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Edited Transcript of HIG earnings conference call or presentation 26-Oct-18 1:00pm GMT

Q3 2018 Hartford Financial Services Group Inc Earnings Call

HARTFORD Oct 31, 2018 (Thomson StreetEvents) -- Edited Transcript of Hartford Financial Services Group Inc earnings conference call or presentation Friday, October 26, 2018 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Beth Ann Bombara

The Hartford Financial Services Group, Inc. - Executive VP & CFO

* Christopher Jerome Swift

The Hartford Financial Services Group, Inc. - Chairman & CEO

* Douglas Graham Elliot

The Hartford Financial Services Group, Inc. - President

* Sabra Rose Purtill

The Hartford Financial Services Group, Inc. - SVP, Head of IR & Treasurer

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Conference Call Participants

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* Amit Kumar

The Buckingham Research Group Incorporated - Analyst

* Brian Robert Meredith

UBS Investment Bank, Research Division - MD, Financials Research Sector Head & Global Insurance Strategist

* Elyse Beth Greenspan

Wells Fargo Securities, LLC, Research Division - VP and Senior Analyst

* Jay Adam Cohen

BofA Merrill Lynch, Research Division - Research Analyst

* Joshua David Shanker

Deutsche Bank AG, Research Division - Research Analyst

* Michael David Zaremski

Crédit Suisse AG, Research Division - Research Analyst

* Michael Wayne Phillips

Morgan Stanley, Research Division - Equity Analyst

* Randolph Binner

B. Riley FBR, Inc., Research Division - Analyst

* Robert Ray Glasspiegel

Janney Montgomery Scott LLC, Research Division - MD of Insurance

* Ryan James Tunis

Autonomous Research LLP - Partner of Property & Casualty Insurance

* Sean Keller Reitenbach

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

* Thomas George Gallagher

Evercore ISI Institutional Equities, Research Division - Senior MD

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Presentation

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Operator [1]

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Good morning. My name is James, and I will be your conference operator today. At this time, I'd like to welcome everyone to The Hartford's Third Quarter 2018 Financial Results Conference Call. (Operator Instructions)

I'd now like to turn the call over to the Head of Investor Relations, Sabra Purtill. Please go ahead.

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Sabra Rose Purtill, The Hartford Financial Services Group, Inc. - SVP, Head of IR & Treasurer [2]

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Thank you. Good morning, and thank you all for joining us today. Today's webcast covers our third quarter financial results, which were released yesterday afternoon. The news release, investor financial supplement, slides and 10-Q for the quarter are all available on our website.

Our speakers today include Chris Swift, Chairman and CEO of The Hartford; Doug Elliot, President; and Beth Bombara, CFO. Following their prepared remarks, we will have time for Q&A.

Just a few 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, which are also available on our website.

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 and in the news release and financial supplement.

Finally, please note that no portion of this conference call may be reproduced 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 at least 1 year.

I'll now turn the call over to Chris.

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Christopher Jerome Swift, The Hartford Financial Services Group, Inc. - Chairman & CEO [3]

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Good morning, and thank you for joining us today. The Hartford had a great quarter, with excellent financial results and significant progress on our strategic goals. Third quarter core earnings were $1.15 per diluted share, up significantly from $0.35 last year. Year-to-date, The Hartford's core earnings are $3.55 per share compared with $1.94 in 2017.

The higher level of earnings this quarter and for the year were driven by several items, including better underwriting results in Property & Casualty, increased Group Benefits and Mutual Funds earnings and a lower U.S. corporate tax rate. Let me share some details on these items.

P&C underwriting margins, which Doug will cover in more detail, improved with a third quarter combined ratio of 97.3 and 95.4 for the 9 months. The underlying combined ratio was 93.2 and 91.3, respectively, each better by nearly 1 point over last year.

Group Benefits earnings for the quarter and year-to-date were up 50% and 74%, respectively, due to the acquisition and lower tax rates. Margins remain very strong, with a core earnings margin for the first 9 months of 6.4%, including the amortization of acquisition-related intangibles. Excluding intangibles, the core earnings margin was 7.5% compared with 6.1% last year. And Mutual Funds core earnings were up more than 50% for the quarter and year-to-date, with continued growth in assets under management.

