I think in the interest of time we're gonna go ahead and get started here. So very happy to be joined by Chris Swift, Chairman and CEO of The Hartford. Chris is always very gracious with his time and, joining us here at the GS Financials Conference, and he's been CEO for over 10 years. So thanks, Chris, for joining us.
Thank you for inviting us, Rob.
Yeah, absolutely. And so, just to kick it off, how about you level set for us? How has The Hartford been performing, and what are your key priorities as we head into 2026?
Sure, but as I said, it's a pleasure to be here, always at the Goldman Sachs Conference and right next to your world headquarters. If you haven't noticed, Beth Costello, our CFO, is ill and could not make the trip. I think she was with investors in Europe last week and maybe, you know, caught a bug there, but she sends her regards. So as we think about performance in 2026, Rob, I would say I think we're performing and executing at a high level, particularly if you judge it from an overall metric perspective of generating a 18.4% core earnings ROE on a trailing 12-month basis.
If you look at our growth, if you look at our margins, if you look how we're using our excess capital to reinvest in the organization, particularly in our technology, you know, I'm really pleased, you know, where we're at. If I just dive into the business lines just on a maybe more granular basis, business insurance obviously is very big and very important to us. During the third quarter call, I guided to an 88.6% underlying combined ratio that I thought we could outperform, which was the nine-month, you know, year-to-date number. I still feel that we can, you know, sitting here today. I know we're executing well.
We're getting, you know, the rate, you know, that we need in the books, and I'm still optimistic of closing that gap compared to prior year. So by any measure, you know, again, that's an outstanding result, you know, sort of in that 88% range, anywhere in 88%. I feel very, you know, good about the returns that, you know, we're generating there. But if you look at sort of growth, I think our growth has been phenomenal. You've heard me always describe us as more of a SME-oriented firm. We do have some larger businesses and, you know, global accounts and relationships around the world. But our bread and butter is SME, which I think is outperforming, you know, the broader market.
Even if there is a little softening that is occurring or maybe more that will come, I still think that segment of the market where people want, in essence, 100% risk transfer products is a profitable segment to focus on, coupled, you know, with our ability to differentiate ourselves, particularly with our technology. I'm really bullish and optimistic about our continued growth in anything in the SME segments, whether it be small, middle, or even our global specialty business has a SME orientation. So, you know, feeling, you know, confident and very good there. You know, if I look at our property, you know, capabilities, property was a big focus of ours. Excuse me.
We'll finish the year pretty close to $3.3 billion of property exposure, which we still want to continue to grow because I still think on a risk-adjusted basis, returns in property, you know, will matter. If you look at pricing, overall, we could talk, you know, more about it, but I see very similar trends as we were here last year at this time. You know, property's, you know, probably the, you know, the main exception, but, you know, excuse me, workers' comp I think is gonna do what it does. I don't see any trend, you know, difference, you know, compared to where we were at this time. So negative rates are reality.
You know, there might be some margin compression, but we're really trying to, you know, give our underwriters, you know, guidance in the tools, you know, to maintain the margins, you know, where they're at today. And then if I go into, you know, the group benefits business is generating superior returns in that 8%, 8.5%, 9% range. You know, we still price our products for margins in the 6%-7%, but we're, we feel, you know, really good. And then outperformance is primarily contributed by disability. And then, you know, both terminating and getting people, you know, back to work, and incidences have been continuing almost at, you know, historic lows. So, you know, that business, you know, sets up well. I alluded to in the third quarter call, you know, that first quarter, you know, sales is trending very favorably.
Retentions are trending favorably. You know, we've made adjustments to our life mortality pricing, which we took out a pandemic, you know, load in our pricing that was there last year, you know, that really hurt some of our competitiveness. You know, we're investing in our technology stack there, taking all our data and analytics to the cloud, and just, you know, feel very good about where that business stands. And then, you know, personal lines really gives me great pride to sort of say we fixed it, you know, and the industry fixed it, right? And we had a lot of, you know, fixing to do over the years, but we're at target margins. You know, it's go mode. It's growth mode. A lot of other, you know, good competitors are in that, you know, area.
So, you know, PIF count, you know, is probably still gonna be dampened, you know, this year, you know, just given, you know, the competitive nature of the market. But the good news is the market's fixed. Our AARP channel continues to be really relevant, and we've launched, you know, Prevail for agents, you know, which is exciting because if you really think about one of The Hartford's core strengths is our distribution. I mean, we have close to 15,000 distribution relationships, you know, that are looking for, in particular in personal lines, a quality firm, a brand they know and trust, you know, with good products and good capabilities, good service, a claims-paying capability that is, you know, empathetic.
