All right. I think it's about time. Ready to get started. Thank you guys for being here. We've got Chris Swift, Chairman and CEO of The Hartford, and Beth Costello, CFO. Appreciate you guys coming out. To kick it off, I was thinking you could just give us some background on where the business stands today and the key parts of the strategy going forward.
Sure. Well, Rob, thanks so much for hosting, you know, Beth and I here. We look forward to being with you and all your friends and colleagues out there. I would say, you know, from an overall business, you know, side, I'm really pleased where our business is. I think it's performing at a high level. I think the team is executing well. There's seats up here, Michael, if you wanna sit up here. We're performing. I think performing at a high level, ultimately evidenced by the strong ROEs, you know, that we're putting up and I think the thoughtful capital management. But I would say over the next, say, three years or so, there's a couple of themes that I would say we're really focused on. One, you know, we're focused on profitable growth through disciplined underwriting. I'll explain more.
I think we're entering a period, at least from a technology perspective. I think innovation is gonna happen faster than it has over the last 10 or 20 years, so we're thinking about innovation broadly, both in customer, both in products and services, over the long term. If I go back to the first point on profitable growth, you know, we're still, I think have opportunities to grow organically, in areas that we haven't been historically in with new product sets, cross-selling existing, you know, product sets, so it's really maximizing our full potential, including our vast distribution network, you know, to grow profitably over that period of time, so you will see us continually thinking about expanding our underwriting appetite, risk appetite into areas maybe that we haven't, you know, gone in the past.
But we will go there thoughtfully to, again, capture more market share, creating a more scaled organization going forward. On the tech side, we're not gonna talk about it 'cause a lot of it is, I think, trade secrets as far as some of the things we're working on from a generative AI or AGI, which is artificial general intelligence, primarily focused on our employees and our customers and ultimately efficiency over the long term. So that, I would say, you know, Rob, is, you know, sort of the primary, you know, focus of the organization going forward. Really pleased where we're at right now. Our E&S capabilities are strong. Our standard lines are strong. We're a SME-orientated organization, which I think produces some of the more stable, consistent, you know, returns in a market segment.
Our group benefits business is performing stellarly for a long, long time. So all the pieces fit together, contributing to, I think, the outstanding performance we've had.
Awesome. Okay. That's great. That's really helpful. I think shifting right into commercial insurance, I was thinking you could talk to us about the environment right now. Profitability is clearly very strong, but there's some loss trend pressure in certain products. You know, where are you seeing the opportunities for growth right now?
Yeah. You know, we're a big national organization, so there's always gonna be sort of differences by product line and segment. But again, overall, I still think it's a very good time to be a property and casualty underwriter, both commercial and personal these days as we work back to targeted profitability. So if I just go through sort of the major product lines, Rob, if that's really what you want me to do, I would say anything casualty-related, property-related, auto liability-related, you know, keeping up with loss trend is paramount. And I think we will do that in 2025. I think we've done it pretty well in 2024.
But those product lines, you know, need rate just given loss trends and a lot of the discussions that we've all had over the last two or three quarters. I think the comp, you know, business, again, still highly profitable and strong returns for us, even on an accident year basis. But when you look at it on a calendar year basis with, you know, the reserve releases, again, you know, highly profitable. And I don't see any major, you know, changes there. If I look at some of the specialty lines, particularly E&S, really still pleased with our performance in, you know, the E&S market. I think growth will still be elevated but moderate just a little bit. But I again feel like we're getting the necessary rate both in property and the casualty lines. And that's a really fast-growing segment for us.
And we attack it two ways, you know, through our open brokerage business, which is in the global specialty business, and then through our binding business, which is in small commercial, which, you know, we'll exceed $300 million this year. We'll continue to, you know, press the accelerator next year. I think the phrase I used last year at this conference was, we're in go mode. We are still in go mode. Again, targeted, thoughtful about, you know, underwriting, thoughtful about, you know, getting our margins. But it's clearly still, you know, an opportunity for us, I think, to capture more market share with our expansive distribution.
Okay. And you just touched on it there for a moment, but we can't talk about The Hartford without talking about the small commercial franchise. So what are the competitive advantages in that segment of the market, and what is HIG doing to maintain those advantages today?
Yeah. I could be pithy and say everything. Everything we do in small is a competitive advantage.
Okay.
Do you want me to explain more?
Yeah. That'd be helpful.
