Hartford Financial Services Group, Inc. (The)

Good morning and welcome to the Hartford Financial's third quarter 2024 results conference call and webcast. All participants are in a listen-only mode. After the speaker's remarks, we will conduct a question and answer session. To ask a question at this time, you'll need to press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Susan Spivak, Senior Vice President of Investor Relations. Thank you. Please go ahead.

Good morning, and thank you for joining us today for our call and webcast on third quarter 2024 earnings. Yesterday, we reported results and posted all of the earnings-related materials on our website. Now, I'd like to introduce our speakers. To start, we have Chris Swift, Chairman and Chief Executive Officer, followed by Beth Costello, our Chief Financial Officer. After their prepared remarks, we will begin taking your questions. Also to assist us with your questions are several members of our management team. Now, just a few comments before Chris begins. Today's call includes forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance, and actual results could be materially different. We do not assume any obligation to update information or forward-looking statements provided on this call. Investors should also consider the risks and uncertainties that could cause actual results to differ from these statements. A detailed description of those risks and uncertainties can be found in our SEC filings. Our commentary today includes non-GAAP financial measures. Explanations and reconciliations of these measures to the comparable GAAP measures are also included in our SEC filings, as well as in the news release and financial supplement. Finally, please note that no portion of this conference call may be reproduced or rebroadcast in any form without the Hartford's prior written consent. Replays of this webcast and an official transcript will be available on the Hartford's website for one year. I'll now turn the call over to Chris.

Good morning, and thank you for joining us today. Before we discuss our results, I want to extend our heartfelt thoughts and prayers to everyone affected by Hurricanes Milton and Helene. These storms have been wide-ranging and devastating. In times like these, I'm especially proud of the Hartford's claims handlers, adjusters, and leaders. Our team is working tirelessly to support every customer impacted by these storms. Turning to our results, the Hartford's third quarter performance is a powerful example of sustained financial excellence, even in the face of industry-wide elevated catastrophe losses and liability severity trends. Our excellent performance reflects the effectiveness of our strategy and ongoing investments to differentiate ourselves in the marketplace. We remain focused on discipline underwriting, pricing execution, expanding product and distribution breadth, developing exceptional talent, and delivering a superior customer experience. Highlights from the third quarter include top line growth in commercial lines of 9% with double digit new business growth, strong renewal written pricing increases, and a very strong underlying combined ratio of 88.6. personal lines top line growth of 12%, with over five points of underlying margin improvement, an impressive group benefits core earnings margin of 8.7%, and continued solid performance in our investment portfolio. All these items contributed to an outstanding trailing 12-month core earnings ROE of 17.4%. In addition, yesterday, we were pleased to announce an 11% increase in our common quarterly dividend payable on January 3rd, 2025. This is a continuation of our track record of annual dividend increases and another proof point of earnings power and strong capital generation. Now let me share a few details from the quarter. Commercial lines continues to produce excellent results with strong top line growth and an underlying combined ratio below 90% for the 14th straight quarter, reflecting our industry-leading underwriting tools, pricing expertise, and data science advancements. New business growth in small commercial and middle market was once again well into double digits. Retention was steady, and the environment remains conducive for growth. As I've highlighted in the past, The breadth of our product offerings, extensive distribution network, and strategic investments in technology allow us to provide comprehensive and tailored solutions, which gives us a competitive advantage with small and medium-sized enterprises. Our emphasis on ease, simplicity, and speed ensures that our customers and distribution partners experience seamless interactions and quick response. These strengths enable us to offer more precise and competitive pricing, enhancing our market position. Additionally, our product capabilities help us to support customers as their businesses grow. We expect to continue to gain market share while maintaining highly profitable margins. A prime example of Hartford's SME market leadership is our small commercial business, which once again had an outstanding quarter with strong top line growth and margins. Your business premium was up 26% in the quarter, in part driven by a 31% increase in quotes and a doubling of ENS binding premium, a business where we continue to see tremendous opportunity. We take pride in our robust business system and associated insights, which drives our rate strategy and segmentation giving us significant edge that's a challenge for others to match. 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 and large commercial, third quarter performance was strong, including 8% top line growth, paired with an underlying margin that has consistently hovered around 90 or better for the past eight quarters. 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 a 28% increase in middle market new business with growth across nearly all products led by property. 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, we achieved excellent results with underlying margins in the mid-'80s and a record quarterly earned premium approaching $850 million. Strong top line growth reflects our competitive position, diverse product offerings, and solid renewal pricing. Gross written premium growth of 9% was driven by a 17% increase in our wholesale business, including 10% in property, as well as significant contributions from auto and excess casualty and global reinsurance. Across commercial lines, our continued emphasis on property expansion has resulted in premium growth of approximately 20% this quarter, putting us on track to achieve our full-year target of $3 billion. We remain confident in and continue to capitalize on market conditions that support earning strong risk-adjusted returns through a disciplined strategy while maintaining a stable and consistent approach to catastrophe risk management. As for pricing, In commercial lines, renewal written pricing excluding workers' compensation of 9.5% was relatively consistent with the second quarter. Low teens pricing in auto and high single digits in general liability are responding to societal trends. Umbrella and excess pricing was in the mid-teens. Overall, commercial property pricing remained strong in the low double digits, with mid to upper teens property pricing within our small commercial package product. Commercial lines overall loss trends are stable with some moderation in both property and financial line severity, offset by higher severity in liability. All in, ex comp renewal written pricing in commercial lines remained above loss cost trends. Workers' compensation pricing was slightly positive in the quarter. Turning to personal lines, our third quarter financial performance demonstrates continued margin improvement. We saw a seven-point improvement in the auto underlying combined ratio and are on track to achieve target margins in mid-2025. Auto renewal written price increases remain very strong at approximately 20%. Pricing declines from peak levels remain consistent with our view of moderating loss trends for the remainder of the year. In homeowners, renewal written pricing of 15% during the quarter comprised of net rate and insured value increases outpaced underlying loss cost trends. Turning to group benefits, our core earnings margin was an impressive 8.7% for the quarter. Continued strong group life results and long-term disability execution are the primary drivers. Fully insured ongoing premium growth of 2%, consistent with the first half of the year, reflects strong book persistency, still above 90%, and sales of 105 million in the quarter. 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. Before I turn the call over to Beth, I would like to share some insights from this year's Council of Insurance Agents and Brokers Annual Conference. Last year, we provided an update on CIAB where the strength of our franchise was a consistent theme. This year, our partners amplified that strength, highlighting our innovative digital tools, comprehensive product offerings, and our robust innovation agenda. They praised our consistent strategy and execution over the years. Additionally, they expressed a strong desire to expand their business with us, viewing our team as best in class, and noting that our relationships have never been stronger. In summary, the Hartford delivered an excellent quarter, a testament to our execution, strategy, talent, and the impact of ongoing investments in our business. As I've said before, we continue to build on our market differentiating capabilities and broad product offerings, 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.

