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    Hartford Financial Services Group Inc (HIG)

    Board Change

    The Hartford Financial Services Group, Inc. (HIG) is a diversified insurance and investment company operating primarily in five reporting segments: Commercial Lines, Personal Lines, Property & Casualty Other Operations, Group Benefits, and Hartford Funds, along with a Corporate category . The company offers a range of insurance products, including workers' compensation, property, automobile, general liability, and professional liability, primarily targeting small businesses, middle market companies, and national accounts . Additionally, Hartford provides group life, accident, and disability coverage, investment management services, and products like mutual funds and ETFs .

    1. Commercial Lines - Offers insurance products such as workers' compensation, property, automobile, general liability, and professional liability, primarily targeting small businesses, middle market companies, and national accounts.
    2. Group Benefits - Provides group life, accident, and disability coverage, along with other products like voluntary benefits and group retiree health.
    3. Personal Lines - Provides automobile, homeowners, and personal umbrella coverages, with a significant portion of business coming from a program designed for AARP members.
    4. Hartford Funds - Offers investment management services and products, including mutual funds and ETFs.
    5. Property & Casualty Other Operations - Encompasses various other insurance-related activities not included in the main segments.
    Initial Price$101.47July 1, 2024
    Final Price$117.96October 1, 2024
    Price Change$16.49
    % Change+16.25%

    What went well

    • The Hartford is experiencing strong growth in Commercial Lines, with double-digit new business growth in small commercial and middle market, and expects to continue gaining market share.
    • The company maintains high renewal persistency above 90% in its Group Benefits segment, indicating strong customer retention.
    • Group Benefits core earnings margin reached 8.7%, exceeding its guidance range of 6% to 7%, demonstrating excellent profitability.

    What went wrong

    • Rising loss costs in General Liability due to increased attorney representation and higher settlements have led to a $32 million prior year reserve adjustment. The company noted that "the percentage of claims coming in with attorney representation is high and is getting higher," and "the average settlement rate of claims... is increasing rapidly."
    • Despite mid-teens rate increases in homeowners insurance, the underlying combined ratio hasn't improved significantly, suggesting that loss cost trends are increasing and eroding margins. The company acknowledged, "loss cost trends are increasing. That's why we are putting the rate in there."
    • Group Benefits sales are down year-over-year even after adjusting for prior-year one-time items, indicating potential weakness in this segment. The executive stated, "we had some one-time PFL and PML sales last year... If you take it out, we're still down, but we're down just slightly."

    Q&A Summary

    1. General Liability Loss Trends
      Q: Why did GL loss picks increase this quarter?
      A: Management explained that data shows more attorney representation in claims of all sizes, leading to a higher percentage of claims coming in with attorneys, which is increasing rapidly. Additionally, the average settlement rate of claims, including simple slip and falls, is increasing rapidly. These two factors led to a $32 million adjustment in prior year picks.

    2. Commercial Auto Adverse Development
      Q: Are adverse trends in commercial auto continuing?
      A: Yes, adverse development in commercial auto continued this quarter, primarily related to specific accounts within certain lines. Management is actively managing these exposures by moving larger fleets to loss-sensitive programs or exiting accounts altogether. They are pushing rates hard in auto lines and feel good about current year loss picks.

    3. Workers' Comp Trends and Reserves
      Q: What's the outlook for workers' comp reserves and trends?
      A: Workers' comp reserve releases have been significant over the last seven quarters. Management sees trends as generally stable, with medical severity within their assumption of 5%. They continue to view workers' comp as a highly profitable line but are being selective on new business and sensitive to states taking bigger price adjustments.

    4. Commercial Lines Growth and Market Share
      Q: Can you discuss growth and market share in Commercial Lines?
      A: The company reported solid premium growth across Commercial Lines, with 10% in Small Commercial, 8% in Middle Market, and 9% in Specialty. They believe they are gaining market share through differentiated capabilities, such as improvements in data science, analytics, and underwriting. Submission flows remain strong, and they feel confident about growth prospects.

    5. Personal Lines Profitability Targets
      Q: What's the outlook for Personal Lines profitability?
      A: Management aims to return to overall profitability targets, roughly a 15% to 17% ROE. While they refrained from giving specific combined ratio targets, they are focused on improving margins and feel good about the progress in Personal Lines.

    6. Group Benefits Margins and Competition
      Q: What's driving high margins in Group Benefits, and how is competition?
      A: Group Benefits delivered a margin of 8.7%, well above the 6% to 7% guidance. Despite a competitive market and sales being down about 15% from the prior year, persistency remains strong at over 90%. They are pricing for an endemic state in life insurance, which has impacted sales, but are pleased with new products in absence and paid family leave.

    7. Property Pricing Dynamics
      Q: Why is property pricing still strong in SME markets?
      A: Property pricing remains strong in the SME space, with pricing accelerating 60 basis points during the quarter to 12.8%. Products like Spectrum saw pricing up 60 basis points to 17.6%, and general industry property capabilities up 60 basis points to 8.5%. Management feels good about being in the SME space where pricing remains firm, unlike in larger property accounts where pricing is softening.

