Good morning. My name is Alyssa. I will be your conference operator today. At this time, I would like to welcome everyone to The Hartford's fourth quarter 2019 financial results conference call and webcast. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Miss Susan Spivak, Head of Investor Relations. Miss Spivak, you may begin your conference.
Thanks, Alyssa. Good morning, and thank you for joining us today for our call on fourth quarter and year-end 2019 earnings. We reported our results yesterday afternoon and posted all the earnings-related materials on our website. For the call today, our speakers are Chris Swift, Chairman and CEO of The Hartford, Doug Elliot, President, and Beth Costello, Chief Financial Officer. Following their prepared remarks, we will have a Q&A period. Just a few final comments before Chris begins. Today's call includes forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance, and actual results could be materially different. We do not assume any obligation to update information or forward-looking statements provided on this call. Investors should also consider the risks and uncertainties that could cause actual results to differ from these statements.
A detailed description of those risks and uncertainties can be found in our SEC filings. Our commentary today includes non-GAAP financial measures. Explanations and reconciliations of these measures to the comparable GAAP measure are included in our SEC filings, as well as in the news release and financial supplement. Finally, please note that no portion of this call can be reproduced or rebroadcast in any form without The Hartford's prior written consent. Replays of this webcast and an official transcript will be available on The Hartford's website for one year. I'll now turn the call over to Chris.
Good morning. Thank you for joining us today. 2019 was an excellent year and a pivotal year for The Hartford. We set ambitious goals and delivered on strategic objectives while achieving strong financial results. Fourth quarter core earnings were $522 million, or $1.43 per diluted share, an 84% increase over prior year, driven by significantly lower catastrophe losses, exceptional results in Group Benefits, and strong investment performance. For the year, core earnings were $2.1 billion, or $5.65 per diluted share, up 31% from 2018. Book value per diluted share ex-AOCI rose to $43.71, an 11% increase for the year. The 12-month core earnings ROE was 13.6%, an impressive result in the current market environment. Hard work by talented employees across The Hartford enabled us to perform at this high level.
Turning to our results, in Commercial Lines, the underlying combined ratio of 94% is a strong result, particularly in a year where we have incorporated Navigators. Just as impressive has been the speed with which the two organizations have come together as a focused team, able to strongly position The Hartford in the marketplace and capture new business opportunities in firming market conditions. As the integration progresses, we are seeing more opportunities to improve underwriting profitability, cross-sell products, improve claim processes, and leverage all the capabilities of The Hartford platform. These activities, coupled with continued rigorous execution on renewal pricing and retention, will contribute to our goal of achieving $200 million of incremental core earnings from the acquisition. In Commercial Lines, I am pleased with achieved rate increases across the portfolio with a focus on margin improvement.
In middle market, renewal pricing, excluding workers' compensation, accelerated through each quarter of the year, culminating with a 7.1% increase during the fourth quarter. Personal Lines core earnings improved to $285 million as we benefited from much lower catastrophe losses with an underlying combined ratio of 91.9. New sales for auto and home are up 36% over prior year, with improving retentions, all contributing towards the goal of future net written premium growth. Group Benefits had an outstanding year with core earnings of $539 million, up $112 million from 2018, with a core earnings margin of 8.9%. This performance was largely due to a three-point loss ratio improvement over prior year, reflecting continued favorable disability incidence trends and strong disability claim recoveries, partially offset by elevated life severity experienced earlier in the year.
On the top line, fully insured ongoing premiums were flat to prior year. Fully insured ongoing sales for 2019 were $647 million, down $57 million, as prior year included first-year sales related to the new paid family leave product in New York. Persistency, as expected, was slightly below historical trends as we adjust pricing on targeted segments of the Aetna book. Overall, earned premium on the Aetna book is in line with our deal assumptions and case conversions continue to go well from both a platform and pricing perspective. We are very pleased with the operational execution, integration, and financial performance of Group Benefits.
Looking ahead to 2020, we are expecting a core earnings margin in the range of 6.5%-7.5%, which assumes moderate premium growth over 2019, driven by sales and improved persistency, a lower expected investment yield driven by a 7% limited partnership return assumption, and normalized claim incidence rates and recovery trends in long-term disability. January sales were solid in a competitive market, but were down slightly from 2019 due to fewer large case sales. Before turning the call over to Doug, I'll provide my perspective on a couple macro themes. Social inflation continues to dominate industry conversations as the current hot topic. Last quarter, I said that social inflation was not a new phenomenon. A quarter later, my view hasn't changed, but there are a few points to make. I expect some level of social inflation will be felt by many carriers, if not all, across the industry.
However, the impact on loss costs will vary by company. Variation depends on several factors, including the line of business and coverage limits, type of coverage such as primary, umbrella, or excess, specific contractual terms, and reinsurance programs. Each company's ability to react to social inflation will be impacted by the quality of data and analytics supporting product pricing and loss reserve estimates. At The Hartford, I feel confident that our analytical capabilities, along with our talented claims and legal professionals, have allowed us to build a track record of making timely adjustments to loss cost assumptions reflected in our financial results over the past four to five years. The second topic is interest rates. For several quarters, we have discussed the impact of a persistent low interest rate environment on the ability to grow net investment income.
Currently, our portfolio continues to perform well, but it is clear that the interest rate environment is becoming more challenging. This will impact the investment returns on new cash flows, reinvestment rates, and our overall portfolio yield. The implication is that core earnings will likely become a headwind to core earnings growth, requiring higher levels of underwriting income to support earnings and ROE. This, coupled with loss cost trends, leads me to believe the firming cycle we are experiencing will likely continue for the next 18-24 months. In closing, when I look out to 2020 and beyond, I think about how far our businesses have evolved over the past decade and how well-positioned The Hartford is as a market leader. We have expanded underwriting capabilities and provide a broad range of products delivered through multiple distribution channels to meet customer needs in a dynamic market environment.
