Q2 2022 Hartford Financial Services Group Inc Earnings Call
Program of $3 billion effective August one 2022 through year end 2024.
Together, our strategy superior execution, and prudent capital management demonstrate the hartford's commitment to long term value creation.
Through sustained profitable growth.
Continued investment in our businesses and return of excess capital to shareholders.
We are producing excellent results in a very dynamic macroeconomic environment.
As we look forward to the second half of 2022, while there are some mixed economic signals combined with geopolitical tensions and fed policy uncertainty.
<unk> continues to be well positioned to manage margins and returns successfully.
As we all know within the U S. We are experiencing historic levels of inflation, which has resulted in accelerated monetary policy tightening.
These conditions appear to be pushing the U S economy into a lower growth environment, where possibly a mild recession.
However, this is occurring against the unique backdrop of low unemployment and strong corporate and consumer balance sheets.
These conditions are very different from those that existed during 2008, when the recession was driven by credit imbalances across the economy high unemployment and heavily leveraged balance sheets.
Hartford is also a very different company today.
We have well performing businesses enhanced capabilities, a diversified portfolio of P&C and group benefit products and a stronger balance sheet, including a high quality investment portfolio portfolio.
All of our businesses are competing effectively in their target markets with unique value propositions anchored by the Hartford's brand and reputation.
We have invested in new capabilities to deliver an exceptional customer experience, while ensuring appropriate rigor in the management of claim outcomes, including the extensive use of data science and artificial intelligence.
For our two largest and strongest performing lines.
<unk> comp and disability. These enhanced capabilities have led to improved profitability over the years and gives us confidence that even during an economic slowdown we are well position to minimize the impact on loss costs.
Now I'd like to share some highlights from each of our businesses, which illustrate how our strategy translates into consistent and sustainable financial performance.
Overall commercial lines outperformed with double digit topline growth and expanding margins in the quarter.
There has been much commentary about written renewal rates versus loss cost trends and the impact of inflation.
We have been disciplined and prudent in establishing loss picks for 2022.
Our assumptions reflect loss trends in the aggregate of approximately 5%, excluding workers' compensation, reflecting our overall business mix, which skews towards small business and middle market risks.
Therefore, we have approximately 100 basis points of spread between written renewal pricing and loss trends.
Stepping back I am incredibly proud of what we've accomplished in small commercial.
Over the past decade, we have built a track record of consistent superior performance with underlying combined ratios below 90, as we grew the business to over $4 billion in annual premium.
Our momentum in the marketplaces evident with several.
Consecutive quarters of record new business.
The speed and accuracy and consistency.
We delivered to the market along with leading digital capabilities continue to outpace competitors.
We are transforming our middle and large commercial business into a specialized organization.
With broad product offerings, and deep underwriting skills across industry verticals, which is driving growth.
Gross profit margins and more consistent results.
Our execution around data science pricing segmentation, and engineering and dramatically improved which will help drive continued underwriting discipline and more competitive lines of business, including workers' compensation.
In global specialty results are outstanding as we continue to maximize our expertise to gain market share.
Our team work and cross selling activities have been phenomenal and continue to strengthen the franchise.
Underwriting margins have improved materially over the last three years evidenced by our 85, 5% underlying combined ratio through six months in 2022.
These advantages are only getting stronger as the market recognizes our product breath <unk>.
Efficiency and ease of doing business as key differentiators.
In personal lines.
The rollout of the new platform.
Prevail platform continues.
And is beginning to show positive traction.
However, higher inflation is impacting auto results and will require additional pricing actions.
Doug and Beth will talk more about that shortly but overall from a strategic perspective.
I am pleased with the progress we are making in personal lines.
Turning to group benefits core earnings were $161 million with a margin of nine 8%, reflecting a rapid recovery in mortality and solid disability results.
Long term disability trends are stable and within our expectations for incident rates and recoveries.
On the top line fully insured ongoing premium was up 7% better fitting from strong persistency above 90% and sales of $204 million.
<unk> doubled the prior year quarter.
The excellent sales results are primarily driven by the acquisition of new cases, and strong enrollment, which reflect the combination of greater product awareness among employees and.
And new enrollment capabilities, we introduced over the last 18 months.
We observed at both employers and employees are highly engaged on benefit offerings in light of the pandemic.
Businesses are also increasingly focused on offerings that can help them attract and retain talent in a competitive labor market.
And at the same time struggling with growing complexities of regulation and compliance, including emerging state paid family leave mandates.
This is an opportunity for us to demonstrate higher value through our expanded products and services as we continue to grow the business.
Before I turn it over to Beth let me leave you with some concluding thoughts.
I remain confident and excited about the future of the Hartford.
Our businesses are performing well and have never been stronger.
We are managing the investment portfolio prudently.
And our holdings are well balanced across a diversified asset classes.
We have proven execution capabilities and exceptional talent that drives my confidence in our ability to continue to produce superior returns in a dynamic macroeconomic environment.
