Q4 2022 Hartford Financial Services Group Inc Earnings Call

Speaker 1: on your telephone keypad. If you'd like to patrol your question, you may press star 2. I'll now write to pass the conference over to your host, Susan Spifak, with the Hartford Group. Susan, please go ahead.

Speaker 2: Good morning and thank you for joining us today for our call and webcast on fourth quarter 2022 earnings. Yesterday we recorded results and posted all of the earnings related materials on our website. For the call, our participants today are Chris Bliss, Chairman and CEO of The Hartford, Beth Costello, Chief Financial Officer, Jonathan Bennett, Group Benefits, Stephanie Bush, Mall Commercial and Personal Lines, and Mo Stoker, Middle and Large Commercial and Global Specialties.

Speaker 3: Just a few comments to cover before Chris begins. Today's call includes forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These statements are not guaranteed of future performance and actual results could be materially different. We do not assume any obligation to update information.

Speaker 4: 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 filing.

Speaker 5: Our commentary today includes non-GAAP financial measures. Explanations and reconciliations of these measures to the comparable GAAP measure are included in our FCC filings, as well as in the news relief and financial supplements. Finally, please note that no portion of this conference call is a non-GAAP measure.

Speaker 6: 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. On now, turn the call over to Chris.

Speaker 7: Good morning and thank you for joining us today.

Speaker 8: Today I will start with a summary of our fourth quarter in full year 2022 results and accomplishments.

Speaker 9: Then I will turn the call over to Beth to dive deeper into our financial performance and key metrics.

Speaker 10: After which I will close up with a review of expectations for 2023.

Speaker 11: We will then be joined by our business leaders as we move into Q&A.

Speaker 12: So, let's get started.

Speaker 13: So, Hartford is pleased to report an excellent fourth quarter capping an outstanding year of financial performance in progress against our strategic objectives.

Speaker 14: Quarter after quarter, we are delivering strong financial results, demonstrating the power of the franchise and the depth of our distribution relationships.

Speaker 15: Our commitment to superior customer experience, the benefits of significant investments made over the last few years, and superb execution by our 19,000 employees drive our success.

Speaker 16: These competitive advantages helped us deliver exceptional results in 2022, including core earnings growth of 14%, with core EPS growth of 23%.

Speaker 17: Top line growth in commercial lines of 11% with an underlying combined ratio of 88.3.

Speaker 18: Group benefits fully ensured premium growth of 6% with a core earnings margin of 6.5%.

Speaker 19: Strong investment results with excellent limited partnership returns and increasing fixed income portfolio yields.

Speaker 20: and core earnings are via 14.4% while returning 2.1 billion of excess capital to shareholders.

Speaker 21: Looking forward, with strong momentum across all lines, I am confident we can continue to deliver superior results.

Speaker 22: Now let me share a few highlights from each of our businesses.

Speaker 23: In commercial lines, written premium growth for the year was driven by strong exposure growth.

Speaker 24: pricing increases, higher policy retention, and continued stronger business. Underlying margins improved by nearly a point driven by earned pricing, exceeding loss cost trends across most lines, and growing expense leverage driven in large part by our Hartford Next program.

Speaker 25: Across commercial lines, our brand, the depth of distribution, and enhanced underwriting capabilities combined with excellent customer experience, that physicians as well to capture market share while maintaining or improving already strong margins. Small commercial results continue to be exceptional. Thank you.

Speaker 26: Consistently producing sub 90 underlying to buy ratio with industry leading products in digital capability.

Speaker 27: all of which drove record-breaking written premium and new business levels in 2042.

Speaker 28: Going forward, small commercial will remain a growth engine for the Hartford.

Speaker 29: For example, beyond our traditional product lines, we will continue to expand our dressable market with capabilities in the excess and surplus binding lines.

Speaker 30: This portion of the E&S business is in about an $8 billion market, serving small business owners, property and liability exposures.

Speaker 31: with current written premiums exceeding $100 million.

Speaker 32: In the evolving innovative capabilities within our broker quoting platform, we expected to come in leading destination for E&S binding opportunities and a strong complement to our existing admitted retail offering.

In middle and large commercial, our team has done a tremendous job improving underlying margins by approximately seven points since 2019 with a written premium compounded growth rate of 6% over the same period.

In 2022, written premiums grew 10% for the year with improved policy retention and solid income- Pie.

Advancements in data science capabilities, industry leading pricing segmentation analytics.

in exceptional talent and delivered healthy margins, which I believe positions as well to continue driving profitable growth in this business.

including over 800 million of EMS premium. We are leveraging the Global Specialty franchise to further grow and expand our capabilities across commercial line in this $82 million EMS market. Global Specialty Results in 2022 were outstanding with an underlying margin of 84.6, improving over points from prior year in over 11 points from 2019.

Demonstrating our execution's tenacity, enhanced underwriting tools, and an expertise of the team.