We are focused on execution, integration, innovation, and maximizing our enhanced capabilities to organically grow the business. In Small Commercial, we are a top industry player and have demonstrated consistent financial performance and innovation over the years with a focus on the customer experience. We are growth-orientated with a multi-channel distribution strategy and expansive underwriting appetite to serve more classes of business. In Middle & Large Commercial, we aim to improve margins and leverage new product breadth. Pricing is improving, and we have identified attractive opportunities to cross-sell specialty products. In Global Specialty, we are newly positioned with a broader product portfolio and expanded distribution. In the wholesale and Lloyd's market, we will focus on integration and improving margins. In our Personal Lines business, we have enjoyed a unique relationship with AARP for over 35 years. We continue to look for opportunities to drive top-line growth.
Finally, in Group Benefits, we are nearing the completion of integration activities. Our focus now is on future growth stemming from new products and services designed to complement existing risk products while improving the customer experience. We enter 2020 well-positioned in the market. Moreover, we remain committed to making a sustainable and positive impact on society as an essential element of our ongoing success. Across The Hartford, we're making this happen by always doing the right thing, fostering a workplace where everyone is welcome and respected, using our resources and influence to address the challenge of changing climate and helping to make our communities where we live and work be safer and more successful. I'm very proud that these sustainability efforts are widely recognized as industry-leading.
In summary, I'm confident our enhanced capabilities in a firming market, combined with ongoing capital management, provide the opportunity for The Hartford to enhance value for all our stakeholders. Now I'll turn the call over to Doug.
Thank you, Chris. Good morning, everyone. 2019 was a very good year for property and casualty. We're pleased with the underlying financial performance of our business units and the achievement of important initiatives we established for 2019. In Small Commercial, we continue to outperform with another sub-90 underlying combined ratio for the year, and early new business momentum from the launch of our next-generation Spectrum product. In middle and large commercial, we're maintaining positive traction across our industry verticals while we work to improve profitability on our core book. In Global Specialty and across Commercial Lines, we're leveraging the product breadth and underwriting expertise arising from the Navigators acquisition to deepen relationships with customers and distribution partners. Through year-end, we've delivered approximately $50 million of incremental sales across middle and large commercial and Global Specialty that would not have been possible without the acquisition.
This positive start provides confidence that we will outpace our three-year incremental revenue goal of $200 million. In Personal Lines, the business had an excellent earnings year. We continue to work on driving new business growth while moderating renewal written price increases have helped to improve policy retention levels for the year. Let me now pivot to summarize our financial performance for 2019. Then I'll conclude with some thoughts about 2020. Commercial Lines' core earnings were $1.17 billion for the year on a combined ratio of 97.7%. This includes catastrophe losses of $323 million or 3.9 points. Net favorable prior year development for the year was $112 million or 1.4 points, excluding Navigators' prior year development recorded at the acquisition date.
In the fourth quarter, we reported $37 million of net favorable prior year development, which primarily consisted of favorable experience in both Small Commercial package business and the Workers' Compensation 2016 and 2017 accident years. This was partially offset by $16 million of unfavorable development, primarily on Navigators' international reserves. The Commercial Lines' underlying combined ratio was 94 for the year, increasing two and a half points from 2018. The Navigators' underlying combined ratio is higher than our legacy commercial book and contributed approximately one point of the increase. The remainder of the increase was from non-cat property, Workers' Compensation, and higher commissions. Consistent with our expectations, the underlying loss ratio for Workers' Compensation increased one point from 2018, reflecting the competitive market and pricing declines. Loss trends were modest with negative frequency, while medical and indemnity severity trends were in the mid-single digits.
Renewal written pricing in Standard Commercial Lines was 3.5% for the quarter, up 50 basis points from third quarter. Fourth quarter 2019 renewal written pricing was up 1.9 points from the fourth quarter of last year. Middle market renewal written pricing in the U.S., excluding workers' compensation, increased 5.2% for the year, up 2.2 points from last year. In the fourth quarter, the rate increase was 7.1%, up 1.8 points from the third quarter of 2019 and up over four points from fourth quarter 2018. We have now seen increasing renewal written price increases in these lines for four consecutive quarters. Our Global Specialty book is experiencing even stronger pricing gains in both our U.S. wholesale book and the international portfolio, which is primarily written in the Lloyd's market. Our U.S. wholesale book achieved an 18% rate increase in the fourth quarter.
Several lines were in excess of 20%, including property, auto, and excess casualty. Our international portfolio also had strong pricing performance in the quarter, with particular emphasis on professional lines and onshore energy. Ongoing underwriting actions coupled with sustained rate increases in this book will drive profitability improvement in 2020 and beyond. We continue to monitor loss trends in our book, especially liability. We expect 2020 primary liability and commercial auto loss trends to be in the mid-single digits. Excess liability loss trend will be a few points higher than primary. While our book is certainly not immune to the ongoing unfavorable tort trends, we continue to take underwriting, pricing, and reserve actions to address this liability trend. Our teams actively monitor these claim trends and currently do not see significant shifts in either representation or litigation rates.
This will continue to be a critical watch area for us in 2020. Overall, I'm very pleased with how effectively our team is balancing growth and profitability, along with our pricing progress in the second half of 2019. Moving to our individual business units, Small Commercial had another strong year. The underlying combined ratio was 89.1 for the year, up 2.4 points from prior year, reflecting the workers' compensation pricing environment, higher property fire severity and higher supplemental commissions. Total Small Commercial written premium increased 2% for the full year, with fourth quarter written premium relatively flat to 2018. Policy count and premium retentions remained strong, both up a point from prior year, and new business increased to $646 million for the full year, up 8%.