Thank you, Chris. Core earnings for the quarter were $752 million or $2.53 for diluted share with a trailing 12-month core earnings ROE of 17.4%. Commercial lines had an excellent quarter with core earnings of $534 million, written premium growth of 9%, and an underlying combined ratio of 88.6. Through the first nine months, the underlying combined ratio of 88.1 is in line with the prior year and our expectations. Small Commercial continues to deliver outstanding results with written premium growth of 10% and an underlying combined ratio of 89.3, slightly better than the prior year. These results were driven by favorable non-cap property losses, somewhat offset by a higher loss ratio and general liability, both within our packaged product. Middle and large commercial delivered strong results as written premiums rose 8% and new business growth accelerated. The third quarter underlying combined ratio of 90.2 compares to 88.1 in the prior year, reflecting a level of non-cap property losses more consistent with our expectations compared to favorable experience in the prior year and an increase in the general liability and auto loss ratios. partially offset by a shift in business mix towards property lines and the positive impact of premium leverage on the expense ratio. Global specialty results include written premium growth of 9% and an excellent underlying combined ratio of 85.3. The underlying combined ratio increased one point over the prior year quarter, primarily due to a higher loss ratio in global reinsurance driven by losses in Latin America where we have taken underwriting actions to reduce our exposure to these risk profiles and a higher expense ratio compared to prior year due to a higher commission ratio driven by changes in mix of business. Written premium and personalized increased 12% over the prior year driven by rate execution. In auto, we achieved written pricing increases of 20.8% and earned pricing increases of 22.7%. In homeowners, written pricing increases were 15.2% and 14.8% on an earned basis. In personal lines, the underlying combined ratio of 93.7 improved 5.3 points from the prior year. The homeowners underlying combined ratio of 75.4 improved 2.7 points, primarily due to the impact of double-digit earned pricing outpacing loss costs partially offset by a higher expense ratio. We are very pleased with the progress in our auto results. For the quarter, the auto underlying combined ratio of 101.5 improved seven points from 108.5 in third quarter 2023. Through September 30th, the underlying combined ratio of 103.6 is 4.9 points lower than the prior year period including 5.3 points of loss ratio improvement. The personal line's expense ratio of 25.6 increased 1.4 points, primarily driven by higher plan direct marketing costs and higher incentive compensation and benefit costs, partially offset by the impact of higher earned premium. P&C current action year costs were 247 million before tax, or six combined ratio points, which compares to 184 million or 4.9 points on the combined ratio in the prior year period. We continue to actively manage our CAT exposure through aggregation management and underwriting discipline. Additionally, we have a robust and comprehensive reinsurance program on both a per-occurrence and aggregate basis. As a reminder, we have a $200 million aggregate cover which attaches when subject losses and expenses exceed $750 million. Through September 30th, catastrophe losses subject to the treaty were $660 million, leaving $90 million before we reach the attachment point. The aggregate cover does not include losses from the global reinsurance business, which purchases its own retrocessional coverage. Our estimated losses for Hurricane Milton are in the range of 65 to 110 million pre-tax, which includes 25 to 40 million for Global Re. Therefore, at the high end of the range, we would be just under the aggregate attachment point. Total net favorable prior action year development within court earnings was 24 million, primarily due to reserve reductions in workers' compensation and personal auto physical damage, partially offset by reserve increases in general liability and commercial auto liability. The increase of general liability reserves of $32 million reflects a higher frequency of large losses, including losses in more recent accident years. We continue to monitor liability trends closely, making minor adjustments to our underwriting and pricing strategies, including adjustments that are incorporated in our current year loss picks. We recorded $26 million before tax of deferred gain amortization related to the Navigators ADC, which positively impacted net income with no impact on core earnings. As a reminder, we conduct our annual asbestos and environmental study in the fourth quarter. We have $62 million of coverage remaining on the A&E ADC, so any development over that amount will impact core earnings. Turning to group benefits, we had another strong quarter with a core earnings margin of 8.7%. Results demonstrate ongoing strength in group life and long-term disability, along with growth in fully insured premiums. The group life loss ratio of 77.5 improved by 2.7 points compared to prior year due to lower mortality. The group disability loss ratio of 67.9 increased 60 basis points due to a higher loss ratio in paid family and medical leave products, largely offset by a favorable change in the long-term disability recovery rate assumption. Fully insured ongoing premium growth of 2% was consistent with the first half of the year, and reflects positive exposure growth and strong book persistency at over 90%. The group benefits expense ratio of 25.3 increased 1.3 points from the prior year third quarter, primarily due to higher staffing costs, including higher incentive compensation and benefit costs, and increased investments in technology. Turning to investments, our diversified and growing portfolio continues to produce solid results. The overall credit quality of the portfolio remains strong with an average credit rating of A plus and no net credit losses in the quarter. For the quarter, net investment income was $659 million. The total annualized portfolio yield, excluding limited partnerships, was 4.5% before tax, 10 basis points above second quarter. We continue to benefit from higher rates, security selection, and accretive trading activity as evidenced by the third quarter reinvestment yield exceeding the sales and maturity yield by 110 basis points. As anticipated, our annualized LP returns of 3% were higher than the first half of the year as private equity and real estate performance continues to improve. We remain confident that over the long term, LPs will generate returns consistent with historical levels. Turning to capital management, as Chris mentioned, we increased our common quarterly dividend by 11%. During the quarter, we repurchased 3.7 million shares under our share repurchase program for $400 million. And we expect to remain at that level of repurchases in the fourth quarter. In summary, we are very pleased with our excellent financial performance for the third quarter and first nine months of the year. We believe we are well positioned to continue to deliver industry-leading return, thereby enhancing value for all our stakeholders. I will now turn the call back to Susan.