Book value per diluted share, excluding AOCI, grew 11% since December 31, and the annualized year-to-date core earnings ROE was 12.7%. Looking at earnings and returns for both the quarter and the year, I'm very pleased with our overall results.

This quarter, we made continued progress on important strategic and operational goals. In August, we announced the agreement to acquire The Navigators Group. This acquisition advances several of our key objectives. It enhances our Commercial Lines presence with Specialty and E&S capabilities, it broadens and deepens our product offerings with expanded industry verticals and it expands our geographic underwriting reach with an international presence.

Leading agents and brokers are demanding deep expertise in comprehensive risk solutions across many industries from their carrier partners. With our expanded platform, particularly in Specialty lines and industry verticals for Middle Market, we will strengthen distribution relationships and improve our access to new business opportunities. The combination of our capabilities and talent with the diverse product offerings and deep expertise of The Navigators team will accelerate the next stage of our journey as a market-leading commercial lines company.

This acquisition is strategically important to The Hartford. Achieving the financial targets we have set forth will require effort and teamwork. We are focused on execution and recently kicked off a joint planning process regarding integration. We are excited to work with our future colleagues to develop our go-to-market plans.

As previously discussed, we expect to generate core earnings before intangibles of $200 million within 4 to 5 years. About half of the increase from Navigators' current run rate earnings will come from relatively straightforward investment portfolio and expense actions that will begin to impact earnings in the first year. We expect the remainder of the increase to be achieved over time from top line growth and improved underwriting margins. We look forward to sharing our future plans and progress with you.

Another key accomplishment is the continued successful integration of our Group Benefits acquisition, which closed almost a year ago today. This quarter, we began deploying the disability claims and lead management platform across both books, and renewing former Aetna contracts onto The Hartford systems. January 1, 2019, new sales and renewals, which are in line with our expectations, is another important milestone.

We've had outstanding financial results this year despite higher-than-normal catastrophes. Although workers' compensation 2018 frequency trends are elevated from expectation, it's a modest change in trend that we're addressing. Total workers' compensation results this quarter continue to be quite strong. I'm pleased with the speed and diligence of our team in identifying this trend, which reflects favorably on the capabilities of our new claims system and the competitive advantage of our expanded data and analytical skills.

Finally, just a few comments on capital management before turning the call over to Doug. In 2012, we began the transformation of The Hartford away from capital market-sensitive businesses to more underwriting-centric ones. Since that time, from organic excess capital generation and the proceeds of sales of businesses, we have redeployed a significant amount of capital in a balanced manner, including equity repurchases, acquisitions and debt reductions.

In total, we returned more than 50% of the total to shareholders through both dividends and share buybacks. Since 2011, we have repurchased approximately 35% of our outstanding shares, most of which was done at prices less than book value. In addition, almost 25% was used to strengthen the balance sheet, which earned us several credit upgrades in the process. These actions included debt repayment, the asbestos environmental reinsurance cover purchase and a reduction in our pension liability. Lastly, the remaining $4 billion, or 25%, was used for several acquisitions, including Navigators, which have met our strategic goals and financial targets.

As I reflect back on this track record, I am proud of the balance that we have struck in our deployment of capital. We have repositioned our portfolio of businesses to underwriting-centric product lines, where we have made deliberate investments, both organic and inorganic, and we have done this while strengthening our balance sheet and returning capital to our shareholders.

As I look to the future, our near-term focus is squarely on the successful integration of the Aetna and Navigators acquisitions, with the goal of achieving and ultimately exceeding our expected returns on these investments. These integrations will consume much of our operational bandwidth for the time being. Looking forward, we expect our businesses will continue to generate excess capital over time.

In the medium to long term, we will continue to be deliberate in deploying this capital to create shareholder value. As we do so, our philosophy around capital management will remain consistent. We will continue to evaluate opportunities to deploy excess capital, including investing in our businesses and capital management, which includes reducing leverage, with a focus on both financial returns and strategic objectives.

To conclude, The Hartford made a tremendous amount of progress against our strategic goals over the past year. Looking forward, we are excited by the opportunities we see to build on the momentum as we move into 2019. We look forward to sharing our progress with you.