In the fourth quarter 2019, new business declined from prior year, primarily reflecting the increase in new business last year from the Foremost renewal rights transaction. Excluding Foremost, new business premium increased 9% in the quarter. Moving to Middle & Large Commercial, we posted an underlying combined ratio of 99 for the year, up six tenths of a point from 2018, primarily due to higher commissions and technology spend. Total written premium increased by 9% for the full year, 6% if you exclude the impact of Navigators acquisition. We are achieving positive top-line results from our investments in new industry verticals, particularly large property, construction, programs, and energy. We're also growing our National Accounts business with written premiums up over 6% last year. The efforts to improve the profitability of our middle market book through rate and underwriting actions have intensified in the second half of the year.
Middle market retention levels were up slightly year-over-year, and new business premium of $584 million for the full year was up 8% versus 2018. However, middle market new written premium declined 11% in the fourth quarter compared to last year, primarily in workers' compensation and auto. Premium retention was also off three points from a year ago. We remain disciplined with our pricing methodologies as competitors have been willing to write at more aggressive levels. In Global Specialty, the underlying combined ratio was 96 for the full year, up nearly eight points over 2018, almost entirely due to the inclusion of the Navigators. We continue to deliver strong underwriting results in our legacy management and professional liability and surety lines.
In the second half of the year, the underlying combined ratio was 98.5, two points above the upper end of our guidance we provided on the second quarter call. In the fourth quarter, we had several large losses written from our international desk, including a $6 million loss related to a Texas oil refinery explosion and a $4 million property and business interruption loss from a Florida tornado. The significant rate and underwriting actions we're taking across the Navigators book is pressuring retention in some U.S. business lines. Retentions are generally stable in the international book. With these actions, I'm confident we've established a path to meet our profitability goals over the coming years. Shifting to Personal Lines, core earnings for the year of $285 million with a combined ratio of 95% improved from a 2018 core loss of $28 million.
This improvement was largely driven by a $321 million after-tax decrease in catastrophe losses between years. The full year underlying combined ratio increased modestly to 91.9, driven by higher expenses, partially offset by slightly improving results in auto. The Personal Lines auto underlying combined ratio improved slightly to 97.9 for the full year. We've been able to stay ahead of loss trends. Year-over-year frequency continues to decline while severity increased in the low to mid-single digits. Higher underwriting expenses due to increased marketing efforts combined with lower earned premium drove the Personal Lines expense ratio up 1.7 points for the full year. Before I turn things over to Beth, I'd like to share a few thoughts about 2020. In property and casualty, we're focused on several priorities. First, we intend to fully leverage the combined product breadth, talent, and distribution capabilities we now have at The Hartford.
We will drive growth in Global Specialty and middle market with deep product sets and broader distribution across both retail and wholesale channels. Second, we continue the underwriting journey to improve financial returns across middle market and Global Specialty. We intend to achieve strong financial performance as we drive higher written pricing in both domestic and international property and liability lines while actively adjusting our limit profiles and class mix. Finally, we're focused on growth initiatives with both Small Commercial Spectrum as well as our AARP new business. Specifically in middle market commercial, we expect renewal written pricing to remain strong during 2020. In Global Specialty, we expect renewal written rate increases to remain in the double digits. We'll continue to lean into this rapidly firming market to improve the profitability of both our middle market core lines and Global Specialty book. In workers' compensation, we expect continued pricing headwinds.
We expect the 2020 Commercial Lines underlying combined ratio to be between 92% and 94%, slightly better than our performance for 2019. Contributing to this improvement are improved results in liability and property lines, partially offset by margin compression in workers' compensation as negative rates earned through our book. Personal Lines will continue to drive new business growth in AARP Direct. We are fine-tuning our product segmentation and expect net written premium growth in the low double digits for the year. For 2020, we expect to achieve an underlying combined ratio of 91.5%-93.5%. 2019 was a very good year for our business units across property and casualty. Our results demonstrate a disciplined underwriting organization committed to achieving strong margins and seeking growth when it meets our profit targets.
We're pleased with the progress of integrating Global Specialty and its positive impact with our customers and distribution partners. I look forward to updating you all on our progress throughout the year. Let me now turn the call over to Beth.
Thank you, Doug. I will review results for the investment portfolio, Hartford Funds, and corporate, and cover a few other items before turning the call over for Q&A. Our investment portfolio continues to perform very well, with strong limited partnership returns and generally stable investment yields despite lower reinvestment rates. Net investment income was $503 million for the quarter, up $46 million or 10% from the prior year. For the year, net investment income was about $2 billion, up 10% over 2018 due to the growth in asset levels, primarily from the Navigators acquisition and higher partnership income. The annualized limited partnership return was 11.9% in the quarter due to higher valuations on underlying funds and real estate property sales. Net unrealized gains on fixed maturities after tax decreased to $1.7 billion at December 31st from $1.8 billion at September 30th.
Unrealized and realized gains on equity securities classified in the income statement were $73 million before tax in the quarter and $254 million for the full year. The credit performance of the investment portfolio remains very strong. There were no impairments in the fourth quarter. For the quarter, the current yield before tax, excluding limited partnerships, was 3.8%, up 10 basis points from fourth quarter 2018 due to higher make-whole payments and mortgage loan prepayment fees. Before limited partnerships and non-routine income items, we expect a before-tax average portfolio yield of 3.4% - 3.5% in 2020, driven mostly by lower reinvestment rates and the projected decline in short-term rates based off of today's forward curve. Turning to Hartford Funds, core earnings of $40 million were up 5% from fourth quarter last year and up $1 million sequentially. Daily average AUM rose 2% from third quarter 2019, reflecting strong market performance.