Thank you. We have about 30 minutes for questions. Can you please repeat the instructions for asking a question?

As a reminder, to ask a question, please press star followed by the number one on your telephone keypad. In the interest of time, we ask that you please limit yourself to one question and one follow-up. Thank you. Our first question comes from Brian Meredith from UBS. Please go ahead. Your line is open.

Yeah, thanks. Good morning. Two questions here. The first one, general liability, the increase in loss picks this quarter, was there any kind of current year development in that increase in the underlying loss ratio in commercial this quarter?

Brian, thanks for the question. You know, let Beth, you know, answer that. But I think I just would want you to have a little context on, you know, what we saw this quarter that required, you know, that $32 million adjustment. And I really would say it's just two simple things. Our data is just simply showing more attorney representation on claims of all sizes. So the percentage of claims coming in with attorney representation is high and is getting higher. And we talked about it in the past. The average settlement rate of claims or the dollars that we're paying for average claims, including sort of simple slip and falls, is increasing rapidly. So you put those two components together, and that's ultimately why we adjusted our prior year PIC, and Beth, I think you could provide a little bit more detail.

Yeah, thank you, Chris. So Brian, your question on the increase that we recorded in the current year for liability in the quarter, yes, that would include some true up for the first and second quarter. So I would quantify that if you think about in the quarter we probably booked a little bit over a point. from the prior year, and two-thirds of that would relate to the first six months.

Makes sense. And then on that, Chris, how are you thinking about, given what you're talking about with GL development, obviously going up a little bit, does it make you pause at all about some of the new business that you're putting on and the growth you're putting on in the middle market area to kind of make sure that you're adequately capturing? What kind of real trend is looking like in your pricing and terms and conditions in that business?

Yeah, I would just say simply, no, we're very confident in the new business that we're putting on. I'm looking at Mo. He could give you a little bit of the history lesson that we've talked about and really the improvement that we've made in our data science, our analytics, our pricing tools, our segmentation, and all that improvement we've made in the book. And I still feel good about where we're at, Mo. I don't know if you would add anything else.