I think the themes that we've talked about in the past are really the same, right? I mean, accuracy, speed, ease of doing business, our digital capabilities. Keynova, one of the independent rating shops, ranked as number one for the sixth straight year, and we're 20 points ahead of anyone else. So yeah, we're proud of what we've built over an extended period of time, you know, serving, you know, the micro side, you know, to the 50, 100 thousand, you know, dollar, you know, premium small business, you know, owners. So we could go from super small to, you know, to large, you know, with our capabilities. But if you really look at the foundational element behind it all is data, data analytics, data science, and that drives a lot of our secret sauce.
But, beyond that, I can't talk about anything else.
Okay. Got it. How about workers' compensation? You know, what's the outlook for that line of business? Obviously, a material product for Hartford. Can you discuss the loss trends and, you know, are you looking to increase market share in that line of business despite the pricing pressure?
Yeah. You want to tag team? Yeah. I would say, again, still a profitable line of business, but, you know, the rate rollbacks continue, heading into 2025. That's just a reality. I think we could still manage that. But in all reality, like we said this year, last year at this time, we're probably gonna feel some margin pressure in that workers' comp line offset by other positive activities and margin expansion and other lines. So I think the setup is basically the same. You know, Rob, I would say, though, that the environment, I don't see anything outsized one way or the other, you know, whether it be super good or super bad. Frequencies are still behaving, you know, given our economy. Severities are within our expectations. And we see that, you know, continuing.
So I don't think we're the second largest workers' comp player. Everyone in the room knows it. I don't think we're trying to gain market share, but we're not backing away from competing in certain states, in certain industries, certain geographies that make sense for us, you know, to compete where we think we could make good risk-adjusted returns. And otherwise, we'll just let the, you know, the business, you know, go right now. I don't think it's a time to be super bold, but I don't think it's a time to be super cautious either.
The only thing I would add is I think that we, you know, look for our opportunities, managing the rate environment that we see. But through various underwriting actions that we take, we're able to, I think, manage that to an appropriate level, which, as Chris said, results in the business continuing to be very profitable and, from a loss-cost perspective, behaving very well and within all of our, you know, estimates that we make relative to frequency and severity.
Got it. Got it. Okay. That's very helpful. I did wanna zone in on the social inflation trends, you know, I was hoping you could give us a sense of where you're seeing social inflation trends most prevalent and kinda what we've learned from the trends so far this year.
Yeah. I see them most prevalent on billboards on highways.
I hear you.
You know, that's the genesis of it, right? Advertising, deceptive practices, switching bait, you know, taking 30%, 40% of claimants, you know, claims. So yeah, it's sorta sad, honestly, you know, where we are today as a society with litigation, you know, broadly defined. But it's reality. So, I think it's been well documented, Rob. There's no new news here. Obviously, we could talk about some of the, you know, adjustments we've made, you know, to reserves in light of the social inflation. We haven't been immune. We do our best every quarter to estimate it and react to, you know, trends. But, unfortunately, it's a tax on citizens, estimated to be about $4,200 per household. So it's not a small, small tax that, you know, we all, we all pay for.
So I don't know. What would you have?
I think I'd add is, you know, and again, this isn't new. These trends have been there. Sometimes they accelerate. But we've also been taking underwriting actions through the years to think about our exposure, whether that's, you know, raising attachment points, looking at size of fleets that we insure, and things of that sort to sorta manage the exposure into some of the areas that we see this activity, you know, looking at institutions that have a lot of foot traffic and what that might mean for slips and falls and things like that. So, you know, there was a really tight loop between our underwriters, our claims folks, and our actuaries. So as we're seeing trends, they can react to it from an underwriting perspective.
Okay. Got it. And, maybe a related topic, but there's been some conversation that, you know, recent accident years, like, I think 2021 to 2023, have been mispriced in casualty lines, just like we used to discuss the 2015 to 2019 period. Curious if you guys have a view on reserve adequacy for recent years for the industry, how you're feeling about HIG's specific reserves, and if you could include some discussion on anything about, you know, the asbestos and environmental legacy reserves as well.
Yeah. I would just say, and I'll let Beth add her commentary. You know, hindsight's always 20/20. Obviously, we made our best estimates. You know, even if I look over a 5 year period, and I'll use round numbers, if liability trends, you know, were sorta in the 11% range in hindsight, our pricing increases on sorta the like-for-like basis, you know, was about 12.5%. So I thought we were thoughtful. I don't think we ignored or were rosy about, you know, the environment. But obviously, what we took in the third quarter, you know, was even a little bit of adjustment to those overall trends that I just talked about. But Beth, I think you just, you know, said it. I mean, we analyze reserves every quarter.
There's certain segments of the book, you know, particularly in the malls and the real estate and the restaurants area where we did see more slip and falls. We made the adjustments. We'll continue to, you know, be thoughtful every quarter about what we see and what we possibly need to react to. But that's what I would say.
