Q4 2021 Hartford Financial Services Group Inc Earnings Call
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Good morning, and welcome to the fourth quarter 2021, the Hartford earnings webcast, all participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing star and <unk>.
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After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question.
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I would now like to turn the conference over to Susan Spivak Senior Vice President Investor Relations. Please go ahead.
Thank you Andrew Good morning, and thank you for joining us today for our call and webcast on fourth quarter 2021 earnings yesterday, we reported results and posted all of the earnings related materials on our website.
On the call today, and order speakers will be Chris Swift, Chairman and CEO of the Hartford, Beth Costello, Chief Financial Officer, and Doug Elliot President.
Following their prepared remarks, we will have a Q&A period a.
A few final comments before Chris begins.
Today's 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 materially differ we did not assume any obligation to update information or forward looking statements provided on this.
Call investors should also consider the risks and uncertainties that could cause actual results to differ from these statements.
A description of those risks and uncertainties can be found in our SEC filings.
Our commentary today include non-GAAP financial measures explanations and reconciliations of these measures to the comparable 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.
This webcast and an official transcript will be available on the Hartford's website for one year.
Now I'll turn the call over to Chris.
Good morning, and thank you for joining us today.
In 2021, the Hartford delivered strong financial performance across the organization as we continue to execute on our strategy to realize the growing benefits of investing in our businesses.
At our Investor Day in November we shared our roadmap for maximizing shareholder value and demonstrated how we are executing in a more consistent and sustainable way.
Our targeted priorities will continue to produce results that drive profitable growth.
Enable market leading Roe.
And deliver consistent capital generation.
While at the same time sustaining our top quartile ESG performance.
As evidence of our ability to drive profitable growth.
Core earnings were up 10% in the fourth quarter to $697 million.
Full year core earnings grew to $2 2 billion.
Book value per diluted share, excluding <unk> was up 8% from year end 2020.
And the core earnings ROE of 12, 7%.
Yes.
For the second consecutive year.
During the quarter, we also returned $620 million to shareholders through share repurchases and common dividends, bringing total capital return for 2021 to $2 2 billion.
These strong results are the product of an extremely attractive portfolio of businesses in.
Targeted investments over the last several years to generate strong sustainable cash flow.
Going forward, we will continue to prioritize investments for future organic growth.
Along with dividends and share repurchases in our capital allocation decisions.
The hartford's businesses have distinct advantages of their own and complement each other extremely well share a deep underwriting and risk management expertise tool.
Tools insights and distribution.
Across the portfolio of businesses, we will continue to invest in claims.
Analytics data science and digital capabilities to ensure superior performance.
All the businesses plus possess exceptional talent that fully embraced the hartford's winning behaviors.
Passion for execution.
I am incredibly proud of the resiliency demonstrated by our team.
Especially over the last two years.
This speaks to our character focused on continuous improvement.
<unk> commitment to all our stakeholders.
Let's now turn to highlights from the quarter, which illustrate how our business strategy translates into financial performance.
In commercial lines, the positive momentum continued with stellar margins and double digit topline growth.
Reflecting higher new business levels continued strong retention and solid renewal price increases.
Looking ahead to 2022, we expect strong growth.
And earned pricing to continue to exceed loss cost trends in most lines.
Resulting in further margin improvement.
Personal lines delivered solid operating performance in a dynamic market environment.
I am pleased with the progress being made as we advance the rollout of our new prevail product and platform that provides a more contemporary experience to our unique ERP customers in the 50 plus age segment.
We are closely watching the impact of inflation on loss costs.
They are responding with underwriting and pricing actions.
We anticipate slightly higher underlying combined ratio in 2022.
Turning to group benefits earnings continued to be impacted by the ongoing pandemic with elevated life and disability claims.
Despite pandemic headwinds performance across group benefits remained solid and key business metrics demonstrate our market leadership position.
Fully insured ongoing premium was up 5% in the quarter, reflecting increased sales as well as growth in new premium from existing customers.
Persistency was above 90% and increased one point over prior year.
In 2021, our sales growth benefited from the initial expansion of paid family medical leave in several states.
Adjusting for that one time lift we are off to a good start with January 'twenty, two sales being on par with prior year.
For the full year, we are expecting premium growth in the 2% range compared to 2021.
Within our long term disability book claim recoveries remained strong.
Claim incidence in short term disability is highly elevated due to COVID-19 , while long term disability incidence rates have shown modest signs of increases.
As we have beat as we have been experiencing.
And in turn will be incorporated into future pricing assumptions.
Now I'm a crime variant has driven the most recent surge in cases.
Initial effects of army Crown are more impactful for short term disability.
But the lag between infection and death makes it challenging to predict future mortality.
Estimates of expected cases very widely.
And two perspectives on the final resolution of Covid as an endemic virus.
For 2022, we're estimating between 125 and $225 million pre tax losses due to the broad effects of the pandemic, including short term disability and excess mortality, which we expect to impact results primarily in the first part.
Of the year.
Our excess mortality estimates are based on the best data, we can gather regarding COVID-19 trends and reflect our optimism for the remainder of the year.
