We'll go ahead and jump into the first session of the day here. First, I'd like to say thank you for being with us. I have Chris Swift, CEO of Hartford, and Beth Costello. Very much appreciated. So I wanted to kick it off with a broad strategy update type question, and it's been a little while since your last Investor Day. So if you could just remind us of some of your key strategic objectives and maybe even more specifically, you know, some of the things that you're most focused on as we think through the next 12-18 months.
Well, it's great to be with you. Always appreciate the invitation. Appreciate the morning slot. We get everyone fresh and perky, ready to go, so it's good to see everyone. Before I answer, you know, the I'll call it the strategic question, I'd just like to give you, you know, three or four points, maybe just to consider about, you know, The Hartford. And I would say, one, you know, we're sort of in go mode right now. And what I mean by go mode is it's growth time. It's a good time to grow. You know, we're not fixing anything other than, I'll call it normal maintenance, you know, on the portfolio and staying up with trends.
Personal lines is a little bit of a different story, but our commercial lines and group benefits business is ready to go, and it is not in fix-it mode. It is in go mode, which is an important distinction, given some of the, you know, pressures, you know, in the marketplace. You know, second, I think we're becoming a more consistent organization with predictable results and strong returns. Thirdly, I would say the team is execution-focused, performance-orientated, wants to compete, wants to win, and, you know, has a great mindset about purpose and what we're trying to achieve over a longer period of time. And then finally, I just think the one metric that means a lot to us and what we manage to is our ROEs.
It's a culmination of everything we just talked about, growth orientation, margins, expense management, capital utilization, and I'm really proud of all the components that we've been, you know, managing over, you know, many years. I think the numbers speak for themselves, and we'll continue to maintain those stellar ROEs, I think, into the future. So your strategic question, and I probably mentioned some of the things that I'll talk about here, but you know, if I look at The Hartford over the years, what we've really been trying to do is broaden out our portfolio of products, services, if you wanna consider that in certain businesses, to meet more of the needs and demands of customers and agents and brokers.
So the key component of that now is we have all the products and capabilities in the building, as I like to say, and now we need to work with our agents and distribution partners to do more, you know, to capture more market share, to have more lines, you know, per account. So we have a lot of initiatives, you know, that are focused on that, you know, strategic orientation. Second is, again, core to who we are is we're an underwriter's underwriter. That is very important to us. Even though I described it as a go time, there is still an innate discipline, you know, about us.
Segments of the market we participate in, some segments in the market we avoid, limits management, just what it means to be a—I'll call it a world-class underwriter over a longer, you know, period of time. Third, I would say there is definitely still a digital data science orientation that we have to be a just a better customer experience organization, to do things fast, faster, more efficiently, you know, to be more accurate in a lot of those things. So you'll see us still focused on, you know, building data science models that we have been building, but, you know, continue to, you know, to build out, to be just much more of a data-driven, analytic, you know, driven, you know, organization.
And then, you know, finally, I would say our, our capital utilization is focused on growing our, our businesses. It's focused on having a healthy dividend and then returning excess capital to our shareholders in, in the form of, of buybacks, which again, I think we've been pretty consistent with, over a long period of time, Alex.
Great. Next, I wanted to ask on commercial insurance, could you describe what you're seeing in terms of the landscape in that business and just, you know, particularly around competitive pressure? You know, we're obviously seeing, you know, fairly strong ROEs across the board for many companies. Are you starting to see that manifest itself in more competition in the marketplace?
Not necessarily. I mean, I would say in general, I think it's still a great time to be in the commercial lines in totality, and I'll give you some data points. There's always competition. There might be always an outlier or two, but I think the market is generally rational. I think everyone understands, you know, the loss cost trends, you know, whether it be from inflation or, you know, other forms of pressure, you know, legal system abuse, as I like to call it, so don't get me started. So I mean, there's a lot to be thoughtful about it and disciplined about in the marketplace, and I think generally, most thoughtful market participants, you know, get it.
