Hartford Insurance Group, Inc. Q1 FY2024 Earnings Call

Good morning. My name is Audra, and I will be your conference operator today. I would like to welcome everyone to The Hartford Financial First Quarter 2024 Results Webcast. Today's conference is being recorded. I would now like to turn the conference over to Susan Spivak, Senior Vice President, Investor Relations. Please go ahead.

Good morning, and thank you for joining us today for our call and webcast on first quarter 2024 earnings. Yesterday, we reported results and posted all 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 with us to assist with your questions are several members of our management team. 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 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. The Hartford had a strong start to the year, sustaining outstanding financial results through the first quarter. Our strategy and ongoing investments, combined with disciplined underwriting and pricing execution, exceptional talent, and innovative customer-centric technology, continue to drive outperformance. Let me call your attention to some highlights we achieved in the quarter. Top line growth in Commercial Lines of 8% with an underlying combined ratio of 88.4%, strong renewal written pricing increases in Commercial and Personal Lines, Group Benefits core earnings margin of 6.1% and solid performance in our investment portfolio, all these contributed to an outstanding and industry-leading trailing 12-month core earnings ROE of 16.6% reflecting consistency of our margins and a continued growth generated by our businesses. Now let me share a few details from the quarter. Commercial Lines performance reflects strong top line growth at highly profitable margins. In the marketplace, we are prudently taking advantage of elevated submission flow, in part driven by the investments we have made to expand our product capabilities and the efficiency of the broker and agent experience. From that flow, we are using our data science advancements, pricing expertise, and industry-leading underwriting tools to drive profitable double-digit new business growth in each of our three businesses. In addition, retention is steady and exposure growth remains solid although moderating from the elevated levels seen in the past couple of years. In Small Commercial, we are shattering previous quarterly written premium records while sustaining underlying margins. New business growth was 11% in the quarter, driven by strong submission flow and growth in E&S binding. We are particularly pleased with E&S binding, a key area of focus, which is on track to grow annual written premiums by approximately 50% in 2024 to nearly $300 million. I remain incredibly pleased with the overall performance in Small Commercial and bullish on its outlook. We expect to sustain outstanding financial results by reliably serving agents and customers with industry-leading products and unmatched ease of conducting business and unrivaled pricing accuracy. Moving to Middle & Large Commercial. The financial performance continues to be exceptional. Written premium growth reflects strong renewal rate execution and new business growth of 18% with an especially good quarter in guaranteed cost construction and general industries. We are building a track record of delivering meaningful growth while consistently maintaining underlying margins. The stellar performance in this business is a direct result of our underwriting discipline, enabled by the investments we have made to enhance our capabilities. Combining these advantages with our best-in-class talent and the strength of our distribution relationships, we remain well positioned to profitably grow this business. In Global Specialty, results were excellent with underlying margins consistent with last year and solid top line growth reflecting our competitive position, breadth of products, and strong renewal written pricing. Written premium growth was propelled by a 20% increase in our wholesale business with significant contributions from primary and excess casualty lines. We are particularly pleased with wholesale construction activity found in the quarter as well as overall increased submission flow, both meaningful drivers of new business growth. We remain excited about the Global Specialty business, including our position in wholesale and reinsurance market and from a broadened product portfolio. Looking across Commercial Lines, we continue to grow our property book, another key area of focus. We are capitalizing on favorable market conditions with a disciplined approach, including no change in our catastrophe risk appetite. Property written premium for the quarter was approximately 17% higher than in 2023. Turning to pricing. Excluding workers' compensation, Commercial Lines renewal written pricing rose 0.7% from the fourth quarter to 9% with strong low double-digit