And it's a sweet spot to maximize our distribution that way where, again, whether it be small, middle, large, specialty, we're bringing another's product set, you know, to those, you know, agents that want to represent The Hartford on multiple levels. And again, I'm optimistic, you know, that we'll be able to, you know, grow our agency channel. So that's a long-winded way. I don't know if I went five or seven minutes, but I hope you can feel our excitement, because I think we're still poised to outperform, you know, even into 2026 and beyond.
Yeah. That was awesome. You touched on a lot of stuff there. I want to dive into a lot of that. Maybe one more high-level question. I mean, if you touched on it a little bit, but a three-year average core ROE sort of in the high teens here, are you outperforming your own expectations, or is this a situation where, given that the market is still in a good place, you have a lot of good positioning in certain products and the investment portfolio is doing quite well? So is this level somewhat sustainable, or how would you think about it?
Yeah. We're really proud, as I said, of the 18.4% ROE. I think we'll close out the year in great fashion, and we'll see what the numbers ultimately tally. But I do think it's sustainable. I really do. Again, given our market focus and, as I said, on the SME market, given the tools that we built for our underwriters, how we're improving profitability and growth in personal lines, getting back to a growth-orientated group benefits, I think we'll all contribute to our earnings and an ROE profile that is generally consistent with where we sit here today. So, I do believe it's sustainable.
As I even said, even in a softening market, and I would give you the context of if property continues to soften, which is sort of the headline. As I said, you know, 60% of our standard commercial book is in small and middle, which is actually holding up better than the large account, the E&S, the shared and layer, or anything in London, so again, at the margin, where our focus is, I think we'll outperform, you know, particularly in property.
Great. And so let's dive into.
So the investment portfolio, again, if we look at it this year, I would give you one data point is that our reinvestment rate compared to sales and maturity was about 80 basis points higher. I think generally where we are right now, mindset-wise, there's a lot of cross-currents. What is the Fed gonna do? Cut interest rates? Where are spreads? Where's risk? As we sit here today, I think the portfolio yield will be very consistent with 2025 and 2026 with maybe a little bit of upside. But then when you add in our alternative portfolio, particularly our limited partnerships, we do believe that'll get back to sort of a normal seven, eight, nine points of return range so that the overall portfolio, from a yield side, including alternatives, should be greater in 2026 compared to 2025.
Okay. Great. Upward trajectory. And so business insurance underlying margins are very strong, but you mentioned we're seeing some pricing deceleration, particularly in property. Can you talk about where you think we are in the insurance cycle, and what does that mean for growth in 2026?
I think from a cycle perspective, I always you know like to remind people you gotta understand where you are today to understand the impacts of any trends that you would project you know going forward. So you know the starting point is still robust you know from a margin, a profitability, an ROE. So I think the you know the industry is, I would say, fairly rational across most you know product lines. I mean, you could always point to a product line or two that might be acting irrationally, but I still think there is a level of rationality. I think people's memories and scarring is real, given that what the industry's faced in the liability area, particularly over the last three or four years.
So there's an element of cautiousness, prudence, discipline that I still think is out there in the market. So again, that's that again points to sort of my optimism in general that we could sort of manage through any cycle. And ultimately, as you think about, you know, a capital allocator, if you don't like the returns you're getting, we've pulled back. We've pulled back from, you know, lines of business, you know, over the years that, you know, weren't generating adequate and had to ride the volumes down, had to make all the tough decisions on expenses. And we're prepared to do that, but I don't see any huge outliers at this point in time from a product side.
Okay. Gotcha, and so underwriting profitability, the combined ratio, which you mentioned, is in, you know, the high 80s, which is better than Hartford long-term averages. You know, you had some gradual normalization in the underlying combined ratio this year. Is that how we should be thinking about it for 2026? And what are some of the key puts and takes as you think about bridging the gap to next year?
Yeah. Well, again, where we're starting from is healthy, as I just said. You know, we're gonna refrain from giving you any additional numbers just because, you know, their estimates are views at this point in time. But if I just sort of go around the horn, if we're at 88.6% or south of it for the full-year basis, you know, it's realistic to assume that, you know, workers' comp is still gonna be in a negative price. And depending on your trends for weak frequency and severities, there's gonna be probably some modest pressure in workers' compensation going forward. Property we just talked about, and I don't need to, you know, talk to it again.
