by new sales and written premium levels.
As the country invest a new infrastructure over the next decade or specialized verticals are well positioned as a go to market for risk products and services.
In global.
Okay.
We are growing in targeted lines that provide very attractive risk adjusted returns.
Cross selling within the Hartford's retail distribution has been very successful and the feedback from our distribution partners has been exceptional regarding product breadth and teamwork.
As.
Special discuss further we expect to exceed our cross sell targets a year ahead of plan.
I am extremely pleased with what the team has accomplished in a short period of time since the strategic transaction of navigators closed.
The timing was ideal given the growth in this market segment.
<unk>.
And the robust pricing environment.
Just 2 years years ago. This business was generating combined ratios above 110%.
We thoughtfully developed a plan to improve the financial performance and the results are self evident and we believe there is more improvement.
To come.
We have nearly $2.5 billion of annual premium and global specialty.
And I am very optimistic about the future as we realize the full potential of the products and capabilities of this business.
Across commercial lines, our technology investments have improved the speed and.
Sickness of the underwriting process.
We continue to further leverage data and analytics to make more informed underwriting decisions and respond to the needs of our distribution partners and our customers.
Overall, our commercial lines of businesses are well positioned to compete and win in the.
Market place.
Turning to personal lines, we are the fifth largest direct writer of personal auto through our partnership with AARP 1 of the largest affinity groups in America.
Over the next decade. This mature market demographic is estimated to grow 3 times as fast as the rest.
Of the U S population.
To capitalize on this growing segment, we are modernizing our products in both home and auto and further enhancing our already strong digital capabilities.
This transformation provides greater ability to grow in the 50 plus demographic.
That has become more reliance.
Total technologies and the way they live and work.
Before turning to group benefits I would like to briefly comment on the bankruptcy of the Boy Scouts.
Earlier this month low.
<unk> filed an amended plan.
Which included a request to be released from it.
Settlement agreement with the Hartford.
We are vigorously contesting this request.
Filed strong opposition with of bankruptcy court.
That said and consistent with our policy regarding active litigation I am not kind of comment further on this matter.
Turning to.
On <unk>, we can.
Adjusted solid results for the quarter driven by excellent investment returns.
As well as continued favorable disability trends offset by elevated excess mortality.
Higher year over year earned premiums excluding buyouts.
Reflect.
Expand.
The payrolls as well as new sales and strong persistency.
The group life industry has been impacted by excess mortality over the past 5 quarters during.
During the second quarter, our excess mortality losses have dropped significantly versus the first quarter.
U S COVID-19.
Deaths have declined rapidly since peaking in January for continue to drive elevated mortality in our book of business and across the industry.
Consistent with U S trends on the average age of our COVID-19.
Life claimant has.
<unk>.
Since younger age.
Cohorts tend to carry higher face amounts the.
The average claim severity has increased relative to earlier periods and the pandemic.
We are optimistic about the efficacy of vaccines.
However, we are closely monitoring variant strains in the slowing rate of vaccinations.
Particularly among the younger age cohorts.
That said, we do expect lower excess mortality in the second half of 'twenty, 1 compared to the first half of this year.
We are a top 3 carrier in the group benefits industry with strong market share a diverse product portfolio and capabilities across.
Customer segments from small business to national accounts.
We continue to invest in our technology platform to extend our service offerings, including digital access for employers and employees to improve the overall customer experience.
The workplace remains an important access.
Point for many people to obtain desired protection products and we see that relationship growing stronger in the years ahead.
In addition, the <unk>.
Pandemic created new focus on the products and services we provide.
We are confident that our innovative mindset positions us well to maintain our competitive advantages.
We can grow in group benefits.
To conclude we are executing with confidence and precision.
Of our topline is benefiting from strong macro economic tailwind margins are expanding with the positive renewal rate environment.
An excess mortality losses are expected to decline.
Decline.
With enhanced on underwriting capabilities broad product offerings and strong distribution partnerships.
We are positioned to grow and capture more profitable market share.
Last quarter, we shared our target of of core earnings Roe.
Of 13% to 14% in.
<unk> was in 'twenty, 2 and into 2023 driven by <unk>.
Topline growth across the businesses.
<unk> improvement with strong on pricing trends and excess of loss cost.
Operating efficiencies.
And proactive and prudent capital management.
I am.
<unk> and confident we will continue to deliver on our financial objectives and enhance value for all stakeholders.
