Hartford Insurance Group, Inc. Q3 FY2025 Earnings Call

Good morning, and welcome to The Hartford Insurance Group's Third Quarter 2025 Earnings Call and Webcast. As a reminder, this conference call is being recorded. I would now like to turn the call over to Kate Jorens, Senior Vice President, Treasurer and Head of Investor Relations. Thank you. Please go ahead.

Good morning and thank you for joining us today for our third quarter 2025 earnings call and webcast. Yesterday, we reported results and posted all earnings-related materials on our website. Before we begin, please note that our presentation includes forward-looking statements, which are not guarantees of future performance and may differ materially from actual results. We do not assume any obligation to update these statements. Investors should consider the risks and uncertainties detailed in our recent SEC filings, news release, and financial supplement, which are available on the Investor Relations section of thehartford.com. Our commentary includes non-GAAP financial measures with explanations, GAAP reconciliations available in our recent SEC filings, news release, and financial supplement. Now I'd like to introduce our speakers, Chris Swift, Chairman and Chief Executive Officer; and Beth Costello, Chief Financial Officer. After their remarks, we will take your questions assisted by several members of our management team. And now I'll turn the call over to Chris.

Good morning, and thank you for joining us today. The Hartford delivered outstanding third quarter results with core earnings of $1.1 billion or $3.78 per diluted share, both records for the company. These results reflect the strength of our franchise and disciplined execution of our strategy. We continue to grow top line while maintaining strong margins in a dynamic environment, supported by investments that advance our underwriting discipline while deepening relationships with customers and distribution partners. Highlights in the quarter include written premium growth in Business Insurance of 9% with an underlying combined ratio of 89.4%. In Personal Insurance, an underlying combined ratio of 90%, a 3.7-point improvement over prior year. In Employee Benefits, an outstanding core earnings margin of 8.3% and continued solid performance in the investment portfolio. All these items contributed to an outstanding trailing 12-month core earnings ROE of 18.4%. Let's take a closer look at third quarter performance. In Business Insurance, third quarter results reflect excellent growth with strong underlying margins, sustaining momentum from the first half of the year. Our small business franchise continues to set the standard for growth and profitability in the industry, delivering record-breaking new business premium with strong underlying combined ratios. Written premium growth of 11% was fueled by double-digit increases in our industry-leading package product and auto. E&S binding also delivered exceptional results with written premium up 47%, reaching over $100 million in the quarter. These results reflect the power of our underwriting expertise, AI-driven capabilities and strong digital platforms built on years of strategic investments. Written premium is expected to exceed $6 billion in 2025, representing 10% growth over prior year. Turning to Middle & Large business. Growth was outstanding with solid underlying margins. Written premium increased 10%, underscoring the strength of our diversified portfolio. This performance was fueled by robust new business generation, strong retention levels and solid pricing execution across the lines. Our underwriting approach continues to guide us towards opportunities that deliver attractive risk-adjusted returns while ensuring we remain selective and disciplined. Shifting to Global Specialty. Results were excellent with another quarter of underlying margins in the mid-80s. This performance reflects targeted growth strategies alongside strong risk and pricing fundamentals. Net written premium grew by 5% driven by U.S. financial lines, bond and across international, partially offset by a 3% dip in wholesale, primarily due to a decline in new construction projects. Within Global Specialty, we are taking advantage of innovative solutions that combine our specialized underwriting expertise with advanced technology and broad distribution of our small business franchise. Through our One Hartford approach, agents and customers can seamlessly quote and bind comprehensive coverages in a single unified experience. For example, this approach is resonating with small and midsized business customers who require professional and management liability coverage, not addressed by the standard package product. We remain focused on helping all business customers succeed by using digital capabilities, leveraging our broad distribution network and offering a comprehensive product suite that meets more of their needs. Moving to pricing. Business Insurance renewal written pricing, excluding workers' compensation, was 7.3%, above overall