I know a couple of additions. I mean, I think we've talked to you a lot about the work that we've done, especially in middle and large commercial and global specialty to reduce in some of the areas that we were worried about. So we've been working on limits management. We've been working on jurisdictions. We've been working on kind of the underlying fleet sizes and certainly a lot of rate. And I think that's paying off. You look at our frequency of claims, it's down. And it has been, when you look at the 20 to 23 versus the prior years, your frequency of claims is down, so it's paying off. What we're seeing is, to Chris's point, where the lawyers are involved, it's down less. And so we watch this environment in real time, and we've got a higher pricing standard for all of the commercial wines underwriters in certain jurisdictions and certain classes. So we feel really pretty good about our ability to execute through this. We're watching it closely. And maybe a little bit of context to finish is, With the growth that we've put on over the past three years, our nine-month underlying combined ratio is right on where it was last year, and we think that's evidence of us executing pretty well on our pricing strategies.

Makes sense. Thank you.

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

Well, good morning, everyone. The first question, I'll focus on the personal lines results. With the improvement gradually emerging, I'm just curious how you think about your longer-term combined ratio target in the personal lines business. I know some of your competitors have very specific numbers in terms of like 96 or 95 or et cetera. So maybe you could provide some perspective on where you think that's going to go to.

Greg, it's Chris. I would, I'm going to reframe from giving you exact targets other than what we've always talked about of getting back to overall profitability, you know, back to our targets. And, you know, that's roughly, you know, our 15 to 17%, you know, ROE that, you know, we're targeting. That does have a corresponding combined ratio, including, you know, cat load, you know, even in, you know, for auto. So I'm just going to hesitate a little bit about just dumping out a number just because that's the first priority is that we want to, you know, continue to improve our profitability. We're about 85% of the states in the country, you know, rate adequate now. So we're feeling good about getting the rate that we need into the book and executing to that. But I'm going to pause on and giving you any targets, especially for next year.

Okay, that's fair enough. I guess I'll just come at it from a slightly different angle just on, if I look at the homeowner's business, the underlying improvement in the combined ratio, there was some, but if I look at the rate slide that you put up in your supplement, you know, mid-teens types of rate increases that you're getting in homeowners consistently quarter after quarter, I guess I'm surprised that the underlying combined ratio hasn't improved more. So maybe you could provide some perspective on that.

Yeah, actually, I think we feel really good about, you know, where our overall trends are in homeowners, both from a nutritional side and, you know, even a cat side. You know, we're pretty close to hitting our target margins there in total, you know, Greg. So I don't know how to respond to your sort of disappointment, but lost cost trends are increasing. That's why we are putting, you know, the rate in there. Attritional is behaving, and obviously CAT was, you know, elevated during the quarter, and it's a little elevated, you know, for the full year. in homeowners, but overall, we still like what we're doing with that book of business, and particularly with our new product and chassis we call Prevail that I know you're familiar with. I think it's performing very nicely from a new business side. I'm looking at Melinda Thompson. I'll just ask Melinda, would you add any color?

I think you covered it well, Chris. The only thing I would add is that, you know, as you look at the rate and increases to value that we put into market, we feel that they're comfortably ahead of last trend.

Okay, fair enough. I wouldn't characterize my questions as disappointment, just trying to understand the numbers. But thanks for your answers.

Our next question comes from Andrew Kligerman from TD Cowan. Please go ahead. Your line is open.

Good morning. Looking at the commercial net written premium, pretty solid growth, 10% in small, 8% in mid-large. 9% specialty. And then when I looked at the rate increases that you described, and I backed in workers' comp, back of the envelope, I get about 3% policy-enforced growth. Could you talk about the ability to gain share and maybe each of those three components of commercial and the outlook for growth there?

Yeah, how about if we tag team? I'll start, and Mo, you could... add your color. I would say across all the commercial, Andrew, we're just really pleased. You could look at, you know, small and see, you know, sort of the quotes up. We're cross-selling, you know, more of our global specialty products into there. We're growing E&S very rapidly at strong margins. Likewise with, you know, large and small commercial, submission flows up. Hit rates are relatively stable. But again, all the investments we've made in our pricing, our data science, everything we just talked about, I think is paying off. And then global specialty, particularly the wholesale division there, which is our main E&S chassis, it's performing at a high level. It's growing rapidly with some of our most highly partnered E&S brokers. So I put it all together, Mo, and, I mean, we feel good. And, you know, as I said, you know, we're still in an environment, Andrew, that I think is very conducive to growth, whether it be in the standard lines or the, you know, ENS, you know, lines. And I believe we are taking market share with our differentiated capabilities. But, Mo, what would you add?

No, I just needed to reinforce a couple of points. I mean, I think, Andrew, the flow in all three businesses, as we've talked about in prior quarters, remains strong. As Chris was talking about, the pricing environment is, we think, conducive, supportive. I would say the pricing environment is largely consistent with what we talked about last quarter, and that's a good environment. You won't feel us growing workers' comp. You asked specifically about workers' comp. You won't feel us growing that at a much different pace. It's basically a flat in the quarter from a written premium perspective. And maybe just to build on Chris's CIA viewpoint, coming out of that meeting, it gave us great confidence that those flows to us will continue. And we feel really good that with those opportunity flows, the way our underwriters and sales teams are executing, that we'll take advantage of it.