Now I'll turn it over to Beth.
Thank you Chris overall, we are very pleased with the results for the quarter and our progress on our priorities to enhance value creation for shareholders.
Optimus that current quarter core earnings were $836 million or $2.33 per diluted share and up 91% of from last year.
We had strong performance across all our businesses excellent investment results and significantly lower COVID-19 losses as compared to the prior year period.
In P&C.
I N C. A combined ratio of $88.5 improved 8.4 points from the second quarter of 2020, including improvements in both the loss and expense ratios.
The expense ratio in the quarter improved by 220 basis points to 31%, reflecting earned premium growth as well as cost.
Cost savings from Hartford next and a lower provision for doubtful accounts.
In commercial lines, we produced an excellent underlying combined ratio of $89 for which included ex COVID-19 loss ratio improvement in middle and large commercial and global specialty and expense ratio improvement across all businesses.
Results in commercial lines also improved year over year due to lower direct COVID-19 losses of $3 million compared to $213 million or 9.9 points in the second quarter 2020.
Written premium was up 15% with growth in all lines of business, including the effect of higher audit and endorsement premium.
Reflecting the economic rebound.
Personal lines generated an underwriting gain of $96 million and an underlying combined ratio of 88, 2%.
Results were down from second quarter 2020, as last year benefited from significantly lower auto frequency due to the pandemic.
<unk>.
Across property and casualty catastrophes were $128 million in the quarter of 120 million of lower than second quarter, 2020, which included 110 million for civil unrest.
P&C prior accident year Reserve development was in core earnings was a net favorable $188 million.
Including an 82 million reduction in catastrophe reserves as well as decreases in workers compensation personal auto liability package business and bond.
This compared to $322 million of net favorable reserve development in second quarter, 2020, which included a $400 million decrease.
Atrophy of reserves, including the subrogation benefit from P. G any.
In second quarter 2021, we seeded on additional an additional 39 million of unfavorable navigators reserve development to the adverse development cover primarily related to U S financial lines on.
Although these losses are economically seated.
And the reserve development resulted in a deferred gain representing a charge against net income in the quarter.
Group benefits core earnings were $149 million.
Up 46% over prior year.
Earnings for the quarter reflect strong investment results the lessening of fact of excess mortality related.
Seated at 19, and an increase in fully insured ongoing premium as our customers emerge on the pandemic.
Sales were nearly nearly $100 million in the quarter and we experienced a continuation of strong persistency at 91, 1%.
All cause of excess mortality in the quarter was $25 million.
To coach includes $88 million of for second quarter desk dates offset by $63 million of favorable development for prior period excess mortality estimates predominantly related to the first quarter.
Through the first 6 months of the year. Our results include excess mortality of $210 million.
As Chris mentioned, although we were encouraged by the trend of declining excess mortality from first quarter to second quarter. We continue to watch a variety of factors, including vaccination rates on the impact of variance.
Uncertainty remains we would expect excess mortality trends in the second half of 2021 to improve significantly.
Disability loss trends for the quarter remained favorable so up slightly from the prior year quarter. The disability loss ratio for the quarter was 64, 2% up 1.6 points as the prior year benefited from favorable short term disability claim frequency due to the deferral of elective elective medical procedures.
Seizures at the beginning of the pandemic.
Long term disability claim incidence was favorable to prior year and claim recoveries, although down from the prior year remained strong.
At Hartford funds core earnings for the quarter were $51 million compared with $33 million for the prior year period, reflecting the.
Of daily average AUM, increasing 36%.
Mutual fund net flows were very strong at $2.4 billion of net inflows for the quarter.
The corporate core loss of higher at $52 million in second quarter 2021, compared to a loss of $6 million in the prior year quarter.
Pact of your income from our investment in Talcott in the second quarter of 2020 of $68 million before tax.
On June 32021, we received $217 million from the sale of our ownership interest in <unk>, resulting in a realized capital gain of $46 million before tax in the quarter.
As a reminder, within core earnings of corporate category, primarily includes interest expense on debt and investment management fees and expenses related to managing third party business, including management of the invested assets of <unk>.
Turning to investments net investment income was $581 million for the quarter.
Order up 71% from the prior year quarter benefiting from very strong annualized limited partnership returns of 33% driven by higher valuations and sales of underlying investments within private equity funds.
The total annualized portfolio yield excluding limited partnerships was 3.1%.
