Operator:

Thank you for standing by, and welcome to The Hartford Financial Second Quarter 2024 Results Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session [Operator Instructions]. Thank you. I would now like to turn the call over to Susan Spivak, Senior Vice President, Investor Relations. You may begin.

Chris Swift:

Good morning and thank you for joining us today. The Hartford's second quarter results were outstanding, contributing to excellent financial performance in the first-half of the year. These results reflect the effectiveness of our strategy and ongoing investments to differentiate The Hartford in the marketplace. We remain focused on disciplined underwriting and pricing execution, expanding product and distribution breadth, developing exceptional talent and delivering a superior customer experience. Highlights from the second quarter include top line growth in Commercial Lines of 11% with strong renewal written pricing increases, and an underlying combined ratio of 87.4. Personal Lines' top line growth of 14%, with improving margins, an exceptional Group Benefits core earnings margin of 10%, and solid performance in our investment portfolio, all of these items contributed to an outstanding and industry-leading trailing 12-month core earnings ROE of 17.4%. I'm also pleased to announce that with continued strong capital generation from our businesses, the Board of Directors approved a new share repurchase authorization of $3.3 billon. We will continue to balance growth, investing in our businesses, and returning excess capital to shareholders through repurchases and dividends. Now, let me share a few details from the quarter. Commercial Lines produced exceptional results with double-digit top line growth in an underlying combined ratio below 90 for the 13th straight quarter. We are using our industry-leading underwriting tools, pricing expertise, and data science advancements to drive profitable double-digit new business growth. Retention was steady, and the broader economic environment remains conducive for growth. In Small Commercial, with our unique and superior market position, industry-leading products, unmatched customer experience, and unrivaled pricing accuracy, we continue to deliver exceptional results, including strong top line growth and outstanding margins. New business premium was a record of 23% in the quarter, in part driven by a 36% increase in quotes, and nearly 90% growth in E&S binding, where we continue to see tremendous opportunity. With another quarter of exceptional results and relentless advancement of our capabilities, I remain incredibly bullish on the outlook for our Small Commercial business. Moving to Middle & Large Commercial, second quarter performance was excellent, including double-digit top line growth, paired with a strong underlying margin. We continue to take advantage of elevated submission flow, driven in part by investments made to expand our product capabilities, and the efficiency of the broker and agent experience. Written premium growth reflects strong renewal rate execution, along with double-digit new business growth, primarily in property and liability coverages. We have built a track record of delivering meaningful growth, while consistently maintaining underlying margins, a result we expect to sustain going forward. In Global Specialty, for the first time, we achieved over a $1 billion in quarterly written premium and maintained underlying margins in the mid-80s. Our double-digit top line growth reflects our competitive position, diverse product offerings and solid renewal pricing. Written premium growth was propelled by a 38% increase in global reinsurance, a 14% increase in our wholesale business with significant contributions from primary and excess casualty lines and double-digit growth in commercial and construction surety. We are particularly pleased with wholesale construction projects bound in the quarter, as well as overall increased submission flow, both meaningful drivers of new business growth. The Global Specialty business with our expanding position in the wholesale and reinsurance market, our broadened product portfolio and enhanced risk selection tools has developed into a meaningful profitable growth engine for The Hartford. As I've highlighted in the past, we continue to focus on property across Commercial Lines with written premium growth of approximately 20% in the quarter. We are capitalizing on favorable market conditions with a disciplined approach, including a stable and consistent catastrophe risk appetite. Turning to pricing, Commercial Lines renewal written pricing accelerated to 6.6% in the quarter, 9.5% excluding workers' compensation. Low teens pricing in auto and high-single-digits in general liability, including 14% in excess and umbrella is responding to societal trends. Overall, commercial property pricing has begun to moderate, but was strong in the low-double-digits. All in ex-comp renewal, written pricing and Commercial Lines remain comfortably above loss cost trends. Workers' compensation pricing remains slightly positive in the quarter. Before moving to Personal Lines, let me share a few comments we received at our recent annual agent summit. Our broadened product portfolio, increased cross selling opportunities and exceptional talent are resonating with the agent community opening up new business opportunities. Feedback confirms that the marketplace and our top agents recognize our evolution and strength. They appreciate our strong culture and capability to solve customer problems as a unified Commercial Lines team, particularly with small business customers where we are taking advantage of disruption and engaging more than ever with our largest partners to drive efficiency. Our investments in pace and technology were described as compelling and industry leading, and our talent strategy and succession planning was also complemented. Our exceptional Commercial Lines' first-half results and feedback from our partners makes it clear that we have the team, tools, and momentum to capitalize on market opportunities. Turning to Personal Lines, our second quarter financial performance demonstrates continued progress toward target margin improvement. Auto renewal written price increases remain very strong at nearly 24%. While below peak levels from last quarter, they remain consistent with our view of moderating loss trends for the remainder of the year. As I have mentioned, we expect auto renewal written price increases for the year to be approximately 20%. In homeowners, renewal written pricing of 15% during the quarter, comprised of net rate and insured value increases, outpaced underlying loss cost trends. Investments in Personal Lines continued with the launch of dynamic pricing inside our TrueLane telematics offering earlier this month, an enhanced price to risk matching capability aligned with our Prevail product offering. As we return personal auto to profitability in 2024, capabilities like this, along with enhanced risk segmentation, near-term pricing gains, and moderating loss trend, position Personal Lines to reach target margins in 2025. Turning to Group Benefits, our core earnings margin was 10% for the quarter and 8.1% for the first-half of the year. These stellar results included a lower life loss ratio versus the prior year, and continued strong long-term disability execution. Fully insured ongoing premium growth of 2%, consistent with the first quarter, reflects strong book persistency, still above 90%, and sales of 546 million in the first-half of the year. Moving to investments, the portfolio continues to support the Hartford's financial and strategic goals, performing well across a range of asset classes and market conditions. Beth will provide more details. From a macroeconomic standpoint, the U.S. environment continues to be supportive of the Hartford's businesses. The labor market has been resilient and with continued relatively low unemployment and wage rate growth, still in the 4% range, both of which positively affect our two largest and strongest performing lines, workers' compensation and disability. In summary, the Hartford delivered an outstanding quarter with sustained momentum heading into the second-half of the year, a testament to our execution, strategy, talent, and the impact of ongoing investments in our business. As I said before, we continue to build on our market differentiating capabilities in broad product offering, all while becoming more efficient. Our disciplined underwriting and pricing execution, exceptional talent, and innovative customer-centric technology are expected to sustain superior results. And we continue to proactively manage our excess capital. All these factors contribute to my excitement and confidence about the future of the Hartford and our ability to extend our track record of delivering industry-leading financial performance. Now, I'll turn the call over to Beth to provide more detailed commentary on the quarter.

Susan Spivak:

Thank you, Beth. We now will take your questions. Operator, can you please repeat the instructions for asking a question.

Elyse Greenspan:

Hi, thanks. Good morning. My first question is on the commercial pricing environment. Chris, you said, rates improve sequentially, and I think you attribute it to GL as well as excess and umbrella responding to societal issues. Given right, that we've seen, right, reserving issues emerge across the industry, would you expect that your soft pricing trends would just continue on an upward trend from here?

Morris Tooker:

No, I would echo that, Chris. The only additional data point I would give you Elyse is that our excess and umbrella rates were up 160 basis points quarter-over-quarter, so second quarter over the first quarter. So, we continue to work really hard at getting enough rate into the book to respond to the trends that we're seeing. So, Elyse, I don't think the environment is going to let up. So, you should expect us to continue to be disciplined in risk selection and disciplined in pushing for rate in the book. And whether that's at an increasing or a consistent pace, I'm not going to quibble with you, but we're going to be disciplined.

Beth Costello:

Yes, I would say it's really across our businesses. As we said, the fact that the authorization was increased from the previous authorization really is reflective of just the strong earnings generation. As you know dividends quarter-to-quarter and year-to-year can fluctuate a bit as we manage the various legal entities that we have. But we feel very good about the capital generation that we're seeing and we would expect to see our dividends reflect that.

Operator:

Your next question comes from the line of Andrew Kligerman from TD Cowen. Your line is open.

Chris Swift:

Andrew, thank you for joining us today. I would say our specialty business is quite diversified, but if I look at its biggest component, it's wholesale, E&S wholesale, which again uses the full range of our liability and property products. So, feel good about what we're doing there. Rates are strong. We've been increasing the rate that we're seeking on various aspects of that book particularly the liability books. So, again, new distribution relationships, we're expanding the wholesale distribution relationships. And as I said, it culminated in the first time ever going above $1 billion in rent premium. So, we feel really good about that. I'll make a comment on reinsurance and then ask Mo, if he wants to add anything. But our reinsurance business, I would say on a global basis is growing about 18%. I would say 45% of that global reinsurance business is about is property, which is growing at 24%. And then, our non-property casualty lines is growing at 12%. I think I've characterized this before, Andrew, this is going to be a run rate business for us of about $850 million this year. So, it's something that we're proud of. It's a niche. It's being very disciplined and taking advantage of dislocation in the marketplace and producing outstanding superior risk adjusted returns.

Andrew Kligerman:

Yes, that's pretty impressive for a business that had a lot of doubters five years ago when you acquired it. So, my next question actually, you know what? Let me just sneak something in unless I get bounced out. That rate that you're talking, the pricing of 9.5% ex-workers' comp, is that pure rate, or is that also inclusive of exposure in terms of conditions and conditions?

Andrew Kligerman:

Got it. I just want to make sure on that. And then, my other question is, I guess, reading about the reserves focusing on the more difficult adverse, 32 million in GL. That was off 16 to 19, and I think it said in the Q modest 21 to 23. So, that doesn't seem like an impact. Commercial auto was 10 million adverse in the quarter, but that was 2022. Anything we should read into that, Chris, or you feel pretty good about your reserving on the casualty lines and the commercial auto?

Beth Costello:

Yes. Well, I agree overall with your comments, Chris, as it relates specifically to the reserve increases that we took in commercial auto really related to a couple of accounts and feel really good that we've already taken action on those accounts. So, as you know, we look at our reserves in detail by sub line and where we think we see the need to make an adjustment, we will. But again, I'll echo Chris' comments. When we step back and look at it in total, we do feel very good about where we are.

Operator:

Your next question comes from the line of Brian Meredith from UBS Financial. Your line is open.

Chris Swift:

Yes, Brian, it's Chris. I would say, first, what did they pass? They passed the law that sort of effective January 1 of 2025. So, it does have some applicability for the back book. So, we think that's relatively modest for us. But as you said, it's really physician services across a broad range of services that they're getting basically a pay increase and a pay rate. So, I don't think it really moves the needle on anything materially in Florida. What we then need to do is obviously work with the rating bureaus to make sure that these loss estimates are getting into their guidance and obviously then making the appropriate rate filings and getting paid for that. So, it's a little bit of a lag, but I wouldn't say it's going to change anything from an underwriting appetite or execution. We just need to sort of make sure it gets into filings that the bureaus approve into our pricing, and we'll be off to the races.

Chris Swift:

Yes, I would, I'm going to resist giving you competitive Intel, but I still want to address your question, Brian. So, I would say again last quarter, first quarter in aggregate, ex our Global Reinsurance Property business, we had rates going up 14.1% this quarter on a same basis like-to-like to 12.4%. And I would say that the highest rate increase that we're seeing across our portfolio is in our product for Small Commercial, our E&S binding division within Small Commercial. And then, I would say everything else is sort of in the high-single-digits. So, again, I think quite disciplined, quite appropriate in those lines of business, so I think again as I said the team is executing well. But Mo what would you add?

Brian Meredith:

Great. Thank you.

Gregory Peters:

Well, good morning, everyone. So, for the first question, I think I am going to focus on the Personal Lines business. Chris, in your comments you said that you expect to hit the target margins in Personal Lines by 2025. Is that like end of the year 2025? Or, is the beginning of the year, or for the full-year? And I guess the reason why I am thinking about this is on slide 17 of your Investor deck, we are looking at the sequential trends in the auto underlying and the homeowners underlying combined ratio. And it looks like it ticked up a little bit sequentially from the March quarters. So, any color there on how you see that cadence developing over the next 18 months would you helpful.

Beth Costello:

Yes, I agree with everything that you said, Chris. One thing that I would point out when you look at the sequential underlying combined ratio in auto is just keep in mind that first quarter is typically our lowest loss ratio quarter. And we typically see a couple of points every quarter as we go through the year. So, when you put that into the mix combined with what Chris said about the little maybe less than 1 point of expense increase because turning marketing on, I think that shows you that we are making progress relative to that trend. You just have to take in the seasonality into consideration.

Chris Swift:

Sure. I would just start by saying we are very, very pleased with the 10% core margin and sort of 8.1% through the six months range which is above our 6% to 7% guide on a long-term basis. But I have always reminded people, Brian -- excuse me, Greg, that that guide is based on making rate guarantees over the next three - four years in certain cases for our products. So, you want to be thoughtful about what can happen over that period of time. But that said, we did call out mortality really improved this quarter. And that's great to see, particularly coming out of the pandemic. But we still believe we're sort of in an endemic state, that mortality would be a little higher over the next couple of years. But I would say we had an outsized benefit this time in the mortality. But everything else is performing well, disability continues to be very steady and a consistent performer. So, I would expect for the remainder of the year for us to continue to outperform our long-term guidance and obviously end the year above the six to seven. But I'm not going to comment on any specifics or any numbers at that point in time. And we'll see then what holds for '25. On the top line in sales, I'd like Jonathan to comment particularly on market conditions, which I generally describe and when he and I talk on a monthly and quarterly basis. I mean, the market is competitive. And I think that there's some impacts on our sales and top line there that we could talk about. But Jonathan, what would you add on premium and top line?

Gregory Peters:

Got it. Thanks for the detail.

Josh Shanker:

Yes. Thank you very much. So, maybe not so surprising, or maybe it is for some, workers' comp continues to be favorable. Does that mean that when you think about the going forward margins, you are making changes to your current view of margins in workers' comp, and the loss picks are coming down in current years? Or maybe you're just skeptical that this favorability can last forever. How do you think about that actuarially, and how does that play into the stability or actually improvement in your commercial loss picks overall compared to a year ago?

Beth Costello:

Yes, again, Chris, I agree with how you characterized it. And what I would say, Josh, is we take into consideration this is a long-tailed line. So, when we make our picks relative to loss trend, we take that into consideration. We obviously look at what's happening in the near term. But one of the areas I know we've talked about in the past is medical inflation. We still are holding that 5% trend in our reserves and our pricing. We've seen some, continue to see some frequency benefit, and we build some of that in as well. But we, our philosophy is we just need to be steady as we think about those loss trends. And then, obviously, we've been talking about what we're seeing on the rate side. So, that's why we're feeling a little bit of that compression. But we, again, understand this is a long-tailed line, and we want to be very thoughtful with our loss picks.

Chris Swift:

No, I would say it's loss cost driven, impacted by the rate environment. So, when we said we're expecting some margin compression, our loss trends, which are generally consistent, are impacting, have the rate effect of pricing. So, when pricing continues to be sort of less than positive, and is not covering your cost of goods sold on an assumption basis, you're going to have some slight margin compression, and that's what we're feeling.

Chris Swift:

Well, you're smart. You'll figure it out. But again, from the pure comp line, I would say it's steady.

Chris Swift:

Now, again, those are very detailed conversations by product line. But I would characterize at least our views of where we're at and how we're executing. My view is I think we have appropriate and compelling loss trends baked into our picks going back five years. And our ability to execute on a rate side consistently and in those strong double digits, particularly in the liability lines, over an extended period of time puts us in a good place because I always comment every quarter that I think we're staying ahead of trend, loss trend, with our pricing. So, I'll look at Beth and/or Mo if they want to add anything additional.

Josh Shanker:

Thank you very much. I appreciate the detail in the face of my questions.

Yaron Kinar:

Thank you. Good morning. Maybe staying on workers' comp for a second, I don't know if you'd be willing to share maybe one level deeper here in a public forum. But I was curious to hear more about maybe each of the severity and frequency trends that you're seeing there and expectations there. I know that overall loss trends maybe moved up a little bit, but are still remaining below the long-term expectation. But we'd love to peel the onion a little bit if we could.

Yaron Kinar:

Okay. No, I figure it would be worth a try. And then, maybe moving to Group Benefits, and I know I asked about this last quarter, so I apologize if it sounds like I'm harping on this. I don't mean to. I do think that as underwriters obviously the art is balancing between margin and growth. And considering just what seems to be like sustainable outperformance on the margin side, I would be curious to hear more about maybe why not give a little bit more on the pricing in order to achieve more growth. And I know that last quarter you talked about taking the life pricing up a bit because of the endemic expectations. But are you overshooting there?

Yaron Kinar:

No?

Jonathan Bennett:

Chris, only that I'd like it to be more like a dial. And I could turn it two clicks and I could trigger something to that effect. But Yaron, it doesn't really work that way. So, we get into, in particular, when you're in some of the larger market. The cases do have data credibility. We get a lot of information. We pour through that and we position ourselves to compete hard. So, there is no shortage of work on our part to be digging into that environment and to win those cases. And we'll keep at it. If we find ourselves off by more than we feel comfortable with, then we feel like the discipline of walking away is the right answer. And we'll continue to exercise that prudence. But make no mistake about it. We're interested in competing hard for the growth. And we will continue to work at that, staying true to our outlook on trend and our expectations and requirements for profitability as well.

Operator:

Your next question comes from a line of Peter Knudsen from Evercore ISI. Your line is open.

Chris Swift:

Yes, I would share with you, Peter. Obviously, it depends on your view of loss picks. But generally, property is going to have a lower loss ratio, combined ratio than comp given its long tail duration. So, that's just the obvious. If you mix more of that in the overall portfolio of underlying combined ratio particularly will go down. I think we've talked about it in the past that we are willing to grow in property principally because we've made so many investments that allow us to compete thoughtfully and earn good returns with good risk management tools, with a diversified portfolio that doesn't have outsized CAT to it. So, again, it's just not just because we want to grow. I mean, we have to have the capabilities to. And we have worked really, really hard and invested a lot of time and energy over the last five years to put ourselves in a position to compete today to earn good risk adjusted returns. So, I think that's an important component. I think the other component I'll just give you is, I think we're on track to come close to $3 billion of written premium this year, which would be up from $2 billion couple of years back and growing nicely in sort of that 20% range, I think I said in my prepared remarks. So, you put it all together, and we're competing well in an environment where there's a lot of disruption and a lot of complexity, but we're able to navigate it because of the investments and skills and talented people we have in the building today.

