CompanyName:HartfordFinancialServicesGroupIncCompanyTicker:HIGSector:FinancialIndustry:Insurance
EventDescription:Q12015EarningsCallMarketCapasofEventDate:17.65BPriceasofEventDate:41.4
©2014TheStreet,Inc.Al l R ightsReserved Page1of21
HartfordFinancialServices(HIG)EarningsReport:Q12015ConferenceCallTranscriptThefollowingHartfordFinancialServicesconferencecalltookplaceonApril28,2015,09:00AMET.Thisisatranscriptofthatearningscall:
CompanyPart icipants
SabraPurtill;HartfordFinancial;Head-IRChrisSwift;HartfordFinancial;Chairman,DougElliot;HartfordFinancial;PresidentBethBombara;HartfordFinancial;CFO
OtherPart icipants
MichaelNannizzi;GoldmanSachs;AnalystBrianMeredith;UBS;AnalystVincentDeAugustino;KBW;AnalystJayGelb;Barclays;AnalystJohnNadel;PiperJaffray;AnalystJayCohen;BankofAmericaMerrillLynch;AnalystTomGallagher;CreditSuisse;AnalystErikBass;Citigroup;AnalystRandyBinner;FBR;AnalystJimmyBhullar;JPMorgan;AnalystIanGutterman;Balyasny;AnalystScottFrost;BankofAmericaMerrillLynch;Analyst
MANAGEMENTDISCUSSIONSECTION
Operator :
Goodmorning.Mynameis[Sean].Iwillbeyourconferenceoperatortoday.Atthistime,IwouldliketowelcomeeveryonetoTheHartford'sfirst-quarter2015financialresultsconferencecall.(OperatorInstructions)Thankyou.HeadofInvestorRelations,SabraPurtill,youmaybeginyourconference.
SabraPurt ill(Head-IR):
Thankyou,[Sean].Goodmorningandwelcome,everyone,toTheHartford'sfirst-quarter2015financialresultsWebcast.Ournewsrelease,investorfinancialsupplement,first-quarterfinancialresultspresentation,andForm10-QwereallfiledyesterdayafternoonandtheyareavailableonourWebsite.OurspeakerstodayincludeChrisSwift,ChairmanandCEOofTheHartford;DougElliot,President;andBethBombara,CFO.
Followingtheirpreparedremarks,wewillhaveabout30minutesforQ&A.JustafewnotesbeforeChrisbegins.Today'scallincludesforward-lookingstatementsasdefinedunderthePrivateSecuritiesLitigationReformActof1995.Thesestatementsarenotguaranteesoffutureperformanceandactualresultscouldbemateriallydifferent.
Wedonotassumeanyobligationtoupdateforward-lookingstatementsandinvestorsshouldconsider
CompanyName:HartfordFinancialServicesGroupIncCompanyTicker:HIGSector:FinancialIndustry:Insurance
EventDescription:Q12015EarningsCallMarketCapasofEventDate:17.65BPriceasofEventDate:41.4
©2014TheStreet,Inc.Al l R ightsReserved Page2of21
therisksanduncertaintiesthatcouldcauseactualresultstodifferfromthesestatements.AdetaileddescriptionoftheserisksanduncertaintiescanbefoundinourSECfilings,whichareavailableonourWebsite.
Ourpresentationtodayalsoincludesseveralnon-GAAPfinancialmeasures.ExplanationsandreconciliationsofthesemeasurestothemostcomparableGAAPmeasureareincludedinourSECfilingsaswellasinthenewsreleaseandthefinancialsupplement.IwillnowturnthecallovertoChris.
ChrisSwif t (Chairman,):
Thankyou,Sabra.Goodmorning,everyone,andthankyouforjoiningthecall.Lastnight,wereportedfinancialresultsforthefirstquarter.Ourresultsshowthatweareofftoagoodstartfortheyearandthatwearemanagingtheincreasingchallengesinthemarketplace.
Wecontinuedtoexecuteonourstrategyandmakeprogressacrossallofourbusinesses.Comparedtothesameperiodlastyear,coreearningspershareforthefirstquarter2015rose11%,adjustedfornetfavorableitemsinbothperiods,andbookvaluepershare,excludingAOCI,increased3%.Inaddition,wedelivereda12-monthcoreearningsROEof8.1%.
Ouroperatingbusinessesperformedwell,despitelowinterestratesinanincreasinglycompetitivepricingenvironment.Letmeshareafewhighlightsfromthequarter.InPMC,ourcombinedratioof91.7isessentiallyflatcomparedtoprioryearwhenadjustedforCATs,prior-yeardevelopment,andtheNewYorkassessments.
Thisisagoodresult,giventheweatherconditions,andDougwilldiscussmoreabouteachlineofbusinessinafewmoments.Ingroupbenefits,coreearningsmarginincreased8/10ofapointto5.9%,withoutstandingfirst-quartersalesthatincreased67%.Theseresultsreflectourfocusonpricingandunderwritingaswellassuperiorserviceandclaimshandling.Ourmutualfundbusinessesgenerated28%growthinsalesandmorethan$500millioninpositivenetflowsinthequarter.
Inaddition,wecontinuedtosuccessfullymanagetherunoffofTalcottwitha$500millionreturnofcapitalduringthequarterandyear-over-yeardeclinesinvariableandfixedannuitycontractcounts.Inaddition,wearepleasedwiththeupgradestoourratingsfromS&PandMoody's,whichwereceivedlastweek.Theseupgradesrepresentanotablemilestoneforusandearnanaffirmationofourimprovedbalancesheet,operatingperformance,andfinancialflexibility.
Aswelookahead,wearecommittedtoexpandingourcapabilitiestosupportourgrowth.Thisincludesmakinginvestmentsinourtechnologyplatform,wherewehaveanumberofsignificantprogramsinflight.Twooftheseprogramsarecurrentlybeingdeployedandarehavingaverypositiveimpactonourdistributionrelationshipsandthecustomerexperience.
FirstisournewP&Cclaimsystem,whichcontinueditsrolloutacrossthecountry.Ourcolleaguescontinuetocommentontheirvastlyimproveduserexperienceandhowthattranslatesintoimprovedcustomerexperience.Withenhanceddatacollection,weareimprovingourabilitytoassigntherightexpertisetoresolveclaimantneedsinatimelyandsupportivemanner.
Secondisournewconsolidatedunderwritingdesktopformiddlemarket.Wehavemodernizedourunderwritingprocesswiththisapplication,deliveringimmediatebenefitsinquoteturnaroundtimeandcommunicationwithouragents.
Overtime,thisplatformisthevehiclebywhichwewilldelivernewtoolsanddecisionsupporttoallourunderwriters,whichisanexcitingstepforward.Iamhappyabouttherolloutoftheseimportantnewtechnologiesandlookforwardtoupdatingyouonourcontinuedprogressinthefuture.Oneofour
CompanyName:HartfordFinancialServicesGroupIncCompanyTicker:HIGSector:FinancialIndustry:Insurance
EventDescription:Q12015EarningsCallMarketCapasofEventDate:17.65BPriceasofEventDate:41.4
©2014TheStreet,Inc.Al l R ightsReserved Page3of21
strengthsatTheHartfordisourdeeppooloftalent.
Sinceourlastcall,wehavemadesomeleadershipchangesthatIwantedtosharewithyou.DavidRobinsonwillassumetheroleofGeneralCounselwhen[AlanCresco]stepsdownfromthepositionattheendofMay.Davidhasbeenwithussince2006andhasabroadrangeoflegalandbusinessexperiences,includingplayingakeyroleinourtransformationandwewelcomehimtotheexecutiveleadershipteam.Iwouldliketoacknowledgeandthank[Alan]forhisloyalservicetoourCompany.
FewpeoplehaveplayedsuchaninfluentialroleinourCompanyas[Alan],whoservedasGeneralCounseltothreeCEOsandhelpedustomanagethroughdifficulttimesandasuccessfultransformation.Wethankhimforhiscountlesscontributionsandwishhimallthebest.
WealsoappointedRaySpragueaspermanentHeadofPersonalLines.RayjoinedTheHartfordin1985andhasheldleadershippositionsinbothstrategyandpropertyandcasualty,includingrunningourmarket-leadingsmallcommercialbusiness.Personallinesisanimportantpartofourstrategyandweremaincommittedtoimprovingourperformanceaswegoforward.