Pretax compared to 3.4% in the second quarter of 2020.
The portfolio credit quality remains strong with no credit losses on fixed maturities in the quarter and a $10 million gain from the partial reduction of the valuation allowance for credit losses on mortgage loans due to improved economic scenarios.
On a for now on.
Unrealized gains on fixed maturities before tax for $2.8 million at June 30 up from $2.3 billion at March 31, due to lower interest rates and tighter credit spreads.
Improving operating efficiencies on a lower expense ratio from Hartford, <unk> had been a contributor to margin expansion.
The program.
Delivered of $195 million of pretax expense savings in the 6 months ended June 32021, compared to the 6 month period in 2019.
We continue to expect full year pre tax savings of approximately $540 million in 2022 and $625 million in 2023.
Graham value per diluted share, excluding <unk> rose, 8% since June 32020 to $49 and <unk> and our trailing 12 month core earnings ROE was 13, 1%.
During the quarter, the Hartford returned $694 million to shareholders, including 568.
Book $1 of share repurchases and $126 million in common dividends paid.
For the 6 month period, we returned $933 million with $691 million of share repurchases and $242 million in common dividends paid.
From July 1st of July 27th we repurchased.
Purchased 1.9 million shares for $116 million.
There remains $1.7 billion available under our $2.5 billion authorization through 2022.
Resources at the holding company as of June 30th included a total of $1.7 billion in cash and investments.
During the quarter.
8 million fee of $337 million in dividends from subsidiaries and.
And expect approximately 725 million to $900 million over the second half of 2021.
All in all we had very strong results for the second quarter, which puts us well on our way to achieving the financial goals. We shared with you on April I will now turn the.
Call over to Doug.
Thanks, Beth and good morning, everyone.
6 months into the year I couldnt be prouder of our performance within property and casualty, we're meeting or exceeding expectations on nearly all our key financial metrics.
In the second quarter operating casualty producing outstanding underlying combined ratio.
Of 89 point to premium growth accelerated in commercial pricing.
Yield on Binder book of business is particularly strong and the efficiency leverage is equally important.
The sophistication of our proprietary pricing model gives us confidence in the quality of our <unk> business and is reflected in small commercial's underlying profitability.
Middle and large commercial accelerated into the.
Quarter, producing superior written premium growth of 20%.
Middle market, new business of $147 million up 48% was at its highest level in 2 years I.
I am, particularly pleased we achieved this result, while maintaining underwriting discipline as measured by our pricing metrics and risk scores.
Second.
Policy retention of middle market increased 4 points to 82%, while maintaining disciplined risk by risk underwriting decisions using our increasingly refined segmentation tools.
Like small commercial increased payroll and rising wages contributed to the second quarter middle and large commercial written premium growth of 20%.
<unk>.
Global specialty produced another strong quarter with written premium growth of 16%.
New business growth of 27% was equally impressive and retention is up significantly from prior year in.
In the quarter the breadth of our written premium growth was led by 25% in wholesale and <unk> 18.
10% in U S financial lines.
Global reinsurance also had an excellent quarter with written premium growth of 26%.
As I've mentioned previously cross sell activities are an important component of our growth strategy.
During the quarter cross sell new business premium between global especially in middle market.
<unk> was $28 million or 11% of related new business sold by these segments.
Since the navigators acquisition. This effort has delivered $185 million of new business and is on pace to eclipse. Our initial goal of $200 million a year early.
We now have close.
2500 accounts with policies that record premium in both middle market and global specialty.
We're also particularly encouraged by the success of our industry specialization strategy built both organically and through the navigators acquisition.
For example, the acquired retail excess and U S financial lines.
Significant contributors to our cross sell execution the combined new.
New business growth from these 2 lines has increased more than 50% since the acquisition.
After years of development, we view of our product breath as a competitive strength.
Let's move on to pricing metrics.
U S standard lines and.
Global specialty commercial pricing, excluding workers' compensation was 9.2% of Mccann CEO conference for Middle market ex workers' compensation price change of $8.2 although down 1.1 points continue to exceed loss cost trend and then for <unk> and <unk>.
Group profitability performance.
Workers' compensation.
Renewal written pricing was 1% in the quarter.
Key indicator of future pricing, including the impact of the 20% of debit trends on 22 of your loss cost filings, we will be closely monitoring the filing of the coming months on on a day.
Yeah.
Global specialty renewal.
Cash and price remained strong in the U S at 11% and international at 24%.
