The Hartford(HIG) - 2020 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported core earnings of $636 million or $1.76 per diluted share for Q4 2020, with a trailing 12-month core earnings ROE of 12.7% [9] - For the full year 2020, core earnings were $2.1 billion or $5.78 per diluted share, and book value per diluted share, excluding AOCI, was $47.16, up 8% from 2019 [9][68] - Net investment income for Q4 was $556 million, up 11% from the prior year quarter, while for the year, it was $1.8 billion, down 5% from 2019 [56] Business Line Data and Key Metrics Changes - Property and casualty (P&C) core earnings were $1.7 billion for the year with a combined ratio of 96.4, including covered losses of $278 million [36] - In commercial lines, the underlying combined ratio was 95.5 for the year, improving 1.6 points from 2019 when COVID losses are excluded [39] - Personal lines saw an underlying combined ratio of 88, which was 9.9 points better than 2019, driven by favorable auto frequency and lower non-cat incurred property losses [49] Market Data and Key Metrics Changes - U.S. commercial lines renewal written pricing, excluding workers' compensation, was approximately 11% for Q4, consistent with the third quarter [40] - In global specialty, U.S. pricing in the quarter was a robust 19.2%, generally consistent with the third quarter [41] - Written premiums in personal lines declined 6% for the year, but underwriting results remained strong [48] Company Strategy and Development Direction - The company is focused on improving financial performance through strategic initiatives, including the integration of the Navigators acquisition and enhancing digital capabilities [12][34] - A robust strategy to grow through product innovation and maintaining an industry-leading digital experience is emphasized [13] - The company aims to achieve annual operating expense savings of approximately $500 million by 2022 [64] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, highlighting the commitment to sustainable and positive societal impact [27][28] - The outlook for 2021 includes expectations of continued modest COVID losses in workers' compensation and financial lines, with a projected improvement in combined ratios [16][51] - The company anticipates a dynamic group benefits marketplace driven by digital transformation and customer demands [23] Other Important Information - The company announced an 8% increase in its common quarterly dividend to $0.35 per share and a new share repurchase authorization of $1.5 billion [70] - There has been a significant reduction in pending case counts related to business interruption losses, down approximately 25% [20][113] Q&A Session Summary Question: Guidance for 2021 for commercial P&C - Management indicated that roughly two-thirds of the three points of underlying margin improvement is coming from the loss area, with Hartford Next benefits included [75] Question: Capital management and buyback program - The company expects to execute the buyback program proportionally over the two years, with a reasonable expectation of half and half between the two years [78][80] Question: Workers' compensation margins in 2021 - Management expects some downward pressure on workers' compensation margins, particularly in small commercial, while pricing is expected to remain consistent with 2020 [83][84] Question: COVID losses timing - For group benefits, approximately 75% of the $160 million of life COVID losses is expected to occur in the first quarter [86] Question: Capital management and M&A considerations - The company prioritizes using capital for business growth and returning excess capital to shareholders, with M&A being a lower priority at this time [95] Question: Reserve increase for molestation claims - The reserve increase was due to a significant number of claims reported related to the Boy Scouts of America, necessitating a prudent increase in reserves [103] Question: Business interruption losses exposure - Management maintains that their views on business interruption exposures remain unchanged, with no reserves set aside for policies requiring direct physical loss [105]