loss trend. Pricing execution remains highly disciplined. General liability remained firm and above loss trend, supported by rate increases and proactive underwriting actions focused on segmentation, limits management and geographic optimization. Excess and umbrella lines delivered double-digit pricing increases and primary lines moderated slightly while still in the high single digits. Despite modest easing this quarter, auto pricing remained near 11%, while workers' compensation pricing was slightly up from the second quarter. Across business insurance, property written premium grew 11% to $800 million with expectations for full year premium to reach $3.3 billion. Over the past 3 years through the team's thoughtful and disciplined strategy, including CAT management, the Business Insurance property book grew 50%. In Small business, property pricing within the package product remained strong, achieving 12% renewal written price increases. In general industries, property pricing was relatively consistent with the second quarter and above loss trend. Other property lines, primarily E&S and Large representing approximately 20% of the property book, achieved renewal pricing increases of 1.2%, up nearly 2 points from the second quarter. Turning to Personal Insurance. Results continued to improve over prior year. Homeowners had a strong quarter, highlighted by 10% written premium growth in mid-70s underlying combined ratio. Renewal written pricing remained flat to the second quarter at 12.6% driven by net rate and insured value increases. Auto underlying results improved by 3.6 points in the quarter with a year-to-date underlying combined ratio in the mid-90s. While Personal Insurance underlying margins are at targeted levels, total PIF growth continues to be impacted by a highly competitive market. We are pleased with growth in agency, where policies in force grew 17% over prior year, including 4% in auto. In the third quarter, we introduced Prevail to retail distribution, bringing new product, technology and experiences to our agency partners. We are now live in 6 states, and we'll continue to roll out Prevail Agency over time with 30 state launches planned by early 2027. Initial results are positive, with agents excited about our improved performance in competitive positioning with preferred market customers. Prevail represents a meaningful investment in our businesses, now benefiting both direct and retail channels. Earlier this month, the Hartford senior leadership team attended the CIAB Insurance Leadership Forum, a premier property and casualty industry event. We met with more than 50 key distributors and reinforced our commitment to consistent execution and strategic alignment. Brokers and agents recognize our industry-leading digital capabilities as clear differentiators. We left the forum with increased confidence in the strength of our independent distribution relationships, positioning us to capture additional market share over time. Moving on to Employee Benefits. The core earnings margin of 8.3% was driven by excellent life and strong disability results. Persistency remained strong in the low 90s while fully insured premium and sales were flat year-over-year, reflecting a competitive market and lower large case sales in 2025. Quote activity and known sales for 2026 are trending very favorably as recent investments in technology and customer-facing tools gain traction in the marketplace. In terms of capital management, yesterday, we announced a 15% increase in the common quarterly dividend, continuing a track record of annual dividend increases supported by earnings power and strong capital generation. In addition, we are pleased that both S&P and Moody's upgraded the debt and financial strength ratings of the Hartford. Commentary from the agencies highlighted our effective risk selection and sophisticated pricing strategies, which have positively impacted underwriting performance across business cycles, with expectations for continued strength, supported by well-diversified revenues and earnings. In closing, as we enter the final quarter of 2025, our financial strength, disciplined execution, and strategic investments position the company to sustain strong results by leveraging industry-leading tools, underwriting expertise, and advanced data science. We are confident in our ability to continue to navigate a dynamic market cycle and deliver superior returns for our shareholders. 