And finally, we are proactively managing our excess capital to be accretive for shareholders.
All of these factors underpin my confidence of achieving ROE.
13% to 14% for this year.
In 2023.
Now I will turn the call over to Beth.
Thank you Chris core earnings for the quarter of $714 million or $2 15 per diluted share reflects strong P&C underwriting results and premium growth in commercial lines and group benefits as well as a reduction in pandemic impacts.
In commercial lines core earnings were $544 million and reflect higher earned premium improvement in the underlying combined ratio and lower catastrophe losses in the prior year period.
Commercial lines reported 14% written premium growth, reflecting written pricing increases in exposure exposure growth along with an increase in new business and policy count retention in small commercial.
The underlying combined ratio of $88, one improved one three points from the prior second quarter due to a lower loss ratio primarily in global specialty lines and improved expense ratio, partially offset by higher non catastrophe property losses in middle and large commercial.
In personal lines core earnings were $21 million and the underlying combined ratio was 94, one reflecting increased auto loss cost.
We continue to experience inflationary impacts on auto physical damage, we expected to see some moderation in severity trends and to date that has not been the case.
Due to these trends and reduced optimism for improvement in the second half of the year, we expect to be a point or two above the high end of the full year personal lines underlying combined ratio range, we guided to in February .
To put that into perspective, one point is worth about $23 million or <unk> <unk> per share after tax.
Doug will comment upon the actions that we continue to.
Take to get more rate into the book.
P&C current accident year catastrophes in the second quarter were one.
$123 million before tax, which was $5 million below the prior year period, and well below our expectation for typical second quarter catastrophes.
P&C prior accident year Reserve development was a net favorable $58 million with workers compensation being the largest contributor.
Turning to group benefits core earnings of $161 million and a nine 8% core earnings margin reflects a lower level of excess mortality losses and growth in fully insured premiums, partially offset by an increase in the insurance operating costs and a higher disability loss ratio of <unk>.
$6 three compared to $64 two in the 2021 period.
This increase is primarily due to a lower risk adjustment benefit recorded in the quarter related to the New York paid family leave program.
The long term disability loss ratio in the quarter was in line with prior year, reflecting claim recoveries and a stabilization of claim incidence.
All cause excess mortality in the quarter was a benefit of $5 million before tax compared to $25 million of expense in the prior year quarter.
The $5 million reduction included $19 million of excess mortality with dates of loss in the second quarter and $24 million of favorable development from first quarter 2022 claims.
Turning to Hartford funds due to equity market declines in higher interest rate daily average AUM decreased during the quarter to 137 billion, resulting in core earnings of $44 million compared to $50 million in the first quarter of 2022.
Our investment portfolio delivered another strong quarter net investment income was $541 million benefiting from annualized limited partnership return of 17, 3%.
Two commercial real estate sales totaling $51 million in gains for material contributors to LP returns.
Strong results from private equity, which as Devlin generally reported on a quarter lag.
We have been very pleased with the performance of Lps in the first half of the year.
Given the evolving macroeconomic outlook in combination with a mix of commercial real estate private equity and other limited partnership holdings, we anticipate that annualized LP returns in the second half of 2022 could trail our full year annualized target.
However, we believe returns in total will be positive in the second half of the year.
In the quarter, the total annualized portfolio yield excluding limited partnerships was 3% before tax.
With the increase in interest rates and wider credit spreads our portfolios reinvestment rate was four 5%, which compares favorably to the average sales at maturity yield of three 6%.
As we have noted previously that investment income will benefit from higher rates over time, and we would expect ex LP yield to increase 10 to 20 basis points during the second half of the year.
Not surprisingly the portfolio value was also impacted by higher interest rates and wider credit spreads.
The unrealized loss position of approximately 300 million pre tax at March 31 incur.
Increased to an unrealized loss of approximately $2 4 billion at June 30.
The investment portfolio credit quality remained strong with an average rating of a plus a insignificant credit impairments and a small increase of $5 million to the allowance for credit losses for mortgage loans to reflect a growing book and the current economic outlook.
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 have in our businesses ability to generate free cash flow is also evidenced by our capital management actions as.
As Chris mentioned yesterday, the board approved a new share repurchase authorization of 3 billion effective August one 2022 through December 31 2020 for.
This authorization is in addition to the existing authorization, which as of June 30, <unk> had approximately $450 million remaining.
Our expectation is to complete the existing authorization. This year with the vast majority of the new authorization to be utilized in 2023, and 2024 subject to market conditions.
In summary, we have had strong performance in the first six months of the year and believe we are well positioned to continue to deliver on our targeted returns I will now turn the call over to Doug.
Thanks, Beth and good morning.
The strength of the Hartford's property and casualty business was once again evident in the second quarter.
Slight inflationary pressures and lower GDP, our broad product portfolio and specialized underwriting expertise positively impacted the quarter's financial results.
