The Hartford at UBS Financial Services Conference 2025 (Transcript)
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Contents
Table of Contents
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Call Participants |
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Presentation |
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Question and Answer |
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THE
Call Participants
EXECUTIVES
Chief Financial Officer
Chairman & CEO
ANALYSTS
Division
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Presentation
Thanks, everybody. Thanks for joining us for our next fireside chat. I'm
Chairman & CEO
Well, first, Brian, thank you for inviting Beth and I to your conference. We always enjoy it. I would say our priorities aren't just for '25, it's -- we think in terms of 3, 4 years down the road and plan accordingly. But I would say there's probably 4 things that come immediately to mind and probably not surprising to you. It's just we need to continue to focus on our underwriting discipline. And that means tools means data, see how maybe AI affects that down the road, but we need to be the underwriters underwriter as I've said.
I think from there, have you think in terms of being more growth and innovative, more growth-orientated in competing in the spaces that we want to compete in, primarily SME and middle market. So we think we have the distribution, the product sets to capture more market share. And then the innovative side of it is also what we want to do. And we're putting really the customer, including their advisers, the agents, but we define sort of the customer as the ultimate user of our risk product.
We'd like to improve that overall experience. And we're making it sort of a centerpiece of the next 3 years. I would say from there then, the last 2 would be just technology in generally. I think you know, you've been following us for a long time. We're builders, investors, and we've taken a long-term view of what we need to have in our 4 walls from a competitive side to differentiate ourselves. And that will continue. I'm not going to go into too many details because some of that stuff, we actually have patents pending on some processes and technologies. But just know that we want to continue to innovate, again, to do more with our customer, do more from an efficiency side, have our employees feel like they have data and information at their fingertips.
We call that augmenting human talent. So there's a whole category of investing in technology. And then lastly, I would just say that we've made a lot of progress, but I think we can make additional progress in sort of our industry vertical specialization. I think there is some products that we need to think about and one that we're thinking about rolling out right now is Cyber, which is new for us. If you think about other aspects of the property casualty business or even the Group Benefits business, when we think about dental and vision in our partnership with Beam, we're thinking in terms of industry specializations vertical sub-product expertise that we think our economy will need in the future.
So we're not just looking sort of what is the next excess liability vertical we need to -- I mean we're really thinking down the road of where is our economy going, what are our future emerging risk and we want to be in a position to take advantage of that. So those are, I'd say, the 4 big things.
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Question and Answer
Got you. Just following up on the technology. Is there any specific area that you think you really need -- you may have some technology debt that you really need to invest in, be it group benefits, commercial, small commercial areas is like, hey, this is an area we need to focus on.
Chairman & CEO
Yes. I would give you the context of everything on the P&C side, I think we have foundational elements that are first class. Because that's what we've been working on for really a long time, last 10, 12 years. So think of claim systems, think of recently with Prevail, which is a product set, but it's also our technology at
We probably have another 18 months of heavy investing to do. But really pleased with all our digital interfaces. We have 1 website for any customer of any of our businesses or product lines where you could interact with us. And then as I alluded to, I think the next leg of this journey from a real differentiation side will be AI and how and where we deploy that. So...
Chief Financial Officer
And I think what I'd add to that, Chris, is that when you think about our technology and being able to innovate, obviously, it's really important that we can attract the right resources. And from how we're seeing from that world of technology is top notch, and we are able to attract people because it is exciting, the things that we're doing, the things that they want to work on to use your word, it's not talking about technology debt. It's really about the innovation piece of what we can do with this and using those new technologies.
Chairman & CEO
The other platform, again, it's a little longer-term project, but I would say it's a 6-year project, we're probably at the halfway point, but we're going to take all our data and applications to the cloud. Again, there's security benefits, there's efficient expense benefits, but there's speed and innovation benefits that we think will really monetize. And I know there's a lot of other fine companies that are working on that, too, but we're poised to lead the way.