Inclosing,Iwanttoreiteratethatthefirstquarterwasagoodstartto2015.Iamconfidentthatwearewellpositionedtonavigatethemorecompetitivemarketinacontinuedlowinterestrateenvironment.Wewillmaintainourunderwritingandpricingdiscipline,whilealsoinvestinginourbusinesseswithagoalofincreasingourROEandbookvaluepersharetodriveshareholdervaluecreation.Thankyou.NowIwillturnthecallovertoDoug.
Doug?
DougElliot (President):
Thankyou,Chris,andgoodmorning,everyone.Ourpropertyandcasualtyandgroupbenefitsbusinessesstarted2015withsolidresultsforthefirstquarter.Retentionscontinuetobestrong,helpingtopostmodesttop-linegrowth.Losstrendinourmajorlinesofbusinessremainbenignandwithinourpricingtargets.
Andingeneral,ouroperatingperformancewasverysteady,anoutcomewearepleasedwith.Wearelockedininourcoremetricsandperformanceindicatorsaswecontinuetobalancemarginsandgrowthamidincreasingcompetition.Wearefocusedonnewbusinessriskselection,retentionofourbestperformingaccounts,andoverallrateadequacy.
Themarketplacehasgrownmorecompetitiveoverthelastquarter.Wearebeginningtofindthattherearefewernewbusinessopportunitiestransactingatourtargetreturnslevels.Wearealsoseeingmorepressureonourrenewals,astherateadequacyofourbookhasclearlyimprovedinrecentyears.Wearegoingtocompeteaggressively.
However,wearenotgoingtochasebusinessoutsideofourunderwritingandprofitabilityparameters.Ourintenseoperatingfocusoverthelastseveralyears,aswellastheinvestmentswehavebeenmakinginproduct,underwriting,andtechnology,positionusonasolidfoundationtocompeteeffectivelyundervariousmarketdynamics.
IwillshareabitmoreaboutthisasIrecapthefirst-quarterperformanceforourbusinessunits.Incommerciallines,wedeliveredcoreearningsof$234millionwithacombinedratioof95.9.Thiswasanearningsdecreaseof$30millionfromfirstquarter2014,largelydrivenbylastyear'sone-timeexpensebenefitfromchangesinNewYorkWorkers'CompensationBoardassessments.
Adjustingforthisitem,ourcombinedratioimproved4/10ofapoint.Renewalwrittenpricinginstandardcommerciallineswas3%forthequarter.Thisisactuallydownabouthalfapointfromfourthquarter,
CompanyName:HartfordFinancialServicesGroupIncCompanyTicker:HIGSector:FinancialIndustry:Insurance
EventDescription:Q12015EarningsCallMarketCapasofEventDate:17.65BPriceasofEventDate:41.4
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althoughbothquartersroundedto3%.
Overall,pricingisbeingbuoyedsomewhatbyincreasesincommercialauto.Inworkers'compensation,improvedrateadequacyfortheindustryhasresultedingreatercompetition,especiallyinmiddlemarket,whereourrenewalwrittenpricingof1%wasdownjustover2pointsfromfourthquarter.Insmallcommercial,workers'compensationrenewalwrittenpricingwas2%,decliningbyjusthalfapoint.
Ourlosstrendsinworkers'compensationcontinuetobefavorableandourreturnsarewithinourtargetrange.Catastrophelossesforthefirstquarter2015wereverysimilartowhatweexperiencedayearago,althoughstormsthisyearweremuchheavilyconcentratedintheNortheastthanlastyear'swidespreadactivity.
Weagainsawhigherlossactivityincommerciallinesratherthanpersonallines,largelyattributabletothedifferentgeographicconcentrationsinthesebusinesses.Insmallcommercial,writtenpremiumforthequartergrew5%,withstrongpolicyretentionandaslightuptickinnewbusiness.Theunderlyingcombinedratio,excludingcatastrophesandprior-yeardevelopment,was89.6,up4/10ofapointversuslastyear,afteradjustingfortheNewYorkAssessmentbenefit.
Theincreasereflectshigherexpensesaswecontinuetomakeinvestmentstoimprovethecustomerexperience,enhanceourproducts,deploynewtechnologyfeatures,andaddlocalsalesrepresentatives.Wealsosawanincreaseinagencysupplementalcompensationcosts,drivenbyimprovementsinourlossratio.Weremainverypleasedwithouroverallmarginsinthisbusinessandthecapabilitieswearebringingtomarket.
Catastropheshitoursmallcommercialbusinessabitharderinthisquarterversuslastyear,largelytheresultofwinterstormshereintheNortheast,wherewehaveahigherconcentrationofbusiness.Asalways,ourclaimsresponsewasoutstandingandwewillcontinuetoevolveourcatastrophemodelingandpricingtokeeppacewithemergingweatherpatterns.
Inmiddlemarket,wepostedanothersolidquarter,withanunderlyingcombinedratioof93.7,improving1.1pointsafteradjustingfortheNewYorkAssessmentbenefitin2014.Muchofthisgainiscomingfrommarginimprovementinworkers'compensationasourpricingandunderwritingmixactionsearnthroughthebookofbusiness.
Writtenpremiumgrowthwas3%,asretentionsremainsteadyandnewbusinessproductionbenefitedfromahighermixoflargeraccounts.AsImentionedinmyopening,weareseeingaslowdowninournewbusinesspipelineforaccountsthatmeetourunderwritingprofile.Boththeselectionofnewaccountsandtherenewalofexistingaccountsisdrivenbythetalent,portfoliomanagementtools,anddataanalyticswehaveenhancedinrecentyears.
Wewillcontinuetowritebusinesswhenitiswellpricedandexercisethedisciplinetowalkawaywhenitisnot.Middlemarketcommercialautohasbeenanareathathasnotmetourreturntargets.Inparticular,ourcorrectiveactionshavetakenlongertogaintractionandshowtheimprovementsweexpected.
Priceincreasesinthequarterwereinthehighsingledigitsandwearecontinuingtopushevenhardertoachieverateadequacyinthisline.Withinspecialtycommercial,theunderlyingcombinedratioof99.1improvedversusprioryearafteradjustingfortheNewYorkAssessmentbenefitin2014.Atthiscombinedratio,theoverallbusinessisoperatingwithinourtargetreturnrange,reflectingparticularlystrongperformanceinbondandfinancialproducts.
Favorableprior-yeardevelopmentinfinancialproductscontributedtospecialtycommercials'combinedratioof94.5.D&OclaimtrendssincethefinancialcrisishavebeenmorefavorablethanourinitialestimatesandwecontinuetoseestrongperformanceintheE&Oline.Thesecoveragesare
CompanyName:HartfordFinancialServicesGroupIncCompanyTicker:HIGSector:FinancialIndustry:Insurance
EventDescription:Q12015EarningsCallMarketCapasofEventDate:17.65BPriceasofEventDate:41.4
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becominganimportantpartofouroverallvaluepropositionacrossallourcommerciallinebusinessunitsanditisgreattohavestrongresultscomingfromfinancialproducts.Nationalaccountscontinuestoperformwellandwearepleasedwiththeoverallprofileofthisbusiness.
Wefeelcomfortablewithourretentionsandnewbusinesshitratesinaverycompetitivemarket.Inpersonallines,coreearningswere$75millionforthequarter,downfrom$101millionlastyear.Theunderlyingcombinedratioof89.9deteriorated1.2pointsfromlastyear,largelydrivenbyauto,wherewehaveseenaslightuptickinourphysicaldamageseveritytrends.Totalwrittenpremiumforthequartergrewslightlybetterthan1%.Thatincluded1%growthinAARPDirectand23%growthinAARPthroughagents.
WearepleasedwiththemomentumoftheAARPofferingthroughindependentagentsandwecontinuetobalancegrowthwithoverallrateadequacytoensurethatwearebuildingastrongbookofbusiness.Onthedirectside,weareadjustingouradvertisingcampaignandearlytestresultshavebeenpositive.
Ourfocusonmembervalue,withthesupportandinsightoftheAARPorganization,continuestoevolvethisprogramanddriveitssuccess.Inthenon-AARPagencychannel,writtenpremiumwasdown7%versusthefirstquarterof2014.Thisispartlyduetothehighlycompetitivecomparativeraterdynamicsofthechannel,andpartlyduetoourownunderwritingactions.
