HARTFORD INSURANCE GROUP, INC. HIG

The Hartford strengthened its general liability reserves by $130 million before tax in Q4 FY24. This included adjustments to the 2015-2018 accident years due to higher construction defect claim activity, and increases to incurred but not reported (IBNR) reserves for more recent accident years. The latter reflects an observed increase in severity on reported claims and an anticipated higher claim severity trend on unreported claims, driven by rising attorney representation rates and higher average settlement costs. Management stated that the split between older and more recent years was roughly half and half, and expressed high confidence that this proactive adjustment addresses the most recent trends, with these higher loss cost trends now incorporated into 2024 accident year estimates and 2025 pricing models.

2024 was a transformative year for Personal Lines, with significant investments in new products, capabilities, operating routines, data, and technology. The auto business achieved substantial rate increases, leading to a 7.3-point improvement in the overall auto underlying loss ratio for FY24, exceeding expectations by over 1 point. The homeowners business also had an exceptional year, with its best underlying combined ratio in over a decade in Q4. The company plans to return its auto business to targeted profitability by mid-2025, leveraging earned pricing actions and moderating severity trends, while continuing thoughtful growth in homeowners.

Commercial Lines delivered strong top-line growth, with 6% written premium growth in Q4 and 9% for the full year, while maintaining highly profitable underlying margins (87.1% in Q4, 87.9% for FY24). Small Commercial achieved a record $5.5 billion in written premium for 2024, including $1.1 billion in new business, and sustained its sub-90 underlying combined ratio for the 18th consecutive quarter. Middle & Large Commercial grew 5% in Q4, with 16% new business growth for the full year, despite a more competitive market in Q4. The segment remains committed to disciplined underwriting and expects to sustain meaningful growth in 2025.

Group Benefits achieved a strong core earnings margin of 7.8% in Q4 and 8.2% for FY24, driven by favorable mortality trends in Group Life and strong disability results. However, the segment experienced pressure from paid family and medical leave products, which contributed to a higher disability loss ratio. Management is implementing rate and underwriting actions to improve margins in these products. The company anticipates the group benefits market to remain dynamic, necessitating continued investment in digital transformation and product innovation, with a long-term core earnings margin target of 6% to 7% as disability incidence trends normalize.

The Hartford actively managed its capital, repurchasing 3.4 million shares for $400 million in Q4, with $3.15 billion remaining on its authorization through December 31, 2026. The company expects net dividends from operating companies to be approximately $2.5 billion in 2025, a 9% increase over 2024. The catastrophe reinsurance program renewal on January 1 was favorable, with a 10% decrease in cost on a risk-adjusted basis for the expiring core per occurrence protection. The post-reset occurrence program provides protection up to a gross loss event of $1.5 billion, and the aggregate treaty was also renewed at a favorable cost decrease, supporting strategic growth in property writing.

The company completed its A&E reserve study in Q4, resulting in an increase in reserves of $203 million, comprising $167 million for asbestos and $36 million for environmental. Of this, $141 million impacted core earnings, and $62 million was recorded as a deferred gain, exhausting the ADC cover for A&E. The remaining balance of $64 million from the Navigators ADC deferred gain is expected to be amortized in 2025, positively impacting net income but not core earnings. Management noted that while claim frequency for A&E is decreasing, severity continues to rise.