Q1 2023 The Hartford Financial Services Group Inc Earnings Call
Speaker 1: The.
Speaker 2: For presentation you can press star one on your telephone keypad. If you'd like to withdraw your question you may press star two.
Speaker 2: I now hand over to our host Susan Spivak, Senior Vice President of Investment Relations. Please go ahead.
Speaker 3: Good morning and thank you for joining us today for our call and webcast on first quarter 2023 earnings. Yesterday we reported results and posted all of the earnings related materials on our website. For the call today, our participants are Chris Swift, Chairman and CEO of the Hartford.
Speaker 3: Beth Castello, Chief Financial Officer, Jonathan Bennett, Group Benefits, Stephanie Bush, Small Commercial and Personal Line, and Moe Toker, Middle and Large Commercial and Global Specialty.
Speaker 3: Just a few comments before Chris begins. Today's call includes forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and actual results could be materially different.
Speaker 3: We do not assume any obligation to update information or forward-looking statements provided on this call. Investors should also consider the risks and uncertainties that could cause actual results to differ from these statements. A detailed description of those risks and uncertainties can be found in our SEC filings.
Speaker 3: Our commentary today includes non-GAAP financial measures. Explanations and reconciliation of these measures to the comparable GAAP measure are included in our SPC filings as well as in the news release and financial supplements.
Speaker 3: Finally, please note that no portion of this conference call may be reproduced or re-broadcast in any form without the Hartford's prior written consent. Replace of this webcast and an official transcript will be available on the Hartford's website for one year. I'll now turn the call over to Chris.
Speaker 4: Good morning and thank you for joining us. Today I will begin with a summary of the Hartford first quarter results.
Speaker 4: Then, Beth will dive deeper into our financial performance and key metrics.
Speaker 4: After which we and our business leaders will be happy to take your question.
Speaker 4: So let's get started
Speaker 4: We are pleased to begin the year with exceptional results in our commercial lines businesses and continued strong results in group benefits.
Speaker 4: Well, industry-wide trends such as elevated catastrophe losses and persistent inflationary pressure and personal auto impacted our results.
Speaker 4: The first quarter also saw top-line growth in commercial lines of 11%, including double-digit contributions from each business.
Speaker 4: with an underlying combined ratio of 88.5.
Speaker 4: Double digit renewal written price increases across both auto and home in personal lines.
Speaker 4: Group benefits fully ensured premium growth of 8% combined with strong first quarter sales in a core earnings margin of 5.2%.
Speaker 4: solid investment results with increasing fixed income portfolio yields and strong reinvestment rates.
Speaker 4: and a core earnings ROE of 14.3% while returning $484 million of capital to shareholders in the quarter.
Speaker 4: Now let me share first quarter highlights from each of our businesses.
Speaker 4: We have strong momentum across commercial lines.
Speaker 4: and I expect continued top-line growth at highly profitable margins.
Speaker 4: In addition,
Speaker 4: accelerating pricing in several lines, combined with enhanced underwriting execution, bolsters my confidence in our ability to deliver margins consistent with the 2023 outlook I provided back in February .
Speaker 4: In small commercial written premiums of 1.3 billion and new business of 242 million set new records for the Hartford.
Speaker 4: Three years ago, we completed the launch of our enhanced Fuston Class Package Product, which we call Spectrum.
Speaker 4: over that three-year period.
Speaker 4: Spectrum written premium has grown significantly.
Speaker 4: For example, this quarter's written premium is nearly 40% higher than the same period three years ago, and new business premium is almost double over that same period.
Speaker 4: In addition, with expanded wholesale broker relationships, our excess and surplus lines binding products continues to gain momentum delivering robust growth.
Speaker 4: Luton premium approximately doubled from a year ago, fueled by a substantial increase in new business.
Speaker 4: In short, Small Commercial continues to deliver exceptional results with industry-leading products and digital capabilities.
Speaker 4: and is on track to exceed $5 billion of annual written premium in the near term.
Speaker 4: In middle and large commercial, written premiums grew 10% driven by new business growth of the economy, sustained exposure growth, and solid renewal written price increases.
Speaker 4: New business submissions and hit rates were both up and average premium on sold accounts continues to increase.
Speaker 4: We are particularly pleased by the growth in property lines.
Speaker 4: pleased by the growth in property lines. The key area of focus
Speaker 4: and we will continue to capitalize on favorable market conditions.
Speaker 4: We are committed to getting paid for the cat and non-cat risk re-underwrite.
Speaker 4: setting appropriate terms and conditions, and ensuring proper valuations.
Speaker 4: Our investments in data science capabilities, industry leading risk segmentation, and exceptional talent have contributed to healthy margins and position as well to continue driving profitable growth in this business. In global specialty results.
