Q1 2022 Hartford Financial Services Group Inc Earnings Call
Yes.
[music].
Hello, and welcome to today's the Hartford first quarter 2020, Q2 financial results webcast. My name is David and I will be your moderator for today's call.
All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.
If you would like to ask a question. Please press star followed by one on your telephone keypad.
I'd now like to pass the corporate chosen to Susan Spivak Senior Vice President of Investor Relations. Susan. Please go ahead.
Good morning, and thank you for joining us today for our call and webcast first quarter 2022 earnings yesterday, we reported results and posted all the earnings related materials on our website for the call today, our speakers are Chris Swift, Chairman and CEO Hartford, Beth Costello, Chief Financial Officer.
And Doug Elliot President.
Following their prepared remarks, we will have a Q&A period.
A few comments before Chris begins.
Today's call includes forward looking statements as defined under the private Securities Litigation Reform Act of 1095.
Fitments are not guarantees of future performance and actual results could be materially different we do not assume any obligation to update information or forward looking statements provided on this call investors should also consider the risks and uncertainties that could cause actual results to differ from these statements.
A detailed description of those risks and uncertainties can be found in our SEC filings.
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 note that please that no portion of this conference call may be reproduced or rebroadcast in any form without the hartford's. Prior written consent replays of this 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.
Last April on our first quarter earnings call.
I've never been more excited about the future of the Hartford.
Was extremely bullish about our prospects for growth.
Further margin expansion.
Since then we have demonstrated our ability to deliver on these commitments through exceptional execution quarter after quarter.
We continued that momentum in the first quarter with core earnings of $561 million or $1 66 per diluted share.
From $203 million.
<unk> <unk> 56 per diluted share in the prior quarter.
Value per diluted share excluding OCI.
It's $51 42.
And our 12 month core earnings Roe.
It was 14.
8%.
During the quarter, we were pleased to return $530 million to.
To shareholders through share repurchases and common dividends.
These results and actions demonstrate our commitment to long term value creation.
<unk> of capital to shareholders.
We delivered these results during a very.
It's likely to continue with.
With ongoing challenges from Capex of the Ukraine conflict.
And we anticipated fed actions to raise interest rates historically high levels.
All the inflation.
And yet there are reasons for optimism.
Unemployment.
0.6% at the end of March.
As consumer and low levels of debt with health.
Savings.
Home prices have appreciated 17% on average a valuable source of equity for home.
Operations have strong balance sheets.
While new U S business yet.
Applications are up 65% from the pre pandemic levels.
And that is expected to continue.
Yes.
We're a growth.
Although rising wages.
New business startups.
Okay.
I remain.
It's well positioned to perform across it.
To deliver on our goals.
Maximizing value for our stakeholders.
Now.
Now, let's turn to the highlights from the quarter, which illustrate how our strategy translates into consistent and sustainable financial performance.
Overall commercial lines topline growth and expanding margins in all businesses.
You should position.
With our innovative products digitally.
Platform.
Data and analytics setting us.
Last year, we delivered.
A record growth eclipsing 4 billion in annual premium.
Yeah.
First quarter. We continued this positive momentum with very strong new business in <unk>.
Increased premium retention.
Middle and large commercial results are benefiting from sustained investments in underwriting capabilities.
Broader product offerings.
As well as innovative digital and data science tools.
In global specialty we continue to maximize our expertise to gain market share, while expanding margins with overall profitability improvement of more than 10 points.
From the second half of 2019.
As it relates to the Ukraine conflict.
First let me say with.
We shared the world's outrage at the tragic and senseless death.
Suffering and destruction.
And pray for an end to.
Sure.
The silence.
From the Hartford's perspective.
We have very modest direct exposure within <unk>.
In the region, which is meaningfully reinsured.
We have a diminishing amount of premium there and at the edge.
Actively controlled our exposure.
Up to the conflict in subsequent to the start of the hostilities.
Thus, we will cover the financial impacts to the quarter.
In personal lines.
<unk> were in line with expectations and reflect our transformative work.
Nick.
<unk> relationship.
I am pleased with the progress we are making as we rollout prevail, our innovative and cloud based platform that provides a simplified digital customer experience and.
And uses data science to drive new business growth.
Turning to group benefits as.
As expected we continued to be impacted by the pandemic. However, insured ongoing premium was up 5% in the quarter and risk.
Flex both increased premiums from existing customer.
And a four point improvement in persistency over the prior year.
Favorable employment trends and rising wages also contributed to premium growth.
Sales for the current quarter are down year over year as the first quarter of 2021 benefited from the expansion of paid family medical leave products in several states.
Adjusting for that one time lift.
Sales are comparable to prior year across our life disability and supplemental health products.
Through the first three months of the year, our long term disability book is performing as expected with modestly higher disability incidents trends.