Those two factors combined with our distribution footprint and deep talent base position us well to maintain strong performance going forward.
In commercial lines, we achieved double digit written premium growth for the fifth consecutive quarter.
Underwriting results were excellent with underlying margin improvement in small commercial and global specialty.
Diving deeper into growth commercial lines pricing was fairly consistent with expectations written pricing, excluding workers' compensation was six 1% about a point lower than first quarter, but continuing to exceed loss cost trends across most products.
Workers' compensation pricing remained positive but declined slightly.
Specialty pricing markets were more competitive with written price at five 5% off about two five points compared to quarter one.
However, pricing on our wholesale book actually ticked up remaining in the high single digits.
Notable contributions to an excellent commercial topline quarter include strong policy retention across markets, our largest new business quarter ever for small commercial at $201 million.
Solid new business levels in middle and global specially despite increasing signs of a more competitive market.
And strong audit premium from robust customer payroll growth.
In total I'm pleased with our growth profile across these components and confident we will continue our disciplined execution.
Turning to loss cost trends were largely in line with expectations. We continue to watch severity across our book, including social inflation wage growth supply chain pressures and commodity pricing.
All in our commercial book posted a very strong quarter and first half of 2022.
Our small commercial team recorded an outstanding underlying combined ratio of 86 nine for the quarter.
Since the first quarter of 2013 small commercial has achieved a sub 90 underlying combined ratio in every quarter, except two.
Global specialties underlying combined ratio for the quarter was a stellar $83 one their best results since the acquisition and middle and large commercial delivered a solid 92 nine.
There certainly has been a fair amount of discussion concerning the impact of future economic conditions on our industry, particularly workers compensation.
From a topline perspective, the data, we watch our employment levels and wage growth, which together determined the payroll base for workers' compensation.
Shifting to the loss ratio, we're focused on the following key metrics wage growth, which acts as a form of pricing with indemnity payment offsets.
Changes in worker tenure, which can impact claim frequency and the impact of inflation on medical severity.
With respect to medical severity, we believe our long term view of 5% in both pricing and reserving is sufficient to cover the potential for increased severity above the benign trends we've experienced the past few years.
We are well positioned to address these trends head on.
Our workers' compensation and accident year performance has been excellent over the past several years and the balance sheet is strong we.
We have also built sophisticated pricing and risk segmentation tools and expanded data analytics within the organization to successfully underwrite through different economic cycles.
Let's switch gears and move to personal lines.
Our second quarter underlying combined ratio of $94, one reflects auto physical damage pressure driven by supply chain related inflation.
Elevated used car prices and wage increases.
In the second quarter. These auto severity trends ran higher than we initially anticipated.
Combined with normal seasonality in our book second quarter auto accident year loss ratio increased five seven points from the first quarter of this year.
The physical damage increase was two five points with the remaining delta normal seasonality.
As Beth noted, we expect the continuation of inflation pressure in the back half of 'twenty, two and have moved our original guidance up accordingly.
We are pleased that our pricing actions initiated over the past few quarters are starting to take hold auto written premium price increases recorded in the quarter eclipsed 4%.
Rate actions taken across 39 states in the first half of the year averaged five 7%.
And home overall loss costs were in line with both the first quarter and our expectations.
Non cat weather frequency, although higher than the prior year continues to run favorable to long term averages offsetting elevated large fire losses and material and labor costs, which remain.
Historically high levels were.
We're also taking pricing actions and home with written pricing at 9% for the quarter.
Given all these factors I remain pleased with both our year to date current accident. Your home loss ratio of 63, three and combined ratio of 94 two.
Turning to production written premium growth was nearly flat with steady retention and new business growth of five 6% in the quarter.
We're seeing a significant increase in responses driven by our digital marketing programs and increased consumer shopping in the 50 plus age cohort.
With that said I would characterize our personal lines growth attitude as cautiously optimistic based on the current risk profile of the segment and the opportunities available in the market.
Prevail is currently available in 16 states, including launches of Florida in January Texas in April and three more states. This month.
We have also launched expanded self service capabilities, demonstrating our digital customer commitment in this space.
Year to date prevail, new business premium was $36 million with conversion rates expectations, and we continue to be pleased with the quality of our new business and.
In addition, our redesigned telematic offering is available in 16 states and will be launched in additional states as prevail rolls out.
Our initial results, including consumer interest online adoption and enrollment are all trending ahead of expectations.
Summarizing the strong results for property and casualty, our commercial lines business maintain a double digit growth rate with exceptional operating margins and in personal lines. While auto severity is pressuring loss ratios pricing actions are getting stronger and increasing contributions from prevail add to our momentum.
As I wrap up my comments today, let me step back and provide a bit of perspective for my operating seat here at the Hartford.
Neither we nor our competitors can't control the external forces are economic trends that will occur in the future.
However, we can control our preparation and our response to various likely or possible scenarios.