Our competitive position, breadth of products, and solid renewal written pricing showed a 9% increase in gross written premium for the year, including 41% in our global reinsurance business.

19% in ocean marine and 27% in international casualty. Turning to pricing, commercial lines remove written price increases from the quarter, or 4.9%, flat compared to the third quarter.

U.S. Standard Commercial Lines Renewal, written pricing, excluding workers' compensation, accelerated from the third quarter to 7.9 percent up one point, primarily driven by auto and property lines. Workers' compensation pricing remain positive, benefiting from average wage growth. We think global specialty.

Excluding public company D&O. Renewable written pricing remains stable in the mid-single digits.

and an aggregate in line with lost cause trends.

wholesale property, auto, primary casualty, also higher pricing increases over the third quarter, as did U.S. and international marine.

Additionally, the public D&O market continues to be competitive with rate pressures.

which requires new business discipline and a focus on retaining profitable current accounts.

business discipline and a focus on retaining profitable current accounts. Moving to personal lines.

Pricing is accelerated across auto and home, resulting in written premium growth of 4% for the fourth quarter and 2% for the full year. Like others in the industry, auto underlying combined ratios remain elevated as we continue to experience inflationary pressure.

We have been actively responding with rate filing throughout the year.

In the fourth quarter filed auto rates averaged 8.3 percent increase

Up 3.4 points from the third quarter

In homeowners, we have kept pace with loss cost trends to net rate and insured value increases. Reflected and renewal, written pricing of 10.7% for the year, and 13.3% for the fourth quarter. Turning to group benefits.

The court earnings margin of 8.3 for the quarter in 6.5% for the full year represents significant increases from last year, as excess mortality has maturedly declined.

Meanwhile, long-term disability trends are stable and within our expectations for incident rates and recoveries.

Fully insured sales for 2022 were $801 million, up 5%.

And employer group persistency was approximately 92%, a strong result for the year.

First quarter is off to an excellent start with persistency modestly higher and outstanding new sales results.

We expect the group benefits marketplace to remain dynamic as digital transformation, product innovation, and customer demand to accelerate.

As a result, we are making significant adjustments today and have a clear roadmap for the future that I am confident will only strengthen our market leadership positions going forward. Now I will turn the call over to us to provide more detailed commentary on the quarter.

Thank you, Chris. Core earnings for the quarter were $746 million or $2.31 for the deleted share with a 12-month core earnings ROE of 14.4%.

In commercial lines, core earnings were $562 million.

Written premium was up 9%, reflecting written pricing increases and exposure growth, along with an 18% increase in new business and small commercial and 6% in middle market.

Policy count retention also increased in small and middle markets. The underlying combined ratio of 87.4 improved from the prior year fourth quarter with both a lower loss ratio and expense ratio.

Small Commercial continues to deliver superior operating results with an underlying combined ratio of 87.5 and Middle and Large Commercial delivered a solid 90.2.

Global Specialty's underlying margin improved 5.8 points from a year ago to an outstanding 83 as it benefited from strong earned pricing increases.

In personal lines, core earnings for the quarter were $42 million.

The underlying combined ratio was 96.2, reflecting continued auto liability and physical damage severity pressure driven by elevated repair costs, as well as increased bodily injury trends.

and includes two points of losses related to prior quarters in 2022.

Written premium grew 4% for the quarter, largely reflecting pricing increases in both auto and home.

In home, overall loss results were in line with our expectations.

Non-cat weather frequency continues to run favorable to long-term averages and together with the effect of earned pricing increases, mitigates material and labor costs, which remain at historically high levels.

The expense ratio decrease of 3.5 points was primarily driven by lower marketing expense.

Current action at ear cat losses in the quarter were 135 million, which includes the benefit of a 68 million reduction in estimates from catastrophes that occurred during the first three quarters of 2022, including 31 million related to hurricane E.N. Interest on Elliott losses were 167 million netizens.

set by reserve increases in general liability and commercial audit.

We completed our annual asbestos and environmental reserve study in the fourth quarter, resulting in a 229 million increase in reserves, comprised of 162 million for asbestos and 67 million for environmental. We completed our annual asbestos and environmental reserve study in the fourth quarter, resulting in a 229 million increase in reserves, comprised of 162 million for environmental.

All of the $229 million was seated to the adverse development cover, leaving $256 million of the amendments. If you'llground so you can leave.

The increase in a spestus reserves was primarily due to an increase in the cost of resolving a spestus filing and a modest increase in the company's share of loss on a few specific individual accounts.

The increase in environmental reserves was mainly due to an increase in the FMS for PFAS exposures, one large account settlement, and a higher estimated site remediation cost.

Before turning to group benefits, I would like to review the January 1st Reinsurance Renewal.

Overall, we are very pleased with the placements and terms and conditions for our program against the backdrop of a challenging renewal season.

