Q4 2024 Earnings Summary
- The Hartford's Small Commercial business achieved 9% overall growth, driven by strategic investments in technology and data capabilities, positioning the company to capture additional market share and sustain consistent growth over time.
- The company has effectively managed its homeowners insurance business, generating combined ratios in the low 90s over a long period, which compares favorably to the industry, and is confident in its ability to thoughtfully grow this business, even amidst market disruptions.
- Management has proactively strengthened general liability reserves by $130 million, and is highly confident that they have addressed prior issues, positioning the company well for 2025 with expectations to maintain margins consistent with 2024.
- The company faced increased reserve charges in their General Liability line due to social inflation and higher claim severity, resulting in a $130 million charge this quarter and adjustments to severity assumptions for both prior and current accident years, indicating potential ongoing reserve adequacy concerns. , ,
- There is exposure to the recent Los Angeles wildfires, especially in commercial lines, which may lead to significant catastrophe losses. Although reinsurance coverage exists, there is a risk that losses could be substantial and impact financial results.
- The expense ratio in Personal Lines increased by about 2 points in the quarter, driven by higher marketing costs and commissions related to new business growth, which may negatively affect profitability.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +7.5% (from $6,400M to $6,879M) | Q4 2024 total revenue increased by 7.5%, driven by improvements in underlying revenue segments such as earned premiums, fee income, and net investment income relative to Q4 2023, reflecting the company’s continued operational strength. |
Net Income | +10.6% (from $771M to $853M) | Net income rose by 10.6%, benefiting from improved underwriting performance and cost efficiencies that built on gains from prior periods, resulting in higher profitability in Q4 2024 compared to Q4 2023. |
EPS – Basic | +5% (from $2.79 to $2.93) | EPS increased by 5% as a direct result of higher net income and improved earnings quality, although the modest EPS growth relative to net income suggests some dilution or changes in capital structure compared to Q4 2023. |
Depreciation & Amortization (D&A) | Drastic increase (from $43M to $591M) | D&A jumped dramatically in Q4 2024, likely due to a significant one‐off or reclassification event, a change not reflective of ongoing operations, and deviates sharply from the prior period’s modest level. |
Corporate Segment Revenue | Reversal to –$28M (from positive figures) | Corporate segment revenue turned negative, recording –$28M in Q4 2024 compared to previously positive numbers. This change is attributed to shifts in components such as net realized gains versus losses and the removal of a prior capital-based state tax expense that had previously buoyed the segment’s results. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Net investment income (excl. LP) | FY 2025 | no prior guidance | Expected to be higher in FY 2025 | no prior guidance |
Net dividends from operating companies | FY 2025 | no prior guidance | $2.5B (9% increase over FY 2024) | no prior guidance |
Share repurchases | Q1 2025 | no prior guidance | $400M per quarter in Q1 2025 | no prior guidance |
Commercial lines underlying combined ratio | FY 2025 | no prior guidance | Remain consistent with 87.9% from FY 2024 | no prior guidance |
Personal auto underlying combined ratio | FY 2025 | no prior guidance | Mid-90s | no prior guidance |
Group benefits core earnings margin | FY 2025 | no prior guidance | 6% to 7% | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
General Liability reserve adequacy | Q3 2024: Increased by $32 million due to higher large losses in newer accident years. Q2 2024: Raised reserves by $32 million for 2015–2019, citing ongoing reserve reviews. Q1 2024: Prior year development tied to 2016–2019 accident years; recent years were trending well. | Strengthened reserves by $130 million before tax due to higher‐than‐expected construction defect claims (2015–2018) and increased severity in recent years. Management expressed high confidence in adequacy going into 2025. | Reserve additions occurred consistently, with Q4 2024’s increase notably larger. The focus on older accident years and severity trends persisted across periods. |
Social inflation | Q3 2024: Explosive growth in settlement values and representation rates. Q2 2024: Cited as justification for higher liability pricing. Q1 2024: Acknowledged in litigation hotspots, prompting underwriting actions. | Identified as a key driver of increased severity and rising settlement costs, with extended attorney representation. | Continues to be consistently referenced as fueling severity; no slowdown indicated. |
Claim severity | Q3 2024: Ongoing increases in general liability claim costs. Q2 2024: Maintained disciplined underwriting, though no detailed severity breakdown. Q1 2024: Cited 5% workers’ comp severity trend, with broader caution in liability lines. | Elevated severity exceeded expectations; assumptions strengthened for unsettled/unreported claims. | Severity pressure remains persistent; emphasis heightened as losses exceeded prior assumptions. |
Commercial Lines growth and market share gains | Q3 2024: 9% premium growth, double‐digit new business. Q2 2024: 11% growth, bolstered by technology and pricing expertise. Q1 2024: 8% growth, maintaining strong combined ratio. | Achieved 6% written premium growth in Q4 and 9% for full year, driven by pricing and digital capabilities; #1 in Small Commercial digital tools. | Consistent growth and market share gains quarter‐to‐quarter, with Small Commercial as a standout driver. |
Personal Lines profitability and margin improvement timeline | Q3 2024: Auto combined ratio improved by 7 points, with margins expected mid‐2025. Q2 2024: On track for 2025 margin targets, aided by ~20% auto rate increases. Q1 2024: Profitability expected 2024, full margin targets 2025. | Underwriting gain returned after two years; auto profitability targeted by mid‐2025, aided by strong rate actions. | Steady progress toward mid‐2025 auto profitability, consistent rate increases, and improved combined ratios each quarter. |