I firmly believe the Hartford has never been better positioned to aggressively take advantage of opportunities while mitigating the downside risks.
My confidence comes from our broadened product portfolio responsive to solving broker and customer needs.
The enhanced underwriting and deep analytic capabilities that deliver competitive advantages and lead to outstanding financial results.
<unk> technology and digital tools that have improved our competitiveness over the past 10 years.
And and invest agenda that is cutting edge and as forward leaning as anything I see in the marketplace.
In short we have transformed the small business marketplace with our innovative and industry, leading capabilities and we are well on our way to achieving the same and middle market space.
Especially is producing excellent results and will increasingly leverage the competitive tools built within our walls and.
And finally personal lines is off to a good start with our cloud based product prevail, which will be pivotal to our future.
For these reasons and more I am bullish about our ability to demonstrate strong execution execution capabilities in the years ahead I look forward to our next update in 90 days.
Now I'll turn the call back to Susan.
Thank you Doug operator, we're prepared to take questions.
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The first question comes from the line of Elyse Greenspan with Wells Fargo. You May proceed.
Yes.
Okay. Okay. My first question is on capital you guys took up the dividends that you expect from the P&C and group benefits.
This year.
So should those higher expectations represent baseline or perhaps you could even come in above that when you think about the dividend that you could take in 2020 four as we think about additional capital return from here.
Yes, I'll take that and we did increase the dividend in P&C and group benefits just slightly I would say the ranges that we're providing.
Right good.
Basis for thinking about things in the future and I wouldn't at this point.
To an expectation of increasing will comment on 'twenty three and beyond.
When we get there.
Okay. So my second question on pricing.
1% <unk> in commercial excluding workers' comp is that pure rate or does that include exposure as it is pure rate could you give us the exposure piece as well.
Alicia This is Doug so the six one is consistent with all our former pricing metrics over the last decade and includes.
An element of exposure that works against loss trend. So it is not complete exposure, but it is an element we call all other insurance included in that.
And our definition in the supplement and that's about a point and a half overall.
Okay. Thank you.
Thank you.
The next question comes from the line of Greg Peters Raymond James You May proceed.
Good morning, everyone.
So the first question I'll focus on your top line.
And maybe more on the commercial side than the personal line side.
But you are generating strong growth and there seems to be.
Some concern in the marketplace.
This is as good as it's going to get and so I thought maybe you could and you did provide a lot of detail in your comments, but if you could give us a sense.
Of how the market can sustain itself and you continue to generate substantial growth rates for.
For the intermediate term.
What youre seeing in the market and your specific segments that'd be helpful.
Sure Greg just a few thoughts to add to what I.
Sure to my script number one the new business strength is evident across all of our markets, particularly in small as I noted our first quarter over $200 million I think that momentum will continue in a lot of it is driven by some of the new products. We've built over the past couple of years.
Secondly in small you see that Pip counts, so we're growing pet count not just a pricing.
To premium dynamic we feel very positive about our Pip count we've talked to you about cross sell in the past so across the franchise. We believe we are in much better shape to handle a more complete set of customer challenges.
<unk> are complete piece there and then as we've commented in the past we are right now.
Pretty positive spot relative to audit exposures as it relates to workers' compensation. So we do have some tailwind at us, particularly in middle and large commercial and also small commercial thats, providing a little bit extra.
Positive momentum in our growth Beth anything to you or Chris want to add.
I would just say, Greg I wouldn't underestimate doug's point on cross selling.
Particularly with <unk>.
Expanding set of specialty products.
Into small commercial into middle and large use of cooperation.
We have as a team and really.
The knowledge and confidence that our distribution partners are gaining in our in our broadened capabilities. So.
Doug I think you used the word bullish we're sure describes my tone equally because what we can continue to do in our commercial line space.
Just a just a clarification on your answer I mean.
The success in the small commercial is obvious.
When I think about and we're not in a recession, but when I think about the well it depends on whose view you're talking about but if we go into a recession.
I view that theres more risk on the small commercial side than the larger commercial side, but maybe I've got a sideways.
Any comments on that.
You mean from a risk of economic slowdown.
Which businesses might perform be more challenged than if there's a slowdown.
Well again I think we saw during the first phase of the pandemic.
There was a disproportionate amount of slowdown in small business Doug.
Weather.
We get to ever that point again, Greg remember I mean that that was such a unique environment, where the economy basically shut down.
People weren't traveling they werent going out to <unk>.
Mall businesses, they weren't going out to restaurants.
They were hunkered down so I think that's one extreme and the.
Other extreme is just particularly.
Particularly with inflation if people are going to have to think about disposable income differently.
Activities that could impact a certain level of small business, Doug, but I wouldnt see anything like what we experienced during the pandemic, Chris I'd only add that as we watch the indicators.
New business starts the health of that through the middle part of July looks very strong still.
To remind you Greg that the fortune 1000, although an important segment we are not.