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 $1.77 billion or $3.78 per diluted share with a trailing 12-month core earnings ROE of 18.4%. In Business Insurance, core earnings were $723 million with written premium growth of 9% and an underlying combined ratio of 89.4%. Small business continues to deliver excellent results with written premium growth of 11% and an underlying combined ratio of 89.8%. Middle & Large business had another strong quarter with written premium growth of 10% and an underlying combined ratio of 91.4%. Global Specialty's third quarter was solid with written premium growth of 5% and an underlying combined ratio of 85.8%. The Business Insurance expense ratio of 31.1% was relatively flat from the 2024 period; however, it increased sequentially as the impact of earned premium leverage was offset by higher incentive compensation and benefit costs. In Personal Insurance, core earnings were $143 million with an underlying combined ratio of 90%. Homeowners delivered an underlying combined ratio of 74.4%, a 1-point improvement over the prior year. Auto underlying results improved by 3.6 points in the quarter and remain in line with expectations, reflecting typical seasonality as the year progresses. The Personal Insurance third quarter expense ratio of 25.8% was relatively flat from the 2024 period. Written premium in Personal Insurance increased by 2% in the third quarter. We achieved written pricing increases of 11.3% in auto and 12.6% in homeowners. With respect to catastrophes, P&C current accident year losses were $70 million before tax for 1.6 combined ratio points, which included $37 million of favorable prior quarter development. Through September 30, we have reached the $750 million attachment point for our aggregate property catastrophe treaty, which means that CAT losses of up to $200 million in the fourth quarter would be covered by the treaty. As a reminder, the aggregate cover does not include losses from the global reinsurance business, which purchases its own retrocessional coverage. Total P&C net favorable prior accident year development within core earnings was $95 million before tax, primarily due to reserve reductions in workers' compensation and personal auto liability and physical damage. We recorded $8 million of deferred gain amortization related to the Navigators ADC, which has now been fully amortized. As a reminder, the A&E ADC cover was exhausted in 2024, so any development from the fourth quarter A&E study will impact core earnings. Moving to Employee Benefits. Core earnings of $149 million and a core earnings margin of 8.3% reflect excellent group life and strong disability performance. The group life loss ratio of 74.2% improved 3.3 points, reflecting lower mortality across both term and accidental life products. The group disability loss ratio of 70.6% increased 2.7 points from the prior year. Last year included a benefit of 2.2 points related to the long-term disability recovery rate assumption update, while current year long-term disability trends were slightly higher than expected. This was partially offset by pricing increases earning into our paid family and medical leave products. The Employee Benefits expense ratio of 26.7% increased 1.4 points, primarily driven by higher staffing costs, including increased incentive compensation and benefits, increased investments in technology, and a higher commission ratio due to premium mix. Turning to investments. Our diversified portfolio continues to produce solid results. Net investment income of $759 million increased $100 million from the third quarter 2024 due to income from limited partnerships and other alternative investments, a higher level of invested assets, and reinvesting at higher interest rates, partially offset by a lower yield on variable rate securities. The total annualized portfolio yield, excluding limited partnerships, was 4.6% before tax, consistent with the second quarter. We continue to strategically manage the portfolio, balancing risk while pursuing accretive trading opportunities. In the quarter, we reinvested at 50 basis points above the sales and maturity yield, reflecting increased call and paydown activity on higher-yielding corporate bonds and certain structured securities. We remain focused on our ability to reinvest above the current portfolio yield. As expected, our third quarter annualized LP returns of 6.7% before tax were higher than the first half of the year, reflecting increased returns from our private equity portfolio. While still early, we anticipate fourth quarter results to be in a similar range to the third quarter. Turning to capital management. As Chris mentioned, we increased our common quarterly dividend by 15% to $0.60 per share, payable on January 5, 2026. Over the past decade, we have delivered dividend increases averaging approximately 11% per year. The step-up in our dividend demonstrates our confidence in the sustained earnings power and capital generation of the organization. Holding company resources totaled $1.3 billion at quarter end. During the quarter, we repurchased 3.1 million shares under our share repurchase program for $400 million, and we expect to remain at that level of repurchases in the fourth quarter. As of September 30, we had $1.95 billion remaining on our share repurchase authorization through December 31, 2026. In summary, we are pleased with our outstanding performance for the third quarter and first 9 months of the year. We believe we are well positioned to continue to deliver industry-leading returns and enhance value for all stakeholders. I will now turn the call back to Kate.

