Hartford Insurance Group, Inc. Q1 FY2026 Earnings Call

Good morning, and welcome to The Hartford's First Quarter 2026 Earnings Call and Webcast. As a reminder, this conference 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 The Hartford's First Quarter 2026 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 and 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. Hartford's first quarter 2026 results were strong, building on continued momentum from the past few years. Our broad portfolio of complementary market-leading businesses continues to generate superior returns for shareholders. The strength of our businesses, the breadth and depth of distribution relationships and our customer-centric focus position us to navigate a dynamic environment. Against the backdrop of geopolitical and economic uncertainty and rapid technological change, we continue to execute with discipline and advance our strategic priorities. Looking forward, our foundation is strong and our strategy is clear, reflecting who we are at the core, an underwriting company that consistently delivers with discipline and innovates with purpose. Among the quarter's highlights, Business Insurance delivered strong written premium growth of 6% with an underlying combined ratio of 89.2%. In Personal Insurance, the underlying combined ratio improved 4.7 points year-over-year with growth impacted by a competitive market. Employee Benefits core earnings margin was 6.9%, driven by outstanding life and strong disability performance, along with excellent new business sales growth and the investment portfolio continued to generate strong net investment income. All these factors contributed to core earnings of $866 million and an outstanding core earnings ROE of 20.3% over the trailing 12 months. Let's take a closer look at the first quarter performance. Business Insurance delivered another strong quarter, reflecting excellent execution across all lines. The current market reinforces the importance of underwriting discipline, pricing rigor and risk selection, areas where we continue to differentiate ourselves. Increasingly, our underwriting decisions benefit from real-time insights embedded directly into workflows, supporting smarter risk selection and more accurate pricing. Leveraging deep agent relationships, we are growing where price, terms and conditions appropriately compensate for risk. This is clearly reflected in our quarterly results as we continued to outpace the market in small business and remained selective in certain middle market and specialty lines. Focusing on small business, results again demonstrated the strength of our industry-leading franchise. Written premium growth of 8% and an underlying combined ratio of 89.4% were driven by excellent execution across our core offerings with double-digit growth in package and commercial auto. Our small business strategy is supported by a flexible multichannel go-to-market model. Customers have multiple ways to engage, whether it's through agents directly or via embedded capabilities such as payroll providers. All channels provide consistent service capabilities, underwriting and pricing. An important component of our strategy is the expansion of our market-leading small business ecosystem across multiple dimensions, including size, risk, product and segment. By size, we are increasingly working across business insurance to target the small end of middle market and growing with customers as their businesses scale, leveraging the breadth of our underwriting expertise and product offerings. By risk profile, we move seamlessly from admitted into E&S where appropriate, allowing us to support customers as exposures become more complex. By product, we are combining our specialty products with our unmatched small business distribution to deliver more tailored and complete solutions. And by business segment, we are launching efforts in the small and midsized market within employee benefits, leveraging our small business expertise. Moving to Middle & Large, written premium growth was solid at 5% with an underlying combined ratio of 91.3%. The team remains focused on disciplined underwriting and selecting opportunities that deliver attractive risk-adjusted returns in an increasingly competitive market. We are continuing to transform underwriting workflows, including through an AI assistant that augments key components of the underwriting process. Turning to Global Specialty. Results remain solid with another quarter of underlying margins in the mid-80s. Written premium growth of 3% reflected economic conditions, including fewer construction projects within our core area of focus. Global Re delivered premium growth of 11%, driven by growth in lines with strong risk-adjusted returns. Across Global Specialty, we are continuing to invest in the automation of lower complexity risk and enhancing underwriting workflows in more complex areas. Turning to pricing. Business Insurance renewal written pricing, excluding workers' compensation, remained relatively consistent at 6% in the quarter. Pricing in commercial auto and liability, including umbrella and excess, remained strong and above loss trend. Property continues to remain highly profitable and an attractive area for growth, so though pricing moderated in the quarter. Pricing within small business package and middle market general industries was fairly steady in the mid-single digits and represents 60% of our property book. Shifting to Personal Insurance. First quarter results reflected solid execution amid a competitive market backdrop. In auto, where annual policies are over 70% of the book, renewal pricing reflects actions taken to date and are expected to moderate further in 2026. The market remains dynamic with competitors aggressively positioning renewal rate decreases, increasing marketing spend and introducing new business discounts. We remain disciplined and expect direct auto growth to remain challenged in the near term. In Home, results were outstanding, supported by consistent underwriting with low double-digit pricing. Within the agency channel, new product rollout continues to progress as planned with very positive agent feedback. Our agency offering is now live in 15 states with 30 states planned by early 2027. We are committed to our long-term objective in personal insurance to expand market share thoughtfully and deliberately with sustained profitability at target levels in our direct and agency channels. Moving on to Employee Benefits. Core earnings margin of 6.9% was driven by outstanding life and strong disability results. Persistency remained strong in the low 90s and fully insured premium increased 3% year-over-year. We were pleased with the excellent sales this quarter, supported by disciplined pricing and underwriting execution. Results were driven by a double-digit increase in quote activity, strong sales management and continued investments in technology that are translating into stronger value propositions for customers and brokers. Sales also benefited from 2 states with paid family and medical leave coming online in the quarter. Additionally, we continue to enhance our digital capabilities and deepen API connectivity with HR and benefits administration platforms, driving greater ease of doing business and a more seamless customer experience. These benefits are most pronounced in the large account