    8. E&S Growth Progress
      Q: What's the progress on E&S growth targets?
      A: The company is on track to achieve its $300 million goal in E&S binding this year. They are benefiting from increased flow to the E&S channels due to social inflation, capturing more of the flow in the small and middle market segments. They see strong momentum in both E&S binding and the wholesale space within Global Specialty.

    9. Homeowners Combined Ratio Improvement
      Q: Why hasn't homeowners' combined ratio improved more despite rate increases?
      A: Although they have implemented mid-teens rate increases consistently, loss cost trends are increasing, which is why they're putting in the rate. Catastrophe losses were elevated during the quarter, affecting the combined ratio. Management feels they are ahead of loss trends and close to hitting their target margins in total.

    10. Middle & Large Commercial Growth Outlook
      Q: How is growth trending in Middle & Large Commercial?
      A: Growth in Middle Market was around 7% this quarter, slightly lower than the year-to-date growth of 9.9%. Despite this, they feel really good about growth possibilities as submission flows remain strong and underwriters are active in the marketplace. They believe they will benefit from agents' desire to consolidate carriers.

    11. A&E Reserve Review Status
      Q: What's the status of the A&E reserve review?
      A: Management is currently conducting the A&E reserve review and will announce the results with the fourth quarter earnings. They have nothing to speculate on at this time.

    12. Commercial Rate Environment
      Q: What's driving commercial rate increases despite healthy ROEs?
      A: The pricing environment is driven primarily by loss trends rather than investment income. Management believes it's rational and thoughtful, focused on maintaining margins. Underwriting is challenging, and their teams are making difficult choices every day, with investments in data science and feedback loops being crucial.

    13. Group Disability Claims Trends
      Q: Any new trends in group disability claims this year?
      A: No significant new trends have emerged; it's been more of the same as in previous years. They are pleased with their absence and paid family leave products, which are performing well in six states and are complementary to their disability offerings.

    14. Personal Lines Expense Ratio
      Q: What's happening with the Personal Lines expense ratio?
      A: There is nothing significant to call out regarding the expense ratio. Last quarter, they restarted national advertising and solicitation for their direct response business. They expect the expense ratio to normalize and decrease over time as they gain operating leverage with resumed growth.

    NamePositionStart DateShort Bio
    Jonathan R. BennettExecutive Vice President and Head of Group BenefitsAugust 2019Jonathan R. Bennett has been the Executive Vice President and Head of Group Benefits since August 2019. He was previously the CFO and Head of Strategy for Property and Casualty and Group Benefits .
    Claire H. BurnsChief Marketing and Communications OfficerSeptember 2021Claire H. Burns has served as the Chief Marketing and Communications Officer since September 2021. She was previously the Chief Marketing and Strategy Officer at Prudential International .
    Stephanie C. BushExecutive Vice President and Head of Personal Lines (Retiring March 1, 2024)January 2018Stephanie C. Bush has been the Executive Vice President and Head of Personal Lines since January 2018. She announced her retirement effective March 1, 2024 .
    Beth A. CostelloExecutive Vice President and Chief Financial OfficerJuly 1, 2014Beth A. Costello has been the Executive Vice President and Chief Financial Officer since July 1, 2014, overseeing finance, treasury, capital, accounting, investor relations, procurement, and actuarial functions .
    Michael R. FisherExecutive Vice President and Property and Casualty Chief Underwriting OfficerMay 2019Michael R. Fisher has been the Executive Vice President and Property and Casualty Chief Underwriting Officer since May 2019. He was previously the Executive Vice President and Head of Specialty Commercial .
    John J. KinneyExecutive Vice President, Head of Claims & OperationsAugust 2021John J. Kinney has been the Executive Vice President, Head of Claims & Operations since August 2021. He was previously the Chief Claims Officer .
    Allison G. NidernoSenior Vice President and ControllerMarch 2023Allison G. Niderno has been the Senior Vice President and Controller since March 2023. She was previously Vice President Finance, Head of External Reporting and Investment Finance .
    Robert W. PaianoExecutive Vice President and Chief Risk OfficerJune 2017Robert W. Paiano has been the Executive Vice President and Chief Risk Officer since June 2017. He was previously the Senior Vice President & Treasurer .
    David C. RobinsonExecutive Vice President and General Counsel (Retiring March 1, 2024)June 1, 2015David C. Robinson has been the Executive Vice President and General Counsel since June 1, 2015. He announced his retirement effective March 1, 2024 .
    Lori A. RoddenExecutive Vice President and Chief Human Resources OfficerOctober 2019Lori A. Rodden has been the Executive Vice President and Chief Human Resources Officer since October 2019. She was previously the Senior Vice President and Lead HR Business Partner for various departments .
    Deepa SoniExecutive Vice President, Head of Technology, Data, Analytics & Information SecurityAugust 2, 2021Deepa Soni has been the Executive Vice President, Head of Technology, Data, Analytics & Information Security since August 2, 2021. She will also assume responsibility for customer-facing operations starting March 2024 .
    Amy M. StepnowskiExecutive Vice President and Chief Investment OfficerAugust 2020Amy M. Stepnowski has been the Executive Vice President and Chief Investment Officer since August 2020. She is also the President of Hartford Investment Management Company (HIMCO) .
    Adin M. TookerExecutive Vice President, Middle & Large Commercial, Global Specialty and Sales and DistributionNovember 2022Adin M. Tooker has been the Executive Vice President, Middle & Large Commercial, Global Specialty and Sales and Distribution since November 2022. He was previously the EVP and Head of Middle & Large Commercial .
    1. In the Personal Lines segment, can you provide specific targets for your longer-term combined ratio given the recent trends, and explain how you plan to achieve them, especially in the context of increased advertising expenses?
    2. Regarding the upcoming A&E reserve review, can you discuss any preliminary trends or factors that might impact reserve levels, and how you are preparing for potential changes in those liabilities?
    3. Group Benefits sales are down 15% from the prior year despite strong margins; how do you plan to address the competitive pressures and decline in new business to drive growth in this segment?
    4. In a competitive market with rising loss trends and healthy industry ROEs, how are you balancing pricing increases to maintain growth while ensuring underwriting discipline across your commercial lines?
    5. Your Group Benefits margins are currently above your 6% to 7% guidance at 8.7%; what factors are driving the expectation of a margin decrease, and how will this affect your strategic priorities in this segment?
    Program DetailsProgram 1Program 2
    Approval DateJuly 28, 2022 July 25, 2024
    End Date/DurationDecember 31, 2024 December 31, 2026
    Total additional amount$3.0 billion $3.3 billion
    Remaining authorization$0.2 billion $3.3 billion
    DetailsPart of $3.5 billion remaining under both programs Part of $3.5 billion remaining under both programs