And now I'll turn the call over to Doug.

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Douglas Graham Elliot, The Hartford Financial Services Group, Inc. - President [4]

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Thank you, Chris, and good morning, everyone. We posted strong results this quarter in Property & Casualty and Group Benefits. In Commercial Lines, we're pleased with our performance and returns, particularly as markets remained competitive and workers' compensation rates are increasingly under pressure.

In Personal Lines, auto loss trends remained favorable and new business growth rates improved. And in Group Benefits, margins remained very strong as we continue to execute on our integration plans.

It was another active quarter for catastrophes, but losses were well below third quarter 2017. This year, Hurricane Florence was the single largest event of the quarter, but there were also a number of wind, hail and wildfire events contributing to losses. Current year CAT losses in the quarter totaled $169 million, $183 million less than a year ago.

Before I cover the results for our business units, I'd like to comment briefly on workers' compensation trends, updating my observations from our second quarter earnings call. The market remains competitive as industry returns have been strong over the last 5 years. Loss cost trends over the same period have been quite moderate, with low severity and negative frequency trends, driven by favorable economic fundamentals as we emerged from the Great Recession.

With the economy at or near full employment, our frequency in Small Commercial and Middle Market has turned positive this year. Based on our business and economic analysis, we view this trend as broader than just our book of business. With the unemployment rate below 4% for the last 6 months, the ratio of unemployed workers compared to open jobs has continued to decline. This ratio is now below 1 for the first time since 2001, the first year this metric was tracked.

Many businesses are struggling to find qualified employees and beginning to add more new workers to their payroll, generally increasing the risk of workplace injury versus what it would have been, say, a year or 2 ago. Additionally, the tightening labor market produces more hours worked per employee, often resulting in fatigue and less training time, compounding the risk of injury for less experienced workers.

Our uptick in frequency change has been moderate, turning positive on a rolling 12-month basis. The actual frequency levels are now comparable to what we experienced in 2016, which is a very manageable shift in a book of business as large as ours. The frequency increase is more pronounced among less tenured employees and can be several times that of experienced workers. All in all, we see this shift as part of managing both the industry cycle and the broader economic cycle. This includes making appropriate adjustments to underwriting, pricing and loss ratio selections.

We are deep inside our workers' compensation analytics and profitability measures across geographies, account size, industry class, risk profile and loss experience. Based on this analysis, our 2018 accident year loss ratio for Middle Market workers' compensation is 3.5 points higher than 2017. No changes have been made in Small Commercial as current accident year loss cost trends remain within our overall estimates. This recent frequency trend has not changed our view of accident years 2017 and prior.

Workers' compensation is a very important line to us. We have the expertise, tools and data to address exactly these types of market challenges, and we will continue to manage all the levers available to us as we stay on top of these trends.

Let me now shift into the results for our business segments. In Commercial Lines, the combined ratio improved 12.5 points from prior year to 96.1 due to lower catastrophe losses and higher favorable prior year development. The prior year development was driven by continued favorable trends in workers' compensation from accident years 2015 and prior, and favorable emergence in Financial Products.

The underlying combined ratio for Commercial Lines, which excludes catastrophes and prior year development, was 93.7, deteriorating 0.5 point from last year but still very healthy. This change was largely due to workers' compensation margin compression in Middle Market as we react proactively to the frequency trends I described earlier, and adverse non-CAT property results in Small Commercial, largely offset by favorable results in general liability and commercial auto.

Looking at pricing. Our renewal written pricing in Standard Commercial Lines was 1.7%, down sequentially from second quarter by 130 basis points. This was heavily driven by the competitive workers' compensation environment. Standard Commercial Lines pricing, excluding workers' compensation, was 4.9% in the quarter, essentially in line with second quarter.

Within our Commercial Line business units, Small Commercial continued its strong performance, with an underlying combined ratio of 88.7. The margin improvement versus last year was driven by general liability and auto, partially offset by higher non-CAT property losses and slightly higher expenses.

Written premium was up slightly as we begin to see business flows from the Foremost renewal rights deal, partially offset by the downward pressure on workers' compensation rates and competitive market conditions for both new business and renewal.