segment, where our leadership is anchored by differentiated absence and leave solutions that tightly integrate disability, paid family and medical leave and supplemental products. At the same time, expanding our presence in the under 500 lives segment remains a key strategic priority, including broadening product offerings such as dental and vision for small and midsized employers. In closing, first quarter results demonstrate continued momentum and execution of our strategy. In Business Insurance, a diversified portfolio, strong distribution relationships, disciplined underwriting and technology-enabled execution continue to drive profitable growth at attractive returns. In Personal Insurance, our focus remains on thoughtful market share expansion, supported by continued progress in the agency channel. Employee Benefits remains a high-quality accretive business where our leadership in absence and leave positions us well at the large end of the market and ongoing investments will enable us to extend those capabilities to small and midsized customers. Investment income remains strong, supported by a diversified and durable portfolio. Taken together, I am confident in The Hartford's ability to continue delivering strong financial results and superior risk-adjusted returns for 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 $866 million or $3.09 per diluted share with a trailing 12-month core earnings ROE of 20.3%. In Business Insurance, core earnings were $551 million with written premium growth of 6% and an underlying combined ratio of 89.2%. Small Business continues to deliver excellent results with written premium growth of 8% and an underlying combined ratio of 89.4%. Middle & Large business had another strong quarter with written premium growth of 5% and an underlying combined ratio of 91.3%. Global Specialty's first quarter was solid with written premium growth of 3% and an underlying combined ratio of 86.1%. The Business Insurance expense ratio of 31.6% is generally consistent with the prior year with staffing costs and investments in our business being partially offset by the impact of earned premium growth. In Personal Insurance, core earnings were $141 million with an underlying combined ratio of 85%. The underlying combined ratio improved 4.7 points in the quarter with improvements in both auto and home. The Personal Insurance expense ratio of 27% remained flat to the prior year. Written premium in Personal Insurance declined 6% with a 10% decrease in auto, partially offset by 4% growth in home. Agency growth remained strong at 9% over the prior year. Renewal written pricing increases were 6.8% in auto and 11.8% in home and effective policy count retention was relatively stable. We expect retention to improve as pricing continues to moderate. Turning to reserves. Favorable prior year development was driven by reserve reductions in workers' compensation, homeowners and personal auto. General liability reserves related to sexual abuse and molestation exposures from the 1970s and 1980s were increased by $70 million, which included a provision for a settlement in principle in one bankruptcy proceeding involving a religious institution. Excluding the impact of the increases in general liability reserves, total net favorable prior year development impacting core earnings was $75 million. With respect to catastrophes, property and casualty current accident year losses were $230 million before tax or 5.1 combined ratio points. Business Insurance catastrophe losses of $171 million were primarily driven by winter storms. In small business, losses from winter storms were $73 million this quarter compared with $8 million in the prior year quarter. Historically, freeze-driven winter storms like Storm Uri tend to impact small business customers to a greater degree. Personal Insurance catastrophe losses of $59 million were primarily from tornado, wind and hail events across the Midwest. Moving to Employee Benefits. Core earnings of $127 million and a core earnings margin of 6.9% reflect outstanding group life and strong disability performance. The group life loss ratio of 73.2% improved 6.7 points, reflecting lower mortality in term life and accidental death products. The group disability loss ratio of 72.7% increased by 3.7 points, driven by less favorable long-term disability loss trends as well as higher short-term disability claim incidents, including in paid family and medical leave where we continue to take pricing actions to reflect the increased utilization of these products. The employee benefits expense ratio of 26.7% increased 1.3 points compared to 25.4% in first quarter 2025, driven by higher staffing costs and higher technology costs. Turning to investments. Our diversified portfolio continues to produce strong results. For the quarter, net investment income was $739 million, an increase of $83 million from the first quarter of 2025, driven by higher income from limited partnerships and other alternative investments, a higher level of invested assets and reinvesting at higher rates. The quality of The Hartford's portfolio remains strong across public and private credit and equity. Private credit covers a range of subsectors, including traditional private placements, commercial mortgage loans, private asset-backed credit and direct lending to corporate issuers and business development companies. Investments related to direct lending and business development companies have been topical of late. The Hartford's investments in this sector represent approximately 2% of our invested assets. Investments are largely focused on well-capitalized companies with sound business models and platforms with multiple sources of liquidity. These investments have attractive yields and are expected to continue to contribute positively to our portfolio's performance. The total annualized portfolio yield, excluding limited partnerships, was 4.5% before tax, up 10 basis points year-over-year and down 10 basis points from the fourth quarter. The decline from the fourth quarter was primarily due to lower returns on public equity-related fund investments, reflecting broader market declines and a modestly lower yield on variable rate securities. First quarter annualized limited partnership returns were 5.1% before tax, materially higher year-over-year, but lower than the fourth quarter, reflecting reduced returns in the private equity and real estate portfolios. Geopolitical volatility and economic uncertainty may lead to this trend continuing in the near term. For full year 2026, with the current backdrop, we expect net investment income to increase, supported by continued growth in invested assets with overall portfolio yields expected to be generally in line with 2025. Turning to capital management. Holding company resources totaled $1.8 billion at quarter end. During the quarter, we repurchased 3.3 million shares under our share repurchase program for $450 million, and we expect to remain at that level of repurchases in the second quarter. As of March 31, we had $1.1 billion remaining on our share repurchase authorization through December 31, 2026. In summary, we are very pleased with our strong performance for the first quarter and believe we are well positioned to continue to enhance value for our 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 comes from Andrew Kligerman from TD Cowen.