This optimism is principally due to the population continuing to get boosted Andy.
And the army crime being less lethal.
In addition, as advanced therapeutics make their way to the market and into the hands of the medical community. There is an expectation of fewer deaths for those who contract the virus.
So uncertainty remains I am encouraged as we progressed through 2022.
Pandemic will shift to our regional endemic state with more treatment options available.
Excluding any pandemic related effects for both life and disability, we expect the core earning margins to be between six and 7% consistent with our long term margin outlook for this business.
Turning to the macroeconomic environment for 2022.
I am optimistic the business environment will be one in which the Hartford will prosper.
We expect that consumer capacity to spend will remain strong which will drive economic growth.
U S unemployment rate has fallen to three 9% and is likely to fall below pre pandemic levels of three 5% by year end.
And we are seeing signs of increases to workforce participation.
In 2022, we expect inflation to be challenging in the first half of the year.
However, as supply changed gradually improve.
Assumption transitions from goods to services and interest rates rise.
We believe core inflation in the second half of the year will decline to the 3% range.
Lower unemployment and mid single digit GDP growth is supportive of our employment centric workers' compensation and group benefits businesses.
An expanding economy is also a catalyst for growth across commercial lines, particularly in small commercial with higher new business formation.
While our monetary policy normalization may lead to volatility in the capital markets.
Our well diversified and high quality investment portfolio is constructed to withstand this market dynamic.
With a favorable macro economic backdrop.
Accretable growth.
Spanish margins in P&C and group benefits.
And proactive capital management.
We are well positioned based on our current pandemic assumptions to generate a 13% to 14% core earnings ROE in 2022 and continuing into 2023.
Before I close I want to speak to our ESG achievements and our commitment going forward.
We have been consistently recognized for our efforts and progress.
Setting us apart from our competitors.
Most recently the Hartford was named the number one insurer and 14th overall on America's most just companies list.
The recognition we continue to receive is a testament to our longstanding commitment to sustainability and.
The dedication and hard work of our teams that make these priorities core to who we are.
ESG leadership remains a critical component of our value creation strategy as we continue to deliver strong financial results alongside positive outcomes for all stakeholders.
In closing, we begin 2022, and a very strong competitive position with.
With sustainable advantages and a winning formula to consistently achieve superior risk adjusted returns.
This is a direct result of our performance driven culture.
And the significant investments we have made to transform the organization into one with exceptional underwriting tools and expertise.
Expanded product depth and breadth.
Industry, leading digital capabilities.
Complemented by a talented and dedicated employee base.
We will continue investing for the long term to become an even more differentiated competitor all.
All while producing financial results.
I am confident that the Hartford has never been in a better position to continue to deliver on our financial objectives.
And enhance value for all stakeholders.
Now I'll turn the call over to Beth.
Thank you Chris.
Core earnings for the quarter of $697 million or $2 <unk> per diluted share reflects strong P&C underwriting results and a significant contribution from investments partially offset by the continued impacts of the pandemic and group benefits.
Commercial lines reported 14% written premium growth in the quarter, reflecting an increase in new business strong policy retention and exposure growth.
The underlying combined ratio of $88 nine increased one eight points from the fourth quarter of 2020 due to lower COVID-19 losses and improvement in the loss ratios in global specialty workers' compensation and property.
In personal lines the underlying combined ratio of $95. Nine includes the effect of an increase in auto claims frequency and severity.
New business premiums grew 16% with increases in both hot auto and homeowners.
P&C current accident year catastrophe and fourth quarter were $22 million before tax, which is net of reinsurance recoveries of $39 million under our aggregate catastrophe cover.
As a reminder, this cover attaches wise qualifying cat losses exceed $700 million.
As it relates to our cat reinsurance program, we renewed the program on January one 2022, and only a modest increase in cost with no changes in structure is.
We have included a summary of our program and the earnings slide presentation.
TNC prior accident year Reserve development was in core earnings was a net favorable $144 million driven by a decrease in reserves for workers compensation catastrophes package business and personal auto liability, partially offset by adverse navigators inherent development.
In total for the quarter, we incurred $43 million of adverse reserve development subject to the adverse development cover of which $18 million was ceded to the copper.
We have cumulatively exceeded $300 million of losses coverage limit under the treaty.
Outside of core earnings we also recognized adverse development of $155 million before tax for asbestos and environmental with a 106 million first factset and 49 million for environmental.
During this year's with your study we saw a decline in asbestos claim filings frequency, which was more than offset by an increase in defense costs and claim settlement rates and values.
For Environmental Reserve increase was primarily due to the settlement of a large legacy coal ash remediation claim and increase in legal defense costs and higher site remediation costs.
While the $155 million in reserve development was economically ceded under the adverse development cover we took a charge to net income for the deferred gain on retroactive reinsurance.
To date, we have ceded a little over 1 billion to the adverse development cover with $485 million of limit remaining.
Turning to group benefits core loss of 12 million compares to core earnings of $49 million in fourth quarter 2020.