All in I'm very pleased with our pricing this quarter.
Turning to commercial loss trends the second quarter current accident. Your loss ratio was largely in line with expectations, we are intensely watching inflation.
Low written have been particularly dialed into recent building repair costs and rising wage trends.
Within large commercial property small commercial recorded a few large fire losses in the quarter and on global specialty International we incurred of large offshore energy losses.
Both were within our normal range of.
Expected volatility.
Overall middle market property loss ratios ratios were slightly favorable to expectations in the quarter favorable claim frequency was partially offset by an increase in severity related to labor and material costs.
While we believe property severity trends may be slightly elevated for.
The rest of the year, we remain confident in our initial full year metal market property loss ratio expectation.
Shifting to workers' compensation the economic.
Recovery is driving wage growth for our worker population this wage growth translate translates into higher premiums and wage replacement.
Generally speaking the net impact is of minor improvement in the workers' compensation loss ratio.
Combining earned pricing and loss trends I'm pleased with the continued strong current accident year performance in the quarter the commercial lines underlying ex COVID-19 loss ratio was 57%.
<unk> 3 points better than Q2 of last year.
Let's now turn to personal lines as.
As expected the second quarter underlying combined ratio rose 7.5 points to $88.2.
Auto frequency is elevating with increasing vehicle trips and miles traveled but our book is still favorable.
Wanted to pre pandemic levels.
As expected home losses were higher versus a very strong prior year.
Overall, we had favorable claims frequency in the quarter, which was offset by higher claims severity driven by modestly higher than expected large X cat fire losses, and our provision for elevated building material.
Cereal and labor costs.
Written premium declined 5% after adjusting for both the second quarter 2020 extended billing Grace period, and the 80 million $81 million refund.
According to J D power of auto shopping rates amongst the 50 plus age segment are down approximately 5%.
Favorable quarter 2020, when they first initiated the survey for.
Persistency of the shopping trend may continue to pressure new business growth for our customer base.
However increased marketing spend in the quarter drove June new business premium above expectations and policy retention was up 1 point as compared to prior year.
We're also encouraged by the early results from the launch of our new contemporary personal lines auto and home products prevail.
Through the second quarter yield average issued premium and policy counts all met or exceeded expectations.
Both products are now available in Arizona and Illinois.
From 37 additional states along with advanced capabilities will be online by year end and we remain confident in our long term growth plan for personal lines.
Before turning the call back to Susan for questions and answers, let me conclude.
Operating casually achieved another outstanding quarter, our topline outperformed.
Performed providing confidence we will achieve our commercial lines for 2% to 5% multi year CAGR guidance.
<unk> pricing is earning into the book driving lower current accident your loss ratios and the expense ratio continues to benefit from our ongoing Hartford next initiatives.
We are seeing the positive results.
Of our multi year roadmap with deeper and broader products improved risk selection and outstanding execution I'm thrilled with our continued progress and look forward to updating you in 90 days. So let me now turn the call back over to Susan.
Thanks Pat.
Later, we will take questions now.
Thank you Susan.
Sure.
Our first question comes from Greg Peters from Raymond James.
Greg you want on it be open now if you'd like to ask your question.
Yeah.
Everyone hear me.
Yes, we can go ahead of welcome.
Greg can you hear us.
Yes, I can hear you sorry about that I don't know what was going on.
Good morning.
First question is the outlook for growth in commercial lines, you've provided a lot of detail around pricing and retention.
And the new business successes, you've had in the different areas of commercial lines, but Chris I think in your comments you said.
You said moderation is expected so I guess I'm trying to reconcile.
What was sort of really strong second quarter and a positive outlook with those comments.
Okay.
I think the context for that Gregg was in relation to GDP. So speaking that GDP is running well.
8.9%, probably 9% here and then I do expect some moderation.
In I'll call it the macro numbers, but as Doug said in his comments on I'll, let him.
And also comment here is that we're still.
We are bullish on our ability to grow in that 4% to 5%.
Compounded.
Written premium growth over of over the outlook period.
Through 2022, so we're not backing off from that and in fact.
We're probably even a little bit more bullish.
Bullish as we sit here today.
And then we were 90 days ago, but Doug what would you add I would just add Greg debt. When you look at small and I'll do small and middle separate we had nice growth in the small segments I see 2.5% of 3 points of <unk> growth quarter to quarter.
We've been on a positive pricing trend.