I think the specialty, you know, product sets, you know, that we have in global specialty will by and large hold up with trend. There might be exceptions in E&O, D&O, cyber, and some of those, you know, specialty-oriented products where pricing's probably still coming down compared to long-term cost trends. And then you get into sort of, you know, the standard line, you know, world, and you're really what you're left with is the liability lines, which need utmost care, discipline, focus on making sure you're keeping up with trend. I think, you know, we've made adjustments to some of our loss trends in P&C in 2024. They're holding in 2025, generally. And as we head into 2026, we know we need to keep up with those trends.
And generally, I would say anything liability-related is probably in the high single digits. You know, primary's probably 7%, 8%-ish, you know, from a trend side. If you get into the umbrella and excess lines, you're probably in the low, you know, double digits from a trend side. So you need pricing that's keeping up with that so you don't obviously deteriorate in margins. And that's our mission. That's our goal. It's our objective, and everyone knows it. And we gotta execute to it. And if we can't get those rates that we want on a particular account or any particular quarter, and you've seen some lumpiness sometimes in our sales and activity, that's us just being disciplined and stepping away.
Yeah. And that sounds different from the last cycle a little bit. You know, I don't think we had high single-digit casualty loss trend during the last cycle. Does that change your view at all on where the bottom might be for this cycle?
Yeah. I just always come down to, and that's why I break it down, because each product has its own little, you know, mini-cycle, you could say, or trends that, you know, that we're facing. But again, anything liability, you could even put, you know, auto liability in there. You know, auto liability, you know, is probably high singles, you know, from a trend and pricing side. So is that different? No. Just because the industry just needs to continue to be disciplined, and make sure we're keeping up with trend, you know, given everything we've talked about over the years from social inflation to nuclear verdicts. I mean, all those trends are still alive and well.
Got it. So, yeah. And thanks for mentioning small commercial earlier. You know, can you just go over some of those competitive advantages that you guys have built in small commercial over a long period of time and kind of what you're doing today to extend those advantages? And then if I could tack on a third question, you know, 10% growth in 2025 was really strong. How are you thinking about that going forward?
Yeah. So there's a lot to unpack there. I think the simplest way to sort of describe it is our intense focus for, for many, many decades on small. It probably that focus probably goes back at least 40 years of an orientation, a mindset, a team orientation of what does it mean to serve a small business customer? What do they need? How do they want to interact with us? How do they want to interact with the agents? So again, intense focus. Second point would be clearly technology. That's the product line, the business line that we've probably invested the most in my 15 years with The Hartford to continue to differentiate, you know, ourselves. And you could think of it as digital. You could think of it as data. You could think of it as analytics, you know.
But when we're able to process 75% of admitted lines business, not just comp, not just auto, not just property, but all admitted lines of business, 75% without human touch, and we have a goal to get to 90% over the next, you know, couple of years, it's that intense focus on how do we just get better? How do we, ultimately it's about speed, accuracy, and consistency. And when you demonstrate that to your distribution relationships, whether it be on a $2,000 policy or all the way up to a $100,000 policy, you earn their right and trust to do more business with them. And I think really that's what's been happening over the last three years, four years specifically, is we are earning more right to capture more of their market share, and we're gaining market share accordingly.
Then you add in the new segment that we've attacked, the E&S, you know, particularly the binding business, which is up to about, you know, $300 million, or growing, you know, 40%+. I think those trends, particularly in the E&S market, where that market is still gonna be relevant, there might be a little slowdown and flow back to the admitted lines, but it's a new market, you know, that, you know, we're having great success in. Then you look to the outside, you know, world, you know, Keynova, which is one of the, I'll call it firms that evaluates people's capabilities, you know, for six straight years. You know, we've been the number one digital, you know, carrier, that is known for its ease of use and speed. So it's not one thing.
It's the multiple of things that, you know, we've added to. And we're gonna continue to innovate, you know, particularly in the E&S space. So there's more to come out of our small business. I'll call it innovative mindset, particularly in E&S. So we'll talk more about that next year at this time.
Okay. Awesome. And, you know, maybe just on that E&S space, like, what are your views broadly on business flow, you know, back and forth between admitted? Do you think that's something that we're gonna see here in the near term? Are you already seeing it? How do you see that playing out?