My first question is around pricing. And I thought it was great to see that in Business Insurance, excluding workers' compensation didn't have much deceleration in renewal written pricing. And one of your competitors, I'd say, was closer to 100 basis points of deceleration. So my question is, particularly in the small business area, could you talk a little bit about the resilience of pricing there? Is this a line of business that could hold rate increases, maybe a little bit of deceleration, but maybe it holds in for the long haul? Or do you see this coming under a lot of pressure as we've seen large accounts and upper middle in particular?

Andrew, thank you for the question and joining us. Let me just make some overall commentary and maybe give you a little bit of data. And then between Mo and myself, we could share our views on small commercial and how resilient it most likely can be. So in my prepared remarks, I talked quite a bit about commercial auto and liability, including umbrella and excess and that overall property continues to be a growth area for us. And our property book is 60% concentrated in small business package and middle market general industries. As you noted, in the quarter, we were basically excluding workers' compensation at 6%, down 10 basis points from the fourth quarter of 2025. So we feel very good about the team's ability to execute and keep margins, and that's no small feat. I'm very proud of the team. As I normally do, Andrew, I'll give you some general liability pricing because we talk internally that for anything liability, we need to be disciplined. For the quarter, GL pricing was up to 9.7%, 50 basis points up from the fourth quarter at 9.2%. I would say primary lines were in the high single digits, and excess and umbrella in the low double digits, generally consistent with the fourth quarter or up slightly. Within small, I would give you an excluding workers' compensation number of 7.2%, which was down 50 basis points from 7.7% in the fourth quarter, mostly due to auto. But again, still an overall strong component, particularly whether it be the property component or the E&S binding component. Middle market was 5.3% excluding workers' compensation, down from 6.2%. And then in Global Specialty, Global Specialty executed well and increased pricing up to 4.8% from 4.1%. So I think all that indicates a real discipline by the team and a real focus. When you really talk about small business, our ability to be consistent and steady with price increases, on the auto side, the property side or the GL side has been a key component of the reliability that our agents look for. We try to be thoughtful and take modest increases on a state-by-state basis. I think there is a level of durability that if you don't shock and surprise customers and agents with large increases but take modest increases, retention will hold and you can maintain your margins. But Mo, what would you add?