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

Our first question will come from Brian Meredith from UBS.

Chris, I wonder if you could talk a little bit about workers' compensation. It looks like we're starting to see some price increases there, which is great. Do you expect that trend to continue here? And do you think there'll be a point here in the next, call it, 12 to 18 months where maybe the rate there is in line with trend? And where are we right now, rate versus trend?

Yes. Thanks for the question and for joining us. I would say the workers' comp market remains consistent. When we talked about pricing this quarter, it was really up 4 times from a slight negative to a slight positive. So that's really not a meaningful move. And if you look at state filings and regulatory activity across all the states, I don't see much rate increases set up for 2026 at this point in time, primarily because, as you know, Brian, it's a highly profitable line that is still behaving pretty well. Loss trends are stable and predictable, and it doesn't set itself up for meaningful rate increases. I think you're aware of one state that had a somewhat meaningful rate increase in California because their loss trends were a little outsized compared to others. So I would say it's steady as she goes. And we feel good about the overall profitability of the book, whether it be on an accident year basis or calendar year, particularly when you look at our reserve releases over the last 3 years which have been pretty steady and predictable.

Makes sense. And then I wonder if we could just dig in a little bit more into the underlying loss ratio in business insurance and commercial insurance. I understand that most of the year-over-year deterioration is due to workers' compensation. But if I think about the other lines of business, you talk about rates being in excess of trend and pricing being in excess of trend for a long time. Are you holding those picks kind of constant right now, given where we are with port inflation and maybe potential impacts of tariffs, or are we actually seeing improvement there, and are they just being more than offset by workers' compensation?

Yes. I would like to look at the 9-month year-over-year underlying combined ratio. It is currently at 88.6% compared to 88.1%. Within those figures, workers' compensation is performing as we anticipated, so there have been no changes in our approach to workers' compensation in this accident year. Prior accident years are continuing to show favorable development. The difference in run rates over the 9 months can mainly be attributed to incentive compensation, which has been higher than planned due to strong returns on equity and overall profitability. If you exclude that, we are close to our consistent expectation of 88.1%. Additionally, we've had a good level of property mix, with a 10% growth, but we've also included more national account business, which generally has a higher underlying combined ratio for both workers' compensation and general liability, impacting the results slightly. Furthermore, we probably had a more favorable non-catastrophe property experience last year compared to this year, contributing to the overall numbers. When you put all this together, we're dealing with about a 0.5 point variation. Looking ahead to the fourth quarter and the full year, I believe we will finish slightly below 88.6%, marking it as a very productive and high-quality year, which makes us feel confident.

Our next question comes from Andrew Kligerman from TD Cowen.

So I'd like to start out with the terrific new business growth of 11% and 20% in small and then mid and large, respectively. I mean, those are phenomenal numbers in this environment. I know you touched on property a little bit, but maybe you could talk to the lines that were most strong in each of those two segments. And why you're able to see that kind of growth in a somewhat softening market?

Thank you, Andrew, for the question. I'll share some highlights, and then I'll let Mo provide his perspective. Looking at our growth figures, our Spectrum product in small commercial grew by 13% this quarter. Global Re experienced a 14% increase, while Business Insurance auto was up by 10%. Previously, I mentioned national accounts, which rose by 17% this quarter. I'm very satisfied with the performance of that segment and our reputation in the national account area. Overall, the growth was broad-based. Additionally, our excess liability line increased by 20%, and I believe workers' compensation grew by 3% year-over-year. This reflects strong performance from the team. As you know, Mo and I have emphasized the importance of focusing on margins and maintaining them as we approach 2025. I truly believe the team is executing exceptionally well. They understand how to establish boundaries and move forward, and our digital capabilities and all the investments we've made across our business segments are also yielding positive results.

I’ll add a few points, Chris. The flow in both small and middle businesses remains very strong. In the small business sector, which includes both admitted and non-admitted, we’ve seen a 47% growth in the E&S lines binding. The performance in both channels stays robust, indicating that our technology is boosting efficiency for agents. There’s also potential for further consolidation in the small business area. Regarding the middle sector, as Chris mentioned, we've developed real specialization. We are applying the technology from Small to Middle to enhance efficiency for agents. However, the results in the Middle may fluctuate. We saw a 5% increase in Q2 and a 10% increase in Q3. We're making decisions that aggregate by the end of the quarter, and occasionally it will yield an impressive number, while at other times it may be more modest. We are very confident about the consistent growth in Small, but the Middle might be a bit more variable and reliant on market conditions.