Our per-occurrence and aggregate property catastrophe protections were renewed at an approximate 20% increase in cost and 28% on a risk-adjusted basis, which based on publicly available information, compares favorably with overall market increases and speaks to the quality of our book of business and favorable experience.

Overall, the structure of a property cat program did not change significantly.

We increased the attachment point on the 200 million aggregate cover to 750 million up from 700 million.

There were also some changes in the treaty that provides coverage for certain loss events under $350 million.

We have summarized these changes in the slide deck.

In addition to our property catastrophe program, we also successfully renewed several other reinsurance treaties which also experienced rate increases with limited changes in terms and conditions.

The rates we charge insured already have been incorporating these higher costs and therefore we do not expect any significant adverse combined ratio impact from these renewals.

Turning to group benefits, core earnings in the fourth quarter of $141 million and the 8.3% core earnings margin, we swept a lower level of excess mortality losses and growth in fully insured premiums. The disability loss ratio improved 6.1 points from the prior year quarter.

which had elevated, estimated long-term disability infant trend.

In addition, COVID-19 related short-term disability losses will lower this border.

All cause excess mortality was $43 million before tax, compared to $161 million in the prior year fourth quarter.

The group life loss ratio, excluding excess mortality, increased 4.7 points, primarily due to higher accidental death losses as compared to very favorable experience in the fourth quarter of 2021.

Turning to Hartford funds, core earnings were $39 million, reflecting lower daily average AUM, primarily due to equity market declines and higher interest rates over the past 12 months.

And lastly, investment results were strong in the quarter with net investment income of 640 million.

Our fixed income portfolio is continuing to benefit from the higher interest rate environment.

The total annualized portfolio yield, excluding limited partnerships, was 3.7% before tax, a 40 basis point increase in the third quarter.

We anticipate our portfolio yield, excluding limited partnership returns, will increase by approximately 50 to 60 basis points in 2023 compared to the full year 2022 before tax yield of 3.2%.

Our partnership returns of 16.8% in the fourth quarter and 14.4% for full year 2022 were exceptional.

Performance is primarily driven by income from opportunistic sales within our commercial real estate JV equity portfolio which generated annualized returns of 31% in the fourth quarter.

Our private equity holdings were also resilient, delivering a 7% annualized return in the quarter.

For the full year, real estate generated a 22% return and private equity generated a 14% return.

As we enter 2023, we expect continued volatility in market.

Given outlook for a slowdown in consumer consumption, corporate investment and M&A activity, we expect a private equity return to be below our long-term target.

At the same time, the increase in financing costs and the reduced availability of real estate financing is expected to impact sales activity in our real estate JV equity.

With this backdrop, we expect a 4 to 6 percent return for partnership and other alternative investments in 2023.

Turning to Capital, as of December 31, holding company resources totaled $1 billion.

For 2023, we expect dividends from the operating companies of $1.5 billion from P&C, $400 million from Group Benefits, and $125 million from Herford Funds.

During the quarter, we repurchased 4.9 million shares for $350 million. As of the end of the year, we have $2.75 billion remaining on our share repurchase authorization through December 31, 2024. To wrap up, our businesses performed strongly in 2022 and we are well positioned to continue to move forward.

To discipline underwriting.

and expanding or maintaining margins while prudently growing our book of business. In 2023, we are expecting a commercial lines underlying combined ratio in the range of 87 to 89.

Total renewal, written pricing, freezes, and commercial line, excluding workers' compensation are expected to be fairly stable compared with 2022.

Meaningful increases in standard commercial property, auto, and general liability pricing are somewhat offset with competitive pricing headwinds in parts of our financial line business. In our global reinsurance book, we expect meaningful written price increases, including over 30% for U.S.

European property coverage. Commercial loss cost trends are expected to remain fairly stable with some moderation in property severity as inflation is expected to ease during the second half of the year.

Before I get into specific trends for our market leading workers' compensation businesses.

Let me remind you of its current margin strength and stellar contribution to our overall commercial line results. Let me remind you of its current margin strength and stellar contribution to our overall commercial

Looking back over the last 25 years, our loss ratio results have outperformed the industry, on average, by approximately 5 points.

reflecting our significant competitive advantages in pricing sophistication, underwriting analytics, and claim management. In addition, our scale and wealth of data allow us to anticipate, identify, and quickly react to emerging trends as we manage retention and growth in this line.

Over the past 10 years, our standard commercial lines workers' compensation book has produced combined ratios averaging near 90, while our premier small commercial book has performed even better with an average combined ratios in the mid-80s. How impressive.

is a six point underlying loss ratio improvement since 2019 in middle market, accomplished by equipping our underwriters with advanced risk segmentation tools. We expect workers' compensation to remain a highly profitable business and an important earnings contributor for the Hartford.

Turning to a few specifics in our forecast.

Workers' compensation renewal written pricing, which is comprised of net rate and average wage growth, is projected to be flat to slightly negative.