The core loss reflects continued elevated excess mortality losses and group life higher short term and long term disability claim incidents and an increase in the expense ratio.
When we shared our third quarter results the reported U S. Co. The death rate has started to decline from the August search.
Unfortunately, the decline was short lived as the death rate ticked up again in December .
Using CDC reported Covid deaths, we currently estimate U S deaths for the fourth quarter will be about 126000, just slightly higher than 124000 deaths for third quarter.
The death rate for those under age 65 is down slightly but still higher than the first quarter of 2021.
Our estimate for all cause excess mortality in the quarter is $161 million before tax compared to $152 million in the prior year quarter.
The $161 million included $176 million with dates of loss in the fourth quarter, partially offset by favorable development on prior quarters.
The disability loss ratio was elevated six five points over the prior year due to higher claim incidence levels for both long term and short term disability.
In the quarter, we increased our 2021 long term disability accident year estimates to reflect modest increases in client activity.
Additionally, short term disability claims in the quarter were elevated due to COVID-19 and we did not experience a corresponding decrease in non Covid claims as we did earlier in the pandemic.
When adjusting for excess mortality in Covid related short term disability impact the core earnings margin was seven 8%.
Lastly, the expense ratio for group benefits increased by one seven points compared to the prior fourth quarter.
The expense ratio was impacted by higher compensation costs and increase in technology costs and higher staffing cost handle elevated claims.
In addition, the fourth quarter of 2020 benefited from a reduction in the allowance for doubtful accounts.
Partially offsetting these expense increases were incremental Hartford next extent expense savings and the effect of earned premium growth.
Hartford funds core earnings for the quarter was $60 million compared with 46 million for the prior year period, reflecting the impact of daily average AUM increasing 20%.
Total AUM at December 31 was 158 billion mutual fund net inflows were positive for the fifth consecutive quarter at $358 million.
The corporate core loss was $41 million compared to a loss of $51 million in the prior year quarter.
The lower core loss was primarily due to an increase in net investment income related to a higher level of dividends received and equity funds.
Across the enterprise, we continue to execute on our Hartford, Max operational transformation and cost reduction plan, achieving $423 million of expense savings through year end 2021.
We remain on schedule to achieve savings of $540 million in 2022 and $625 million in 2023.
Turning to investments our portfolio delivered another outstanding quarter.
Net investment income was $573 million up 3% from the prior year quarter benefiting from very strong annualized limited partnership returns of 22%, mostly driven by private equity funds.
The total annualized portfolio yield excluding limited partnerships was three 1% before tax for the fourth quarter and the full year.
Looking forward to 2022, we would expect our total annualized portfolio yield excluding limited partnerships will be slightly lower than in 2021 as the reinvestment rate continues to be low below the average sales in maturity yield on the portfolio as well as an expected reduction in returns within the equity.
<unk> and non routine income items, such as make whole payments.
The portfolio credit quality remains strong with no credit losses on fixed maturities in the quarter.
Net unrealized gains on fixed maturities before tax with $2 1 billion at December 31 down from $2 5 billion at September 30th due to marginally higher interest rates and wider credit spreads.
Book value per diluted share excluding ASC I. It was 8% since December 31, 2020 to $50 86.
And the trailing 12 month core earnings ROE was 12, 7%.
During the quarter, the Hartford returned $620 million to shareholders, including $500 million of share repurchases at a $120 million in common dividends paid.
As of December $31 3 billion of share repurchase authorization remains for 2022.
From January one through February 2nd we repurchased approximately $2 5 million common shares for $180 million.
Cash and investments at the holding company were $1 9 billion at year end as.
As a reminder included in our holding company cash at the end of the year are the proceeds from our September debt issuance, which we intend to use to redeem $600 million of hybrid securities in April 2022.
During the fourth quarter, we received approximately $440 million in dividends from subsidiaries and expect between one seven and $1 8 billion in 2022.
Looking forward to 2022, our views for the financial outlook are largely unchanged from those we shared at Investor day.
We expect to generate profitable growth in both P&C and group benefits subject to some uncertainty with the level of excess mortality.
This coupled with our capital management plans provide the path to 13% to 14% ROE for 2022, and then into 2023.
We look forward to updating you on our progress I'll now turn the call over to Doug.
Thank you Beth and good morning, everyone.
<unk> 2021 was an impressive year for the Hartford property and casualty business, we achieved substantial progress on each of the five critical strategy drivers as outlined during our Investor day, and the financial results were simply outstanding.
Across the five our expanded product breadth is driving topline growth across each of our commercial businesses.
Advancements in technology and data are fueling straight through processing and small commercial speed to market improvements in middle and large commercial and the launch of our new personal lines product prevail.
Our distribution footprint is stronger than ever with expanded capabilities to meet changing customer needs across multiple channels.
The Hartford strong focus on customer experience is is it just.
English in our marketplace execution.
Our small commercial digital experience was rated number one in the industry by Qdoba and net promoter scores have significantly improved in middle and large commercial putting us in the top tier of national carriers.
Finally talent powers, our engine and continues to be a differentiator.
