The Hartford Insurance Group, Inc. (HIG) Earnings Call Transcript & Summary

I think in the interest of time, we're going to go ahead and get started here. So very happy to be joined by Chris Swift, Chairman and CEO of The Hartford. Chris is always very gracious with his time and joining us here at the GS Financials Conference, and he's been CEO for over 10 years. So thanks, Chris, for joining us.

Thank you for inviting us, Rob.

Yes, absolutely. And so just to kick it off, how about you level set for us? How has the Hartford been performing? And what are your key priorities as we head into 2026?

Sure. But as I said, it's a pleasure to be here, always at the Goldman Sachs conference and right next to your world headquarters. If you haven't noticed, Beth Costello, our CFO, is ill and could not make a trip. I think she was with investors in Europe last week and maybe caught a bug there, but she sends her regards. So as we think about performance in 2026, Rob, I would say I think we're performing and executing at a high level, particularly if you judge it from an overall metric perspective of generating 18.4% core earnings ROE on a trailing 12-month basis. If you look at our growth, if you look at our margins, if you look how we're using our excess capital to reinvest in the organization, particularly in our technology, I'm really pleased where we're at. If I just dive into the business lines just on a maybe more granular basis, businesses. Insurance, obviously, is very big and very important to us. During the third quarter call, I guided to 88.6% underlying combined ratio that I thought we could outperform that, which was the 9-month year-to-date number. And I still feel that we can. Sitting here today, I know we're executing well. We're getting the rate that we need in the books, and I'm still optimistic of closing that gap compared to prior year. So by any measure, again, that's an outstanding result, sort of in that 88% range. Anywhere in 88%, I feel very good about the returns that we're generating there. But if then if you look at sort of growth, I think our growth has been phenomenal. You've heard me always describe us as more of an SME-orientated firm. We do have some larger businesses and global accounts and relationships around the world. But our bread and butter is SME, which I think is outperforming the broader market. Even if there is a little softening that is occurring or maybe more that will come, I still think that segment of the market where people want, in essence, 100% risk transfer product is a profitable segment to focus on, coupled with our ability to differentiate ourselves, particularly with our technology. I'm really bullish and optimistic about our continued growth in anything in the SME segments, whether it be small, middle or even our global specialty business has an SME orientation. So feeling confident and very good there. If I look at our property capabilities, property was a big focus of ours. We'll finish the year pretty close to $3.3 billion of property exposure, which we still want to continue to grow because I still think on a risk-adjusted basis, returns in property will matter. If you look at pricing overall, we could talk more about it, but I see very similar trends as we were here last year at this time. Property is probably the main exemption. But workers' comp, I think, is going to do what it does. I don't see any trend -- difference compared to where we were at this time. So negative rates are reality. There might be some margin compression, but we're really trying to give our underwriters guidance and the tools to maintain the margins where they're at today. And then if I go into the Group Benefits business, is generating superior returns in that 8%, 8.5%, 9% range. We still price our products for margins in the 6% to 7%, but we feel really good. And that outperformance is primarily contributed by disability and then both terminating and getting people back to work and incidences have been continue almost at historic lows. So that business sets up well. I alluded to in the third quarter call that first quarter sales is trending very favorably. Retentions are trending favorably. We've made adjustments to our life mortality pricing, which we took out an endemic load in our pricing that was there last year that really hurt some of our competitiveness. We're investing in our technology stack there, taking all our data and analytics to the cloud. and just feel very good about where that business stands. And then personal lines really gives me great pride to sort of say we fixed it. And the industry fixed it, right? And we had a lot of fixing to do over the years. But we're at target margins. It's go mode, it's growth mode. A lot of other good competitors are in that area. So PIF count is probably -- is still going to be dampened this year, just given the competitive nature of the market. But the good news is the market is fixed. Our AARP channel continues to be really relevant, and we've launched Prevail for agents, which is exciting because if you really think about one of the Hartford's core strengths is our distribution. I mean we have close to 15,000 distribution relationships that are looking for, particularly in personal lines, a quality firm, a brand they know and trust with good products and good capabilities, good service, a claims paying capability that is empathetic. And that's a sweet spot to maximize our distribution that way where, again, whether it be small, middle, large specialty, we're bringing another product set to those agents that want to represent the Hartford on multiple levels. And again, I'm optimistic that we'll be able to grow our agency channel. So that's a long-winded way. I don't know if I went 5 or 7 minutes, but I hope you can feel our excitement because I think we're still poised to outperform even into 2026 and beyond.