Great. Let's talk about reserves. That's been a hot topic across the industry, general liability, commercial auto. The
Chairman & CEO
Do you want to tag team. How about if I just lay the foundation on, yes, we weren't immune. I think our impacts, though are less than others, one, given our clientele, given I think the reserving philosophy that we thought we had, the rate execution on pricing, as I like to say, over the last 5 years, our average cost of goods sold in any liability product, primary excess umbrella, it's probably in the 10%, 10.5%, 11% range. And our pricing over the last 5 years is close to 12.5%.
So I think that's a pretty good indication that we weren't being Pollyannish or rosy with the trends we face. They just -- even our assumptions got overwhelmed by some of the recent social inflation trends, the slip and falls, just the plaintiffs' bar just being very, very aggressive. So I think we've dealt with that in the past. We trued up then accident year '24. We carried those trends forward into '25. They're already in pricing. So as we think about sort of 1/1 is the big selling season, we had our new liability trends that we were
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pricing for. The team does an excellent job in executing based on what we set as objectives. I've got utmost confidence in all our segment underwriters, and we're moving forward. And we're moving forward with confidence that we've addressed it.
Chief Financial Officer
And the only thing I'd add to that and what we were trying to convey as we talked about our results is that going into the fourth quarter, we had seen GL activity in the second and third quarter. Each of those quarters, we had taken about
So more IBNR that we put up in the fourth quarter than in previous quarters. As Chris said, we also then looked at the current year, trued that up. And even with that felt great about where we ended the full year in Commercial Lines, relatively consistent with the prior year. So really strong position. And then, as Chris says, it really positions us into '25. And that feedback loop that we have between our underwriters, our claims folks, our actuaries allows us to get that into pricing even before we have all the models all tuned, they know that if the model tells you need this, you better get this because we're updating trends.
That's good. That's helpful. Maybe just adding on to that then, Chris, maybe we can talk a little bit on your perspective on this whole social inflation environment, right? And maybe what's driving it, what needs to be done to address these issues we're seeing right now? And do you think this new administration we have could be helpful, right, for the tort [ law ] environment.
Chairman & CEO
I promised myself I wasn't going to get agitated today, but that's your third question. Now in all seriousness, it is a difficult societal matter. Some might not think it's a problem. I think it's a problem. I think it's a tax on society that is really undiscussed, unknown of how it affects an average business or family.
So if I really go trace back to it and try to answer your question intellectually, I think once the lawyers were able to advertise probably going back 20, 30 years ago, maybe even longer, the game sort of changed. And the game there was how do you get the most money for someone, not necessarily the fastest, the best recovery, but it's just -- it's always about dollars, and they started building strategies to appeal to juries to judges. There's a lot of strategies then to elect certain types of officials that might be partial to that.
So again, this problem just didn't start 5 years ago. I mean it's been building, I think, for a long time. But I think the good news on this is there are some state legislatures they're really starting to address this because it's both at the state court level and a federal court level. The committee on civil discourse is looking at it from a federal side. But it's the ground game, one-off, 1 legislature at a time, 1 governor at a time from a leadership side. But I'm encouraged. There are 4 or 5 major states that have issues that are trying to get their arms around it. But as I always say, the other side of the plaintiffs' bar, I mean, is equally powerful in motivating too. So -- but I think everyone can agree some simple disclosure on who's funding, particularly mass torts when you're dealing with millions and millions of dollars. And then just the inflationary trends of slip and falls, right? We just talked about what we booked.
I think there needs to be that grassroots efforts to really say what's enough. It's enough from an injury side. You could see some legislatures are capping awards and injuries. I plan to spend more time in
But that doesn't mean we can't get people's attention that are really looking fresh at how government works and how our judicial system really works.
Let's -- talking about regulation and stuff going on,
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Chairman & CEO
Do you want to go on that one?