Wecontinuetoseeopportunityinthischanneltogrowourbusinessthroughhighlypartneredagents.Theseactionswillbetterpositionustoalignwithourbestdistributorrelationshipsanddelivercompetitiveproductstotheircustomers.Shiftingovertogroupbenefits,coreearningsforthefirstquarterwere$52million,up16%from2014,deliveringacoreearningsmarginof5.9%.
Wecontinuetoseefavorabletrendsinourgrouplifeanddisabilitylossratiosversusprioryear,althoughtherateofimprovementhasslowed.Lookingatthetopline,fullyinsuredongoingpremium,excludingassociation-financialinstitutions,wasup4%forthequarter.Overallbookpersistencyonouremployergroupblockofbusinessisinthelow[90%s]andwecontinuetoachieveourrenewalpricingtargets.
Fullyinsuredongoingsaleswere$300millionforthequarter,astrongstartto2015,andasIhadpreviouslyindicated.Approximately25%ofthesalesgainsarewinbacks,customersthatleftusinrecentyears,buthavenowcomeback.Weconsistentlyhearthatourservicecapabilitiesareakeydifferentiatorandtheprimaryreasonclientscomeback.WeareproudofourHartfordteammateswhomakethatvaluepropositionrealeveryday.Andwearecontinuingtoinvestinthetoolsandtechnologynecessarytomeettheneedsofourcustomers.
Letmeconcludewithafewgeneralthemes.Acrossourpropertyandcasualtyandgroupbenefitsbusinesses,wearewellpositionedtocompete.Wehavemadeimportantinvestmentstoimproveourcapabilitiesandtakensomehardactionstoaddressshortcomingsinourportfolio.Notwithstandingthisconsistentprogressinrecentyears,therearealwayspocketswherewecanandwilldobetter.
Wewillcontinuetodigdeepintoourbusinessmetricstoeffectivelymanageourperformance,retainourbestcustomers,andbuildvalue.2015isshowingsignsofgreatercompetitionandthisisthetimeforourskillandexperiencetoguideouractionsforlong-termsuccess.Wehaveamuchstrongerfoundationforthejourneyahead.LetmenowturnthecallovertoBeth.
BethBombara(CFO):
Thankyou,Doug.Iamgoingtobrieflycoverfirst-quarterresultsfortheotherbusinessesandthenprovideanupdateontheinvestmentportfolioandourcapitalmanagementactivities.Mutualfundscoreearningsrose5%inthefirstquarter,primarilyduetoanincreaseinfeesfromhigheraverageassetsundermanagement,excludingTalcottvariableannuityfunds.
CompanyName:HartfordFinancialServicesGroupIncCompanyTicker:HIGSector:FinancialIndustry:Insurance
EventDescription:Q12015EarningsCallMarketCapasofEventDate:17.65BPriceasofEventDate:41.4
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Asexpected,Talcott-relatedAUMcontinuedtorunoff,whichreducedthesegment'stotalAUMcomparedwithayearago.Fundperformanceremainedsolidthisquarter,with70%offundsoutperformingtheirpeersoverthelast5years.
Ourstrongperformancetrackrecordhashelpeddrivestrongmutualfundsales,resultinginnetpositiveflowsof$529million.Talcottpostedgoodresultsthisquarter,withcoreearningsof$111million,about$20millionaboveourexpectationbecauseofhigherinvestmentreturns,includinglimitedpartnershipreturns.Wemodellimitedpartnershipincomeata6%annualizedreturn.
Assumingthatreturn,Talcott'squarterlycoreearningsforthebalanceoftheyearwouldbeinthe$85millionto$90millionrange.AsChrismentioned,Talcott'sannuitycontractcountscontinuetodecline.OurISVandESVprogramsaddedslightlytothevariableandfixedannuityrunoff.Andwewillcontinuetolookatcontractholderinitiativesandotherprogramsthatcanhelpacceleratethedeclineinthesebooksofbusiness.
SinceweputTalcottintorunoff,variableandfixedannuitycontractcountshavedroppedbyalmostone-third,down32%and29%,respectively,sinceJune30,2012.Duringthequarter,Talcottpaida$500milliondividendtotheholdingcompany,whichcontributedtothedeclineinstatutorysurplusto$5.1billionfrom$5.6billion.Wegeneratedabout$63millionofnetstatutorysurplusthisquarter,inlinewithourprioroutlookof$200millionto$300millionofsurplusgenerationforthefullyear.
However,lowinterestratescouldprovidedownwardpressureonthatestimateasweapproachedyearend.Wedonotexpectthistoimpactourcurrentintentiontotaketwodividendsof$500millioneachfromTalcott:oneinthesecondhalfof2015andanotheroneagaininearly2016.Corporatesegmentfirst-quarter2015corelosseswereaboutflattotheprioryear.Weexpectsomereductionininterestexpenseduring2015aswerepay$280millionofmaturingdebtduringthequarterandalsointendtorepayanother$167millionofscheduleddebtmaturitieslaterthisyear.
Inaddition,wewillutilizeupto$500millionforadditionaldebtmanagement,includingthecallofourOctober2017debtmaturitywerecentlyannounced.Turningtoinvestments,thecreditperformanceofourportfolioremainsstrong,withamodest$15millionofimpairmentsduringthequarter.Ourportfolioyieldalsoheldupreasonablywellthisquarter,despitetheheadwindsfromlowinterestrates.,withanannualizedyieldof4.1%,excludinglimitedpartnerships.
Inaddition,wehadmorefixedincomemake-wholepremiumsthisquarterthannormal,whichaddedafewbasispointstotheall-inyieldcomparedwithfourthquarter.Newmoneyyieldsremainlow.Althoughwithintherangeweexpectedfortheyear,whichwillcontinuetoputpressureoninvestmentincomelevels.Limitedpartnershipreturns,ontheotherhand,werewellaboveouroutlook,withanannualizedreturnofabout14%,consistentwiththeprioryear,butmorethandoublethe6%averageweuseforplanningpurposes.ThisimpactedTalcott'sresultsinparticular,asInotedearlier.
Ourprivateequityandrealestatepartnershipsdrovemostofthisupside,whileourhedgefundinvestments,whichareprincipallyglobalmacrofunds,hadlowsingle-digitannualizedreturnsconsistentwithouroutlook.Towrapuponourresults,wehadagoodquarter,withconsolidatedcoreearningsperdilutedshareup11%,excludingnetfavorableitemsinbothperiods,suchascatastrophesbelowbudget,prior-yeardevelopment,andtheNewYorkAssessments.
Inaddition,bookvalueperdilutedshare,excludingAOCI,rose2%fromyearend2014,reflectingthatgrowthinshareholders'equityandtheaccretiveimpactofthesharerepurchaseprogram.GrowingbookvaluepershareisakeyfinancialgoalforTheHartfordandanimportantdriverofshareholdervaluecreationovertime.
AsecondkeyfinancialgoalisincreasingourcoreROE.The12-monthcoreearningsROEwas8.1%,a
CompanyName:HartfordFinancialServicesGroupIncCompanyTicker:HIGSector:FinancialIndustry:Insurance
EventDescription:Q12015EarningsCallMarketCapasofEventDate:17.65BPriceasofEventDate:41.4
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goodimprovementovertheprioryear,whichincludedthebenefitfromseveralnetfavorableitems.Whilethisremainsbelowourcostofcapital,weintendtoimprovetheROEovertimewithcontinuedcoreearningsgrowthandcapitalmanagement.The12-monthunleveredROEforourP&Cgroupbenefitsandmutualfundsbusinesseswas10.6%.
BeforeturningtoQ&A,Iwouldliketoprovideabriefupdateonourcapitalmanagementplan.Asareminder,thetwo-yearplan,initiatedin2014,was$2.775billionforsharerepurchasesand$1.2billionfordebtcapitalmanagement.
ThatplanremainsunchangedandthroughApril24,wehaverepurchasedapproximately$2.1billionofcommonequity,totaling57millionshares,foranaveragepurchasepriceof$36.93.Wehave$656millionremainingundertheequityprogram,whichwewillcompleteoverthebalanceoftheyear,includingatotalofapproximately$250millionduringthesecondquarter.
Underthedebtmanagementprogram,werepaidmaturingdebtof$200millionin2014,$289millionin2015,andexpecttorepay$167millioninNovember,whichleavesapproximately$500millionforotherdebtcapitalmanagement.
OnFriday,wenotedthecustodianofourintentiontocallthe4%notesdueinOctober2017,whichhavePARoutstandingof$296million.Includingaccruedinterestandthemake-wholepremium,thisbondcallwilluseapproximately$320millionoftheremaining$500million.Weexpecttousethebalanceforotherdebtmanagementactions.