A higher incident rate is reflected in our future pricing and was anticipated when we set forth our margin expects expectations for 2022.
Modestly higher expenses in the quarter reflect higher staffing costs to manage elevated short term disability claims.
And accelerated investments in capabilities, including digital.
Claims automation and administrative platforms.
We expect the full year 2022 expense ratio to be generally consistent with first quarter results.
During the quarter the number.
Number of U S. Covid cases were at their highest levels of the pandemic and deaths were elevated.
However, both cases and deaths have rapidly declined in March and April .
Clearly the past two years have shown that.
But predicting the pandemic impacts is impossible.
But with cases and deaths at their current levels. We are cautiously optimistic about the remaining quarters of 2022.
In conclusion, the Hartford is off to a strong start in 2022, we are optimistic about macro factors impacting our business, including improving pandemic outcomes.
And the potential for easing of inflationary pressures.
We continue to manage our investment portfolio prudently and expect the portfolio yield to benefit from rising interest rate environment over time.
And we are continuing to proactively manage our capital.
All of these factors underpin my confidence that we will generate a 13% to 14% core earnings Roe.
In 2022 and 2023.
Our strategy and the investments we've made in our business and have established the Hartford is a proven performer with consistent results.
We are competitively positioned with a complementary and a well performing portfolio of businesses and a winning formula to consistently achieve superior risk adjusted returns.
Now I will turn the call over to Beth.
Thank you Chris core earnings for the quarter of $561 million or $1 66 per diluted share reflects excellent P&C underwriting results a significant contribution from the investment portfolio and reduced pandemic related impacts include benefits.
As Greg commented business unrelated to Russia, Ukraine exposure had a modest impact on our results.
We recorded $27 million of net catastrophe losses, primarily related to political violence, and terrorism, including aviation war and credit and political risk insurance.
As a result of incurred losses covered by our reinsurance treaties, we recorded a provision for ceded reinstatement premium of $11 million.
The company's direct investment exposure is limited to corporate bonds issued by Russian entities with an amortized cost of $16 million and we recorded an allowance for credit losses of $9 million in the quarter, we did not have any investments and validates our Ukraine.
Moving on to the business line results.
In commercial lines core earnings were $456 million up $351 million from the prior first quarter, primarily driven by the reserve increase in the 2021 period for boy Scout and a stronger top line and lower catastrophes in the current period.
Commercial lines reported 12% written premium growth, reflecting an increase in new business and small commercial strong policy retention written pricing increases in exposure growth.
The underlying combined ratio of 88, three improved two nine points from the first quarter of 2021 due to COVID-19 losses in the prior year and a lower expense ratio and slightly improved margins across several product lines in 2022.
In personal lines core earnings were 84 million and the underlying combined ratio of $88. Five reflects increased auto loss cost as anticipated I would.
Note that from a seasonality perspective, the first quarter typically has lower loss costs and the balance of the year.
As Doug will comment upon we are making progress and getting more rate into the book given the impact of inflation on loss costs.
Although our view of inflation impact is a bit higher than where we were a quarter ago, we expect to be within the underlying combined ratio guidance of 90% to 92 for the full year, albeit at the high end.
P&C current accident year catastrophes in the first quarter were $98 million before tax which included the $27 million related to Russia, and Ukraine exposures that I just mentioned.
P&C prior accident year Reserve development was a net favorable $36 million with workers compensation being the largest contributor.
Turning to group benefits core earnings of $8 million compares to a core loss of $3 million in first quarter 2021.
Core earnings reflect a lower level of excess mortality losses and group life, partially offset by a higher disability loss ratio and an increase in the expense ratio.
All cause excess mortality in the quarter was $96 million before tax compared to 185 million in the prior year quarter.
The $96 million included $122 million with dates of loss in the first quarter, which was partially offset by favorable development on prior quarters.
This adobe loss ratio increased four eight points over the prior year period, primarily due to less favorable prior and current year development and long term disability as of 2021 loss ratio benefited from low incidence levels from earlier in the pandemic.
The long term disability loss ratio in the quarter was in line with our expectations, which included an assumption for increased incidents relative to the past couple of years.
Long term disability claim recoveries remained strong and are consistent with prior year.
Lastly, the expense ratio for group benefits increased by <unk> six points.
Vincent with expectations the expense ratio was impacted by higher staffing costs to handle elevated short term disability claims and increased investments in technology, partially offset by incremental Hartford next expense savings and the effect of earned premium growth.
Before excess mortality in Covid short term disability losses, the group benefits core earnings margin was five 7%.
From a seasonality perspective, we experienced higher underwriting under our bi loss cost in the first quarter. So we would expect the margin to be lower than our full year estimate.
