1Q22 Webcast Transcript

The Hartford Financial Services Group, Inc. NYSE:HIG

FQ1 2022 Earnings Call Transcripts

Friday, April 29, 2022 1:00 PM GMT

S&P Global Market Intelligence Estimates

-FQ1 2022-

-FQ2 2022-

-FY 2022-

-FY 2023-

CONSENSUS

CONSENSUS

CONSENSUS

EPS Normalized

1.55

1.66

1.60

7.10

NA

Revenue (mm)

5537.87

22358.17

NA

Currency: USD

Consensus as of Apr-29-2022 5:19 AM GMT

CONSENSUS

ACTUAL

SURPRISE

FQ2 2021

FQ3 2021

FQ4 2021

FQ1 2022

1.34 0.86 1.52 1.55

2.33 1.26 2.02 1.66

73.88 %

46.51 %

32.89 %

7.10 %

Contents

Table of Contents

Call Participants

Presentation

Question and Answer

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3 4 9

Call Participants

EXECUTIVES

Beth A. CostelloExecutive VP & CFO

Christopher Jerome SwiftChairman & CEODouglas Graham ElliotPresident

Susan Spivak BernsteinSenior Investor Relations Officer

ANALYSTS

Alexander Scott

Goldman Sachs Group, Inc., ResearchDivision

Andrew Scott Kligerman

Crédit Suisse AG, Research Division

Brian Robert Meredith

UBS Investment Bank, Research Division

Charles Gregory PetersRaymond James & Associates, Inc., Research Division

David Kenneth MotemadenEvercore ISI Institutional Equities, Research Division

Dong Yoon Han

Keefe, Bruyette, & Woods, Inc., Research Division

Elyse Beth Greenspan

Wells Fargo Securities, LLC, Research Division

Michael Wayne Phillips

Morgan Stanley, Research Division

Tracy Dolin-Benguigui

Barclays Bank PLC, Research Division

Presentation

Operator

Hello, and welcome to today's The Hartford First Quarter 2022 Financial Results Webcast. My name is Bailey, and I will be your moderator for today's call. [Operator Instructions]

I would now like to pass the conference over to Susan Spivak, Senior Vice President of Investor Relations. Susan, please go ahead.

Susan Spivak BernsteinSenior Investor Relations Officer

Good morning, and thank you for joining us today for our call and webcast on first quarter 2022 earnings. Yesterday, we reported results and posted all of the earnings-related materials on our website. For the call today, our speakers are Chris Swift, Chairman and CEO of The Hartford; Beth Costello, Chief Financial Officer; and Doug Elliott, President. Following their prepared remarks, we will have a Q&A period. .

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 include non-GAAP financial measures. Explanations and reconciliations of these measures to the comparable GAAP measure are included in our SEC filings, as well as in the news release and financial supplement. Finally, note that please that no portion of this conference call may be reproduced or rebroadcast in any form without The Hartford prior written consent. Replays of this webcast and an official transcript will be available on The Hartford's website for 1 year.

I'll now tuthe call over to Chris.

Christopher Jerome SwiftChairman & CEO

Good morning, and thank you for joining us today. Last April at our first quarter earnings call, I had said I've never been more excited about the future of The Hartford and was extremely bullish about our prospects for growth and further margin expansion. Since then, we have demonstrated our ability to deliver on these commitments through exceptional execution quarter after quarter.

We continued that momentum in the first quarter with core earnings of $561 million or $1.66 per diluted share, up from $203 million or $0.56 per diluted share in the prior quarter. Book value per diluted share, excluding AOCI, was $51.42, and our 12-month core earnings ROE was 14.8%.

During the quarter, we were pleased to retu$530 million to shareholders through share repurchases and common dividends. These results and actions demonstrate our commitment to long-term value creation through consistent profitable growth, continued investment in our business and retuof capital to shareholders.

We delivered these results during a very dynamic period, which is likely to continue with ongoing challenges from COVID, the secondary impacts of the Ukraine conflict and the anticipated Fed actions to raise interest rates while shrinking its balance sheet to address historically high levels of inflation.