The combination of these critical drivers has delivered full year 2021 property and casualty written premium growth of 9% and.
The underlying combined ratio of $89 four and core earnings of $2 billion.
The underlying combined ratio was three points lower than 2020 and core earnings were 17% higher.
Our momentum in the marketplace is evident with several consecutive quarters of strong topline growth and underlying margin improvement let.
Let me dive a bit deeper into each of our business line results before closing with several comments about 2022.
The commercial lines underlying combined ratio was 89, one for the year.
Six four points lower than prior year, improving three six points ex COVID-19 .
Margin improvement throughout the year was driven primarily by stronger and pricing outstanding underwriting execution and the impact of our Hereford next expense program.
Commercial lines topline performance was also exceptional growing 12% year over year and 14% in the fourth quarter.
Small commercial closed a year of record performance and continued market leadership with written premium eclipsing 4 billion an increase of 11%.
Fourth quarter written premium growth was even stronger at 17%.
Policy count retention increased 2% two points in the quarter, driven by consistent pricing and underwriting and enforce policies grew six 5% versus prior year.
The continuing benefit from an improving economy, including rising payrolls contributed to both the years and the quarter's topline result.
Small commercial new business of $673 million for the year was up 21% fourth quarter, New business was 162 million with growth of 6% an excellent result, given the economic rebound during the last quarter of 2020.
Written premium growth was significant across all distribution channels and our market, leading <unk> product spectrum continues to have strong traction.
The middle and large commercial written premium increased 12% for the year and 14% in the fourth quarter.
Middle market, new business of $532 million increased 11% for the year with significant contributions from our core general industry is booked as well as our specialized verticals.
And hit rates for the year, both improved over two points from 2020, reflecting our growing momentum deeper product suite and improving underwriting execution.
We continue to balance the rate and retention trade off while maintaining disciplined underwriting and leveraging our risk segmentation tools to drive profitable growth.
Global specialty produced a strong year with annual written premium growth of 13% and 11% in the quarter.
New business of $912 million for the year or growth of 21% was equally impressive and policy retention remained strong throughout the year in the mid eighties.
The breadth of our written premium growth continues to be led by wholesale U S financial lines and environmental.
<unk> also had an excellent year with written premium growth of 21%.
Let's move to pricing metrics and loss trends.
U S standard commercial lines renewal written pricing was in line with the prior two quarters and continues to exceed loss trend across most products.
Ex workers' compensation pricing was six and a half in the quarter with workers comp pricing coming in at one 2%.
Within middle market ex comp pricing also remains sequentially consistent at 8%.
And global especially U S pricing in the quarter was still quite good at 9% U S. Wholesale achieved 12, 7% and Ocean Marine 13 five.
Fourth quarter pricing gains in the international portfolio of 11 six remains strong.
Across commercial lines loss trends and loss ratios for the year were largely in line with expectations for the year. The ex cat current accident year loss ratio improved four nine points for the fourth quarter reduction of 190 basis points benefiting in part from lower Covid losses.
Ex Covid this loss ratio improvement of two one points for the year for the year and 60 basis points for the quarter.
Loss ratio improvement in the fourth quarter was driven by stronger pricing and favorable property frequency, partially offset by a few large property losses across our book.
Shifting over to personal lines, the underlying combined ratio for the year increased six eight points to $89 nine.
Auto results were impacted by increasing vehicle trips and miles traveled.
Liability frequency in the quarter continued to run favorable to expectations. However, physical damage frequency ran a bit worse auto severity remains elevated primarily driven by rising wages and supply chain pressures on the cost of used cars and parts.
And home full year and fourth quarter frequency was better than our expectations. However, higher claim severity from elevated building material and labor costs drove the underlying loss ratio up over three points for the year and the fourth quarter.
Written premiums declined 1% for both the year and the fourth quarter.
However, I am encouraged by the improving growth profile in the second half of 2021, we.
We see positive signs with rising conversion rates steady retention and slightly improved industry shopping for our 50 plus cohort as included in J D. Power's reported data.
Prevail or new product is now available in eight states with the rollout significantly expanding in 2022.
While we remain pleased with the quality of our new business pricing is a top priority more on that in a moment.
Before I turn the call back to Susan for Q&A I'd like to share a few thoughts about 2022.
Consistent with Investor Day, we continue to project 2022 commercial lines written premium growth between four 5% with an underlying combined ratio between 86, five and 88 five.
Coming off significant 2021 growth of 12% four to five is a strong target for this year.
We expect a return to more historical patterns of workers' compensation exposure growth count.
Balanced with rising wages in 2022.
The projected underlying combined ratio was approximately two thirds loss ratio and one third expense.
Renewal written pricing in commercial lines, excluding workers' compensation is expected to run in the mid single digits with certain global specialty lines, such as wholesale and U S Ocean marine closer to double digits.
Workers' compensation pricing is projected to remain competitive, especially in small commercial.
Renewal written pricing is projected to be flat to slightly negative.
Across commercial lines, we expect earned pricing will continue to exceed loss trends in most lines, except workers' compensation.
