Q2 2024 Earnings Summary
- The Hartford's specialty business achieved over $1 billion in quarterly written premium for the first time, with diversified growth in wholesale and reinsurance. The reinsurance business is growing at 18% overall, capitalizing on market dislocation to deliver superior risk-adjusted returns.
- Shift towards property insurance is enhancing margins, with property written premiums expected to reach nearly $3 billion this year, up from $2 billion a couple of years ago, representing growth of approximately 20%. This is due to significant investments in risk management tools and talent, enabling effective competition and navigation of market complexities.
- Increased share repurchase authorization by 10% to $3.3 billion, reflecting strong earnings and capital generation across businesses. The company plans to increase quarterly share repurchases to approximately $400 million starting in the third quarter.
- HIG reported adverse prior year reserve development in General Liability ($32 million) and Commercial Auto ($10 million), particularly in accident years 2015-2019, indicating potential reserving issues.
- In Personal Lines, margins are under pressure, with target margins not expected until mid-2025, suggesting ongoing profitability challenges in auto and homeowners.
- Heightened competition in the Group Benefits business is leading to lower sales and growth, with HIG prioritizing margin over growth, which may impact future top-line performance.
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Commercial Pricing Outlook
Q: Will commercial pricing trends continue upward?
A: Management expects to maintain disciplined pricing in commercial lines, particularly in liability lines, to stay ahead of loss cost trends. They are pleased with current pricing levels, with rates up 6.6%, including a 9.5% increase excluding workers' compensation, and higher rates in excess and umbrella lines. They believe the environment will not let up and plan to continue pushing for needed rate increases. -
Reserving in GL and Auto
Q: Should we be concerned about adverse reserves in GL and auto?
A: Management acknowledges reserve increases in general liability related to accident years 2016-2019 and a $10 million adverse development in commercial auto from 2022 due to a few accounts. They have taken action on these accounts and feel confident about their overall reserving approach, stating that the balance sheet is healthy and they feel good about where they are. -
Workers' Comp Loss Trends
Q: Impact of Florida legislation on workers' comp severity?
A: The recent Florida legislation increasing Medicare reimbursements for doctors is expected to have a modest impact on workers' comp severity trends starting in 2025. Management does not anticipate it to be material and plans to adjust pricing accordingly through rate filings. -
Property Rate Increases
Q: Are property rates still seeing double-digit increases?
A: Despite some moderation, property rates remain in double digits, with rates up 12.4% this quarter compared to 14.1% last quarter. The highest increases are in Small Commercial business owners policies (BOP) and E&S binding divisions. Management notes competition in shared and layered space but continues to execute well in other areas. -
Personal Lines Margin Improvement
Q: When will Personal Lines hit target margins?
A: Management expects Personal Lines to reach target margins by mid-2025. Sequential increase in combined ratio was primarily due to increased expenses from resuming marketing activities. Loss cost trends are moderating, and they anticipate continued rate earn-in to drive margin improvement over the next 18 months. -
Group Benefits Margin and Growth
Q: Can you balance margins and growth in Group Benefits?
A: While acknowledging competitive pressures and a slight decline in sales, management emphasizes maintaining underwriting and pricing discipline. They reported a 10% core margin in Q2, outperforming their long-term guidance of 6%-7%, and aim to compete hard without compromising profitability. -
Specialty Growth and Reinsurance Lines
Q: Where is Specialty growing, especially in reinsurance?
A: Specialty lines experienced 14% growth with an 85.2% underlying combined ratio. Growth is diversified, with significant contributions from E&S wholesale and global reinsurance growing at 18%, particularly property reinsurance up 24%. They focus on niche areas and disciplined underwriting, expecting reinsurance to be a run-rate business of about $850 million this year.