pricing in property and auto and high single digit in general liability. Public D&O pricing is still pressured, though relatively stable with the fourth quarter. All in, ex comp renewal written pricing in Commercial Lines remained comfortably above loss cost trends. In workers' compensation, renewal written pricing remained slightly positive in the quarter. In summary, Commercial Lines delivered outstanding first quarter results with ongoing momentum in the market. Moving to Personal Lines. Our first quarter financial performance demonstrates the progress towards restoring targeted profitability in auto, as we continue to address current loss trends. Auto renewal written price increases of nearly 26% have likely peaked given our view of moderating loss trends for the remainder of the year. In addition, we have achieved new business rate adequacy in the vast majority of states and as a result have resumed national advertising this month. In homeowners, renewal written pricing of 15% during the quarter comprised of net rate and insured value increases outpaced underlying loss cost trends. This year, we are celebrating our 40th anniversary with AARP. In 1984, we embarked on this journey with a shared vision and commitment to serve mature market customers. Our focus on this preferred segment, coupled with our modern innovative and digitally enhanced product and platform, Prevail, is a competitive advantage. Our updated offering is currently available in 42 states and represents approximately 60% of our new business premium this quarter. With pricing gains, enhanced risk segmentation, and moderating loss trends, I expect Personal Lines to meaningfully contribute to core earnings as it returns to profitability in 2024 and reaches target margins in 2025. Turning to Group Benefits. Our core earnings margin of 6.1% for the quarter included improved mortality trends from the prior year and continued strong long-term disability claim recoveries. Fully insured ongoing premium growth of 2% reflects strong but slightly lower persistency and a 6% decline in sales primarily driven by group life, where we are being disciplined with pricing and underwriting in this competitive marketplace. We continue to strengthen our capabilities for customer service, with an extensive suite of tools for HR platform integration, member enrollment, process simplification, and analytics. As part of our strategy to grow among small and midsized businesses, we are investing in our platform. This includes strengthening distribution relationships and actively seeking out new partnerships. Employers are more focused than ever on the needs of their employees and our products and services are a key part of that value proposition. 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, and Beth will provide more details. In summary, The Hartford delivered another strong quarter with sustained momentum heading into the remainder of the year. Let me reiterate why I am so bullish about the future. First, our financial results continue to prove the effectiveness of our strategy and the impact of ongoing investments in our business. Second, Personal Lines results are showing improvement. We are achieving necessary rate increases, and expect 2024 margins to progress towards targeted profitability. Third, with our disciplined underwriting and pricing execution, exceptional talent, and innovative customer-centric technology, we will continue to sustain superior results. Fourth, investment income remained solid, supported by elevated yields and a diversified and durable portfolio of assets. And finally, we remain dedicated to enhancing shareholder value through supporting organic growth, continued investment in our business, and proactively managing 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 $709 million or $2.34 per diluted share with a trailing 12-month core earnings ROE of 16.6%. Commercial Lines had an outstanding quarter with core earnings of $546 million and an underlying combined ratio of 88.4%, in line with our expectations and slightly better than the prior year first quarter. Small Commercial continued to deliver excellent results with written premium growth of 8%, and an underlying combined ratio of 89.6, further building on its impressive track record of delivering an underlying combined ratio below 90. Middle & Large Commercial also delivered outstanding results with 9% growth over the prior year and this marks the fourth consecutive quarter of written premium exceeding $1 billion. The underlying combined ratio was excellent at 89.2, a 0.7 point improvement over first quarter 2023, primarily due to a lower expense ratio driven by the impact of strong earned premium growth. Global Specialty's underlying combined ratio was an exceptional 85.3, relatively flat to the prior year. Written premium growth of 8% was driven by accelerating renewal written price