Speaker 4: were outstanding with nearly $4 billion of annual gross written premium. Our competitive position, breadth of products, and solid renewal written pricing drove a 10% increase in net written premium with significant contributions from global reinsurance.
Speaker 4: We are excited about our position in the wholesale market and the ongoing benefits from our broadened product portfolio.
Speaker 4: Execution has never been stronger and our enhanced underwriting capabilities are driving market share gains.
Speaker 4: Turning to pricing, Commercial Line's renewal written pricing was 4.5% compared to 5.2% in the fourth quarter.
Speaker 4: Excluding workers' compensation, US standard commercial lines renewal written pricing rose to 8.1%.
Speaker 4: with middle market property pricing in excess of 10%.
Speaker 4: In standard commercial auto, near 7%. Workers' compensation pricing remained positive.
Speaker 4: continuing to benefit from the stronger than expected average wage growth.
Speaker 4: Within global specialty, property, auto, primary casualty, and marine all generated strong pricing results, well in excess of lost cost trends.
Speaker 4: In excess casualty, pricing is becoming more competitive while public D&O pricing remains under pressure.
Speaker 4: Within financial lines, we have been shifting our focus to private companies in management and professional liability, where market pricing and margins are more attractive while maintaining underwriting discipline in the public space.
Speaker 4: Across commercial lines, long-term loss-cost trends in our book remain stable, and excluding workers' compensation, the margin between renewal-written pricing and aggregate loss-cost trends has expanded modestly.
Speaker 4: as we continue to execute our strategy across commercial lines.
Speaker 4: I want to reiterate my confidence in our ability to manage the book through a variety of economic and market conditions with superior underwriting margins and continued premium growth.
Speaker 4: while maintaining a strong balance sheet.
Speaker 4: Moving to personal lines, the auto loss cost environment is very dynamic. Across market participants, the level of continued severity increases has had a meaningful impact on industry results. As a result, active management of rate filings in response to the changing landscape is paramount.
Speaker 4: We achieved renewal written price increases of 10% in the first quarter and expect it to accelerate into the high teens later this year.
Speaker 4: In the first quarter approved rate filings averaged 18.3 percent, more than double than the fourth quarter result of 8.3 percent.
Speaker 4: Given the vast majority of our book has 12 month policies, it will take time for the rate increases to fully earn in. With continued elevated loss trends reported in the fourth quarter of 2022 and the first quarter of this year, we have adjusted our rate execution plan.
Speaker 4: And as a result, new business rate adequacy will build throughout the year as filings are approved.
Speaker 4: We expect new business rate adequacy in most states by year-end.
Speaker 4: Overall, I am confident we have the right strategy and with focused execution expect to achieve auto profitability targets in 2024 across the book.
Speaker 4: In homeowners, results were quite strong with renewal written pricing of 13.9% in the quarter, comprised of net rate and insured value increases outpacing lost cost trends.
Speaker 4: Turning the group benefits, we are off to a strong start.
Speaker 4: Core earnings reflect a significant improvement we have seen in mortality trends versus prior year.
Speaker 4: including decreasing impacts from pandemic-related losses.
Speaker 4: Lower pandemic-related mortality is a welcome and encouraging trend.
Speaker 4: While it is still too early to reach firm conclusions on long-term mortality trends,
Speaker 4: We expect they will settle above pre-pandemic levels and are pricing business accordingly. We continue to measure the effects of the pandemic and believe we are well prepared to adjust course as necessary. In disability, our capabilities are market-leading and we remain positive.
Speaker 4: on the performance and outlook of our book. Looking at new business, sales of 474 million, we're up 85 million over prior year.
Speaker 4: This was our second highest sales quarter ever.
Speaker 4: Importantly, we are competing effectively across all market segments from small business to the largest U.S. enterprises.
Speaker 4: As a Group Benefits Market Leader, we are well positioned to capitalize on rapidly evolving customer requirements
Speaker 4: for absence management, group life, and supplemental health products and services.
Speaker 4: We continue to strengthen our reputation for customer service with an extensive suite of tools for HR platform integration.
Speaker 4: We continue to strengthen our reputation for customer service with an extensive suite of tools for HR platform integration, member enrollment, and
Speaker 4: process simplification, and analytics.
Speaker 4: Employers are more focused than ever on the needs of their employees.
Speaker 4: And our products and services are a key component of that value proposition.
Speaker 4: Moving now to investments, the portfolio continues to support the Hartford's financial and strategic objectives.
Speaker 4: while performing well across a range of asset classes and economic cycles.