Excellent. And shifting over to group benefits, you again came in at a compelling margin of 8.7%, well above your 6% to 7% guidance. Can you talk about kind of the trajectory of going back to that level and the competitive landscape that you're seeing in group benefits?

Yeah, I'll start, Andrew, and then I'll ask Mike Fish to add his market color. I would say I'm pleased with our performance in total, whether it be on a margin side or an underwriting side. Sales are down a little bit, 15% from prior year, but we sort of signaled that we thought we were operating in a highly competitive environment and that we might have a different point of view on mortality trends where we're still pricing for an endemic state, which you could see in our numbers. Our life sales are down a little bit. I'm really pleased with a lot of the new products that we're bringing to market, particularly in the absence area. and all our paid family and paid medical leave products that are just having a little bit of a compare challenge between years where we had a lot more new business opportunities and paid family and medical leave that are not run rateable, you know, going forward. But Mike Fish, what would you add as far as your market color?

Hey, Chris, I would add just a couple of comments there. It's a competitive market. But I'd also say our new business activity is strong. So our sales team is active in the market with our brokers. You noted on the life side, you know, pricing for that endemic state. So that is putting a bit of pressure on a new life sales front. But I'd end by saying our persistency is strong. You know, we're still well north of 90%, which is on the high end of a historical range. And really, we're looking to avoid situations where price is the only driver and we're going to compete fiercely when we have an opportunity to sell our product and service capabilities.

Thanks a lot.

Our next question comes from Ryan Tunis from Autonomous Research. Please go ahead. Your line is open.

Hey, thanks. I guess just to follow up on that last one, obviously first quarter, pretty big renewal on the group side. Things are more competitive, but what does that mean – in terms of what we should expect for pricing at this upcoming renewal.

Thanks. Ryan, it's good to hear your voice. I would say the 1-1-25s, particularly from a national account perspective, is largely done. We'll give you a little bit more color on our next quarterly results. But I feel good about them, where we're at and how we competed. how we're differentiating ourselves with some of our service capabilities. So that's all I'm going to say right now until we just officially close out the year. But it is a competitive market. I said it. Mike Fish just said it. And we're trying to pick our spots where we think we could make good margins over a longer period of time with appropriate rate guarantees. And inherently, there is some conservatism in our pricing when you think of three to four to five year, you know, rate guarantees. So, uh, but again, generally, uh, very, very pleased.

Got it. And then, um, I guess just to follow up, uh, thinking about group disability, um, we've obviously been in a volatile macro environment. I mean, to what extent have you, have you seen any new trends emerge this year, uh, from a claims perspective on the disability side? I mean, have you, or has it just kind of been more of the same as what you saw in 23, 22?

Yeah, I would say more of the same. There isn't anything, you know, to call out. You know, I mentioned our absence in paid family leave and medical, you know, plan. So we're in six states. You know, we'd like that product line. It's very complimentary to what we're doing with disability. It's actually a product line that consumers are more aware of and are using it and employers, you know, value it. So that's probably the only, you know, new, new thing I would say over the last, uh, Two or three years worth calling out at this point in time, Brian.

Thanks, Chris. Our next question comes from Bob Huang from Morgan Stanley. Please go ahead. Your line is open.

Hi, good morning. Maybe one on workers' comp. So on reserving, it looks like workers' comp release has been the highest over the last seven quarters. As we look at the post-COVID cohort start to age a little bit, Can you give us maybe a little bit of color on how that book is developing? Should we expect similar level of reserve releases or reserve development rather going forward from that part of the book?

I'll let Beth add her color, but I would say less or more and more, we're making less of a distinction between COVID years, post-COVID, pre-COVID, And just, you know, running it, you know, I'll call it an aggregate, you know, basis and looking at aggregate trends. But, Beth, what would you add?

Yeah, what I would say is on workers' comp as it relates to all of our reserves, we evaluate them every quarter and we'll make adjustments accordingly. But I can't offer any predictions on what reserve development would be in the future. You know, as it relates to years post-COVID, so I think it's sort of, you know, 21, 22, 23 years, You know, those reserves are still very young, and so as typical, we wait to see how those season before we would start to make, you know, any adjustments.

Okay, got it. I know that that's helpful. But maybe one other thing on workers' comp really is the weaker or perhaps even the negative pricing environment. As you think about the business going forward, right, it's still incredibly profitable. What are some of the key focuses that we should really look into? Also, are you really worried about the rising medical cost inflation, things of that nature around workers' comp?

Yeah, I would share with you there isn't really anything new. I think everything that you talked about, we would say the trends are generally stable, particularly on the medical severity side. We're still within our Assumption of 5% from a long-term side, it could bounce around from quarter to quarter, but the overall trend I still think is encouraging. As you said it, it's a highly profitable line, particularly for those that lead the industry, which we think we're one of the leaders in the industry. We'll be selective on new business and going to be sensitive on states that are maybe taking bigger price adjustments going forward. But from an overall side, we still like it. It's contributing mightily to our earnings growth and profile. And generally, we feel good on all the assumptions that we managed to, Beth. But is there anything you would call out?