I mean, if you look at it, a couple of our key focus areas was, you know, growing our property book, you know, which I'm pleased that... Again, I think it's a great time to build a national property book with some of the capacity shortages.... I would say growth in pricing, you know, in small through our Spectrum product, through middle market, generally has been low teens, both on growth and pricing. You get into the large commercial and the E&S, you know, we get a little bit more growth because we're coming off a smaller base, and the pricing starts to, you know, get a little more elevated into the mid teens or even, you know, the low twenties in certain areas. So again, very conducive environment.
I think some of our liability, you know, focused lines of business, whether it be general liability, excess liability, umbrella, focused at different industry verticals, whether it be through our construction verticals, whether it be through life sciences, or general industries, it's pretty conducive, you know, to growth orientation right now. Again, with the right limits and the right discipline on underwriting. Areas that is not a go for us is, you know, broad-based D&O, particularly public D&O. We've switched more to the management liability side or the professional liability, you know, side of some of our coverages. Still feel very, you know, bullish about what's happening in our Lloyd's Syndicate, our marine capabilities. We got a world-class energy, you know, platform in London.
So, you know, when I put it all together, you know, there's things to avoid and go slow on, Alex, but it's still, from a broad-based commercial lines perspective-
Yep.
It's a good time. Comp is its own ecosystem. I don't know if you're going to ask about comp, but Beth and I could talk about comp-
No, I had no question.
A long time ago, so we'll wait for that question.
Okay. I wanted to dig into the property opportunity for growth a bit. Could you talk about, you know, the kind of price you're seeing there? And really, how do you manage around this risk of, you know, sort of these secondary peril cats, that it seems some in the industry maybe think are a little more attached to climate change and so forth?
Yeah, I would say, particularly secondary perils, that's not new for us. That's our largest exposure. You know, if I think of our cat budget for the year, 65%, 70% of our cat budget goes to tornado, hail, and all the convective storm, you know, activity. So, I think you've seen, you know, at least through this year, you know, we've actually performed very well, dramatically different than many industry participants because we've focused on fixing some of the overexposures, you know, we had in Texas, Colorado, Oklahoma, you know, back in 2018 and 2019, I think. So, you know, we saw that. We know how to sort of manage, you know, those, those perils.
Again, the primary strategy around property is a national property book that isn't focused on cat. But if some cat comes with it, and we can get comfortable with the attritional risk, and then we think we're getting paid for the, you know, the cat risk, you know, we'll write it. And if that takes on a little bit more, you know, convective storm or, you know, wind in peak zones, we're comfortable with that because we're getting paid for it, and we're under indexed, you know, in our property book today. I think the statistic I've used in other sessions is we probably had $2 ,000, 000,000 of written premium in commercial property between small, middle, and large. We're growing at about 25% rate this year, so it'll be a healthy increase.
But again, with strong pricing, good terms and conditions, appropriate sub limits, we don't throw around a lot of flood, you know, coverage. We do, you know, do it in some area, but very disciplined. And I think we'll be able to build a larger book that diversifies, obviously, our workers' compensation book, does more business with our agents and brokers that where our property skills are needed these days. And then we have the opportunity to attach more lines, more, you know, more lines per account long term. And that's a key metric focus area for us because we have all the products and capabilities and underwriting skills.
We've worked hard the last five years building out new underwriting tools, segmentation tools, risk management tools to model, you know, cat perils by peril, not in aggregate, but we basically run seven different, you know, cat models to, you know, track our cat exposure. So again, that just was part of the maturity and discipline that we had as an organization to be a true underwriter in more things than just workers' compensation.
Got it. Before we leave the growth strategy in commercial, I did want to ask about how distribution plays into all of it. I mean, when I think about Hartford, I think about the strength of that, you know, small and medium distribution that you have. Can you talk about that and how, you know, that may help you avoid some of the more competitive pockets?