We remain confident in our guidance of a 6% to 7% core earnings margin for full year 2022, excluding COVID-19 impact.
Turning to Hartford funds due to equity market declines at higher interest rates.
AUM decreased during the quarter to 148 billion, resulting in a sequential quarterly decrease in core earnings core earnings were up 11% compared to first quarter of 2021.
Our investment portfolio delivered another strong quarter net investment income of $509 million benefiting from very strong annualized limited partnership return of 14, 6% driven by relatively balanced contributions from our private equity and real estate equity investments.
Total annualized portfolio yield excluding limited partnerships of two 9% before tax with.
With the increase in interest rates and wider credit spreads our portfolios reinvestment rate was three 3%, which compared favorably to the average sales maturity yield of 3%.
Not surprisingly the portfolio value was also impacted by higher interest rates and wider credit spreads the.
The portfolio moved from an unrealized gain position of $2 1 billion at year end to an unrealized loss of approximately $300 million.
Additionally, the portfolio had a net realized loss of $145 million, which includes $107 million of mark to Mark losses on the public equity portfolio, reflecting the decline in equity markets in the quarter.
While it is still early as I look ahead to the second quarter, we anticipate the limited partnership annualized return will be in the 8% to 10% range, both private equity and real estate equity investments contribute to our LP return and this diversification has proven to be beneficial.
So while interest rates and capital markets May remain volatile, we are confident that our high quality and well diversified portfolio will continue to support our financial goals and objectives.
The confidence we haven't been our business is also evidenced by our capital management actions.
As of March 31, approximately $900 million of share repurchase authorization remains for 2022.
From April one through April 27th we repurchased approximately $1 9 million common shares for $139 million.
On April 15th we redeemed $600 million of hybrid securities with a rate of seven 875%. We had pre funded the redemption with the issuance of $600 million of two 9% Senior notes last September which will result in net annual after tax savings of approximately $24 million.
In summary, our first quarter financial performance demonstrates the positive results that building and investing in our businesses have yielded.
Combined with prudent capital management, we are positioned to deliver on our goals.
I will now turn the call over to Doug.
Thanks, Beth and good morning, everyone.
The Hartford's property and casualty strong first quarter results are evidence of the substantial progress achieved to expand product breadth.
<unk> technology and data science, deepen our distribution footprint and differentiate the customer experience.
These accomplishments are powered by our skilled talent base positioning us well for profitable growth.
Starting with commercial lines I am pleased with the underwriting performance across product lines and the improving expense leverage.
Written premium growth was strong in the quarter sustaining the topline momentum achieved last year with the acceleration of growth during 2021 the year over year compares will get more challenging in subsequent quarters, but we're confident there is upside to our initial target of 4% to 5%.
Starting with pricing in January we shared with you our 2022 commercial lines guidance, which contemplated moderated renewal pricing and first quarter was largely in line with those expectations.
Commercial written pricing, excluding workers' compensation was seven 1% moderating about a point from the fourth quarter, but continuing to exceed loss cost trends across most products.
This moderation was largely experienced in middle market and global specialty.
Workers' compensation pricing declined slightly from the fourth quarter as expected.
The dynamic of higher average wages, partially offset by negative filed rates will likely persist throughout 2022.
The written premium in small commercial was up 6% driven by spectrum and retention improved two points from last year.
Our number one rated digital customer experience outstanding product capabilities and rising no touch bond ability levels are driving business to the Hartford as customers continued to embrace our consistent pricing and underwriting approach leading to higher sales and excellent retention.
Middle market pricing, excluding workers' compensation was six 5% a very solid start to the year retention was up four points from the first quarter of 2021, while new business premium was essentially flat.
Robust exposure growth also contributed to our quarterly top line increase of 10%.
Pricing remains strong and global especially at eight 3% with U S wholesale pricing just over 9%.
Premium retention was steady and growth from our reinsurance business was significant.
We continue to be pleased with our growing momentum deeper product suite and improved underwriting execution.
Turning to loss costs. Our 2022 guidance also reflects our disciplined and long term consistent approach to loss trend selection, including the expected impact of supply chain inflationary pressures in our auto and property books, along with social and economic headwinds and other lines.
Overall loss trends and loss ratios for the quarter were in line with a few puts and takes.
In summary for commercial.
Very pleased with the continued excellent performance of each of our businesses and I expect to achieve our underlying full year guidance of 86 five to $88 five.
Small commercial delivered yet another sub 90 underlying combined ratio quarter at our best first quarter since 2014.
That 91, five middle and large commercial has now achieved four straight quarters of strong underlying performance and this quarter's result is the best first quarter in over a decade.
And global specialties underwriting combined ratio underlying combined ratio of $88. Two is equally impressive reflecting the recent strong pricing environment improved underwriting execution and significant underwriting actions taken since the acquisition.