Morris Tooker:

Yes, Peter, it's Mo. The national accounts business, which is really our large casualty business with deductibles, I think the quarter-over-quarter compares to the sequential quarter is a hard compare because the renewal date is really different. That business has chunky renewal dates. So, I would think the year-over-year quarter compares a better one. But overall, we feel incredibly good about the national accounts book. That is a disciplined underwriting process. The teams are doing well. We want to grow it. We did win some new business in the second quarter, but I think the best compare is the second quarter of last year.

Susan Spivak:

Thank you all for joining us today. And as always, please reach out with any additional questions. Have a great day.

Operator:

Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to The Hartford Financial First Quarter 2024 Results Webcast. Today's conference is being recorded.

Susan Bernstein:

Thank you. We will now take your questions. Operator, could you please repeat the instructions for asking a question?

Andrew Kligerman:

Chris, I noticed in your opening remarks, you talked about some pressure on group life sales. Is that something that you foresee going forward? I mean overall sales were -- I think revenues were up about 2% in the quarter. So do you see that line being a bit pressured and maybe you could give us a little color on what's happening in the group life area?

Andrew Kligerman:

That's very helpful. And then my follow-up is, there's been a ton of talk now about long-tail reserving. I mean, for a while, it's been 16 to 19 underwriting years. Now people are talking about 20 to 22 or 23. And when we looked at your reserves this quarter, I mean, it looked pretty modest in general liability and assumed re, and marine, and those were 16 to 19 years per your releases.

Christopher Swift:

Yes, Andrew, I'll start and I'll let Mo and Beth add their commentary. But yes, I'm not going to speak to competitors because everyone is just slightly different, but the confidence that we have particularly in our current loss picks are very, very high. And I think the context that I think Mo and Beth will explain to you is that we've been hard at work in sort of improving our underwriting our book, reunderwriting it, looking at different classes of business, changing terms and conditions, and Mo will give you more color. Beth can talk about the actuarial analysis that we do on a quarterly basis, which is very robust and gives us a high degree of confidence in our picks, particularly for the most recent years.

Elyse Greenspan:

My first question was on the Personal Lines side. Just kind of following up, I think, Chris, you said that you guys are kind of turning on new business growth or did turn on this quarter that you're at rate adequacy in the vast majority of states.

Christopher Swift:

Elyse, thank you for the question and joining us. We're pretty pleased with the start on Personal Lines in totality. You saw the metrics that we've talked about, 25.7% written rate increase for auto, 15-ish in home, and I think the team is executing very, very well.

Beth Bombara:

Yes. Just a couple of things. Also, I'd point out that we did see some favorable development on the '23 accident year primarily coming out of the fourth quarter for auto physical damage. So we see that as an important proof point, too. I just want to clarify on Chris' comment on the book loss trend, mid-teens.

Elyse Greenspan:

And then my follow-up is on Commercial Lines. Looking at the price disclosure, stable on a reported basis, right, but that obviously reflects the comp concentration. How do you guys see just pricing across Commercial Lines playing out as we move through this year?

Adin Tooker:

Yes, Elyse, I would say it's competitive but generally supportive because we talked about properties moderating a little bit outside of our BOP, and the BOP is still accelerating just in terms of what we're able to get there in terms of rate. The excess in umbrella is accelerating again, and auto is accelerating again. So broadly, I just -- I think we feel like the market is being fairly disciplined, fairly disciplined, and supportive of what we're trying to get done for the year.

Charles Peters:

Great. So Chris, in your prepared comments, you talked about the no change in sort of the catastrophe profile of your property business. And yet you said that you're growing your property business, I think you -- the number you cited was 17% higher in the quarter. Maybe you can help reconcile how you grow your property business and not change your cat profile?

But I would say -- and let me just give you a couple of stats is that pricing in our property book, ex our Global Re business is about 14% up compared to 14.4% in the fourth quarter. As I said, we're growing at 17% and we're growing it in an important line:

spectrum, E&S binding, our general industries properties.

Joshua Shanker:

Looking at the rate that you're pushing through on auto, in particular, obviously, it's sizable. Year-over-year, the policy count is down is around about 5%, which -- that might be a good outcome given how much rate you're pushing through. One of your probably the largest direct competitor in the market, they raised prices not as much as you over the last couple of years have lost 20% of their business.

Christopher Swift:

Josh, thank you for joining us. Yes, that's the trade-off we're making right now, lower retention for a more profitable cohort to get us back to that targeted profitability. So I don't think it's outside of the range of expectations that we've had as far as that trade-off.

Christopher Swift:

I think it's more of the latter. I don't think we're having very many negotiations over the phone as far as our product and our offer. And we're being empathetic when we talk to our customers, particularly the mature customers, but there's not a negotiation.

Michael Ward:

I was wondering if you could maybe help us with some of the puts and takes driving the underlying loss ratio in commercial and I guess, across the commercial subsegments?

Michael Ward:

Yes. Well, I think last year, you had mentioned, I think, commercial -- Small Commercial was hotter. Just trying to see how the underlying is doing year-over-year.

Michael Ward:

Okay. And then maybe just on the loss trend. I know you said pricing was still ahead of loss trend. Just curious how loss trend assumptions if they're steady in the first quarter relative to, I guess, '23?

Operator:

We'll move next to Brian Meredith at UBS.

Christopher Swift:

Yes, Brian, I'll look to Mo to add any of his color. But I would -- there's two E&S components I'd have you think about. One is in Small, right? Our E&S binding business, which we've called out and we'd like to try to get to that $300 million level. And then, obviously, all our E&S capabilities within Global Specialty, whether it be property or casualty, that is an important component of what we're trying to do in the marketplace.

Adin Tooker:

Brian, I would say we're excited about the flow in both of the channels that Chris talks about, both in that binding, which is the Small Commercial and the flow into our brokerage that continues to grow nicely. We saw -- we continue to see the growth, as Chris called out in his prepared remarks on the binding side. And we're seeing really good growth in the brokerage side, which sits in our Global Specialty business in both primary casualty, excess casualty, that rate environment continues to accelerate, as I talked about earlier.

Brian Meredith:

Great. That's helpful. And then second question, Chris, bigger picture question here. Looking at your Personal Lines business and understanding that the last couple of years have been challenging from inflation stuff, but if I look at your homeowners business, it's been close to a decade since you've grown unit volume there. In auto it's probably 6, 7 years, maybe a blip here and there. I'm just curious, maybe what kind of was going on during that period? And is the Prevail product kind of the answer to that now, where maybe at some point here, we'll see [indiscernible] start to grow unit in the Personal Lines space?

Christopher Swift:

No. I mean, we're obviously in all 50 states on minute basis. You know we paused our new homeowners in California, which is a writing new homeowners business until the regulatory reforms get enacted to allow us to match price and risk appropriately. So that's the only self-imposed constraint we had. There's no other constraint besides our long-standing not writing any new homeowners business in Florida since 15, 16 years -- almost 20 years ago, I bet.

Michael Zaremski:

Did you comment on what drove the pricing increases in Commercial? I think it came from Global Specialty. Any color there, if that's a trend or just maybe something this mix one-off?

Michael Zaremski:

Sorry, the Commercial pricing, renewal written pricing increased ex comp from 8.3 to 9, I think that was driven by the Global Specialty segment. Could you comment kind of if there's a trend there that's causing pricing to move north?

Beth Bombara:

The only other thing I would add to that is when you look at the Small Commercial side, ex comp, definitely saw rate increase there coming from the Spectrum product. So again, obviously, workers' comp is a large portion of Small Commercial. But if you ex that out, that contributed to the ex comp growth as well.

Christopher Swift:

Well, the only thing I'll say before Mo jumps in is, our Small Commercial franchise is world-class.

Michael Zaremski:

And I guess just is the Small -- you brought up E&S many times and there's different levels or different types of E&S, but it's been in your prepared remarks for a number of quarters. Is part of the E&S growth off of your Small Commercial chassis, which is kind of the world-class product? Or is it just -- is it totally separate type of underwrite platform?

Operator:

Next, we'll move to Yaron Kinar at Jefferies.

Christopher Swift:

Yes. I'll just give you my point of view, and then I'll ask Jonathan to add. I don't think -- I think disability is performing exceptionally well, whether it be claim recoveries and terminations and getting people back to work. I think growth has been solid. I'd say, I'm just wondering levels are behaving...

Christopher Swift:

Yes. I'm giving you all the good stuff, and then I'll get to that. So again, I want you to feel like the book is healthy. And the top line, as I tried to address in my commentary, is a little challenged. Some of that is exceptional 2023 we had, but some of it is challenged, as we mentioned, due to our views on life insurance and how we're going to be disciplined there.

Jonathan Bennett:

So Yaron, just a couple of things on there. In terms of the top line, '23, of course, was pretty exceptional on all the key metrics, the drive result. But I think we are seeing really strong results here even in the first quarter of 2024 comparatively speaking.

Yaron Kinar:

And my second question, I want to make sure I heard, Chris, your comment correctly with regards to loss trends in personal auto. Did you say that they're currently in the low-teens or you expect them to be in the low-teens for '24?

Yaron Kinar:

And I guess the reason I'm asking this is it does seem to be a little bit higher than what we're seeing industry-wide right now? Is there something unique to the AARP book or to the policies that you're writing that, that would keep the loss trend a bit above maybe mid- to high single digits?

Operator:

Moving next, we'll go to Meyer Shields at KBW.

Christopher Swift:

So I would say on the expense ratio, I would have you think of the full year '23 compared to the full year '24 about being the same.

Beth Bombara:

Yes, I would agree with that. As we go through '24, you might see a slight uptick in Q2 because as we said, we are turning on marketing. And again, as the rate continues to earn into the book, that will start to level off. But our overall expectation right now for Personal Lines expense ratio, as Chris said, full year this year to full year last year will be relatively flat.

Christopher Swift:

I don't think I understood the question. It was just hard to hear you.

Christopher Swift:

Not necessarily, right? I mean there's a volume issue, dollars and then a rate. So again, with the amount of rate we're getting the book, I think it's helping keep the ratio the same. We might actually be increasing dollars, which we are sort of in a J-curve model this year. But from a ratio side, that's why I tried to give you that full year number to sort of manage your expectation.

David Motemaden:

Just a question on the expense ratio in Commercial Lines. 20 basis points year-over-year improvement, obviously, following a strong year last year. I was wondering, is there anything one-off or anything that prevented us from seeing more expense ratio improvement year-over-year?

Jian Huang:

Just maybe a follow-up on reserving. I think this is for rather Beth or Mo. When we think about the favorable reserving in workers' comp, just curious if there's a dollar amount that you can give us in terms of how favorable it was and how adverse general liability was?

Christopher Swift:

Yes. It's a complicated question, but I would say I think it's normalized. Obviously, during COVID, there were a lot of assumptions made as far as where trends were that obviously turned out to be prudent, but sort of 2 years out from sort of the official end of workers' comp, I think trends are behaving as we would expect.

Operator:

And that concludes our Q&A session. I will now turn the conference back over to Susan Spivak for closing remarks.

Operator:

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator:

Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter and Year-End 2023 The Hartford Financial Results Webcast. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Susan Spivak, Senior Vice President, Investor Relations, you may begin your conference.

Chris Swift:

Good morning and thank you for joining us today. I will start with a summary of our fourth quarter and full year 2023 results, which are simply stellar. Then I'll turn the call over to Beth to dive deeper into our financial performance and key metrics, after which I will close our prepared remarks with a review of expectations for 2024. We then will be joined by our business leaders as we move into Q&A. So let's get started. The Hartford is pleased to report an excellent fourth quarter, capping another outstanding year of financial performance and achievement of our strategic objectives. These results demonstrate the power of the franchise and in particular, our superior underwriting execution, depth of distribution relationships and unmatched customer experience. I am grateful for the commitment, dedication and hard work of our 19,000 employees who show up every day to deliver for our customers, partners and shareholders. Let me call your attention to some highlights for both the quarter and the year. Top line growth in Commercial Lines was 9% for the quarter with an underlying combined ratio of 86.6%, and growth was 10% for the year with an 87.8% underlying combined ratio. We achieved strong renewal written pricing increases across P&C during the quarter and for the year, including notable double-digit increases in commercial property, personal auto and homeowners in the quarter. Group Benefits fully insured premium growth was 6% for the quarter with a core earnings margin of 9.8%, and growth was 7% for the year with a core earnings margin of 8.1%. We delivered strong investment performance with an 80 basis points increase in the portfolio yield, excluding limited partnerships for the full year. All these items contributed to an outstanding and industry-leading core earnings ROE of 15.8%. Now let me share a few details from each of our businesses. Our Commercial Lines business completed its third straight year of double-digit top line growth and underlying margin expansion. Written premium growth of 10% for the year was driven by meaningful exposure growth, pricing increases across most lines and strong new business growth in each of our three businesses. As expected, underlying margins improved 0.5 point as slight headwinds in workers' compensation were more than offset by earned pricing, exceeding loss cost trends across the rest of the portfolio and by improved expense leverage. Small Commercial remains a highly profitable growth engine for The Hartford. 2023 included record-breaking annual written premium of $5 billion and a decade-long trend of annual sub-90 underlying combined ratios. Spectrum, our best-in-class package product, continues to outperform in a competitive marketplace, contributing to annual new business premium growth up 20% over prior year. I’m incredibly pleased with the overall performance in Small Commercial, a business we expect will sustain outstanding results with industry-leading products and unmatched ease of conducting business and unrivaled pricing accuracy. Moving to Middle & Large Commercial. The performance has also been truly exceptional. Our team has improved annual underlying margins by approximately 10 points since 2019, while adding over $900 million in written premium at a 7% compounded annual growth rate. In 2023, written premiums grew 9%, reflecting strong rate execution and new business growth. Submissions, quotes and the hit rate are all up over prior year as we leveraged advanced underwriting capabilities, particularly within the low end of Middle Market. The stellar results in this business are a direct result of data science advancements, pricing expertise and industry-leading tools. Combining these advantages with our best-in-class talent and the strength of our distribution relationships, we are well positioned to sustain profitable growth in this business. In Global Specialty, advanced underwriting capabilities and continued discipline are driving targeted market share gains with excellent underlying margin performance that has hovered in the low to mid-80s for the past seven quarters. Our competitive position, breadth of products and solid renewal written pricing drove an 11% increase in net written premium for the year, including 33% in our Global Reinsurance business and mid double-digit growth in U.S. professional liability and international marine and energy. New business growth of 7% for the year and 20% for the fourth quarter was driven by significant increases in both submissions and quotes and wholesale. Renewal written pricing continues to accelerate in wholesale excess casualty, and property pricing has been above 20% all year. We remain excited about our position in the wholesale market and across Global Specialty with execution that has never been stronger. Looking across Commercial Lines. We are particularly pleased by the growth in property lines, a key area of focus. We will continue to capitalize on favorable market conditions with a thoughtful and disciplined approach. Property written premium of $2.5 billion for the year was approximately 20% higher than 2022. Turning to pricing. Commercial Lines renewal written pricing was 6%, an increase from 5.5% in the third quarter. Excluding workers' compensation, renewal written pricing rose four-tenths to 8.5% with strong property pricing at 11%, auto closing in on double-digits and many liability lines in the high single-digits. Public D&O pricing remained pressured, although the fourth quarter result was the lowest pricing decrease since the second quarter of 2022. In workers' compensation, renewal written pricing continues to exceed expectations, remaining slightly positive in the quarter. All in, ex comp renewal, written pricing in Commercial Lines remains comfortably on top of loss costs trends in the fourth quarter. In summary, Commercial Lines produced an exceptional quarter, closing out a very successful 2023. Moving to Personal Lines. I’m pleased with our continued progress to address elevated loss costs trends in both auto and home. During the quarter, we achieved auto renewal written price increases of nearly 22% and new business rate adequacy in over half the states, representing two-thirds of our new business premium. In homeowners, renewal written pricing of 14.7% during the quarter, comprised of net rate and insured value increases, outpaced underlying loss cost trends. Our focus on the preferred market within the Personal Lines business is a competitive advantage with our modern, innovative and digitally enhanced offering, Prevail. This product and platform are currently available in 41 states with additional states coming online in 2024. Turning to Group Benefits. We had an exceptional year, delivering record core earnings of $567 million and an outstanding core earnings margin of 8.1% and strong fully insured ongoing premium growth of 7%, demonstrating focused execution, a resilient economy, improved mortality trends and continued strong disability results. 2023 disability loss ratio of 67.1% reflects low long-term disability incidence trends and favorable claim recoveries. In 2023, group life mortality trends have improved, though they remain above pre-pandemic levels. We expect the Group Benefits market to remain dynamic with digital transformation, product innovation and increasing customer demands. As a result, we are investing in this business and have a clear road map that I’m confident will only strengthen our market leadership position. For example, building on our historically strong presence in national accounts with an enhanced approach for small to midsized employers, we view this as a key strategic initiative, leveraging our unique expertise in these markets. In addition, as we have discussed before, we struck a partnership with Beam, a dental and vision company to expand our product offerings for small to midsized employers. Overall, the strength of our Group Benefits diversified product portfolio, our commitment to outstanding customer experience using data and technology resonates in this marketplace, cementing our leadership position. Now I'll turn the call over to Beth to provide more detailed commentary on the quarter.