Small Commercial policy accounts have been increasing quarter-over-quarter in 2018, having declined throughout 2017. This reflects our disciplined approach to profitable growth. Over the last 2 years, we've reduced our Small Commercial auto book of business to improve profitability. Likewise, we've made adjustments to our package policy appetite to improve returns.

Our margins in Small Commercial are industry-leading, as is our platform for new business and service. We're very excited about our long-term prospects for growth in this segment of the market.

In Middle Market, the underlying combined ratio of 100.2 increased 3.2 points from 2017, with 2.6 points of that increase due to higher current accident year loss ratio and workers' compensation. Written premium was up 6.5% over last year, with solid production in lines such as property and general liability as well as verticals such as construction and energy, offset by declines in workers' compensation.

In Specialty Commercial, the underlying combined ratio of 96 improved 2.6 points, driven by an adjustment to reflect higher premiums on retrospectively rated accounts and lower expenses, offset by slight margin compression in National Accounts and Financial Products.

Moving over to Personal Lines. The underlying combined ratio of 91.8 improved 3.1 points, representing 5.5 points of improvement in the underlying loss ratio, partially offset by an increase in the expense ratio. The loss ratio improvement is reflected in both our auto and homeowner results, driven by earned pricing increases and favorable auto loss cost trends and non-CAT homeowners experience. The higher expense ratio is primarily due to lower earned premiums versus last year and increased marketing efforts in AARP Direct, where we are focused on new business growth and retention.

New business was up over 30% in AARP Direct auto. Our marketing spend and product adjustments continue to gain traction and our competitiveness measures continued to improve. We are pleased with the underwriting profile of this growth and encouraged by the improving trends.

Despite strong improvement in new business growth, total written premium was still down 7.6%. Retention remains below our long-term targets as prior rate increases and a reduced agency footprint continue to work through our book of business. However, as those rate changes decelerate, retention is improving, and coupled with our new business trends, will provide a strong foundation for future growth.

Group Benefits delivered another excellent quarter. Core earnings was $102 million, with a margin of 6.7%. The increase versus last year is primarily driven by strong organic growth, the addition of our 2017 acquisition and lower tax rates.

Although the group disability loss ratio was up slightly versus last year, which experienced unusually high claim recoveries, we continue to see very strong disability results, including favorable emergence from recent accident years. The group life loss ratio improved slightly from the volatile adverse trends experienced in recent quarters.

Persistency on our employer group block of business remained steady at approximately 90%, and fully insured ongoing sales of $104 million were up 53% from prior year. January 2019 sales in National Accounts are firming up, and we expect a strong start to next year. Our expanded sales team is executing very effectively in the market, and our differentiated service and claims value proposition is clearly resonating with employers. We're excited about how this business is positioned in the marketplace.

We remain very pleased with the overall integration of the Aetna Group Benefits business. We have completed the conversion of former Aetna small business customers to The Hartford platform. Conversion of Middle Market and large case consumers to The Hartford platform is on track to begin in December and will continue throughout 2019 and 2020.

In summary, this was a very solid quarter across our Property & Casualty and Group Benefit businesses. We're executing effectively against our plans, responding to loss cost trends and competitive market dynamics with appropriate pricing actions and disciplined underwriting. We continue to make excellent progress on our initiatives in product, operations and technology, all of which contribute to a competitive platform for the years ahead.

We are also very encouraged about the possibilities with our announced acquisition of Navigators. As Chris has shared, we have kicked off integration activities across all business disciplines, and we will share more details at an appropriate time.

Let me now turn the call over to Beth.

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Beth Ann Bombara, The Hartford Financial Services Group, Inc. - Executive VP & CFO [5]

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Thank you, Doug. I'm going to cover investment results, Mutual Funds and Corporate earnings as well as book value and ROEs. In addition, I have a few update on The Navigators acquisition and holding company resources.

Starting with investments. Net investment income totaled $444 million, up 10% over the prior year quarter due to a 9% increase in invested assets, primarily as a result of the higher level of invested assets in Group Benefits from last year's acquisition.