I agree with Chris. The only thing I'd add, Andrew, is that in the small business space, think about our maneuvering quarter-to-quarter being about execution and rate adequacy as a starting point. We're not simply reacting to competitive pressures. What you see is trying to make sure we maintain margins and find the growth that we think is there. That's in package, especially in our package spectrum, auto, even in the E&S side. So it's about execution from a strong starting point. The other point is on the middle and global side: it really depends on how the market holds up. We're proud of how well the team executed maintaining margins in a moderating market. The market will determine growth rates for us in Middle and Global going forward.

Yes. I think that just for volumes that you could do that with 6% written premium growth and maintain some rate. So the follow-up is related. Chris, I appreciated your prepared remarks about how particularly in small, you're able to go to many places, specialty, direct, et cetera. And when I think about The Hartford, I think about the best-in-class in small-mid. Lately, I've been hearing a lot of companies are making a big push to small-mid. They feel that AI is enabling them. So maybe a little more elaboration on The Hartford's competitive moat amidst this AI expansion among a lot of your players? Will it be easier for them to look like Hartford and do things that Hartford does? Or why is that moat so strong even amidst AI?

We're proud of our capabilities in the SME space broadly defined. That doesn't mean we can't play in the larger end of the market, but we're thoughtful about competing there. In the SME space, we've been at it for a long time. We've had a technology orientation going back decades and deep partnerships with agents that care about the SME space. We know what's important to them from a service side. We're one of the digital leaders in small business and increasingly in the small end of middle market. We'll continue investing in those capabilities to differentiate ourselves and make us an easier company to do business with and to better know our customers. There is a moat, but we must constantly defend it because there is a lot of good competition and recognized brands. What happens with AI and agents and distribution is still evolving. We have deep partnerships with our distribution partners and capabilities that, if markets move toward direct or embedded channels, we'll be ready. We have partners we do a lot of servicing for and take care of our joint customers in a true partnership mindset. Mo, what would you add?

As Chris mentioned, all the capabilities we've built over 30 years in small matter a lot in middle. Those same capabilities can help us grow profitably in the middle market because agents are feeling margin pressure too. Helping them grow their margins in middle market also helps us. The capabilities and partnerships we provide are a differentiator.

Our next question comes from Elyse Greenspan from Wells Fargo.

My first question was on Business Insurance and specifically on the expense ratio. If you could just help us think about the seasonality and trajectory from here. I know last quarter, you guys laid out a target below 30% and that's for the end of 2027. But given that the expense ratio was higher this Q1, just trying to get a sense of the trajectory from here?

Elyse, thanks for joining us. There is a bit of seasonality in the first quarter coming off year-end and first-quarter activities that primarily affect compensation and benefits. Our expense targets by business are right on plan for the first quarter. I reaffirm everything we talked about last call and the targets we're aiming for at the end of 2027. Nothing has changed in our ability to deliver on expense improvements over the next seven quarters. Incrementally, we expect improvement in 2026. You should see declines in the expense ratios across our major business segments in 2026 with continued improvement in 2027.

And then my second question, also within Business Insurance. You pointed to more of a stable pricing environment away from workers' compensation. And obviously, pretty good premium growth within BI in the quarter, driven by small business. When you think about the current market, does it feel like you can maintain premium growth within small commercial kind of in this 8% range based on forward views on pricing, et cetera?

It's hard to forecast precisely. The team has distinctive capabilities, offerings and relationships, and we'll have to compete. The market will tell us if we can remain competitive while being thoughtful on pricing. We plan to grow but must maintain margins and be thoughtful about the trade-off between profitability and growth. We are well positioned to make those trade-offs and execute, and we'll see how the market plays out over a longer period of time. Mo?