Chris Swift:

Thank you, Beth. Let’s now pivot forward. Strong fourth quarter results capped a year of outstanding financial performance, positioning us to sustain these results in 2024. In Commercial Lines with our diversified and expanding product portfolio and innovative mindset, we are primed to continue to build market share at highly attractive margins. We expect total renewal written price increases in Commercial Lines, excluding workers’ compensation to be consistent with 2023. Workers’ compensation and renewal written pricing, which is composed of net rate and average wage growth is projected to be flat to slightly negative. We expect underlying margins to be consistent with 2023, reflecting our steadfast commitment to disciplined underwriting while sustaining industry-leading results. While we anticipate slight headwinds in workers’ compensation, earned pricing is projected to remain on top of loss costs trends across the remainder of the Commercial Lines book. Turning to Personal Lines. We expect annual renewal written pricing in both auto and home to be consistent with the fourth quarter results. In auto, as a result of the significant written pricing actions that will earn into the book combined with moderating severity trends, we expect meaningful underlying loss ratio improvement of five to six points during 2024. Earned pricing in home is expected to remain above loss costs trends. As we navigate this inflationary period across Personal Lines, we are focused on balancing rate adequacy, quality of new business and marketing productivity. Overall, I am confident we have the right execution plan to return this business to targeted profitability in 2025. In Group Benefits, we expect the 2024 core earnings margin to be between 6% and 7%, consistent with our long-term outlook for this business. In closing, let me summarize why I’m so bullish about the future. First, 2023 financial results demonstrated the effectiveness of our strategy and the ongoing investments in our business. In particular, underlying margins in Commercial Lines were excellent with meaningful top line growth, and we produced record core earnings in Group Benefits with strong premium growth. Second, Personal Lines results have stabilized. We are achieving necessary rate increases and expect 2024 margins to improve towards our targeted profitability. Third, we expect our book of diversified, but complementary businesses will continue to sustain superior results. With our outstanding underwriting and pricing execution, exceptional talent and innovative customer-centric technology, we will continue to outperform. Fourth, investment income remains strong, supported by rising yields and a diversified and durable portfolio of assets. And finally, in the last three years, we have returned $6.2 billion of capital through repurchases and dividends, and we will continue to proactively manage our excess capital to be accretive for shareholders. All these factors contribute to my excitement and confidence about the future of The Hartford. Quarter-after-quarter, we are delivering industry-leading financial performance with a sustainable core earnings ROE anchored at 15% while creating value for all our stakeholders. Let me now turn the call back over to Susan for Q&A.

Operator:

[Operator Instructions] Your first question comes from the line of Andrew Kligerman from TD Cowen. Your line is up.

Chris Swift:

Andrew, I’ll start and then Beth can add her commentary. So yes, I appreciate you pointing out the numbers. I think also, too, on a year-to-date basis, 2022 to 2023, the 60 basis point improvement, which, on a full year basis, I think, is a good run rate. And all I would say is, philosophically, we do have a continuous improvement mindset in the organization to get after additional expense efficiencies. I wouldn’t say we have a formal program that we called out. But clearly, it’s in everyone’s goals to become more efficient, create that operating leverage that as we grow the franchise, we just – it’s a good levered model that more earnings drops to the bottom line. But Beth, what would you add?

Andrew Kligerman:

And then shifting over to personal auto. You got a 21.9% rate increase. I want to make sure I understand that. That’s – is that pure rate? Or is that exposure growth? And then secondly, Chris, if I understood you, did you say that you expected five to seven points of loss ratio improvement? Or could it be a lot more than that given the 21.9% rate increase?

Stephanie Bush:

You covered it perfectly. Thank you.

Chris Swift:

Say it again. I didn’t hear you clearly.

Chris Swift:

Yes. Clearly, the rate that we achieved this year is contributing. And as I said, we’re anticipating 20 points of rate also next year, which is very important, because that then sets up getting back to our targeted margins in 2025.

Operator:

Your next question comes from the line of Gregory Peters from Raymond James. Your line is open.

Chris Swift:

Thank you for the question. I’m happy to provide any clarity. I thought anchored was actually a pretty good word, because it really means sort of floor, in my mind. And Greg, we had a 14% to 15% ROE range as guidance last year. We’re giving qualitative guidance this year as opposed to sort of the table. So, we really wanted to send a strong message that we’re shifting and it’s shifting higher. And the construct we came up with was let’s just anchor 15% as far as the floor for everyone’s expectations. We always, when we put out guidance, have a high probability of meeting that. And we play for upside. And you saw the way we ended 2023. And I’d say I think we’re off to a good start this year, and I think there will be upside in that floor number that we provide. But that was the mindset behind that.

Chris Swift:

Yes. Happy to, Greg. And I’ll ask Jonathan Bennett who’s with us to add his color. No, I think it’s a great business. We’ve always – I think it fits within The Hartford. It contributes mildly and it’s improved, particularly coming out of COVID. So, I would just say that the 6% to 7%, we’ve been pretty consistent. That’s our long-term view. We’re commenting on a long-term view for that business and particularly given some of the rate guarantees that are in that book of business. So – but I would also say that we had an excellent record year this year and that momentum, I think, will continue into 2024. And we like how it’s positioned. We like our strategic initiatives. We like how we’re investing for the future in this business. So yes, it’s going to be and will remain a significant contributor going forward. Jonathan, what would you add?

Chris Swift:

Greg, one last point. Remember, that 6% to 7% we've commented upon before turns into a 14% to 15% tangible ROE. So again, it's another rising – reason why we like this business so much. Margins are generally steady predictable and our ROEs are very contributory to us, particularly on a tangible basis.

Operator:

Your next question comes from the line of Mike Zaremski from BMO. Your line is open.

Chris Swift:

Yes. Mike thanks for the question. Yes, those are a reality of our society today, right? Social inflation, legal system abuse, however you want to call it. So it's alive and well. It's nothing new for many, many industry participants, but it is still something you have to be aware of, particularly in the umbrella in the excess liability lines. I'll ask Mo to add his commentary. But I think we've been thoughtful about the trends over the last couple of years and the need to stay on top of those trends with rate. And that's why I say particularly, we're looking for an element of consistency with 2023. Because in a lot of those long-tail liability casualty lines we need high-single to low-double digit rate increases to stay on top of the trend assumptions that we have. So yes, it's all part of managing multiple product line approach. But again, in aggregate, I think the setup is very similar to last year's setup at the time when we talked about it is that there's going to be some slight pressure on comp. And we're going to try to maintain and expand margins where possible in other lines of business. But Mo, what would you say specifically in the casualty world?

Mike Zaremski:

Okay. That's helpful. And my follow-up is just on capital management. I see the guidance there. Just curious, top line growth has been fairly robust, which is obviously a good thing. If the top line growth kind of continues at similar-ish levels in 2024, which I assume as a capital user, I mean, should we be toggling maybe down the buyback levels a bit or am I splitting hairs here?

Beth Costello:

Yes. No, I think you said it well, Chris. I mean we – I talked about our expectations for dividends from the operating companies in 2024, which is up slightly from 2023. In the past, I've talked about that we typically target about 70% to 80% of the earnings to dividend out of the subs, and that provides us with enough room to fund the growth that we're expecting, so really no change in how we're managing the balance sheet and balancing those items.

Operator:

Your next question comes from the line of Brian Meredith from UBS. Your line is open.

Chris Swift:

Brian, I know what you're trying to triangulate to. So all I'd say qualitatively on any top line point because we're not going to give a precise number in aggregate or by line of business is, I think the macro sets up well. I think the economy is performing well. You saw the jobs report this morning, and unemployment remains low. You could see the Fed as being a little cautious on how quickly it cuts rates, which actually we support. So I think the macro sets up well. All I would tell you is that what we saw in January, early indications are much of the same coming out of 2023 and sort of that double-digit range in commercial. So one-month does not make a trend. But I think the environment will be fairly conducive to continuing going forward. So we perform very well when the economy is performing well, and I think that's the general view I have heading into 2024.

Chris Swift:

Yes. There's always things to be concerned about and worry about. That's not one of the top ones and principally because bluntly we've been there done that. Part of our integration and activities with the acquisition we did years ago was to deal with sort of with those balance sheet reserving issues that we knew were there and saw. So I think we've tackled that appropriately. I think we've made the adjustments in those older years, adjusted our loss picks and trends going forward. So I feel very comfortable and confident we got our arms around that issue a couple of years back. Would you add anything, Mo?

Brian Meredith:

Got you. Thank you very much.

Elyse Greenspan:

Hey. Thanks. My first question is on capital, I guess, following up on the earlier discussion. So Beth, you said $350 million buyback in the Q1, which is in line with the Q4 level. But you did point out, right, like the dividends out of group are going to be a few hundred million dollars higher in 2024 relative to 2023. So I think that that would give you a tailwind to perhaps have a higher level of buybacks in 2024. Is it just timing of dividends? And should we think about buybacks picking up in the back three quarters?

Elyse Greenspan:

Okay. Thanks. And then my second question is on the Commercial Lines guidance. So I think you said underlying margins would be consistent but did point to a headwind in workers' comp. As Chris, I know you said pricing there would be flat-to-negative and we've gone through The Hartford Next program. So how do you think about the split between the loss and the expense ratio within commercial when you're coming to like an overall stable underlying margin in 2024?

Elyse Greenspan:

Thank you.

Josh Shanker:

Yes. Thank you for taking my question. Question about adverse development covers. You have the NICO cover for the asbestos in 2017. You have the Navigators cover from a few years ago. Both are having or about to be exhausted. As a sort of operating principle, when you buy an adverse development cover, do you buy with the expectation that it's likely it's going to be exhausted? Is that how it's structured? Or do you – is it kind of a surprise that you get to the end of the cover?

Josh Shanker:

And back when you did the 2017 Governor, you were in a different capital position than you are today. I assume so. Even if there was a deal available to you today, perhaps it doesn’t the urgency is different than it was seven, eight years ago.

Josh Shanker:

And the other question, also a philosophical one. I was talking to Aileen [ph] last night, and I think that these are the best commercial results you guys have had almost ever looked at. Going back to 2006, there was one quarter that might be better, and clearly it's the best group benefits results ever. What do you say to concerns that these might be peak margins?

Josh Shanker:

Thank you very much.

David Motemaden:

Hey, thanks. Good morning. Just had a question on the property book within Commercial Lines. It sounds like you guys had really good growth last year in line with what you guys are saying. How are you thinking about growth growing the property line in 2024 and if there's any sort of mix shift benefit that we should think about coming through incrementally to margins next year?

David Motemaden:

Awesome. That's great. Thanks for that Chris. And then maybe just following up, good growth last year in Commercial Lines, up 10%. I was just wondering if you could just maybe talk about how much exposure maybe contributed to that in 2023.

Stephanie Bush:

I'll start. It's Stephanie, David. From a Small Commercial perspective, I just want to continue on some of the comments that Chris and Beth made in the prepared remarks, but Small Commercial will continue to be a growth in earnings engine. You talked about exposure, but we look at many factors in small. We look at new business starts. Those remain healthy. Unemployment in our sector is healthy. We track small business owner sentiment and the likelihood of them to invest and hire, and that is at a high level. And again, audit premiums, again, still strong. So you take all that in combination with the results that we had, $913 million, all in just in new written premium. We grew every line. We grew policies in force in every line. And then as the team referenced that we delivered outstanding underlying in the fourth quarter and then our 14th consecutive quarter of 90 or below. So the business model is incredibly strong and powered by exceptional data analytics and an outstanding team. So Chris touched on it. We had an outstanding start to the year, but it's a long way to go. But I feel really confident in what we'll be able to continue to deliver. So I look at it broader than just exposure. It's all of those combinations. And then again, from a personal insurance perspective, I think Chris and Beth laid out our mission very well in the auto line as well as in the home line. Home results are very strong as well, and that contributes to our growth and our aspiration to be a stronger property market. So I'll turn it over to Mo.

David Motemaden:

Got it. Understood. I appreciate the answer.

Alex Scott:

Hi, first one I had is on the Group Benefit dividends up to the Holdco took a nice step up. And just looking at the $600 million, I mean, that's more than the core earnings from 2023 by a bit. It seems to imply that you think some of this strength can continue in 2024. So I just wanted to understand that number a little bit. And we don't usually for these type of businesses see distributions in excess of earnings. So is there any excess capital drawdown there to consider, those kind of things?

Alex Scott:

Got it. All right. Helpful. Just on the – going back to the environmental and given we got to think about it a little harder with ADC closer to being used up. I know you mentioned the PFAS. Could you give us a sense of what kind of adjustments are made around PFAS? And is that related to any specific developments? Or do we need to think about that as something that could impact things going forward?

Alex Scott:

Okay. Thank you.

Susan Spivak:

Thank you so much for all joining us today. And as always, please – oh, thank you for all joining us today. And as always, please reach out with any additional questions. Have a great day.

Operator:

Good morning, ladies and gentlemen. My name is Abby and I will be your conference operator today. At this time, I would like to welcome everyone to the Third Quarter 2023 The Hartford Financial Results Webcast. Today's call is being recorded and all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] thank you. And I will now turn the conference over to Susan Spivak, Senior Vice President, investor relations, you may begin.

Chris Swift:

Good morning, and thank you for joining us. The Hartford's third quarter financial and operational performance builds upon the momentum achieved in the first half of the year. Once again, Commercial Lines and Group benefits, which in aggregate represent over 85% of earned premium delivered exceptional results. We continue to expand our strong competitive position, successfully executing on priorities and delivering superior returns for shareholders. Let me now call your attention to highlights from the third quarter. Top-line growth in Commercial Lines of 8% with an underlying combined ratio of 87.8. Strong pricing across P&C including double digit increases in Commercial Property, Personal Lines, Auto and Home. Group benefits fully insured premium growth of 8% with a core earnings margin of 9.8%. Strong investment performance with reinvestment rates, climbing to 6%, driving higher portfolio yield and the trailing 12-month core earnings are already of 14.9%. These results are outstanding and keep us on track to deliver a full year core earnings ROE in the range of 14% to 15%. As I look across the markets, the U.S. economy has remained resilient in recent data points, including robust payroll, strong retail sales, in solid levels of industrial production point to an environment, which continues to be supportive of the Hartford's businesses. Now let me dive deeper into the third quarter performance by business. In Small Commercial, written premiums were $1.2 billion with 16% growth in new business and another sub-90 underlying margin. Our best-in-class package product, which we call Spectrum continues to outperform in a competitive marketplace, contributing new business premium of approximately $100 million, up 20% over the prior year. In addition, written premium for excess and surplus lines grew 34% in the quarter with new business growth of over 50%. We expect E&S premium to approach $200 million for the full year. I am incredibly pleased with the overall performance in Small Commercial, which continues to deliver outstanding results with industry leading products and unmatched ease of conducting business and unrivaled pricing accuracy. This business is poised to exceed $5 billion have written premium this year. Middle & Large Commercial had another great quarter Written premiums grew 5% reflecting strong rate execution and new business growth in our excess lines. Our general industries properties book grew 13% while large property grew 15%. Looking across Commercial Lines, we are taking a thoughtful and disciplined approach to grow property premium within favorable market conditions to the level of approaching $2.5 billion for the full year or a 25% increase. We are focused on managing our CAT exposure, as evidenced by our year to date CAT losses, which were lower than our market share. Coming back to Middle & Large Commercial, underlying margins were exceptional, reflecting the advancements made in data science capabilities, pricing, and underwriting tools. Margin has also benefited from favorable property losses. Those advancements combined with our best-in-class talent position as well to sustain profitable growth in this business. Global Specialty continues to deliver outstanding results with net written premiums up 11% driven by new business growth and strong renewal written pricing in a number of key lines. Submission flow in the U.S. was up 11% in the quarter, including 15% growth in wholesale and international saw strong new business growth in marine and Energy. Within renewal written pricing, momentum has been building in the wholesale access market. Property pricing has been above 20% all year, and international casualty is above 10%. In addition, we remain excited about the ongoing benefits to the top-line from our expansive product portfolio. Our underwriting discipline, along with enhanced capabilities, developed over the past few years in Global Specialty are driving targeted market share gains with a stellar underlying combined ratio that has hovered in the mid-80s for the past six quarters. In short, our execution has never been stronger. Turning to pricing, Commercial Lines' renewal written pricing was 5.4% flat with the second quarter. Excluding workers' compensation, renewal written pricing rose to 8% up four tenths sequentially with strong pricing in Property, Auto and General Liability. Across Commercial property pricing is over 10% with Auto and General Liability nearing that level as well. Pricing and other liability and casualty lines also remained strong, while public D&O is still pressured. In workers' compensation, renewal written pricing continues to exceed expectations, remaining slightly positive in the quarter. All in ex-comp renewable written pricing and Commercial Lines remains on top of last cost trends, reinforcing my confidence and achieving our margin expectations for the year. In summary, momentum persist in commercial lines, where I expect top-line growth and highly profitable margins to continue. Moving to Personal Lines, I am pleased with our continued response to elevated loss cost in both Auto and Home. In this challenging environment, our focus, objectives and execution are unwavering. During the quarter, we achieved auto renewal written price increases of nearly 20%, which we expect to continue at that rate into the fourth quarter. Current accident year lost trend expectations for the third quarter, as updated in June, held a promising development as we finished the year. In Homeowners, renewal written pricing of 14.1% comprised of net rate and insured value increases outpaced underlying loss cost trends. This is the fifth consecutive quarter of double-digit pricing increases in this book. Our focus on the preferred market within Personal Lines business is a competitive advantage with our modern, innovative and digitally enhanced offering prevail. This product will be available in 39 states by the end of this month. And we are optimistic about future prospects for growth. In the fourth quarter, we expect to achieve Auto new business rate adequacy in over half the states representing two thirds of new business premium. I am confident in the pricing actions we are taking will return this business to targeted profitability in 2025. In Group Benefits, premium growth of 8% and a quarter earnings margin of 9.8% were both outstanding. Core earnings of $170 million was a quarterly record, reflecting focused execution, improved mortality trends, and continued strong disability results. This quarter's disability loss ratio reflects historically low, long-term disability incidents, trends, and favorable claim recoveries. In Group Life, mortality trends have improved both sequentially in year-over-year, but remain above pre-pandemic levels. Looking at the top-line, growth was driven by book persistency above 90%, plus strong year to date sales. Overall, the strength of our Group Benefits, diversified product portfolio, as well as our commitment to outstanding customer experience through the use of data and technology resonates in this marketplace, cementing our leadership position. Before I turn the call over to Beth, let me share some takeaways from the recent Council of Insurance Agents and Brokers Annual Conference. Throughout the course of the 60-plus meetings in touchpoints at CIAB, we heard a consistent acknowledgement of the strength of our franchise. Partners called out our unique digital tools, broad product set, the strength of our innovation agenda, and the consistent execution of our strategy over a number of years. They also expressed their desire to grow their business with us, and they have come to view our team as best-in-class with relationships that have never been stronger. Confirmation from distribution partners that we are delivering on our strategy is strong validation of our leading position in the market. Through those relationships combined with enhanced capabilities, state-of-the-art technology and digital tools we are taking market share while delivering industry-leading returns. With that track record, I am confident in our ability to consistently deliver core earnings ROEs in the 14% to 15% range. Now, I'll turn the call over the best to provide more detailed commentary on the quarter.