Our balance that direction, so our portfolio runs across middle of strong and middle small et cetera.
And when I think about the labor market, there still seems to be high demand for top labor. So from a comp perspective, I'm still optimistic that.
As we go through the next several quarters.
We will perform our products will.
The market as a.
Holding optimism as I kind of move into Q3.
Got it.
Just a second question I had was just around Hey, Doug you commented about your inflation factors in the assumptions Youre using one one of the numbers that you cited was I think it was medical severity you said, 5%.
Paired with what was a benign trend to me that suggests that there is.
A degree of caution in your inflation factors that you're using relative to what youre seeing currently but.
I don't want to put words in your mouth and it's clearly an area of focus of the street. So maybe you can add some more color to that Thats My last question.
Yeah.
So maybe just a few thoughts on.
Loss trend in general there's been a lot of discussion about it and we're spending a lot of time here at the company.
I mentioned, a long term medical inflation pick up five we've not moved off that for several years.
Yes, we have seen some periods of benign medical inflation over the last couple of years, but our view is that due to the longer period, it's prudent for us to hold those picks and if you looked at our workers' comp triangles, you've seen that we've been very steady this.
This quarter, we had some releases in comp, but really 2018, primarily in behind so 19 through 21 years or are still holding and we're watching to make sure that we've got all our calls in a row.
I would also say to you that the aggregate number by company you've got to look at the mix of business, where we play where others mixed by line of business. So we've got strong loss trend picks and our excess casualty trends trends that run from 9% to 13.
Property commercial auto so.
Our books does tend to mix a little smaller than some that we compete with but I feel like we've got very solid loss trend picks and our across commercial and personal lines, where we see something we address it like we did this quarter with personal lines, but thats.
I think we have a prudent process thats been diligent and responsive to what we see in our loss triangles and we're pricing accordingly.
I agree and back to the specific question again, Greg that you had on medical inflation as Doug said, we just we haven't changed that long term view. So the fact that we're saying 5% compare to what has been benign in the last several years that's not new.
Reflective.
Change in how we think about that trend.
That's good detail. Thank you.
Okay.
Yes.
Thank you.
The next question comes from the line of Brian Meredith with UBS you May proceed.
Yes. Thanks, just following up on a little bit I'm wondering if you could tell us where that six 1% written premium stand versus kind of what your current trend and expected trend assumptions are and in that context do you believe that most of your book kind of as rate adequate.
Particularly when I look at the middle and global specialty business.
Yes, Brian I think Chris commented in his earlier remarks that we think were about 100 basis points on top of our call for loss trend in 2022.
So that's where we sit relative to the $6 one we.
Consistently look at that.
You can imagine this is an evolving item, but really as I commented our loss picks for the year our loss trends for the year Havent moved a lot and commercial over the past two quarters, they've moved in personal but we're watchful of that and we're particularly careful in terms of.
The potential recession that may be in front of us but.
We'll wait and see and make those calls as conditions.
Change.
Yeah, I'm, sorry, I may be what I meant is that the.
A 100 basis points of her crossing.
Is that.
Better worse than kind of what Youre currently seeing right now I understand there's what you're pricing for and what you're actually seeing in your backlog right now.
I think thats basically what were seeing right now I would call that a pretty dynamic view as of today, Brian I think that's the spot view as of June 30th Brian Yes, the retina Vue. So I'll give you a written current view of pricing.
The loss run yet.
Got you got you it makes sense and then just quickly on the personal auto severity.
I wonder if we could drill in a little bit more into that what's going on there. Another company talked about an issue with respect to late paying claims maybe you've taken a lot longer to actually get point claims paid out and that that has created some issues with respect to.
Inflationary factors affecting your PD part of your auto are you seeing similar type of stuff.
Well, we certainly had been watchful of of courts coming out of the recessionary period, 2020. One so I would say that it's a high watch area, but in terms of our triangles I don't think were seeing any data that is surprising to us what we are dealing with at the moment is a phys dam environment.
Used car labor and.
And other issues that has caused us to change our pitch and we've changed them, obviously appreciably in the second quarter and we'll watch what happens in the third quarter, which is why we moved our guidance Brian .
The time to repair Doug.
From a supply chain side is extended so that means potentially rental cars being rented longer.
I don't have the exact number of days in front of me that we've extended out onto the time to repair a car, Brian but it is extending.
Gotcha.
<unk>.
Thank you.
Our next question comes from the line of Baby Bachman with Evercore you May proceed.
Hi, Thanks, good morning.
Just a question on the specialty underlying combined ratio improvement in commercial lines could you just talk about how much the seven point year over year improvement was coming from the expense ratio versus the underlying loss ratio.
And then maybe just comment if this is Paul.
<unk> underlying combined ratio to think about going forward.
Yes, David let me start I think annually the <unk>.
<unk> point changes roughly four ish points of loss and three points expense.