Last costs are expected to be up slightly as long-term frequency and severity selections remain unchanged from 2022.

We will continue to use our market leading tools in underwriting expertise in risk selection and book management to minimize any margin compression.

In 2023, we expect workers' compensation returns to remain attractive with the two real-reation, equating to roughly a half a point and the commercial line, underline combined ratio.

In summary, for commercial lines, we are extremely confident in our ability to manage our book through a variety of economic and market environments. An underlying combined ratio within a range of 87 to 89 will be an outstanding result and reflects our ability to execute consistently.

and deliver superior margins. Turning to personal lines, we expect a 2023 Underline Combined Ratio in the range of 93 to 95.

In auto, renewal written price is expected to accelerate into the mid-teams by the second quarter and remain there for the balance of the year.

By mid-year, we expect new business to be price adequate.

Less cost trends, primarily driven by severity, are expected to remain elevated during the first half of the year before returning to more normal levels in the second half.

In homeowners, we expect earned pricing to generally keep pace with loss-cost trends throughout 2023.

As we navigate this inflationary period across personal lines, we are focused on balancing rate adequacy, quality of new business, and marketing productivity.

Overall, I am confident we have the right execution plans to return this business to targeted profitability in 2024.

In group benefits, we expect the 2023 core earnings margin to be between 6 and 7 percent, consistent with our long-term margin outlook for this business.

With COVID shifting from pandemic to endemic state, excess mortality losses are expected to improve versus 2022.

However, we expect mortality trends will settle above pre-pandemic levels.

and we are pricing business accordingly.

pricing business accordingly. Well then.

Group life loss ratios are expected to improve versus 2022. In group disability, we expect some moderation of recent favorable incidents and recovery trends.

Before closing, I'd like to share a few recent ESG achievements.

This year, the Hartford will be honored as one of two Global Catalyst Award winners for the advances we have made in diversity, equity, and inclusion.

The Catalyst Award is the premier recognition of organizational DE&I efforts.

driving representation and inclusion for women.

The Hartford was also named to the Bloomberg Gender Equality Index.

into America's most just companies list for 2023, having earned both honors every year since their inception.

The recognition we continue to receive is a testament to our long-standing commitment to sustainability.

and the dedication and hard work of our teams.

In closing, let me summarize why I'm so bullish about the future.

for our shareholders.

on

Our 2022 financial results demonstrate the effectiveness of our strategy and the benefits of continued investments in our businesses, resulting in strong growth in margins and commercial line.

Group benefits operating at targeted returns.

and a personalized business tracking back to target margins.

business tracking back to target margins. Two.

We have the capability to sustain superior returns as a result of our performance-driven culture, outstanding underwriting and pricing execution, exceptional talent, and innovative customer-centric technology.

through a investment income is increasing.

supported by a diversified portfolio of assets.

Intredit quality remains healthy.

quality remains healthy. And finally, always always improving.

We are proactively managing our excess capital to be accretive for shareholders.

All these factors contribute to my excitement and confidence about the future of the heartburn.

Our franchise has never been better positioned to deliver industry-leading financial performance with a core earnings hourly range of 14 to 15% while creating value for all our stakeholders.

Let me now turn the call over to Susan for Q&A.

Thank you. Operator, we have about 30 minutes for questions. Could you please repeat the instructions for asking a question?

Thank you. As a reminder, if you'd like to ask a question, you can press star one on your telephone keypad. If you'd like to withdraw your question, you may press star two. Please ensure you're unmuted locally when asking your question.

Our first question for today comes from Brian Meredith from UBS. Brian , your line is now open, please go ahead.

Yeah, thanks. Good morning. A couple questions here. First one, just curious, if I look at Hartford Next, it looks like you got about another 65 million to recognize on expense saves coming through in 2023. Gets it about a half a point on the expense ratio. Are there some offsets we should think about in 2023?

make it so we don't see that half a point. Brian , thanks for the question. Thanks for joining. You are right. I mean, the Hartford Next program is contributing to our overall efficiency and effectiveness, and it does have about a half a point benefit.

And as we head into 2023, the second part of your question is, you see any challenges to...

executing on that as we sit here today? No, I mean, I think that's a good assumption, if I understood your question correctly.

Yeah, yeah, exactly. That's it. So I mean the half a point should be beneficial. Okay, good. And then Chris, I'm just curious, obviously a really strong property market right now from a pricing perspective. It sounds like you took advantage of some of the property pricing in the reinsurance marketplace.

I'm just curious, could you maybe talk a little bit about your capabilities, capacity, willingness to kind of lean into the property markets right now and see some good growth in that business and perhaps margin accretive for your 23 results? I think Brian you picked up on one of our...

You know, key strategic initiatives over the last five years to be a bigger property writer. Maybe it's not known by you sort of firsthand, but we have about $3 billion of property premium, including homeowners premium with about a billion.