increases and new business growth of 17%, excluding Global Re. In Personal Lines, core earnings for the quarter were $33 million with an underlying combined ratio of 96.1, including a strong homeowners underlying combined ratio of 77. The auto underlying combined ratio of 104.4 was in line with our expectations and is a year-over-year improvement of 3.7 points. Once the reported ratio for the first quarter of 2023 is increased for the 3 points of development that occurred in the second quarter of 2023. This result is consistent with achieving the 5- to 6-point full year improvement we previously discussed. Written premium in Personal Lines increased 13% over the prior year, driven by steady and successful rate actions. In auto, we achieved written pricing increases of 25.7% and earned pricing increases of 19.1%. In homeowners, written pricing increases were 15.2% for the quarter and 14.4% on an earned basis. The total Personal Lines expense ratio improved by 1.2 points, primarily driven by the impact of higher earned premium, partially offset by higher direct marketing costs as we increase our marketing spend to drive new business growth in those states where rates are adequate. With respect to catastrophes, P&C current accident year cats were $161 million before tax or 4.2 combined ratio points which compares to $185 million in 2023 or 5.3 points on the combined ratio. Total net favorable prior accident year development within core earnings was $32 million, primarily due to reserve reductions in workers' compensation, which were partially offset by reserve increases in general liability, assumed reinsurance, and ocean marine. In addition, we had $7 million of favorable development in personal auto physical damage. We also recorded $24 million before tax in deferred gain amortization related to the Navigators ADC. This positively impacted net income with no impact on core earnings. Based on our estimate of payment patterns, we expect total amortization of the deferred gain in 2024 will be approximately $125 million before tax with the remaining balance amortized in 2025. We have provided additional information in the appendix of our earnings slide deck on both this ADC and the A&E ADC for your reference. Turning to Group Benefits. Core earnings in the first quarter of $107 million and a 6.1% core earnings margin reflect improved life results, continued strong disability performance, and fully insured premium growth. As a reminder, from a seasonality perspective, we tend to experience higher underlying loss costs in the first quarter. The group disability loss ratio of 70.1 improved 0.3 points from 2023, driven by continued strong claim recoveries, partially offset by higher incidents in paid family leave and short-term disability products. The group life loss ratio of 82.6 improved 4.1 points versus prior year, reflecting improved mortality. Fully insured ongoing premium growth of 2% was driven by exposure growth, which remained positive, albeit at a lower rate than in the prior year. Book persistency in the first quarter of 2024 was strong at over 90%, but approximately 1.5 points below record high levels in 2023. Turning to investments. Our diversified investment portfolio continues to produce solid results. For the quarter, net investment income was $593 million. The total annualized portfolio yield, excluding limited partnerships, was 4.3% before tax, consistent with the fourth quarter of 2023. Our annualized LP returns were 1.3% and included positive returns from our private equity portfolio. Our real estate equity portfolio returns were impacted by lower valuations and the absence of real estate JV equity sales. Given the current macroeconomic backdrop, limited partnership returns in the second quarter are likely to be similar to first quarter results, with private equity returns being offset by declines in real estate valuations and property depreciation with no sales activity. We continue to believe our real estate holdings are durable, and we will be patient as it relates to any sales in order to maximize value. Although we anticipate LP returns for the full year could be below 2023 results, we continue to believe that over the long term, results will continue to add value and be consistent with historical returns. The overall credit quality of the portfolio remains high with an average credit rating of A+. Net credit losses remain insignificant. Turning to capital. During the quarter, we repurchased 3.8 million shares under our share repurchase program for $350 million, and we expect to remain at that level of repurchases in the second quarter. At the end of the quarter, we had approximately $1 billion remaining on our share repurchase authorization through December 31, 2024. To wrap up, our first quarter results reflect another quarter of delivering on our targeted returns to enhance value for all of our stakeholders.