Speaker 4: I thought that we would provide further details and I would highlight that it was another quarter of solid net investment income with negligible impairments.
Speaker 4: Recognizing that commercial real estate is topical, let me take a minute to comment on our approach to that market.
Speaker 4: We have dedicated teams of experienced professionals with a long and successful track record of investing in the commercial real estate sector.
Speaker 4: We believe the market provides attractive yields and risk adjusted returns while providing a source of diversification to our investment portfolio.
Speaker 4: We have approximately $6 billion of commercial mortgage loans.
Speaker 4: primarily consisting of multifamily and industrial holdings.
Speaker 4: with less than 10% invested in commercial office.
Speaker 4: We regularly review our property valuation for the impact of lower occupancy levels.
Speaker 4: higher cap rates, and the impact of rising interest rates. These assessments give us confidence the portfolio will continue to perform well through the economic cycle. While perhaps a bit distinct from other property and casualty peers.
Speaker 4: We believe these holdings are an attractive alternative to investment grade corporate credit as they provide approximately 80 to 100 basis points of additional spread over like rated corporates.
Speaker 4: In closing, as we look ahead, we anticipate continued growth in strong margins across our businesses.
Speaker 4: Our financial performance demonstrates the power of the franchise, the depth of our distribution relationships.
Speaker 4: In our commitment to superior customer experience
Speaker 4: and excellent execution by our 19,000 employees.
Speaker 4: With these competitive advantages, I remain confident that we can continue to deliver superior results.
Speaker 4: The Hartford has never been better positioned to deliver industry leading financial performance.
Speaker 4: highlighted by a core earnings hourly range of 14 to 15% while creating value for all stakeholders.
Speaker 3: Now, let me turn it over to Beth to provide more commentary on the quarter. Thank you, Chris. Core earnings for the quarter were $536 million or $1.68 for deluded share with a 12-month core earnings R.A.A. of 14.3%. In commercial lines, core earnings were $436 million.
Speaker 3: of 89.5.
Speaker 3: The first quarter included higher non-cat property losses compared to unusually low losses in the prior year quarter and a modestly higher loss ratio in workers' compensation as expected. This is the 11th straight quarter of an underlying combined ratio of below 90.
Speaker 3: Middle and large commercials delivered a record 89.9, a 1.6 point improvement from the prior year due to favorable non-cap property losses and expense improvements.
Speaker 3: Global Specialties' underlying margin improved three points from a year ago to an outstanding 85.2, which benefited from lower international losses and an improved expense ratio.
Speaker 3: In personal lines, core loss for the quarter was 187,000 with an underlying combined ratio of 97. Homeowners underlying combined ratio of 78.9 was in line with expectations.
Speaker 3: All results reflected continuous liability and physical damage severity pressure driven by, among other things, elevated repair costs, increased use car evaluations, and a modest uptick in a Turdy representation rate.
The auto underlying combined ratio was approximately 12 points higher than the prior year quarter which is about 5.5 points above our expectations.
As we progressed through the first quarter, we began to see indications that there was a pronounced step change in loss activity.
The first signal of this was in our February data, and at that time we did not view this as a sustained trend but an area to watch.
As we monitored lost activity in March, claim frequency remained in line with our expectations, but we observed additional pressure on claim severities for both the current accident quarter and accident year 2022. For example, with respect to our physical damage coverages, we observed a lengthening time to repair vehicles.
and an increase in the mix of total losses versus repairables.
For bodily injury coverages, we continue to experience a mixed shift to more severe accidents.
Taking all this data into consideration, we booked the current quarter at an underlying combined ratio of 105.1.
We also recorded prior year development of 20 million related to Accident Year 2022 Autophysical Damage Losses, which was primarily related to fourth quarter activity.
For auto liability, we recorded no net increase in prior year reserves as elevated activity in 2022 was offset by improvement in accident years 2021 and prior.
As Chris indicated, the team continues to file for rate increases to offset the loss across trends we are experiencing.
Written, premium, and personal lines increased 6% over the prior year, driven by steady and successful rate action.
The expense ratio decrease of 1.1 points was primarily driven by lower marketing spend.
With respect to CAT, there were over 20 PCS-designated events this quarter, resulting in property and casualty current accident year CAT losses of $185 million, which includes the impact from significant winter storms along the East and West Coasts.
and tornado, wind, and hail events across several regions of the United States. Total net prior accident year development was essentially zero as reserve reductions in workers' compensation and package business were offset by reserve increases in auto physical damage and general liability.
Workers' compensation reserves were reduced primarily in small commercial driven by favorable claim severity experience and a 20 million reduction in COVID-related reserves from the 2020 action year.