Yes. That was awesome. You touched on a lot of stuff there. I want to dive into a lot of that. Maybe one more high-level question. I mean you touched on it a little bit, but a 3-year average core ROE sort of in the high teens here. Are you outperforming your own expectations? Or is this a situation where given that the market is still in a good place, you have a lot of good positioning in certain products and the investment portfolio is doing quite well. So is this level somewhat sustainable? Or how would you think about it?

Yes. We're really proud, as I said, of the 18.4% ROE. I think we'll close out the year in great fashion, and we'll see what the numbers ultimately tally. But I do think it's sustainable. I really do. Again, given our market focus and as I said, on the SME market, given the tools that we've built for our underwriters, how we're improving profitability and growth in personal lines, getting back to a growth orientated in group benefits, I think will all contribute to an earnings and an ROE profile that is generally consistent with where we sit here today. So I do believe it's sustainable. As I even said, even in a softening market. And I would give you the context of if property continues to soften, which is sort of the headline, as I said, 60% of our standard commercial book is in small and middle, which is actually holding up better than the large account, the E&S, the [ Sheraton Lay ] or anything in London. So again, at the margin, I think we'll -- where our focus is, I think we'll outperform particularly on property.

Great. And so let's...

The investment portfolio, again, if we look at it this year, I would give you one data point is that our reinvestment rate compared to sales and maturity was about 80 basis points higher. I think generally, where we are right now, mindset-wise, there's a lot of cross currents on what is the Fed going to do, cut interest rates, where are spreads, where is risk. So as we sit here today, I think the portfolio yield will be very consistent with 2025 and 2026 with maybe a little bit of upside. But then when you add in our alternative portfolio, particularly our limited partnerships, we do believe that will get back to sort of a normal 7, 8, 9 points of return range so that the overall portfolio from a yield side, including alternatives, should be greater in 2026 compared to 2025.

Okay. Great. Upward trajectory. And so Business Insurance, underlying margins are very strong, but you mentioned we're seeing some pricing deceleration, particularly in property. Can you talk about where you think we are in the insurance cycle? And what does that mean for growth in 2026?

Well, I think from a cycle perspective, I always like to remind people, you got to understand where you are today to understand the impacts of any trends that you would project going forward. So the starting point is still robust from a margin, profitability and ROE. So I think the industry is -- I would say, fairly rational across most product lines. I mean you could always point to a product line or 2 that might be acting irrationally, but I still think there is a level of rationality. I think people's memories and scarring is real given what the industry has faced in the liability area, particularly over the last 3 or 4 years. So there's an element of cautiousness, prudence, discipline that I still think is out there in the market. So again, that, again, points to sort of my optimism and generally that we could sort of manage through any cycle. And ultimately, as you think about a capital allocator, if you don't like the returns you're getting, we pulled back. We pulled back from lines of business over the years that weren't generating adequate and had to ride the volumes down, had to make all the tough decisions on expenses, and we're prepared to do that. But I don't see any huge outliers at this point in time from a product side.

Okay. Got you. And so underwriting profitability, the combined ratio, which you mentioned is in the high 80s, which is better than Hartford long-term averages. You had some gradual normalization in the underlying combined ratio this year. Is that how we should be thinking about it for 2026? And what are some of the key puts and takes as you think about bridging the gap to next year?