AsIpreviouslymentioned,duringthesecondhalfof2015,weexpectTalcotttodividend$500milliontotheholdingcompanyandP&Cgroupbenefitsandmutualfundstoalsogenerateabout$700millionofdividends.Wehavemadesignificantstridesinreducingdebtandimprovingourbalancesheetandriskprofileoverthepastseveralyears,whichcontributedtotheS&PandMoody'supgrades.
Weexpectourcapitalmanagementplanstoincludebothequityanddebtaswelookforopportunitiestoredeployexcesscapitalaccretively,bothascapitalmanagementandinvestmentinourbusinesses.Wewillcontinuetoexecutethecurrentcapitalmanagementplanandduringthesecondhalfofthisyear,wewillupdateyouonourcapitalmanagementoutlookfortheremainderoftheyearand2016.Tosummarize,first-quarterresultswereagoodstarttotheyear.
OurstrategyremainsunchangedasweremainfocusedongrowingcoreearningsinourP&C,groupbenefits,andmutualfundbusinessestooffsettherunoffofTalcott'scoreearnings.Whilecompetitiveconditionsmaybemorechallenging,theunderlyingreturnsinourbusinesseshaveimprovedsignificantlycomparedtoseveralyearsago,andwearewellpositioned,bothfinanciallyandcompetitively,tocontinuetocreateshareholdervalue.IwillnowturnthecallovertoSabrasowecanbegintheQ&Asession.
SabraPurt ill(Head-IR):
Thankyou,Beth.AsInotedearlier,wehaveabout30minutesforQ&A.Inordertogetthroughthequeueandalloweveryonetohavetimetoasktheirquestion,wewouldrequestthatyoulimityourselftoonequestionandafollow-upandthenrequeueifyouhaveadditionalquestions.Sean,couldyoupleasegivetheQ&Ainstructions?
QUESTIONS&ANSWERS
Operator :
(OperatorInstructions)
CompanyName:HartfordFinancialServicesGroupIncCompanyTicker:HIGSector:FinancialIndustry:Insurance
EventDescription:Q12015EarningsCallMarketCapasofEventDate:17.65BPriceasofEventDate:41.4
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MichaelNannizzi,GoldmanSachs.
MichaelNannizzi(Analyst-GoldmanSachs):
Couplequestions.Isthereanywaywecouldquantify,Doug,thetechnologyinvestmentsandthehighercommissionsbasedonbusinessprofitabilityon1Qresults?
DougElliot (President):
Mike,wedon'tsharethedetailstoallowyoutodothat.Iwouldsaythis,thatChrisandIhavesharedthatourtechnologyinvestplanoverthisthree-yearperiodisa$1billion-plusplan.Thatisputtingalittlebitmorethanhalfofthe--abouthalfoftheexpensepressure,namelyinsidesmallcommercial,asIcalledoutthismorning.
MichaelNannizzi(Analyst-GoldmanSachs):
Right.
DougElliot (President):
AndasImentioned,weobviouslyareseeingaverysolid,profitablerunthroughourlossratio,sowearefeelingalittleexpensepressureinoursupplementalsbecausewehavegotathree-yeartriggerforlossratioswithmanyofouragentsandbrokers.
MichaelNannizzi(Analyst-GoldmanSachs):
Okay.Gotit.Okay.SoImean,asthatcontinues,then,wecouldexpecttosee--Iguesswewillcontinuetoseetheexpensepressurefromsupplementals.Andthenasyouworkthroughyourtechnologyspend,thenweshouldprobablyseethatnormalizeatsomepoint.
DougElliot (President):
Yes.Iwouldsaythat.Andclearly,aswereplace2012with2015--2015startsoutinagoodspotfromalossratiostandpoint.Thethree-yearrunwith2015willbe2013,2014,2015,whichwillbethreegoodyears.2015clearlyisinabetterplacethan2012wouldhavebeen.SoIthinknowwegettoanormalizedlevelasweapproach2015.
ChrisSwif t (Chairman,):
Mike,Iwouldjustadd,too,ontheexpenseside,weareharvestinggainstoday.Soyoushouldnotthinkthatwearenottryingtobeefficienttodayandimproveourexistingprocesses,particularlyaswespendmoneyonnewtechnology,whichwillcontinue.Wedocapitalizesomeofthoseinvestmentsthatwillbeamortizedoverafive-toseven-yearperioddependingontheproject.
Butweultimatelyexpectthepaybackthroughincreased--I'llcallitproductivity,reducedunitcostandultimately,fastergrowth.SothatishowDougandIhavebeenthinkingaboutit.
MichaelNannizzi(Analyst-GoldmanSachs):
Great.Thanks.Andthenjustonequickone.Ontheupgradesthislastweek,Beth,thinkingaboutthose,wheredothosefallinyourexpectation?Imean,clearly,youareworkingtowardsthistypeofrecognition.Isthisearlierthanyouexpected?Earlieraffirmationthanyouexpected?Anddoesthischangeinanywayhowyou'rethinkingaboutyourcapitalmanagementplanasyoustartpencilingthesecondhalfoftheyear?Thanks.
BethBombara(CFO):
CompanyName:HartfordFinancialServicesGroupIncCompanyTicker:HIGSector:FinancialIndustry:Insurance
EventDescription:Q12015EarningsCallMarketCapasofEventDate:17.65BPriceasofEventDate:41.4
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Thanks,Mike.Soobviouslywe'reverypleasedwiththeactionsthatbothS&PandMoody'shavetaken.Obviously,overthelastseveralyears,wehavebeenworkingwiththemcloselytosharewiththemourplansandweplantocontinuetoworkforcontinuedimprovement.SoIdon'tseeitchangingourviewsrelativetoourcapitalmanagementplans.Again,itisnicetogettherecognitionfortheimprovementsthatwehavemade.
MichaelNannizzi(Analyst-GoldmanSachs):
Great.Thankyousomuch.
Operator :
BrianMeredith,UBS.
BrianMeredith (Analyst-UBS):
Couplequestionshereforyou.Doug,justcurious,ontheincreasethatwesawandsomeoftheseverityonthepersonalauto,wouldyouattributethattokindofindustrywhatisgoingon?Orisanything--anyofthatrelatedtomaybesomeselectionissueswiththebigrapidgrowthyou'regettingintheAARPagencybusiness?
DougElliot (President):
Wearelookingateverycomponentofthat.Andwedofeelliketherearesomethingshappeningherethatweneedtokindofleanintoandwehavesomeworkprogramsaround.Weareclearlylookingatvehicleyearandmakingsurethatournewopenroadproductisappropriatelypricingthose.
Inthequarter,itlookedlikeoursubrogationwasalittlelight.Soweareleaningintosubrogation.Andasyouunderstandthat,thatissomethingwecancatchbackupwith.Sowehavegotanumberofthingsthatwearelookingatinternally,butweunderstandtherehasprobablybeenalittlebitofphysicaldamagepressureacrosstheindustryaswell.
BrianMeredith (Analyst-UBS):
Great.AndthenstayingontheP&Ctopic,Iwillletyoukeepgoinghere,Doug.Commercialauto.Whatexactlyaretheissueswithyourbookthatyouaredealingwithrightnow?Seemslikesomeothercompaniesareactuallysayingtheyarefinallygettingtotherightprofitabilityleveloncommercialauto.
DougElliot (President):
Yes,Iwouldstartbysayingthepressurewearefeelingtodayincommercialautoisverydifferentthansomeoftheprogramsandcaptiveswehadseveralyearsback.SothoseareinourhistoryandIfeelgoodaboutthewaywehavemovedawayfromthoseprograms.Thisismoreorganicmiddlemarketandtoalesserextentsmallpressurejustacrossseverity.
Weareseeingseveritytrendsinthosebooksofbusiness.Wearepricingforthem.Wearelookingatvehicleweightsagainstourpriceperpound.We'relookingatdriverexperience.Iwouldsaythatweareleaningprobablyalittlebitmoreaggressivelyintodriverexperiencethisyearthanwehadinthepast.Soweareworkingacrossthatautobook.We'regoingtogetthisbookperformingmuchbetterassoonaspossible.AndIwouldsayrightnow,weareleavingnostoneunturned.
BrianMeredith (Analyst-UBS):
Great.Thankyou.