Chief Financial Officer
Yes, I'll start. So for the wildfires, obviously, our claims folks have been working really hard with our insureds in those areas, both on the personal insurance side and the business insurance side. And sitting here today, when we look at the claims that we've received and look at our insured values in the areas, kind of looking at a range of around
So kind of sizing it that way. And it really will be split between both commercial and personal insurance. And we've made our best estimate of looking at what might happen with the fair plan as well. So that would be -- in those losses and losses associated with the fair plan that ultimately aren't able to be recouped through surcharges or things like that also go into our reinsurance programs.
Got you.
Chairman & CEO
So I think your question was, are there solutions particular to
Yes,
Chairman & CEO
Yes. And again, just the context, the state-based system, I think, actually has worked fairly well for a long time. I mean if you look at the state-based model, the regulator -- the 1 regulator, whether he or she is elected or appointed by the executive -- Chief Executive of the state has a dual mandate to take care of customers with properly approved and vetted products, which gets a little bit at availability. And then they also have sort of the solvency component of the industry so that if you're domiciled in 1 of the 50 states, that is your primary regulator from a solvency side.
So those pieces of the equations generally have worked well, but sometimes they get out of balance and require correction. The state where we are today,
Now it's not quite sort of cat-exposed solutions yet because citizens that still the insurer of last resort, that's probably over indexed. But we're having more capital come back into the
So all these things have sort of compounded over the years. And obviously, we've lived through a tremendously disruptive inflationary period and a period of time when climate patterns have changed, which has been nothing short of explosive in
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So look, I think it has the governor's attention. I think it has the legislature's attention, it has the insurance commissioners attention. But basically, you've got to allow risk and price to be matched up a little bit better, and we need to have access to all the other tools that we use as an industry from predicting catastrophes, using reinsurance because most people still reinsure at some level.
So I think if you look at it objectively, everyone should know what needs to be done, but it just requires a leadership, leadership to say this is what we need to do for the citizens of
Makes sense. Flipping over to Commercial Lines. So renewal written price increases, fourth quarter ex comp, up 9.7%, acceleration from third quarter '24. Looking back, I think it may be the highest that your renewal rate has been since the hard markets, the early 2000s. So I guess -- the rest of the industry is starting to talk about commercial lines pricing moderating, but you're still seeing improvement. Maybe talk a little bit and tell people kind of how your different business will kind of differentiate from the general industry and why you're still seeing more price?
Chairman & CEO
Well, we alluded to it before. I think when you operate sort of at that small to middle market segment, we call the SME space, there's a little more stability. There's a little more elasticity on price and retention. And while property sort of in the large property area starting to soften, we're still getting good double-digit rates. I think we talked on our fourth quarter earnings call and the SME segment, which includes a little bit in middle market, we're probably getting mid-teen rates on liability and property. And one, it's needed, just given the trends that we just talked about, whether it be in property or liability. But the market seems to be accepting that. And again, [indiscernible] with us with our technology, our speed and accuracy and ease of doing business, I think we're capturing more market share naturally while still getting the rates that we want to keep up with loss cost trends.
Got you. And that kind of goes to the next question, you kind of alluded to that and maybe we'll continue on here with that is if I look at the commercial line written premium growth, that
Maybe you can talk about some of the things that you've kind of done over the last 5 to 10 years to kind of solidify and improve that growth profile of the company and what it looks like here going forward?
Chairman & CEO
Well, it's probably not one thing. There's a multitude of new things, and I'll -- between Beth and I will try to reprise it in a way that's digestible. But we talked about it technology-wise. All the investments in technology, I think, have helped from a speed and a turnaround time. I think our underwriters have more to sell. I think we're account rounding more with our comp product, which is our largest product line, but you of all people ought to know, we diversified that down from 40%, 45% down to about 25% today.
But that's selling other products and building other product capabilities, that's building the risk management tools to be a bigger property writer like some of our good competitors. So yes, I think it's a series of things, foundational elements that we did and then a series of -- and we always had good distribution relationships. But then how did we want to talk, how did we want to market? How do we tell our story to our 15,000 appointed agents across the country. So I think we've done a good job effectively just building a growth mindset and then adding the innovation mindset. I think, will only allow us to capture more market share going forward.