I'll break it down is that I think submission flow between, you know, the admitted market and the E&S market continues to be high, or increasing sort of, you know, for our numbers. We're responding to more quotes, but there is increased competition. So our hit ratio is, you know, basically flattish. But submissions, quotes are all up across all lines. I do think there is a little bit of softening, particularly in the property side of, you know, the E&S market, pretty obviously from a price side, but a little bit of activity, you know, is dropping, at least in our data. I don't think it's an alarming, you know, trend. It's probably just a little bit of a natural migration. But again, remaining healthy.
You know, that's really what our ultimate mission is, is to try to serve more of our insureds and agents' needs with competitive products, expanded risk appetite, things that we've been doing for a number of years. But there's a compounding effect when you focus on it, focus on it every year, you're getting the results that we are. So, 10% is a great result. I think that can be generally consistent, you know, going into next year, and we'll see.
How about, back to the admitted market, workers' comp? You know, the business has been performing exceptionally. You mentioned likely some continued price decreases there. I think you guys have said you're booking medical severity in that 5% range, but, you know, you're actually seeing severity that it's less than that. Can you tell us why workers' comp isn't seeing the same pressures as sort of broader healthcare cost inflation? And, you know, what's your outlook for this line of business?
Yeah. So, yeah, I'll confirm everything you said is correct, right? So we've been, you know, very disciplined, particularly on medical severity, because you never want to get caught short with medical severity, you know, assumptions, in your backbook and then obviously going forward. So we've been very disciplined there. I think frequencies are behaving. You know, I think the actual emerged sort of medical trend that we're observing in our claims book is in that 3%-3.5% range, well within sort of our expectation as far as pricing and reserving 'cause those go hand in hand. And there's a lot of different theories on why, but, again, the workers' comp system is ultimately fixing injured workers and getting them back to work and back to healthy.
It's not treating broad-based, you know, medical conditions that might have higher pharmaceutical uses that might be using GLP-1s, you know, more these days or gene therapies. All these advanced, medical, conditions and, you know, therapies are really exciting, but they're not cheap. They don't give them away, so I think that is probably the number one basis difference between getting an injured worker back to work, and you do have some really, really severe injuries, you know, burns, disabilities, you know, but a lot of times it's lost time wages or simple medical procedures, you know, that is getting someone back to work after an accident or incident, so I think it's just a basis difference between the population broad-based, you know, and a workers' population.
Got it.
You have medical fee schedules. You have networks that you manage and sort of have guaranteed payments and, where you're trying to, you know, control your cost, control your outcomes. There's a lot of factors that go into it, Rob. That's all I'll say.
Yep. No, it makes sense. I did want to ask you about personal lines. So, you know, you mentioned, you know, PIF count might still be a little dampened in 2026. You know, how do we think about the competitive environment there? And could you talk about the new Prevail agency product?
Yeah. Yeah. So when you think about, you know, PIF count, I think primarily of auto. The auto market, you know, continues to be really competitive. People are spending more, trying to generate more responses. You know, if I look at, you know, trends, you know, we'll probably end 2025 with a severity trend probably in the 9% range on a trailing 12-month basis. I suspect that'll get into the mid to upper single digits next year, probably closer to mid. So we have an opportunity then to be responsive with pricing or less pricing increases. I think retentions across the industry are still at all-time lows. And no matter what, you know, side of the equation you come from, agency or direct, people are shopping more.
They're looking for the, you know, the best deals out there. And, you know, it's, it's a, it's a competitive, you know, environment where everyone wants to grow, you know, given, you know, given that, you know, we're back to, you know, targeted profitability. So when I put it, you know, together, I think we could grow our home count both in direct and agency. And I think our agency PIF count will grow just because it's a, it's a low number. But if I look at the direct book of business, primarily the AARP endorsed book, we're probably gonna be under pressure from a PIF count there. So I think you put it all together, we expect, you know, a modest increase in PIF count primarily coming from homeowners on an overall book of basis.
If I could just update you on Prevail and agency, there's really no major updates. We continue to roll out, you know, states. We're gonna be in 30 states by early 2027. Agency reaction has been very positive, particularly those agents who use the home as the primary product, where, you know, the home is a significant assets or net worth of a lot of individuals. So to have a company like ours with our brand, our reputation, back in the home market, you know, we're attracting attention in a positive way. And obviously we want to account around the auto and whether we do that with the home or pick it up next cycle, that's ultimately our goal.
Got it. That's helpful, and so how about on the expense ratio? If we think about, you know, P&C business broadly, I think the expense ratio at Hartford has hovered around 31% since 2023. You know, are you seeing any opportunities to harvest efficiency gains there or, you know, how should we think about that trending?