As these results demonstrate we're effectively balancing the rate and retention trade off while maintaining disciplined underwriting and leveraging risk segmentation tools to continue driving profitable growth.
Flipping over to personal lines, we're very pleased with the first quarter underlying combined ratio of $88 five acknowledging the typical first quarter seasonality benefit.
Industry loss cost headwinds.
Maintaining profitability of the legacy book has been a primary focus while developing our new products prevail.
Consequently over the past several years, we continued to selectively tune pricing.
In personal lines auto loss costs were elevated primarily due to higher than expected severity, particularly in physical damage, we have not been immune to supply chain and inflation pressures and in response over the past several months, we have completed over 50 auto filings with an average rate increase of six 2%.
These filings were across multiple class plans and will impact approximately half of our book going forward.
In addition, we continue to recalibrate prevail pricing to reflect these elevated loss trends were.
Confident our filing execution combined with prudent rate increases taken during the past few years, we will continue to position our auto book for profitable growth.
And home overall loss costs were in line with quarter one of 2021.
Non cap weather frequency continued to run favorable to long term averages raw material and labor costs remain at historically high levels, putting pressure on severity.
We're similarly, taking pricing actions and home.
All in our current accident year loss.
Loss ratio of 47, three is very healthy.
Turning to personal lines production retention remained steady while we generated new business growth in the quarter responses and conversion rates are in line with expectations.
In addition, prevail is now available in 13 states, including the launch of Florida in January in Texas in April a couple of our larger states.
We're actively managing our new business flow through an accelerated view of key metrics and enhanced analytics to date, we're pleased with the quality of the new business we're writing.
In closing the first quarter was a very strong start to 2022 across property casually and represents mounting evidence that we have and will continue to deliver on our critical strategic goals.
Our commercial lines business grew at a double digit clip with exceptional operating margins and in personal lines pricing actions are taking hold while new business growth is emerging with increasing contributions from prevail.
The seamless integration of our product portfolio technology, and analytics distribution and talent continue to drive our success in the marketplace.
The momentum is clear.
The results are strong and our future is bright.
Forward to our next update in 90 days, let me now turn the call back to Susan.
Thank you we have about 30 minutes for questions. Operator could you. Please repeat the instructions for asking a question.
Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove that question. Please press star followed by two again to ask a question it staff on it by one okay.
As a reminder, if you are using a speakerphone. Please remember to pick up your handset before asking your question.
Our first question today comes from Brian Meredith from UBS, Brian . Please go ahead. Your line is now open.
Yes. Thank you a couple of questions here first I'm just curious could you give us what the current new money yield that you're actually getting a new money rate that youre getting right now in your portfolio and how does that compare to what your book yield is and then how much of your portfolio kind of turns every 12 months and then.
<unk> also Chris Wyatt 13 to provide consistent row 'twenty two to 'twenty three given the rise in interest rates.
Sure, Brian I'll I'll start so.
Yes, if you look today the new money.
It's probably closer to three 8% compared to the $3 three average that we had for the quarter.
This compares very favorable to the overall portfolio yield. So you may recall a quarter ago. When we were talking about our expectations for yield for 2022, I had said that we expected to see a slight decline from where we were in 'twenty one.
Given where we are today, we would expect 2020 to be relatively consistent with 21, and then see increases as we go into 2023.
Yeah, and Brian on the range question, 13% 2014 is obviously, what we've been talking about for the last year as you heard my confidence and optimism today I believe.
We'll achieve that in both those years.
You should not view 2014, and there is a limit.
We will try to achieve it if the conditions are appropriate, particularly as Beth said, we'll have to see how the portfolio lift really plays out over a longer period of time, but.
That could be meaningful, particularly as you get into 2023.
Gotcha and then my second question is I guess more Chris.
Russia, Ukraine, what was your gross loss seems like you had a fairly the reinstatement premium obviously you had some reinsurance recoveries and then also on that topic, Russia, Ukraine, maybe a little more kind of details as far as where your exposures are.
And where could there potentially be some more losses coming from Russia, Ukraine.
Sure so.
Doug go ahead his commentary I would say that.
Most of the exposures that we have obviously has come through our syndicate and London, primarily through the political violence.
Credit and political risk book.
We have about 45 million of net written premium in those lines and as we said in our prepared remarks. It is heavily reinsured.
So clearly the war is still evolving.
And the loss picks that we made I think are very prudent and thoughtful about the I'll call of exposures that we have.
I'll give you a little insight we're doing we had two notices of loss and one was denied.
So.
The entirety is nearly just all I mean at this point in time so.
I think that's all I would just prefer to share with you right now given it's a live event, but we used a lot of data and Intel including satellite imagery to to look at properties that were exposed in.