For a couple of months, what we had the benefit of in the quarter is a little extra wind behind us relative to audit premiums. So that's driving inside of the 11.
All of extra points of boost but I don't want to.
I don't want to.
Minimize at all of the Pip and the pricing movement in the new business success for.
In small and then on the middle front, probably of a little bit more boost from audit premium. So the 20 is a bit outsized relative to longer term expectations, but still terrific new business quarter.
Pricing is strong we expect pricing trends to remain solid and strong and so I'm bullish about where we're headed going forward.
I would point out that we had of.
Compare to the second quarter 2020 of that probably won't repeat itself in Q3 and for.
That makes sense I.
I guess my follow up question would be in the personal lines business.
Obviously inflation is.
Hi on Everyones list.
The courts of reopening reopening all of those cost pressure and then there is the added.
Pressure from increasing miles frequency and I was just wondering would you comment on the context of your second quarter results.
Are you seeing sequential deterioration in some of these buckets as you've moved through the quarter.
So that when we get to the third quarter.
We might see some continue of erosion on.
As a result of some of the factors I mentioned.
So specifically the personal lines, what I've shared on my comments on I can elaborate a little bit more here is that.
Our auto book.
Are you seeing increased miles driven but not yet at pre COVID-19 pre pandemic levels right. So we're still.
Slightly better than we were in 2019 as we look through the Covid period.
We are conscious of repair costs, we're conscious of all of the dynamics of go into our cost of goods sold and we.
We made appropriate provisions in our reporting of our reserves for second quarter, but yes, we are watching that intensely relative to inflation pressures.
Relative to homeowners I did comment that we also made applicable provisions for labor and material costs. We saw some of those spike earlier in the year, particularly in the early part of.
We think we've quarter into the mid second quarter.
As we listened to inflationary expectations, we expect some of those trends will be with us into the third quarter fourth quarter, but I think that given our trends or expectations of the year haven't changed materially and we're on top of our selections on I think we're in good shape as we move into Q3.
Second just as a follow up on that Doug when you when you talk about homeowners a lot of the.
Premium.
Levels of set off of replacement costs is this dude.
The inflationary pressures are big causing you to go back and reset what the replacement costs are for your existing in force or maybe.
Walk me through how you approach that.
Yes, we we have an estimate or.
The deals with replacement costs, and we now on a state by state basis or going back resetting that building that into our pricing going forward. So.
The book does work 60 to 90 days in advance, but we have been working on.
Those discussions since earlier part of the summer as he spikes, we're not going to go away. So yes, we are moving insurance to value adjustments across our homeowners based on policies.
Got it thank you for the answers.
Yeah.
Our next question.
You can 1 day.
David momentum.
David non Samantha from Evercore ISI. Your line will be open now let's proceed with your question.
Okay.
Yes.
Hi, good morning.
I just had a question for Doug on the commercial commercial lines.
Comes flying loss ratio ex cat.
Solid improvement in the quarter.
The 1.3 points kind of slowed a bit versus the level of improvement we saw last quarter, which was over 2 points.
I guess could you sort of walk through why.
Obviously still.
Impressive margin improvement for why it decelerated.
And how you are feeling about reaching the 2 points of underlying loss ratio improvement target for 2021.
Yeah.
I would say consistent favorable.
Direction moves on loss ratio I did mentioned a couple.
And also we had volatility in property. So if you think about small commercial and international global, especially a little bit in the quarter volatility that was working against that improvement, but yes, I'm still confident in the long term trend and feel like our actuaries are all over our reserve picks.
Got it okay. That's.
Couple of areas.
And then maybe just a follow up question on.
On.
On personal lines.
So good to see some of the initiatives here.
I'm just kind of looking at the Pip growth and I don't think we've seen pip growth in the last 5 or 6 years.
Helpful. I guess I'm wondering if you can share with us some milestones you have for for growth and things that we can track and maybe how youre thinking about potential alternatives for that business.
If some of the growth initiatives don't translate to higher growth.
Yes, so why don't.
Can I start and then Chris and Beth However, you want to come over the top I'd start by saying that we have concluded several years back that we had to go through a major upgrade of our contemporary product right. So that is now just dropping into marketplace. The early signs are positive as expected the reasonably move of 2 stages. We wanted to test heavily to states before we dropped.