Yeah. The only thing I'd add is, I think, to just stepping back from it, just important to keep in mind, I think relative to our whole portfolio and the size of our reserves, very small adjustments, and more importantly, we quickly pivot to what does it mean for a business that we're putting on the books today, and it's, we, you know, both Chris and I just commented on taking a lot of underwriting actions, accordingly. You asked about A&E, and it's a question I usually get this time of year because we do our study in the fourth quarter, our annual study for asbestos and environmental reserves, and we just wrap that up. And overall, we're seeing an increase similar to what we saw last year. So last year, we increased reserves about $194 million. This year, it's about $204 million.
So, relatively consistent and kind of a consistent breakout between Asbestos and Environmental. The other thing that we've talked about throughout the year is that, you know, we do have an adverse development cover that we purchased in 2016. We have $62 million of coverage left on that cover. So, this increase this quarter will use up that $62 million. That'll impact net income, and the remainder will impact core earnings. I don't think it's surprising, you know, our results are not inconsistent with others, and the only other thing I'll remind you on is, once we tap that up, we'll have a $850 million of a deferred gain on our balance sheet that will amortize pre-tax into book value over time as we start to get cash recoveries under that cover, which probably will start, I would think, in the 2026 timeframe.
Okay. Got it, so we, you know, we've talked about loss trend reserves. You know, how do we think about the sustainability of the pricing cycle in that context? And you know, are you seeing any variation by product and by account size?
You know, I would say, again, heading into 2025, I'm actually quite bullish on the overall, you know, market and trends and, you know, the need to, you know, to get price to stay up, you know, with trend. I think the market is generally, you know, being disciplined. You might see some softness in property and maybe large property or E&S property. But then on the other hand, our middle market and small and our binding property and small business, actually trends are pretty positive there from an overall price side. Even if I look at our homeowners, you know, line of business for, you know, property, we've been able to maintain, I think, decent rates, or deep rate increases to match up with loss costs, just evidenced by a 75% underlying combined ratio, third quarter last year.
So, property, you know, is a little bit of a mixed bag, but again, still generally positive. And I still think it's a good time to make, you know, risk-adjusted returns. You know, we set the goal, you know, a couple of years back to grow our property business aggressively across the country, build a national book, focused on the fire peril. But if it came with a little Catastrophe risk, you know, we would take it on as long as we thought we were getting paid for the attritional loss and the, you know, CAT losses in there. And I think we've executed, you know, pretty well. I think we'll have the same philosophy going forward. We have the capacity. We have the capital to deploy into property, you know, to grow it.
So that's just giving you one specific example, Rob, that I thought you might be interested in.
Got it. Yeah. Appreciate that. Thank you and how about reinsurance? It feels like there's ample capacity in the market. Is The Hartford contemplating any changes to the buying strategy as we head into 2025?
There's nothing that I would foreshadow as a change. When we look at our overall reinsurance structure, I feel very good about it, even with the increases that we've seen in property. You might recall last year we purchased a CAT bond on the top of our catastrophe tower. So overall, I feel very good, and I think that we get a lot of high marks from our reinsurers on how we manage our exposures, so would not anticipate any significant changes.
Okay. Got it. All right. Maybe we'll give commercial lines a break and shift to personal lines, so the profitability improvement story there seems well underway. Could you walk us through, you know, what are the key components of getting the home and auto businesses back to target profitability and sorta the timeline for that?
Yeah. I just would start where I ended before. I think the homeowners, you know, line of business is close to targeted profitability. There might be, you know, a couple of states that would have to, you know, focus on that might have more CAT exposure than most, but pretty pleased, you know, where that is. I think on the auto line, as you said it, you know, we're on our way to targeted profitability by mid-2025. I think the team has executed well, particularly on the rollout of our Prevail product and chassis, as I like to call it, which is a six-month auto policy, 12-month home policy, no lifetime guarantees, primarily in the direct response, you know, channel right now.
And I would say, except for a couple of states on the East Coast and the West Coast, you know, we are at targeted profitability in the remaining 48, 49 states. And we got rate plans in, you know, those two coastal states to, you know, to get back to what we think is targeted margins. Might take a little longer, particularly in California, a little bit longer in the New York area too. But I think the team is, you know, executing well. It knows what it, you know, needs to do. I think when you really look at, you know, sorta the, you know, the math behind 2025, you know, we'll probably, you know, have a loss trend that is, you know, call it mid to high single digits.