Turning to group benefits, core earnings in the first quarter of $90 million and the 5.2% core earnings margin reflect lower group life and disability loss ratios and growth in fully insured premiums.
As a reminder, from a seasonality perspective, we tend to experience higher underlying loss costs in the first quarter, so we would expect the margin to be lower than our full year estimate.
Earnings for the quarter benefited from a 12-point reduction in the group life loss ratio, reflecting improvement in the mortality trend as the prior year loss ratio was significantly impacted by the pandemic.
Also, positively impacting earnings for the quarter was a 2.8 point improvement in the disability loss ratio due to favorable long-term disability incidents.
Fully insured, ongoing premium growth was 8%, reflecting growth from existing customers, as well as strong persistency and new business sales.
Premium growth also benefited from continued strong employment trends, as well as our focus on enhancing the enrollment experience of our customers.
Our diversified investment portfolio produced solid results amidst financial sector volatility.
For the quarter, net investment income was $515 million.
Our fixed income portfolio is continuing to benefit from higher interest rates. The total annualized portfolio yield, excluding limited partnerships, was 3.8% before tax, modestly higher than the fourth quarter.
Our annualized limited partnership returns were 2.5% in the quarter.
These returns were slightly better than we had estimated as private equity annualized returns of 9% partially offset negative returns in our real estate portfolio given fund valuations and the absence of underlying property sales as we expected.
Looking forward, while it is still early in the quarter, we believe second quarter LP will be similar to first quarter.
The overall credit quality of the portfolio remains high with an average credit rating of A+.
Given the interest in real estate holdings and banking exposure, we have provided additional information in the appendix of our earnings slide deck. We had less than $600,000 in holdings in the three failed regional banks, primarily through index investing, and we had no Credit Suisse AT1s.
As you can see in the disclosures provided, we own approximately $6 billion of commercial mortgage loans, which are concentrated in multifamily, industrial, and grocery-anchored centers with limited office exposure. Our portfolio is focused on high-growth geographic areas.
Average LTV is 52% and importantly we have stressed our properties for lower valuations and are comfortable that the 23 and 24 maturities are manageable.
We also own $3.3 billion of commercial mortgage-backed securities. These holdings are secured by a diverse pool of properties with significant levels of subordination.
We complete underlying low-level analysis for these holdings and also expect 23 and 24 maturities will be manageable. Turning to Capital Management, during the quarter we repurchased 4.7 million shares for $350 million.
As of the end of the quarter, we have $2.4 billion remaining on our share repurchase authorization through December 31, 2024.
We recognize the macroeconomic backdrop remains uncertain, but we are well positioned to deliver consistent, sustained, industry-leading results.
Our success is a direct result of our steadfast operational excellence.
I will now turn it back to Susan. Thank you. We are now ready to take your questions. Operator, if you could repeat the process for asking a question.
Thank you. As a reminder, if you'd like to ask a question, you can press star followed by one on your telephone keypad. If you'd like to withdraw your question, you may press star followed by 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, thank you. First question on guidance. I'm just curious, personal lines obviously running pretty elevated above kind of where your range on guidance is. What gives you confidence you're going to be able to make your guidance number for the year in personal auto and then also on commercial?
commercial and probably the implications overall. So you know what I would say on personal lines is clearly you know we're facing you know more headwinds than we anticipated a quarter ago.
We've run various scenarios and I would share with you again personal auto.
is that if the elevated inflation severity pressures we feel in the first quarter continue in the second and third quarter.
And then you begin to revert you know in the in the fourth quarter and that probably puts about four to six points
of loss ratio pressure on the auto expectations we had for the full year.
pressure on the auto expectations we had for the full year.
I think then on your commercial lines question, I remain highly confident, highly, that we will achieve the objectives and the targets set out for a couple of reasons. One, the earned premium impact is increasing and it will increase over the next three quarters based on what we've written the second half of last year and then into this year. I think also we've talked to you and others about the business mix that we're trying to shift.
to obviously more casualty, more property, and that will have the opportunity to contribute to overall margin improvements. And then third, something we don't maybe talk enough about is just our underwriting initiatives to improve risk selection and improve overall margins. That is happening.
in all the businesses, whether it be middle market and global specialty or small. So I think we have all the initiatives in place.
whether it be middle market and global specialty or small. So I think we have all the initiatives in place that will build throughout the year.
both on our loss ratio and our expense ratio as we get additional leverage to That demonstrates you know and I see it in our numbers that we will achieve the goals that we set out for the year Great that's really helpful and then Chris I'm just curious the reinsurance business
We don't talk about it a lot much, but it's becoming a decent sized business. Maybe you can talk a little bit about what's in that reinsurance book. Is it a property book? Is it a casualty book? How should we think about it? Will it create some additional volatility here going forward?
