3Q21 Webcast Transcript

The Hartford Financial Services Group, Inc.

NYSE:HIG

FQ3 2021 Earnings Call Transcripts

Friday, October 29, 2021 1:00 PM GMT

S&P Global Market Intelligence Estimates

		-FQ3 2021-		-FQ4 2021-	-FY 2021-	-FY 2022-
	CONSENSUS	ACTUAL	SURPRISE	CONSENSUS	CONSENSUS	CONSENSUS
EPS Normalized	0.86	1.26	46.51	1.58	5.65	NA
Revenue (mm)	5254.00	5686.00	8.22	5289.00	21411.54	NA

Currency: USD

Consensus as of Oct-30-2021 12:00 AM GMT

- EPS NORMALIZED -

	CONSENSUS	ACTUAL	SURPRISE
FQ4 2020	1.32	1.76	33.33 %
FQ1 2021	0.57	0.56	(1.75 %)
FQ2 2021	1.34	2.33	73.88 %
FQ3 2021	0.86	1.26	46.51 %

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Contents

Table of Contents

Call Participants..................................................................................	3
Presentation..................................................................................	4
Question and Answer..................................................................................	10

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THE HARTFORD FINANCIAL SERVICES GROUP, INC. FQ3 2021 EARNINGS CALL OCT 29, 2021

Call Participants

EXECUTIVES

Beth A. Costello

Executive VP & CFO

Christopher Jerome Swift

Chairman & CEO

Douglas Graham Elliot

President

Susan Spivak Bernstein

Senior Investor Relations Officer

ANALYSTS

Andrew Scott Kligerman

Crédit Suisse AG, Research Division

David Kenneth Motemaden

Evercore ISI Institutional Equities,

Research Division

Dong Yoon Han

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

Elyse Beth Greenspan

Wells Fargo Securities, LLC, Research Division

Gary Kent Ransom

Dowling & Partners Securities, LLC

Jamminder Singh Bhullar

JPMorgan Chase & Co, Research

Division

Joshua David Shanker

BofA Securities, Research Division

Michael David Zaremski

Wolfe Research, LLC

Tracy Dolin-Benguigui

Barclays Bank PLC, Research Division

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THE HARTFORD FINANCIAL SERVICES GROUP, INC. FQ3 2021 EARNINGS CALL OCT 29, 2021

Presentation

Operator

Good day and welcome to The Hartford Third Quarter 2021 Financial Results Webcast and Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Susan Spivak. Please go ahead.

Susan Spivak Bernstein

Senior Investor Relations Officer

Thank you. Good morning and thank you all for joining us today for our call and webcast on third quarter 2021 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 Elliot, President. Following their prepared remarks, we will have a Q&A period.

Just a few final 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 includes 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, please note that no portion of this call can be produced or rebroadcast in any form without The Hartford's 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 turn the call over to Chris.

Christopher Jerome Swift

Chairman & CEO

Thank you for joining us this morning. Once again, our outstanding underwriting capabilities and consistent execution on strategic initiatives becomes increasingly evident with each quarterly earnings report and reinforces my confidence about the future for The Hartford.

In the third quarter, we reported core earnings of $442 million or $1.26 per diluted share; 8% growth in year-over-year diluted book value per share, excluding AOCI; and a trailing 12-month core earnings ROE of 12.5%. We returned $634 million to shareholders in the quarter from share repurchases and common dividends and $1.6 billion for the 9 months ended September 30.

The confidence we have in our business is also evidenced by the announcement that we have increased our share repurchase program by $500 million, bringing the total authorization to $3 billion through the end of 2022. And we increased our quarterly dividend by 10%, payable in January of 2022. With strong cash flow generation, we will continue to have a balanced capital deployment approach to support growth and investments in the businesses with capital return to shareholders.

Looking through to the underlying results. The positive momentum continued with written premium growth, margin expansion, operating efficiencies and a significant return on alternative investments. However, results were impacted by Hurricane Ida, higher pandemic-related excess mortality in Group Benefits and the Boy Scouts of America settlement. Commercial Lines reported stellar margins with an industry-leading 87.2 underlying combined ratio and another double- digit top line growth, reflecting higher new business levels, continued strong retention and solid renewal price increases. Our teams continue to execute exceptionally well.