Net flows were a positive $218 million in the fourth quarter, driven by exchange-traded products and fixed income funds, compared to net outflows in fourth quarter 2018 of $1.7 billion. Investment performance remains very strong. As of December 31st, about 62% of Hartford Funds outperformed peers on a one-year basis and about 72% of peers on a three- and five-year basis. Corporate core losses of $39 million in the quarter improved by $7 million from 2018. The retained equity interest in Talcott generated $17 million of income after tax, compared to $6 million in fourth quarter 2018. During the quarter, we completed our annual study of asbestos and environmental reserves, which resulted in a $117 million increase in reserves, which was ceded to National Indemnity under our adverse development cover, resulting in no impact to net income.
Of the $117 million, $65 million related to asbestos, which is significantly less than the development we have seen in recent years as the number of mesothelioma claim filings was favorable to our previous projections. The increase in asbestos reserves was largely driven by an increase in average settlement values. Environmental reserves increased by $52 million, in part due to an increase in estimated costs to remediate sites as required by state regulators. As of December 31st, 2019, the company has incurred a cumulative $640 million in adverse development on A&E reserves that have been ceded under the ADC, resulting in $860 million of coverage available for any future net reserve development. As Doug noted, in the fourth quarter, we recognized $16 million of unfavorable development on prior accident year reserves related to Navigators International business.
While adverse development on prior year reserves is economically reinsured to National Indemnity under the reinsurance we put in place at closing, that benefit is deferred under retroactive reinsurance accounting, since cumulative losses ceded exceed the premium paid of $91 million. This deferred gain will be recognized in earnings in future years when we start recovering cash from National Indemnity. After the actions this quarter, we have $193 million remaining capacity on this ADC. As of January 1st, 2020, we completed the renewal of the property catastrophe reinsurance program. For the per-occurrence treaty, the overall coverage and per-occurrence retention of $350 million remain the same. Within the per-occurrence program, we renewed coverage for $200 million of per-event losses in excess of $150 million for catastrophes other than named storms or earthquakes. Our co-participation on the $200 million layer is 30%, up from 20% in 2019.
We renewed our property catastrophe aggregate treaty and lowered the attachment point to $700 million of aggregate covered losses with a fully reinsured layer of $200 million above the attachment point. Effective with this renewal, catastrophe events from Navigators' business, other than from the assumed reinsurance business, are covered by the program. A summary of the details of the catastrophe reinsurance program is included in the appendix to the slide deck. In the fourth quarter of 2019, we repurchased 1.8 million shares for $110 million. Since inception, through January 31st, we have repurchased 4.3 million shares for $254 million. Yesterday, the board increased the quarterly common stock dividend by 8%. With strong capital generation and financial flexibility, we are pleased to be able to both invest in our businesses and return capital to shareholders. Book value per diluted share, excluding AOCI, was $43.71, up 11% in 2019.
Core earnings ROE over the last 12 months was 13.6%, well in excess of our cost of equity capital. In summary, 2019 was a very successful year for The Hartford. We generated strong earnings, closed on the acquisition of Navigators, and we are confident in our ability to continue to generate shareholder value. I'll now turn the call over to Susan so we can begin the Q&A session.
Thank you, Beth. We have about 30 minutes for questions. Can you please repeat the instructions, Alyssa, for asking a question?
Yes. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Jimmy Bhullar of JP Morgan. Please go ahead.
Hi. Good morning. I had a question first just on the workers' comp line, if you can sort of quantify what you're seeing in terms of rate pressure in the business. On commercial auto, you're one of the few companies that has not seen sort of continued adverse reserve development. I think you had some last quarter, this quarter your results were better than some of your peers. If you could just talk about what's going on there.
Sure, Jimmy. Let's take each of the pieces. On the workers' comp side, two different dynamics. One with our small commercial sector, where we're seeing negative pricing and have very little ability to do anything about it relative to underwriting. Those negative rates flow through. On the middle market side, largely a flattish environment. That means we're dealing with account experience sector performance and doing our best to work against the negative file trends across the various states. That's the workers' comp situation. Relative to auto, I would describe auto as an ongoing work in process here over the last eight years. We've been working on auto, which is why I think you don't see the surprises in the quarter. We have strengthened auto over the last six, seven accident years.
We strengthened a little bit in the third quarter, but felt very good about where our position was for Q4. That's the reason there was no activity in Q4.
If I could just ask one more on Group Benefits. Your margins, along with everybody else in disability, have been very strong. How much of this are you seeing companies begin to reflect in their pricing as you went through renewal season? Is there any reason to believe that, at least in the near term, that the trend in terms of margins will reverse?
Well, Jimmy, thanks for the question. I would say, the market is competitive, no doubt about it, largely still rational. Competitive. You're right. We've been enjoying a pretty good run, particularly with incidences and getting people back to work that have been out. How long this continues, I'm not sure I could predict. Obviously, we gave you our guidance for what we think is going to happen next year. If I really sort of do a step change on where our margin is today to where we think it is next year on a normalized basis, I would say seven-tenths a decline due to net investment income, eight-tenths of a decline due to, again, normalized loss ratios. We're going to spend some incremental dollars in our infrastructure there. There's a little bit of expense pressure.
We still see a good earning business in that 7-ish% margin, and we'll try to compete with our competitors the best way we can on differentiating our services, our skills, and our capabilities.
All right. Thank you.
The next question today comes from Elyse Greenspan of Wells Fargo. Please go ahead.