Yeah, I think we have some of the best, you know, distribution out there, long-standing, you know, committed, aligned, that like doing business with us. And, you know, they've, you know, they've been with us on this journey, you know, giving us input of things we need to improve and fix and do to be a more relevant, you know, company in the marketplace. So, you know, where we are right now is, you know, harvest mode, you know, really trying to make sure they understand all our, all our products and capabilities, make sure they give us an opportunity, you know, to quote and, you know, compete for, you know, for new business. So I think, I think the alignment is strong.
Now, it's different when you look at our segmentations of how we go to market between small, you know, middle and large. Small is still predominantly 2,000 agents that probably produce 90% of our business across the country. So they tend to be smaller, you know, agencies, but not necessarily. You could put a Gallagher or a Hub, you know, into a large national agency broker model that we have strong business with. You know, middle and large tends to be concentrated in the top 100 brokers. And maybe if you really look at it, it's really probably the top 50, you know, that generate 80% of our premium. And again, deep, long-standing, committed relationships matched up with underwriters in the field.
You know, we do have what we call a centralized underwriting group in middle markets, so that tends to be more phone-based, more digital-based, you know, to agents and brokers in the field that don't have the required premium levels to have sort of a individual, personalized, you know, relationship. You know, with the Navigators acquisition, we did pick up a great wholesale distribution, which is new to us. But again, we're managing that with the wholesale brand of Navigators, with unique product sets for them, primarily, obviously, E&S products. But, you know, sometimes they use admitted, you know, products in in that global specialty orientation. So again, I think it's a it's a deep, rich pool of committed distribution partners that want us to win.
We compete well, and we're getting more and more opportunities to differentiate ourselves in the marketplace.
Got it. So I'm gonna come back to the workers' comp question.
Really?
You know, clearly, we've seen a couple of years now of the NCCI putting some pressure or really just, you know, various states putting a bit more pressure on pricing and there's concern around, well, maybe that's lagged and pricing is coming down just as medical costs and so forth are beginning to inflate. So, you know, just interested in your perspective on all of that, what gives you the confidence in the price adequacy of your business?
Well, yeah, obviously, you know, workers' compensation is our largest line of business. We're the second largest in the country, so we just have deep skills, right? Deep skills on underwriting, deep skills on claims, on sort of managing that lag. The lag is nothing new. Lags, lags are just an inherent part of our, our business. But what we're seeing, obviously, in personal lines, is when there's lags and there's significant volatility, that creates that mismatch. I don't see that significant mismatch or volatility in workers' compensation. Doesn't mean it's not. Doesn't mean it couldn't, you know, present itself, but, all the, all the data points, you know, we watch, across, you know, 50 states says, generally, medical inflation is under control.
I think, you know, we've talked in the, in the past with you, Alex, that, you know, our long-term medical severity assumptions are about 5%. I would say over the last 2 or 3 years, we're probably running it in the 2%-3% range. I would say over the last 9 months, we've probably seen some elevation in certain aspects of, of medical, severity, I would say pharmaceuticals, you know, primarily. But again, if you, if you think of sort of the market we serve, we, The Hartford, an SME-oriented organization, you know, we don't have, you know, broad-based, you know, medical exposure. We have contracts with our, our network providers, you know, that provide a, a cushion or an offset, you know, to that lag that you might, you know, refer to.
You know, we have the ability to audit all bills that come back from hospitals and. Oh, by the way, sometimes there are billing mistakes that we catch and obviously refuse to pay. So again, I think the ecosystem that we've built and operate in will have the appropriate signals if there's anything, you know, really dramatic, you know, happening with medical. You know, personally, the thing that we watch in a lot of aspects of our business because, you know, there's - that's just who we are in the SME space, is just general wage pressure. You know, but you would have to admit, and you guys follow this probably closer than I do, but, you know, there was a spike in wages.