So it is an area of focus. It's an area of growth for us. We do operate on the small end You know with about product in middle and large And we also are Developed in E&S you know property capability and as I mentioned in my prepared remarks. We have some assumed Reinsurance property exposures you know around the world so

It is on a primary basis an area we're leaning into that will ultimately help continue to diversify our book of business so that we're a more balanced organization going forward.

So, yes, it is a focus of ours going forward. Great, thanks. If I could just squeeze one more in, group benefits. Are you seeing any impact yet from some of the layoffs that we're seeing at large corporations?

it is a focus of ours going forward. Great, thanks. If I could just squeeze one more in, group benefits. Are you seeing any impact yet from just some of the layoffs that we're seeing at large corporations?

I would share with you and ask Jonathan Bennett to comment. Generally, no. I mean, we have a.

a book of business that range from obviously large global organizations to small and middle sides of organizations, but the trends in our book are fairly stable, Jonathan. What would you add?

I definitely agree with what you said Chris. I'd point out in the fourth quarter we had growth of earned premium and fees of about a little over 8% so strong fourth quarter and as you pointed out in your comments we're off to a great start in January with good new sales and strong persistency.

We're on the watch. We are aware of all the announcements happening as well. But where we sit today, we're in pretty good shape and looking forward to 2023.

We are aware of all the announcements happening as well, but where we sit today we are in pretty good shape and looking forward to 2023. Great. Thank you.

Thank you. Our next question comes from Mike Ward of City. Mike Gillign is out open. Please go ahead.

Thanks, guys. Good morning. I had a question on workers' comp. I'm just curious what you're assuming around underlying losses and how big might you say the headwind is to the year-over-year underlying combined ratio.

Yeah, thank you for the question, Michael. I alluded to some of this in my prepared remarks, so I will try to connect the dots maybe a little bit better.

As we define renewal pricing, a combination of pure net rate and then exposure growth with additional workers, that's likely to be flat at best to slightly lower.

is sort of renewal pricing combination of pure net rate and then exposure growth with additional workers. I mean that's likely to be flat at best to slightly negative.

And if you overlay sort of our consistent long-term medical cost inflation of

5 points.

and a frequency assumption that is generally consistent with our longer term trends, that will have a negative impact on our combined ratio.

And I sized it about a half a point in relation to our overall commercial lines combined ratio.

I think the other hand though, you've got to connect the dots, again, as I said in my prepared remarks. We are getting good net rate in auto.

property, particularly, and the expense efficiencies, that more than offsets that half a point of decline. And really at the point, if I really measure it more precisely, we see a half a point of commercial lines improvement year over year.

Okay, great. And thank you. Maybe on the cat loss guidance. Curious.

How are you able to keep it relatively similar to last year just thinking about inflation and modestly higher retentions under the reinsurance treaties?

Yeah, I would, again, good question. I think the gist of it is best said in her prepared remarks. Our reinsurance treaties have not changed dramatically from a risk side. We're very pleased with the overall renewal and

Yeah, that's consistent sort of with our modeling and expectation, particularly given the exposures that we enjoy today. So, would you add any color about? Yeah, the only other thing I would add, I mean it is up to, you know, a tenth of a point if you look at what our items was last year. And as a reminder, we've been talking about we've been taking great in the property book. So that's all.

Our next question comes from Greg Peters of Raymond James. Greg, your line is now open. Please go ahead. Great, good morning everyone. I'm going to, for the first question, I would like to focus on the retention stats that you put in your supplement both for commercial and personal lines.

You know in in listening to the comments of others it seems like The trends of retention might be moving up in commercial and down in personal Yet when I look at your numbers, it looks pretty stable. Um, can you talk to us both in commercial and personal about?

What you're seeing on policy retention and how that factors into your outlook for next year or this year, I should say.

Sure, Greg. And then I might ask Stephanie and Mo to add their color in their respective businesses. I would say at the outset, it's sort of been our priority to really take care of our book of business, principally because we work so hard to improve it, so hard to acquire the right new customers.

creating a shopper opportunity. And that's good to retain. It's obviously not so good when you're looking to see if there's new business opportunities. But generally, it's the most profitable strategy to just take care of your existing customers with the necessary rate increases that keeps pace with lost cost trends.

So Stephanie, what would you say in small and personal lines? Sure, good morning. So in small commercial what I would share is that it is very strong and stable, which I really believe is a testament to our entire business model. And I've shared these comments before in other forums. Everything that we do across the entire business model really lives into 3 key principles – being easy to do business with, being able to get out of the box.

And so we continue to build confidence with our agents and our small business owners. So I would expect that you would still continue to see healthy and strong retention in small commercial.

When I go over to the personal line space, and I'll start with auto, as we all know, the market is, there's a bit of disruption going on, and as you can see in our results, we've been very stable. We have been taking rate for, um,

12 quarters straight and will continue to take rate. And so it gives us confidence in terms of our overall offering. You know, we're continuing to step up the rate changes that Chris and Beth referenced in their prepared comments.