No, I think you covered off on all of it.

Excellent. Thank you.

Our next question comes from David Madden from Evercore. Please go ahead. Your line is open.

Hey, thanks. Good morning. Just wanted to follow up on the underlying loss ratio in commercial lines. If I take out the current year prior quarter, it still looks solid at 56.6 or 56.7, that sort of range. Was there anything else in there that you would characterize as being one-off or unsustainable either way? I know there were a few moving pieces. between small commercial and middle market and large with the non-cap property losses. But I just wanted to make sure I understand the baseline here. Thank you.

Yeah, I'll ask Beth to provide any of her insights, you know, David. But I would say, you know, I put our expense ratio in there to come up with 88.1 through the nine months, which we feel terrific about, you know, Moe. mentioned that before. That means we're executing well. It's generally consistent with prior year that we've talked about. I would say from a macro side, we feel good about the non-cap property losses this year. I would say maybe they're just slightly ahead of our expectations and then offset by some of the GL movements that we've made there. But you put those two pieces together and still come up with an 88-1 with the fourth quarter to go. Yeah, the team feels really good about that, David. But Beth, what would you say?

Yeah, David, the only thing I'd point out, which you referenced, was when you look at all-in on commercial lines, a little bit of favorability in non-CAT property, primarily in small commercial. But, I mean, we're talking about, you know, tens of basis points here, nothing significant that I would call out.

Okay, yeah, that's helpful. Nothing, nothing big there. Okay, thanks for that. And then to not big numbers, but commercial auto also continues to develop adversely. I know, Beth, last quarter you spoke about those reserve increases being related to a few specific accounts. I guess it was the same story this quarter. what would it take for you guys to take a step back and think about if some of those trends that are impacting a few accounts would start to be more pervasive across the book?

Yeah, so I would characterize what we saw this quarter as very consistent with last quarter. So again, on some specific counts within certain lines. And I'll just remind you that You know, we increased our loss pick on commercial auto in the fourth quarter of last year, just sort of adjusting sort of the more macro trends. And so when we look at where we are with the current year, we feel very good with our loss picks and feel that we've incorporated some of sort of the broader, I would say, market impacts. But, Mo, would you add anything else?

Yeah, maybe just, David, from an underwriting perspective, I think we've talked about it, but we've certainly been – managing accounts that were impacting us and these are actually years 22 and 23 as a reminder uh we've been either moving them to loss sensitive if they got a larger fleet or we're moving them out all together certainly we're pushing rate and continue to push rate hard in the auto lines and just maybe the last piece is the only place we really have any heavy trucking exposure is in our wholesale book it's it's less than 150 million dollars and We're very transactional in that space, so I think we really feel good about the underlying auto exposure across commercial lines.

Great. Thank you.

Our next question comes from Mike Zaremski from BMO Capital Markets. Please go ahead. Your line is open.

Hey. Morning. Thanks. I just want to preface. Clearly, the results overall are excellent, but we're going to get lots of questions on on general liability, so I wanted to focus another question there. In the prepared remarks, you gave us good color about more attorney rep on all claim sizes. Is there any way you could parse it out more? Because I think that what we're seeing in the industry is that on the small commercial side, more so than the large commercial side, we're seeing more, uh, that the loss trend rise more so than, than in the large account space, because there's just more attorney involvement. I I've, I've learned historically on the, on larger clients, like larger fortune 500 clients. So I just wanted to better understand if you're, if you are seeing the higher GL trend, um, in any specific pockets based on account size or maybe type of, uh,

employer or business um that grab uh mike all i would say yeah there's lawyers everywhere um all 50 states all the territories obviously they're looking for clients any which way they can from advertising or 1-800 numbers so i'm being facetious obviously because uh we don't see any discernible trend um I think what we called out and what we're reacting to is the higher percentage of claims coming in the door with attorneys already in tow, and that's driving up overall settlement rates no matter what business, what country or state, and that's what we see. Well, anything from the underwriting side you would comment upon?

No, I would say, and I don't think we should need to get into the details, but just know that we're deep in every jurisdiction. We're in by class. We're in by the type of accident. So I think there's a lot of nuance in here. But Chris's overall point is there's more lawyers around, but certainly when we get to the underwriting, we're tailoring it by industry, by state, by county, and certainly any underperforming areas are getting the necessary rate action and book management activity.

Okay, that's helpful. And maybe just switching gears a bit to the overall commercial rate environment. It feels like the industry is being extremely disciplined. We're seeing, you know, pricing, you know, increase a bit in many lines, despite overall industry return equity levels being healthy to excellent. You know, would you say that the the pricing environment is really being driven more by loss ratios and folks and your peers aren't really taking into account the investment income benefit as much as I think maybe some investors thought would take place in recent years. Just kind of curious about the competitive environment.