Yeah, I would, I'll have Mo maybe add his color, but I would say it's a diversified book. This is a diversified book of property and casualty.
We've been in it, obviously, since we've acquired Navigators. It's a very thoughtful team, a very thoughtful approach. But it does contribute to growing our property, which I think we shared with you is a key initiative.
Global REIT this quarter basically grew its premium base over last year about 21% with 30% pricing improvement in property.
You know it's a US book. It does have a little bit of you know global exposure But I think it's performing very well, and it's going to contribute Thank you Thank you our next question comes from Yaron Kenart from Jefferies your line is now open, please go ahead
Thank you. Good morning, everybody. My first question is with regards to global specialty pricing. Maybe you can talk about where you see that going over the course of the year and also is it still head of loss trends? Because it just seems like.
I think one of your competitors on the specialty side was talking about 8% loss trends in specialty. So I would just want to verify that. Yeah, Yaron, I would say in global specialty, you just got to take public company DNL out because it's such an outlier.
And I'm going to give you a couple of data points both in our international and domestic public company, DNO public company books which is about $200 million of gross premium. I mean rates are negative 20% or greater. So when I think of sort of our book and business mix in total.
That 6.8 goes to 7.7.
And that 7.7 is well in excess of our long-term cost of goods sold increases that we're expecting. So we still have a meaningful healthy margin. If you include it, it's meaningful about 100 basis points. And if you exclude public company DNO.
Yeah, that probably goes up to 200 basis points of spread. So you put it all together and it is a pressure point. It's a small line of business. But that's why you probably see that we're being very sensitive on how much we write. We're willing to let business go that doesn't meet our hurdle rates, which will impact.
the top line, but it will protect the bottom line. Got it. Maybe just to add, so, Yaron, this is Mo. I just, I think we feel particularly good about the lines outside of public DNO. I think we're growing the marine book at nice rates, the wholesale auto, wholesale property books. Those are all really added to the margin expansion that Kirsch is talking about. Thank you. And then maybe, okay.
some of the statutes that were provided, provided their one way attorneys fees being limited, contributory negligence.
shortening the period that you could file suits. So all that is positive. I think if you're really asking the question, is there any short-term impacts on
potential elevated litigation in suits being filed? We don't think so. And if it is controlled and contained within our loss picks, particularly in our BI bucket.
Thank you. Thank you. Our next question comes from Elise Greenspan from Wells Fargo. Elise, your line is now open. Please go ahead.
Hi, thanks. Good morning. My first question is on personal auto. So Chris, you mentioned that you guys still expect to get back to your target margins in that business in 24. Obviously, you and everyone else in the industry is still seeing elevated trends to start this year. Arigatou Gozaimasu.
Why are you still convinced you can get there next year? Is it just that in response to the trend, you guys are pushing for more price than previously expected?
Yeah, I would just add my high-level commentary and then ask Stephanie to...
at hers but yeah I think at least what you described in my words is simple math right we got lost trends that are remaining elevated inflation is sticky there's some severity you know pressure on on totals you know versus repairable as Beth mentioned you know but at the end of the day
Even though it works on a lag effect, the data will support grazing rates.
And as we said, we've got 10 points of written rate in the book this quarter on a filed basis, an approved basis in the States. We've gotten 18.3%. So the cumulative effect of rate increases...
And as we said, we've got 10 points of written rate in the book this quarter on a filed basis, an approved basis in the states. We've gotten 18.3%. So the cumulative effect of rate increases, pruning the book.
gives us confidence that we can achieve our target margins in 2024. But Stephanie, what would you add? Chris, I think you framed it well. Elise, our strategy remains unchanged. fills out earlier brief.
profitability in 2024 and our prevail launch. So the 10 points which you see sequentially over the prior quarters is a meaningful step change. And again the rate, the 18 plus that we have approved, it's truly a reflection of the rate that we're getting and how that will work its way through the book.
And as Beth and Chris alluded to in their prepared remarks, what we observed in the first quarter has already been contemplated and put into our rate filing. So it's a dynamic process and one that we're working hard on every single day, but that gives us confidence.
Thanks. And then my second question is on commercial lines. So you guys, in response to a prior question, right, pointed to, you know, earning in rate, and there's some expenses that are going to flow through as well. Should we expect that the, you know, year over year improvement that you're looking for will pick up, you know, as we go through the next
that you need to pay attention to explicitly. But I do believe over the next three quarters, you'll see improvement in the loss ratio and the expense ratio, given what we've talked about, earned rate coming in, business mix, shifting.