Susan Spivak:

Thank you, Beth. We have about 30 minutes for questions. Operator, we will now take our first question.

Brian Meredith :

Hey, good morning. Chris and Beth, a couple of questions here. First one, I just want to dig in a little bit on the Commercial Lines premium growth. I was a little surprised at the slowdown that we saw in the Middle Market's premium growth considering which some other companies have been reporting this quarter. And then the Small Commercial side, I know you had a difficult comp there but also a slowdown. Maybe we can unpack it a little bit, and anything unusual going on?

Mo Tooker :

Yeah, Brian, I would say that just to reiterate, we feel really good about the year-to-date growth of the 12% on new. But as you see in the quarters, can be lumpy. And maybe a little bit of context there. We equip our underwriters with tools by product, by specialty area and then they are in the market executing on those. And sometimes, in some quarters we do -- and especially periodically see months where the market is just going further than we would go. So I feel like our underwriters made really good decisions in the quarter and you especially see those months at the beginning of the quarter when the market really heats up a little bit periodically. But broadly, I think the underwriting team did a nice job. And right now, these months are more of an exception, but we're watching that closely.

Chris Swift:

Yeah. Happy to sort of comment on that, but there's a -- not going to be anything new I'm going to share with you. I think again in the context that our workers' comp is a highly profitable line of business. We haven't made any changes in frequency or medical assumptions since we set them at the beginning of this year. So things are actually running almost exactly as we predicted. Medical severity, as we've talked about it, what we price for and collect and put up on the balance sheet is 5%. Actually, what's emerging for the first nine months is slightly less than that in the 2% to 3% range. I would say though that if I look at trends last year, nine months, this year, nine months, medical severity is probably up a little bit, say, a point. But I don't think there's any trend to call out other than just sort of maybe normal volatility. We watch all our components of price, whether it be hospital stays, whether it be physicians, whether it pharmaceuticals. And generally, things are behaving as we expect. So I don't know what to tell you other than it's steady as she goes from our perspective as we sit here today. I think the impact on the longer term is still to play out. But as we've talked about before, Brian, I mean, our claims team is world-class. We have fee schedules in place, networks in place that sort of provide a buffer. And if long-term, things continue to be elevated, the reaction function within our system, I think, will allow us to raise prices and deal with it appropriately. So I don't think we're going to get surprised in any way, shape or form on medical severity running away from us.

Chris Swift:

Yeah. Clearly, we've got a lot of capabilities embedded in claims, embedded in our Engineering Group, so yes. And again, being the second largest rider, you would expect us to have those capabilities.

Operator:

And we'll take our next question from Elyse Greenspan with Wells Fargo. Your line is open.

Chris Swift:

Elyse, I might have Mo comment on that.

Elyse Greenspan :

Okay. And then with the reserve development in the quarter, we saw total favorable development was driven by comp. There was a little bit of adverse development in GL. Anything you want to highlight there? Any specific years or anything you guys are seeing? I know it's a small number, but just looking for some color there.

Operator:

And we will take our next question from Mike Ward with Citi. Your line is open.

Chris Swift:

Mike, thanks for the question. As I said in my prepared remarks, I mean, we're trending towards $2.5 billion of commercial property premium across our businesses, which would be about a 25% increase from prior year. And we feel very good about how we're executing both from a growth and pricing side. I'll give you just a couple of numbers for the third quarter here. In our Spectrum property component. Our growth was 13%, and pricing 11.5%, up. In our general property in Middle Market, growth was 13% and pricing was up 12.9%. Large property grew 16% with pricing up 16% also. So I think, in total, we're executing very well. We grew property 12% this quarter with pricing up 14%. And as I said before, I mean, this isn't a CAT strategy. I mean, we'll obviously take on a little CAT, but we're looking at other perils, particularly the fire, to build a national book of more property exposure. And I think we're getting paid for that incremental volatility from quarter-to-quarter. I would say the story line this quarter, particularly with non-CAT commercial property losses were, in total, at expectations and about a point better than prior year with elevated losses in small commercial, offset by lower losses expected in Middle & Large. So I think our strategy as well. And Mo, I don't know if you would add anything as far as the execution or any color from the marketplace, please.

Chris Swift:

Stephanie, what would you add in Small Commercial property and any E&S color?

Mike Ward :

Awesome. Maybe on Personal Lines real quick and the seasonality. Just wondering, should we expect the typical pressure in 4Q? Or do you think the rate that you're pushing can actually maybe mute that seasonality?

Mike Ward :

Thanks, guys.

Alex Scott :

Hi, good morning. First one I had is just a follow-up on the workers' comp. I hear you on how you feel about the profitability of the business, and certainly, the reserve development has been great. I guess just helping us think through the NCCI sort of indications are pointing down another mid-single digits. And you mentioned, I think, the 5% loss cost trend. So how should we think about the margin drag that, that creates going into next year? I mean, can you help us think through -- like even just relative to the headwind that you got from that this year, does it get worse? I mean, there's also a sort of a moving target in terms of the baseline that you sort of start off with when you do that math. So I just -- any help would be great.

Alex Scott :

Got it. Second question I had for you is just on the ROE range you all talk about. I mean, you're sort of hitting the upper end of it right now. And Personal Lines isn't making money right now, and with the rate you're taking, it should start to again. And then investment income, you talked about being a bigger contributor next year. So when I think through all that, I hear the ROE guide and I'm sure -- look, you're not going to adjust your long-term targets. It's going to be periods that you're earning more or less than the target potentially. But is that the right way to think about it that, that is a longer-term ROE guide and that you're not suggesting that there's some offset to those things necessarily and that we may go through a period where you're over the top end of it?

Alex Scott :

Got it. Thank you.

Greg Peters :

Good morning. I'm going to pivot to the Group Benefits business. If I look at Page 21 of your supplement, a nice step-up in ROE over the last several quarters. Can you remind us of what kind of economic sensitivity that business has? Because there's obviously some noise in the marketplace about what the economy might look like next year. And then secondly, when I look at the results in -- particularly in the third quarter, wondering if there's anything you want to call out, unusual good guys that helped that boost the number higher. Thanks.

Jonathan Bennett :

That is a terrific overview, Chris. So a lot of agreement with all of that. I think, Greg, you asked a bit about some of the economic drivers, and that often gets ascribed to the LTD line linked with employment levels. Obviously, right now, unemployment at very low levels. Certainly, that is contributing, we think, to some of the performance of the business. The outlook right now around unemployment, not something that we see as being a real negative drag into the future. Even if levels were to increase, there's always a bit of a delay between when we see that and if there is going to be any effect on LTD. But even that effect, we would say, is pretty loose in terms of its linkage. It's not a hard connection. And we think that even if unemployment levels were to increase moderately, we're probably still operating at attractive levels. So things seem to be in good shape on the LTD side. Your other point about in the third quarter, as Chris outlined, solid net investment income, pleased with that result. The mortality is probably one of the more notable things for us. We've had sequential improvement over the last four quarters, that's been terrific on mortality. But this quarter, we got down to a level that we think of as being more in line with endemic state post pandemic. And so we're pleased to see that. We'll watch that one again in the fourth quarter, but that bodes well for the business moving forward. And then on the disability side LTD, again, incidence levels pretty attractive at this moment and our claims team is doing a phenomenal job around recovery. So we think our expertise there is really coming through. One of the things about The Hartford is we understand medical management whether that's comp or LTD, and we think that comes through in our execution on both sides of the organization. So really pleased with that outcome. Where that trends in the future, I think we'll continue to monitor and obviously adapt ourselves quickly as necessary, but we're pretty pleased with the performance of the business year-to-date.

Beth Costello:

Yeah. So I'll start. So first of all, in Q3, as we said in our remarks, we did not make any adjustments to prior accident years for the auto line, for auto liability or auto physical damage. If you -- I'll remind you, if you go back to the first half of the year, in the first quarter, we did record about $20 million related to physical damage for the 2022 year. And also, in the first quarter and second quarter, we increased our estimates for auto liability for the 2022 year, but those were offset by releases for years '21 and prior. So that's why that development on a net basis is not showing up in that table. So we were experiencing some of the same trends that others were seeing. We reacted to them. As I said, we are very pleased that in the third quarter, our loss picks for prior accident years as well as the first half of the year did remain unchanged. And the last thing that I'll just point out on that, because I know some have looked at sort of our year-over-year results in auto. And I'll just remind you that because we have booked prior year development for the '22 year in '23, when you look at that third quarter reported underlying loss ratio for auto, it would probably be about 4 to 5 points higher reflecting some of that PYD we've seen. So hopefully, that helps some people who are looking at sort of that year-over-year comparison in the underlying auto ratio.

Operator:

And we will take our next question from Josh Shanker with Bank of America. Your line is open.

Chris Swift:

Josh, it's Chris. I'll start and then I'll ask Stephanie to add her color. Again, we're very proud of the AARP relationship for over the last 35 years. I think you will recall, we did renew a contract and extended it to 2033. Part of that then, we launched the Prevail product and platform. But the in-force business, both auto and home, it does have lifetime continuity agreements still on, on the policy that prohibits us from just canceling a customer unless their risk profile, particularly in the homeowners' line, really changed. That's different with Prevail, but that's going to take some time to sort of work its way all into the in-force business. Because 90% of the business that we still have on the books, it relates to lifetime continuity agreements. So we have to be sensitive there. That's why we're pushing for rate as aggressively as we've had. And I think Stephanie and the team, the numbers and the results speak for themselves, and that will begin to earn in. But Stephanie, what would you add?

Josh Shanker :

And when we look at that new business, is the rate increase is similar between what's going through on the Prevail book and what's going on in the lifetime continuity book?

Josh Shanker :

Thank you for the details. Appreciate it.

Unidentified Analyst:

Hi, good morning. This is Jack on for Mike. Just one question on the commercial insurance competitive environment. Excluding workers' comp, are you surprised at all that commercial pricing has continued to increase? Any thoughts on how we should think about pricing into 2024 once higher reinsurance costs are through the system? And we're seeing some declines in certain core CPI gauges.

Mo Tooker :

Yeah. No, I would say that the reinsurance market feels fairly stable, fairly predictable. So I think that's getting priced in ahead of renewal dates. I would say, second, the rate environment is still pretty conducive. We think it's constructive and we think that will continue. And then third, again, I talked before about we have months periodically where we just think the market is competitive. It just is lumpy that way. And oddly right now, October is feeling really good. And so just things bounce around a little bit, and that's just -- we're going to be really disciplined about it, but we're looking to grow in a really responsible fashion.

Operator:

We will take our next question from Tracy Benguigui with Barclays. Your line is open.

Chris Swift:

Tracy, I would add some commentary and then ask Stephanie. But my commentary is going to be more on commercial just so you have that. It's somewhat unique in Personal Lines auto, home. Home, we talk about the rate that we're achieving both includes pure rate and ITV, which we think works in tandem. But I think we disclosed -- I know I talked about it in my prepared remarks, ex comp, our renewal written pricing was 8% in the quarter, up four tenth. And I would say the component of exposure that acts like rate there, yes, I think you could think of it as basically 2.5 points, 2.6 points to be precise for one third exposure and then two third sort of net rate. That's on commercial. And I would ask Stephanie to explain to you the auto.

Tracy Benguigui:

Okay. Yeah, it was more on personal auto. I appreciate that. In Group Benefits, specifically to stability, could you see yourself being more competitive on pricing at one-one renewals, given what you said historically low long-term disability incidence trends and favorable claims recovery?

Jonathan Bennett :

I would agree with that, Chris. I think that's the outlook that we bring to the market. We can talk about when we look forward into 2024, we find the market to be competitive all the time. I don't feel as though there's any particular change in the nature of competition in the market. And for us, a fair portion of our book is upmarket, larger accounts, and there's credibility in the data often by account there. And so we're looking at those trends on an account-specific basis and have been doing that, continue to do that. That's the way we compete in the marketplace. And so I think that we factor all of this insight into those selections. So I don't think there's any particular change. And if the underlying question is, is this a moment of drop pricing and to grow aggressively? That's not the outlook The Hartford brings really in any of its lines of business. So the discipline is there. It remains there. And our efforts are to continue to grow the book profitably and to make sure that we take care of our clients in a world-class fashion.

Chris Swift:

We'll tell you when we get there, Tracy.

Chris Swift:

I mean, we price for a reversion. Obviously, we hope it's somewhat different given just the economic conditions. But I don't know when the realized reversion to the mean will actually happen, but we got to be prepared for it.

Jonathan Bennett :

Yeah. I think that's a fair summary, Chris. And our pricing methodology includes a multiyear view of trend. And I think in that, Chris, as we're thinking about it, we see that incidence levels are likely to be increasing overtime. But I think that horizon is always something that we're working on and debating here ourselves and thinking about the right way to position ourselves in the market from a pricing standpoint.

Yaron Kinar :

Thank you. Good morning. I want to go back to some of the reserve commentary earlier on the call. Can you maybe talk a little more about accident years '16 through '19? I think a lot of investors are honed in on those years specifically, and what you're seeing there for lines like GL and like maybe financial lines as well.

Yaron Kinar :

I guess, and maybe this is becoming a little too granular for a call, and I apologize if so. I'm just trying to hone in on specifically those years and understand maybe the net numbers that you're talking about are actually a larger gross loss from those years, offset by maybe some favorability from other years.

Yaron Kinar :

Okay. And then the other question I had was on the Navigators book. So I think at the time of the acquisition, the U.S. casualty book was about 40% of the business. What does that come to as of today, either premium-wise or as a percentage of the overall specialty book?

Yaron Kinar :

Great. Appreciate it. Thank you.

Susan Spivak :

Thank you, Abby. I just want to thank everyone for joining us today. And as always, please reach out with additional questions, if we didn't get to your question. I am available this afternoon and look forward to speaking with you then. Have a great day.

Operator:

Good morning, and welcome to The Hartford Second Quarter 2023 Financial Results Conference Call and Webcast. All participants are in a listen-only mode. After the speakers’ presentation, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Susan Spivak Bernstein. Thank you. Please go ahead, ma’am.

Chris Swift:

Good morning and thank you for joining us. Last night, we reported strong financial and operational performance for the second quarter, completing a successful first half of the year. While we and the industry continue to navigate a dynamic market environment including elevated catastrophe losses and persistent inflationary pressure in personal auto, once again, we achieved exceptional results in Commercial Lines and outstanding performance in Group Benefits. Highlights of the second quarter include top line growth in Commercial Lines of 12%, including double-digit contributions from each business with an underlying combined ratio of 88.3. Group Benefits fully insured premium growth of 7%, with a core earnings margin of 7.6%. Strong investment performance with increasing fixed income portfolio yields and a trailing 12-month core earnings ROE of 13.6%, while returning $484 million of capital to shareholders. These results only strengthen my confidence in our ability to deliver a 2023 core earnings ROE in the range of 14% to 15%. Now let me dive deeper into our second quarter performance for each of our businesses. Momentum is strong in Commercial Lines. I expect continued top line growth at highly profitable margins during the second half of 2023, with full year underlying combined ratio targets unchanged. In Small Commercial, written premium of $1.3 billion and new business of $237 million continue near record high levels. Our best-in-class package product, which we call Spectrum, continues to outperform in a competitive marketplace. Spectrum new business premium of over $100 million was up 23% over prior year. Our unmatched ease of doing business with agents and customers and our unrivaled pricing accuracy and consistency remain important drivers as demonstrated by strong sales and retention and a 6% year-over-year increase in policies in force. In addition, written premium for our excess and surplus lines binding product eclipsed $50 million in the quarter, up nearly 60% from a year ago, with new business growth of just over 85%. Our expanding wholesale broker relationships are expected to drive continued robust growth and profitability for this important line. In short, Small Commercial continues to deliver outstanding results with industry-leading products and digital capabilities and is on track to exceed $5 billion of annual written premium in the near-term. Middle and Large commercial had an exceptional quarter. Written premiums were at their highest levels ever, up 12% in the quarter, driven by strong momentum in new business with elevated submissions and hit rates along with increasing average account premium. Cross-sell activities remain in full force and are helping to drive new business results. Written premium grew across almost all lines with excellent growth in our construction, energy, and entertainment verticals. In addition, we are particularly pleased by the 24% top line growth in middle-market property lines, which remains a key area of focus and accretive part of this business. Looking across the enterprise, as discussed in prior quarters, we are taking thoughtful and disciplined steps using industry-leading tools to grow our property book within favorable market conditions. These efforts should put us in a position to expand commercial property written premium to approximately $2.5 billion or up 25% by year-end. Underlying margins in Middle and Large Commercial were also at record levels, reflecting advancements in data science capabilities, industry-leading pricing and underwriting tools and exceptional talent, all of which position us well to maintain profitable growth in this business. Global Specialty continues to deliver outstanding results with net written premium growth of 15% in the quarter. New business growth and improving renewal written pricing were important contributors. In addition, we remain excited about our position in the wholesale market and the ongoing benefits to the top line from our broadened product portfolio, U.S. Ocean Marine, Environmental, International, and Global Reinsurance all achieved double-digit top line increases. Our underwriting discipline, along with enhanced capabilities developed over the past few years are driving targeted market share gains with a stellar underlying combined ratio that has hovered in the mid-80s for the past five quarters. In short, our execution has never been stronger. Turning to pricing. Commercial Lines renewal pricing of 5.2% compared to 4.5% in the first quarter. Excluding workers’ compensation, renewal pricing rose to 7.5%, up eight-tenths sequentially with accelerating pricing in property and auto. Across commercial, property pricing is well into the double-digits with auto in the high single-digits, pricing in other liability and casualty lines also remained strong, while public D&O pricing remains challenged. In addition, workers’ compensation pricing remained slightly positive. All-in, our strong written pricing performance in Commercial Lines, combined with stable loss cost trends, bolsters my confidence in our ability to maintain or slightly improve margins going forward. Moving to Personal Lines. Persistent severity loss increases in auto have had a meaningful influence on overall industry results. We continue to respond with significant pricing actions. During the quarter, we achieved renewal written price increases of 13.8% and expect acceleration to above 20% by the fourth quarter. As loss cost trends emerge, we will aggressively push for appropriate rate actions. In homeowners, renewal written pricing of 14.4% in the quarter comprised of net rate and insured value increases outpaced underlying loss cost trends. We are very selective and actively manage our homeowners’ book at a state and territory level, diligently managing risk and growth with sophisticated underwriting capabilities that allow us to effectively manage new business risk selection. A few examples of our risk management include the action we took many years ago to stop writing new homeowners business in Florida, a conservative stance on coastal CAT risk and wildfire mitigation efforts that have yielded strong outcomes. We are on the right path in personal lines, driving towards appropriate pricing and managing exposure and growth while continuing to serve our customers with award-winning service. In Group Benefits, I am pleased with both top line and bottom line performance, including an outstanding core earnings margin of 7.6%. Group disability continues to post strong results driven by favorable long-term disability incidence trends and claim recoveries. In Group Life, the loss ratio was up versus prior year. Mortality losses in the second quarter continued to run above pre-pandemic levels, but improved sequentially. Looking at the top line, growth was driven by book persistency above 90% plus strong year-to-date new sales. Overall, the strength of our diversified product portfolio as well as our commitment to outstanding customer experience through the use of data and technology resonates in this marketplace, giving us a leadership position. Moving now to investments. I want to highlight another quarter of strong performance as fixed income yields continue to trend higher with solid credit results. Beth will provide further details. Before concluding, I would like to comment on the advances we continue to make in technology and the competitive advantage it brings to our businesses and distribution partners, along with a superior customer experience. At our Investor Day in November of 2021, I highlighted the significant investments we had made in our core technology platforms which were allowing us to extend our digital and data capabilities. Back then, we were already focused on leveraging artificial intelligence to enhance execution, and today, AI is mainstream at The Hartford. The breadth and depth of our data and analytics and AI has grown into all parts of our business, and is enabling greater agility and faster decision-making while improving and streamlining the experiences of our customers and distribution partners. While some organizations talk about what they expect to do in the future, we are already doing this at scale. With several hundred AI models in production and driving business results, we believe our capabilities are leading-edge. Let me give you just one example of how we are already using what we call our information advantage, fueled by advanced analytics and AI to drive results. We developed an award-winning medical record digestion and extraction tool that has transformed the way we conduct our workers’ compensation business. This tool ingest and translates medical records into digital content, characterizes the data and highlights relevant information. In workers’ compensation, we are streamlining the adjudication process by suppressing 30% of the extraneous information contained in medical records that otherwise results in significant distraction or lost time to our claim handlers. Since inception of this tool, we have processed more than 500 million pages of medical records, and perhaps more importantly established a foundation for next level AI use cases across our business. When it comes to generative AI, we are actively experimenting with this technology in a highly controlled environment. Now, Hartford understands the potential of this technology and we believe we’re at the forefront in piloting use cases that will augment the capabilities of our employees. All the transformational work we have done over the past three years or four years has put us in a strong position to accelerate our market leading competitive advantage driven by technology, data science, in our experienced workforce. In closing, we have a unique portfolio of diverse yet complementary businesses that contribute to our industry-leading returns. As we have reached the mid-point of 2023, it’s a good time to reiterate our strategic priorities that we believe will continue to drive our success. First, leveraging our product breadth and competitive advantage across the P&C and group benefits platforms will drive profitable organic growth. Second, underwriting discipline will guide a balanced risk profile supporting long-term book value growth. Third, we will continue to prioritize digital, analytics, and data science investments and enhance the customer and agent experience to improve underwriting and claims decision making. Finally, we believe ROE is the ultimate measure of quality underwriting, execution on priorities, and prudent capital deployment. As such, we’ll continue to focus on exceptional ROE performance. We will continue to deploy excess capital in a thoughtful manner, prioritizing shareholder return and investments in future growth. Results over several successive quarters affirm that this strategy is working. With our strong track record, we are confident in our ability to deliver core earnings ROE in the 14% to 15% range. Now, I’ll turn it over to Beth to provide more detailed commentary on the quarter.

Susan Spivak Bernstein:

Thank you, Beth. Operator, we have about 30 minutes for questions and we will take our first question.

Alex Scott:

Hi, good morning. First one I had is just on the comments you made on property growth earlier in the commentary and I was just interested in, how your catastrophe budget and what you’d expect from CAT loss as a shift over the next year. Certainly, the CAT performance this quarter is quite good, so I’m just trying to get a feel for how that’s shifting, if at all.

Alex Scott:

Got it. That’s helpful. And then in commercial on underline, anything you’d call out in terms of like normalizing items. I mean, I guess pretty squarely in your range that you guided to, but just trying to think through where our baseline is and how the acceleration in pricing can benefit underlying from here.

Alex Scott:

Got it. Thanks so much.

Mike Zaremski:

Great. A question on workers’ comp, a couple – it’s been interesting hearing a couple competitors that also broker talk about seeing a bit of an inflection in healthcare inflation on the medical side. I’m very cognizant and we are that – Hartford has a extremely strong franchise in comp, highly profitable line of business. But we just heard your comments too about kind of your confidence in margins, but just curious, if you are seeing anything there on the margins in terms of an uptick in medical inflation impacting, I guess it could be group benefits too. Thanks.

Mike Zaremski:

Okay, that’s helpful. And my follow-up just on lost cost trends on the – more on the commercial side, not on the personal line side. It’s good to see there’s been a some pricing momentum for Hartford as well, but just curious if loss costs are also inching higher and cognizant there’s still probably a good delta between pricing above loss trend, but curious, we’re continue to see a bit of reserved deficiencies for many in commercial auto and GL and I don’t think Hartford’s been fully immune to that. So curious, if lost cost trends also kind of maybe inching higher too.

Mike Zaremski:

Thank you.

Mike Ward:

Thanks, guys. Good morning. Maybe just on non-CAT property in small and middle, was it – would you characterize that as a net benefit or net headwind for commercial lines in the quarter?

Mike Ward:

Got it. Got it. Thank you. Maybe on personal auto, just curious – do you feel like the pricing that you’ve gotten in the quarter, was it what you expected? Is there – is it more difficult with the regulatory environments or is it just severity is just higher than expected?

Mike Ward:

Got it. Thank you.

Elyse Greenspan:

Thanks. Good morning. Chris, maybe building off of that last comment, because that was going to be one of my questions on personal auto recognizing, right, that’s obviously been a hard business line for everyone in the industry. So when you say you’re going to get back, potentially back to target profitability in early 2025. Do you envision needing double-digit rates between now and then? Or how are you seeing price and severity trend playing out over the next year plus?

Elyse Greenspan:

Thanks, Chris. And then within commercial lines, in response to Alex’s question, right, you confirmed right that the year’s kind of trending as expected. You did highlight, right, some unearned rate in the book. So is the right way to think about it that there could be a tailwind on the loss ratio just from that rate earning in, in the back half the year, especially if loss trend is stable, like you said?

Elyse Greenspan:

Okay. Thank you.

Meyer Shields:

Thanks so much and good morning. Chris, I’m just trying to clarify, is the 0.5 point of non-cat weather, is that the consolidated or commercial loss ratio?

Meyer Shields:

Okay. What about on the personal side?

Meyer Shields:

Yes. Or just the personal lines impact.

Meyer Shields:

Okay. That’s helpful. Second question is also in personal lines. So expense ratio is actually doing well, and I was hoping you could just help us understand how much of that is reduced marketing and how much of it is incentive related?

Meyer Shields:

Yes, in personal lines.

Meyer Shields:

Perfect. Okay.

Operator:

Our next question comes from Greg Peters from Raymond James. Please go ahead. Your line is open.

Chris Swift:

Yes. No, I would say, and I’m going to ask Mo and Stephanie just to talk about what they feel in the market, market conditions and their ability to execute. But clearly, I believe through the end of this year and into 2024, I think will be a market environment that is still robust from a rate in terms and conditions perspective. I think particularly in the property area, broadly defined commercial property, homeowners property. And then if you look at some of the casualty lines, particularly commercial auto and some of the longer tailed liability lines, I think it’ll be a conducive environment to grow and maintain or slightly expand margins going forward. So I’m pretty bullish on the next 18 months, but Stephanie first and then Mo, what would you say?

Chris Swift:

Mo?

Chris Swift:

And Greg last point, I do think the E&S market will continue to be a market that’s attractive from a risk return perspective and ultimately a pricing side. So, again, I see the E&S market remaining healthy over the next 18 months.

Chris Swift:

Yes. I’m happy to just give you high level commentary. Obviously, we will plan appropriately over the next three year on time horizon. But I would say, the Hartford Next program actually helped fund a lot of the investments that we continue to make today. So Beth, I would say, it’s been a successful program. It’s nearing its end. We do have a continuous improvement mind set. So there will always be opportunities to reduce expense and create greater efficiency, while continuing to invest thoughtfully in the next-generation of technologies. Broadly defined, Greg, I mean, we run sort of a constrained model. Everyone needs to compete for capital with appropriate IRs on their projects over a multi-year period. And that’s generally how we do it. I think we’ve shared with you, we do expect a significant structural savings over a longer period of time, particularly as we take all our data and applications to the cloud. We’ll move about 100 apps to the cloud this year. Our Global Specialty business is completely in the cloud right now with all its business and data and apps. And that will generate meaningful savings. I would say probably Beth more 2025 and beyond because there is a little bit of an upfront invest. So yes, I’m really proud of the team and how thoughtful they are on creating the business strategies and then the linkage to technology to create that differentiation for us in the marketplace.

Operator:

Our next question comes from Brian Meredith from UBS. Please go ahead. Your line is open.

Chris Swift:

Greg, or excuse me, Brian. I’m looking at a underlying combined ratio on a six-month basis of 88.4 compared to 88.2 last year. So I don’t know where your math is, but that’s 20 basis points.

Chris Swift:

Oh, excuse me.

Chris Swift:

Sorry, I’m putting the two together because as we just talked about, we are focused on expenses. So to not give us credit for it Brian, I think is just not proper. So I’m putting the two together and yes, as I said in my opening comments, when I put the two together, I – we are going to have year-over-year improvement from 88.3 last year to somewhere below that on a full year basis. So that’s all I’ll say.

Chris Swift:

I will – I’ll add some commentary and then maybe I’ll ask Stephanie to add commentary. Brian, I would say we feel good about our data and analytics that we have deployed. But again, the inflationary pressures here is time to repair is wages in these repair shops. There’s just a lot of pressure on the – I’ll call it the economic system. So I don’t think it’s a backlog. I don’t think it’s a surprise or anything that is sort of unusual that you could sort of detect with trend lines. It’s just more expensive to repair cars these days because they have more technology in them and there’s been more severe accidents. It’s driven by higher speed, and then you put the labor constraint onto it. So that’s what I see. I think our claims team does a fine job, a good job. We got a network of claim specialists that we use that helps out our economics that if to stay in the network. So our customers and our claim handlers are incented to stay within there, but there’s freedom of choice of where a customer would want to get their car repaired too. So that’s what I would say, Stephanie, but what would you add?

Brian Meredith:

Great. Thank you.

Tracy Benguigui:

Thank you. Good morning. This is follow up on Mike’s question on loss cost trends. Even though you’re seeing stability on loss trends, what kind of margin you’re building for stuff you’re not seeing now, but maybe on the horizon, like you already spoke about seeing medical severity below your pricing reserving assumption. Any color and stuff like social inflation arise in latent liabilities and claims frequency reverting back it feels like it’s down post pandemic.

Tracy Benguigui:

I’m curious, when did you put that PFAS exclusion in your policies? What year?

Tracy Benguigui:

Okay. Would you think that pollution exclusion in GL is broad based enough that it could include PFAS?

Tracy Benguigui:

Awesome. Just a really quick numbers question. It looks like personal auto your [indiscernible] decline year-over-year sequentially that makes sense given all the price increases. Why then is your retention going up? Is that a timing difference or something else?

Tracy Benguigui:

Thanks a lot.

Yaron Kinar:

Thank you. Good morning. Chris, in your opening comments, you reiterated confidence in the 14% to 15% ROE. Obviously, we talked about the pressure we’re seeing in personal auto, so it sounds like you do have some offsets or areas where you’re – you think you’ll be better than original guidance. I realize you don’t really like talking or updating guidance over the course of the year. But would be curious as to where you are seeing – where you’re more optimistic relative to your original targets?

Yaron Kinar:

Okay. I appreciate it. And I would just note that I think the two larger businesses as of today, at least first half of the year, seem to be tracking in line with full year guidance. So I guess it would suggest further improvement or maybe in some cases even significant further improvement from here?

Yaron Kinar:

Fair enough. And then maybe a quick one for Beth. I think new money rates have actually been coming down the last two quarters if I look at Slide 13 of the presentation, can you maybe talk about that?

Yaron Kinar:

Thank you. I appreciate the answers.

Susan Spivak Bernstein:

Thank you. Thank you all for joining us today. And as always, please reach out with any additional questions. Have a great day.

Operator:

Hello and welcome to the First Quarter 2023 The Hartford Financial Results Webcast. My name is Alex and I'll be coordinating the call today. [Operator Instructions] I'll now hand over to your host, Susan Spivak, Senior Vice President of Investor Relations. Please go ahead.

Chris Swift:

Good morning and thank you for joining us. Today, I will begin with a summary of the Hartford's first quarter results, then Beth will dive deeper into our financial performance and key metrics. After which, we and our business leaders will be happy to take your questions. So let's get started. We are pleased to begin the year with exceptional results in our Commercial Lines businesses and continued strong results in Group Benefits. Well, industry-wide trends, such as elevated catastrophe losses and persistent inflationary pressure in personal auto, impacted our results. The first quarter also saw topline growth in Commercial Lines of 11%, including double-digit contributions from each business with an underlying combined ratio of 88.5%. Double-digit renewal written price increases across both Auto and Home in Personal Lines. Group Benefits fully insured premium growth of 8% combined with strong first quarter sales in a core earnings margin of 5.2%. Solid investment results with increasing fixed-income portfolio yields and strong reinvestment rates and a core earnings ROE of 14.3%, while returning $484 million of capital to shareholders in the quarter. Now let me share first quarter highlights from each of our businesses. We have strong momentum across Commercial Lines and I expect continued topline growth, at highly profitable margins. In addition, accelerating pricing in several lines combined with enhanced underwriting execution, bolsters my confidence and our ability to deliver margins consistent with the 2023 outlook I provided back in February. In Small Commercial, written premiums of $1.3 billion and new business of $242 million set new records for the Hartford. Three years ago, we completed the launch of our enhanced best-in-class package product, which we call Spectrum. Over that three-year period, Spectrum written premium has grown significantly. For example, this quarter's written premium is nearly 40% higher than the same period three years ago and the new business premium is almost doubled over that same period. In addition, we've expanded wholesale broker relationships, our excess and surplus lines finding product continues to gain momentum, delivering robust growth. Written premium approximately doubled from a year ago, fueled by a substantial increase in new business. In short, Small Commercial continues to deliver exceptional results with industry-leading products and digital capabilities and is on track to exceed $5 billion of annual written premiums in the near term. In Middle & Large Commercial, written premiums grew 10%, driven by new business growth of 23%, sustained exposure growth in solid renewal written price increases. New business submissions and hit rates were both up and average premium unsold accounts continues to increase. We are particularly pleased by the growth in property lines. The key area of focus and we will continue to capitalize on favorable market conditions. We are committed to getting paid through the CAT in non-CAT risk we underwrite, setting appropriate terms and conditions, and ensuring proper valuations. Our investments in data science capabilities, industry-leading risk segmentation, and exceptional talent have contributed to healthy margins and position us well to continue driving profitable growth in this business. In Global Specialty results, we're outstanding with nearly $4 billion of annual gross written premium. Our competitive position, breadth of products, and solid renewal written pricing drove a 10% increase in net written premium with significant contributions from Global Reinsurance. We are excited about our position in the wholesale market in the ongoing benefits from our broadening product portfolio. Execution has never been stronger and our enhanced underwriting capabilities are driving market share gains. Turning to pricing. Commercial lines renewal written pricing was 4.5% compared to 5.2% in the fourth quarter. Excluding worker's compensation, U.S. Standard Commercial lines renewal written pricing rose to 8.1% with middle-market property pricing in excess of 10% and Standard Commercial Auto near 7%. Worker's compensation pricing remained positive, continuing to benefit from the stronger-than-expected average wage growth. Within Global Specialty, Property, Auto, Primary Casualty, and Marine, all generated strong pricing results well in excess of loss cost trends. In excess casualty, pricing is becoming more competitive, while public D&O pricing remains under pressure. Within financial lines, we have been shifting our focus to private companies, in management and professional liability, where market pricing and margins are more attractive while maintaining underwriting discipline in the public space. Across Commercial Lines, long-term loss cost trends in our book remained stable and excluding worker's compensation, the margin between renewal written pricing and aggregate loss cost trends has expanded modestly. As we continue to execute our strategy across Commercial Lines, I want to reiterate my confidence in our ability to manage the book through a variety of economic and market conditions, with superior underwriting margins and continued premium growth, while maintaining a strong balance sheet. Moving to Personal Lines. The Auto loss cost environment is very dynamic, across market participants, the level of continued severity increases has had a meaningful impact on industry results. As a result, active management of rate filings in response to the changing landscape is paramount. We achieved renewal written price increases of 10% in the first quarter and expect it to accelerate into the high teens later this year. In the first quarter, approved rate filings averaged 18.3%, more than double, than the fourth quarter result of 8.3%. Given the vast majority of our book as 12-month policies, it will take time for the rate increases to fully earn in. With continued elevated loss trends reported in the fourth quarter of 2022 and the first quarter of this year, we have adjusted our rate execution plan and as a result, new business rate adequacy will build throughout the year as filings are approved. We expect new business rate adequacy in most states by year-end. Overall, I am confident we have the right strategy and with focused execution, expect to achieve Auto profitability target in 2024 across the book. In homeowners, results were quite strong with renewal written pricing of 13.9% in the quarter, comprised of net rate and insured value increases outpacing loss cost trends. Turning to Group Benefits. We are off to a strong start. Core earnings reflect a significant improvement. We have seen in mortality trends versus prior year, including decreasing impacts from pandemic-related losses. Lower pandemic-related mortality is a welcome and encouraging trend. While it is still too early to reach firm conclusions on long-term mortality trends, we expect they will settle above pre-pandemic levels in our pricing business accordingly. We continue to measure the effects of the pandemic and believe we are well prepared to adjust course, as necessary. In disability, our capabilities are market-leading and we remain positive on the performance and outlook of our book. Looking at new business, sales of $474 million were up $85 million over prior year. This was our second-highest sales quarter ever. Importantly, we're competing effectively across all market segments from small businesses to the largest U.S. enterprises. As a Group Benefits market leader, we are well-positioned to capitalize on rapidly evolving customer requirements for absence management, group life, and supplemental health products and services. We continue to strengthen our reputation for customer service with an extensive suite of tools for HR platform integration, member enrollment, process simplification, and analytics. Employers are more focused than ever on the needs of their employees, and our products and services are a key component of that value proposition. Moving now to investments. The portfolio continues to support the Hartford's financial and strategic objectives, while performing well across a range of asset classes and economic cycles. That will provide further details, Beth would highlight, it was another quarter of solid net investment income with negligible impairments. Recognizing that commercial real estate is topical, let me take a minute to comment on our approach to that market. We have dedicated teams of experienced professionals with a long and successful track record of investing in the commercial real estate sector. We believe the market provides attractive yields and risk-adjusted returns, while providing a source of diversification to our investment portfolio. We have approximately $6 billion of commercial mortgage loans, primarily consisting of multifamily and industrial holdings with less than 10% invested in commercial offices. We regularly review our property valuation for the impact of lower occupancy levels, higher cap rates and the impact of rising interest rates. These assessments, give us confidence, the portfolio will continue to perform well through the economic cycle. Well, perhaps a bit distinct from other property and casualty appears, we believe these holdings are an attractive alternative to investment grade corporate credit, as they provide approximately 80 to 100 basis points of additional spread over rated corporates. In closing, as we look ahead, we anticipate continued growth in strong margins across our businesses. Our financial performance demonstrates the power of the franchise. The depth of our distribution relationships and our commitment to superior customer experience and excellent execution by our 19,000 employees. With these competitive advantages, I remain confident that we can continue to deliver superior results. The Hartford has never been better positioned to deliver industry-leading financial performance, highlighted by a core earnings ROE range of 14% to 15%, while creating value for all stakeholders. Now let me turn it over to Beth to provide more commentary on the quarter.