In Personal Lines, we are in the midst of a transformation to provide a more contemporary experience in product. Through a modernized platform, in partnership with AARP, one of the largest affinity groups in America, we see the opportunity

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THE HARTFORD FINANCIAL SERVICES GROUP, INC. FQ3 2021 EARNINGS CALL OCT 29, 2021

to capitalize on the growth in the mature market segment as this demographic is expected to grow 3x as fast as the rest of the U.S. population over the next decade. I am pleased with the progress being made with the introduction of the new platform, and Doug will provide more commentary.

Additionally, in the quarter, we entered into a new agreement in principle with the Boy Scouts of America. This agreement now includes not only the BSA, but local counsels and representatives of the majority of sexual abuse claimants who have now been asked to officially vote on the BSA bankruptcy plan. The Hartford settlement becomes final upon the occurrence of certain conditions, which we expect to occur in early 2022.

Now turning to Group Benefits. Core earnings for the quarter were $19 million, reflecting elevated life and short-term disability claims, partially offset by strong investment returns, improved long-term disability results and earned premium growth. Throughout the year, we have been reporting earned premium growth over prior year, and this quarter's positive trends continues. Fully insured ongoing premium is up 4%. This reflects growth in our in-force book and continued strong sales in persistency. Persistency was above 90% and increased approximately 1 point over prior year.

The group life industry has been impacted by excess mortality over the past 6 quarters. During our July earnings call, we were optimistic that trends would lead to an improvement in COVID-related mortality. Our optimism was short-lived as the number of U.S. deaths started increasing in August due to the Delta variant and continued through September. As of this week, U.S. COVID deaths for the third quarter now exceed 112,000, and this number is likely to continue to increase in the weeks ahead due to reporting lags in the data.

The rapid increase in COVID deaths in the third quarter drove elevated mortality in our book of business and across the industry. Additionally, the mortality experience from the Delta surge has a higher percentage impact on the under 65 population compared to prior periods. Approximately 40% of U.S.-reported COVID deaths in August and September were of individuals under age 65 compared to approximately 20% of COVID deaths in December of 2020 and January of 2021.

Since younger age cohorts tend to carry higher face amounts, the combination of increased deaths and higher amounts of insured values resulted in a significant increase in total dollar levels of mortality claims. In addition, we experienced higher levels of non-COVID excess mortality during the quarter, representing approximately 30% of reported excess mortality loss. This is directionally consistent with the broader U.S. trends that saw elevated non-mortality (sic) [ non- COVID mortality ] in the third quarter.

As we look to the fourth quarter, forecasting excess mortality is a challenge. What we do know is that vaccinations are saving lives, and higher levels of vaccination rates should help mitigate mortality claims. Bottom line, the fundamentals across the Group Benefits business remains solid, and we are confident and optimistic about our performance in the future.

Turning to the economic backdrop. While there are conflicting signals, I remain encouraged on the '22 macroeconomic outlook and believe the environment will be one in which The Hartford's businesses perform well. Headline inflation remains elevated, but core inflation is on the decline. I do not expect inflationary pressures to go away overnight. The focus of global governments and the private sector on supply chain solutions as well as the normalization of hard-hit pandemic sectors causes me to believe inflationary pressure will begin to ease in the second half of 2022.

While employment gains stalled in the last couple of months as the U.S. was impacted by the Delta surge, vaccination rates, therapeutics and growing levels of natural immunity provide confidence that COVID will become less of a deterrent for individuals to seek employment and return to the workforce. Unemployment is expected to continue a downward trend as borders increasingly reopen and pandemic-related benefits fully roll off. This bodes well for The Hartford's business mix.

As I reflect on my tenure with The Hartford, I'm extremely proud of the progress we've made. Over the years, we fixed core businesses, exited underperforming or noncore segments, successfully integrated the new operations we added, positioning the company to capture even more opportunities in the marketplace going forward. This is a direct result of our performance-driven culture and the significant investments we have made to transform the organization into one with exceptional underwriting tools and expertise, expanded product depth and breadth and industry-leading digital capabilities, complemented by a talented and dedicated employee base.

However, the journey is not complete. We will continue investing for the long term to become an even more differentiated competitor in the customer experience, all while producing superior financial results.

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