So all those will contribute to that improvement.
to 89. We finished last year at 88.3. We believe, based on the first quarter and the data that we're seeing for the next three, that we will be able to improve from that 88.3 last year.
Whether it be three tenths of a point, five tenths a point, we don't have to debate that today, but it will improve. And it's again, fundamentally driven by loss ratio improvement, expense ratio improvement, offset by some of the headwinds that we feel in workers comp. So those are the three main components of how we get to combined ratio improvement on an underlying basis.
from last year to this year.
from last year to this year. Thanks for the color.
Thank you. Our next question comes from Alex Scott of Golden Sacks. Alex, your line is now open. Please go ahead. Hi, good morning. First what I had is a little bit of a housekeeping item. When you guys mentioned higher non-cat losses in commercial relative to the...
depressed level last year. How do those non-cat losses this quarter compare to, I guess, a more normal expectation? I just wasn't sure whether to interpret that as, you know, higher than normal or not.
I'll add my color and then I'll ask Beth to add hers, but I would say between small and middle
Right on expectation, right? You know, for the year. You know, small, random, a little hot and.
middle and large ran better than expected, but is there anything else there Beth that you would add? No, I think you captured it well as we, again, look at both small and middle, a little bit offsetting relative to a little elevated and small commercial and a benefit in middle market.
Got it. And then my follow up is on workers comp. I guess, you know, when you guys are thinking about loss trend there, it seems like you probably maintained a pretty, you know, pretty high loss trend in line with sort of the 5% positive loss trend you've been
I just wanted to get some thoughts on the way that you're thinking through like frequency versus severity within that. And I mean, are you giving yourself credit for the lower frequency post-pandemic the way that we've seen some of your larger peers do? Yeah, Alex, I think…
Air Force 5%. Last year and then continuing into this year, we're outperforming that.
And we do have a frequency expectation that it will improve, or a negative frequency, if we're not providing that data on a granular basis.
Thank you. Our next question comes from David Mote-Maiden from Evercore ISI. David, your line is now open. Please go ahead.
Thanks. Good morning. So Chris, you spoke about the components of improving the underlying combined ratio and commercial in 2023 versus 2022. And you know, we can, we can see the expense ratio. So wanted to look at the underlying loss ratio.
here in the first quarter, you know, in line with expectations with what you guys have let out. I'm wondering if you could talk about the different dynamics there between, you know, comp and then excluding comp. Was the year over year deterioration just all workers comp or was there anything else in there?
And it sounds like you're expecting the non-comp to pick up and improve over the rest of the year. So I think we had a little bit more color on that.
Yeah, David, happy to talk through that the best way we can. I would start by saying is, you know, year over year.
and compared to our expectations are generally right in line.
You know if you want to quibble about a tenth of a point or two tenths of a point, okay, but I'm not
And so again, there's always going to be puts and takes, but from the year over year, we're offsetting the headwind in comp with other margin expansion.
in other lines of business. And it's sort of across the board. It's one and two tenths here and there, but again, that gives us confidence that we have the ability to continue that throughout the rest of the year. And again, I would just point out, particularly in property,
As we we are really focused on growing our property book and I think we've talked about it I've got about two billion dollars of
We are really focused on growing our property book and I think we've talked about it. We've got about $2 billion of commercial lines property book.
We grew that first quarter over first quarter, as I said, 18%.
And if I look at pricing, particularly in our standard commercial lines, that pricing is up 12%. Wholesale is up 24%. Global read is up 30%. So we are getting a meaningful lift in. 9'.
property and that's going to mix in and will help the overall margin. I would say again,
Our general liability and casualty, specialty casualty lines or industry verticals in certain areas are also running high single digits to low double digits with price increases.
which will contribute. We are feeling a little pressure, as I said, in public company DNO, and also a little pressure.
in our excess casualty, you know, both primarily construction
And I would say there's two primary reasons for that pressure both top line and then a little bit on pricing is you know competition is moving in there, and then there's fewer projects that's taking longer to get financing lined up for it. So it's a little bit of a perfect storm for some pressure there, but you know we're going to remain disciplined.
and try to protect our margins there. So those are the components that I put together, David, and I hope you were able to follow that. Yeah, that was great. I appreciate that color. And then maybe just a follow-up. You know, it sounded like lost trend, you know, roughly stable.
You know, in commercial lines in the quarter.
Obviously, a very dynamic environment, especially on the liability line side. Have you thought about any of your expectations going forward? I think last quarter you had spoken about some expectation for property severity, moderating towards the second half of the year. Fans, would youboard yourbecause today?
Then also just maybe talk about you know sort of thoughts on on liability loss costs You know as we head through the rest of the year I don't think there's anything new to add. I don't actually
I don't think I follow exactly what you're getting at, but all I would say is a property book.