Susan Spivak:

Thank you. We are now ready to take your questions. Operator, if you could repeat the process for asking a question?

Brian Meredith:

Yes, thank you. First question on guidance, I'm just curious. Personal lines, obviously, running pretty elevated above kind of where your range and guidance is, what gives you confidence, you're going to be able to make your guidance number for the year in Personal Auto? And then also on Commercial Lines, you're running above kind of the midpoint of the range, should we see the underlying combined ratio to continue to improve here going forward in Commercial?

Brian Meredith:

Great, that's really helpful. And then Chris, I'm just curious, the reinsurance business, we talk about it much, but it's becoming a decent-sized business. Maybe you can talk a little bit about what's in that reinsurance book? Is it a property book? Is it a casualty book? How should we think about it, it will create some additional volatility you're going forward?

Brian Meredith:

Thank you.

Yaron Kinar:

Thank you. Good morning, everybody. My first question is with regards to Global Specialty pricing. Maybe you can talk about where you see that going over the course of the year. And also, is it still ahead of loss trends, because it just seemed like -- I think one of your competitors on the specialty side was talking about 8% loss trends in specialty, so I would just want to verify that.

Yaron Kinar:

Got it.

Yaron Kinar:

Thank you. And then maybe a quick one on Florida Tort Reform, do you see that having any impact on your businesses whether on the personnel side or commercial?

Yaron Kinar:

Thank you.

Elyse Greenspan:

Hi, thanks, good morning. My first question is on Personal Auto. So Chris, you mentioned that you guys still expect to get back to your target margins in that business in '24. Obviously, you and everyone else in the industry is still seeing elevated trends to start this year or so why are you still convinced you can get there next year or is it just that in response to the trend you guys are pushing for more price than previously expected?

Stephanie Bush:

Chris. I think you framed it well. Elyse, our strategy remains unchanged at rate adequacy, focused towards achieving profitability in 2024 and our prevail launch. So the 10 points would you see sequentially over the prior quarters is a meaningful step-change. And again the rate, the 18 plus that we have approved those filings, it's truly a reflection of the rate that we're getting and how that will work its way through the book. And as Beth and Chris alluded to in their prepared remarks. What we observed in the first quarter has already been contemplated and put into our rate filings. So it's a dynamic process and one that we're working hard on every single day, but that gives us confidence.

Beth Costello:

Yes. I don't think there's any seasonality we need to pay attention to explicitly. But I do believe over the next three quarters, you'll see improvement in the loss ratio and the expense ratio. Given what we've talked about earned rate. Coming in business mix shifting for us. So all those will contribute to that improvement. Elyse, I think we've talked with you and others about our guidance. Remember, we guided to 87 to 89, we finished last year at 88.3. We believe based on the first quarter and the data that we're seeing for the next three that we will be able to improve from that 88.3 last year, whether it would be 3 times a point or 5 times a point, we don't have to debate that today, but it will improve and then, fundamentally driven by loss ratio improvement, expense ratio improvement offset by some of the headwinds that we feel in workers' comp. So those are the three main components of how we get to combined ratio improvement on an underlying basis from a -- from last year to this year.

Operator:

Thank you. Our next question comes from Alex Scott of Goldman Sachs. Alex, your line is now open. Please go ahead.

Chris Swift:

No. I'll add my color and I'll ask Beth to add hers. But I would say between small and middle right on expectation for the year. Small ran a little hot and Middle and large ran better than expected, but is there anything else there Beth that you would add?

Alex Scott:

Got it and then my follow-up is on workers' comp. I guess, when you guys are thinking about loss trend there. It seems like you probably maintained a pretty high loss trend in line with sort of the 5% positive loss trend you've been booking. I just wanted to get some thoughts on the way that you're thinking through like frequency versus severity within that? And I mean, are you giving yourself credit for the lower frequency post-pandemic? The way that we've seen some of your larger peers there?

Alex Scott:

Got it, thank you.

David Motemaden:

Thanks, good morning. So, Chris, you spoke about the components of improving the underlying combined ratio and commercial in 2023 versus 2022. Any how we can see the expense ratio. So wanted to look at the underlying loss ratio here in the first quarter in-line with expectations with what you guys have out. I'm wondering, if you could talk about the different dynamics there between comp and then excluding comp, what's the year-over-year deterioration just all workers' comp or was there anything else in there? And it sounds like you're expecting a non-comp to pick-up and improve over the rest of the year. But just wanted to get a little bit more color on that.

David Motemaden:

Yes, that was great. I appreciate that color. And then maybe just a follow-up. It sounded like loss trend roughly stable in Commercial Lines and in the quarter. Obviously, a very dynamic environment especially on the liability lines side. Have you thought about any your expectations going forward? I think last quarter you had spoken about some expectation for property, severity, moderating towards the second half of the year. And then also just maybe talk about your sort of thoughts on liability loss costs, as we had through the rest of the year?

Mo Tooker:

No, I just say on liability we continue to and this is going back two or three years now, we've been working really hard on the segmentation and making sure we're looking at the right jurisdictions, thinking about attachment points, thinking about our limits management. So I think there's a pretty aggressive strategy that we use over the past couple of years to stay ahead of some of the trends that we're seeing now, which refers back to when Chris talks about underwriting initiatives, those are the types of things that he is talking about.

Chris Swift:

Thank you, David.

Greg Peters:

Good morning, everyone. I wanted to go back to your comments around D&O and the pricing being down 20%. Maybe Christian, while you can talk about, are there barriers to entry and D&O? I would have imagined for public companies, there is some component of switching costs if they go from one carrier to the next. And just as it relates to your position in the market, do you have the flexibility to come and go based on underwriting conditions, or does the business require you to stick with customers but perhaps at a reduced level of participation?

Chris Swift:

Greg. I would add is, there are differences in relationships on the primary side versus the access side. We're primarily access players and towers, you do have a little bit more flexibility to come and go, which as most said, it creates the opportunity for new capital and new entrants to come in. Let's see a little bit more stability on the primary side, but that's just my point of view.

Chris Swift:

Yes, Greg. I'll ask Jonathan to comment, but I would say. As I said in my prepared remarks. I mean, we're growing in all segments. Clearly, we're still recognized as a market leader in national accounts, that's probably 60% of our book, but we do want to continue to focus and grow in the other segments and improve our offerings there. But I think it's just the cumulative impact of what our brand stands for in this space and it's totally important today we're investing, as I said before. You're right. I think we're recognized as one of the premium organizations in the benefit space both disability life, all our supplemental products. And we're trying to take advantage of it, while remaining disciplined to get appropriate rates and returns for this book. But Jonathan, what would you add?

Greg Peters:

Got it, all right, thanks for your answers.

Mike Zaremski:

Hi, Chris, good morning. I guess first question -- thank you for the additional commercial real estate disclosure. I mean, I'm sure you and most analysts have done a lot of questions on that asset class. I'm now just curious, is there a scenario and appreciative that it's been a very profitable and remains a very profitable asset class, but is there a scenario where it would make prudent sense to ever hold back on capital management a bit, if stress and pockets of that asset class were to persist or get worse or that just you guys have had the granularity as it just not -- does that does not make makes sense given maybe the headlines are worse than the reality. Thanks.

Stephanie Bush:

Yes, I would agree with that. I mean, we regularly stress all aspects of our business and evaluate our overall capital levels and take that into consideration when we execute on our share repurchases and so forth. And sitting here today, as you can see from our results, we're continuing on path that we've been on and feel very good with the overall strength of the balance sheet.

Chris Swift:

I'll let Stephanie add it, but I'll just repeat what I said in my prepared remarks. Consciously, I mean, we built a new product with new technology. Amazon-like features, easy to use intuitive, both for CSR's and then our direct customers. So it doesn't happen by mistake, it's very intentional. As for what we're trying to achieve investing in. Particularly some of the latest developments in the excess and surplus lines. That we're going to attack quite aggressively in the marketplace. But Stephani what would you say?

Mike Zaremski:

If I could, just a direct follow-up on this. You've mentioned E&S and I think the last couple of calls in regards to Small Commercial. Is that a new initiative like there or is that just happened open up a new TAM that for small commercial E&S like the likes of Kyndryl are in? Or just any color there would be great? Thank you very much.

Operator:

Our next question for today comes from Tracy Benguigui from Barclays. Tracy, your line is now open. Please go ahead.

Chris Swift:

Yes, I read that. I would say we're probably a little more. Sanguine and cautious. That's also.

Chris Swift:

I would say. We're watching for green shoots. Very closely. We report if we see any green shoots.

Chris Swift:

Yes. I would have. Expected to be able to do the math on that, but that's all I'm prepared to say at this point in time. You can see the premium waiving you can see the history. I think you can make a reasonable estimate

Operator:

Thank you. Our next question comes from Josh Shanker from Bank of America. Josh, your line is now open. Please go ahead.

Stephanie Bush:

Yes, actually doing it wrong. Okay, yes, Josh, actually doing it wrong, we yes, we'll help you out. We paid the Boy Scouts settlement last week in April, so the Boy Scout settlement is not in the first quarter numbers that you're looking at and we have that disclosed in our 10-Q.

Operator:

Thank you. Our next question comes from Derek Han from KBW. Derek, your line is now open. Please go ahead.

Stephanie Bush:

Our growth comes from a variety of sources both organic new business starts and various industries we track. Prior carrier and current carrier where we're getting the business problem and it's pretty widespread. So we are we find those opportunities and capitalize on them.

Chris Swift:

So, Derek. I would say 10 to 20 bps area. G

Operator:

Thank you. At this time. I will hand the call-back over to Susan Spivak, for any further remarks.

Operator:

Thank you for joining today's call. You may now disconnect your lines.

Operator:

Good morning ladies and gentlemen. Thank you for attending today's Fourth Quarter 2022 The Hartford Financial Results Webcast. My name is Alex, and I'll be your moderator for today's call. [Operator Instructions] I would now like to pass the conference over to your host, Susan Spivak, with The Hartford Group. Susan, please go ahead.

Chris Swift:

Good morning, and thank you for joining us today. Today, I will start with a summary of our fourth quarter and full-year 2022 results and accomplishments. Then I will turn the call over to Beth to dive deeper into our financial performance and key metrics, after which I will close our prepared remarks with a review of expectations for 2023. We will then be joined by our business leaders as we move into Q&A. So, let's get started. The Hartford is pleased to report an excellent fourth quarter, capping an outstanding year of financial performance in progress against our strategic objectives. Quarter-after-quarter, we are delivering strong financial results demonstrating the power of the franchise and the depth of our distribution relationships. Our commitment to superior customer experience, the benefits of significant investments made over the last few years, and superb execution by our 19,000 employees drive our success. These competitive advantages helped us deliver exceptional results in 2022, including core earnings growth of 14% with core EPS growth of 23%, top line growth in commercial lines of 11% with an underlying combined ratio of 88.3. Group Benefits fully insured premium growth of 6% with a core earnings margin of 6.5%. Strong investment results with excellent limited partnership returns and increasing fixed income portfolio yields, and core earnings ROE of 14.4%, while returning 2.1 billion of excess capital to shareholders. Looking forward, with strong momentum across all lines, I am confident we can continue to deliver superior results. Now, let me share a few highlights from each of our businesses. In commercial lines, written premium growth for the year was driven by strong exposure growth, pricing increases, higher policy retention, and continued strong new business. Underlying margins improved by nearly a point driven by earned pricing, exceeding loss cost trends across most lines in growing expense leverage driven in large part by our Hartford Next program. Across commercial lines, our brand, depth of distribution and enhanced underwriting capabilities combined with excellent customer experience, have positioned us well to capture market share, while maintaining or improving already strong margins. Small commercial results continued to be exceptional, consistently producing sub-90 underlying combined ratios with industry leading products and digital capabilities, all of which drove record breaking written premium in new business levels in 2022. Going forward, small commercial will remain a growth engine for The Hartford. For example, beyond our traditional product lines, we will continue to expand our addressable market with capabilities in the excess and surplus binding lines. This portion of the E&S business is in about an $8 billion market serving small business owners, property, and liability exposures. With current written premiums exceeding the $100 million, and the evolving innovative capabilities within our broker quoting platform, we expect to become a leading destination for E&S binding opportunities and a strong complement to our existing admitted retail offering. In middle and large commercial, our team has done a tremendous job improving underlying margins by approximately 7 points since 2019 with a written premium compounded growth rate of 6% over the same period. In 2022, written premiums grew 10% for the year with improved quality retention and solid new business. Advancements in data science capabilities industry leading pricing segmentation analytics and exceptional talent had delivered healthy margin, which I believe positions us well to continue driving profitable growth in this business. In Global Specialty, I'm extremely pleased with the team's accomplishments since the strategic acquisition in 2019. Their tireless efforts have enabled us to meaningfully increase the size and scale of our specialty business to 3.6 billion of gross written premium, including over 800 million E&S premium. We are leveraging the global specialty franchise to further grow and expand our capabilities across commercial lines in this [$82 billion] [ph] E&S market. Global Specialty results in 2022 were outstanding with an underlying margin of 84.6 improving over 4 points from prior year and over 11 points from 2019, demonstrating our execution financity, enhanced underwriting tools, and the expertise of the team. Our competitive position, breadth of products, and solid renewal written pricing, drove a 9% increase in gross written premiums for the year, including 41% in our global reinsurance business, 19% in Ocean Marine, and 27% in international casualty. Turning to pricing. Commercial Lines renewal written price increases for the quarter were 4.9%, flat compared to the third quarter. Underneath, U.S. Standard commercial lines renewal written pricing, excluding workers' compensation accelerated from the third quarter to 7.9%, up 1 point primarily driven by auto and property lines. Workers' compensation pricing remained positive benefiting from average wage growth. Within Global Specialty, excluding public company D&O renewal written pricing remained stable in the mid-single-digits and in aggregate in-line with loss cost trends. Wholesale property, auto, primary casualty, all saw higher pricing increases over the third quarter as did U.S. and international marine. Additionally, the public D&O market continues to be competitive with rate pressures, which requires new business discipline and a focus on retaining profitable current accounts. Moving to personal lines, pricing is accelerated across auto and home, resulting in written premium growth of 4% for the fourth quarter and 2% for the full-year. Like others in the industry, auto underlying combined ratios remain elevated as we continue to experience inflationary pressure. We have been actively responding with rate filings throughout the year. In the fourth quarter, filed auto rates averaged 8.3% increase, up 3.4 points from the third quarter. In Homeowners, we have kept pace with loss cost trends through net rate and insured value increases reflected in renewal written pricing of 10.7% for the year and 13.3% for the fourth quarter. Turning to Group Benefits, the core earnings margin of 8.3% for the quarter and 6.5% for the full-year represents significant increases from last year as excess mortality has materially declined. Meanwhile, long-term disability trends are stable and within our expectations for incident rates and recoveries. Fully insured sales for 2022 were 801 million, up 5% and employer group persistency was approximately 92%, a strong result for the year. First quarter is off to an excellent start with persistency modestly higher and outstanding new sales results. We expect the Group Benefits marketplace to remain dynamic as digital transformation, product innovation, and customer demand accelerate. As a result, we are making significant investments today and have a clear roadmap for the future that I am confident will only strengthen our market leadership position going forward. Now, I will turn the call over to Beth to provide more detailed commentary on the quarter.