Limited partnership income did not meaningfully impact the comparison to 2017 as third quarter LP income was $45 million before tax, down $3 million compared with third quarter 2017. Excluding LPs, the annualized portfolio yield was 3.7%, down slightly from 3.8% in third quarter 2017 due to the impact of the acquired Group Benefits assets being recorded at market yield and the higher level of holding company resources held largely in short-term investments.

The P&C investment yield was up modestly to 3.8%, primarily due to higher interest rates. For the consolidated investment portfolio, the average new money rate in the quarter exceeded the average yield on sales and maturities by about 20 basis points. This reflected higher interest rates as well as a roughly $400 million reduction during the quarter and exposure to municipals given favorable after-tax yields on comparable taxable investments.

The credit performance on the investment portfolio remains very strong. Net impairments in the quarter totaled $1 million, flat with third quarter 2017.

Turning to Mutual Funds. Third quarter core earnings were $41 million, up nearly 60% from last year, due to both higher assets under management and a lower tax rate. Total Mutual Fund and ETP assets under management, which excludes assets related to Talcott Resolution, was $106 billion at the end of the quarter, up 10%. This growth was driven principally by market appreciation as well as by positive net flows of $1.3 billion over the last 12 months. Fund performance remained strong as 61% and 69% of funds beat their peers on a 3- and 5-year basis, respectively.

Core losses in Corporate were $45 million in the third quarter, down from $68 million last year. There were a few ongoing items that affected results this quarter. First, interest expense declined by $10 million before tax, both on a sequential basis and compared with third quarter 2017 due to net debt repayment over the period, including the June 2018 call of $500 million of hybrids, which had a coupon of 8 1/8%. In addition, there were several items related to Talcott, including The Hartford's share of income from its 9.7% ownership interest.

Similar to our other private equity investments, income on this investment is reported on a 3-month lag. As the sale closed at the end of May, this quarter's results include income for the month of June, which was about $2 million. Fourth quarter 2018 will reflect a full 3 months of results. The amount of income recorded each quarter will be 9.7% of Talcott's net income, which, as you know, can fluctuate based on market conditions and the impact of hedging.

In addition, fee income in Corporate included approximately $11 million of revenue for a full quarter of managing investments for Talcott. This was offset by corresponding investment management expenses. Stranded costs related to Talcott were about $9 million before tax. We expect these costs to be eliminated over the next 15 months. Finally, net investment income for the quarter included income on the net proceeds received from the Talcott sale of $1.5 billion.

In total, The Hartford's third quarter core earnings were $418 million, up from $130 million in third quarter 2017 due to higher earnings in each of the company's main business segments, including the benefit of a lower corporate tax rate. Core earnings per diluted share were $1.15. As a reminder, in July, we announced an increase in our quarterly common dividend by 20% to $0.30 per share, the sixth consecutive annual increase, as a result of stronger earnings from our businesses.

Book value per diluted share at September 30 was $34.95, down 6% from December 31, largely due to the impact of higher interest rates on the fair value of the investment portfolio, and the removal of AOCI related to the Talcott sale. Excluding AOCI, book value per diluted share of $39.12 increased 11% since December 31.

Core earnings ROE, which is calculated on a rolling 12-month basis, was 10.3% in third quarter 2018, up more than 4 points from last year due in part to strong operating results, including the benefit of a lower corporate tax rate as well as lower average equity due to sale of Talcott and the fourth quarter charge related to tax reform. Our annualized 2018 year-to-date core earnings ROE was 12.7%.

Before taking your questions, I'll provide a brief update on The Navigators Group acquisition. The go-shop period under the acquisition agreement expired without any competing bids, and Navigators has filed their proxy with an expected shareholder meeting date of November 16. The antitrust waiting period under Hart-Scott-Rodino expired last week, and we have filed the required change in control materials with the regulators, including New York, the U.K. and Belgium.

We continue to expect the closing in the first half of 2019, subject to those approvals, and have begun integration and planning activities with the Navigators team. While the acquisition does not have a financing contingency, we continue to evaluate financing alternatives to maintain appropriate levels of holding company liquidity post closing.