That was super helpful. Shifting over to Personal lines. The auto line came in at a 97.9%, and I know there's a lot of seasonality there. But maybe you could talk about where you'd like that to kind of center? Like what would be the kind of range where you'd be very comfortable? And now that you've got the Prevail chassis kind of rolling out, do you see the policy count starting to pick up in the near future?

Andrew, what I would say, as I said in my prepared remarks, we're at target margins today and feel good with what Melinda and the team have done to sort of restore our margins. As you know, we have a 12-month policy. So there's a little bit of a lag that we have to manage. So, and I would say, and I think we've talked about it in the past, for an auto book, if we can run an underlying combined at 95% with 2 points of CAT, I feel good, and we're then in go mode to grow, which we are now. We are pivoting to growth, particularly in '26. The real opportunity, I think, for growth will be our new agency offering, which is, as I said, we're in 6 states now and 40 by early '27, which will add to incremental growth, particularly in addition to our AARP response. But a lot of our good competition is also pivoting to growth. So it's not going to be a layup. We're going to have to break a sweat and differentiate ourselves. But when we think about growing, we think about bundling, auto and home. We still need to maintain sort of the loss cost environment that we see loss costs going. So all I would say is I think it's balanced. I'm pleased where we're at. Melinda, I don't know if you would add any additional color.

Chris, I think that's all accurate. And I would just add that in addition to the new business efforts and the competitive environment we're experiencing there, retention certainly is another dynamic influencing growth, and we still have double-digit renewal price changes being felt by our customers. So as that drops into single digits in the fourth quarter and continues to moderate in '26, that will help alleviate pressure on the retention and top line dynamics.

And then Andrew, it's Beth. The only other thing that I would just add is, when we talk about being at an underlying combined ratio in auto of 95%, that would be for the full year. I just want to remind you that we see seasonality in our auto results under normal conditions where it increases roughly 2 to 3 points over the course of the year. So it's not as if every quarter would be at 95%, we'd expect the first half of the year to be lower in the second half of the year to be higher when we think about that in total.

Our next question comes from Gregory Peters from Raymond James.

So the first question on pricing, you mentioned in your press release and your comments, the 7.3% benefit in the quarter. And I guess there's been a lot of growing chatter around increasing price competition. Maybe it's not as relevant in the small market, but maybe you can talk about some pressure points you're seeing on price, maybe from your distribution partners as it relates to the middle and large business or maybe it's even sitting inside the Global Specialty.

Yes, Greg, thanks for joining us. You're right. The 7.3% we called out this quarter is excluding workers' compensation in our so-called standard insurance businesses. If you're interested, I would say in Small business, excluding workers' compensation, it's 9.3%, Middle & Large ex workers' compensation, 7.3%, and roughly, that's down about 1 point or so from prior quarters sequentially. Some of that is to be expected just given the overall performance of certain lines, particularly led by property. I would say, and I'm going to ask Mo to add his color, that the real discipline that we have, and it is still needed, is there anything liability related. You can think in commercial auto. You could think of primary GL excess umbrella. I think I gave you some of those rates. But overall, from a GL basis, we're in the high single digits. Excess in umbrellas are in the low double digits, a little bit of a sequential drop, but still in double digits, and commercial auto is holding up in that 10% range. So I think those are the highlights that I would just point out to you and ask Mo to add his color.

Greg, I'd just say that we still feel like the market is pretty fairly priced really, especially in the smaller end of each of our books, small, middle, and the global books. It's also really important to make sure you understand our starting point. We have not been fixing anything here for 2 or 3 years. When we look at some of our peers, there's some higher rate action coming through, but that's relative to their starting point over the past couple of years. I feel confident in our ability to grow. We've given tools to the underwriters that are market-leading; the data science, the actuarial tools. The underwriters are executing well in each of the BI segments. We've given leaders book management tools that I think are second to none in the industry. So overall, we're executing really well. To your point on competition, we've talked before about the public D&O market. We have proven that when the margins aren't there, we'll pull back. We've been patient on workers' compensation, just trying to pick our spots there knowing that market has been competitive, but the returns are good. The most recent example, Greg, I'd point to is our large property book in Middle & Large that segment. We've been pulling back, especially on some of the larger accounts in that segment where we've seen the market really get hungry for the large premium. The other thing I'll call out for you is we're watching the London market closely. The rate movement in the quarter was something we kept an eye on, and I think we'll pick our spots internationally as well.