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

We will now take our first question from Andrew Kligerman at TD Securities.

Chris, I noticed in your opening remarks you mentioned some pressure on group life sales. Do you anticipate this continuing in the future? Overall sales showed a revenue increase of about 2% in the quarter. Can you elaborate on whether this segment might face ongoing pressure and what's happening in the group life area?

Happy to, Andrew. Welcome. Yes, we did notice a slight decrease in sales volume during the quarter. Jonathan Bennett can provide further details. You might remember that we've been quite disciplined in our assessment of mortality trends, especially as we emerge from the pandemic. The trends have been decreasing, but we believe we are still in an endemic state of mortality, which suggests it will remain above normal levels for at least the next couple of years. We have been pricing our products with this perspective, which can affect sales if market participants do not share the same outlook. Overall, I think it's a healthy approach. The key message is that while we are being disciplined, it may result in slightly lower group life sales than what we've seen in the past. Jonathan, do you have anything to add?

Yes, I agree with everything you've said. I think it's crucial for us to establish our perspective and execute it in the marketplace. Considering where we are in the group lifecycle, we are looking forward and seeing improvements. When reviewing your trends, especially regarding your pricing philosophy, much of that data includes excess mortality and COVID losses. The first step is to determine what to extract and how to normalize that data. While it might seem straightforward to remove all COVID claims, that's not always how it's reported, leading to significant variation in judgment during the process. Looking ahead, you need to predict where you think mortality will be over the next 3 to 5 years. If you were to check some CDC data today, you'd likely find that reported deaths are still a bit higher than before the pandemic. With all of this in mind, we are confident in our outlook. However, the pricing range in the marketplace is currently wider than it has ever been due to these uncertainties, which contributes to some market volatility. Nevertheless, we maintain a strong viewpoint on our position, feel confident about it, and will continue to compete. Our capabilities in the marketplace are stronger than ever, and we are optimistic about our standing.

That's very helpful. And then my follow-up is, there's been a ton of talk now about long-tail reserving. I mean, for a while, it's been 16 to 19 underwriting years. Now people are talking about 20 to 22 or 23. And when we looked at your reserves this quarter, I mean, it looked pretty modest in general liability and assumed re, and marine, and those were 16 to 19 years per your releases. Any concerns? I mean, you looked great, but some of your competitors didn't. And so anything to read into going forward? Any concerns on your part?

Yes, Andrew, I'll start and I'll let Mo and Beth add their commentary. But yes, I'm not going to speak to competitors because everyone is just slightly different, but the confidence that we have particularly in our current loss picks are very, very high. And I think the context that I think Mo and Beth will explain to you is that we've been hard at work in sort of improving our underwriting our book, reunderwriting it, looking at different classes of business, changing terms and conditions, and Mo will give you more color. Beth can talk about the actuarial analysis that we do on a quarterly basis, which is very robust and gives us a high degree of confidence in our picks, particularly for the most recent years. But we're also humble enough to admit we didn't get everything right over the last 5 years. And when we feel that adjustments are made, we're pretty clear and transparent about why we're making those adjustments, and that will continue going forward. But Andrew, as we sit here today, I think you got it right, we feel good, we're not immune, but on a relative basis, I think we'll be better than most. But Mo, Beth, what would you add?

So I'll start, and then I'll let Mo provide some color and just add on to what Chris indicated. But as you noted, Andrew, in the general liability reserves, the prior year development that we recorded this quarter was related to the 2016 to 2019 years since some large loss activity. And as Chris said, we do evaluate these reserves quarter-to-quarter and when we see activity, we do react to it. As it relates to the more current years, those tend to trend very well. As you know, these are long-tail liabilities. So even if in the short term, they're looking strong. We don't react to that because, as I said, these are long-tailed in nature. But overall, we've not seen things in the more recent years that would cause us to change our picks at this point. And when I look at a variety of measures, and I know you do as well, IBNR levels, paid activity, I think our more recent accident years stand out as being strong. But it's also really important to understand, as Chris was indicating, actions that we've taken over this period to improve the overall book, which even adds to how we feel about our overall reserves in the more current years. But maybe, Mo, I'll turn it to you to talk about some of the things that you and your team have been doing over the last several years in this area.

Yes, Andrew, to expand on Beth's comments regarding the actions we've taken during this time, there are three key themes. First, we've implemented significant rate increases each year since 2019 across all three segments, surpassing healthy trends. The second theme is to consider the nature of our SME-focused book; we have lower auto exposure, for instance, with 79% of our middle-market umbrella clients having fewer than 10 vehicles. This illustrates the small size of our fleets, which is where much of the pressure is originating, particularly in auto. We do not have a substantial transportation book and have not issued limits exceeding $25 million gross, alongside important reinsurance support. Thirdly, significant underwriting actions have been taken since 2019, related to industry conditions and litigation hotspots. For example, we exited all primary general liability high-hazard business in 2017 because we did not believe we could turn a profit, and we haven't re-entered that market as we still don’t see the potential. I hope this gives you a clearer view of our portfolio, as we continue to invest in tools that help our underwriters make informed decisions based on litigation risks, industry conditions, and auto exposure. We've put considerable effort into this, which I believe accounts for some of the stability you’re observing.