Hi. Good morning. My first question. When you guys had announced the Navigators deal, the goal was about $200 million of income over a five-year period. Half a year into the transaction, seems like margin's a little bit weaker, and now we also have the headwind of lower interest rates on investment income. Can you just walk us through, I guess, bridge us to kind of what the offsets are and what would help you get to that $200 million target?
Sure. Well, again, thank you for joining. I think you have the components that we've talked about. The major ones are obviously net investment income, improved loss ratio performance, and to a lesser extent.
expense savings. I think we also talked about, Elyse, on a short-term or near-term basis, we still see approximately $110 million of core earnings in 2020 for the Navigators business that will flow through the new Global Specialty segment. That's, again, at the lower end of our range, primarily due to the interest rate environment. Equally, in the path to the $200 million, quite frankly, we think is getting shorter than that five-year period of time, primarily due just to the rate environment and the improvement possibilities that we are planning for and seeing in the book. Really pleased with the entire team, Doug could give you more insights and analysis on it. We're expecting significant rate with what we think is realistic loss cost trends that we're planning for, and eventually those will cross and start to really improve.
In fact, Doug, I think just my calculations and our analysis would say we're looking for a five or six-point loss ratio improvement in the Navigators book next year, Elyse, based on activities that we're seeing today.
Chris, I would just add, absolutely that we are bullish about what we think we'll achieve in 2020. The other thing is that the accumulation of underwriting actions that were taken across the book between change in limit profile, attachment points, exiting classes, adjusting MGA capacity, underwriting limits, et cetera, are also going to be a core driver of that performance change. I'm very encouraged by the actions that not only we've taken, but will continue to take into 2020. I think Vince Tizzio and that team have done a terrific job at resetting the book. Yes, we're encouraged about the pricing, and that provides an awful lot of our tone. I also think we'll see the benefits of the labor inside our underwriting activities also play out meaningfully in our $200 million run.
Yeah, the only thing I'd add to that, and I think Chris touched on this, but your point about our original projections on investment income are obviously correct. The rate environment is different. We're also seeing more expense benefit than we originally anticipated, and the offset of those two pretty much wash each other out.
Okay, that's helpful. My second question, as we think about capital return in 2020, is there any timing to think about in terms of when you can get some of the dividends from the subs or the tax attributes, or should we just think about kind of even share repurchase throughout the four quarters? Second question there, Beth, are there any tax attributes that we should think about for 2021 as we think about capital return beyond 2020?
Sure. A couple of things. As we think about the cash flow to the holding company over the year, I really see those building over the year. Some of the tax benefits come in over the course of time, but a big chunk of that comes in with the AMT refund, which is really predicated on when the IRS accepts our tax return and when that's filed. From a pace of share repurchase, I would expect that to be increasing over the year and not necessarily ratable throughout the year.
As far as tax attributes, when we look towards 2021, based on our expectation of utilization this year, I expect that when we get to 2021, we'll probably just be in sort of the normal course of tax benefits coming to the holding company related to the deduction we get on interest expense through our normal tax sharing arrangement. It would be significantly lower than what we're expecting this year and probably slightly under $100 million.
Okay, that's helpful. Thanks for the color.
The next question comes from Paul Newsome of Piper Sandler. Please go ahead.
Thank you. Good morning. I was hoping you could expand a little bit more on the Personal Lines operation and give us a little sense of kind of where we are from a pricing versus underlying claim cost environment?
Paul, sure. Let me tackle that one. This is Doug. We're obviously pleased about our financial performance in 2019. You see the pricing is down a bit. I think it's down a bit commensurate with where we see loss trends. As I've commented, frequency has been in very good shape for now an extended series of quarters, and we're watching carefully severity. We're watching physical damage in particular. The aggregate of both frequency and severity put the loss trend in the low single digits, and I think that's where we are from a pricing perspective. I feel like we're right on top of it. Now, we also have goals to move our new business north. We will address pricing and new business targets, et cetera, as we move through 2020 because we'd like to further stimulate new business growth.
I think we've done a nice job at getting the book healthy from a profit perspective, and we'll continue to balance both growth and profit as we go through 2020 and beyond.
My second question is I'd like to know a little bit more about persistency, particularly just across the property casualty businesses. Normally in a harder market, you have decreases in persistency. Do you think that's going to happen prospectively as well until the market flattens out?
Paul, there's so many pieces to the marketplace. If we talked about it on the extremes, you could move to Small Commercial, I would say that that's just a very competitive world, not a lot of change from where we've been the last couple of years. Then you could move into either public D&O or the excess casualty world that is going through enormous amount of change, and the dynamics around pricing and retention are very different across those sectors. Yeah, where you see capacity shortage, and people are driving rate because of their performance, which I think is where the market is in some of these challenged financial classes. There may be some dynamics across the retention element, we are determined to get rate where we need it in our book.
I think we have got a very good sense of where that rate need exists across our various products. If we have to give up a little bit on the retention side to get what we need to do on the pricing, I'm willing to make that trade, particularly in middle market and Global Specialty, where our returns have to get better. You saw that in the fourth quarter. I shared with you that our new business was down slightly in middle market in the fourth quarter, but I was also really encouraged by our pricing advances. I'm willing to give a couple of points of retention to do that, which is exactly what happened in the quarter.
Great. Thank you. Makes sense.
The next question comes from David Motemaden of Evercore ISI. Please go ahead.
Hi. Thanks. Thanks for taking the question. Just for Chris or Doug, on the Commercial Lines outlook for 2020. Maybe, I'm just wondering if you could elaborate a bit more on the 92-94 underlying combined ratio guide after the, call it 94.5%-95% that you guys printed in the second half of 2019. I think, Chris, you mentioned five to six point improvement on Navigators in 2020. Just wanted to talk about just timing in terms of getting there and some of the other moving pieces that get you confident that you can get there given the results this quarter.