One additional point: the flows continue to be really strong. Submissions into both the retail admitted part of our small business franchise and the non-admitted side are robust. Our hit rates are relatively flat, and that flow demonstrates the strength and position we have with our agents.

Our next question comes from Brian Meredith from UBS.

First of all, Chris, you've got some good E&S capabilities. Maybe you can talk a little bit about what you're seeing in the market as far as is business kind of flowing back to the standard markets from the E&S markets at this point in the cycle? Are we kind of heading in that position? And then maybe also talk a little bit about what you're seeing with the MGA competition out there?

Brian, I'm going to let Mo answer that because he's the principal architect of many of our growth strategies in the marketplace. I would say I feel a level of stability and don't sense a lot of movement one way or the other.

In our binding business within Small Commercial, the flow continues to be strong. We don't feel the admitted market taking back that space. Pricing is down a little, but our starting point is strong, so we're excited about binding opportunities. We don't feel an MGA impact in the binding space. In Global Specialty, which is more of a brokerage model, flow also remains strong across products. We do feel a bit more flow back to admitted in larger risk space and some competitive nature there. Broadly speaking in specialty, we do feel the MGA impact in places where capacity is being built. That impact has been persistent over the past several quarters.

Great. And then second question, I was hoping to chat a little bit about workers' comp. It's still a competitive market. I know you're expecting some margin deterioration this year in workers' compensation. Where are we as far as profitability? Are we getting to a point where maybe we're going to see some leveling out in comp and maybe some improvement in pricing?

Just bluntly, our pricing was relatively flat in the first quarter compared to the fourth quarter. In the marketplace there are carriers still putting through negative rates in various states. California is an outlier. We've been disciplined and thoughtful. Underlying trends are relatively stable. If I look at severity, particularly on the medical side, it's relatively stable and within our pricing and reserving assumptions. Severity is running in the 3% to 3.5% range. The book is behaving well. I don't see a price increase coming anytime soon because the book is performing reasonably. But we must remain disciplined.

It's basically right on expectations for us, both top line and bottom line. I don't think you should expect the book to grow dramatically. There are parts of the book that are very competitive and where we're pulling back, for example, white-collar in middle market is really competitive and we're not able to grow that at the pace we'd like. Broadly, think of top and bottom line on budget — basically where we expected to be.

Our next question comes from Mike Zaremski from BMO Capital Markets.

I'm not trying to obsess about it, but Chris, you spoke to increasing competition a number of times in your prepared remarks. I know you've lived through many hard and soft cycles. Do you feel that The Hartford's operating strategy would pivot or change materially if the market continues to soften materially over the coming year or two?

No, I don't see our business model or strategy changing dramatically for market cycles. We know how to run through various cycles. If markets offer price and terms that deliver the returns we need, we'll grow; if not, we will not grow. Discipline remains central to our approach.

Pivoting to Global Specialty since you called out pricing being up a bit — what caused that and is it worth talking about?

Wholesale, particularly in primary liability and some excess casualty, the team has been disciplined and focused on getting rate. With liability, we've been super focused on getting the needed rate.

The rest of the specialty book is fairly stable — financial lines, marine, etc. The standout in the quarter was the rate increase in wholesale casualty lines, which helped drive the increase in Global Specialty pricing.

Our next question comes from David Motemaden from Evercore ISI.

I was hoping you could unpack some of the movement in the underlying loss ratio in Business Insurance this quarter. Maybe talk about how much of a headwind workers' compensation is within there and some of the other moving pieces? And given the pricing environment, how are you thinking about that for the rest of the year?

There are no surprises. Our picks are holding quarter-to-quarter. The setup for 2026 was similar to 2025 with some modest workers' compensation pressure, which continues. Property is moderating but remains highly profitable. We closed 2025 with a little over $3.3 billion in property premium and think we could grow that around 10% this year with solid margins. Property lines in the BOP spectrum were up roughly 6.3% in the first quarter and general industries property up about 4%. Overall, 2026 should play out largely like 2025 with modest headwinds.