I thought you were going to ask about the quarter one versus two I think you noted in quarter, one we had.
Some risks relative to Russia, Ukraine that we booked losses for so that really does explain the 'twenty two role between quarter, two and quarter one but.
Share with you the four and three components of the seven from last year.
Got it.
Yes.
<unk>.
Lower than where we've seen over the last.
Five or six quarters is that a.
And obviously, there's been rate, earning in in excess of trend is that a level. The 83 to kind of think about going forward or anything one off that's flattering that.
Yes.
Don't feel one off at the moment I do feel very pleased about the progress we've made as a result of not only.
Aggressive.
Sustained pricing over the last couple of years, but also underwriting actions, we've been taking underwriting actions throughout our book internationally and domestically. So I'm very pleased about all of that I do feel like that specialty business should sustain and have significant profit contributions to our company and we expect that to continue and we hope to grow that business and become a bigger part of our.
Our franchise over time.
I would remind you that specialty book.
Approaching $3 billion.
And it's a diversified book of.
D&O.
They would say some surety.
London exposures casualty.
So, yes, I'm really proud of what the teams worked hard at over the years since we acquired it in.
It feels gratifying that from a strategic point of view.
It's performing.
At this high level.
David I'd add just maybe one other thought over the last three years, we've spent a lot of time on integration.
And feel good about that progress.
We have pivoted over the last six months and are now working harder on data analytics, so they'll work relative to data science and analytics and how we evolve those pricing models and compete in the marketplace. Those are some of the reasons that I have optimism.
That we will continue to be an excellent top tier player in specialty and so I think our future is bright there and I really believe we're just getting started.
Got it. Thanks I appreciate that color and then for my follow up So you gave us the approximately 5%.
Loss trend that was excluding.
Sure.
What is it if you include comp.
Just out of curiosity I know you said, 5% for severity, but that doesn't include the frequency.
On comp so yes, I guess, just what was the what is the loss trend that you guys are picking to if I just include workers' comp within commercial lines.
Yes, David we don't share that number but you are right it would be down slightly.
And then that comes to our frequency call on comp, which we don't share externally but.
As we've talked about it it's been very very moderate in fact over the past couple of years, we've had extended periods of negative frequency. So.
That's too much data to share with a couple of our competitors but.
Our book continues to perform we watch frequency carefully I think our calls are appropriate and.
Line that we know well and we'll continue to compete effectively over time.
Okay. That's fair thank you.
Thank you.
The next question comes from the line of Michael <unk> with Morgan Stanley You May proceed.
Thanks, Good morning.
Similar question on the other segment in commercial lines the middle.
And large commercial.
The only segment there that had a little bit of erosion in your core loss rate in our core combined ratio.
A little bit of uptick sequentially last few quarters. So I guess is there anything there.
The REIT or trend dynamics anything else kind of one off that would account for that.
Yes, Mike in the quarter, we did have a one off and.
A large property loss.
Some reinsurance reinstatement associated so that was the cause a couple of points inside middle just from that one loss I think those things are episodic they happen over time in the property space nothing.
Nothing at this point more than that.
Okay, great. Thanks, and then.
I guess back to comp.
Favorable development and what are you guys doing youre very conservative in your comp reserves, but I guess, we can hone in on 2000 22020 accident year.
For a second.
Yeah.
Youre still has the highest loss pick of any surrounding years, a large part of that is because of the European rfps. So.
I guess I'm curious is there a severity issue youre worried about for those for that year, given what's happening during COVID-19.
Or is there something else that makes you a little more concerned or maybe just cautious.
I don't know that level, you've taken development in 2020 accident year, but.
Claim counts are down significantly 2000% to 2030% of that your reserves are still pretty strong. So maybe it's just extra conservatism, but.
Is there anything else that maybe makes you more cautious on that after there. Thanks.
Yes, Michael it's Chris I appreciate the question and I'll ask Beth to add her color in a minute.
Yes, I think thats been our consistent philosophy of yes.
They are trying to be prudent with the reserves and picks and I think we've used the phrase over the years and let it season.
And obviously you know release any benefits that.
That occur so I would just say its a natural process.
But particularly during the Covid years, we were.
We're very sensitive to.
Any known unknowns are known unknowns and depending on how you want to think about it but yes.
But I feel good about the overall balance sheet and particularly the comp line don't you, yes. It would.
And as.
As we look at again, specifically at the 'twenty 'twenty year, obviously, a lot of distortion because of Covid and so our view is to be cautious and as Chris said, let those years season, a bit before we make any adjustments.
Okay. So just just to clarify.
Are you not seeing any.
Higher severity.
Kind of average severity of claims that existed in that year or is it more of kind of waiting to see that maybe there could be late reported claims or just general cautious.
I think you characterized.
It isn't out of pattern year, and we're just being generally cautious until.
If fully seasons to our judgment.
Okay. Thank you.
Okay.
Thank you.