Yes. Well, again, where we're starting from is healthy, as I just said, we're going to refrain from giving you any additional numbers just because their estimates or views at this point in time. But if I just sort of go around the horn, if we're at 88.6% or south of it for the full year basis, it's realistic to assume that workers' comp is still going to be in a negative price. And depending on your trends for frequency and severities, there's going to be probably some modest pressure in workers' compensation going forward. Property, we just talked about, and I don't need to talk to it again. I think the specialty product sets that we have in Global Specialty will, by and large, hold up with trend. There might be exceptions in E&O, D&O, cyber and some of those specialty-orientated products where pricing is probably still coming down compared to long-term cost trends. And then you get into sort of the standard line world. And really what you're left with is the liability lines, which need utmost care, discipline, focus on making sure you're keeping up with trend. I think you know we've made adjustments to our -- some of our loss trends in P&Cs in '24. They're holding in '25 generally. And as we head into 2026, we know we need to keep up with those trends. And generally, I would say anything liability related is probably in the high single digits. Primary is probably 7, 8-ish from a trend side, if you get into the umbrella. In excess lines, you're probably in the low double digits from a trend side. So you need pricing that's keeping up with that. So you don't obviously deteriorate margins, and that's our mission. That's our goal. It's our objective and everyone knows it. And we got to execute to it. And if we can't get those rates that we want on a particular account or any particular quarter, and you've seen some lumpiness sometimes in our sales and activity, that's us just being disciplined and stepping away.

Yes. And that sounds different from the last cycle a little bit. I don't think we had high single-digit casualty loss trend during the last cycle. Does that change your view at all on where the bottom might be for this cycle?

Well. Yes. I just always come down to -- and that's why I break it down because each product has its own little mini cycle, you could say, or trends that we're facing. But high singles from a trend in pricing side. So is that different? No, just because the industry just needs to continue to be disciplined and make sure we're keeping up with trend, given everything we've talked about over the years from social inflation to nuclear verdicts, I mean, all those trends are still alive and well.

Got it. So yes, and thanks for mentioning Small Commercial earlier. Can you just go over some of those competitive advantages that you guys have built in Small Commercial over a long period of time and kind of what you're doing today to extend those advantages? And then if I could tack on a third question, 10% growth in 2025 was really strong. How are you thinking about that going forward?

Yes. So there's a lot to unpack there. I think the simplest way to sort of describe it is our intense focus for many, many decades on small. Probably -- that focus probably goes back at least 40 years of an orientation, a mindset, a team orientation of what does it mean to serve a small business customer, what do they need? How do they want to interact with us? How do they want to interact with agents. So again, intense focus. Second point would be clearly technology. That's the product line, the business line that we've probably invested the most in my 15 years with The Hartford to continue to differentiate ourselves. And you could think of it as digital, you could think of it as data, you could think of it as analytics. But when we're able to process 75% of admitted lines business, not just comp, not just auto, not just property, but all admitted lines of business, 75% without human touch, and we have a goal to get to 90% over the next couple of years. It's that intense focus on how do we -- just how do we get better? How do we -- ultimately, it's about speed, accuracy and consistency. And when you demonstrate that to your distribution relationships, whether it be on a $2,000 policy or all the way up to a $100,000 policy, you earn their right and trust to do more business with them. And I think really, that's what's been happening over the last 3 years, 4 years specifically is we are earning more right to capture more of their market share, and we're gaining market share accordingly. And then you add in the new segment that we've attacked the E&S, particularly the binding business, which is up to about $300 million or growing 40-plus percent. I think those trends, particularly in the E&S market where that market is still going to be relevant. There might be a little slowdown and flow back to the admitted lines, but it's a new market that we're having great success in. And then you look to the outside world, Keynova which is one of the, I'll call it, firms that evaluates people's capabilities for 6 straight years, we've been the #1 digital carrier that is known for its ease of use and speed. So it's not one thing. It's the multiple of things that we've added to, and we're going to continue to innovate, particularly in the E&S space. So there's more to come out of our small business, I'll call it, innovative mindset, particularly in E&S. So we'll talk more about that next year at this time.

Okay. Awesome. And maybe just on that E&S space, like what are your views broadly on business flow back and forth between admitted? Do you think that's something that we're going to see here in the near term? Are you already seeing it? How do you see that playing out?