Feel really good about the picks that we made at this point, but Doug would you add anything else no I think you nailed it Chris we try and have a very good handle on the risks located in those countries I think we understand our book well.
This process has been deliberate and prudent.
Thats, what I feel really good about the call we made in the quarter for what we know.
Great. Thank you.
Thank you.
The next question today comes from Elyse Greenspan from Wells Fargo. Please go ahead.
Your line is now open.
Thanks. Good morning, My first question I noticed in your prepared remarks, you gave us a sense of where you might fall within that personal lines underlying margin guide what about within commercial by $86 five to 88 and a half I know, we're only one quarter in but given how things have come together in the quarter as well as your.
View on pricing and loss trends for the balance of the year.
Where you might fall within that range within commercial lines.
At least we haven't changed our view so.
As I said, we expect to be inside that range, but.
There is no nuance there I don't think our view of it any different than it was 90 days ago. So we clearly have our sight set and believe we'll achieve inside that range.
Okay and then my second question.
He is on the group business.
And just looking to get some more color on how you think disability trends, especially within your long term disability book could be impacted as we potentially enter into a recession and how that kind of embedded within the guide for this year, given perhaps thoughts on.
Beyond this year into 'twenty three.
Yes happy to try to give you a color.
I would share with you first off our base case of economic activities is not a recession.
In 'twenty two 'twenty, three obviously theres still a lot of question marks but.
We think that the fed will try to prudently balance growth and inflation and come to a hopefully a good spot.
As it relates to our core disability trends, what I would share with you is.
Last year at this time, we just had more favorable development.
Particularly from the initial cohort year of 2020, and we are having this year.
Also I think in our prepared remarks, we talked about seasonality. So long term disability claims are seasonally higher in normal conditions.
In the first quarter living through two years of pandemic is anything but normal but those are still the underlying.
Trends that we see.
As we sit here today, we still feel very confident.
Achieving our 6% to 7% margin.
During the year and as I said, we are both in our life book in disability book, putting additional price into our pricing models that we're going to try to achieve.
Obviously as we go forward so.
Particularly in the life science, probably going up 2%.
3%, and then roughly 1% to 2% for disability.
So our incident trends I would say as we sit here today have stabilized.
A little concern that we had in the fourth quarter heading into this quarter that they might be rising faster than we expected and that is not the case.
So I think thats the color I can try to give you right now.
Okay. That's helpful. Thanks for the.
Hello.
Thank you the.
The next question today comes from Greg Peters of Raymond James Greg. Please go ahead. Your line is now open.
Great Good morning, everyone.
So the first question I wanted to ask was around employee retention and recruiting one or the other.
Publicly traded brokers had mentioned on the call and that they were seeing.
Elevated turnover.
Underwriters, if the carrier level and I'm, just curious about what the Hartford is seeing and what dark perspective is around recruiting and retention and very difficult employment markets.
Yes, I'll start and then I'll ask Doug to add.
His color Greg so.
Thank you for joining US today, yes talent retention is obviously key to most of any businesses right. I mean, you got to put a high quality team.
Jim on the field every day and compete with you I think we've done extremely well over an extended period of time that said, we haven't been immune to I'll call. It elevated.
People movement, particularly.
And in an environment, where a lot of organizations.
Allowing employees to work from home or work from just about anywhere so I would say for calendar year 'twenty one.
<unk>.
I'll call a turnover rates were probably elevated in the three to four to five point range, depending on business unit or function.
I would say, though that it's stabilized here in the first quarter.
We.
Took a inappropriate.
A full point of view on bonuses.
Salary increases so.
We're working hard at it.
The best way, we can combat.
People.
Leading us to make sure our leaders in middle managers are really tuned into their people their their needs their desires their career goals and objectives, giving them clear feedback and having that sense of belonging that we're invested in their career and I think thats part of our cultural advantage that we have.
But what would you say on the specifics of underwriters that are distributed throughout the country.
The area is a top three item for us across our leadership ranks we're talking about it we're working on it.
And the other thing I would share Christmas we've had some very significant hires ourselves in the past 90 days. So I feel really good about some of the talent that has joined the Hartford I like where we are we've worked hard at it and I think it will continue to be an asset for us as we compete for.
Got it.
The second.
Question I wanted to pivot Darko.
Doug I think in your comments you talked about how in the commercial lines area Youre reserving has.
Contemplated.
Loss cost trends social inflation, these supply chain issues et cetera.
And there was there's rhetoric in the marketplace right now I'm not sure if thats going to come in the past, but there could be further disruptions in supply chain as we move through the balance of the year.
I'm just curious from your perspective, how how you look at data as you see that and do you make changes now or do you wait till it materializes just just some some granularity with respect to your approach on that.
Alright, Greg Let me just start and then I'll ask Doug so.