Yeah, I would say again, Mike, I think it's rational and thoughtful. and principally driven by lost trends, right? I mean, I can't speak to any other of our, you know, competitors and how they really think or manage, but at least from our side, I mean, we start with, you know, trends, and we've always said we're trying to hold margins where we're at today. Underwriting margins feel good. That, again, we're generally consistent with last year, and we'll start to talk about 25, you know, a little bit more, but... From an underwriting side, we don't think about net investment income. All our metrics are sort of elastic, except when you get into maybe the national account book of business that does have a little bit more float there. But I think it's primarily loss-cost driven, Mo, and we're executing to what we're trying to do from a consistency perspective.

Yeah, but Mike, that doesn't mean it's easy. I just want to make sure you understand it's a difficult underwriting environment. If you don't give the right tools to underwriters, if you aren't making investments in the data science and the feedback loops to see this stuff, you're going to miss it. And so I just want to make sure we are talking about the difficult choices underwriters are making every day, and I think our team is doing a terrific job navigating the market.

Thank you.

Our next question comes from Elise Greenspan from Wells Fargo. Please go ahead. Your line is open.

Hi, thanks. Good morning. My first question, I guess, going into, you know, on the premium growth side within middle and large, growth did, you know, slow a little bit in the quarter. And I know it was, you know, a little, you know, an easier comp last year, especially right when I look at growth within the middle market, right, right around 7%. this quarter a little lower than what we saw so far year-to-date. Can you just give a little bit more color on what you were seeing there on the quarter and how we should expect that to trend from here?

Yeah, Lisa, you're right on. We certainly commented on July last year. The market just didn't come our way, but we're really excited about it. I think our year-to-date growth in middle and large commercial is 9.9%. We're really excited about that. As we talked about a minute ago, the flow – continues to be really strong. Our underwriters are active in the marketplace. And again, coming out of CIB, I use that as a reference point since it's so recent. I think our agents are really talking about their desire to consolidate carriers, and we would benefit from that in the middle and large commercial space. So I think as long as we can get paid for risk and the market holds up, we feel really good about the growth possibilities in the middle and large commercial space.

Thanks. And then I just, you know, want to come back to GL for a second as well, right? So we saw, you know, adverse development, right, in some more recent years this quarter. Last quarter was some, you know, softer years. It sounds like it was just, Chris, the attorney representation that you were talking to that kind of was the driver of both. Can you just, and I know you touched on it in print remarks, give us a sense of, you know, the severity kind of assumptions that you're assuming within GL. And is there like a buffer that, like, Give us a sense of the buffer you have on top of kind of what you're seeing just so we can, you know, that you would expect, you know, not to see additional movements from here.

Yeah, I would share with you, Elise, and thanks for the question. I'm not going to talk about buffers or how we manage sort of in total, but yeah, you're right. You know, the data, you know, that we're reacting to, you know, this quarter is is rep rates and settlement rates, particularly on our bread and butter, small commercial and middle market accounts, slip and falls particularly. That type of claim seems to have the most explosive growth in settlement values there. So I think that's the color that I would provide, Beth. But would you add anything else?

No, I think you covered it well. I mean, we reacted to, you know, what we saw and incorporated that as well as our projections for what we would see going forward, the adverse development that we took in 22 and 23, and then how that informed our view of changing our pick for 24. So from our perspective, we've taken all of those inputs in and made our best call.

Thank you.

Our next question comes from Myra Shields from KBW. Please go ahead. Your line is open. Hi, good morning.

Just have a question on personal lines expense ratio. It has taken up year over year, but has declined sequentially. Anything you see differently from last quarter in terms of regional marketing or just seasonal financial issue. Just wanted to make sure I didn't miss anything. Thank you.

Yeah, I think the expense ratio, there's nothing to call out. I think last quarter we called out, we were started or restarted our national advertising and solicitation for our direct response business. I'd expect it to to normalize and go down over time, particularly as we have more operating leverage as we start to grow again. So that's about it. Got it.

Thank you. My second question is on ENS growth. You previously talked about $300 million in ES binding by the end of the year. Could you provide an update on the progress and discuss whether social inflation driving more submission to the E&S channel?

Yeah, I think the overall trend of E&S continuing to be a meaningful channel for both casualty and property products is very strong. Obviously, they're capturing more of the flow on the small side and the middle market side. We're happy to participate. with what you think is a pretty good offering and a pretty good mousetrap. We're on track to achieve our $300 million goal that we set this year, particularly in small commercial E&S binding. And it's an important channel for us to continue to develop capabilities and underwriting skills to support over the long term.

But Mo, would you add anything? No, I agree with everything on E&S binding, and I would just reinforce we're seeing the same momentum in the wholesale space within global specialty and in property and inland marine and construction and casualty in total. So, we feel really good about the progress in both segments.

That is very helpful. Thank you so much.

Our next question comes from Josh Shanker from Bank of America. Please go ahead. Your line is open.