We'll move to our next question from Elyse Greenspan at Wells Fargo.

My first question was on the Personal Lines side. Just kind of following up, I think, Chris, you said that you guys are kind of turning on new business growth or did turn on this quarter that you're at rate adequacy in the vast majority of states. Can you just give us a sense, I guess, what are you seeing from a frequency and severity perspective right now? And what do you expect, I guess, looking out over the next 12 months, you said when you put the expectation out that you expect to get to profitability this year and then reach the target in 2025?

Elyse, thank you for your question and for being with us. We're quite pleased with the overall progress in Personal Lines. You may have noticed the metrics we've shared, including a 25.7% rate increase for auto and about 15% for home. The team is performing very well. Looking ahead to 2024, we anticipate auto rates to increase by around 20 points. This reinforces our belief in achieving targeted profitability by 2025. We're starting to see some moderation in our auto loss cost trends, although I won't provide exact numbers due to variability from quarter to quarter. Generally, for 2023, we're in the mid-double digits, which we expect to decrease into the low double-digit range in 2024. There might be potential for further improvement, but this is our current estimate. Additionally, Beth reiterated our expectation of a 5 to 6 point improvement in the underlying auto loss ratio for 2024, which aligns with our goal of achieving profitability by 2025. We are adequately priced in 80% of our states, though a few will take longer to catch up. We're confident in our auto strategy, and for home, we've seen improvements in the underlying combined ratios over the years. While our catastrophe performance for the quarter was slightly above expectations, it remains within the range of long-term trends. Overall, I'm pleased with the team's efforts in both auto and home within Personal Lines.

Yes. Just a couple of things. Also, I'd point out that we did see some favorable development on the '23 accident year primarily coming out of the fourth quarter for auto physical damage. So we see that as an important proof point, too. I just want to clarify on Chris' comment on the book loss trend, mid-teens. So that is mid double-digit, but just to be clear, mid-teens, and we do expect that to decline over the period. But as Chris said, we're being cautious and looking at it very carefully and feel very good to be on track to get to the improvement that we laid out at the beginning of the year.

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

Yes. I'll add my color, and then Mo will add his. But I hope you felt it in our tone, Elyse, we're really pleased. The team is working hard from an execution side, to have ex-comp. Our written renewal rate increased to 70 basis points, I thought it was healthy. That does include an element of exposure to that excess rate, which we call out in the general 2.3 points range or 25% exposure, 75% rate-based. So I think we see a lot of stability in the marketplace and still optimistic as we play out 2024 here. So I think that, again, why we talked about early on of the year of the stability of our margins and generally having a consistent outcome compared to 2023, I think it's still alive and well in our thesis as we execute here through midyear.

Yes, Elyse, I would say it's competitive but generally supportive. We mentioned that properties are moderating a bit outside of our BOP, but the BOP is still accelerating in terms of rates. The excess in umbrella coverage is also picking up again, as is auto. Overall, we feel that the market is being fairly disciplined and supportive of our goals for the year.

We'll take our next question from Gregory Peters at Raymond James.

Great. So Chris, in your prepared comments, you mentioned that there has been no change in the catastrophe profile of your property business. However, you also stated that your property business is growing, specifically noting a 17% increase in the quarter. Can you help clarify how you are able to grow your property business while maintaining the same catastrophe profile?

There’s a slight difference between our cat profile and risk appetite. We're not increasing our appetite for property cat specifically. We've consistently mentioned that we're open to writing property as long as it includes some minor elements of cat, which we have been managing effectively. I can share some statistics: pricing in our property book, excluding our Global Re business, is up about 14%, compared to 14.4% in the fourth quarter. We're experiencing a growth rate of 17% in significant areas such as spectrum, E&S binding, and general industries properties. Our large property capabilities have increased by almost 35%. The pricing remains firm and is holding up quite well.