As I tried to say in my commentary.
We're optimistic that some of the supply chain shock due to demand.
The demand side of the equation is starting to ease, particularly as we head into the second half of the year now.
The other shot obviously on the supply chain.
From manufacturing.
The war in Ukraine in China's Lockdown, our new factors that will continue to impact.
Our overall view of cost of goods sold through us to our supply chain. So those are the dynamics.
But at least from what we could see right now.
Is there a level of optimism.
This is going to work through the system, maybe not as quick as we initially expected.
But I think beginning in the fourth quarter heading into 'twenty, three we could be in a different position Doug.
The only other item I would add is that I did comment that we had adjusted primarily in auto physical damage our supply chain loss trends around severity. So.
Our expectation in December at our reality in March were slightly different and we made those adjustments.
Lastly, I would point out we make very specific quarterly calls in both our planning and our reserving so.
No. This is a quarterly March every 90 days so as we close our books, we make sure that everything we can see in our results and anticipate and the risks around us we built into those calls but the machine is finely tuned to have a 90 day period by period March and so yes, as we if we feel more pressure in the back half of the year, we will deal.
With it but right now we're hoping for some easing as we move July through December .
Got it thank you for the answers.
Thank you Craig.
The next question today comes from David <unk> from Evercore ISI. David. Please go ahead. Your line is now open.
Hey, good morning.
It's a sort of a related question for Doug.
Just a question on the loss cost trends, Doug you had mentioned some puts and some takes but net net we came in in line with your expectations.
Wondering if you could just elaborate a bit more on what youre seeing by line.
Okay.
Well I'd start with just my last comments, which is one of those puts was a little bit more pressure in auto Phys dam. So when adjusted for supply chain generally are our frequency is holding so I feel good about our frequency calls and what we're seeing with experience.
We're watching medical carefully, but so far we feel pretty good about what we're seeing in the medical front. So.
All in as we go through and you know we've got probably close to 40 lines that were looking at on a quarterly basis I'd say largely our calls are holding in on other than a few adjustments first quarter came in as expected.
Got it Okay, and then switching gears to the benefits business.
Chris your comments expense ratio coming in around 26.
For the year.
I guess I'm wondering within that it sounds like you are having higher staffing for the short term disability.
Claims is there a rule of thumb that you can give us.
For example for every $10 million of short term disability claims, it's an extra $1 million or $2 million in extra claims handling expenses and I guess, how should we think about that as we enter into a more endemic state.
With Covid.
Yes, I don't have a metric that I can give you today.
I think the.
The surge that we really felt beginning.
Beginning in late third quarter into the.
Fourth quarter, and then early 2000, which is sort of unprecedented as far as volume. We did build some new digital claim intake tools that helped you relieve some of the.
Call center pressure, but still had to process, thousands and thousands and thousands of claims.
So just.
As much as we had some elevation of expenses.
For next objectives for this business are still being met.
We did as I said in my prepared remarks take the opportunities.
To look at investing.
You're a little faster than we thought.
So.
Well that is part of.
What's driving that and as I said, that's mostly in the digital area and continuing and claims.
But all of that is still contemplated David and achieving our six to seven margin.
For the year.
So.
Top line is growing a little faster now than we thought after a little slow start so when you put the overall equation together of topline.
Loss cost trends coming down, particularly as the pandemic in the second half of the year here seems to be less severe than mortality.
And achieving a 6% to seven which translates into strong.
ROE on our capital.
I think that equation is somewhat is what we'd like.
And your expense ratio point expense ratio will come down just a little longer it will take just a little longer than we initially thought.
Got it and appreciate the investments and capabilities. The accelerated investments that you had you had mentioned so if I could just follow up on your comments there could you could you size how much that was.
During the quarter and so we could just sort of think about.
And I guess, maybe think about how much more on the com and those accelerated investments that we should think about.
Well look I tried to guide you a little bit for the full year. So just think of the full year.
Expense ratio guide that I gave you and we'll talk about 23 years today David.
Okay. Thank you.
Thank you.
The next question today comes from Michael Phillips from Morgan Stanley . Michael. Please go ahead. Your line is now open.
Thanks, Good morning, everybody, Doug you mentioned in <unk>.
Personal auto six two right.
You said about half your book I'm wondering.
Is what's needed from here in auto just taking rate and then the other half or is there more needed on top of what you've already taken them at that current half of 16.
Mike It's an ongoing matter right. So we're continuing to assess loss costs and assess our rate adequacy. It state by state as you know this is a rolling state program. So as I mentioned about half. Our book now is achieved filed increases over the past three or four months, we've got second.
<unk> Rolling right now so I've got expectations of second quarter Ive got expectations for third quarter I can tell you that based on the loss cost coming in in the last week, we probably adjusted our third quarter view in the last seven days. So it is.