In personal lines, we expect auto frequency to modestly increase but remained below pre pandemic trajectory.
Persistent building and material inflation, increasing labor costs and supply chain disruptions throughout 'twenty, two will continue to impact severity.
As a result of these trends our auto and home regulatory filings have ramped up significantly over the last 90 days.
Expect this elevated filing activity to continue throughout the first half of the year.
To ensure our initial price points reflect our most current view of loss trends, we have been deliberate and thoughtful with an adjusted prevail state launch schedule.
All in we expect 2022 personal lines underlying combined ratio of 90 to 92.
In closing 2021 was an outstanding year for our property and casualty business and a strong validation of our multiyear roadmap.
Our commercial lines business buoyed by the improving economy grew at a double digit clip strong pricing earned into the commercial book driving lower current accident year loss ratios each commercial business delivered strong execution and improved accident year performance and early results from the launch of prevail and personal lines demonstrate encouraging signs.
That our cloud platform with contemporary product design features will compete well into the next decade.
The seamless integration of our product portfolio technology, and analytics distribution and talent have driven our success in the marketplace.
Expressed at our November Investor Day, I'm extremely pleased with our 2021 performance. The results are strong and sustainable as is our future.
I look forward to updating you all on our 2022 performance whether first quarter call.
Now I'll turn the call back decision.
Andrew we're ready to take questions.
We will now begin the question and answer session.
Ask any question you May Press Star then one on your telephone keypad.
If you are using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question Ben.
Please press Star then two.
Please limit yourself to one question and a brief follow up.
At this time.
Pause momentarily to assemble our roster.
The first question comes from Andrew Lederman with credit Suisse.
Please go ahead.
Hey, Thanks, a lot.
Sure.
So.
Just taking a deeper look at the.
The personal lines area.
It looks like you came in and an auto combined ratio of 105 points or and you are in the midst of rolling out the <unk>.
<unk>.
So I'm wondering how long.
It takes two to kind of get those rate increases in place.
When.
When do you think you could get to the loss ratio.
And an attractive range and where that might be.
So a few different questions inside let me see if I can on a couple of them and answer the first point I'd make is that from a seasonal perspective, our fourth quarter loss ratio is our highest quarter in the year and consistent with our planning.
And history and also performance in 2021, and just want to note that runs three to five points on average per year higher than.
Our number for the year, so that is inside the fourth quarter.
As I.
Set in my remarks, we have rolled out eight states by the end of two.
2022, we expect to be in more than 40 states. So an aggressive rollout, although we have delayed a few states based on a rework around supply chain.
We are actively working.
45 States right now from a filing perspective, I think you've seen.
Our pricing progress over the last couple of years, we reported in the supplement relatively steady over that period of time so.
Our rate need nine months ago was relatively small that has changed as we've lost supply chain and Andrew we're reacting to that on a weekly basis. So aggressive approach to what we're doing with filings.
Happening by the week by the month.
Aggressive in the first quarter second quarter I expect over the next five months, we'll be largely through that effort.
Youll continue to see as we work our way through 2022 the results in our written pricing as demonstrated in our supplement.
Thanks to that I mean, it sounds like.
You're very confident in trajectory.
As I think about personal lines in general sitting in with the property casualty business.
Do you see that as a stint as the core fit and is that a business that.
Do you feel is necessary to be in over the long haul.
Yes, Andrew it's Chris I would say, yes, we see it as a fit.
We like the business, obviously over the years.
Improved our contractual relationship with AARP.
Extended for 10 years, so I think of it as primarily an affinity direct marketing business with two great brands, meaning AARP.
The Hartford so.
And then particularly with the modernized.
The platform our digital emphasis.
I think I think we can really make something.
What happened here.
That we haven't been able to do before just given some of the contractual arrangements. So.
It's a preferred segment we like.
And I think we've got a good brand.
It's not unusual for.
Commercial line carriers.
Personal lines operations.
We think it contributes to our overall profile.
And our overall earned.
Earnings and ROE.
<unk>.
The next question comes from Tracy.
<unk> with Barclays. Please go ahead.
Thank you. Good morning, just maybe a quick follow up on what you were just talking about.
You mentioned some contract changes.
Sure.
I'm wondering the last time industry had to correct pricing on auto back in 2015 to 2017, you may not have been able to be as agile and Im wondering how the playbook mid teens now because I believe now you have more six month policies versus 12 months policies or were there any other structural changes that would make you more.
This go around.
I guess a few thanks ratio had pointed out youre right. Our prevail product is a six month product for auto so that changes the dynamics of how we'll manage the product to speed and our flexibility around that.
There's also a future of lifetime continuation in the old product that now is not with the new product going forward.
Essentially across the country. So yes, we think we have a much more nimble approach a contemporary product and excited about the early results, but we have a lot of work in front of us in 'twenty two to get it rolled out across the country.
Okay, great and just to be clear that system prevail.
AARP.
That is the new product is six months has prevailed correct, yes, okay got it.
Great. Thanks, Thanks, Margaret This one yes, Tracy it's Chris just one point of emphasis as Doug obviously thinking about prevail and then our existing in force book and all the work that we have to do but even in our existing 12 month policy.