Yes, Greg, I would just say that there are a couple of cat metrics that the team is really focused on. And for example, also annual aggregate loss to premium ratios trying to keep those flat. So as premium goes up, obviously, we would like the AAL to stay relatively flat. And the same thing as we think about tail, we don't want to put on the risk without thinking about the tail risk. So we are closely looking at tail multiples like, for example, 100-year PMLs over premium. So those are the types of ratios that we're watching. So yes, the exposure itself is growing certainly from a cat perspective, but we're trying to keep it in balance as to the same rate as premium growth.

Okay. That makes sense. So then building on some of your previous answers, I'm looking at the stats on new business production policy counts inside your commercial business and things look like they're going really well. I do remember a couple of quarters ago, you calling out some price competition in the middle market area. Just trying to get an update on, it seems pretty stable and the outlook seems pretty bullish. But when you look forward, what are the areas that you're concerned about for potential competitive challenges?

Yes. It's a competitive market. And I would say, especially in the larger end of each of our segments, so the larger end of small, we are finding more competitive, the larger end of middle is more competitive, and the larger end of the specialty business. So anything with a lot of premium on the slip typically has a little more competition to it. But the only area that we're dramatically pulling back on is, as we've talked about many times, is public D&O. We just haven't seen that market stabilize the way we would like to. So you will see that book continue to shrink. Outside of that, Greg, I think we feel pretty good about the rest of the portfolio.

We'll go next to Josh Shanker at Bank of America.

Looking at the rate you’re implementing for auto, it’s quite significant. Year-over-year, the policy count is down by about 5%, which might actually be a favorable outcome considering the rate increase. One of your main direct competitors in the market has raised prices, but not as much as you, and they have lost 20% of their business over the last couple of years. What has been your experience in retaining clients, given that you are a direct carrier and can only offer Hartford products? Are clients looking to switch, and are you encouraging them to stay? Are there instances of buy-downs? How is the retention experience going?

Thank you for joining us, Josh. Right now, we are accepting lower retention in exchange for a more profitable customer group to achieve our targeted profitability. This trade-off aligns with our expectations. We've previously discussed the decline in the PIF count compared to 2023, which still remains around 4%. This reflects our commitment to obtaining the necessary rates in our book. You're correct that it's a direct response business, primarily serving Middle America. There isn’t much financial engineering involved with rate buydowns on auto or home, deductibles, and similar factors—it's quite straightforward, as we focus exclusively on the admitted business. Generally, people recognize the importance of keeping pace with trends, as inflationary pressures, changing weather patterns, and various social litigations continue to exert pressure on our loss costs. Additionally, we've collaborated with our regulators to secure rate approvals, either through pre-approval or filing and usage methods. I believe we are executing effectively, despite operating in a very dynamic and challenging environment.

I don't mean to belabor the point, but I'm just curious if the customers are giving you a chance to retain them, are they calling up and asking what can we do to help me? Or are you just getting a notification that they've left to a competitor?

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

We'll take our next question from Mike Ward at Citi.

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

Mike, when you say puts and takes, compared to prior year, what do you have in mind? What are you trying to get at?

Yes. Last year, you mentioned that the Small Commercial segment was performing well. I'm trying to understand how it compares year-over-year.

Yes, I would just like to share that from an expectation standpoint, everything is pretty much on track. We have seen a slight improvement in our loss ratio compared to last year. Our non-catastrophic property performance is consistent with the previous year and may even be slightly exceeding our expectations. I want to assure you that we are not avoiding your question, but there isn't anything specific to highlight.

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

Yes, I would say generally, our views on loss trends from '23 have increased modestly and that's obviously reflected in what we're trying to execute from a written rate side and the discipline we have there. And again, the guidance that we try to give our underwriters with appropriate discretion, but yes, I would say loss trend is up modestly in '24 compared to '23.