Chris Swift:

Thank you, Beth. Let's [take it forward] [ph] where I'd like to share a few thoughts about 2023. Underpinning the outlook is our commitment to disciplined underwriting and expanding or maintaining margins, while prudently growing our book of business. In 2023, we are expecting a commercial lines underlying combined ratio in the range of 87% to 89%. Total renewal written price increases in commercial lines, excluding workers' compensation are expected to be fairly stable, compared with 2022. Meaningful increases in standard commercial property, auto, and general liability pricing are somewhat offset with competitive pricing headwinds in parts of our financial lines business. In our global reinsurance book, we expect meaningful written price increases, including over 30% for U.S. and European property coverage. Commercial loss cost trends are expected to remain fairly stable with some moderation in property severity as inflation is expected to ease during the second half of the year. Before I get into specific trends for our market leading workers’ compensation business, let me remind you of its current margin strength and stellar contribution to our overall commercial line results. Looking back over the last 25 years, our loss ratio results have outperformed the industry on average by approximately 5 points, reflecting our significant competitive advantages in pricing sophistication, underwriting analytics, [and claim] [ph] management. In addition, our scale and wealth of data allow us to anticipate, identify, and quickly react to emerging trends as we manage retention and growth in this line. Over the past 10 years, our standard commercial lines workers' compensation book that's produced combined ratios averaging near 90, while our premier small commercial book has performed even better with an average combined ratios in the mid-80. Also impressive, is a 6 point underlying loss ratio improvement since 2019 in middle market accomplished by equipping our underwriters with advanced risk segmentation tools. We expect workers' compensation to remain a highly profitable business and an important earnings contributor to The Hartford. Turning to a few specifics in our forecast. Workers' compensation renewal written pricing, which is comprised of net rate and average wage growth is projected to be flat to slightly negative. Loss costs are expected to be up slightly as long-term frequency and severity selections remain unchanged from 2022. We will continue to use our market leading tools in underwriting expertise in risk selection and book management to minimize any margin compression. In 2023, we expect workers' compensation returns to remain attractive with deterioration equating to roughly 0.5 point on the commercial lines underlying combined ratio. In summary, for commercial lines, we are extremely confident in our ability to manage our book through a variety of economic and market environment, an underlying combined ratio within a range of 87 to 89 will be an outstanding result and reflects our ability to execute consistently and deliver superior margins. Turning to Personal Lines, we expect a 2023 underlying combined ratio in the range of 93 to 95. In auto, renewal written price is expected to accelerate into the mid-teens by the second quarter and remain there for the balance of the year. By mid-year, we expect new business to be price adequate. Loss cost trends, primarily driven by severity, are expected to remain elevated during the first half of the year before returning to more normal level in the second half. In Homeowners, we expect earned pricing to generally keep pace with loss cost trends throughout 2023. As we navigate this inflationary period across Personal Lines, we are focused on balancing re-adequacy, quality of new business, and marketing productivity. Overall, I am confident we have the right execution plans to return this business to targeted profitability in 2024. In Group Benefits, we expect the 2023 core earnings margin to be between 6% and 7% consistent with our long-term margin outlook for this business. With COVID shifting from pandemic, to endemic state, excess mortality losses are expected to improve versus 2022. However, we expect mortality trends will settle above pre-pandemic levels and we are pricing business accordingly. [All-in] [ph], group life loss ratios are expected to improve versus 2022 and in group disability, we expect some moderation of recent favorable incidents and recovery trends. Before closing, I'd like to share a few recent ESG achievements. This year, The Hartford will be honored as one of two global catalyst award winners for advances we have made in diversity, equity, and inclusion. The Catalyst Award is the premier recognition of organizational DE&I efforts, driving representation, and inclusion for women. The Hartford was also named to The Bloomberg Gender-Equality Index into America's most just companies list for 2023 having earned both honors every year since their inception. The recognition we continue to receive is a testament to our long standing commitment to sustainability and the dedication and hard work of our teams. In closing, let me summarize why I'm so bullish about the future for our shareholders. One, our 2022 financial results demonstrate the effectiveness of our strategy and the benefits of continued investments in our businesses, resulting in strong growth in margins in commercial line, group benefits operating at targeted returns, and a personal lines business tracking back to target margins. Two, we have the capability to sustain superior returns as a result of our performance driven culture, outstanding underwriting, and pricing execution, exceptional talent and innovative customer centric technology. Three, investment income is increasing supported by a diversified portfolio of assets and credit quality remains healthy. And finally, we are proactively managing our excess capital to be accretive for shareholders. All these factors contribute to my excitement and confidence about the future of The Hartford. Our franchise has never been better positioned to deliver industry leading financial performance with a core earnings ROE range of 14% to 15%, while creating value for all our stakeholders. Let me now turn the call over to Susan for Q&A.

Operator:

Thank you. [Operator Instructions] Our first question for today comes from Brian Meredith from UBS. Brian, your line is now open. Please go ahead.

Chris Swift:

Brian, thanks for the question. Thanks for joining. You are right. I mean the Hartford Next program is contributing to our overall efficiency and effectiveness and it does have about a half a point benefit in – as we head into 2023. The second part of your question is, do you see any challenges to executing on that as we sit here today? No. I mean, I think that's a good assumption, if I understood your question correctly.

Chris Swift:

I think Brian you picked up on one of our key strategic initiatives over really the last five years to be a bigger property writer. Maybe it's not known by you, sort of firsthand, but we have about $3 billion of property premium, including homeowners premium of about 1 billion. So, it is an area of focus. It's an area of growth for us. We do operate on the small end with a [bi-product] [ph] in middle and large, and we also have developed an E&S property capability. And as I mentioned in my prepared remarks, we have some assumed reinsurance property exposures around the world. So, it is on a primary basis an area we're leaning into. That will ultimately help continue to diversify our book of business so that we're a more balanced organization going forward. So, yes, it is a focus of ours going forward.

Chris Swift:

I would share with you and then I’ll ask Jonathan Bennett to comment. Generally, no. I mean, we have a book of business that range from obviously large global organizations to small and middle size organizations, but the trends in our book are fairly stable, Jonathan. What would you add?

Brian Meredith:

Great. Thank you.

Mike Ward:

Thanks, guys. Good morning. I had a question on workers' comp. I'm just curious what you're assuming around underlying losses and how big might you say the headwind is to the year-over-year underlying combined ratio?

Mike Ward:

Okay, great. And thank you. Maybe on the cat loss guidance, curious how are you able to keep it relatively similar to last year? Just thinking about inflation and modestly higher retentions under the reinsurance treaties?

Beth Costello:

Yes. The only other thing I would add, I mean, it is up just a tenth of a point, if you look at what our guidance was last year. And as a reminder, we've been talking about we've been taking rate in the property book. So that obviously is there to mitigate some of the cost pressures that you referred to. And then again, as Chris commented on, our structure of our cat program not changed significantly.

Operator:

Thank you. Our next question comes from Greg Peters of Raymond James. Greg, your line is now open. Please go ahead.

Chris Swift:

Sure, Greg. And then I might ask Stephanie and Mo to add their color in their respective businesses. I would say at the outset it's, sort of been our priority to really take care of our book of business, principally because we work so hard to improve it, so hard to acquire the right new customers. And I mean, you see the margins and the returns that we're generating. So, the number one priority we have going into the year is, taking care of customers, trying to do everything you can to prevent a piece of business going out to bid and creating a shopper opportunity. And that's good to retain. It's obviously not so good when you're looking to see if there's new business opportunities. But generally, it's the most profitable strategy to just take care of your existing customers with the necessary rate increases that keeps pace with loss cost trends. So, Stephanie, what would you say in small and personal lines?

Chris Swift:

Mo, what would you add?

Greg Peters:

Thanks for that detail. Just as a follow-up and I know you addressed it in your opening comments and Stephanie just mentioned it again, but and I'm looking at your guidance for personal lines for 2023 of 100.5 to 102.5. And then I'm looking at what happened in auto, particularly in the combined ratio really spiking up in the fourth quarter. I know there's rate coming, is it your sense that we're, sort of beginning to approach, sort of like the peak or trough profitability for auto in the next couple of quarters or do you expect it to remain at these elevated levels as we see in the fourth quarter?

Greg Peters:

Right. Makes sense. Thanks for the answers.

Elyse Greenspan:

Thanks. Good morning. Appreciate all the color on the call. My first question, Chris, it sounds like you upped the ROE guidance, right, 14 to 15 as it previously been 13 to 14. When going through the pieces of everything, it sounds like it's more a reflection right of just improved investment income and on the fixed income portfolio, but am I missing something in making those observations?

Elyse Greenspan:

Thanks. And then my second question, you guys are the dividends to the holdco are going to be higher this coming year. [Group] [ph] did go up and I know you guys have, kind of targeted a balanced level of capital return, but given the extra dividends to the holdco, could we expect capital return to pick up in 2023 via share repurchase?

Elyse Greenspan:

Thank you.

Jimmy Bhullar:

Thanks. Good morning. I had a question on workers' comp following up on some of Chris' comments earlier. Obviously, margins have been pretty good and seems like you're expecting that to continue through 2023. Is it reasonable to assume that there's going to be a lot of pushback from regulators in allowing price hikes over even if you look beyond this year until margins get a lot worse from where they are or do you think that at some point over the next one to two years that the market could begin to show signs of an uptick in pricing?

Jimmy Bhullar:

Okay. And then on personal lines, obviously, the loss ratio picked up at the expense ratio declined considerably this quarter, should we assume a similar expense ratio given lower marketing until the loss ratio begins to improve or what are your thoughts on that over the next [year] [ph]?

Stephanie Bush:

I think you captured it well, Chris. A couple other points I'd either underscore add is that, yes, our marketing and media change was intentional in the late third quarter into the fourth quarter. We moved really more to more targeted and very marketing sources. So, I want to confirm that we were still marketing. It's a very dynamic process, marketing source by marketing source, but as Chris mentioned, we believe that we will be new business rate adequate by mid-year in majority of the states and you should expect to see our media spend continue to build throughout the year. And then finally, with that new business rate adequacy, I would expect that we'd begin to start to see new business PIF count growth in the back half of the year. So, think about how all of those components work together.

Jimmy Bhullar:

Okay. Thank you.

Andrew Kligerman:

Great. Good morning. Looking at Slide 16 of your presentation, I see that the annualized investment yield ex LPs has really picked up nicely just Q-over-Q from 3.3% to 3.7%, and we're seeing a little bit of pressure now on rates, but can you talk about where you see that annualized investment yield ex LPs going over the next few quarters? And any insight you could provide there?

Andrew Kligerman :

Got it. Yes, very helpful. And Chris, I'm just I'm trying to get my arms around this workers' comp issue and when it's going to temper. I know you've already gotten two questions on it. Maybe you could give us a sense of how much – you mentioned renewal written premium slight negative. What was the rate component for that? Was that a pretty heavy negative? Was that four points down, three points down and with the stellar ratios that Hartford – and I get that Hartford is probably best-in-class period in workers’ comp. The second part of that question is, with ratios that have been around 90% small and mid, even better than that. Will the regulators allow you to raise rates or will they penalize you for being best-in-class? So, I'm just trying to get my arms around that. Two questions, the rate and then again maybe a little more color on that outlook for getting rate in the future?

Andrew Kligerman:

Okay. Maybe I'll just throw a quick one. I was hoping – I wasn't expecting a detailed answer, but fully insured group benefit sales up 52%, maybe a little color on the products that were quite strong in the quarter?

Jonathan Bennett:

Sure. In terms of our sales, good numbers in there, yes. Sometimes late in the year you get opportunistically a sale or two. A lot of our business trades in the first quarter. And then some other big numbers will happen oftentimes in at the beginning of the third or maybe the fourth quarter, but so some nice numbers for us in the quarter. Strong disability results for us, I would say, primarily and we continue to see really good response to our voluntary, our supplemental health product set. So, those would include critical illness, hospital indemnity, and accident. And that book has been building for us steadily now for a number of years and had our highest sales numbers in 2022 since inception of those programs. So, I think those are the ones that are really driving at disability and sub health. We continue to compete effectively on the life side, but definitely a stronger mix on the disability and self-help side.

Chris Swift:

Thank you, Andrew.

Meyer Shields:

Great. Thanks. Good morning all. Broadly speaking, can you talk about your [appetite] [ph] for allocating more investments to LPs and alternatives over the next few years given the higher interest rate environment?

Meyer Shields:

So, really just the plans. I was thinking about it on a percentage basis, whether there is more or less appetite for current cash flows to go to alternatives in LPs?

Beth Costello:

I think you captured it well. I mean, it's an asset class that we've been slowly increasing allocation to. And as Chris said, continue to look to do that, but really not in a meaningful change in the overall construct of our portfolio, but as you said, it's an asset class that we've been very pleased with.

Beth Costello:

Yes. So, we have experienced some large losses that have come through in that book that as we've closed the last several quarters we've decided to increase our reserves there. It is a line also that we're looking very closely at from a rate perspective and continuing to re-underwrite and look at the risks that we're putting on. So, nothing specific that I'd point to, but we have had just a few large losses that we’ve reacted to as we made our quarter-end judgments on reserves.

Operator:

Thank you. Our next question comes from David Motemaden from Evercore. David, your line is now open.

Chris Swift:

Yes. Thank you for joining us, David. I will just be clarifying – the trends that I talked about on the loss cost side were relatively flat and stable year-over-year. Medical severity at 5, I didn't give you a frequency number or not, but those trends are fairly consistent. What changed though is, sort of net rate and exposure, that [excess rate] [ph], that is going to be down slightly year-over-year into a slight negative territory. On the wage indemnity side, it's sort of a self-balancing equation from my perspective. We charge more. We collect more as salaries go up and it's sort of a natural hedge for increasing indemnity payments that we get to collect upfront. And then there's a little bit of medical severity benefit because only 50% of loss content in workers' comp is wage. So, that's what I would share with you.

David Motemaden:

Got it. Okay. That's helpful. And then just on, I guess, Chris, you had said, you expect 50 basis points underlying combined ratio improvement in commercial lines and you gave a lot of detail. Just it sounds to me like you expect most of that come from the expense ratio as opposed to the loss ratio, just given the headwind from workers' comp obviously offset by expansion on other lines? Is that the right interpretation?

David Motemaden:

Hello?

David Motemaden:

Got it. So, half a point on the underlying loss ratio. So, I guess that would imply I guess you're assuming [1.5 to 2 points] [ph] of expansion on everything excluding comp, I guess. If I just take – if I just do a weighting, 33% of your book is comp and then the balance I would expect you to get 1.5 points of improvement. Is that the right way to think about it?

David Motemaden:

That is clear. I appreciate your comments.

Susan Spivak:

Thank you, Alex. I apologize to those we didn't get to your questions, but we are here all day and we'll reach out and follow-up with you. And thank you all for joining us.

Operator:

Good morning, ladies and gentlemen. Thank you for attending today's The Hartford Third Quarter Earnings Call. My name is Alex, and I'll be your moderator for today's call. [Operator Instructions] I would now like to pass the conference over to your host, Susan Spivak, with The Hartford Group. Susan, please go ahead.

Chris Swift:

Good morning, and thank you for joining us. The Hartford produced a strong third quarter with core earnings of $471 million or $1.44 per diluted share which includes the impact of Hurricane Ian and the ongoing effects of a dynamic macroeconomic environment. Before discussing our results in detail, I wanted to extend our thoughts and prayers to all those impacted by Hurricane Ian, a powerful and devastating storm. It is in moments like this that I am especially proud of our Hartford's claims team. To date, we have inspected approximately 95% of all claims submitted and had issued initial payments on 50% of those claims. Over the coming months, our team will continue to work tirelessly to help all our customers affected by the storm. Nearly a year ago at our Investor Day, we told you how confident I was in our portfolio, capabilities, expertise, talent, and our ability to deliver consistent and sustainable returns. As we look back, the clearest proof point that our strategy is working is our financial performance. In the first 9 months of 2022, we delivered core earnings growth of 18% and core EPS growth of 27%, top line growth in Commercial Lines of 12%. At Commercial, underlying combined ratio of 88.6, a group benefits core earnings margin of 5.9%. We returned approximately $1.6 billion to shareholders and yesterday announced a 10% dividend increase. And we also produced a trailing 12-month core earnings ROE of 14.3%. These are terrific results that reflect The Hartford's performance-based culture and demonstrate why despite the continued headwinds of inflation and economic uncertainty, we are confident in our ability to continue to execute at a high level. In Commercial Lines, we remain disciplined and prudent in establishing loss picks. We continue to have approximately 100 basis points of spread between renewal written pricing and loss trends excluding workers' compensation. Our Small Commercial results continue to be exceptional. NextGen Spectrum, our market-leading business owners product, is fueling much of our new business success as we gain market share at very favorable margins. The digital customer experience we provide in Small Commercial is a significant competitive advantage for customers, agents and brokers as it provides a fast, intuitive and efficient platform for doing business. The most recent Small Commercial Keynova study ranks us number one in digital capabilities for the fourth consecutive year. Our score climbed 4 points and we are now 20 points higher than our closest competitor. Middle and large commercial is benefiting tremendously from the combination of deep industry specialization and product breadth, leading to new business growth and improving loss and retention ratios. We are confident that our data science, pricing segmentation and claims execution will continue to support underwriting discipline. In global specialty, results are outstanding. Underwriting margins have improved materially over the last three years. Execution has never been stronger and the enhanced underwriting expertise we bring to the market is strengthening our competitive position and driving market share gains. In personal lines, we continue to take pricing actions as higher inflation impacts results. As Doug will describe, we continue to file for increasing rate changes across our book to restore profitability. Overall, I am confident we have the right strategy and execution in personal lines. Turning to group benefits. In the quarter, core earnings were $117 million, with a margin of 7.2% reflecting lower excess mortality and strong disability results. Long-term disability trends are stable and within our expectations for incidence rates and recoveries. Modestly higher expenses reflect increased investments in capabilities, including digital, claims automation and administrative platforms. Fully insured ongoing premiums were up 6% compared with the third quarter of 2021, driven by an increase in exposure on existing accounts, as well as strong persistency in sales. Fully insured ongoing sales were $106 million in the quarter, up 29%, with increases in both group disability and group life. In many ways, the fundamentals of the group benefits business are stronger than prior to the pandemic. Product awareness is greater as both employers and employees are highly engaged on benefit offerings, with growing demand for supplemental products. This is an opportunity for us to deliver higher value and create a differentiated experience for our customers. And lastly, investment results were healthy in the quarter and are beginning to reflect the rising rate environment, which will earn in more meaningfully in 2023. Taking a step back, I want to touch upon some overarching themes. First, the impact of inflationary pressures and changing weather patterns on pricing and loss costs. Second, the positive impacts of the current interest rate environment. And third, the importance of a healthy and balanced insurance regulatory system that ensures stability and predictability for all. As we have discussed over the last several quarters across the industry, carriers are dealing with elevated inflation related to goods, services and most components used in manufacturing. These inflationary pressures are likely to remain as the Fed continues to tighten monetary policy and despite some early signs of reduced demand and economic output. At the same time, changing weather patterns continue to drive increased frequency of events and associated claims severity. While there is no silver bullet to fix this problem, ongoing efforts to build more resilient homes, communities and commercial properties needs to be an ongoing focus of policymakers, insurers, agents and carriers. Taken together, these trends point to the need to maintain underwriting discipline and ensure pricing keeps pace with loss trends and reserving assumptions. As long as these trends continue, rates will need to rise and in some cases, will reaccelerate pricing increases over the near to medium term. The Hartford is committed to maintaining price discipline, and we have clearly communicated to all our underwriters the need to expand or maintain margins ex workers' comp, while prudently growing our book of business. Because interest rates are expected to remain elevated, we anticipate our portfolio yield, excluding limited partnerships, will increase by approximately 50 basis points to 60 basis points in 2023 compared to full year 2022, which will benefit earnings. Finally, on the regulatory front, our state-based system of insurance regulation has generally served customers and the industry well, although at times, has experienced instability in certain jurisdictions and across certain product lines. At its core, the mission of insurance regulation is to protect consumers while ensuring a stable market, one that fosters market competition and safeguard's carrier solvency. Balancing these two aspects of the regulatory mission is critical to ensuring widely available and affordable insurance. Recently, we have seen instances where regulation has become politicized creating instability in the market and upsetting the balance of the regulatory system is designed to achieve. Recall on policymakers to respect the insurance regulatory framework, take the necessary steps to address rising legal system abuse, rate inadequacy and persistent underinsured exposures while working with the industry to support a well-functioning marketplace where insurers get the coverage they need and carriers secure an appropriate return for the risk they undertake. As a company, whose purpose is to underwrite human achievement, The Hartford stands ready to engage on these issues actively and constructively. Before I close, last month, we announced the retirement of Doug Elliott as The Hartford's President at the end of the year. Beth and I have worked together with Doug and the entire Hartford team over the past decade to transform The Hartford and build the foundation for our company's future success. Doug was instrumental in expanding our product -- suite of products, developing industry-specific verticals within our Property & Casualty business, overseeing the integration of the Navigators Group and elevating our underwriting excellence. Thanks to Doug's strong leadership, The Hartford is well positioned for profitable growth in the years ahead as we build on the momentum created to best serve all of our agents and brokers and customers. I want to thank Doug for his many contributions to our company. Thank you, Doug. Doug leaves us many gifts, including a seasoned group of executives who are going to continue our high-level performance. I have tremendous confidence in the talents, skills and focus of this leadership team. In closing, let me leave you with some concluding thoughts. These results demonstrate our strategy and the investments we have made in our businesses have established The Hartford as a proven and consistent performer. We have outstanding execution capabilities and exceptional talent that drives my confidence in our ability to continue to produce superior returns. We are managing the investment portfolio prudently and all holdings are well balanced across diversified asset classes. And we are proactively managing our excess capital to be accretive for shareholders. All these factors underpin my confidence that we will continue to meet or exceed our core earnings ROE objectives. Now I'll turn the call over to Beth.

Doug Elliot:

Thanks, Beth, and good morning, everyone. Across our Property & Casualty business, we continue to be well positioned to sustain industry-leading financial performance. The strength of our broad product portfolio and underwriting execution are evident in our excellent year-to-date top line growth of 9% and sub-90 underlying combined ratio. In addition, the relative size of our Ian loss is further proof of that underwriting discipline. In Commercial Lines, we achieved double-digit written premium growth for the sixth consecutive quarter, and underlying results remain strong even with some volatility in our non-CAT, non-weather property results. Diving deeper into third quarter growth, U.S. standard Commercial Lines written pricing, excluding workers' compensation, was up about 0.5 point to 6.7%. Pricing increases in auto and property correspond with comparable inflationary increases. And in the coming months, we may see further improved pricing in these lines. Workers' compensation pricing remained positive, benefiting from wage rate growth. Within Global Specialty, rate for the quarter of 3.2% was down about 2 points from the second quarter driven primarily by excess public D&O. For most of Global Specialty lines, pricing was in the mid to high single digits and in the aggregate ahead of loss trends with very strong accident year results. As Chris highlighted, in total for Commercial, excluding workers' compensation, renewal written pricing is still about 100 basis points above long-term loss trends. In addition to positive pricing, Commercial Lines top line growth benefited from strong new business in Small Commercial and Middle Market, up 15% and 8%, respectively. Our industry-leading products and digital capabalities when its Small Commercial continue to drive excellent growth. As evidence by a terrific $190 million new business quarter. Retention moments strong across markets and continue written premium momentum from customer payroll growth was another bright spot. Within Small Commercial at certain evidence of our broadened appetite, we're particularly proud the capabilities we're building in the excess and surplus line space. By the end of this year, written premiums will likely exceed $100 million. Going forward, we expect to become a leading destination for binding opportunities, a strong complement to our existing retail offering. In addition, we're leveraging Small Commercial's underwriting and digital expertise to capture a lower complexity business in both Middle Market and Global Specialty and expect to take advantage of the growing technological developments implemented by our top brokers. Turning to the loss ratio. Results were largely in line with our range of expectations. In property coming off a favorable third quarter of 2021, fire loss frequency was a bit elevated in the quarter. With respect to workers' compensation, indemnity severity remains in line with wage rate growth and actual medical severity trends are well within our long-term assumption of 5%. Our liability lines continue to perform consistent with our expectations, and we are dialed in on social and economic inflation trends. Closing out the commercial discussion, I'm really pleased with the results we posted this quarter. Small Commercial continues to deliver superior operating results. Global Specialties underwriting -- underlying margins improved 2.4 points from a year ago to a strong 84.5 and Middle/Large Commercial delivered a solid 93.7. We move into the fourth quarter from a position of financial strength, both in terms of accident year performance and balance sheet adequacy. Let's switch gears and move to Personal Lines. Our third quarter underlying combined ratio of 95.9 reflects continued auto physical damage severity pressure driven by elevated repair costs related to supply chain and higher labor rates. In response to those loss trends, we have been increasing pricing since the fourth quarter of last year to ensure rate adequacy and overall profitability. Auto rate filings have averaged mid-single digits through the first 9 months of this year with renewal pricing of 5% in the quarter, up 1 point from second quarter. Filed rates will move to double digits during the fourth quarter, and we expect mid-teens for the first half of 2023. In home, overall loss results were in line with our expectations. Non-CAT weather frequency continues to run favorable to long-term averages, mitigating material and labor costs, which remain at historically high levels. We continue taking written pricing actions with home at nearly 12% for the quarter. Turning to production. Written premium grew 5% for the quarter, largely reflecting pricing increases from both auto and home. Auto policies in force were flat to the third quarter of 2021 and up 1% from this year's 2Q. We will be prudent with growth, balancing rate adequacy, quality of new business and marketing productivity. Before I close, let me share with you a few thoughts about our recent participation in the Annual CIAB conference. Common feedback centered on the complementary strategies across our businesses, strong cross-sell execution and excellent risk collaboration. Our position and engagement with the top brokers has never been stronger, and there are many exciting initiatives underway as our teams pursue deeper penetration with these partners. In closing, I remain bullish about the future of our Property & Casualty business. As I shared with you last quarter, my confidence comes from our broadened and responsive product portfolio, the enhanced underwriting and data analytic capabilities we've built and our state-of-the-art technology and digital tools. As I leave the organization at the end of this year, I could not be prouder of the nearly 12 years I've spent here at The Hartford. I am confident my teammates are well prepared to successfully tackle the challenges ahead while delivering consistent, industry-leading profitable growth. I look forward to watching their success in the coming years. Let me now turn the call back to Susan.

Operator:

[Operator Instructions] Our first question for today comes from Alex Scott of Goldman Sachs. Alex, your line is open.

Beth Costello:

Thanks, Alex. I'll start, and I'll let Doug provide some additional cover. So first, I just -- Doug said this in his comments, and I think it's always important when we start a conversation on Small Commercial is by any measure, I think their results are outstanding. As Doug discussed, we did see some impact from property losses, non-CAT, non-weather-related that obviously impacted the compare year-over-year. But when we look at year-to-date where we are compared to what we saw at the beginning of the year, we are right in line. As it relates specifically to the workers' compensation point, again, if you go back to what we were expecting from the beginning of the year, we're very much right in line. We did not make any changes in the quarter as it relates to workers' comp in our loss picks from where we've been from the beginning of this year. And we had said at the beginning of this year that in this line, we expected a small amount of compression in workers' comp, and that's exactly what we've been booking to. And when I say small, less than 0.5 point. Part of the compare to last third quarter and why that was called out was in the last year's third quarter, we had some true-ups in the quarter related to just some favorable frequency and rate coming in a bit higher than we had anticipated. So it's really more about last third quarter, this year and what we're producing overall completely in line with what our expectations were and no changes.

Doug Elliot:

Alex, I would start by saying that we look at overall performance, and we feel very positive about what we produce for 9 months and look at our position in the quarter and just very pleased about that performance level. Now given the challenges that we all face, as I commented in my script, we are very conscious of both social and economic pressure inside our loss trends and are watching them carefully across all our lines, across all our segments. The other thing I would say is we're coming off a significant natural peril disaster in the southeast part of this country. So we expect that the property market will go through some changes in the coming quarters starting very shortly. So we're in market with our CAT reinsurance program that renews 1/1. Our folks have been in Bermuda all week and expect over the next several weeks that we will talk about that structure. I do not expect anything material to change relative to our reinsurance structure. But I think between property and social and economic changes, it's a really critical time that you stay on top of your trends, and we're trying to do exactly that here at The Hartford.

Elyse Greenspan:

I wanted to go back to the Commercial discussion, right? So you guys just a bit above the full year guidance year-to-date. I know there's moving pieces. And when I say a bit, right, it's 10 basis points. Just given that Q4, I think, seasonally does tend to run better than some of the other quarters, would you expect them to be within that guided range for the full year?

Elyse Greenspan:

And then my second question is on the Group Benefits business. Chris, I think you mentioned some higher expenses there. But if I look at the core margin, excluding COVID, that was nearly 9% in the quarter versus the 6% to 7% target. And you mentioned long-term disability trends are stable. So if we think about the run rate of that group benefits business ex COVID, do you think you guys could exceed that 6% to 7% target margin?

Operator:

Our next question comes from David Motemaden from Evercore ISI. David, your line is now open.

Chris Swift:

I'll just reinforce what Beth said, David, is that going into the year, our pricing plan compared to what we thought loss trend was, was going to have a modest negative effect, probably to 0.5 point on sort of combined ratios. I think through the first 9 months, we're outperforming that 0.5 point negative pressure. But that's the way I would frame it. And Doug, I don't know if you would add anything else. But I'd like to just have you think of -- comps in its own different sort of spear as far as historical performance, the regulatory oversight in that line, David, and that's why we just talk about an ex comp spread.

David Motemaden:

And then also follow-up for Beth. Beth, you had said that there were some true-ups in the third quarter of 2021 related to favorable frequency and rate coming in a bit better than you had anticipated. I was wondering if you could just size the favorable impact that, that had on the third quarter of 2021 in Commercial Lines?

Chris Swift:

And the remainder then would be property.

Operator:

Our next question comes from Brian Meredith of UBS. Brian, your line is open.

Doug Elliot:

Brian, this is Doug. The only real aberration through either 9 months and also in the quarter is our non-CAT, non-weather property volatility. So I look at the rest of the lines, I look at our performance, essentially right on target. So that little volatility in the quarter is the only thing we're looking at year-to-date against our expectations.

Doug Elliot:

I mean there's a little inflation as -- we've talked about inflation, but our pricing has been at or right on expectations as well. So I think we're matching what we're seeing on the economic loss trend side with our performance on the pricing end. So I feel good about that.

Doug Elliot:

I don't think you're going to see us in the next 6 months, become a major CAT writer, right? We don't have that as an ambition. But our growing ambition over the past decade has been to be a stronger, more thoughtful, deeper, bigger property writer, and that goal remains and we're doing it selectively. So in our Middle and Large Commercial business, we've got a large property segment. We've got a growing property book in our core middle book. And then we also have a really neat specialty business -- property business in our Global Specialty. So I look at property across the franchise. And I think that on the optimistic side, you will see that grow over time, but I don't think we're going to step right in and try to take advantage of a timing moment right now with CAT property.

Doug Elliot:

Yes. Very disciplined, very thoughtful and maybe some selective opportunity here that in Global Re, Brian, they will take advantage of. I was more referring to the primary space, but it's been a strong complement to our property capabilities and our thought process. So I think it will be opportunistic. We'll be thoughtful about what we do relative to CAT peril.

Greg Peters:

I guess for my first question, I'll focus in on the expense ratio. And obviously, there's a broader expense ratio across the entire enterprise. But I was looking at the Commercial Lines expense ratio, I think it's on Slide 7. And for -- it was 31.5 versus 31.8 a year ago. And I know you've been working on initiatives to improve it. So I guess with the growth that we're seeing, I guess I'm kind of surprised we're not getting a little bit more improvement. So maybe you can unpack what's going on with the expense ratio and where the improvements are coming from? And the good guys and bad guys, I guess, in the expense ratio.

Beth Costello:

Yes. I would agree with those comments, I think specifically as it relates to third quarter I believe in the third quarter of last year, we had a little bit of a release in bad debt. So that made last year's number maybe 30 basis points better. So that obviously affects that compare a little bit. And then also, we also look at our commission ratio has ticked up just a small amount as well, which, again, some of that reflective of just the strong profitability in the book and how that comes through in some of the supplemental comps. So those, I think, help to explain why maybe you wouldn't see more of a benefit just quarter-over-quarter.

Doug Elliot:

Sure, Greg. So maybe I'll build on what I shared in my script. Again, fourth quarter, as I said, we expect that change of five to move our rates move up into the 10 category and then move into mid-teens. Our expectations in the second half of the year that our phys dam loss trend would abate a bit did not come to pass. So the world we see today and the trends we're experiencing at this moment, we're expecting those to continue into 2023, which are driving our assumptions inside our rate plan activity. We described the first half of '23, an active rate process for us. And I think mid-teens will allow us to get on top of those trends. And I expect as we move through the first quarter into the second quarter, we'll be at very adequate terms for our book of business. Keeping in mind that as we introduce prevail into the marketplace, which is a 6-month policy, we still have lots of policies out there that are 12 months in our old Hartford auto and home product is a 12-month product. So there is a mix that will head towards 6 month the quicker we work our way through Prevail. But at the moment, we still have a lot of 12-month policies there.

Greg Peters:

Wrong -- poor word choice, but on congratulations on your retirement, Doug.

Operator:

Our next question comes from Andrew Kligerman from Credit Suisse. Andrew, your line is open.

Doug Elliot:

Andrew, our comments relate to competition in the specialty space primarily in the Professional Lines area. So our lines area has -- as I commented, seen depressed pricing. In fact, our pricing went negative in the second quarter -- I'm sorry, the third quarter for D&O. But it's an area that has gone through significant profit opportunity. And now as the lines are very adequate for us and probably many others in the industry, a lot of competition has gathered. So we see that competition. We are not going to chase for pricing. We're going to keep our discipline. And I attribute the lack of growth compared to prior periods in that Global Specialty space really to competition and us keeping our discipline, which we intend to maintain as we move into 2023.

Doug Elliot:

So hard to predict, and we always give you our best view of the future when we talk to you on the fourth quarter call. But I think the fourth quarter probably will not be a lot different in behavior than what we saw in the third quarter. It's a little early to talk about '23, I think, at the moment.

Andrew Kligerman:

And then shifting back to Personal Lines. It was interesting to me that you cited auto physical damage as a real pressure on the loss ratio. But no mention of the medical cost inflation and I think all state had highlighted some pretty severe movements in their reserving for medical on the auto line. So any thoughts on where medical is trending?

Andrew Kligerman:

And maybe if I could just sneak one quick one in there. You wrote some new business, as you cited in the release and the personal auto area. Are you given the rate increases that you need, are you comfortable with that new business that you're putting on the books? Or could that be a little weak in year one?

Operator:

Our next question comes from Michael Phillips of Morgan Stanley. Michael, your line is now open.

Doug Elliot:

Yes, Michael, we started seeing adverse phys dam pressure to our book and our expectations by late -- mid-to-late summer last year. So our filings ramped up in the September time frame, and they have continued to ramp throughout the year. Many of these states are now in the double-dip stage. So we're taking two bites at that apple inside the year. And our expectation for '22 was that we would see some of those physical damage trends contain themselves a bit in the back half of the year, which we have not seen over the third quarter. So as we project forward, our activities will deal with the climate we see today. And as such, our fourth quarter pricing activities are going to be in the 10% range. That is reflective of where we think those rates need to be filed at. And as we continue to '23, as I said, it will go north from there.

Michael Phillips:

So it was prior to 2021. But I -- is concerned maybe the numbers you were putting up in the back half of last year had some padding for it, despite the fact that as you just said, you even start to see the higher trends last year. But you must have put some in for 2021 accident year.

Doug Elliot:

And Michael, I think it goes without saying, but obviously, that activity quarter-by-quarter now is rolling into our filings. So what we experienced in the fourth quarter became a big part of the first and second quarter filings in the first quarter. So as we think about the experience, we have tried to reflect it in our loss pick calls, but also in our filings as we move ahead.

Josh Shanker:

Looking at the healthy increase in the dividend, I'm just trying to understand the idea about a permanent 10% increase in the dividend versus extra gun powder for share repurchase for the lower increase in the dividend. How are you balancing those two things?