You know, the JOLTS Report activity, you know, years ago, showed people hopping around for 30%-40% more. You know, guess what? That's changing rapidly, too. And I think the wage pressure that we have felt will dissipate somewhat. If it dissipates into sort of a 3%-4% range, that wouldn't surprise me. And obviously, you know, continue, you know, to track down from there. So the important message is, I think we got the right listening posts out there, listening posts, we have the right metrics, and we have the ability, ultimately, to adjust prices over long term if anything materializes in any major way.
Lastly, the cumulative effect of pricing for reserving for 5% medical inflation allows us to have the highest degree of confidence in our balance sheet for this line of business since the 14 years I've joined The Hartford. I have the highest degree of confidence in our balance sheet, particularly in comp, to cover any possible unknowns going forward.
Yeah.
Would you add anything?
... No, I think you covered all the pieces. You know, back to your question on why we have confidence in this line, it's because we're an expert in this line. I think our results have shown that through many years. We have all the mechanisms in place to be able to monitor trends, and as Chris said, react to them if we need to. From a balance sheet perspective, because, again, some of those workers' comp reserves can stay on your books for a long period of time, we've appropriately reserved for the potential for those increases in costs. So if you put it all together, it's a line that we're very confident in, and I think, again, as I said, our results speak to that.
Maybe one more on comp. The frequency trends we've seen have been pretty favorable for a period of time. So I'd just be interested in, you know, what, what's your view on some of the underlying drivers of that? I know it's probably going on since before the pandemic, so I don't think it was all pandemic related, but are you seeing any normalization as we're coming out of the pandemic? I mean, are we far enough away that there's really nothing there anymore?
Yeah, why don't we tag team? I would say generally, yes, broad-based safety improvements are still the primary driver. You could think in terms of technology, you could think of certain devices, you know, that maybe, you know, make, you know, certain jobs, you know, safer. You know, even the services, you know, industry, you know, generally there's, there's lower, you know, incidence rates in there. But, you know, deploying broad-based technology or mechanical devices that help people avoid injury, detection devices, wearables that we have on people for heavy construction industries to make sure people are lifting the right way, I think is all contributing to just broad-based improvement. So I think the trend of, you know, 2%-3% annual declines in frequency is still alive and well.
I think it'll be interesting from an economic side as, as maybe global supply chains, you know, shift a little bit and maybe as more manufacturing jobs come back into our country. I think that would be a good thing, obviously, for our business in ensuring more U.S. workers. But, there's some things to watch, but, you know, generally, I think that the trends are alive and well for continued improvement.
Got it. All right. Well, let's move over to personal lines. But maybe start with the inflationary environment. Certainly, we've seen severity is an issue across the industry. What are you seeing with those trends? Are there areas that you're seeing more stabilization? And, you know, is pricing going to begin to really take hold in a bigger way in excess of where the severity trends are?
Well, why don't we review some of our facts, and then we'll try to... We're not going to give any forward guidance, so I just want to manage your expectations, but I think we could give you a tone of how we're thinking. So yeah, the year didn't start out well. Missed our calls, like, right in the first quarter, so it wasn't a good day. You know, we needed to make adjustments in the first and second quarter too, to sort of our full year accident year picks. And I would say since then, those picks are holding through the third quarter. And I would say maybe even there might be more optimism to emerge in the fourth quarter. Meaning, that both frequency, severity, BI, and physical damage trends are going in the right direction.
So, I think we feel good about that. I think also, if you really look back over the last four quarters, I mean, we've been fairly aggressive with our pricing trends. Renewal written pricing, I think last quarter was at 19%. We foreshadowed already disclosed publicly, a 20% trend, most likely in the fourth quarter. And I've talked in other forums where we see probably the need for 15 points of rate increase in 2024. 2024, I would characterize as a transition year back to profitability, and then 2025, getting back to targeted profitability with 15%+ ROEs. So I would say we see recovery. It's emerging in our data and numbers.
We're still being aggressive, particularly with our 12-month policies of getting rate into the book and trying to keep up or even get ahead of trend. You know, certain regulators continue to be challenging. One positive news, you know, it's public, you know, we did get almost a 19-point rate increase in California, which is our largest state. We work other states equally diligently and thoughtfully and aggressively where needed. So I think things are beginning to improve.