I'll break it down is that I think submission flow between the admitted market and the E&S market continues to be high or increasing sort of for our numbers. We're responding to more quotes, but there is increased competition. So our hit ratio is basically flattish. But submissions quotes are all up across all lines. I do think there is a little bit of softening, particularly in the property side of the E&S market, obviously from a price side, but a little bit of activity is dropping at least in our data. I don't think it's an alarming trend. It's probably just a little bit of a natural migration. But again, remaining healthy. And that's really what our ultimate mission is, is to try to serve more of our insureds and agents' needs with competitive products, expanded risk appetite, things that we've been doing for a number of years, but there's a compounding effect when you focus on it, focus on it every year, you're getting the results that we are. So 10% is great result. I think that can be generally consistent going into next year, and we'll see.

How about back to the admitted market, workers' comp. The business has been performing exceptionally. You mentioned likely some continued price decreases there. I think you guys have said you're booking medical severity in that 5% range, but you're actually seeing severity that's less than that. Can you tell us why workers' comp isn't seeing the same pressures as sort of broader health care cost inflation? And what's your outlook for this line of business?

Yes. So yes, I'll confirm everything you said is correct, right? So we've been very disciplined, particularly on medical severity because you never want to get caught short with medical severity assumptions in your back book and then obviously going forward. So we've been very disciplined there. I think frequencies are behaving. I think the actual emerged sort of medical trend that we're observing in our claims book is in that 3%, 3.5% range, well within sort of our expectation as far as pricing and reserving because those go hand in hand. And there's a lot of different theories on why. But again, the workers' comp system is ultimately fixing injured workers and getting them back to work and back to healthy. It's not treating broad-based medical conditions that might have higher pharmaceutical uses that might be using GLP-1s more these days or gene therapies, all these advanced medical conditions and therapies are really exciting, but they're not cheap. They don't give them away. So I think that is probably the #1 basis difference between getting an injured worker back to work. And you do have some really, really severe injuries, burns, disabilities. But a lot of times, it's lost time wages or simple medical procedures that getting someone back to work after an accident or incident. So I think it's just a basis difference between the population broad-based and a workers' population.

Got it.

And you have medical fee schedules, you have networks that you manage and sort of have guaranteed payments and where you're trying to control your cost and control your outcomes. So there's a lot of factors that go into it, Rob, that's all expense.

Yes. No, it makes sense. I did want to ask you about personal lines. So you mentioned PIF count might still be a little dampened in 2026. How do we think about the competitive environment there? And could you talk about the new Prevail agency program?

Yes. So when you think about PIF count, I think primarily of auto. The auto market continues to be really competitive. People are spending more, trying to generate more responses. If I look at trends, we'll probably end 2025 with a severity trend probably in the 9% range on a trailing 12-month basis. I suspect that will get into the mid to upper single digits next year, probably closer to mid. So we have an opportunity then to be responsive with pricing or less pricing increases. I think retentions across the industry are still at all-time lows. And no matter what side of the equation you come from agency or direct, people are shopping more. They're looking for the best deals out there. And it's a competitive environment where everyone wants to grow given that we're back to targeted profitability. So when I put it together, I think we could grow our home count, both in direct and agency. And I think our agency PIF count will grow just because it's a low number. But if I look at the direct book of business, primarily the AARP endorsed book, we're probably going to be under pressure from a PIF count there. So I think you put it all together, we expect a modest increase in PIF count primarily coming from homeowners on an overall book of basis. If I can just update you on Prevail agency, there's really no major updates. We continue to roll out states. We're going to be in 30 states by early 2027. Agency reaction has been very positive, particularly those agents who use the home as the primary product where the home is a significant assets or net worth of a lot of individuals. So to have a company like ours with our brand, our reputation back in the home market, we're attracting attention in a positive way. And obviously, we want to account around the auto and whether we do that with the home or pick it up next cycle, that's ultimately our goal.

Got it. That's helpful. And so how about on the expense ratio? If we think about P&C business broadly, I think the expense ratio at Hartford has hovered around 31% since 2023. Are you seeing any opportunities to harvest efficiency gains there? Or how should we think about that trending?

