The Hartford CEO Christopher Swift expressed confidence that the property/casualty insurer has weathered the worst of the COVID-19 pandemic and that related concerns about business interruption claims have become minimal.
“I have never been more excited about The Hartford’s future,” he enthused during the insurer’s Q1 2021 investor call on April 22. “Going forward, the macroeconomic environment and favorable industry outlooks should provide significant tailwinds, which when coupled with our strong portfolio of businesses and the continued execution of our strategy, position us to deliver accelerated growth and continued margin expansion as evidenced by our strong underlying results this quarter.”
When asked about pandemic business interruption litigation against The Hartford, Swift indicated he thinks the situation is under control.
“It’s going pretty well,” he said. “The vast majority of courts, both state and federal, are interpreting policy language as we anticipated. Our policy language is clear and unambiguous. Shutdowns were government ordered for safety reasons, [so] this will continue to play out favorably over time.”
At the same time, Swift added, The Hartford is remaining prudent.
“We haven’t changed our reserve posture [and] continue to carry expense reserves for litigation,” he said. “But we do not carry any incurred losses for business interruption exposures.”
Underscoring Swift and The Hartford’s optimism about the future, the company said it has increased its share buyback to $2.5 billion through 2022, with $1.5 billion of that coming in 2021.
While the company reported a 10.5 percent return on equity for the 2021 first quarter, down from 11.8 percent the year before, it is targeting a 13 percent to 14 percent ROE for 2022 and 2023.
In terms of share buybacks, Swift said that the increase is, in part, due to the company’s strong capital position, and also “greater certainty that the pandemic is in the rearview mirror.”
That increased optimism began early this year, Swift explained.
“When we built our plan in fourth quarter of 2020, we were still in the midst of [what] I thought was the worst of the pandemic. Mortality trends were increasing [and it] was time to still be a little cautious,” Swift said. “As we got into 2021, and particularly after we completed the first quarter, we felt it was appropriate to rethink the future and disclose what we disclosed today. It’s very positive news, more of a growth story obviously – a margin expansion story, efficiency and expense story.”
That led, in part, to the plans for a share buyback, which Swift said was a better use of resources than another option such as an acquisition.
“M&A is a low priority for us [right] now,” Swift said. “We have everything, colloquially, ‘in the building,’ to compete long term,” he said. “[Buybacks are] an appropriate strategy for where we are in our development right now.”
Swift’s optimistic remarks came after the insurer disclosed it had turned away three surprise acquisition offers from Chubb over the past month.
The Hartford booked $244 million in net income during the 2021 first quarter, or $0.67 per diluted share, down 9% from $268 million, or $0.74 per diluted share in the 2020 first quarter.
Those results included the impact of a $650 million settlement with the Boy Scouts of America, $214 million in pre-tax net catastrophe losses, mostly due to winter storms in Texas and elsewhere, and $185 million in COVID-19 related excess mortality losses in Group Benefits.
According to Swift, the settlement with the Boy Scouts, which still needs court approval, took a long time to achieve.
“We’ve been in lengthy, meaningful and intense discussions with them for a [long] period of time,” Swift said during the call. This settlement “put it behind us. When you look at the risks of policies going back into the ’70s, those were not unaggregated risk policies. There are not good facts there.”
At the same time, Swift said, The Hartford was in a good position in relation to the Boy Scouts’ bankruptcy proceedings and ongoing sex abuse claims.
“On the other hand, we felt we had prudent defenses and legal postures. But that would have been costly. That would have been lengthy,” Swift said. “As the Boy Scouts were emerging from bankruptcy, there was an opportunity and we seized it. We’re optimistic it will get bankruptcy court approval.”
He called the Boy Scouts case “a very unique” situation and added that the insurer does not see anything in its exposures “close to what the Boy Scouts’ exposures are.”
Additional Q1 results:
- Net investment income grew to $509 million pretax from $459 million in the 2020 first quarter.
- So far this year, The Hartford has returned $239 million to stockholders.
- Commercial lines written premiums grew to $2.5 billion, up from $2.4 billion in Q1 2020.
- Commercial lines net income reached $129 million, up 7 percent from $121 million in the 2020 first quarter.
- Commercial lines booked a 109.7 combined ratio in the quarter versus 99.1 a year ago, with catastrophes and prior accident year development factored in. The result was skewered, in part from the Boy Scouts settlement on sex abuse claims, as well as unfavorable P/C prior accident year development.
- Personal lines net income grew to $135 million versus $98 million in the 2020 first quarter.
- Written premiums reached $715 million, down 4 percent from the $744 million produced the year before. The drop came in part from a reduction in auto with nonrenewed premium exceeding new business. Partially offsetting this: renewal written price increases for homeowners reaching 9.4 percent in Q1 2021.
- The personal lines combined ratio reached 83.1 compared to 86.7 in Q1.2020. Less driving helped shape the result, with lower auto claim frequency.
Source: The Hartford
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