Thank you. I'd like to talk about group benefits, if we can change the subject. How's everyone doing this morning? It's good to hear your voice, Josh. What's on your mind? Good hearing you, too. I want to talk about the sales growth looked a little weak year over year, but these are a lot of times multi-year sales cycles. So the year over year comparison might not be apt. And of course, the first quarter is more important than the third quarter. But can we talk a little bit about sales conversion, given the number of countries that are coming up for renewal, how well you did this year, and what that augurs for in the future, especially maybe how many contracts are coming up for renewal in 25?

Yeah, we're not going to talk too much about 25 right now, Josh, but we'll give you plenty of color once it's all tidied up. I would say, and Mike Fish will add his perspective, we still feel good about, obviously, our sales team and what we're able to do in the marketplace and all our broker relationships. I mean, it's quite an ecosystem that you have to manage with feet on the street and relationships. We get a lot of opportunities. I think the comp issue that I talked about, we had some one-time PFL and PML sales last year, so that's distorting it. If you take it out, we're still down, but we're down just slightly. And, Mike, I don't know what you would provide to Josh to give him comfort that we're competing every day as hard as we can, but we're also trying to make money and we're being disciplined with our pricing also.

Yeah, Chris, those are the right points. I'd just add a couple of items here. On the renewal side, Think of it this way. A little under a third of our book comes up for renewal every year, and I noted earlier in my comments around this year's persistency north of 90%. Now, that's on the whole book, so renewal is a subset. But again, I think that just speaks to the fact that we're able to compete certainly on our in-force and keeping those customers. On the new side, our volume of quotes that we're seeing is consistent year over year. What I would sort of, if I double-click under that, when you look on the larger end, those opportunities can ebb and flow over the years, and essentially when we're looking to line up with our underrating appetite, we're going to be a bit more selective on the large end. But again, I don't think there's anything unique to note this year, very consistent with what we've seen in the past years.

Well, I just want to take your comment, Chris, that we are here to make money, and I think that's right. You definitely are making money in the group benefits business. The margins are fantastic. Uh, is that showing up and not necessarily in the Hartford, but in competitors, uh, cutting price at this point, being willing to tolerate a higher benefits ratio than they might have a year or two ago.

Yeah, I don't, I don't want to speculate. I don't want to say, I really don't know, honestly, Josh. So, uh, you'll have to ask them that. Um, I know what we're trying to do every day. Uh, again, we want to be thoughtful. We want to compete. uh, we want to maintain our margins. And I've, and I've said this before, and you of all people know it and get it. I mean, we're making three to five year rate guarantees, uh, depending on product line. And, uh, we can't, we can't go upside down with, uh, you know, those types of guarantees out there. So we're going to be thoughtful and disciplined and, um, try to, you know, try to do the best we can, but you know, there's certain lines that we're just not going to cross. And, um, So all I could say is, yeah, we want to be relevant. We are relevant in the marketplace. There isn't a national account opportunity that doesn't come our way, and we're going to compete thoughtfully, but we're also willing just to put the pencil down and say that's enough. Thank you for all the answers.

Our last question will come from Alex Scott from Barclays. Please go ahead. Your line is open.

Hi, thanks for taking me in. So I wanted to ask about property pricing, actually. You know, I thought it was pretty striking at the small to mid area anyway that the pricing is still, you know, pretty elevated. Can you talk about some of the dynamics there that are, you know, allowing for that kind of price action, you know, when we're seeing sort of at the larger, more global property into things, it's slowing down more significantly?

Yeah, Alex, let me just give you a data point or two and then ask Mo to add his color. Our total property capabilities spread across all our businesses, ex global re, pricing actually accelerated 60 basis points during the quarter from 12.2 to 12.8. And I would say the two largest segments from a premium volume sort of led the way. Spectrum pricing is up 60 basis points also to 17.6. And our general industry property capabilities is up another 60 basis points to 8.5%. So again, feel really good as far as our sweet spot of being in that SME space and pricing remaining firm and actually expanding a little bit. That's not true in some of the larger large property or ENS, you know, Mo, but what would you just, you know, add your color?

No, and I think we're watching the reaction to the storms and trying to understand how that impacts the marketplace and certainly the reinsurance renewals, but generally it's a favorable market that we would look to take advantage of.

That is helpful. And maybe if I could sneak one last one in. Just when I think through the A&E reserve review in 4Q, I know you're probably not ready to give like a number or something like that, but could you help us think through like some of the underlying trends you see with those claims and so forth that could, you know, help us at least directionally understand, you know, which way things are going there?

I'll let Beth add her color, but Alec, we need to finish the review, the study. We'll announce it, obviously, with fourth quarter, but there's nothing to speculate right now because we haven't completed our work.

Yeah, I would agree with what Chris is saying. We'll complete the study and report on the trends and underlying exposure that we see there at that time.

Understood. Thank you.

We have no further questions. I'd like to turn the call back over to Susan Sivak for any closing remarks.

Thank you all for joining us today and as always, please reach out with any additional questions and have a great weekend.

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