New business only does not have a lifetime continuity agreement. So we have the ability.
Over the last 18 months or so 12 months, when we're writing new business with AARP, even in the non prevail product.
We're not writing new business with lifetime continuity agreement, so, but the vast majority of the enforced still obviously has lifetime continuity. So just one just a little nuance.
Okay. Thank you for attempting and that's really helpful. Maybe shifting gears I noticed the Hartford loss.
During 2021, and it looks like that may happen and hiring trained but I also noticed at the same time.
Shortening the duration of the Europeans the Opex from five years back in September 2020 that for three years now at year end is that something we could expect to continue and I'm just wondering how important <unk> manage capital.
Yes.
Take that.
It is a significant change some of that is also related to just the change in the duration of the liabilities.
But we did shorten duration and what we referred to as our surplus.
On assets, just given our views of what's happening with interest rates. So some of the sales that we did in the fourth quarter, we're right on the longer end, but.
I would say that it's not a significant change, but again, just our way of positioning the portfolio. We do look at on a OCI.
In total.
But again I wouldn't characterize some of the changes we've made is anything all that significant.
Okay.
The next question comes from Elyse Greenspan with Wells Fargo. Please go ahead.
Thanks. Good morning. My first question is on the capital side do you bought back $1 7 billion in 'twenty one.
The head of kind of one 5 billion that you had pointed to for 'twenty. One and then also for 'twenty two.
And given the dividends that you laid out with your outlook on the subs over the coming year.
Seems like you could probably find out more than one 3 billion.
Is there some upside to the 2022 capital return plan and how should we think about the timing.
Of getting a share of that and perhaps exceed.
So I would start and Beth can add her commentary yes.
We're pleased with our capital management actions over the last years.
Equally.
We believe we're going to continue to do going forward.
But it's premature right now.
To speculate what are we going to do.
For the rest of the year and into 'twenty three I think we've always been clear with you when we change our views.
Have additional excess capital to allocate.
<unk> with you but right.
Right now we want to finish our existing program.
Obviously see how the year plays out make sure we're funding all of our internal growth opportunities.
And then back to you Mike.
Comment upon S&P, just see where that falls out.
Those are the parameters that we just think about over over a longer period of time, but what would you add.
And I really look at the additional amount that we did in 'twenty. One is this an acceleration of what our plans were for 2022 I mean as you know we typically do look to execute our capital management plans ratably over the period, but we're not agnostic to share price and our program does.
Provide us flexibility to react then.
And movements in share price make it attractive for us to maybe repurchase a bit more than we had originally planned and as Chris said.
Executing on the total authorization of $3 billion and very pleased with that.
Thanks, and then my follow up.
Is on loss trend on within commercial lines. So when you set your underlying margin guide for 'twenty two.
So when you make the comment might be do you expect.
Pricing is to continue to exceed loss trends, how do you guys see the loss trend environment.
What's embedded there within 2022 guidance.
I would say that largely 'twenty two's loss trend picks are consistent with 21.
Comp is certainly.
Consistent visa the both frequency and severity.
Talking about medical severity up over mid single digits and then.
Higher middle digits and frequency has been pretty favorable.
The one tweak we have made in the last couple of years I guess two to each one as we're aware of and focused on supply chain, So where supply chain is hitting building construction property et cetera, we've bumped up that trend a little bit and we continue to watch excess trend as well so casually excess as an area where we've been in the high.
Single digits and remain there for 'twenty two.
The next question comes from Greg Peters with Raymond James. Please go ahead.
Good morning, everyone.
My first question is going to focus on the growth outlook for commercial lines that you reiterated in slide nine of your investor deck.
I guess, what I'm trying to do.
As you know we're looking at the pieces here the strong results of 'twenty. One we are looking at slide 10, where you show the.
Continuing positive trend of rate.
And.
Just sitting back here from the cheap seats, it looks like the 4% to 5% targeted growth for 'twenty, two looks to be low hanging fruit, especially in the context of a rate environment that continues to be favorably.
Favorable as it relates to.
Price over loss cost trends, so I thought maybe you could give some additional color on that.
Yes.
Let me try Greg I'd start with across commercial are our three big businesses.
As we've mentioned there has been a little bit of tailwind behind us from economic growth coming through exposure.
And premium audits, primarily on the workers' comp area. So when you think about it as an example, small commercial which is up over 10% for 2021 and the 12% range.
We share with you test this change in the supplement is running and policies in force at six five alright.
Alright so.
Customer count is up the rest of that is roughly exposure plus or minus and it varies by line of business, but it gives you a sense.
Net.
We see quite a bit of a tailwind more tailwind in 'twenty one from exposure than we had seen prior certainly relative to 'twenty when the market went the other way on us, but even historically.
Same thing in middle.
But when we look at our business ups small teams.
Theres, a fair amount of that coming from what I would say elevated exposure growth bouncing back over 2020, so when you pull some of that abnormal growth out.
You get more of a mid single digit type run rate and we think that's still a strong run rate now, yes, we expect pricing to be strong and yes, I'd like to see our Pip growth continue to grow.