I might quibble with you on the 31% publicly. I'll send you a note later. I think it's closer to 30%, but your question still stands. I think the philosophy that we've had for a long time is we needed to build capabilities within The Hartford going back 15 years. And those capabilities were both product, underwriting appetite and technology. And so we view that as a form of capital allocation that I think has actually worked out pretty well for us. So we're always trying to be mindful of expense initiatives and efficiencies, and we've had all of that. But the real benefit that we've generated in our -- at least expense ratio, my judgment is from the operating leverage, capturing more market share, differentiating ourselves. And that philosophy will continue. I think I said in the third quarter call, we run a technology budget of about $1.3 billion. $500 million of that is on the invest side. Some of that is principally targeted AI and all the emerging technologies. Some of that is taking all our data and applications to the cloud. Some of it is pure data organization analytics. So it's a form of capital that we allocate to basically grow our business. And I think we've made the right trade-off. I'm not here going to predict where the expense ratio is going over the years. But clearly, there will be operating leverage that we'll have choices to what to do to reinvest more, harvest some of it drop to the bottom line. I think we're still competitive in all our major product lines with the expense ratios that we have today, maybe with the exception of personal lines, we're not at scale there. So that might be a combination of harvesting expense gains while we grow.

Great. And if we could zoom in on artificial intelligence specifically, what is Hartford doing in that realm? And how do you see that impacting the business in near term and long term?

Well, I think we've been pretty consistent the last 2, 3 quarters of talking about our agenda in the AI area is primarily focused on where we have the most people, claims, underwriting and operations. All the corporate functions have their experiments and activities that they're using. I would say the way we've approached it is sort of rethinking our processes from an end-to-end basis with having an AI-first mentality and we're executing to sort of our 3-year road map, and we'll see what we could do. I think the other important aspect of AI, and I wouldn't underestimate it just personally, is the personal productivity tools that are out there that allow people to be more efficient, summarizing mass quantities of data using LLM models and Google Notebook or all the ChatGPT's capabilities are real from a personal productivity time. So we're both investing in people to improve their productivity, and we're investing in workflows with an AI mindset first. So to me, this is a once-in-a-generation type of activity, and we want to capture as many benefits as possible. But I think the real benefit and mentality we have is we want to augment our human talent. We don't necessarily want to remove human talent from the loop. We still think it's a business where people want to interact with people or at least given the choice. So that philosophy is front and center on how we will invest in our workforce for the future to make them very productive. And I think our views right now are -- who knows what's going to happen to headcount because headcounts are going to be driven by how quickly you could really scale all these technologies. But over the long term, I think we just will create an operating model that has more leverage into it. So if we're going to grow $1 of premium, we will need less people most likely going forward.

A lot to think about there. How about capital deployment? At those ROE levels that we talked about, the company is generating a good amount of excess capital, and it sounds like maybe organic growth opportunities are decelerating a little bit. Should we think about something stronger than the repurchase rate that you guys have been at for a little bit? And can you walk us through the preferences on capital deployment?

Yes. I think if Beth were here, we would say -- she would say that we're going to be consistent. We've had a pretty consistent capital management philosophy where we want to fund growth and fund technology as a form of capital. M&A continues to be a low priority for us, a robust dividend that one that grows with earnings, and you've seen the 15% dividend increase that we did this year. We're buying back our stock. We have our authorization. We'd like to be steady and consistent in the marketplace in purchasing our shares. So there's really nothing that's changing materially. I was really, really pleased to get Moody's and S&P upgrade to AA, AA- on our financial strength ratings of our OpCos. We always thought for the last 5 years, we were operating at the AA level, but it was nice to get the recognition. So yes, I think we have everything in balance. Our leverage is good. So there really isn't anything new of how we're going to approach things going forward.

Good. Stable. Awesome. Well, I think we're out of time. So Chris, thanks so much for being here with us and sharing your perspectives. Always really appreciate it. And hope to talk again soon.

All right. Thank you, Rob.

Awesome.