But overall, I would expect personal lines to be somewhat stable, potentially a very modest decline in auto this year in 2023, but overall stable.

What would you add? I think many of the small commercial themes feel really good about the middle and large commercial and the global specialty books in terms of the quality of what we have. As such, the retention will play an important role in our strategies. We are watching closely as Chris has talked about. We are watching close to the Workers' Comp and the public GNO.

We feel really good about the quality of those books, but there's a little bit more pressure there So I think retention and rate is a little bit more tactical there, but again we feel great about the quality of both books and we'll protect them.

Thanks for that detail. Just as a follow-up, and I know you addressed it in your opening comments and stuff you just mentioned it again. But, you know, I'm looking at your guidance for personal lines for the 23 of 100.5 to 102.5, and then I'm looking at what happened in Auto, particularly in the combined ratio.

really spiking up in the fourth quarter. I know there's rate coming. Is it your sense that we're sort of beginning to approach sort of like the peak?

or trough profitability for auto in the next couple quarters or do you expect it to remain at these elevated levels as we see in the fourth quarter?

Yeah, whatever Shade Greg is that.

At least the first half of the year, I think you're going to see an elevation. Maybe a modest decline from where we are today. Remember, we have about definitely five points of sea finality and sort of the auto results, you know, this quarter or so.

But if you even look at the full year auto results of 101, 102, yeah, it's got some improvement to do. We're focused on it. But I think that improvement will accelerate in the second half of the year.

to the point where we could actually see margin improvement during the fourth quarter. But we're going to have to execute hard on rate plans, work with all our government relations and regulator friends to get those approved, which we know how to do. But it's a...

There's a magnitude, a volume of activity that does need to happen.

magnitude of volume of activity that does need to happen. Right, makes sense. Thanks for the answers.

Thank you. Our next question comes from Elise Greenspan from Wells Fargo. Elise, your line is now open.

Thanks. Good morning. I appreciate all the color on the call. My first question, Chris, it sounds like you upped the RLE guidance, right? 14 to 15, has it previously been 13 to 14? When going through the pieces of everything, it sounds like that's more reflection of just our investment in common.

on the fixed income portfolio, but am I missing something in making those observations? Yeah, thanks for joining us, Elise. I would say you're right, that NII is a big component.

particularly coming off just the interest rate moves in our fixed income portfolio. But as Beth also said, we do expect lower.

alternative returns this year. But I do think that there is underlying.

you know, margin improvement in our commercial, you know, book of business that maybe is, you know, underappreciated. And I would explain that, you know, the guidance that we set, you know, I think is prudent.

as thoughtful, as reactive of the conditions.

that we have, but we have a high degree of confidence of achieving Particularly at the midpoint. So from there then we played to outperform.

And I think we've got a good track record of outperforming over time. And that's the mission next year. So the guidance says what it is. It does imply really when I really measure it on a refined basis, about 50 basis points of improvement. But I don't think we're going to be done from there.

And all that goes into our views of what our overall, you know, our ways will be next year, including our buyback and, you know, programs. And then my second question. You guys are, you know, the dividends to the whole co-or are going to be higher this coming year. You know, you know,

group did go up and you know I know you guys have kind of targeted a balanced level of capital return but given the extra dividends to the whole coke could we expect you know capital return to you know pick up in 23 via share repurchase?

Yeah, so Elise, yes, you're right. The dividends from group benefits are increasing. I would characterize that as sort of kind of getting back to normal. The last couple of years, they've been lower because obviously the statutory results have been impacted by the higher mortality losses.

to execute on the plan that we have.

Thank you.

Thank you. Our next question comes from Jimmy Bola of J.P. Morgan. Jimmy, your line is out open. Please go ahead.

Thanks. Good morning. Had a question on workers comp following up on some of Chris's comments earlier. Obviously margins have been pretty good and seems like you're expecting that to continue to 2023. Is it reasonable to assume that there's going to be a lot of pushback from regulators in allowing price associates ...?'

for joining us.

today Jimmy

today, Jimmy. Again, as I said in my opening remarks,

The trends there are some modest level of deterioration in our combined ratios, principally due to the pricing environment set by various regulators and the experience that the industry has had. I think you're really asking when do you see a turn? And that's a hard question to ask. But I think the components of a turn in pricing are starting to emerge, particularly as we get through.

The pandemic period, you know, we're frequencies. We're just down, you know, due to less economic activity, less work in general and you know those usually the lookback period is three years on rate filing. So if you think of experience in 2019 2021

That starts to leave your rate filings in 24.

So, about optimistic that there can be some, at least, reversal of negative price trends coming out of NCCI or other near rating bureaus to allow maybe modest price increases sometime in 24 heading into 25. Okay.