I might quibble with you on the 31%, publicly. I'll send you a note later. I think it's closer to 30%.
Okay.
But your question still stands. You know, I think the philosophy that we've had for a long time is, you know, we needed to build capabilities within The Hartford, going back 15 years. And those capabilities were both product, underwriting appetite, and technology. And so we viewed that as a form of capital allocation that I think has actually worked out pretty well for us. So we're always trying to be mindful of expense initiatives and efficiencies, and we've had all that. But the real benefit that we've generated in our, at least the expense ratio in my judgment is from the operating leverage, capturing more market share, differentiating ourselves. And that philosophy will continue. I think I've said in the third quarter call, we run a technology budget of about $1.3 billion.
$500 million of that is on the invest side. Some of that is, principally, you know, targeted AI and all the emerging technologies. Some of that has taken all our data and applications to the cloud. You know, some of it is, you know, pure data, organization, analytics. So, you know, it's a form of capital, you know, that we allocate to, you know, basically, you know, grow our business. And I think we've made the right trade-off. I'm not here to gonna predict where the expense ratio is going over the years, but, you know, clearly there'll be operating leverage that will have choices to what to do, to reinvest more, harvest some of it, drop to the, you know, the bottom line.
You know, I think we're still competitive in all our, you know, major product lines with the expense ratios that we have today, maybe with the exception of personal lines where, you know, we're not at scale there. So that might be a combination of, you know, harvesting expense gains while we grow.
Great. And if we could zoom in on artificial intelligence specifically, you know, what is Hartford doing in that realm and how do you see that impacting the business in near term and long term?
I think we've been pretty consistent the last two, three quarters of talking about our agenda in the AI area, which is primarily focused on where we have the most people, claims, underwriting, and ops operations. All the corporate functions, you know, have their, you know, experiments, and activities, that they're using. I would say where we've approached it is sort of rethinking our processes from an end-to-end basis with having an AI-first mentality, and we're executing to sort of our three-year roadmap, and we'll see what we could do. I think the other important aspect of AI, and I wouldn't underestimate it just personally, is the personal productivity tools that are out there, that allow people to be more efficient.
You know, just summarizing mass quantities of data using LLM, you know, models and Google Notebook or, you know, all the, you know, the ChatGPT's capabilities are real from a personal productivity time. So we're both investing in people to improve their, you know, productivity, and we're investing in workflows, you know, with an AI, you know, mindset first. So, you know, to me, this is a once-in-a-generation, you know, type of activity, and we want to capture as many benefits as possible. But, you know, I think the real benefit and mentality we have is we want to augment our human talent. We want to; we don't necessarily want to remove, you know, human talent from the loop. We still think it's a business where people want to interact with people or at least given the choice.
So that, you know, philosophy is front and center on how we will invest in our workforce for the future to make them very, you know, productive. You know, I think our views right now are, who knows what's gonna happen to headcounts because headcounts are gonna be driven by how quickly you could really scale all these, you know, technologies. You know, over the long term, I think we just will create a operating model that has more leverage into it. So if we're gonna grow $1 a premium, you know, we don't, we will need less people most likely, you know, going forward.
A lot to think about there. How about capital deployment? You know, at those ROE levels that we talked about, companies generating a good amount of excess capital, and it sounds like maybe organic growth opportunities are decelerating a little bit. Should we think about something stronger than the, you know, repurchase rate that you guys have been at for a little bit? And can you walk us through the preferences on capital deployment?
Yeah. I think if Beth were here, we would say she would say that we're gonna be consistent. You know, we've had a pretty consistent capital management philosophy where we wanna fund growth and fund technology as a form of capital. M&A continues to be a low priority for us. You know, a robust dividend, one that grows with earnings. And you've seen the 15% dividend increase that we did this year, or buying back our stock. We have our authorization. We'd like to be steady and consistent in the marketplace in purchasing our shares. So, you know, there's really nothing that's changing materially. I was really pleased to get Moody's and S&P upgrade to AA, AA minus, on our financial strength ratings of our opcos.
We always thought for the last five years we were operating at the AA level, but it was nice to get the recognition, so yeah, I think we have everything in balance. Our leverage is good, so there really isn't anything new of how we're gonna approach things going forward.
Good. Stable. Awesome. Well, I think we're out of time. So, Chris, thanks so much for being here with us and sharing your perspectives. Always really appreciate it. And, yeah, hope to talk again soon.
All right. Thank you, Rob.