CompanyName:HartfordFinancialServicesGroupIncCompanyTicker:HIGSector:FinancialIndustry:Insurance
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Operator :
VincentDeAugustino,KBW.
VincentDeAugustino (Analyst-KBW):
Justaquickfollow-uponapreviousquestionontheautolosscostside.Justwiththishittingthephysicaldamageseverityside,Iamcuriousifthisistheresultofjustgreateractualdamagetovehiclesorifthere'sanyinflationintherepaircost.AndthereasonIaskhereisifitisontheactualdamagelevelstothevehicles,Iamwonderingifthereisanytypeofcorrelationonthebodilyinjuryside,justmaybetoalessermagnitude.
DougElliot (President):
Vince,thisisDougagain.Wearelookingatyearofvehicle.Soobviously,thenewervehicleswillhavemoretechnologyinthebumpersonbothsides.Sothatissomethingthathasgotourfullattention.
Weobviouslyfeelgreataboutourclaimprocess,butwearegoingback.Asyouknow,wehaveanewclaimsystemthatisrollingoutaswespeak.Sowearelookingattheworkstreamsthatnowrevolvearoundthatnewsystemandlookingat[simil]typeandyeartomakesureweareontopofallthosetrends.
VincentDeAugustino (Analyst-KBW):
Okay.Soyourdriverbaseisn'tassensitivetogasprices,butanynotableshiftsonthefrequencyside?
DougElliot (President):
Ageneralupshift,butnotdramatically.We'vewatchedthiscarefullyoverthelast10months,12months.AndsonotthatIthinkthisisinsideourpatternsrelativetolossatthemoment.
VincentDeAugustino (Analyst-KBW):
Okay.AndifIcansqueezeanotheroneonjustpricingontheworkers'compside.Workers'compisageneralizationofalotofsmallermicromarketsandgeographiesandinjuryclasscodes.I'mcurious,basedonyourcommentthismorning,withinthoseaggregatenumbers,ifthereareanypocketsofreallyfavorableordestructivepricingthatyougottowatchoutfor?
DougElliot (President):
Ithinkyouprobablyhaveagreatsenseofthemarketplace.Ingeneral,therehasbeenadownwardpressureacrossthefilingsinworkers'comp.Sosomeofthemajorstatesarelookingatmovesinthepricingrealmthatnowareflattodown.Iwouldsay,acrossthemiddlemarket,Idon'tthemajorswingsfromthegeographicstandpoint.Ithinkwearecompetingwell.Ithinkthetoolsareinplace;thebooksareveryadequatelypriced.
SotheimprovementswehavemadeoverthelastthreeyearsIthinkdopositionabitmorecompetition,whichiswhatweareseeing.ButwearegoingtokeepourdisciplineandIamverycomfortablethatwearegoingtobethoughtfulasweplaythisout.
VincentDeAugustino (Analyst-KBW):
Okay,great.Thanksfortheanswers.Bestofluck,guys.
Operator :
CompanyName:HartfordFinancialServicesGroupIncCompanyTicker:HIGSector:FinancialIndustry:Insurance
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JayGelb,Barclays.
JayGelb(Analyst-Barclays):
First,onTalcott,Ijustwanttogetabitofabetterunderstandingwhyyoufeelthequarterlyrunrateofearningswouldbe$85millionto$95million,giventhestrong--ormuchstrongerperformanceyousawinthefirstquarter.Wasthatjustallsimplyduetoexcesslimitedpartnershipincome?
BethBombara(CFO):
Yes.Thatisexactlywhatdrovetheoutperformanceforthequarter.Sowhenwelookatjustnormalizingtherunrateforinvestmentincome,itgetsbackdownwithintherangethatwepreviouslygave.
JayGelb(Analyst-Barclays):
Okay.Andthenonthecapitalstructure,Beth.I'mlookingatpage5ofthesupplement.Ithinkthislaysitoutprettyclearly.Couldyoureminduswhereyoufeelatargetrangeshouldbeforthedollaramountofdebtandalsodebttocapital?Myguessisyouarefocusedonratingagencyadjusteddebttocapital?Ifyoucouldremindusyourtargetsthere,thatwouldbehelpfulformodelingpurposes.
BethBombara(CFO):
Yes,absolutely.Sowedofocusonthelastlinethatyouseeonthatschedule,whichistheratingagencyadjusteddebttocapitalization.Soendedthequarterat27.3%.WhenwelookforwardtotheyearandanticipatethedebtreductionthatIcoveredinmyremarks,allthingselsebeingequal,wouldexpectthat27.3%tobeonaslightlyunder25%.Andwestatedallalongourgoalhasbeenmarchingdowntothelow20%s.
JayGelb(Analyst-Barclays):
Okay.SoevenaftertheCompanyfinishesupitsdebtreductionforthisyear,thatseemstoimplytherecouldbemoretocomeintheyearsaheadtogetthatratiolower.
BethBombara(CFO):
Yes.Soaswelookforwardandwethinkaboutcapitalmanagementactionsinthefuture,debtreductionissomethingwewillalwaysconsider.Aswesaidinthepast,wedon'tneedtogettothattargetimmediately.Soweintendtocontinuetobebalancedinhowweapproachthat.Butobviously,asyoudoequityrepurchases,thatalsoputspressureontheratio.Sowearereallyjustlookingtobalanceallofthat.AndIwilljustcallitasteadymarchdowntothelow20%s.
JayGelb(Analyst-Barclays):
Iappreciateit.Thankyou.
Operator :
JohnNadel,PiperJaffray.
JohnNadel(Analyst-PiperJaffray):
AquestionforDougonthecommerciallinesside.Andmaybeitissortofwrappingupacoupleoftheearlierquestions,maybeinonemaybeeasierfashionforustounderstand.Ithinkfor2015,youhadtargetedacombinedratioex-CATsinprioryearbetween89.5and91.5.1Qwasdefinitelyabitabovethatrange,butobviouslytoughweather.
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Butalsoontheexpenseside,itsoundslikethingsaregoingtobealittlebithigher.Canyougiveusasense--doyoustillfeelgoodaboutthatrangefor2015?Orcouldthisexpensecomponentpushyoumodestlyabovetheupperendofthat?
DougElliot (President):
John,Iwouldsaythatwestillfeellikethatrangeisachievable.Acoupleofthoughts.Oneis,Idothinkthefirstquarterontheexpensesideisatoughcomparebecauseoftheone-timersthatwereachievedlastyear.Butweareconsciousofthat,andasChrissaidbefore,wearedrivingefficienciesinsidethisoperation.
Soalthoughwearedrivingsomeofthedollarsbackinsidetheinvestpartofourbusiness,wearelookingtobecomeamorestreamlinedefficientcompanyovertime.AndIdothink,obviously,wehavegottowaitandseehowweatherplaysoutsecondandthirdquarter.ButIlookatthisasasolidstarttotheyearandthosetargetsdefinitelyachievable.
JohnNadel(Analyst-PiperJaffray):
Okay.Thankyou.Thenseparately,maybeaquestionforBethontherunoffannuityblock.Thevariableannuitysurrenderrateremainshigh,althoughIguessitiscomingdownmodestly.Butcan'tstayinthe20%sforever,Isuppose.Butthefixedannuitysurrenderratethisquarterdroppedprettysignificantly.Wasthereanyspecificthingthathappenedthere?
BethBombara(CFO):
Yes.SoIwillremindyou,John,wehadaprograminplacein2014thatincreasedthatsurrenderrate,ourISVprogram.Sothatobviouslyimpactedthosesurrenderratesthatwesawin2014andthengoinginto2015.AndasIsaidinmyremarks,wewillcontinuetolookatwaysthatwecantargetspecificportionsofthebook,aswehaveinthepast.Andobviously,thatcanmakethesurrenderratessortofebbandflow.
JohnNadel(Analyst-PiperJaffray):
Okay.Soex-somesortofmodifiedprogram,weshouldexpectprobablysomethingmoreinthelowtomidsingledigitsonthefixedannuityblock?
BethBombara(CFO):
Yes.Itdoestendtobouncearoundabit,too.ButIthinkonaverage,Iwouldsaythatthatwouldmakesense.Butquartertoquarter,dependingonjustwherevariouscontractsstandrelativetochoicesthattheyhavetomake,youcansometimesseethenumbersbounce.Butonaverage,Ithinkthatisagoodplacetobe.