If you look at the underlying loss and loss adjustment expense ratio in Business Insurance, it moved very modestly from first quarter of last year to first quarter of this year. When looking at the underlying lines of business within there, there are no large moves one way or the other — just small movements across the book. So it's not a case of large favorability offset by large deterioration; it's small changes across the portfolio, which is in line with our expectations.

That's helpful. Then pivoting to group benefits and specifically group disability, that's been deteriorating a bit over the last several quarters. I know some of that is long-term disability normalizing. Could you talk about some of the short-term disability trends and how you're thinking about the disability loss ratio throughout the rest of the year as some of the pricing actions you guys have been taking start to show up?

Disability includes long-term disability and an increasing portion of paid family and medical leave and short-term disability. Short-term lines are short-cycle with one- to two-year rate guarantees, and incident rates, particularly in paid family and medical leave, are higher than we anticipated. We're taking pricing actions in the marketplace to reflect higher utilization. Three states came online with paid family and medical leave; two in the first quarter, and another comes online May 1. LTD performance has reverted a bit to the mean after exceptional performance over the last two to three years; incidences are a bit higher, but terminations remain strong and our claims organization is effective at returning people to health and work. Overall, these are the components driving the disability trends, and we are adjusting pricing accordingly.

In the quarter for paid family leave, when new state programs come online, there is pent-up demand that causes high utilization in the first one or two months. We expect utilization to moderate through the year. We're putting through double-digit rate increases again this year in paid family leave, and persistency remains in the upper 80% range. We're pleased with our ability to place rate and will continue to do so as utilization moderates.

Our next question comes from Katie Sakys from Autonomous Research.

I want to shift back to the Business Insurance reserves for a moment. Excluding the legacy charge this quarter, the core general liability book still looks quite strong with no net adverse development for several quarters now. How is loss emergence in GL tracking versus your original expectations? Does what you're seeing today reinforce your confidence in current casualty loss picks going forward?

We feel very good about our loss picks in the general liability book, both from the standpoint of prior year reserves and the loss trend we embedded in our 2026 picks. We review reserves every quarter by accident year and product line. Quarter-to-quarter there can be small movements, but overall there was no change in our net GL reserves excluding the legacy item. We feel good about what we're seeing relative to our loss position.

Beth, you mentioned in prepared remarks that direct lending and BDC exposure is about 2% of invested assets. Can you help me understand how much of that exposure is to software or adjacent borrowers?

Our investments in direct lending and BDC are about 2% of invested assets and the BDC portion is less than 1%. These investments are diversified across subsectors. There is a software component, but the underlying exposure is diversified across many industries. We feel good about the exposure and how these investments are performing for us.

Our next question comes from Gregory Peters from Raymond James.

I'll go back to the benefits business on the sales side for my first question. Chris, you mentioned numerous times how disciplined you are regarding growth and maintaining price discipline. It looks like you had a really strong first quarter in sales, and I generally view that market as pretty competitive. Maybe you could unpack the results you reported for the first quarter in terms of sales?

The 53% increase in sales growth is meaningful. If you exclude the three states with paid family and medical leave coming online, the increase drops to about 40% but is still strong. Market conditions were primed for us to take advantage of opportunities. We saw more quote activity, improved sales management and stronger market analytics. Our capabilities, especially at the national account level, are being recognized more by agents and brokers. The cohort of business we wrote should generate returns in line with our targets. It feels disciplined and we're going to try to keep it going. Mike, would you add anything?

We started early last year investing in our sales footprint and market analytics to engage better at the local level, and that produced higher quote activity. Sales execution at the local level drove a good portion of what we saw. Our investments in technology across absence and HR integrations are paying off. When our sales team engages brokers and customers, we have a strong story to tell. All those items came together to produce a strong sales result. We maintained underwriting discipline and have not changed that approach.

I'll pivot to the Personal Lines business. You mentioned that roughly 70% of your auto business is on annual policies. You're rolling out a new product platform called Prevail with six-month policies. Can you give more detail about how you expect The Hartford to perform beyond a couple of quarters with the rollout of Prevail and how you view the outlook given the competitive marketplace?