And then on personal lines, obviously the loss ratio picked up, but the expense ratio declined considerably this quarter. Should we assume a similar expense ratio given lower marketing until the loss ratio begins to improve, or what are your thoughts on that over the next year? Well, let me just start and then I'll ask...

Stephanie to add her planning. You know, again, this year we really cut back on marketing, particularly in the fourth quarter to make sure that we had...

to add her planning. You know, again, this year we really cut back on marketing, particularly in the fourth quarter, to make sure that we had opportunities to.

add new customers that were really, you know, could be profitable with those as we earn that in. And we just really, you know, sort of slowed down marketing and

at this point in time and

as we head into 23 though, as I said, I think we become rate adequate by the middle of the year.

and gives us an opportunity to think about marketing slightly differently. But definitely, what would you say from a strategy side and then really an expensive perspective? I think you captured it well, Chris. A couple of their points, I'd either underscore, add is that yes, our marketing and media change was intentional in the late third quarter into the...

believe that we will be new business rate adequate by mid year in the majority of the state and you would should expect to see our media spend continue to build throughout the year. will continue to react to ESO crisis.

And then finally, with that new business rate adequacy, I would expect that we begin to start to see new business PIF count growth in the back half of the year. So think about how all of those components work together.

But Jimmy, just to tie it all together, I would expect on a year-over basis expenses be relatively flat.

Thank you.

Thank you. Our next question comes from Andrew Kliegeman of Credit Suisse. Andrew, your line is now open. Please go ahead.

Great. Good morning. Looking at slide 16 of your presentation, I see that the annualized investment yield, X LPs, has really picked up nicely just Q over Q from 3.3% to...

3.7 percent and you know we're seeing a little bit of pressure now on rates but can you talk about where you see that annualized investment yield x to LPs going over the next few quarters and any any insight you could provide there

Yeah, I'll start with that. So as I said in my prepared remarks, when you look at that number and you think about for the full year, we're on an annualized basis of 3.2, expecting that 50 to 60 basis point increase.

When you look at fourth quarter, you know, just a couple of things they think to highlight on that, is that included in the yield ex-partnerships is not just fixed maturities, it's also some other items as well, think about dividends on equity securities and things like that that can sometimes be.

a little bit lumpy. So when I think about where we're ending the quarter at 3.7 and sort of going into Q1, probably not expecting to see a big increase quarter over quarter kind of on a run rate basis. And that kind of continues as we go through.

If you really look just at the fixed maturity yield, we're definitely seeing some increases there and we'd expect to see that as we go through 2023 on that line. You can see the details in our investor financial supplement of fixed maturities versus some of these other asset classes like equity securities.

It was a little bit elevated just because we ended the quarter, ended the third quarter with some excess cash because we had divested some treasury securities and pretty opportunistically invested at pretty high points from a yield perspective, which drove that.

that up and I'd expect like looking at January that 6% is probably more like 5, 5.10%. Got it. Very helpful. Yeah, very helpful. And, and, and Chris, I'm just, I'm trying to get my arms around this workers comp issue and when it's going to temper. I know you've already gotten to.

Two questions on it. Maybe you could give us a sense of how much you mentioned renewal written premium Slight negatives. What was the rate component for that? Was that a pretty heavy negative? Was that you know four points down, three points down and and and um

And with the stellar ratios that Hartford is probably best in class, period, and workers comp, the second part of that question is with ratios that have been around 90% small and a minute even better than that.

You know, will the regulators allow you to raise rates?

Or will they penalize you for being best in class? So I'm just trying to get my arms around that. Two questions, the rate, and then again, maybe a little more color on that outlook for getting rate in the future. Um.

Well, again, thanks for the question. Andrew, I would say it's always better to be best in class at anything, so you know that.

So I'm going to disappoint you and say that, look, there's a lot of detail we provided.

There's a lot of metrics you know that you could try and get laid on to just focus on a sub line You know with really nuanced details from an operating side All I said is I really do think you know the rate the net rate and the rate then that we would get from increasing exposure so the Exposure that acts like rate is going to be negative next year slightly negative

And that's all I'm saying.

And that's all I'll say. Okay.

Maybe I'll just throw a quick one in. I was hoping I wasn't expecting a detailed answer, but You know fully insured group benefit sales up 52% maybe a little color on the products that that were quite strong in the quarter

Yeah, I'm going to let Johnathan and his color.

Yeah, I'll let Jonathan add his color. Sure.

In terms of our sales, good numbers in there, yes. You know, sometimes late in the year, you get opportunistically a sale or two. A lot of our business trades in the first quarter. And then, you know, some other big numbers will happen oftentimes at the beginning of the third or maybe the fourth quarter. But so some nice numbers for us in the quarter.

strong disability results for us, I would say, primarily, and we continue to see really good response to our voluntary, our supplemental health product set. So those would include critical illness, hospital indemnity, and accident. And that book has been building for us steadily now for a number of years, and had our highest sales numbers in 2022 since the inception of those programs. So I think those are the ones that are really driving it.