Yeah, and the only other thing I would add, and Chris, you commented on this in our third quarter call, is that when we look towards the end of this year and our view of rate adequacy, you know, feeling really good about that and, you know, I think we said 65% of our new business, we expect to be rate adequate. So that, I think, puts us in a good position to think about growth again, in personal lines. Obviously, it's an area where there's still, you know, quite a bit of turmoil in the marketplace because as we and others have taken rate up. But the team feels very good about the path that we're on and meeting the goals that Chris just laid out.
Clearly, if it wasn't self-evident, we were talking about auto.
Yeah.
The homeowners line is actually, you know, performed, you know, very well. You know, obviously, our cat management is I think has produced a, you know, an overall, you know, excellent, you know, result, you know, in a high convective, you know, storm year with multiple billion-dollar events. We, you know, we've been keeping up with rate. We've been, you know, managing our ITV increases appropriately, and I see those results, you know, continuing to be very positive as we head into 2024.
Got it. You guys covered a lot with that response, so I am going to shift over to reinsurance. What are you seeing in terms of reinsurance costs headed into 2024, and do you anticipate any changes to, you know, the way you all buy reinsurance?
I'll let Beth, you know, comment. She manages the, you know, program with our, ceded reinsurance team. But generally, you know, our program has been stable over a 10-year period of time. And what I mean by stable is, you know, generally, we're talking catastrophe now, not per risk. Per risk-
Sure
... renews, May first?
From May first, 2017.
7/1. So but, you know, when we look at our cat program, you know, we've maintained a $350 ,000,000 per occurrence limit, you know, that we take. We have bought down into that $350 ,000,000 retention, particularly for wildfire exposures, which I think has, you know, protected us, you know, pretty well from any micro concentrations or events that would happen. You know, as we look into, you know, the future, the 1/1/2024 renewals, I think we think are going to be orderly. We've already gotten positive feedback about our program. Obviously, we haven't utilized any of the per occurrence.
But another component that, I think we'll be able to renew this year, and I know there are some questions in the marketplace about aggregates, but we got our aggregate, you know, placed last year with maybe a $50 , 000,000 increase. But that aggregate's important from the multiple events, you know, that sort of add up over time. So I think we'll get that renewed this year. As we've grown our property book, you'll probably see us add a little bit of cover to the top of the tower.
Mm-hmm.
I think that's publicly known. But generally, yeah, I think we're feeling good.
Yeah.
We've got our estimated costs built into our financial plan, you know, for 2024, so people know what to budget for and what to collect for, when we're pricing business in 2024 already.
Yeah, I would agree. I mean, again, stepping back, I, you know, I think our program is very well constructed. We, you know, anticipate some increase, and as Chris said, we've already started to incorporate that into our views on how pricing on our products needs to respond to that. You know, we always look at, you know, the overall efficiency of what we're buying and can make tweaks sort of around the edges. But in general, you know, the program has remained relatively consistent. And the other thing that provides us some of that consistency is on that top layers, that we have the $600 , 000,000 , the top $600 , 000,000 , we only have to renew a third of that every year. So when we renew it, we do renew it for multiyear.
So that provides us a bit of stability year to year, in that we're only going to the market for a third of that, and we've been doing that for several years.
So on group benefits, would be interested if you could talk about some of the, you know, key things you're focused on in that business and proponent board. You know, also just the degree of interest in further expanding and being a consolidator, just in light of, I think, a group benefits business from up here being up for sale.
Yeah, I would try to be as clear and direct as I can. We like what we have and don't feel like we need to do M&A. I think the second point of—maybe it was the first point of your question, but,
I combined a couple there.
... The second, you know, comment, I think what we're focused on—I know what we're focused on is, let's say 3 main themes. You know, our primary strength is in national accounts, greater than 5,000 lives. We've revised our 500 and below market approach. We need to get a little bit more relevant in that 500 and below cohort. So we've done some business operational restructuring to what we think will have a more effective approach in the marketplace.
