The Hartford CEO: Most recent trends “addressed” after $130mn Q4 GL reserve charge

By Michael Loney

Jan 31 - (The Insurer) - The Hartford strengthened general liability reserves by $130mn in Q4 because of higher claim severity for both the 2015-2018 period and more recent years, its management has revealed, while investors sent its share price down nearly 5 percent in response to its results.

The insurer after markets closed on Thursday reported core earnings per diluted share of $2.94 for the fourth quarter, ahead of the $2.64 consensus estimate but down from $3.06 in Q4 2023.

The property casualty combined ratio improved by 1.6 percentage points to 92.1 percent, while the underlying combined ratio improved by 1.4 points to 87.8 percent.

New York-listed The Hartford’s share price dropped almost 5 percent in morning trading and was down around 3.5 percent as of 12.30pm ET, compared with the previous day’s closing price of $114.26.

As this publication reported, The Hartford’s management during an investor call on Friday stated that Los Angeles wildfire losses are “very likely" to reach the insurer’s first layer of per occurrence reinsurance protection attaching at $200mn.

The company also reported that it achieved a 10 percent cost decrease for this cover at the 1.1 reinsurance renewals.

2024's fourth quarter included net unfavourable prior accident year development (PYD) in core earnings of $97mn, compared with net favourable PYD of $102mn in core earnings in Q4 2023.

The unfavourable PYD in Q4 2024 was primarily driven by an increase of $141mn related to asbestos and environmental (A&E) reserves after reinsurance related to an adverse development cover.

Excluding the A&E reserve development, prior accident year reserve development was favourable by $44mn and included reserve reductions in workers’ compensation, catastrophes, bond, professional liability and personal auto, partially offset by reserve increases in general liability and commercial auto liability.

During the investor call on Friday, The Hartford chairman and CEO Christopher Swift revealed that the quarter included $130mn of general liability reserve strengthening.

“We believe that we have addressed the most recent trends and have adjusted our ultimate losses accordingly, reflecting the potential for increasing settlement costs due to a higher percentage of returning representation across all claim sizes and the rise in average settlement rates,” he said.

CFO Beth Costello elaborated that the $130mn included strengthening for the 2015 to 2018 accident years, “driven by higher-than-expected construction defect claim activity in those years”, as well as increasing incurred but not reported reserves for more recent accident years.

She added that the $130mn strengthening is split “roughly half-and-half” between the 2015 to 2018 years and the three more recent years.

Discussing the more recent years, Costello said: “We observed an increase in severity on reported claims above our expectations and anticipate a higher claim severity trend on unreported claims as the industry continues to face increasing settlement costs with rising attorney representation rates and higher average settlement rates.”

Commercial pricing “comfortably above loss cost trends”

The Hartford’s commercial lines written premiums increased 6 percent to $3.2bn in Q4.

Excluding workers’ compensation, the insurer’s renewal written price increase of 9.7 percent in the quarter was up 40 basis points from Q3 2024.

“All in, ex-comp renewal written pricing in commercial lines remain comfortably above loss cost trends. Workers' compensation pricing was slightly down sequentially,” Swift said.

He added: “As we look to 2025 pricing, we are focused on keeping pace with loss cost trends across commercial lines. With our diversified and expanding product portfolio and innovative mindset, we are primed to continue to grow market share at highly attractive margins.”

Personal lines written premiums increased 12 percent to $871mn in the fourth quarter.

The Hartford reported a renewal written price increase in auto of 19.1 percent in Q4 compared to 20.7 percent in Q3 2024, and in homeowners of 13.9 percent in Q4 compared to 15.1 percent in Q3.

Swift said that 2024 was “a transformative year” for personal lines, “positioning us well for the future”.

“We have positioned the business with new products and capabilities, revamped our operating routines and equipped ourselves with data and technology resources. We have faced business and environmental challenges with unparalleled determination, and I want to recognise the team's hard work and commitment to our vision and strategy,” he said.

In auto, Swift noted underlying loss ratio improvement of 7.3 points in 2024, more than a point better than the high end of The Hartford’s expectations.

“As a result of the significant written pricing actions that we'll earn into the book, combined with moderating severity trends, we expect continued underlying combined ratio improvement to reach the mid-90s during 2025,” he said.

In homeowners, Swift said that the underlying combined ratio for the quarter was the “best we've seen in over a decade”, while the catastrophe ratio improved slightly in a year of elevated industry catastrophe losses.

“Pricing remained strong all year, outpacing underlying loss cost trends,” Swift said of homeowners. "Substantial investments have significantly improved price to risk matching and enhanced underwriting capabilities that are benefiting the homeowners book more broadly. With our rates and insurance to value keeping pace with loss trend we are confident about our strong position in the market.”