Active real time, and we will continue to manage to make sure. We've got enough rate in that book based on all the tools available to us.
Okay. Thanks.
And then just a quick one here you had some favorable development in small commercial I'm wondering if you can talk about what drove that.
The favorable development is primarily workers' comp and it was primarily in accident years 2017, and prior 18 in prior I guess so.
We've left the last couple of accident years alone wanting them to mature, but our book continues to look very healthy and those auto accident years, and our actuaries medical and.
So yes, we did release a fair amount in the workers' comp area.
Okay, and then just going from you as you said are just holding steady on the 2020 in 2021.
You're correct.
Okay Workers' comp.
Got it.
Thank you.
The next question today comes from Alex Scott from Goldman Sachs. Alex. Please go ahead. Your line is now open.
Hey, thanks.
First one I had is just on the P&C side I guess in small commercial.
There is.
Favorable non cat weather call it out a little bit and home to it sounded like I think marine was called out in global specialty I was just wondering if you could help us quantify.
Some of those items to help us.
The impact on the loss ratios.
When you roll it up Alex at a commercial level.
The non cat inside commercial is probably about a point so the good weather non cat.
The other lines.
A little pressure on our marine loss, but the other lines are 10 points that add up to good news in general.
On commercial when we started the year, we forecasted a couple of points of underlying improvement about half of that coming from loss and the other half coming from expense 90 days in basically right on that so I feel good about the start to the year and I think it's right on our expectations.
Got it thanks for that.
Maybe one more.
Question on group for you.
I guess, when we think about Covid hospitalizations declining and as you've sort of seen that progress through the first quarter.
Our April are there lagged impacts that we should consider for disability or should those claims come down pretty real time with what's going on in the environment for Covid.
Yes.
Yes.
I don't know, Alex if youre, referring to short term disability long term loan COVID-19 , but I will make the assumption that you are talking about more and more on COVID-19 .
Significantly lagged.
And I think we've talked about it in prior settings. I mean, we are seeing a modest amount of claims that are coming in from prolonged COVID-19 .
You meet the definition.
Long term disability.
And then obviously is dictating some of the pricing.
Expectations are changing more written the book to cover some of that.
So yes.
Covid Israel.
And we're trying to manage it the best we can from a claim side and then also from from an economic sense.
Got it okay. Thank.
Thank you.
Okay.
Thank you.
The next question today comes from Andrew Pitman from Credit Suisse. Andrew. Please go ahead. Your line is now open.
Hey, good morning.
To get a little more granular in some of the earlier questions.
Doug on the personal lines you talked about.
Half the book, having achieved filing in your real time on rates.
I'm, just kind of interested particularly in the auto line with a two 9% rate increase in the quarter Thats about 70% of the <unk>.
Premium that you write in personal lines.
Do you need that kind of two 9% for the next few quarters as you look out and again I understand it's real time, but.
Sustain that 90% to 92% underlying.
Is it going to be a while before you can take your you've put up.
The pedal.
Andrew I would suggest that our rate need is more aligned with the rate achieved in the first quarter. So we're headed towards six 6% to seven so thats six.
6.2 is what I shared in my script.
I expect the second quarter rates at the end of 5% to six range.
We'll talk more in 90 days about the third quarter, but.
So when I step back no. The $2 nine is not going to be adequate to cover where we are with loss costs now which is why our filings are in excess of 5%.
Got it very helpful. And then with regard to work comp Doug you mentioned.
Slight decrease in pricing I'm going to assume that.
That means 1% or less and then with that could.
Could you give a little color on the loss costs in that particular line how much are they up.
Workers' comp is a line that has gone through a lot in the last three years with the pandemic.
As we look at it today no.
No question that we are focused on filings as we work our way into this year and anticipate another round for 2023.
There is headwind and the filing space as you know essentially have negative filed rates across the marketplace that we are working to selectively underwrite our way through very pleased with what we've done to date, but I can't argue that there arent headwinds in front of US I think it will be effective as we work our way through our <unk>.
Signs relative to loss trend right now.
We're still sitting on our long term trends right. So we still look at medical in that mid single digit range and indemnity are little bit less than that frequency as I mentioned before has been largely in check.
And then I would add to you that we're getting a little bit of benefit from wages. So we're seeing increased wages and our payroll.
And as I've noted before increased range is a positive for us as we think about our roll forward loss ratio. So.
Lot of work to be done continued progress on the audit premium front so positive audit.
Yes, there are some puts and takes in workers' comp I think our performance in the quarter was outstanding and we will manage our way through that headwind does they come at us over the next 18 months.
Great. Thanks for that and if I could just sneak one quick one on the group side.
Five 7%.
Margin.
Excluding pandemic related.