In conjunction with that, you know, we struck a partnership with Beam, which is a dental and vision company, because we don't have a dental and vision network and capability, and that tends to be very important in that down market when people really try to squeeze dollars and get benefits that people really want. So just know that that down market strategy is very important, and we're bringing in a partner to help us there.... Beam's actually is gonna be a great partner 'cause it's gonna be bimodal, meaning we get to access their, you know, network of clients.
We get to use their technology in helping our clients get quotes, and likewise, you know, they get to access our products, you know, when they're quoting, you know, sort of their, you know, dental and vision customers. So it's a bimodal, you know, relationship. I'd say the second, you know, major, you know, priority is in just broad-based enrollment. Technology is driving a lot of changes in the group benefit space. I mean, you could think of all these, you know, payroll companies that, you know, advertise and basically are ERP systems. And basically, it's becoming a triparty relationship between the carrier, one of these payroll companies, as I like to describe them, and then the client.
And it's really digital, it's API, it's connected, it's— If you think about it, at its core, just 'cause I think in terms of process, it's you're keeping your inventory of people employed as current as possible with all those parties, so that billing, benefits, claims just become much more simpler, you know, to verify and execute to. So that would be the enrollment, you know, activities, and strategy. And then lastly, we're rebuilding our technology stack there. We've got some old technology. We've got great claim systems that we inherited, and utilized and converted to with the Aetna acquisition. But, you know, think of the technology stack just needs to be modernized, a little bit more data orientation, and we'll take the applications and data into the cloud to be as efficient as possible.
So those are the three main strategies. I don't know if you would add anything?
No.
Got it. Okay, last one I have for you is on capital management. You talked a lot about the growth in the business. We've seen premium dollars, obviously, that have been going up. How do you balance those growth opportunities with other forms of capital management? And maybe just a refresher in general on, you know, overall capital management priorities.
Me start or you wanna?
Tag, you're it.
Yeah. Well, you know, no change in our overall philosophy. And as we think about, you know, capital allocation and where we wanna grow, as Chris said at the beginning, we're really focused on returns. And so when we, you know, look at our plans each year and where our businesses plan to grow, we're looking to, you know, hit targeted returns, and we're happy to deploy capital to achieve those. And again, when we look at the earnings that the businesses are generating, typically, we, you know, dividend out of our operating companies 70%-75% of their earnings. And so what we leave behind in the operating companies is enough to fuel that growth. And that really, that dynamic hasn't really changed. So that provides significant, you know, cash flow to the holding company.
And as I said before, you know, we're very focused on maintaining a competitive dividend. We increased our dividend just this past quarter again for the 10th time in 10 years. And as Chris said at the beginning with his remarks, we've been deploying, you know, excess capital to share repurchases. We've been doing it in a consistent way and are executing to the plans that we set out at the beginning of the year. So really, no change in that philosophy, and it's, you know, ultimately comes down to generating the very high returns that we've been achieving, and that's our focus.
Got it. All right.
Yeah, and well, I'd like to just share. You know, when we joined The Hartford, and Beth and I started working in 2010, you know, we had a lot of crisis capital, as I called it, and we probably had 500 , 000,000 shares outstanding. Prior to the crisis, The Hartford probably had 250 , 000,000 shares outstanding. Fast-forward to today, you know, with our capital management philosophy and approach, we're gonna end the year pretty much around 300 , 000,000 shares outstanding. And if you think of the capital generation, the philosophy that we just said, you know, we could probably take out another 25, 000,000 -50 , 000,000 shares, depending on time periods, you know, over the next three or four, you know, five years. So, that's pretty accretive, I think, to shareholders.
I think the compounding effect on EPS growth is material. And just speak to, again, the shareholder mentality and philosophy we have of trying to create value in everything we do.
Cool. We'll stop there. Thank you very much.