Chief Financial Officer
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Yes. And just to add a little more color there. I think when you look at our small business area. I mean the fact that they had over
So I still bristled when you said technical debt in our small commercial business. There is no -- nothing about our technology, that is debt, it is a huge asset, and the team just continues to leverage that and be able to look for ways to bring in other product sets from other parts of our business, whether it's from the professional lines, E&S, all of those things. So as Chris said, there's just a lot that we're building on. We built a lot and really, I think, positions us well as we head into 2025.
Chairman & CEO
Yes. One item, and Beth mentioned it, but we did an acquisition in 2019 that maybe curled some people's hair like yours or turned it more gray.
Yes.
Chairman & CEO
But I'm so glad we did that deal. If you really think about where the E&S markets exploded to over 20 -- 22% of all commercial lines to have additional distribution with the wholesalers to have a dedicated channel there to have the profits and improvements in the returns that we have in our global specialty business today, I do that deal in a heartbeat.
Makes sense. One more, and then we'll tuit over to the audience. I'm going to dig into the weeds a little bit on this one. So commercial lines insurance, underlying core loss ratios and core margins, we chat a little bit about on the conference call, you said despite some favorable noncat weather, I think it could be kind of consistent with 2024, 2025, maybe unpack that a little bit for us? Kind of how do we think about it, get to the moving pieces? Is that exclusive of non-cat weather, including noncat weather you think it would be flat?
Chairman & CEO
What did I say on the call? I was not going to unpack and go -- why would you think I would change my mind 2 weeks after I just said that. But just because we like you and respect to you, I would still say the components of margin expansion are still alive and well for us across many different business segments, right, whether it be small, middle, global specialty. And I think the only thing I would say is I don't see the comp world all that differently. But remember, meaning compared to last year, I think medical trend and loss costs will be fairly stable. And pricing will be slightly negative again. But when you put it all together, as you mix in some of our new products so you mix in more property, as you think about some of the improvements that we're going to drive for in liability lines broad-based. And if you think about our expense efficiency programs, our continuous improvement mindset. Just giving you a little nuggets to put into your calculator to sort of say, yes, that makes a lot of sense.
Chief Financial Officer
The only thing I'd add to that is, if you broke down all the components and we look at sort of all the puts and takes, there's not any 1 big thing that's being offset by 1 other than going the other way. I mean, it's a lot sort of on the margin, which is why when we look at it and say that we can be relatively consistent, we see how all the pieces fit together, and it's all the things that Chris spoke to that are already underway.
Makes sense.
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Chairman & CEO
Our property underwriting is really good. We've got good tools, good models. So whether it be cat, whether it be non-cat, I feel good about sort of our attritional losses and then the cat loads ex the
Got you. Anything from the audience? If not, I've got plenty more. So let's go to the next one. So you had a goal, I believe, it was
Chairman & CEO
No.
It is still an attractive area?
Chairman & CEO
It is still an attractive market. It's a growth area for us, but I'm not going to quantify what we think we could do from a growth rate side. Remember, we've gone basically from 0 to
So maybe the question is, do you expect -- continue to be a larger percentage of your overall commercial insurance business over the next 5 years?
Chairman & CEO
Yes. I think the E&S growth rates will continue to be some of the highest in the platform -- commercial platform.
And I guess -- and we've talked about this before, but it was an interesting point, why as a typical standard commercial lines insurance company historically, right? Now granted you got Navigators and you've got some good E&S capabilities now. Why the push more towards E&S? Is there a structural reason that it's just a better market to be in now?
Chairman & CEO
Well, I think basically, the freedom of rate and form is a powerful motivator for risk these days, whether it be property risk in certain areas, whether it be liability risk that we just talked about, the ability to just really customize what perils you want to cover with an appropriate price and what perils you don't. It's a pretty good chassis.
Yes. Is it easy to tuon that E&S engine in the standard commercial lines kind of underwriters philosophy? Or is it completely kind of separate.
Chairman & CEO
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