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: Q4 2024
    • Guidance:
      1. Group Benefits Margin: Core earnings margin was 8.7%, above the typical guidance range of 6% to 7%. Expected to return to the guidance range over time due to competitive market conditions .
      2. Personal Lines: On track to achieve target margins in auto by mid-2025, with auto renewal written price increases at approximately 20% .
      3. Commercial Lines Pricing: Renewal written pricing excluding workers' compensation was 9.5%. Pricing trends in auto, general liability, umbrella, and excess pricing are expected to remain conducive to growth .
      4. E&S Growth: On track to achieve a $300 million goal for E&S binding by the end of the year .
      5. Property Pricing: Pricing in the small to mid-market area remains elevated .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2025
    • Guidance:
      1. Core Earnings Margin for Group Benefits: Long-term guidance range of 6% to 7%, expected to outperform this for the remainder of 2024, with an 8.1% margin in the first half .
      2. Personal Lines Target Margins: Expected to achieve target margins by mid-2025, with a 5- to 6-point improvement in the auto underlying loss ratio for 2024 .
      3. Auto Renewal Written Price Increases: Expected to be approximately 20% for the year .
      4. Workers' Compensation: Maintaining a 5% trend for medical inflation in reserves and pricing .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Personal Lines: Profitability expected in 2024, target margins in 2025, with a 5 to 6-point improvement in the underlying auto loss ratio .
      2. Commercial Lines: Expense ratio expected to be flat for 2024, with renewal written pricing excluding workers' compensation at 9% .
      3. Group Benefits: Core earnings margin expected to reflect improved life results and strong disability performance .
      4. Investments: Limited partnership returns could be below 2023 results, but long-term results expected to be consistent with historical returns .
      5. Share Repurchase: Plan to maintain share repurchases, with approximately $1 billion remaining on authorization through December 31, 2024 .
      6. Overall Financial Performance: Personal Lines expected to contribute to core earnings as it returns to profitability .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Commercial Lines: Renewal written price increases excluding workers' compensation expected to be consistent with 2023; workers' compensation pricing projected to be flat to slightly negative .
      2. Personal Lines: Annual renewal written pricing in auto and home expected to be consistent with Q4 2023 results, with a 5 to 6-point improvement in the auto loss ratio .
      3. Group Benefits: Core earnings margin expected between 6% and 7% .
      4. Investment Income: Expected to remain strong, supported by rising yields .
      5. Capital Management: Continued share repurchase program with $1.35 billion remaining on authorization through December 31, 2024 .
      6. Core Earnings ROE: Expected to be anchored at 15% .

    Recent developments and announcements about HIG.

    Corporate Leadership

      Board Change

      ·
      Jan 6, 2025, 4:58 PM

      Annette Rippert has been elected to the board of directors of The Hartford Financial Services Group, Inc. (HIG), effective February 18, 2025. She will serve on the board's Finance, Investment and Risk Management Committee.