Still need to, you know, focus on rate, maybe at less than the 20% rate increases we push through the book, you know, this year. But if trend is still high single digits, you know, you should think in terms of a high single or low double digit, you know, price increase, you know, that we'll manage to, you know, next year. You know, we'll see what happens, you know, beyond that. We've alluded to looking at other distribution channels, you know, to sell our homeowners and auto product. That exploration will continue. But feel really good about how that book is positioned to be at targeted profitability for most of, you know, 2025, or at least from mid-2025 on.
Awesome. Maybe the expense ratio. I think it's been around 30% for a few years here. What are the things Hartford is targeting to get more efficient and improve claim outcomes? And should we be thinking about improvement over time in on that 30% expense ratio, or is this kinda the range that you expect to be in?
I think it's the range we'll be at in the near term. You know, again, Chris commented at the beginning on the investments that we're making in our businesses, and so, although the ratio staying the same, when we look at the dollars that we're putting towards innovation and, you know, investments in our business, that's been increasing, and I think that's the right trade-off for us to think about. Efficiency on claims, obviously, isn't gonna show up in our expense ratio. It shows up in the underlying results, and there's a focus there as well, but we're, you know, very mindful of the need to stay ahead on the innovation and technology front, and that's what we, you know, plan to do over the next couple of years.
Got it. Net investment income, could you give us a sense on where the portfolio yields are likely headed and kinda how you're maximizing the portfolio? And I also wanted to ask if you think a stronger contribution from net investment income is causing any noticeable pressure on property and casualty pricing in the market?
Let me just say that. So yeah, on the, on the NII, you know, portfolio yield, I mean, obviously, you know, yields have been bouncing around a bit. But kind of our best call as we look into 2025 is we'd expect overall yields to be relatively flat, yields to be relatively consistent with 2024. You know, we do think that there'll be some, you know, obviously, decreases in, in interest rates, which will, you know, impact the portfolio, especially some of the, the short-term, investments we have in floating-rate securities. And then the investment team, I think, continues to do a really good job of continuing to look for opportunities to deploy, you know, our, our investments in asset classes that provide, you know, good returns, you know, through the course of this year.
We took some actions where we traded out of Treasury securities, lower-yielding Treasury securities, and into corporates. And, that obviously impacted the yield. So I think the team will be able to manage through some of the dynamics that we're seeing in the environment and would expect, you know, relatively, yields to be relatively consistent.
Got it.
I would say from just the competitive side, I don't feel extraordinary amount of pressure that the industry is using higher NII to, you know, compete with lower, you know, prices. I do think there are certain long-tail line of businesses, national accounts business, excess of loss or excess of workers' comp, you know, business that might have a little more competitive pressures given just the amount of yield that, you know, contributes to, you know, sorta those product line overall profitabilities. But generally, I think the industry's been pretty balanced with higher rates.
Okay. Got it. But a little bit of a bigger picture question. You know, outside of the impact of interest rates and on the fixed-income portfolio, is there anything from a macroeconomic standpoint that is a particular focus for Hartford as you head into 2025?
There's certainly a lot of change, you know, that's happening, whether it be administration, whether it be inflationary signals, whether it be just GDP in general, you know, as I said in the opening. I remain pretty confident and sanguine about, you know, the operating environment. When economic activity is expanding, that's really good for our businesses and our product lines and our capabilities. So I think the thing that we watch the most and talk through the most is just how the Fed is managing, you know, the overall, you know, dual mandate. I think they actually have been doing a pretty decent job, and I expect they'll continue to, you know, do that going forward. I think the trade policies is a big question mark. And what does that mean, you know, to economic activity?
What does tariffs really mean to economic activity? I think if the administration follows through, we'll have a live experiment to watch and see how things, you know, happen. I think the other thing that I'm sure everyone's watching is just tax policy and what that means. Then everything else sorta comes down to sorta state-specific issues and, you know, sorta NAIC matters. But you know, we're watching. We've got a TRIA, terrorism renewal coming up in 2027. NFIP has been just on a continuing funding mechanism with really not a permanent long-term, you know, solution. We've talked about social inflation and what does that, you know, mean for various aspects of business or disclosures, you know, to think about.
Those are the top of the minds that at least Beth and I talk about and watch, along with our HIMCO professionals and our emerging risk professionals.
Yep. Okay. A lot of things to think about. How about on capital allocation? You know, clearly the firm is growing a little bit more, but HIG also continues to pay a.
Right.
Yeah.
A little more.
Come on.
Yeah. You're growing a little more. I think it's actually been healthy, right?
Very healthy.
I think we are differentiating ourselves in the marketplace, and it's showing up in our growth rates.
Yep. So you can continue to pay dividend and regular share repurchases. You know, how should we think about the capital deployment going forward with that strong growth?
