Hartford Financial Services : 2Q22 Webcast Transcript

The Hartford Financial Services Group, Inc.

NYSE:HIG

FQ2 2022 Earnings Call Transcripts

Friday, July 29, 2022 1:00 PM GMT

S&P Global Market Intelligence Estimates

		-FQ2 2022-		-FQ3 2022-	-FY 2022-	-FY 2023-
	CONSENSUS	ACTUAL	SURPRISE	CONSENSUS	CONSENSUS	CONSENSUS
EPS Normalized	1.52	2.15	41.45	1.63	6.98	NA
Revenue (mm)	5529.31	5373.00	(2.83 %)	5648.31	22553.47	NA

Currency: USD

Consensus as of Jul-29-2022 10:33 AM GMT

- EPS NORMALIZED -

	CONSENSUS	ACTUAL	SURPRISE
FQ3 2021	0.86	1.26	46.51 %
FQ4 2021	1.52	2.02	32.89 %
FQ1 2022	1.55	1.66	7.10 %
FQ2 2022	1.52	2.15	41.45 %

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Contents

Table of Contents

Call Participants..................................................................................	3
Presentation..................................................................................	4
Question and Answer..................................................................................	9

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THE HARTFORD FINANCIAL SERVICES GROUP, INC. FQ2 2022 EARNINGS CALL JUL 29, 2022

Call Participants

EXECUTIVES

Beth A. Costello

Executive VP & CFO

Christopher Jerome Swift

Chairman & CEO

Douglas Graham Elliot

President

Susan Spivak Bernstein

Senior Investor Relations Officer

ANALYSTS

Alexander Scott

Goldman Sachs Group, Inc., Research

DivisionPaul Newsome

Piper Sandler & Co., Research Division

Brian Robert Meredith	Tracy Dolin-Benguigui
UBS Investment Bank, Research
Division	Barclays Bank PLC, Research Division
Charles Gregory Peters
Raymond James & Associates, Inc.,
Research Division
David Kenneth Motemaden
Evercore ISI Institutional Equities,
Research Division

Elyse Beth Greenspan

Wells Fargo Securities, LLC, Research

Division

Joshua David Shanker

BofA Securities, Research Division

Michael Wayne Phillips

Morgan Stanley, Research Division

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THE HARTFORD FINANCIAL SERVICES GROUP, INC. FQ2 2022 EARNINGS CALL JUL 29, 2022

Presentation

Operator

Good morning, ladies and gentlemen. Thank you for attending today's The Hartford second quarter earnings call. My name is Jaquita. I will 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.

Susan Spivak Bernstein

Senior Investor Relations Officer

Good morning, and thank you for joining us today for our call and webcast on second quarter 2022 earnings. Yesterday, we reported results and posted all of the earnings-related materials on our website. For the call today, our speakers are Chris Swift, Chairman and CEO of The Hartford; Beth Costello, Chief Financial Officer; and Doug Elliot, President. Following their prepared remarks, we will have a Q&A period.

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 include non-GAAP financial measures. Explanations and reconciliations of these measures to the comparable GAAP measure are included in our SEC filings as well as in the news release and financial supplement.

Finally, please note that no portion of this 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 1 year.

I'll now turn the call over to Chris.

Christopher Jerome Swift

Chairman & CEO

Thank you for joining us this morning. We are pleased to report another quarter of strong performance which demonstrates that our strategy and investments we have made in our businesses have established The Hartford as a proven and consistent performer. Core earnings for the quarter were $714 million or $2.15 per diluted share.

Book value per diluted share excluding AOCI was $52.12, and our 12-month core earnings ROE was an outstanding

14%. During the quarter, we were pleased to return $577 million to shareholders through share repurchases and common dividends. With our outlook for continued strong financial performance and capital generation, the Board has authorized a new share repurchase program of $3 billion, effective August 1, 2022, through year-end 2024.

Together, our strategy, superior execution and prudent capital management demonstrate The Hartford's commitment to long-term value creation through sustained profitable growth, continued investment in our businesses and return of excess capital to shareholders. We are producing excellent results in a very dynamic macroeconomic environment. As we look forward to the second half of 2022, while there are some mixed economic signals, combined with geopolitical tensions and Fed policy uncertainty, The Hartford continues to be well positioned to manage margins and returns successfully.