We have a clear strategy and objectives. We've invested heavily in the new product and platform, particularly in the direct channel, and are rolling out the same product and platform in the agency channel. The independent agent channel is a great strength for us, and the more modern product is being well received and should drive incremental growth. The balancing act is that we've worked hard to get back to target margins and are reluctant to give up pricing just to grow. We'll continue to find niches and pockets such as AARP or targeted agent segments. As we roll out more states for agents, we'll see higher growth, but we won't compromise on the profitability we've worked to achieve.

Agency is growing today as a function of the investments we've made, while direct will take more time. Investments in product, technology, customer experience and AI are all aimed at long-term customer experiences that support sustained growth. We'll navigate the current cycle and play for the long term.

Our next question comes from Rob Cox from Goldman Sachs.

Just a question to go back to catastrophe losses. They were a little higher than we thought this quarter, but it sounds like it was driven by your exposure to small business and freeze-related losses. How do the catastrophe losses in the quarter compare to your internal expectations? Any updated thoughts on diversification into property from a broader perspective and are you lined up to see any recoveries on your aggregate reinsurance treaty?

Overall, catastrophe losses for the quarter were about $30 million higher than our original expectation, so not a significant change. The increase was concentrated in small business due to freeze activity. Regarding the aggregate treaty, it kicks in when subject losses reach $750 million and does not include our global recapture. Through first quarter, we're at $204 million. We'll see how the rest of the year progresses to determine whether we would hit that aggregate attachment.

That's helpful. I want to follow up on the distribution discussion. There's industry debate about whether distribution costs are too high and may come down over time. What's your view and any thoughts on magnitude or time frame?

Distribution is an ongoing debate, but speaking for us, we've managed our cost to acquire new business relatively flat over the last three to four years. It's still a significant dollar amount, but we've complemented distribution partners with technology and service that make doing business with us more attractive. What AI will do in the agent world is still uncertain. Some simple products like auto could be more impacted, but complex products will still require advice. We'll continue partnering with distribution to provide the advice and services customers need and where they want to go for guidance.

Our digital investments and service centers in small and middle are about partnership with agents. The compensation conversation becomes less salient when we provide service that supports the agents and the upfront customer experience. That partnership model is a key part of our long-term approach.

Our last question today will come from Yaron Kinar from Mizuho Americas.

I want to start with personal auto. Given changes in the competitive environment and geopolitical events such as tensions around the Strait of Hormuz, do you expect any impact? On one hand, you might have better frequency from lower gasoline prices; on the other, supply chain issues might drive severity up. Do you see any impact on the competitive environment from these developments?

A couple points: price of fuel and miles driven aren't strongly correlated in our models; commuting patterns and work-from-home changes affect driving but fuel price alone is not a reliable predictor of miles driven. Geopolitical events create uncertainty we will watch closely. I don't see a direct line into U.S. personal auto from such events in terms of cost of goods, though there can be second-order impacts on chemicals, fertilizers, plastics, which have petroleum inputs, and that could have minor effects on severity. When we set our loss picks for the year, we include margin for adverse deviation for events like this, and we still feel good about our loss picks for the full year in personal lines.

That's helpful. Circling back to AI and intermediaries: is there a risk that The Hartford's negotiating power with intermediaries in small commercial would diminish if larger brokers use AI to move down market and infringe on a space dominated by smaller agents?

If you mean agent consolidation, we believe it's a net benefit. Large carriers and brokers want to simplify their vendor lists and will gravitate to fewer carriers that have broad capabilities. Over the long term, that should be a net positive for us.

We actually find the opposite of the concern. Large carriers and brokers are consolidating toward partners who have the capabilities to help create additional margin in the small business space. They are looking to fewer, more capable carriers. We feel positive about the momentum and flow we see from large brokers into our capabilities and commitments.

I understand you may see more flow, but ultimately don't larger brokers have stronger negotiating power when they determine terms of contracts or policies?

The balance of power is fairly equal because of the capabilities we bring. Very few carriers offer the full suite of services we provide in the small business space. We can show agents and brokers how we can help them generate incremental margin, leading to productive conversations.

And we are out of time for questions. I would like to turn the call back to Kate Jorens for any closing remarks.

Thanks for joining us today. As always, feel free to follow up with any additional questions, and have a great day.

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