David, let me start, and then I'll ask Doug to comment. It feels like it's like deja vu all over again. This time last year, a lot of our tone is similar to this year, right? You have a workers' comp dynamic that we are going to face some pressure with price, but generally loss costs there are behaving. You have all, I'll call it all the other lines that I think will contribute to margin expansion going forward, particularly the specialty line. Sort of it's a tale of a coin there, two sides of the coin.
You put them all together, and we do still see, at least from where our run rate ended in 2019, the ability to expand margins on an overall book basis, offsetting some of the pressure we see in comp with the strong pricing in liability, property, commercial auto, and obviously our specialty line. Doug, that's what I would say is sort of the macro perspective.
Yeah, I agree with that, Chris. I would also add that we saw a little bit of a bump up in the quarter for some accruals on the expense side. The expense piece also is running a little abnormally high in the quarter. When I adjust for the expense piece, some noise with Navigators, and then the encouragement of what's happening on the pricing side, I really do feel like 2020 is achievable. Yes, we have a lot of work to get done to make that happen, but I believe we will, and I think we're off to a terrific start as we close 2019 and enter 2020 to get our numbers moving.
Got it. Great. Doug, if I could just follow up. You had mentioned some adjustments to the limit profile that you were making for 2020. Just wondering if you'd comment, just in terms of what the average and limit size is for you guys ex workers' comp, and what changes are you implementing?
When I talk about limit profile, I'm primarily talking about Navigators and our excess casualty book because as you know, across the core HIG book, we're essentially talking about $2 million limits, and we were not much of an umbrella player. Over the last five years, Navigators has been working on reducing its limits, our average limits now are well down below $10 million, and in very few places do we take limits greater than 10. Our normal book is in the five, maybe some cases, $10 million limit range, but that's where we play. Over the last couple of years, we've also been working hard at where we attach. I would say that the profile of limit and the attachment point are keen in our focus, and we'll continue to adjust by class as we move through 2020.
Okay, great. Thank you.
Thank you. Yep.
Next question comes from Ryan Tunis of Autonomous Research. Please go ahead.
Hey, thanks. Good morning. Doug, I guess first of all, on workers' comp, did you see in your prepared remarks that that was a one-point drag this year on the accident year combined ratio or just on the workers' comp picks?
I did, year- over -year. 2018 and 2019.
On the overall Commercial Lines.
Just on comp itself.
That means the overall drag would be what? Maybe like half a point on commercial here in 2019?
That's a fair estimate to make. Yes, Ryan.
Okay. I guess in the outlook for 2020, are you thinking about a similar type of drag from comp, or do you expect that to accelerate?
The half a point across our book is what we're expecting in 2020. When I think about all in workers' comp across our lines, I think that's a good approximate number to use.
Got it. Then, I guess just on Navigators, the five to six points, it sounds like that could come from three areas. It could come from, I guess, less unfavorable loss activity. It could come from rate, and it could come from underwriting improvement remediation. If you had to think about those five or six points, how would you divvy it up between those three?
Well, rate is going to be the easiest to measure for sure. I think based on the high teens that we posted in Q4, we're very positive about progress we're making there. I would add expenses to your pile. I'm not sure I heard expenses in your group, but we are working expenses, and yes, there'll be some expenses that come out of the equation. That is also a part of it. The piece that will be most difficult to measure or quantify will clearly be the underwriting actions, because they'll be embedded in losses, and it'll be very difficult to know a loss that you've been able to either moderate or avoid versus an underwrite action taken.
I don't think that's measurable, but the combination of those actions and our pricing activity against loss trend, to me, sets up the change that you talk about and that Chris and I have referred to.
Got it. I guess my last one, Doug, is just thinking about some of the large loss activity. I think you said that was in international. This business mix is a little bit new to you guys. If you could maybe give us some perspective on why a $4 million loss and a $6 million loss is in fact something that you have a handle on that you wouldn't necessarily expect to recur.
I think we've shared with you from the beginning that the core of The Hartford businesses were more frequency-based, and there's a bit more severity in the Navigators book. We've worked hard over the last nine months to understand that better by product. We move into 2020, our metrics will get tighter. Again, we've made and continue to make underwriting adjustments, appetite adjustments, et cetera. As we looked at the fourth quarter and we looked at their property results, both domestically and also international, we just felt like there were a few losses that were beyond our expectations, and we booked them in the quarter. We moved our accident year pick up accordingly. Again, as we roll into 2020, we still have to figure out what the right base is to launch from.
I feel like we have accounted for 2019 activity and know exactly what we need to get done in 2020 for us to make the plan that we've talked about.
Thanks.
The next question comes from Brian Meredith of UBS. Please go ahead.
Hey, thanks. Yeah, two questions. Doug, I just wanted to follow up a little bit on what David was talking about as far as limits profile at Navigators. Given the limits profile there is obviously a little bit higher, more property, should we expect these kind of large loss activity to be more frequent in your business going forward?
I don't think so, Brian, and I would actually suggest to you that we're spending a lot of time on their excess casualty portfolio as well. Their umbrella and excess limit product is certainly under enormous interest right now. The market is searching for capacity, I think we have deep experienced professionals in that space. A lot of interest on the part of many of our long-term Hartford retail brokers and agents. The demand is up a lot for that excess casualty. We're using our capacity appropriate, and we're layering in actuarial data science and all the capabilities that I think we bring as a firm. Encouraged about both opportunity, thoughtful about projections we're making, and we'll understand our book and adjust accordingly as we go through 2020.