We'll move next to Brian Meredith at UBS.

Yes. I was hoping, could you give us what your kind of E&S growth was in the quarter in your Commercial Lines space? And just maybe your thoughts, is that a market that you continue to expect to grow at a pretty healthy rate here going forward?

Yes, Brian, I'll turn to Mo for additional insights. There are two components of Excess and Surplus that I want you to consider. One is in our Small segment, specifically our E&S binding business, which we aim to grow to the $300 million level. Additionally, our E&S capabilities within Global Specialty, including both property and casualty, are crucial to our strategy in the marketplace. Mo, could you share your thoughts on overall growth rates?

Brian, we are enthusiastic about the growth in both channels mentioned by Chris, particularly in Small Commercial binding and the expanding brokerage. We are seeing consistent growth in binding, as highlighted by Chris, and significant progress in brokerage, especially within our Global Specialty business in primary and excess casualty. The rate environment continues to improve, as I mentioned earlier. We recognize that we are currently underrepresented in property brokerage, inland marine, and auto within Global Specialty. Therefore, we believe there are ample opportunities on the global specialty side, and the flow is strong enough to support that growth.

That's helpful. My second question is for Chris and it concerns the bigger picture. When we look at your Personal Lines business, it's been tough over the last couple of years due to inflation. However, I’ve noticed that in your homeowners segment, you haven't experienced any growth in unit volume for nearly a decade. Similarly, in auto, it seems like it's been around 6 to 7 years with only minor fluctuations. I'm interested in understanding what was happening during that time. Is the Prevail product the solution that will eventually enable growth in unit volume within the Personal Lines sector?

Brian, thank you for your question. I won't dwell on the past 7 or 8 years and what went wrong. More importantly, we've discussed how the Prevail product and platform provide us a significant advantage in our ability to compete in a mature market segment, especially with the AARP endorsement, which enhances our competitiveness in auto and home. While we anticipate a 4% decline in our PIF count, particularly in auto, we believe we can begin to see modest growth in PIF count in 2025, with potentially more substantial growth in 2026. We're currently operating in 42 states, with plans to expand to 46 by the year’s end, though a few states will take longer to come online. This positions us well for future growth. Currently, the Prevail platform is primarily focused on direct response, but we may explore other channels in the future. Once we fully implement Prevail in all feasible states, we’ll shift our focus to the future. For now, our priority is to restore profitability, especially in the auto sector, and then we can build on that foundation.

Got you. And on the homeowners, the geographic constraints, just given where a lot of your customers may be as far as growth?

No, we are currently operational in all 50 states on a daily basis. However, we have put a hold on writing new homeowners policies in California until regulatory reforms are implemented that will allow us to align price and risk properly. This is our sole self-imposed limitation. Additionally, we have not taken on any new homeowners business in Florida for nearly 20 years.

We'll go next to Mike Zaremski at BMO.

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

Ask the question again, Michael, I don't think I understood you.

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

Yes, I would say that the components that are driving that is primarily global. Global had a good quarter. I'm looking at through my sheets and all the casualty lines, property lines, international rebounded in a good way. So that's what I would call out. But Mo, what would you add?

No. I think we are continuing to see moderation in the negative rates on public D&O. We're certainly seeing a shift in our portfolio towards more of the management and professional liability. So there's a mix coming through there, that's a part of it. I don't want to get too nuanced on you, but just that's the only additional detail I would give to Chris' comments.

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

That's helpful information. I would like to ask about the dynamics you mentioned regarding the larger end of the Small Commercial segment. You noted that it is more competitive, yet you are successfully accelerating growth in this area. Could you provide any additional insights on that?

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

Hard to build on that, but I will try. I think the nuance we're trying to strike for you is that there are competitive spots in the marketplace, and we're just really proud of how well our underwriters are navigating what is increased flow, and that increased flow doesn't come as all business that we want to write, and that's the same in Small, Middle, and Global. The flow is up significantly in all three businesses, and we're just trying to get underwriters to really pick our spots, and that's what we're trying to call out, Mike. Thanks.