The next tranche so in terms of major milestones by year end and additional 7 states as I talked about and then by the end of 'twenty 2 will be an allstate. So pretty aggressive next 15 months rollout program, we will watch state by state to make corrections as we go forward but.
We're very excited about the commodity.
We have basically rebuilt every bit of this chassis from the product to the way it's delivered to the digital capabilities to be serviced we think we've listened hard for our customers, which primarily on that plus 50 set they have helped us design that again the early <unk>.
Our reaction and.
The result.
Our positive so long way to go but we think this leads us to a track of profitable growth.
We share of those expectations and I sit here today and don't feel any different about our long term path.
Chris I think you summarized it well David I think strategically we're giving ourselves.
Sure.
At least a couple of years after we're fully rolled out in all 50 states to really make an assessment of can we compete with our differentiated product offerings. Our hypothesis going in is yes, we have a strong <unk>.
Brand.
Personal lines, we have a wonderful endorsement from AARP.
We have unique features and how we serve this market segment. It's a demographic that's growing as I said in my.
On your commentary, we have a new 10 year contract with AARP that really modernizing the whole relationship.
How we go to market so.
I think it's an investment.
And of course, making obviously, that's why we did what we did.
But I think the.
Post 'twenty 2 when we're really more proactive dug in all 50 states would be the ultimate time periods of <unk>.
Watch our pits count start to grow.
Great. Thanks for the color I appreciate it.
Our next question comes from Gary Ransom from Dowling <unk> partners.
I don't know if you'd like to proceed with your question.
Yes, good morning.
Regarding the GAAP between rate and loss trend I wanted to ask.
Not so much about the size of the GAAP book, where we are in the cycle of that GAAP.
And looking at small middle of specialty separately.
How many years do you think we're into the period where.
It's been ahead of loss trend I realize it might be a better answer by line, but I was kind of thinking about this.
The 3 segments that you have as well.
Yeah, Good morning, Gary.
We do think about the answer by segment and I think that small.
<unk>.
Pricing curve is very different at least of is different in our book of business.
We've had an extended period of outstanding returns so the rate need has not been.
As is clear there.
Basically of bin rate adequate for an extended very want to stay up with trend of Gary on much more moderated.
<unk> cycle and small the other side of the coin would be to flip into some of these specialty areas that have had significant rate need and I would call that we're entering to me Q 9 <unk> 10 of that this really started picking up pace in the second quarter of 2019 and it had some positive.
Before that but.
<unk> 8 <unk>.
Very strong quarters for my opinion and areas that drastically needed that and we've talked.
Quite at length about some of those drivers of that and then in the middle.
Our middle market, where you have.
The cross section of.
On.
<unk> property each of those lines has URL story, we've had as an industry very disappointing property results over an extended period on weather hasnt been on part of it and so other dynamics you've had of commercial auto loss ratio in the industry that has been very stubborn. So those lines also had been on 7.8 quarters of positive rate.
<unk>.
There is still more work to be done.
In that middle market area, and I don't think Thats of head comment I think thats a market comment I can only see what I can see but.
So I answer your question in 3 ways I still think this market has some legs and as we look at our book, Yes, we are much more rate adequate in general.
<unk> cross segments of our book, but we also have smaller segments of need some work and we intend to get after that work as we move through the latter half of 2021.
Gary you of all people know given your views on writings.
The impacted particularly in casualty lines of social inflation is real.
Yes.
<unk>.
As we talk internally the need to continue to.
For.
For more rate.
Just knowing that the long term trends have not been in our favor whether it be in.
Of course here, whether it be in financial lines, whether it be in other.
Casualty related exposures.
And then you can't forget that the.
Of the 10 years at.
1.3% these days so clearly.
We've been talking about it for a long time, we're in a lower for longer period of time, and we just need a greater contribution from our <unk>.
Underwriting component.
To fuel our returns and that's what we intend.
Tend to do.
Thank you for that answer if I could ask a question on on a different topic on in group.
Are you show of the excess mortality and if I put back the Q the excess mortality that you said developed from Q1.
I kind of revive.
Revise the trend to about $125 million roughly in Q1 of excess going to 88 in Q2.
Yeah, when I look at the CDC data it looks like its leveling off a lot more than that and maybe thats apples not apples and apples, but.
Can you comment about what what's going on.
There is it your day.
Youre not really seeing that as much decline there.
Yes, and the dollars I would say Youre right I mean, if you look at it from dollars, but if you are tracking SaaS, which I know you are like we are I mean, the drop is significant.