Next question comes from the line of Paul Newsome with Piper Sandler You May proceed.
Good morning.
Yeah.
Wanted to ask you a little bit on the personal line side, you're obviously raising rates like most are.
Any pushback youre seeing different than normal from the regulators in terms of being rates.
A lot of press, suggesting that.
Some states are pushing back.
Well I think that that's a fair comment I also would say that we're very effective relationships.
With all of the states. So it's an active process, it's actually been an active process as you know since the third quarter of last year.
I'm encouraged by the momentum I think as we move through the next two quarters that momentum will continue to pick up and quite bullish about what we're going to see.
In the supplement in Q3 and Q4, so encouraged about that but there are lots of things that we manage our way through state by state and I think it's just part of the process.
And then maybe to beat a dead horse a little bit.
Any further thoughts on kind of social inflation.
And some of the there are some music users and Jerry.
In our liability and we had some some companies Miss.
So the financial for example, with excess casualty issues large losses casually.
Casually.
I was wondering if youre seeing anything of that nature and may be held.
We should be more confident in the.
Accident loss picks for liabilities not necessarily going up.
Paul I'll start and then Doug and Beth can add their commentary I think we've commented in the past and social inflation that it's not a new phenomenon we've had.
Many years of experience, particularly with with mass towards some of the claims that we had to deal with we got a world class.
Claims organization that has got deep deep deep expertise in handling the casualty exposures of the sort.
But yes as the courts reopen.
Do believe that there will be at least a clearing of the existing.
Inventory and we'll have to see what trends emerge at that point in time, I don't think theres any new trends as we sit here today that we're.
Really really concerned about.
We've talked about some of our revivor status issues, our boy scout issues that we think we've put behind us.
Jewelry awards are going up.
Out about it it's clear in our data.
That's why when Doug talks about casualty picks loss picks in the 9% to 13% range, we're trying to be prudent and reflect what we think is.
Continued.
Activity of just larger awards, but Doug breath.
As we sit here today, there is nothing new.
Coming out of our book at this point in time, Yes, I would agree with that kind of an overall I mean, we did.
<unk> increased slightly from prior year reserves for general liability, but it was really just a handful of of I would call them one off losses that as we made our final judgments for the quarter.
I thought that it was prudent to book.
Book a bit more in those lines.
Percentage of the overall carried reserves in those lines very very small so again not indicative of.
A trend that's different from what we've seen just wanted to be cautious as I said as they closed out the quarter.
Great. Thank you and for your help and congratulations on the quarter results.
Thank you.
The next question comes from the line of Josh Shanker with Bank of America. You May proceed.
Yes. Thank you for taking my question.
First.
This is the first quarter.
Since <unk> 16, where you didn't lose.
Any auto policies.
And Thats a good accomplishment, although it could also mean that your pricing is more attractive to consumer right now than a lot of opportunities in the marketplace to what extent have you.
Secured the customer group you want in your personal lines business that they have a stickiness that you can raise prices on them and we will stay and to what extent do you think that even though you have to put more price group.
Youre, not particularly disadvantage on the pricing side at this moment.
Josh very insightful question and I can just share with you given our new platform the metrics and analytics that we're watching flow where we're winning.
Quality of the book had a whole series of diagnostics laid out in terms of expectations going in state by state or watching that match week by week. So.
I can tell you it's an exhaustive process everything we can say we are.
Look like we expected and hoped to look so.
Again, I think it was a really good question and something that we take seriously and working our tails off out here.
Yeah.
Okay.
And then.
Repaired remarks.
Chris spoke about some new technology that you have on the benefit enrollment platform to.
Increase enrollment and whatnot to what extent are these unique offerings in the market and to work that can you leverage them to gain share with employers.
Okay.
Thanks, Josh.
Have you rolled out some some new capabilities.
To have a better enrollment experience.
So again I think a lot of the things that we do across the organization, we think we're leading the way.
But we know it's a competitive marketplace.
A lot of fast followers that can replicate.
New things that come to the market Josh but.
As evidenced by our strong to earned premium growth.
I think.
The group benefit the better days increased benefit are still ahead of it as far as.
A real need for for the products that we offer.
And particularly with some of the voluntary offerings that we have of medical supplement critical illness accidental.
Activities are really increasing.
And those carry strong strong profit margins for us So I think that the whole equation coming together and then our continued investment in our broad based digital capabilities.
I feel really good about where we're positioned today Josh.
Alright, well thank you for the color I appreciate it.
Yeah.
Thank you.
Our next question comes from the line of Tracy <unk>.
Equally with Barclays You May proceed.
Good morning.
I'll start from the top line question.
So nice growth in small commercial and as the economy is reopening I'm wondering if the new business the lack of operating history and at risk that typically reside in the E&S market.
Tracy.
I would suggest to you that we're watching claim intake by segment for maturity of worker.
We are expanding and have worked at expanding our appetite and small we.