Yeah. I think over a long period of time, I think we've been consistent, thoughtful about just how to use our excess capital, whether they're going back six, seven years, you know, from M&A, you know, whether it be, you know, aggressively buying back our shares, whether it be increasing our dividend rate for 10, you know, straight years. I think our current, you know, approach of dividends and buybacks makes sense for us. I think our valuation, you know, still has, you know, room to run. So I don't feel like our payback periods have extended out or IRR has gotten smaller, just given where, you know, the valuation is.
As we've always said, and continue to believe, you know, M&A, we have a team that understands and what's happening in the marketplace, but it's just a low priority for us, you know, right now. I think the organic mindset our team has of building, adding, you know, new capabilities, being thoughtful underwriters is still the right long-term strategy. If something, you know, fits and comes along and makes absolute strategic and financial sense, you know, we'll look hard at it. I'm just saying that that's just not a priority of what we wake up every day thinking about.
Okay. And how about group benefits? Seems like it's a piece of the portfolio that's kind of been over-earning that long-term core margin. What's driving that performance, and how should we think about the business contributions to the firm over the long term?
Yeah. It's a business again. It's another underwriting business that fits well. It's just underwriting mortality and morbidity, but it fits with our overall portfolio of underwriting businesses. Yeah, I would say I wouldn't use the word over-earning. I would just say it's performing well. We're executing well. We've been getting, you know, price in the book where it's needed. I think trends, particularly from the mortality side, are moderating, although we still expect a little elevation, you know, with mortality trends, at least another year or two. We're pricing our product that way.
I think the performance in the long-term disability book with incidences being fairly moderate, and then claim recoveries or getting people back to work is really part of our secret sauce in the claim department of working with people with empathy, with clinical nurses, with routine and regular follow-up. I think all those components are still relevant, as we look into the future. I think the one area, Rob, we called out that just needs a little attention is some of our paid medical and paid family leave products. The margins there are weak. And it's a newer product line to the industry, newer to us. It's about a $250 million premium book of business. But that's the one area that we're not performing the best.
And we have correction and plans in place in 2025 and 2026, you know, to get back to our targeted margins there. But I do expect mortality to continue to slowly, you know, revert. And the disability trends are really healthy. It's interesting, though. It just tells you how, at least in my mind, things are shifting. You know, the leave, you know, the paid family and medical leave products are really popular. I mean, so people are using them with high utilization because employer groups have promoted it as a good benefit, you know, for people to use. So I think that'll have a positive halo effect to some of our other core products, some of our other medical supplement products like critical illness, hospital indemnity, AD&D.
So the whole benefit landscape, I just think is coming alive with more knowledge about features and benefits and how to use these products in an array of overall, you know, benefit products, including medical.
Got it. That's really interesting. How about we shift all the way back to commercial lines? I mean, the E&S market.
Sure, well, I'll go where you wanna go.
E&S market. HIG acquired Navigators a number of years back, and now you're.
Six years ago.
Six years ago, and you're pushing for significant growth in E&S binding as well. You know, how meaningful of a role should we expect the E&S market to play going forward for HIG, and I'm curious if you think this market will continue to gain share within broader commercial lines.
Yeah. I would say on your last point, yeah, I think the commercial lines market has gone through a structural shift, not just a cyclical shift that E&S maybe has done in the past. So, as I said, maybe growth moderates a little bit, but I think it's a market that really just still has legs primarily because you could just be much more targeted with terms and conditions, pricing actions, parts of liability product lines or property product lines that you wanna be in or not. And just the freedom of rate and form is pretty powerful, particularly in an elevated weather pattern changes, climate change, and as we talked about, particularly with social inflation. So, we feel bullish on that overall marketplace.
Yeah. The Navigators acquisition, that was a little victory lap because it turned out to be the right acquisition at the right time with the right profit improvement action plan to get it to where it is today. We picked up wholesale distribution that we didn't have before that's becoming a more major part of our distribution network. You know, our E&S business is maybe a little over a billion, billion and a half. I think it'll continue to grow at a faster rate than than most, supported by the global specialty, I'll call it business, and then, as I said, also in our small commercial business. So, quite, quite bullish on it. The one opportunity for us is, you know, we have deep capabilities in construction, but we're looking in the wholesale space.
But we're wanting to expand that to other industry verticals, you know, where we have maybe standard lines expertise, and we can apply that expertise into wholesale distribution.
Okay. Awesome. Well, I think we're just about at time. Thank you guys so much. Appreciate it. This has been great.
Thank you.
Thank you.
Thanks for hosting us.
Thank you.
Take care.