From its peak.
Calculated.
Down close to 75%.
What I said in my commentary Gary is it severity so.
So that if you look at the number of death claims.
Average amounts that were paying its up for.
1 of the beginning of the pandemic fairly significantly and that's up from the second quarter.
We probably had.
8 or 9 large losses above a $1 million this quarter.
When anyone.
Excuse me.
We probably had more of it doesn't that was just in June so we probably had.
I would say, 10% or 20 large losses, when you really expect for a month.
So you put it all together and yes.
On the younger folks.
Mortality has increased significantly for teenage and they tend to carry a larger face amounts and we're seeing that come through in the dollars but.
As I ultimately tried to for.
A few other ways that.
And we've been talking about this consistently is that the first half of 'twenty..1 in the second half is gonna be dramatically different so that debt.
Yes.
Daily tasks are continuing to be down.
We do feel of lessening impact of.
Excess mortality in.
<unk> of the year Youre on.
1 thing I'd add to that too Gary if youre looking at Covid deaths, just remind you that when we talk about excess mortality on it.
It's all in excess of its not that.
That had a cause of death that says COVID-19 and so when we look through our numbers of.
The second of the reason for that large part of the revision for first quarter is that that excess non COVID-19 came in much more favorably and we had anticipated our COVID-19 losses came in a little bit better as well, but that was driving the provision and when we provided our provision for second quarter, we're assuming some of that excess mortality that we anticipated in the first quarter.
Party there so when you look through it the COVID-19 losses that are truly coded as COVID-19 are coming down is that excess piece, which as you know it's been hard to predict.
Yes, Brian.
The first that's of great. Thank you for the clarification.
The theory, it could be Gary that.
We just had less less flu deaths.
Seasonally sort of expected.
And the numbers of Barclays.
Clearly there was there was the first quarter.
Benefit for all other excess mortality outside of Covid.
Thank you very much for those answers.
<unk> would be.
Our next question comes from Elyse Greenspan from Wells Fargo.
Sure Manav you can now if you'd like to proceed with your question.
Thanks, Good morning, My first question.
I wanted to go back Christian on some of your opening comments you mentioned.
We think for elevated inflation data.
You also thought losses ratio assumption for sufficient again.
But then you guys did mentioned considering taking pricing action. So if you are considering taking pricing actions put in for that.
<unk> imply that inflation might be running higher than you expected and I know we touched on this a little bit during the call, but I'm, hoping if you could flush out like what areas of inflation, you're most worried about in terms of impacting your profitability.
Yes happy to.
Doug and I will tag team here.
Here so.
Yes, I think for at a general comment that inflation is up you've you've written about it and other staff have to it.
It's fairly self evident.
When we looked at our picks in our loss ratio picks up, particularly on our property and homeowners lines as Doug described there is.
There is.
Is that of positive and Theres activities.
Headwinds.
We net out all of the positives and negatives positive as being mostly frequency against the severity of pickup whether it be infill.
Inflationary or large loss activity, it's still nets out where we.
Our our picks for home and property on a full year basis, we think are going to hold so.
And Doug I think that the pricing actions that we've talked about are primarily in the homeowners line, where we're trying to.
Keep up with inflationary side, particularly on our insured values on schedule as and.
Activity.
Programs and.
Some new things that we've added to keep up with.
Schedule a values absolutely and in addition, we're also looking at on insured values in our small commercial and our.
Middle market property. So in general of lease we are on top of this property issue in terms of value of replacement what it will cost to <unk>.
And we had our facilities buildings et cetera.
With what we're feeling through the cost of goods sold.
Okay.
On inflation you would day is really just property on homes go ahead.
Are there for months.
On everything.
Everything is still in line.
And with your expectations.
Yes, we're watching auto carefully because we think it's been well chronicled auto parts the timing to get the parts of the labor to put the parts in.
A little bit of pressure there that will obviously matter to severity and were watching frequency and severity of together. So generally we've had better frequency.
Repair and debt have offset some of the severity dynamics, but we're very tuned into what the inflation curve is going to look like on.
Labor and material for all of our lines and.
I think we're on a good spot, but where.
Can't sit here today, and say, we know exactly how the fourth quarter will drop yet it's going to take us.
Several quarters to figure that out as data comes in.
Okay. Thanks, and then my net my second question on.
You guys are running ahead of pace relative to the buyback plan outlined for this year.
On.