Got you. The losses this quarter were property focused.
It's Chris.
Yeah.
Can I just add to Doug's point of including the prior question is, we've worked hard to get our arms around this book. I believe we have. I think we have a deeper understanding of all aspects of the book, whether it be domestic or international. I'd remind you, we largely kept the Navigators reinsurance program in place that, again, on a closer look basis, we think is well-designed. Remember, part of the reason why we did the acquisition was because we liked the people. We thought they were talented men and women that had immense capabilities in their own craft and in their own art. We want to empower them, obviously within a risk profile that we're comfortable with, we fully understand.
The execution day to day was left, obviously, to Vince Tizzio and his team, and I think they're off to a great start in our environment, Doug. We're growing and improving. I think we're going to add a lot of value together.
Brian, maybe one other comment on the property side. I don't think, I'm not suggesting that what happened in the fourth quarter is this new trend to continue with every quarter, multiple exceptions to our P&L. Yes, they've had some noise in it. I think we are aggressively pricing the sector. I talked about in excess of 18-20 points of price in the quarter. We're also non-renewing a series of accounts. In some of our tech sectors, energy sectors, we have loss ratios that are not sustainable. We're working on those as we speak and intend to get our property book in line with our expectations going forward.
Great. My second question on the Personal Lines side, just looking at the AARP Direct business, you talked about initiatives in place to drive double-digit new business growth. I guess my question there is, are you happy with where retentions are in? At what point do you think we can start seeing some actual growth in written premium in the AARP business again?
Yeah, good question. Generally, we are pleased with the recovery on the retention side over the last couple of years. I still think there's a little bit of lift inside that, maybe a point plus. There's a lot of shopping activity in the environment overall in Personal Lines, so we're mindful of that, but we're both encouraged with progress and also hopeful that there's more to be had on the retention side. Relative to new, we have just improved our capabilities both on the desk and with our people, I think enormously over the last couple of years. We continue to dial in our marketing activities. I feel pretty good about that. You saw a 35% + change for the year in sales.
I'm not sure we're going to get there next year with that kind of number, but we certainly expect to be up next year as I described in my script. Encouraged by that and think that as we move through the latter half of 2020 into 2021, we'll see that growth move into positive stage for AARP Direct.
Great. Thank you.
The next question comes from Meyer Shields of KBW. Please go ahead.
Great, thanks. Good morning. Within Personal Lines, I guess, looking at the guidance, can you give us a sense as to the expectations for non-CAT weather losses on a year-over-year basis?
Beth, I'm not sure I have that handy. Meyer, let us go back and look at that one and see if we can help.
Okay, that's perfect. Switching over to workers' compensation, we've seen recently, I guess, some signs of medical inflation and some signs of wage growth, at least in broader macroeconomic data. Are we seeing any change in severity trends within your book?
Our book is generally stable, so as we look at our long-term picks and our severity estimates, I think we're essentially in line. Now, the last couple of years, we probably outperformed slightly, but as we move forward 2020 and 2021, we have not come off our mid-single-digits severity picks, both medical and to a lesser extent, indemnity.
Okay, perfect. Thanks so much.
Thank you.
The next question comes from Amit Kumar of Buckingham Research. Please go ahead.
Thanks, good morning. Two quick follow-up questions. The first question goes back to the discussion on the Standard Commercial Lines. If I look at the earned rate, the earned rate was 2.7% in Q4, you're talking about the loss cost trends in mid-single digit in primary and higher in excess. If I were to step back, is the thought process that earned rate will accelerate much faster than what we have seen and hence outpace the loss cost? How should that translate into margin expansion from here?
Yeah, I think that's the right way to look at it. Our delivered written pricing in the fourth quarter extending into 2020 is going to move north the earned rate increases to get on top of the loss trends that I described. Yes, slightly disappointed that we have not been able to drive more pricing, and I'm talking primarily about middle market business, U.S. We've been slightly behind, which is why you've seen some deterioration in our margins in middle market. I expect that to turn in 2020, and the expectation is that we improve our margins, as Chris noted, essentially in all our lines, ex workers' comp.
In fact, Doug, I think that the data that we have is ex workers' comp for standard commercial, which includes small and middle. Ex workers' comp, our rate increase is actually about 6.4% during the quarter, which is that momentum that you talked about building, and it's expected, and our execution is going to drive that continuation into 2020.
It is. The six and a half's a pretty solid number, and actually even in Small Commercial, ex workers' comp, we've been at or around the 6% range now for about eight quarters. Encouraged by that steady performance, and that's really been a good driver in terms of why our combined ratio, both underlying and total, have been in very good shape and small.
Got it. The second question I had was, in the opening remarks, you talked about social inflation, and you mentioned it's not a new phenomenon, et cetera. If you were to go back and compare today versus a year ago, based on the data you are seeing, would you say it's coming in in line with expectations, slower than expectations or faster than expectations? Thanks.
Yeah. Amit, I would say in line with expectations. There isn't anything outside of norm that we see. Doug talked about litigation rates and representation rates that have been generally stable for us over the last three or four years. We've had to make some adjustments. We didn't get everything right over a six, seven-year period here, but I think we're on top of it. We're managing the best way we can and being proactive. Not only looking back at data, but actually trying to think what can happen going forward.
Chris, that's absolutely true for The Hartford book. What I would add on top of that is that probably in the excess area, we see a little bit more severity, a little bit more social inflation than maybe we expected a year ago, and that's also driving our price increases in the marketplace. I didn't expect to be looking at a fourth quarter in 2019, 12 months prior, in the mid-teens, but I think we need it. As we better understand that book, we're driving the price increases that need to chase that loss trend. I feel we're on top of it and pleased that our HIG book continues to perform about the way we expected.