You have mentioned E&S multiple times, and it has been included in your prepared remarks for several quarters. Is part of the growth in E&S coming from your Small Commercial segment, which is considered a top-tier product, or is it a completely separate underwriting platform?

No, that's the beauty of the model, Mike. We're taking all of the strengths that we've had in the retail channel and applying the same business model to the wholesale channel, and that's why we're so excited.

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

I think in your prepared comments and also in response to an earlier question, you talked about some of the pressure that you're seeing in the group life sales, just given your mortality expectations. That said, I think we're also seeing some slowdown in disability and voluntary. Can you maybe talk about the drivers for that slowdown?

Yes. I’ll share my perspective and then ask Jonathan to elaborate. I believe disability is performing exceptionally well, particularly in terms of claim recoveries, terminations, and getting people back to work. The growth has been solid, and I'm just curious about how the levels are trending.

I was specifically referring to the top line.

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

So Yaron, just a couple of things on there. In terms of the top line, '23, of course, was pretty exceptional on all the key metrics, the drive result. But I think we are seeing really strong results here even in the first quarter of 2024 comparatively speaking. But from a persistency standpoint, we still have book persistency in the low 90s, which is historically quite good. We're very excited about that. It was even higher a year ago. And I think that does reflect a little bit the competitive nature of the market and the more likelihood that a customer may, in fact, take a case or take their business out to market. So we're addressing all of that. I think we're working through those renewal challenges and being quite successful with it while picking our spots.

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

I was trying to do, compared to '23 to '24. Mid-teens in '23, low double digits in '24, or for the full year whatever I was just trying to say is that it bounces around from quarter-to-quarter. So I'd rather have you see the bigger picture trend that going from mid-teens down to even high double-digits is a pretty meaningful move.

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

I just had one question. I was hoping you could give us some guidance on how to think about how much lower the current Personal Lines expense ratio is compared to when you're in normal growth mode?

So I would say on the expense ratio, I would have you think of the full year '23 compared to the full year '24 about being the same. Beth, I don't know if you would add any?

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

Okay. Is it fair to think of it as being a little bit depressed just because of, I guess, the states where growth is, it doesn't make sense at?

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

I'm sorry. No, I was trying to get a sense as to whether we should expect, we look out to whenever personal auto is normalized, that the expense ratio should be a little bit higher than where it's been running for the past couple of years.

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

And we'll move next to David Motemaden at Evercore ISI.

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

So if you're looking at just quarter 1 to where we ended last year, I'll just remind you that in first quarter, we tend to see a higher expense ratio just because of some expense items that hit more heavily in Q1. When I think about Commercial Lines sort of full year this year for '24 compared to '23 expecting it to be relatively flat as we go through the year. Again, any 1 quarter, you can have some movements relative to bad debt reserve adjustments and things like that. But overall, we see it relatively consistent.

And we'll go next to Bob Huang at Morgan Stanley.

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

Sure. I'll take that. We actually have very detailed disclosures in our 10-Q and our IFS on that. So for workers' compensation, releases were about $67 million, and then we always have the workers discount accretion that comes in for 12 that goes offset against that. And then general liability was 17, and marine was 7, and assumed reinsurance was 9. But you could go to Page 38 in our 10-Q, and it lays it all out for you.

I apologize for that. To follow up, could you discuss the current reserving environment for workers' compensation? Now that we are three years past COVID, do you see a significant favorable uplift still, or is the workers' compensation book likely to return to a more normalized state similar to pre-2019 levels?

Yes. It's a complicated question, but I would say I think it's normalized. Obviously, during COVID, there were a lot of assumptions made as far as where trends were that obviously turned out to be prudent, but sort of 2 years out from sort of the official end of workers' comp, I think trends are behaving as we would expect. Frequency continues to be positive. Severity is still within our expectations, which we always talked about, Bob, being a 5% trend, which again, severity is behaving within that expectation. So yes, as I think about '23 and '24, with a lot of continuity and consistency in workers' comp trends.

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

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

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