JohnNadel(Analyst-PiperJaffray):
Okay.Thanks.AndthenI'mgoingtosneakonelastonein,unlessSabrawantstobeatmeup.Butaswelookforwardtoanupdatedcapitalmanagementoutlookinthebackhalfoftheyear,canyoujustreminduswhattheongoingcashneedsoftheparentcompany?Howmuchcashdoyouwanttoholdthererelativetointerestexpenseanddividendpayments,etcetera?
BethBombara(CFO):
Sure.Soaswehavetalkedaboutinthepast,whenwethinkaboutholdingcompanycashandlevelsthatwe'dfeelcomfortableat,wetypicallytargetaround1.5timesinterestanddividendrequirements.Andwhenyoulookatwherewearewithinterestanddividends,youcanthinkaboutthatasbeinginlikethe[$650million]range.
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JohnNadel(Analyst-PiperJaffray):
Perfect.Thankyousomuch.
Operator :
JayCohen,BankofAmericaMerrillLynch.
JayCohen (Analyst-BankofAmericaMerrillLynch):
Acoupleofquestions.Firstis,Doug,IthinkyoumentionedthatyouhadplannedtoadjustyouradcampaignfortheAARPbusiness.Whatspecificallywillyoubedoingandhowdoyouthinkthatwillaffecttherevenues?
DougElliot (President):
Whatwehavedoneintheadcampaigniswehaveadjustedslightlytobealittlebitmorevalue-based,tiedinwiththeAARPmembership.Soaswehavemadesometweaksoverthepast90days,ourresponseratehasrisenpositively.Andourcloserateonthoseresponseshasalsoseensomefavorablereactions.Somoretocomeasweworkouttherestof2015,butveryencouragedbytheearlystart.
JayCohen (Analyst-BankofAmericaMerrillLynch):
Great.Andthenstickingwithpersonallines,theagency--non-AARPagencybusiness,youhadsaiditisgettingprettycompetitivewithcomparativeraters.Wasthereachangeinthequarteroristhisjustagradualcontinuationofwhatyouhaveseenoverthepastseveralyears?
ChrisSwif t (Chairman,):
Iwouldsayfromtheindustryside,nochangethatwecantell.Wehavemadesomeadjustmentsinourownstrategy,reallyaroundclassesinvehiclesandgeographies,justnormaltuningthatgoesondaytoday.Andsothecombinedactionsofcompetitivepressuresonourownactionscontributedtothequarter.
JayCohen (Analyst-BankofAmericaMerrillLynch):
Gotit.
ChrisSwif t (Chairman,):
Letmejustaddjustaperspective,too,becauseIcalleditout,particularlyinmypreparedremarks,thatweare--Imean,personallinesisanimportantstrategyforTheHartfordandcomplementary,obviously,withourstrongcommercialcapabilities.
Sothatiswhyweappointedoneofourseasonedleaders,RaySprague,toreallyleadinthisandhelpuscontinuetoimproveit,becausewehaveawonderful30-plusyearrelationshipwithAARPthatwewanttocontinuetoleverageandservetheircustomers.Specificallyonyouradquestion,ifyouhaven'tseenthem,IwillgetSabrasenttosendyouaclip.
Buttheyarereallypowerfulconnections--emotionalconnections,Doug,Iwouldsay.Theyarestrongtestimonial-based,hearingdirectlyfromAARPmembersthemselvesandexplainingthevaluepropositionthatweoffer.
Asopposedtojustcompetingonpriceandjustaminimum,I'llcallit,featuresandcapabilitiesintheproducts.Soweofferarichproductthatweareproudoffromacoverageside.AndIthinkwe'regoingtotrytodoabetterjobinexplainingwhythosecoveragesareneededtoinsurefortheunforeseen.So
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thosearejustacouplethoughtsIjustsharewithyou.
JayCohen (Analyst-BankofAmericaMerrillLynch):
That'sgreat.Thanksalot.
Operator :
TomGallagher,CreditSuisse.
T omGallagher (Analyst-CreditSuisse):
IwillhaveaquestionandthenIwillturnitoverto[RyanTunis]forafollow-upP&Cquestion.Beth,justcomingbackasafollow-uptowhatJohnNadelaskedaboutonthecapitalmanagementfront,ifIunderstoodyouranswercorrectly,thatshouldleavethefull,wewillcallit,$500milliondividendthatyouexpecttogetoutofTalcottinthebackhalf,plusthe$700millionofoperatingdividendsor$1.2billion.
Itshouldleaveallofthatforincrementalcapitalmanagementorother,overandaboveyourexistingcapitalplan.Isthatrightorisitsomefractionofthe$1.2billionthatwouldnothavebeenaccountedforyet?
BethBombara(CFO):
Yes.SothewayIwouldhaveyouthinkaboutthat,Tom,ifyourecall,backinFebruary,weprovidedyouwithanupdateonourprojectionsofholdingcompanycashandwhereweexpectedtheholdingcompanytoendtheyearat.
Andthatwasatabout$1.8billion.Andthatremainsunchanged.Thattookintoconsiderationallthedividendsthatwejusttalkedabout.SowhenIwasansweringJohn'squestionontheholdingcompanyrequirements,andifyouthinkabout$650million-ishbeingtheannualinterestanddividendsthattheholdingcompanypays,andourtargettohold1.5timesthat,Ithinkthatgivesyoualittlebitofmapashowwethinkaboutyearend2015.
Andthenagain,aswesaid,goinginto2016,wehavetheadditional$500milliondividendthatweanticipatetakingoutofTalcottaswellasjustournormaldividendsthatwewouldtakeoutoftheotherbusinesses.
T omGallagher (Analyst-CreditSuisse):
Gotyou.Sothatwouldleavealittleunder$1billion,then,ifIamsolving--inresponsetothat--withthatresponseinmind,itwouldleavealittleunder$1billionintermsofincrementalcapitalmanagement?Isthattherightnumbertothinkabout?Andthenobviously,itisadeterminationofwhatdoyouuseforbuybacksversusdebtmanagement,butisthattherightfigure?
BethBombara(CFO):
Yes.SoTom,Idon'treallywanttogetintoaspecificnumber.Aswesaid,wearegoingtolooktoupdateourplansinthesecondhalfoncewearegoingtoseehowthefirsthalfof2015goesandourviewsoftheremainderof2015goinginto2016.ThereisnothinghiddeninthemaththatIgivingyou,soyoucandrawyourownconclusion.Butagain,whenwetalkaboutupdatingourplans,itwouldbe2015through2016.
T omGallagher (Analyst-CreditSuisse):
Gotyou.AndIwillturnitovertoRyanonP&C.
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Unidentif iedPart icipant :
SoIguessmyquestionis…
DougElliot (President):
Ryan,letmejustfollowuponTomand(multiplespeakers)Iappreciateyourreconciliationandtryingtopinpointit.ButIthinkBethsaiditwellisthatwewillgetintothesecondhalfof2015,gothroughourregularforward-lookingplanningprocess,andseethe--andjustmakesomefinaldecisions.Ithink,frommyperspective,Itakegreatcomfortinthefactthattheagencieshaveseentheimprovementsthatwearemaking.
Wearesittingonexcesscapital.thatweintendtodeployinaccretiveways.Youhaveheardourpenchanttokeepingthingsinbalancebetweendebtandequity,soIdon'tthinkthereisanythingreallychanged.Andifyoucouldjustcontinuetobejustalittlepatientwithusinthatwewanttobearegularcompanyandsortoflookatthesethingsinanormalcycleandrhythmandwewillcommunicateourviewstoyouattheappropriatetime.Butthankyouforyourinterest.
T omGallagher (Analyst-CreditSuisse):
Thanks,Chris.
Unidentif iedPart icipant :
Soyes,Iguessmyquestionontheongoingbusinesses,alittlebithigherlevelonpersonallines.ItisforeitherRayorDoug.ButIguessjustlookingatauto,7%renewalrateincreasesthisquarter.Shouldweexpectmarginimprovementinthatbusinessthisyear,giventhemagnitudeofthoserateincreases?Orwouldyousaythoserateincreasesarenecessaryjusttokeepup,basedonsomeoftheelevatedphysicaldamageseverityyoumentioned?Thanks.