It's two billion dollars. I think it performs. Well. We're trying to grow it as we grow it We might have a little bit more volatility from you know quarter to quarter just as Portuitous events you know happen still feel good about our reinsurance You know protection and all our you know property either per risk or aggregate you know basis
So there's nothing nothing new to talk about in property mo unless you would add anything, okay?
No, I just say on liability we continue to, and this is going back two or three years now, we've been working really hard on segmentation and making sure we're looking at the right jurisdictions thinking about attachment points.
thinking about our limits management. So I think there's a pretty aggressive strategy that we used over the past couple of years to stay ahead of some of the trends that we're seeing now, which refers back to when Chris talks about underwriting initiatives, those are the types of things that he's talking about. Got it. Thanks so much. I appreciate it. Thanks, David. Thank you. Our next question comes from Greg Peters of Raymond J. Rick
I would have imagined for public companies.
Do you have the flexibility to come and go based on underwriting conditions or does the business require you to stick with customers but perhaps at a reduced level of participation?
Greg, I'll start. I think what we've seen, and I know some of our competitors have talked about it, is the number of new entrants into the space.
especially on the excess basis. At the same time exposures have dropped away, whether that be SPACs or DSPACs or just IPOs in general. I think it's important to note also that we, as Chris talked about earlier, it's a relatively small part of our financial lines book, the DNO is the $200 million that Chris referenced.
And I don't think there's anything holding us in that market. We have been really working hard on risk quality day by day, on risk by risk to make decisions as we decide which ones we will stay with and which ones we won't.
But at the same time we are also pivoting resources towards other parts of the financial lines book. Think management liability, think professional liability, small commercial, middle market types of customers. So I think we're trying to be fairly nimble in the face of what is a precipitous drop in the public B&O market but we see opportunities throughout that portfolio in other ways.
Greg, only I would add is there are differences in relationships on the primary side versus the excess side, primarily excess players in towers. You do have a little bit more flexibility to come and go, which as Mo said creates the opportunity for new capital and new entrants to come in.
I see a little bit more stability on the primary side, but that's just my point of view. Makes sense. I'm gonna switch gears. The group benefits business, I know in your comments you look at the results. I think you said second best quarter for new sales.
Is this coming across the spectrum or are you gaining more share in a different component of smaller business, middle-sized businesses? And I guess as I think about the outlook, is there a step change in the market, in your position in the market? Or is it just...
Or is there something going on with your distribution network that's giving you an advantage over your peers? Greg, I'm going to ask Jonathan to comment, but I would say
As I said in my prepared remarks, we're growing in all segments. Clearly, we're still recognized as a market leader in national accounts. That's probably 60% of our book, but we do want to continue to focus and grow in the other segments and improve our...
offerings there. But I think it's just a cumulative impact of what our brand stands for in this space and it's you know terribly you know important today. We're investing in it as I said before.
You're right. I think we're recognized as one of the premier organizations in the benefits base, both disability, life, all our supplemental products. And we're trying to take advantage of it while remaining disciplined to get appropriate rates and returns for this book. But Jonathan, what would you add?
Chris, all the right points to start with on the conversation for sales. The national account business is fortuitous. Every year is a bit of a different market. Not every customer comes to market every year, and so opportunities present in different ways at different times. We had a nice run on some national account business, which we're excited to add to.
And I think we're seeing good success through our distribution channels there. A number of our initiatives have hit pretty well. We've been focused on things like enrollment. I had a strong season last year. I think it's an intersection of benefits awareness and interest from employees and employers to add new lines, new coverages.
and to access those along with our improved enrollment capabilities coming online, really at a great time to take advantage of that interest and helping us to drive more new sales and overall top line. So those things coming together along with a market cycle that worked well for us in national, I think has produced a great result here in the first quarter of 23.
Got it. All right. Thanks for your answers. Thank you. Our next question comes from Mike Zarenski from BMO. Mike, your line is now open. Please go ahead.
Hey, great. Good morning. I guess first question. Thank you for the additional commercial real estate disclosure. You know, I'm sure you and most analysts have gotten a lot of questions on that asset class. Now, just curious, is there a scenario and appreciative that it's been a very profitable and remains.
you know, maybe the headlines are worse than the reality. Thanks. Yeah, Mike, all I would say, and I'll ask Beth to add her color, is details matter, location matters, property type matters, experience with lenders or excuse me, borrowers and
and developer matters, so we're pretty confident in our ability to manage this through a cycle here that we're approaching and still have optimal flexibility with our balance sheet and capital. But Beth, what would you add? Yeah, I would agree with that. I mean, we regularly stress all aspects of our business and evaluate.
our overall capital levels and take that into consideration when we execute on our share repurchases and so forth. And sitting here today, as you can see from our results, we're continuing on the path that we've been on and feel very good with the overall strength of the balance sheet. Okay, great. My follow up.
any change in dynamics therapy helpful. Thanks.