We do have an excess and surplus offering but I don't think our book is trending to E&S I still think it is very high quality.
We've got <unk>.
Series of metrics that help us score our book and so from every angle that we can see and evaluate I think we have an outstanding book of business, but yes. In general we are now pushing ourselves outside of what I might say would be a historically conservative risk appetite, Chris to a little more bold and maybe bold is too.
Aggressive award, but certainly we're looking at other cells, where we have not competed aggressively in history, and I think youll see us with product in that space.
Doug I would also observe.
Our monthly reviews, we do together, we're doing it thoughtfully.
We're doing it with primary product.
We're also adding more global specialty product, particularly.
I'd say that capabilities into small.
So Tracy we are trying to I'm trying to.
The most relevant player in the small business segment, as we can be and maintaining our discipline and profitability focused.
Excellent that's great feedback.
Also I had a question on the auto pets are flat sequentially.
I'm wondering are you looking at the policy lifecycle.
Right now you are not earning an adequate return, but you feel good about the business of three four years from now you could earn acceptable return.
And to what extent, it's prevail play into that pits count is that materially yet.
Yes, the lifecycle component is a part of our process for sure. So we're looking at current rate adequacy. We're also looking at our Retentions in our profiles of customers.
So I would agree with you that policy lifecycle profitability is something that is an important part of that measure.
And the prevailed.
That may be Japanese.
Yesterday in Pip decline yeah.
Okay.
Hey, that's prevail.
Prevail would be adopting some of those best practices that we've used historically on our personal lines pricing.
The truth prevails with platinum.
It's the platform, it's the products it's the ditch.
Digital capabilities that we're bringing into the market, but remember.
Sure.
Our book of business in auto and home.
We've.
$303 $5 billion of premium over the years, so that lifetime cycle that youre talking about is deeply embedded into our capabilities and how product season, how customers green.
We have more flexibility today with prevail because you have no lifetime guarantees.
So that.
The funnel that we had open for new business in the old days, when we have lifetime guarantees needed to be very restrictive because.
So in essence were.
Marrying that customer for a potentially a long time, so the flexibility we have with prevail is dramatically different but the methodologies in our thinking Doug.
Is very consistent.
And I would add Chris six month policies to right exactly in the auto side much more flexibility to deal with changes.
In the event that we make adjustments to our strategy.
Yes, I'm, sorry, yes, I was referring to the non AARP.
As you are trying to market.
Demographic.
Right no not at this time I mean, our core focus is AARP members, we do have some small agency.
Business, it's a very small, but it's still accretive to the organization, but the main focus Doug has been on serving a broader segment of AARP members, particularly $50 to 65 year olds that.
We're deeply partnered with AARP organization and growing that membership base.
Got it thank you.
Thank you.
Your final question comes from the line of Alex Scott with Goldman Sachs. You May proceed.
Hey, Thanks for taking me at the end of the call here.
First one I had is on net investment income I mean, certainly was a good quarter if I.
Set aside the Lps just noticing the yield was was more or less flat year over year and so I was just interested if you could provide any color around sort of where new money yields are and if there's anything we should be considering about how that may start to trend up.
Yes, Alex Thanks for the question so as I said, we do anticipate to see.
The yield ex Lps to continue to increase and like how do you look at some of the details that we have them in our investor financial supplement that show you some of the other lines. Besides just fixed.
Fixed maturities that contribute to that so we do have some equity funds that had.
The small negative mark this quarter, but that also impacted the compare year over year, but when I look at just a fixed maturity yields we are seeing a pick up as again, new money yields are outpacing what we're seeing from the sales maturity perspective.
Got it and then on group benefits.
Is there is there still pressure at all that you were feeling this quarter on the expense side I, just that's been elevated wood with handling so many claims and so forth.
Is that more or less wound down at this point or.
Anything I should be considering around the expense base as we move forward hopefully with maybe less elevated claims.
Yes, I think as that claim comment you've made Alex is the key we're probably Terry we are carrying excess staff.
To remain.
Cautious.
If there's another surge of Covid, obviously, we're dealing with.
We see very good mortality trends, but particularly in our STD book, we're carrying excess capacity just to see how things play out for.
The fall and the winter seasons, and then I would also say that.
So that's a temporal item you could characterize but.
Yes.
Increasing spend particularly in digital and some of the other things that we're investing in us.
<unk> is also evident in there.
That's probably for the next couple of years Theres, a couple of big projects that we want to compete in that area. So.
It spend might may remain elevated but.
We grow our top line, though we do have a expectation to expense ratios will start to moderate and improve.
As you know as we grow but.
We're at for the first.
Six months of the year I think is a pretty good for your full year run rate.
Got it thank you.
I would now like to pass the conference back over to the management team for any closing remarks.
Thank you all for joining us today and as always please reach out with any additional questions.
Have a great day.
Yes.
That concludes the Hartford's second quarter earnings call. Thank you for your participation you may now disconnect your lines.