DougElliot (President):
Aswestarttheyear,losstrendiscertainlyeatingintoourpricingequation.Wehopethatthatwillchange.Wehavegotanumberofworkstreamstotrytobringincrementalmarginbackinsidethatbook.Iwouldremindyouthatoverall,ourautobookisinactuallyprettyreasonableshape.Andclearly,ontheAARPside,verysolidshape.Wehavesomeworktodointheagencychannelandwehavechattedaboutthatinthepast.SoIhopethatwecanturnthatpricingintoabenefitinsidetheratio.Thatisthegoal.
Unidentif iedPart icipant :
Thanks,Doug.
Operator :
ErikBass,Citigroup.
ErikBass (Analyst-Citigroup):
Justwantedtotouchonthegroupbenefitsbusiness.Obviously,itwasaverystrongquarterforsalesandyoucitedthebenefitfromthewinbacks.Canyoualsotalkaboutthecontributionfromnewproducts?Andmaybe,also,justdiscussthecompetitivetrendsthatyouareseeinginthegroupbenefitsmarket?
DougElliot (President):
Iwilltrytocoverafewofthoseitemsinthequestion,whichwasagoodone.Verypleasedwiththequarter,obviously.Astrongsalesquarter--ourstrongestsalesquarterinseveralyears.AlthoughIwould
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remindyouthatwehavehadquarterslikethatinthepastwhenthisbusinesswasreallyrunningwellforusbackinthelate2000sandeveninto2010.Sopleasedwithourstart2015.Youcanalsoseethatabitmoresuccesshasbeenonthelifeside.
Soaswelookatthelong-termdurationcontractsinLTD,strongstart,butnotasstrong,probably,aswehadseenonthelifecontractside.Sojustsomethingintermsofmarketplace.Yes,weareexcitedaboutthenewproductdevelopmentoverthepastseveralyearsandwehavegottwonewvoluntaryproductsinmarket,includinganewdisabilityflexproduct.
Wehavesoldseveralofthosedeals.Iwillalsotellyouthatwearelookingtopopulatethemwithemployeesofthecontractsthatwehavewrittenthemon,butIthinkofftoagoodstart.They'rerecognizedbymanyofourpolicyholdersandIthinkwearegoingtobegintoseethatsuccessplayoutin2015.Soverypleasedwithourgroupbenefitstart.
ErikBass (Analyst-Citigroup):
Gotit.Thankyou.Andjustanycommentontheoverallcompetition?Iguesswhenyouhavetalkedabout--yourcommentsaroundcompetitionpickingupgenerally,itseemsitwasmorerelatedtoP&C.Butanythingsimilarthatyouareseeingonthegroupbenefitssideorisitstillarelativelybenignenvironment?
DougElliot (President):
Iwouldsayitisarelativelyconsistentenvironment.Soweseecompetitionthere.MaybeabitmoreontheLTDsidethanwhatwehadexperiencedinthepast.Andagain,whatissointerestingaboutthegroupbenefitworldisthat,particularlyinthenationalaccounts,weareworkingsixmonths,ninemonthsinadvance.Sosomeofthesuccesseswehadinthefirstquarterwerereallytheresultofactionsandproposalsthatwentonlastsummer.
Butwearefeelinggoodaboutourabilitytobesuccessfulinthemiddlemarket.Thatwillbeanincreasinglyimportantpartofourgroupbenefitstrategy.ButIdothinkrationalcompetitionreallyacrossinaconsistentmanner.
ErikBass (Analyst-Citigroup):
Great.Thankyou.
ChrisSwif t (Chairman,):
IwouldjustaddacoupleofthemesthatDougexplained.One,ifyoulookatsales,thelifeTIpieceisinteresting.Soshorterdurationversuslongerduration.Wearehavingalittlebitmoresuccess,particularlyinthelowinterestrateenvironment.Two,itisobviouslyaheavynationalaccountseason,the1-1.
Butequally,thereisalotofgoodcontributionthatDougandtheteamhavebeenfocusedoninmiddlemarketinthesmallside.Soourbalanceofsalesisspreadamongstthedifferentsegments.Andthenthirdly,thechannel.Iwouldsayexchangesarebeginningtocontributeinawaythatweanticipated,butisapositivedevelopment,too.Sowerelyonourexistingagentsandbrokers.Butthereareanumberofexchangesthatweareparticipatinginthatarecontributingnicelytoourincreaseinsales.
ErikBass (Analyst-Citigroup):
Allright.Thankyou.
Operator :
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RandyBinner,FBR.
RandyBinner (Analyst-FBR):
Alotofgoodstuff,somostlyanswered.ButIwanttoactuallyjumpbacktothecommercialautodiscussionandthensomecommentsintheopeningscript,thatD&OandE&Oclaimactivityhasbeenfavorable.
Soitisareservequestioninthatthenetreservereleaseinthequarterforcommerciallineswasrelativelyflat.Anditwasrelativelyflatoverall.SothequestioniswasthereadversePOIDincommercialautothatoffsetthemorefavorableD&OandE&OactivityorwastherenotPOIDinthoseitemsthisquarter?
DougElliot (President):
Ithinkyoucanseeinthesupthat,yes,wehadsomeadverseautoliabilityactionstakenonourreserveposition,forsure.Mostlymiddlemarket,Imightcomment.Andthenthefinancialproductgoodnewsessentiallydidoffsetthat.Justathoughtaboutthefinancialproduct,D&O,E&O,book.Wewereheavierinthefinancialinstitutionblockbackduringtherecessionaryperiod,sowemadeappropriatereservepositionjudgmentsbackinthatperiod.
We'vewatchedthemplayoutasthelastfiveandsixyearshaveplayedout.Thisquarter,wecametothedecisionthatwehad--itwastimetomakesomeofthoseadjustments.SothenettingofthosetwoiswhatisplayingoutinourreservepositiononthepriorandIthinkitiswelllaidoutinthesupforyou.
RandyBinner (Analyst-FBR):
Thankyou.Andthenthefollow-upisjustonthinkingofmorerecentaccidentyears.Soif--especiallywithD&OandE&O,withtheeconomycontinuingtobegoodandlosscostrelativelybenign,especiallyin2012and2013,therewasbetterpricing.Isthereanearlyreadyouhaveonsomeofthose--thecasualtylineswritteninthosemorerecentaccidentyearsandhowtheymaydevelop?
ChrisSwif t (Chairman,):
Ithinkitistooearlyforustocommentonthat.Wehaveawell-balancedbookofbusinessacrosssector,geography,etcetera.ButIthinkitwouldbeearlyformetomakeacallon2014and2013.
RandyBinner (Analyst-FBR):
Allright,fairenough.Thanks.
Operator :
JimmyBhullar,JPMorgan.
JimmyBhullar (Analyst-JPMorgan):
Manyofmyquestionswereactuallyanswered,butonthepersonallinesside,canyoudiscussjustwhatisgoingoninthenon-AARPagencychannelpremiums?Theyhavebeendownforawild.Isitcompetitionorareyoubeingmoreselectiveinwhatyouarechoosingtounderwrite?
Andthen,BethhadmentionedinherremarksonTalcottsurplusbeingsensitivetointerestrates.Maybeifyoucouldquantifyorgiveussomecoloronjusthowsensitiveitwouldbeto20basispoints,30basispoints,50basispointsofachangeinrates.
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DougElliot (President):
IwillstartandtakethefirsthalfandthenwewillfliptoBeth.IwouldsaythatwithRay'sleadership--andheandInowhavebeenengagedheavilywiththegroupoverthepastninemonths--itisagreatchanceforustodoarefresh.Wehavementionedthatwearerollingoutanewautoclassplanthatalwaysencouragestuning,asthesethingsrollintomarket.
SoIwouldconsiderwhatwearedoinginthemarketplacekindofnormalforacompetitiveproductadjustmentstrategythatwewillcontinuetoevolveaswemoveforward.Yes,itisacompetitivechannel,butIthinkourreturnsarereallyinverysolidshape.Wewouldlikethemtobeabitbetter,butIamsatisfiedwithwhereweareandIthinkwewillcontinuetodotuningaswemoveforward.
BethBombara(CFO):
AndJimmy,onthequestiononinterestrates,Idon'thaveanexactsensitivitythatIcangiveyouvis-a-visabasispointchangeandwhatthatmightmean.WhatIwouldtellyouisthatwhenwelookattheoverallbookinTalcott,wefeelverygoodaboutthecashflowgenerationthatweseecomingfromtheVAbook.Andaswegetclosertotheendoftheyear,lowratescouldjustputpressureonthatpreviousrangethatwegave.