In a minute. That's why we did the reinsurance transaction with National Indemnity on Navigators, was to really take that tail risk off until we got our arms fully around it. Obviously, we paid a premium for that, but I still like that trade we did, given some of the uncertainty in the marketplace today on social inflation.
Got it. Thank you for those answers. Good luck in the future.
Thank you.
The next question comes from Mike Zaremski of Credit Suisse. Please go ahead.
Hey, thanks. First question on Group Benefits, clearly phenomenal results. I'm curious, Chris, in your prepared remarks, I believe you said you're kind of assuming more normalized incidents and recovery trends. In the 2020 guidance, has HIG changed its incidents trend or recovery assumptions to kind of reflect an improved trend line, or are you just kind of thinking last year was more of an anomaly?
I would say, Michael, that our assumptions and methodologies are generally consistent over the years. We haven't changed anything in how we think about setting reserves or pricing product, which generally uses a, I call it, a mean average approach, so that we're not using the most recent dot in an incidence report. We're taking more of a five-year period of time. There is a little bit of mean averaging going in there as far as our assumptions. It's been consistent between years.
Okay. That's helpful. Lastly, I need to delve more into it looks like the catastrophe reinsurance program might be purchasing a little bit more reinsurance. If that's correct, that could be behind the cat load guidance coming in slightly below last year's guidance. Is that correct? If so, should we be baking in any higher underlying loss ratio from the increased spend?
Yes. A couple of things. I would say, relatively speaking, our program is very consistent. We did purchase down in the aggregate treaty, and overall, when we look at the spend for the whole program and the various changes we've made, it's really not a significant delta from the prior year. As far as the cat ratio guide at being in total kind of where we came at this year, that's not reflective of any changes in the reinsurance program. It's really just looking at underlying exposures and as we ran our models. It's really, I think, only slightly down. It's down slightly from last year.
Beth, if I could sneak one last one in. Did you comment on PG&E, whether that refund, has that come through, and if it does, would that be used towards capital management? Thanks.
Yeah, I did not comment, update our comments on PG&E. We continue to watch as that activity continues. We have not booked any recovery associated with the plans that are underway. We'll continue to watch what the final program is that comes out of bankruptcy. Yeah, I mean, overall, any benefits that we receive net of what we would have to reimburse our reinsurers for would improve the capital position in P&C, I wouldn't make a direct link to that to an increase in share repurchases. It will just go into the mix relative to capital resources.
The last question today comes from Michael Phillips of Morgan Stanley. Please go ahead.
Good morning. Thanks for fitting me in. One more, if I could, on the outlook on Commercial Lines and from the expense side. I guess there's a lot of moving parts, obviously, on your expense ratio. You've talked about higher commissions to fund in your Small Commercial. I don't know when that ends, if you could talk about that. Investments, the benefits of which could accrue at some point. You're still making investments. Talk about the expense ratio there. Doug mentioned some accruals or whatever that happened in this quarter that kind of bumped it up a bit, so I'm not sure the impact on that. As we think about 2020 on the expense ratio side, kind of what's a good starting point? 34.5-ish looks like maybe for the year-end. Is that a bit high?
How do you expect that to move in 2020?
Michael, it's Chris. I would say, again, the context to the number that I'm going to give you is we've been on a program to invest in our platform, whether it be, call it technology, whether it be digital, whether it be product and underwriting. We've been on a journey, and we've talked about sort of the elevation in our expense ratio, primarily due to the invest side. I would say where we ended 2019 on a full-year basis in that 32.5%-33% Commercial Lines and Personal Lines together, I'll keep GB separate for the time being, is a good number for next year to maybe slightly down. I think we're coming to the point in that long-term program that we put into place where the invest dollars are going to begin to slow down once we finish up the second half of 2020, heading into 2021.
I think we are a larger scale organization, and we're a growth-orientated firm that will continue to add premium, again, properly priced and good business. All that would point to, particularly as we get out into 2021 and beyond, I'll call it a stairstep back to a normalized and competitive expense ratio over time. Again, we've been deliberate about what we needed to do as an organization, we think, to create value and be competitive long term, and we're not backing away from that. We're at the tail end of the program. That's what I would say, Doug and Beth.
Great. Okay, great. Thank you. That's helpful. I guess my last one, more higher level. Chris, in your opening comments, you talked about the momentum in pricing. You were talking about the overall market, not just you guys. I believe you were. I think you said you expect it to continue for 18 to 24 months from here. Hopefully I heard you right. If that's the case, what's behind that to you? That's a pretty long extension. What do you think is going to keep driving pricing up for the next two years?
Well, getting to ultimately target ratios that support an adequate return for the risk the industry's taking. I outlined low interest rates, that's going to be a little bit of a headwind. If I look at product lines and where comp is headed, and again, from managing a book of business, you never really want to shock your book of business and go to a 50% retention rate. Generally, what you try to do is be thoughtful on retentions, but firm and disciplined, and work through your distribution partners to talk through the actions that are going to be required in the near term and over a longer period of time.
I just think, given where we're starting from and given some of the pressure on social inflation and liability costs, commercial auto in general, it's going to take two years to get back to the targeted margins.
Okay. Thank you very much. I appreciate it.
This concludes our question and answer session. I'll now turn the call back to Ms. Susan Spivak for closing remarks.
Thank you, Alyssa. We appreciate you all joining us today, please do not hesitate to contact us if you have any follow-up questions or if we did not get to your question today. Talk to you on the next call. Thank you. Bye.
This concludes today's conference call. You may now disconnect your lines.