Holding company resources at September 30 were $2.3 billion compared with the cash purchase price of approximately $2.2 billion, including expenses. Last week, we filed a dividend request with the Connecticut Department of Insurance to accelerate our 2019 planned P&C dividend to fourth quarter 2018. This dividend of approximately $1 billion will help provide financial flexibility and liquidity to support 2019 interest expense and dividend payment and the January 2019 bond maturity.

As we have discussed in the past, we had a robust framework around evaluating capital margins and liquidity requirements across our company. Importantly, our approach begins with maintaining sufficient capital and liquidity in our operating insurance companies for stress scenarios that contemplate much higher catastrophe and credit losses than are typical.

In those stress scenarios, we seek to maintain P&C capital at a AA level based on S&P models and Group Benefits capital at a 350% RBC. We also seek to maintain sufficient operating company liquidity to meet cash flow-related stresses, such as large catastrophes.

Capital resources at the holding company are also evaluated for liquidity requirements and stress scenarios. We begin with a minimum target of holding company cash and short-term investment sufficient to cover interest and dividend payments for the next 12 months, which is about $700 million currently, as well as some provision for upcoming debt maturities depending on our financing plans.

Capital resources above this level are what we consider excess and can be redeployed for other opportunities. Based on our current projections, after the closing of the Navigators transaction, we expect the level of excess capital resources will begin to rebuild in the latter part of 2019 and into 2020. Consistent with our long-standing philosophy, we will continue to evaluate opportunities for the use of any excess capital, including investing in our businesses and capital management opportunities.

To conclude, this marked another quarter of strong underwriting and investment results for The Hartford, with core earnings growth at each of our main business segments and steady progress on the Group Benefits integration.

Looking forward, we are optimistic about closing 2018 on a strong note, with sustained healthy margins and the benefit of rising interest rates, although fourth quarter results will be impacted by Hurricane Michael.

Based on claims received and inspected to date, we currently expect our Hurricane Michael losses to be $50 million or less before tax. As a reminder, our original CAT estimate for fourth quarter was about $55 million pretax, so we may come in above that number, depending on our final estimate for Michael and any additional CAT activity for the quarter.

Finally, consistent with prior years, we will provide a 2019 business metric outlook in February when we report fourth quarter results.

I'll now turn the call over to the operator so we can begin the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question comes from the line of Randy Binner from B. Riley FBR.

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Randolph Binner, B. Riley FBR, Inc., Research Division - Analyst [2]

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I guess the question and what seems to be driving the stock today is -- I think, is the commentary around the higher loss picks in workers' comp. And yes, appreciate the kind of the straightforward way that you communicated it. And so the question I have is, what kind of claims are we talking about here? So you have a pretty broad book. Are -- is it kind of basic slip and falls? Is it auto accidents? Is it something else? You are addressing it and you are making a higher loss pick, so it'd be helpful, I think, for me and others to understand what kind of losses are hurting you with less experienced workers?

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Christopher Jerome Swift, The Hartford Financial Services Group, Inc. - Chairman & CEO [3]

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Randy, it's Chris. I'll start, and Doug will add his commentary. I think the context on the whole discussion, hopefully you sensed from our commentary, is we're starting in a very good position. I mean, this is a product line that is performing well. It's a large product line for us where we have great data and insights across the country. So as we're trying to describe, when we see a little pressure in the context of particularly small and Middle Market, it is an overall manageable trend line through adjustments in pricing, through adjustments in underwriting, as Doug would say. So I would like you and our investors to understand that the starting point is strong, it's healthy and this is not a runaway train situation with loss cost trends and frequency. So Doug, can you add some color on the types of claims we're seeing?

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Douglas Graham Elliot, The Hartford Financial Services Group, Inc. - President [4]

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I will. So Randy, when I think about injury types and I look across, and we have spent time looking across fractures, sprains, contusions, slips and falls, et cetera, we see general uptick in frequency across all those injury types. So as I've described to you, we are looking deeply in the book. We are seeing some of those trends in both small and middle, but I don't -- I can't sit here today, based on the data and the reviews we have done, and suggest to you that it's only a couple of injury types. It looks a bit more broad-based and a bit more elevated in the inexperienced worker, defined by workers in position less than 1 year.