Mayor your line is now open.

Great, thanks. Good morning, all. Probably speaking, can you talk about your aspect for allocating more investments to LPs and alternatives over the next few years given the higher-integrated environment? I am a hard time hearing your question. I know if that's it. If you heard the question, will you...

for current cash flows to go to alternatives and LPs? Yeah, I would say, you know, generally, you know, we have our

a targeted portfolio that we update every year. And I would say generally, we had a slight increase to our targeted alternatives.

Think of a percent. So not a meaningful change, but it's something we have really deep skills in. I think if you look at our performance over a longer period of time, Mayor, you'll see that I think we've outperformed consistently with just lower volatility. So from a pure Sharpe ratio side, I think it's a great trade.

We got great partners in that area, particularly in the real estate area, but what would you I think you captured it well, I mean, as a class that we've been slowly increasing allocation to. And as Chris said, I'm confused to look to do that, but really not.

this is you know overwhelmed by positive news but we've had a few quarters of adverse development for commercial auto liability and something you need to talk us through that.

Yeah, so we have experienced some large losses that have come through in that book that, you know, as we've closed the last several quarters, we've decided to increase our reserves It is a line also that we're looking very closely at from a rate perspective.

and continuing to re-underwrite and look at the risks that we're putting on. So nothing specific that I point to, but we have had just a few large losses that we've reacted to as we made our quarter-end judgments on reserves.

to reunderwrite and look at the risks that we're putting on. So nothing specific that I point to, but we have had just a few large losses that we've reacted to as we made our quarter-end judgments on reserve. Okay, perfect. Thank you very much.

Thank you. Our next question comes from David Mote-Maiden from Evercore. David, your line is now open.

Hi, thanks. Good morning. Just had a question on the workers' comp loss costs. Chris, I think you said that you expect loss cost to be slightly up.

But that includes 5% medical cost severity. Could you just talk about what you're assuming on frequency? Are you assuming negative frequency there? And maybe how we should think about that in the current environment and then maybe just talk about on the indemnity side as well? Yeah, thank you for joining us, David. I will just be...

clarifying, the trends that I talked about on the lost cost side were relatively flat and stable year over year.

Medical severity had five. I didn't give you a frequency number, I'm not. But those trends are fairly consistent. What changed though is sort of met rate and exposure, that access rate, that is going to be down slightly year over year into a slight negative territory.

On the wage and the demand inside, it's sort of a self-balancing equation from my perspective. We charge more.

We collect more as salaries go up, and it's sort of a natural hedge for increasing the.

indemnity payments that we get to collect up front and then there's a little bit of a Medical severity benefit because only 50% of lost content and workers cop is Is wage so that's what I would share with you

Yeah, the only thing maybe I'll just to clarify one item, as Chris said, is when he talks trend, when we think about the trend relative to loss, we're not making a change year over year. But again, as you said, medical severity with five points, some of the other items that he reference wouldn't result in negative trend. He paid education again.

And then just on, I guess Chris you had said you expect 50 basis points.

underlying combined ratio improvement in commercial lines. And you gave a lot of detail. just

It sounds to me like you expect most of that to come from the expense ratio as opposed to the loss ratio just given the headwind from From workers comp obviously offset by expansion on other lines Is is that the right interpretation?

No, I would say half and half. So the point of combined ratio improvement in commercial lines year over year, F point from expense, F point from margin, again, as I said, title in any one position and F point from orchestration statistical integration, equation overinit Universitional Theory. So it will come through exactly the same thing, again, both in market

We're going to achieve a flight for upside-the-wire as we execute during the years. Oh, David, sorry, I was on mute. I was going to say no. I think you've misinterpreted a half a point of expense ratio improvement and a half a point of loss ratio improvement. And I feel highly confident on that.

half a point of, I'll call it loss ratio improvement. And we're gonna play for upside from there. Again, highly confident of achieving sort of those mid points and we're gonna aim to overachieve during the year. Got it, so half a point on the underlying loss ratio.

balance, I would expect you to get 1.5 points of improvement. Is that the right way to think about it?

Yeah, I don't think we're having a tough time communicating. I think overall.

expense ratio improvement is going to be driven by, again, expense and then pure loss ratio improvement over the years. But in total, David, I'm expecting a half a point of combined ratio improvement in commercial lines year over year.

And we feel highly confident on achieving that.

And we're going to play for upside, meaning my language of communicating to you is I think we're going to outperform that point estimate I just gave you.

Is that clear?

Is that clear? That is clear.

I appreciate your comments. Thank you. We will take no further questions for today, so I'll hand back to Susan Spivak for any further remarks. Thank you, Alex. I apologize to those who didn't get to your questions, but we are here all day and we'll reach out and follow up with you. And thank you all for joining us.

Thank you for joining today's school. You may now disconnect your line.