But I have to suggest to you that we look at these growth rates.
A good percentage, 50% to 60% of some of those growth numbers and are driven by exposure change that we expect will slow down quite a bit in 2022 does.
That help a little yes, it does yes.
Makes sense and just trying to parse out what what is due to economic rebound versus.
The rest of the ordinary business little hard for us sitting on the outside to figure out if that makes sense too.
The other the other last point I would sure. Greg is you also have to do a compare right. So the compare against 'twenty four or 'twenty. One performance was it easier compare because of what happened in the second quarter of 2020.
Terrific year. This year, essentially we rolled through in terms of new business as much as we had expected nine months ago for <unk>.
<unk> 24 month period, so now all of a sudden the 'twenty two compare will become more challenging just because of the success we had in 'twenty one.
That makes sense.
A mistake.
We are focused on growth, we think it's a great time to grow given the environment.
You also.
Know that a lot of our competitors since it's a good time to grow too. So there is still a discipline that we still want the teams to have we want them to be falling to the gross growth and taking risk in losing all the sophisticated tools, we have on the underwriting side, but.
It's not it's.
It's not growth at all costs.
That makes sense.
The other question I had.
Slide 18, and this is this isn't necessarily a particular two it's an industry phenomenon.
The returns from Lps, and 21 has been outstanding and it doesn't seem like that's a.
A sustainable result.
And I guess I.
I guess, what I'm getting at is whats the normalized long term expected return on your Lps and is that sort of the number.
We should be using as we think about.
The contribution from that in.
In 'twenty two and beyond.
Greg I'm going to ask Beth.
To add her color, but youre right I mean, we've enjoyed two years of superior returns. However, you want to look at it either.
Either from a mark to market side or a cash realization side.
Some of our real estate investments have been just homeruns across the board. In addition to our private equity capabilities. So youre right.
That can't continue at the same rate.
What what would you add what I would add is as we think about that asset class and over the long term. When you think about a return more in front of the 8% to 10%.
Our range is how we think about what this asset class can deliver to US obviously very pleased with the results. We had this year and as Chris indicated.
<unk>.
<unk> portion of the gains that we had were actual realizations of of asset sales and some point in the underlying funds. So all in all great performance, but how do you think about kind of 8% to 10%.
Got it thank you for the answers.
The next question comes from Mike Zaremski with Wolfe Research. Please go ahead.
Hey, Greg good morning.
Yeah.
Maybe first question on.
Global specialty any color on what's driving the reserve development.
Especially now given that the the ADC cover from Navigators I believe is exhausted.
Yes, Mike I would share with you just the context on.
The <unk>.
<unk> why we put it into place first.
It was really the strategic opportunity to acquire the old navigators.
Add to our capabilities.
I think we picked up a wonderful.
Team culturally aligned with us and.
Really doing great things in the marketplace.
Our global specialty book today as you can see in the supplement is $2 6 billion.
And.
Is running strong.
Overall profitability that we have.
Worked hard to improve particularly.
Doug in the global specialty leadership team have really put our fingerprint.
And that business.
But back to the ADC.
We put it in place because we knew they had some issues on their balance sheet and.
The way, we thought about financing it with cash and using an ADC I think was the right decision.
Obviously, we needed it.
And we are where we are today, but.
I would say going forward is completely different just given our fingerprints are all over it.
When I look at.
The reserve positions and balance sheets right now im really.
Pleased where the global specialty balance sheet is in total.
For the future. So that's what I would say both what would you add.
I agree on the comment on the overall balance sheet and as it relates to the specific activity that we saw this quarter. It was primarily in financial lines, and a little bit and life Sciences, and really just a reaction to some higher than expected large loss emergence.
We looked at what we were experiencing and went to make our year end tax took all that into consideration.
Okay great.
Overall reserve development is very healthy.
I just know it's been recurring so I felt like it was worth asking.
Follow up.
Just wanted to be clear on on personal lines.
Good results like many others in auto.
<unk> and so just as we think about the outlook and you gave us a number of.
Of initiatives Youre, taking to it should.
Improve.
The loss ratio in auto.
In terms of cadence should we be thinking it's more kind of second half of the year loaded in terms of.
The improvement.
Yes.
So our as our written pricing goes and obviously, we'll be earning that.
Heavier element second half of the year.
Our loss trends text, though are spread throughout the year as we deem appropriate and as I mentioned, although we we think frequency will be just up slightly.
We have leaned into supply chain on the severity side. So that is a part of our overall assumption and I think on top of the trends we experienced this year, which are.
We all can see as you look at loss ratio performance 'twenty versus 21.
I think the combination of both those years and our expectation for increased severity next year.
A reasonable selections that we made inside our business plan.
Yes, the only thing that I'll, just add to that as it relates to trend and I know you guys commented on this before is just keep in mind that fourth quarter is always high.
Auto.
<unk> quarter for us from a seasonality perspective, and I think to that point as we look to.