Our next question comes from Charles Peters from BMO Capital Markets.

Focusing on the smaller commercial market, Mo mentioned potential opportunities for consolidation in that area. It would be helpful if you could provide more details on that. Additionally, I'm interested to know if, analyzing the trends over the past few years, it's reasonable to suggest that some companies, perhaps including yours, have gained significant market share. At what point does acquiring too much market share in the small commercial sector create challenges with some of your agency partners?

Yes, our current market share in the small business sector is less than 5%. We haven't experienced any negative impacts from this so far. To provide some further context, following the CIAB event mentioned by Chris in October, we received excellent feedback regarding our technology and the time it saves compared to our competitors. Once a small business chooses us, our interest in maintaining that relationship has remained steady over the years. We don’t push those placements back into the market, and due to the disruptions in that area, our consistent interest means agents don’t have to readdress those policies. We also receive positive feedback on the service capabilities we've established, where we handle servicing for agencies, saving them money on each policy. Overall, our digital services, placement capabilities in the small business sector, and the feedback we receive indicate it’s a better experience all around. We anticipate continued growth at a reasonable pace in small business and aim to increase our market share.

Got it. And my follow-up is more high level on the pricing power levels in small to mid-commercial. I guess the increasing questions we get, I'm sure you get too, is where will pricing go? It seems to be a consensus that pricing will continue to decelerate. Would you say folks in our seats might be focusing a bit too much on the ROE of the industry being healthy, whereas loss cost trends appear to be much more elevated than it has historically? Any kind of insights you'd want to add into how we should think about the forward trajectory, what's impacting pricing?

Yes. I would say, Mike, again, honestly, selfishly, I think the industry ROEs are good, are healthy. But if you look at other financial services companies, they generate really, really high ROEs compared to us. You look at banks or others. Our business is one of taking risk. We're taking long-term risk. We have a lot of variability in our loss cost trends. There are margins and prudence that we try to price into our products. We compound that over a longer period of time, and that's a win for our shareholders. So do I feel like you're focused on the wrong things? No, I think you're focused on the right question on trend and growth and that balancing equation. As Mo just said, it all depends on where you start. If you have lines like workers' compensation, they are producing good returns and results even though you're getting lower price increases there. It's not necessarily a bad thing. That's a product that everyone needs, a leading product that we use to sell other products. It's part of the equation of pricing products individually, but also keeping an eye on accounts, what you're trying to do for agents, brokers, and customers.

Yes, I was just hoping you guys could remind us where you're trending some of the bigger lines of business to the extent you could share and I appreciate the comments on the national accounts, but also just curious if you touched up any of the loss trend assumptions across Business Insurance this quarter.

I believe the trends we've discussed are important to reiterate, particularly that liability trends remain high. This is evident in our pricing strategies. As for loss cost trends, especially excluding workers' compensation, we feel confident in our position and aim to maintain it moving forward. There's nothing particularly new in workers' compensation, and severity trends are aligning with our expectations. I don't have any new information to provide that hasn't already been mentioned. Mo or Beth, would you like to add anything?

No, I would just say the trends are relatively stable. Especially on the liability lines, think anything GL or commercial auto. The teams are keeping rates above loss cost, and I think that's going to continue for some time. We are really pushing hard to make sure we don't fall behind on those lines, knowing how the trend has been elevated over the past couple of years, and we intend to stay ahead of that.

The quarter, I would call it at 1.8%, and it's been sort of consistent of 75% rate and 25% exposure as we break that down. Just to be clear, that's at the 7.3% ex workers' compensation rate that I quoted before.

We are out of time for questions today. I would like to turn the call back over to Kate Jorens for closing remarks.

Thank you for joining us today. Please reach out with any additional questions and have a great day.

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