Some of the dividend figures you provided on the south of SaaS I think are a little.
Pat higher than you had expected.
Is there a chance you could come in on.
Above 1.5 visits per year.
Depending up on your stock is if you buy book to take advantage of good more of the buyback program to potentially be frontloaded.
Okay.
Yes.
I had noticed that of lease we have.
As I said in my comments proactive and prudent.
In managing our capital.
<unk>.
So yes.
For a lot of things are possible, but we're basically.
6 months into her.
2 year buyback program I still think buying back 2 and a.
$5 million.
Again the right.
Action to manage our excess capital in.
For any 1 quarter or for any 1 period of time, there could be acceleration of acceleration depending on what we're seeing happening in the marketplace, but that's what would you say.
I think you've characterized that while I think on.
Ben for dividend.
At least yes, the range, we tightened primarily as it relates to P&C.
We had said we expected 902 of $1 billion.
And 1 billion won and now we're at a 1 billion for 1 billion ones of trending on the high side, but.
That's not a significant change there.
Sure.
And I think we're on a good pace, we had said when we announced the increase in the program in April.
We weren't intending to do it ratably over the period and I think that the actions we've taken of have shown that though.
All of that.
Okay. Thanks for the color.
Okay.
Our next question comes from Brian Meredith from UBS, Brian Your line will be on kind of if you would like to proceed for your question now.
Yes. Thank you.
Couple of of your first just wanted to dig a little bit on workers comp.
Doug.
Doug I know you mentioned that Youre looking at kind of loss cost filings for 2022 and kind of the key determinant of what pricing looks out for workers' comp any early indications with those gonna look like what's the NCC I, saying with respect to that kind of what can we expect potentially here for workers' comp pricing.
And going forward.
Brian It is extremely early but the next 30 days, we jump into that season. So I think maybe 1 maybe 2 states of hit in the last couple of days, but I don't have them Paul of the part yet, but I do know over the next 30 to 60 days most of the states will drop.
And how this.
Of this 2020 year is treated from a COVID-19 perspective, both frequency and then.
We've been quite transparent with our workers' comp selections around COVID-19.
The same is not true for all of our competitors. So I don't have a great lens into everybody's reporting actions, but we'll learn more through the Mci data.
As you know.
I think they <unk>.
Handle the bureau of loss costs for 47 states. So that is a very big component of this country's workers' comp system.
Great. Thanks, and then the second question I'm, just curious so some good gross and <unk>.
Commercial I mean, 1 of the things that people talk about is that if the.
And for the opens it's.
It's really more beneficial for the E&S markets, because new business formation typically doesn't fall on the standard commercial lines market is that of true statements.
Or are we kind of kind of think about things a little bit different way, where you could really see some nice big growth of new businesses as we continue to see economic growth.
Well that kind of growth is a good thing for our business and I would say that is probably partially true I think it's true by sector. So on.
Our pricing algorithms and our underwriting decision points do look at geography. They look at class. They look at sectors of class. So there are new business startups.
Ups that we're interested in writing on a retail basis, and then I would also say there probably sectors of small commercial that better fit E&S I think that it will be a good thing for our economic engine.
I'm glad you raised the point because we saw some of that in the second quarter, which is why we adjusted our audit premium going forward, but I don't feel like.
The real labor unlock has occurred yet and I think that will provide a further strength spring in the second half of the year.
Doug I would also say that historically in small commercial we do have E&S offerings.
That we provide.
Obviously navigators is going to help us.
Expand.
Product sets and of classes of business that.
Our 2 business leaders can partner on so.
That's been part of the designed to just capture more of small business needs, whether it be standard or.
The E&S market.
Absolutely it's been a growing capability bolts on.
Obviously on our wholesale sector.
And global, especially but also on.
Our small commercial business has a core strategy around.
On a working with wholesalers and that E&S space I would also add Brian to your question leadership and the people that run these businesses. So not all of new startups are with first.
Spanned the managers right. Some of these new startups or where the experienced managers that we've known we've ensured in other places. So the startup number can be a little misleading and in general we look at economic formation as a positive for our business.
Great. Thank you.
First time, Inc.
That was on last question for today, So I'll hand back to Susan to conclude.
Thank you Hey, we appreciate you all joining us. This morning, please don't hesitate to contact US if you have any follow up questions.
Thank you.
This.
Today's call. Thank you for joining you may now disconnect your lines.
Sure.
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