Right into the bucket when you think about increases in supply chain I think when you look at the first half of the year in 2022 compared to the first half of the year in 2021 and expect to see things accounted elevated from there.
We really started to feel supply chain in the latter part of 'twenty two just from a compare perspective, if thats helpful.
Mike maybe one other thought too.
I think it's well known but when you look at loss cost inside.
Personal lines auto the significant component of the auto loss cost this is liability so.
Supply chain is impacting Phys dam differently than liability.
Not to be.
Under estimated liability has been performing for us so knock on wood, we still have to watch and we have to perform through 2022, but more of that supply chain is sitting on top of the.
Physical damage and physical damage is not 100% of the loss costs.
That's helpful. Thank you.
The next question comes from Gary Ransom with Dowling and partners. Please go ahead.
Good morning.
Yes, I wanted to ask in commercial lines, whether there were any.
Any segments or lines, where you were doing any meaningful true ups at the end of the year.
In the back of my mind is just the casualty trends and the sources that we've had whether how you might have incorporated that into your final loss picks for 'twenty one.
Gary when I think about accident year 'twenty, one to start I would say that.
Very quiet activity I mean, Jerry we have leaned into our loss trend selections and planning out to 2021 year and as you know on those casualty lines.
Unless there is some raising real big reason, we don't come off those trend lines for multiple years and then as we always do every time, we close the books are looking back on all of the prior accident years.
We've got some pluses and minuses the net of all of that was generally a pretty favorable quarter relative to that and we've talked about navigators. So.
I feel really solid about our balance sheet I think we work hard at it we assess it and 21 performed basically in line with expectations with the exception of some of the pressures we saw from Covid and supply chain.
Is there anything that I should read into the small commercial year over year comparison that was underlying was up a little bit.
We love that question, what I want you to read into small commercial is 88, and 17% growth in fourth quarter and over 11% in the year right. So that business is hitting on all cylinders, we feel really good about our rate adequacy, we are strong across Gerry all the lines inside small commercial and I think the rollout.
Of our new spectrum product over the last two years.
Just hit the street the exact spot we intended to so.
I am very bullish at some point you have such strong profitability.
Lean hard into growth that we felt like it was the right time to do that it was the right product mix and I look back on 'twenty, one I'm not sure I would change anything in our small commercial performance.
Fair enough and if I could sneak one more in when I look at all the favorable development, we had a lot from workers' comp and cats, and I think I understand that but the other one is packaging, where you've had a very consistent pattern of favorable development is there any particular story behind that or line within that.
<unk> thats driving that.
No I wouldn't really point to anything specific Gary and then again as we evaluate the actual experience in both frequency and severity perspective, we've made some adjustments on that just really pleased with how the line.
Has performed over time, but nothing specific that I would point to.
Great. Thank you very much.
The next question comes from Josh Shanker with Bank of America. Please go ahead.
Yes. Thank you one more question on the <unk> I mean, maybe I'm wrong, but I feel back when that was great.
$300 million of protection it seemed like a lot and I remember, having a discussion with you that the difference between buying $200 million of protection and 300.
Wasn't materially.
Significant amount of money. So it made sense and here we are we blown through it.
Given that you have the EDC.
Gave you some comfort.
In your financials.
How about taking those charges.
Has that book season to a degree but you are confident that the peak right now are probably very close to where they will ultimately lie.
Or.
Could there be some conservatism in your picks because you did have sort of the protection of the ADC to ring fence or core earnings.
Yeah.
You've got a lot of different.
Veins of thinking in there Josh what I would say is.
As I tried to say, we feel good about where the balance sheet is now.
We've put our fingerprint.
<unk> for the last two and a half years, including new business.
So we've got it positioned the way we want it.
And that's what I would say.
And I.
I mean look it can go both ways I mean, I'm just curious if.
Yeah.
I guess, we'll leave it there I don't think im going to get more out on this issue.
So I'll leave it at that.
On the <unk>.
On the personal lines.
<unk> been rewriting your business for a long time rewriting. It is there any argument that your customers at this point are stickier.
Then the average customers and the industry they've been with you threw a lot of rounds of rate changes and underwriting revisions and you should have a higher persistency, even the face of higher prices compared to some peers.
I think we have a strong customer base that believes in our product and our association with AARP.
So in general for <unk>.
Pensions I expect to be strong.
<unk>.
To me one of the hallmarks of great retention is consistency in pricing and a super product.
And I.
I believe those are all priorities they are in terms of our.
Strategy and behaviors as we work through time and I'm excited about.
The advancement of the contemporary product design that youre going to see what prevail. So.
We felt we needed to do that it's been a big investment a lot of work, but we felt like this was the right time for us to completely refresh and rebuild our product.
So that Josh that degree of stickiness was not only stay the same but it gets stronger and I think it will over time.
Thank you.
And unless.
There is time for any other questions I see it is past the top of the hour I would like to turn the conference back over to Susan Spivak for any closing remarks.
Thank you Andrew and thank you all for joining US today, if we did not get to take your question. Please reach out to my office and we will be happy to follow up.
Have a good day.
Yes.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Thanks.
Okay.
Yeah.
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