Butoverall,stillfeelverygoodaboutthebalancesheetstrengthandfeelverycomfortablewiththedividendplansthatwe'veputoutthere.Andaswegettotheendof2015,wewillevaluatesurpluslevelstodeterminewhat,ifany,additionaldividendswewouldseein2016,besideswhatwehavealreadyannounced.
JimmyBhullar (Analyst-JPMorgan):
Andjustlastly,isthereaminimumlevelofsurplusyouwouldwanttoleaveinTalcott,assuminganormaldeclineinthesizeoftheblock?
BethBombara(CFO):
Idon'thaveaspecifictargetinmind.Overtimeobviously,wefocusonRBCratios.Welookattheoverallsurplus,especiallyinstresssituations.Andthenalsobalancingliquidity.Soagain,theplanthatwehaveannouncedandthedividendsthatweexpecttotakeoutputuswellwithinallofthosethresholdsthatwemonitor.Andagain,asthebook[getssmaller],wewillevaluateabsolutesurpluslevels.
JimmyBhullar (Analyst-JPMorgan):
Andthoseamountsyouarecomfortablewith,evenwithrateswheretheyare,right?
BethBombara(CFO):
Yes.Theitemsthatwehavealreadydisclosed,wefeelverycomfortablewith.
JimmyBhullar (Analyst-JPMorgan):
Okay.Thankyou.
Operator :
IanGutterman,Balyasny.
IanGutterman (Analyst-Balyasny):
IwantedtofollowuponRandy'squestionaboutthereservesintherecentaccidentyears.Doug,I
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specificallyfocusedonworkers'comp.Obviously,thatisyourbiggestareaofreserves.AndwhenIlookattherecentaccidentyears,theyarereportedtoincur--theinitialreportedtoincurredissomuchbetterthanhasbeenhistoricallythatIcan'tdrawanyotherconclusionthatyouseemtobereservingalotmoreconservatively.
Theonlypossibleexceptiontothatismaybetherehasbeensomemeaningfulshiftinthebook,wherereportswouldbecominginlaterthanitusedtobecauseofmixorsomeotherunderwritingchange.Isthereanythinglikethatgoingon?OrshouldIbeencouragedbyseeingtheearlyreportedtoincurredratioslookingsomuchbetterthanhistoric?
DougElliot (President):
First,Iampleasedthatyouareencouraged.Weareencouragedbyourbookprofileoverthepastfewyears.Notonlyonthepricingside,butreallyverypleasedaboutthemixchangesandhowthey'veplayedoutinsideourearningsandreserveprofile.
SoIthink2013and2014arestillearlytocall,butweareverypleasedastohowtheylookandwehopetheycontinuetolookassolidastheyaretoday.Butyouknow,wecallthemasweseethem.Wefeelgoodaboutprogress,butthesearelongtaillinesthattakeawhiletomature.
IanGutterman (Analyst-Balyasny):
Ofcourse.Ofcourse.Iwasthinkingmorehowtheyplayoutovertimethanexpectingitthisyear.Butthat'sokay.Andthenjustafollow-upontheagencyautobusiness,then,foryouand/orChris.Juststrategically--andI--youobviouslytalkedalotaboutsomeofthechangesyouaremaking,butassortofJimmyalludedto,thatbookshrunkforalongtime.
Andagain,Iamspecificallytalkingaboutthenon-AARPhere.Aretheactionsyouaretakingenoughthatyoucancompetewhereyouneedtoatthescaleyouareat?Orareyougoingtohavetofaceadecisioneventuallyofeitheryouneedtogetbiggerinthennon-AARPbusinessormaybegetoutofthenon-AARPbusiness?
DougElliot (President):
Ian,Ithinkyouaskverysolidquestions.AsChrishadsuggested,wearetotallycommittedtothisspace.Thisisbeenarealsolidcomplementtonotonlyourpersonallinesagencyfranchise,butalsotothecommercialaswell.
Butwehavebeenchallengedandwehavegottogetthosehitchallengesheadonfromafinancialstandpoint.Wearedoingsoaswespeaktoday.Iamoptimisticaboutwhatthenextcoupleyearswillbring,butIalsoknowthatchallengeinthechannel,basedonhowcompetitioncompetesandthecomparativeraters,etcetera.SoIthinkwewillbetalkingaboutthisastimeplaysout.Andknowithasourfullattention.Andweareonitandwearepullingleverstodriveabetterfinancialoutcome.
ChrisSwif t (Chairman,):
Ian,IthinkDougsaiditwell.ButIthinkwhenyouthinkaboutitalsostrategically,westillbelieveinadvicethattheindependentagentsprovide,providedthatwehaveagoodcompetitivehomeandautoproduct.
SoIthinkwhenyouspeakofauto,don'tforgetabouthomeinmakingsurethatwehaveatotalsolutionforourindependentagentsandourcustomers.SoasDougsaiditandhesaiditwell.Wearecommittedtofiguringthisoutandhowwecancontinuetoaddvalueinthissegment.
CompanyName:HartfordFinancialServicesGroupIncCompanyTicker:HIGSector:FinancialIndustry:Insurance
EventDescription:Q12015EarningsCallMarketCapasofEventDate:17.65BPriceasofEventDate:41.4
©2014TheStreet,Inc.Al l R ightsReserved Page20of21
IanGutterman (Analyst-Balyasny):
Perfect.Thanks,guys.
SabraPurt ill(Head-IR):
Thankyou.Sean,wearecomingupthehour,sowehavetimeforonemorequestion,please.
Operator :
ScottFrost,BankofAmericaMerrillLynch.
Scott Frost (Analyst-BankofAmericaMerrillLynch):
Withoutgettingintoanypredictionsofratings--creditratingtrajectory,canyougiveusanideaofwhereyouthinkyourtargetedmetricsmapintermsofNRSROquantitativeratings?AndIhaveafollow-up.
SabraPurt ill(Head-IR):
I'msorry,Scott.Thetailendofyourquestiongotalittlegarbled.Themetricsrelativeto--
Scott Frost (Analyst-BankofAmericaMerrillLynch):
Yes.IntermsofjustthequantitativeratingsthatNRSROshaveoutthere,youhavetargetedmetrics.Wheredoyou--whatdoyouthinktheymap?
SabraPurt ill(Head-IR):
Right.Likethe22%to23%,forinstance,onthedebttototalcapital.
BethBombara(CFO):
Yes.Iwouldsayjustslightlyhigher.
Scott Frost (Analyst-BankofAmericaMerrillLynch):
Okay.AndcanyoualsoremindusacouplethingsIwanttoaskabouttheGlenMeadowsandthe[8and8]juniorsubs.WhatMoody'sbaskettreatmentdotheygetandaretheywithinS&P'sequitybucketforyou?Andhowwouldyoucharacterizetheattractivenessofthosetwoinstrumentsinyourcapitalstructure?
BethBombara(CFO):
ForMoody's,itis25%andforS&P,100%.ThewayIthinkaboutit,welookedatourdebtstackintotalintryingtomanagetothetargetsthatIsaid.Sothoseobviouslyweighintothataswelookatreallyfocusingontheratingagencyadjustedtargets.Sorightnow,theyfitverynicely.Andaswecontinuetomanagethedebtstack,wereallyarelookingatitmorefromtheperspectiveofmanagingtothosetargets.
Scott Frost (Analyst-BankofAmericaMerrillLynch):
Soareyousayingthatbothofthoseinstrumentsareattractivetoyounow?
BethBombara(CFO):
Rightnow,yes,theyareattractive.Theydohelpusachievethetargetsthatwehave.Overtime,thatcouldchange,butforwherewesittoday,wedoseethemasattractive.
CompanyName:HartfordFinancialServicesGroupIncCompanyTicker:HIGSector:FinancialIndustry:Insurance
EventDescription:Q12015EarningsCallMarketCapasofEventDate:17.65BPriceasofEventDate:41.4
©2014TheStreet,Inc.Al l R ightsReserved Page21of21
Scott Frost (Analyst-BankofAmericaMerrillLynch):
Okay.Thankyouverymuch.
Operator :
Therearenofurtherquestions.
SabraPurt ill(Head-IR):
Thankyou,Sean.WewouldliketothankyouallforjoiningustodayandforyourinterestinTheHartford.Ifanyonehasanyremainingquestions,pleasefeelfreetocontactSeanormyselfbyphoneore-mailandwewillbehappytohelpyou.Thankyouandhaveagreatday.
Operator :
Thisconcludestoday'sconferencecall.
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