As we all know, within the U.S., we are experiencing historic levels of inflation, which has resulted in accelerated monetary policy tightening. These conditions appear to be pushing the U.S. economy into a lower growth environment or possibly a mild recession. However, this is occurring against the unique backdrop of low unemployment and strong corporate and consumer balance sheets. These conditions are very different from those that existed during 2008 when the recession was driven by credit imbalances across the economy, high unemployment and heavily leveraged balance sheets.

The Hartford is also a very different company today. We have well-performing businesses, enhanced capabilities, a diversified portfolio of P&C and Group Benefit products and a stronger balance sheet, including a high-quality investment

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THE HARTFORD FINANCIAL SERVICES GROUP, INC. FQ2 2022 EARNINGS CALL JUL 29, 2022

portfolio. All of our businesses are competing effectively in their target markets with unique value propositions, anchored by The Hartford's brand and reputation. We have invested in new capabilities to deliver an exceptional customer experience while ensuring appropriate rigor in the management of claim outcomes, including the extensive use of data science and artificial intelligence. For our 2 largest and strongest performing lines, workers' comp and disability, these enhanced capabilities have led to improved profitability over the years and give us confidence that even during the economic slowdown we are well positioned to minimize the impact on loss cost.

Now I'd like to share some highlights from each of our businesses which illustrate how our strategy translates into consistent and sustainable financial performance. Overall, Commercial Lines outperformed with double-digit top line growth and expanding margins in the quarter.

There has been much commentary about written renewal rates versus loss cost trends and the impact of inflation. We have been disciplined and prudent in establishing loss picks for 2022. Our assumptions reflect loss trends in the aggregate of approximately 5% excluding workers' compensation, reflecting our overall business mix which skews towards small business and middle market risk. Therefore, we have approximately 100 basis points of spread between written renewal pricing and loss trends.

Stepping back, I am incredibly proud of what we've accomplished in Small Commercial. Over the past decade, we have built a track record of consistent superior performance with underlying combined ratios below 90% as we grew the business to over $4 billion in annual premium. Our momentum in the marketplace is evident with several consecutive quarters of record new business.

The speed, accuracy and consistency we deliver to the market along with leading digital capabilities continue to outpace competitors. We are transforming our Middle & Large Commercial business into a specialized organization with broad product offerings and deep underwriting skills across industry verticals, which is driving growth, strong profit margins and more consistent results. Our execution around data science, pricing segmentation and engineering has dramatically improved, which will help drive continued underwriting discipline in more competitive lines of business, including workers' compensation.

In Global Specialty, results are outstanding as we continue to maximize our expertise to gain market share. Our teamwork and cross-selling activities have been phenomenal and continue to strengthen the franchise. Underwriting margins have improved materially over the last 3 years, evidenced by our 85.5% underlying combined ratio through 6 months in 2022. These advantages are only getting stronger as the market recognizes our product breadth, efficiency and ease of doing business as key differentiators.

In Personal Lines, the rollout of the new platform -- Prevail platform continues and is beginning to show positive traction. However, higher inflation is impacting auto results and will require additional pricing actions. Doug and Beth will talk more about that shortly. But overall, from a strategic perspective, I am pleased with the progress we are making in Personal Lines.

Turning to Group Benefits. Core earnings were $161 million with a margin of 9.8%, reflecting a rapid recovery in mortality and solid disability results. Long-term disability trends are stable and within our expectations for incident rates and recoveries. On the top line, fully insured ongoing premium was up 7%, benefiting from strong persistency above 90% and sales of $204 million, nearly double the prior year quarter. The excellent sales results are primarily driven by the acquisition of new cases and strong enrollment, which reflect a combination of greater product awareness among employees and new enrollment capabilities we introduced over the last 18 months.

We observed that both employers and employees are highly engaged on benefit offerings in light of the pandemic. Businesses are also increasingly focused on offerings that can help them attract and retain talent in a competitive labor market and at the same time, struggling with growing complexities of regulation and compliance, including emerging state- paid family leave mandates. This is an opportunity for us to demonstrate higher value through our expanded products and services as we continue to grow the business.

Before I turn it over to Beth, let me leave you with some concluding thoughts. I remain confident and excited about the future of The Hartford. Our businesses are performing well and have never been stronger. We are managing the investment portfolio prudently, and our holdings are well balanced across a diversified asset classes. We have proven execution capabilities and exceptional talent that drives my confidence in our ability to continue to produce superior returns in a dynamic macroeconomic environment. And finally, we are proactively managing our excess capital to be

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