Group Benefits competition and sales pressure | Q3 2024: Highly competitive, with 15% YOY sales drop but strong persistency. Q2 2024: Noted several capable competitors; focuses on value beyond price. Q1 2024: Disciplined life pricing under higher mortality assumptions, slightly lower persistency. | Core earnings margin of 8.2%; expects a modest sales uptick in 2025. Market remains dynamic with product innovation. | Ongoing competitive environment; sales vary, but margins stay solid. Investments in digital and product innovation continue. |
Shift toward property insurance strategy | Q3 2024: ~20% property growth, targeting $3B premium; disciplined CAT risk. Q2 2024: Property shift lowers combined ratio; invests in risk mgmt. Q1 2024: 17% property growth, 14% pricing, disciplined CAT approach. | Achieved $3 billion in written premium; maintained flat catastrophe ratio despite expansion. Expects strong risk‐adjusted returns. | Steady expansion in property lines, reinforcing disciplined CAT management and emphasizing favorable returns. |
Exposure to catastrophe events like wildfires | Q3 2024: No specific wildfire reference, but cited robust reinsurance program. Q2 2024: Managed CAT losses slightly above plan. Q1 2024: Grew property without changing CAT appetite. | Mentioned Los Angeles wildfires and reinsurance structure; <1% personal lines share in CA but higher in middle market. | Increased transparency on wildfire impact in Q4; overall CAT exposures remain carefully managed. |
Investments in technology and data capabilities | Q3 2024: Key advantage improving underwriting and broker/agent efficiency. Q2 2024: Integral for risk segmentation and pricing gains. Q1 2024: Enabled double‐digit new business growth and operational efficiency. | Emphasized transformational work in underwriting, pricing, and digital engagement; credited with market‐leading performance. | Consistently prioritized to enhance competitive edge; lauded as a main driver behind growth and underwriting discipline. |
Homeowners insurance combined ratio performance | Q3 2024: 75.4% underlying CR, improved by 2.7 points YOY. Q2 2024: 77.8% underlying CR, solid improvement. Q1 2024: 77% underlying CR, strong despite industry headwinds. | Exceptional 61.7% underlying combined ratio, best in over a decade; pricing outpaced loss costs. | Marked and continual improvement each quarter, driven by significant rate actions and improved underwriting. |
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General Liability Reserve Charge
Q: Explain the $130 million GL reserve charge and confidence in future.
A: Management acknowledged a $130 million prior year development (PYD) charge in general liability due to increased costs across several accident years, including both 2015–2018 and more recent years. They feel highly confident they've put a good portion behind them. Additionally, they've adjusted 2024 loss picks by adding about 1 point to reflect higher loss cost trends. They've incorporated these trends into pricing models, aiming to maintain margins consistent with 2024. -
Reserving Approach and Severity Assumptions
Q: Have you changed your approach to GL reserves and severity assumptions?
A: Management took a different approach this quarter by increasing severity assumptions for unsettled and unreported reserves, resulting in a larger IBNR increase. They're now assuming low double-digit severity trends in aggregate for liability lines, with higher trends in umbrella and excess. These assumptions are built into 2025 pricing, and underwriters are executing accordingly. -
Commercial Lines Margin Outlook
Q: Can you maintain commercial lines margins in 2025?
A: Despite challenges, management believes they can produce an underlying combined ratio consistent with the 87.9% achieved in 2024. They've incorporated higher loss cost trends into their assumptions and are confident in their diversified product lines and underwriting discipline. -
Impact of California Wildfires
Q: What is your exposure to the California wildfires?
A: The wildfires will impact both commercial and personal lines. Personal lines market share in California is less than 1%, but they have a larger share in middle market and small commercial. Losses may enter their reinsurance layers starting at $200 million, where they retain 60% and reinsure 40%. It's unclear if losses will reach higher layers, but they're monitoring the situation closely. -
Disability Loss Ratio Increase
Q: Why did the disability loss ratio rise by 3.3 points?
A: The increase is primarily due to elevated Paid Family and Medical Leave (PFML) incidence trends, contributing 3 points of the rise. Higher long-term disability incidence added 1 point, partially offset by better recoveries, which improved by 1 point. -
Group Benefits Trends
Q: Are disability incidence rates normalizing after being low?
A: Disability incidence rates are returning to a five-year historical average after being at all-time lows. Management expected this normalization and has reflected it in their pricing and reserving assumptions to avoid future shortfalls. -
Growth in Small and Mid-Large Commercial
Q: Can you sustain growth in small and mid-large commercial?
A: Small commercial had a strong year with 9% growth, and management believes momentum is sustainable due to strategic advantages like technology investments and data. Mid-large commercial growth was 5%; while the market is competitive, especially in workers' comp, GL, and umbrella, they remain disciplined and confident in gaining market share over time. -
Personal Lines Expense Ratio
Q: Why did the personal lines expense ratio increase?
A: The expense ratio rose by about 2 points in the quarter, driven by higher marketing spend and commissions related to new business growth, particularly in home. Investments in new business are expected to drive premium and policy growth over time. -
A&E Reserve Developments
Q: Why are you still taking A&E reserve charges?
A: While claim frequency is decreasing, especially in mesothelioma, severity is increasing as plaintiffs seek higher settlements per claim. Management continues to monitor these trends and adjusts reserves accordingly, noting similar themes as in the past. -
Personal Lines Bundling Strategy
Q: Is there a risk in selling monoline homeowners policies?
A: Approximately 75% of homeowners policies are bundled with auto. Management isn't a big monoline homeowners player, but where they offer it, they do so judiciously to mitigate adverse selection. They've improved modeling and risk selection to confidently grow in the homeowners market while remaining cautious.