Being a little beneath that 6% to seven is there any.
Non COVID-19 mortality, that's exceeding your expectation are you seeing any pressures there from a mortality standpoint non COVID-19 .
Andrew first 0.6% to 7%.
We will achieve that this year. So as we said in our prepared remarks and as we address one question there is a little bit of seasonality.
In our LCD picks in the first quarter.
Generally normalized you would be able to see that so I think thats impacting the <unk> seven I would also say, though that we probably had.
On a pre tax basis $15 million to $20 million was elevated.
Mortality claims in our <unk> book and waiver book.
That we're just.
Random random events accidents.
Particularly in motor vehicle accidents.
Unfortunately, there is a number of other actions that are occurring so I would say those two things probably put the most pressure on that $5 seven number, but we're still confident in the 6% to 7% range for the full year.
Great. Thanks, a lot.
Thank you.
The next question today comes from Derek <unk> from <unk>. Derek. Please go ahead. Your line is now open.
Sure.
Yes.
Good morning. Thanks.
Had a question on the commercial premium growth, obviously was strong in the quarter.
New business premiums within the middle market of this group and specialty segment slowed a little bit is there anything meaningful in that I'm just kind of curious if there was any cross sell impact within those segments.
Hello.
Victor I as the quarters is reasonably strong for both global specialty and middle and large commercial.
Although flat in middle and large scale in a very strong quarter and.
We're being thoughtful about workers comp and our aligned product strategy. So.
I look at our bottom and top line performance across all of our markets and feel really good about the start to the year.
Got it that's helpful. And then my second question goes probably goes to Doug.
Personal auto frequency is holding up pretty well.
If you look at the underlying factors kind of driving that are you seeing any increases and distracted driving.
Customer mix is kind of unique from your peers, but just curious if youre seeing any of that impact.
We have statistics and we read statistics so we.
Our numbers concur with that but I can't suggest to you that our book on its own would drive all of those statistics. So.
I'm not going to sit here and say that our telematics data is robust enough to.
Kind of jump in the way or.
Just otherwise we.
We are watching driving we're watching speed, we're watching time of day all the factors that are important to our loss cost.
And I think we made appropriate provisions in the quarter.
Yes.
Okay. Thank you.
Thank you.
As a reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad.
The next question today comes from Tracy <unk> from Barclays. Please go ahead. Your line is now open.
Good morning. My first question is on exposure growth recognizing disclosure policies in for Ken for your.
Our small commercial segment.
Good morning.
Our general sense of the contribution from audit premium you Didnt mentioned wage inflation or any other type of what U K GDP GDP type of growth and where I'm going with that and I just wanted to better understand the contribution that we can grow overall commercial premium.
I'm also curious if you think there is a component.
Sure that acts like rate.
So let me tackle the first question.
And our growth for our middle and large and small commercial.
I would suggest about half of that.
As coming from audit premium growth, so very strong auto premium off our workers compensation book and both of those books of business. As you know we have no workers' compensation in global specialty. So those are the books that are impacted by that.
Relative to the 701.
<unk> I quoted in my script, which was our pricing in the quarter all commercial ex workers' comp.
Point, and a half of that plus or minus coming from exposure.
<unk>.
The rest of that would be underlying performance right.
Anything you want to add.
Sure.
Okay sure.
Okay. So my second question is.
How would you describe your annual portfolio turnover rate. So just looking at your core fleet for your asset duration, keeping something like 12% make that I'm, just trying to get a better sense of when you will start again.
Higher new money out.
Yeah Tracy.
Probably in that 10% to 15% range. So what youre quoting is is a reasonable estimate error, if I've got it across the year.
Okay, and just staying on that and we did touch upon this last quarter I noticed EUR steadily shortening your duration of your assets with five years back in September 2020.
It looks like this quarter, you'll actually extended it.
Lately, how should we think about the four for $4 four at year end.
From here.
Yeah, I mean, as we talked about last quarter, we had seen the duration of portfolio shortened some of that was in response to the liabilities and also looked at our surplus assets. Our view on interest rates, we can shorten a bit.
We're anticipating arise where we are today I think it is.
Appropriate when we kind of look at again, our liabilities and so forth and we're kind of just.
<unk> looking at that to determine if we need to make any changes.
As you know is our liabilities, but I wouldn't point you to any anticipation of significant changes, but it can definitely move.
Quarter to quarter.
Thanks, Tim.
Okay.
Thank you.
There are no additional questions waiting at this time, so I'd like to pass the conference over to Susan Spivak for closing remarks. Please go ahead.
Thank you very much for joining us today as always please reach out with any follow up questions.
That concludes <unk> first quarter 2022 financial results webcast. Thank you for your participation you may now disconnect your line.
[noise].
Okay.
[noise].