And yet, there are reasons for optimism. Unemployment remains very low, 3.6% at the end of March. U.S. consumers are historically holding low levels of debt with healthy savings. Home prices have appreciated 17% on average over the past year, providing a valuable source of equity for homeowners. Corporations have strong balance sheets and healthy earnings profiles, while new U.S. business applications are up 65% from the pre-pandemic levels, a trend that is expected to continue.

We view the economic environment as favorable to our business, where growth is fueled by higher employment levels, rising wages, new business start-ups and commercial exposure expansion. I remain confident that The Hartford is well positioned to perform across its portfolio of businesses to deliver on our goals, maximizing value for our stakeholders.

Now let's tuto the highlights from the quarter, which illustrate how our strategy translates into consistent and sustainable financial performance. Overall, Commercial Lines results outperform with double-digit top line growth and expanding margins in all businesses. In Small Commercial, we hold a clear leadership position with our innovative products, digital platform and data analytics, setting us apart from the competition.

Last year, we delivered a record growth, eclipsing $4 billion in annual premium. And in the first quarter, we continued this positive momentum with very strong new business and increased premium retention. Middle and large commercial results are benefiting from sustained investments in underwriting capabilities, broader product offerings as well as innovative digital and data science tools.

In Global Specialty, we continue to maximize our expertise to gain market share while expanding margins with overall profitability improvement, up more than 10 points from the second half of 2019.

As it relates to the Ukraine conflict, first, let me say, we share the world's outreach at the tragic and senseless death, suffering and destruction and pray for an end to this needless violence. From The Hartford's perspective, we have very modest direct exposure within the region, which is meaningfully reinsured. We have a definite amount of premium there and have actively controlled our exposure in the run-up to the conflict and subsequent to the start of the hostilities. Beth will cover the financial impacts to the quarter.

In Personal Lines, results were in line with expectations and reflect our transformative work and unique AARP relationship. I am pleased with the progress we are making as we roll out Prevail, our innovative and cloud-based platform that provides a simplified digital customer experience and uses data science to drive new business growth in a profitable 50-plus age segment.

Turning to Group Benefits. As expected, we continue to be impacted by the pandemic. However, our underlying performance was solid and continues to demonstrate our market leadership position. Fully insured ongoing premium was up 5% in the quarter and reflects both increased premium from existing customer and a full point improvement in persistency over the prior year. Favorable employment trends and rising wages also contributed to premium growth.

Sales for the current quarter are down year-over-year as the first quarter of 2021 benefited from the expansion of paid family medical lead products in several states. Adjusting for that onetime lift, sales are comparable to prior year across our life, disability and supplemental health products.

Through the first 3 months of the year, our long-term disability book is performing as expected, with modestly higher disability incidence trends, a higher incident rate is reflected in our future pricing and was anticipated when we set forth our margin expectations for 2022. Modestly higher expenses in the quarter reflect higher staffing costs to manage elevated short-term disability claims and accelerated investments in capabilities, including digital, claims automation and administrative platforms. We expect the full year 2022 expense ratio to be generally consistent with first quarter results.

During the quarter, the number of U.S. COVID cases were at their highest levels of the pandemic and thus were elevated. However, both cases and deaths have rapidly declined in March and April. Clearly, the past 2 years have shown that predicting that pandemic impacts is impossible. But with cases and test at their current levels, we are cautiously optimistic about the remaining quarters of 2022.

In conclusion, The Hartford is off to a strong start in 2022. We are optimistic about macro factors impacting our business, including improving pandemic outcomes and the potential for easing of inflationary pressures. We continue to manage our investment portfolio prudently and expect the portfolio yield to benefit from rising interest rate environment over time. And we are continuing to proactively manage our capital. All these factors underpin my confidence that we will generate a 13% to 14% core earnings ROE in 2022 and 2023.

Our strategy and the investments we've made in our business have established the Hartford as a proven performer with consistent results. We are competitively positioned with a complementary and a well-performing portfolio of businesses and a winning formula to consistently achieve superior risk-adjusted returns.

Now I'll tuthe call over to Beth.

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Hartford Financial Services Group Inc. published this content on 29 April 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 02 May 2022 08:08:47 UTC.