I'll let Stephanie add it, but I'll just repeat what I said in my prepared remarks consciously. We built a new product with new technology, Amazon-like features.
particularly some of the latest developments in the excess and surplus lines.
that we're going to attack quite aggressively in the marketplace. But Stephanie, what would you say? Yeah, it's a terrific question. You know, it's a phenomenal franchise, as Beth stated, 11 quarters in a row with a sub-90 underlying combined ratio. Record-breaking new business growth.
All lines growing, stable retention, strong pricing, export comp, and we're incredibly skilled at the workers' compensation line. Successfully navigate historically through multiple economic scenarios. We really are the standard for ease, accuracy, and consistency.
We're off to a tremendous start and as Chris mentioned, we're pacing towards another milestone of 5 billion.
If I could just a direct follow up on this, you've mentioned ENS on I think the last couple calls in regards to small commercial. Is that a new initiative? Like is that a or does that open up a new TAM that you know, you know, for small commercial ENS that you know, like the likes of Kinsdale or just any color there would be great. Thank you.
growing the property and liability lines. We're very pleased with the results. It's a growing and accretive portion of our business and expect that to grow meaningfully over time. So it's a terrific offering. We have tremendous wholesale relationships and it's just allowing us to create more capability and offering in the total small business universe.
Thank you.
Thank you. Our next question for today comes from Tracy Van Guiguie from Barclays. Tracy, your line is now open. Please go ahead. Thank you. Good morning. One of your competitors mentioned that California workers' comp is showing signs of firming, which is ahead of the rest of the market. Are you seeing that too?
Yeah, I read that. I would say we're probably a little more.
Same when in cautious. That's all I'll say. Or is there any other tougher states that are showing early signs affirming at the stage?
I would say –
I would say we're watching for
Green shoots very closely. We'll report if we see any green shoots.
Green shoots very closely. We'll report if we see any green shoots. Got it.
You know, Chris, you mentioned that the auto headwinds should add four to six points of loss ratio pressure on your auto expectations that you had for the full year. So how should that influence your personal lines underlying combined ratio guide of 93 to 95% per 23, which is auto and homeowners?
Chris, you mentioned that the auto headwind should add four to six points of loss ratio pressure on your auto expectations that you had for the full year. So how should that influence your personal lines underlying combined ratio guide of 93 to 95% for 23, which is auto and homeowners? Yeah, I would have.
I expected you'd be able to do the math on that, but that's all I'm prepared to say at this point in time. You can see the premium weighting, you can see the history. I think you can make a reasonable estimate.
Okay. Thank you. Thank you. Our next question comes from Josh Schanker from Bank of America. Josh, your line is now open. Please go ahead. Yeah, good morning, everyone. Maybe I'm doing this wrong, but I look at...
the commercial segment and last year in the first quarter you had 1.2 billion dollars of claims payments and in the first quarter of 23 you had 1.4 billion but you paid the boy scout settlement this quarter which is 787 million dollars which maybe I'm doing this wrong it substantially reduces
your claim payments in commercial and your claim payments overall to a number that's astonishingly low. I mean I don't have the full time series in front of me, but I don't think it's been that low in a decade. Am I doing this wrong? Yeah Josh, you're doing it wrong.
Okay, yeah, Josh, you're doing it wrong. We, we, yeah, we'll, we'll, we'll help you out. We paid the Boy Scout settlement last week in April , so the Boy Scout settlement is not in the first quarter numbers that you're looking at. And we have that disclosed in our, our 10Q. Oh, that said March 28th in the Q, maybe I read it wrong. Okay, that's it, that's my only question.
Thank you. Our next question comes from Derek Hahn from KBW. Derek, your line is now open. Please go ahead. Good morning. Thanks a lot. Just going back to small commercial new business premiums, I'm just curious if you're benefiting at all from the smaller regional mutual companies. I really can't stand.
industries. We track prior carrier and current carrier where we're getting the business from and it's pretty widespread. So we find those opportunities and we capitalize on them.
Got it. Thank you. And then just a quick numbers question. I think, Chris, you said the margin between pricing and loss trend has improved modestly. I think previously it was about 100 bps. So is that kind of growing to 120 bps? If you can kind of quantify that, that would be helpful. Thank you. Derek, I would say in that 10 to 20 bps in...
We are available this afternoon, and have a great day.
Thank you for joining today's call, you may now disconnect your lines.