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Randolph Binner, B. Riley FBR, Inc., Research Division - Analyst [5]

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Is it -- the follow-up I have there is that if those are kind of, I guess, higher-frequency, lower-severity type workers' comp claims, is that having inflation from trial attorneys and medical costs? Or is it more just kind of a frequency thing?

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Douglas Graham Elliot, The Hartford Financial Services Group, Inc. - President [6]

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We certainly feel like, right now, our severity is in pretty good shape. We're watching that carefully. This looks to us like numbers of accidents are up, which is inside that frequency ratio, and it looks isolated there. And I don't feel the external litigation as a factor here. I feel injury and inexperience as a driving factor.

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Operator [7]

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Your next question comes from the line of Amit Kumar from Buckingham Research.

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Amit Kumar, The Buckingham Research Group Incorporated - Analyst [8]

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Thanks for the color on workers' compensation. I had a follow-up on that, and this ties back to Randy's question. Would it be possible to remind us either what the top NCCI hazard classes are or even talk what are the top classes which make up your workers' compensation book?

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Douglas Graham Elliot, The Hartford Financial Services Group, Inc. - President [9]

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Amit, let me try to just share a profile of our book of business. I'll let you do the work on NCCI. So obviously, our Middle Market book, extensive classes, so construction, manufacturing, retail, wholesale. Essentially, we're in the entire Middle Market space with very few exceptions. So it's broad-based, and certainly, that will be the case for our Small Commercial market as well. We offer pretty extensive product, and there are very few sectors of the economy that we don't touch. So it's not like we're sitting here talking about a specialty-based market that is lasered into 2 or 3 SIC codes. That's not indeed the case with our book.

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Amit Kumar, The Buckingham Research Group Incorporated - Analyst [10]

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That's actually very helpful. But the other sort of unrelated question -- and I don't know, this might be for Chris or someone else. You talked a bit about Navigators, and on the last call, we had talked about harmonizing the reserves. Is there any update whatsoever on the process? And obviously, you spent a quarter now or a few months. Do you feel any difference to you versus what you might have looked at that time?

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Christopher Jerome Swift, The Hartford Financial Services Group, Inc. - Chairman & CEO [11]

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Yes. As I said in my prepared commentary, I mean, we're beginning an integration planning process, and I think it would be realistic to assume that we'll look at what Navigators does between now and closing with any reserve positions and make our adjustments at closing. So there's really nothing that we could comment upon now until we own the property.

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Operator [12]

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Your next question comes from the line of Elyse Greenspan from Wells Fargo.

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Elyse Beth Greenspan, Wells Fargo Securities, LLC, Research Division - VP and Senior Analyst [13]

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Sorry, I also had a couple of questions on workers' comp. Doug, I appreciate the disclosure. You kind of tried to say we're back to where you guys were in 2016. Yet, you guys are attributing this to pretty low unemployment levels; obviously, more inexperienced workers in the workplace. So the unemployment rate is obviously lower than what it was in 2016. So when you guys look at your book and what you're seeing out there, how do we know that this will not get worse?

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Douglas Graham Elliot, The Hartford Financial Services Group, Inc. - President [14]

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Elyse, I guess I can't promise or suggest that I know exactly how the world is going to play out in 2019. What we do think we have a good handle on is how 2018 is playing out. I do think -- I would say to you that we'll have a great sense of where frequency lands for the 2018 accident year within a quarter or 2 into '19, right? These are not long-developing estimates on the frequency side. It's claims in the door. The first quarter is relatively mature right now from '18. Second quarter is maturing as we speak. And so it's a fast line to measure. The work we're doing in terms of trying to predict and make our best assessment of '19 is going on as we speak, which is why we'll bring it all together in February when we talk and give you our predictions for 2019.

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Elyse Beth Greenspan, Wells Fargo Securities, LLC, Research Division - VP and Senior Analyst [15]

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Okay. And then you guys have often said and others in the industry as well, just given the very strong profitability of comp, that's where we've seen a lot of rate declines. Can this higher frequency give you the ability to get actuarial-justified rate increases? Or do you still think, just given that the margins still seem to be, even with this uptick in frequency, still pretty attractive, that we will still see price declines in the business from here?

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Douglas Graham Elliot, The Hartford Financial Services Group, Inc. - President [16]

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Elyse, you're right. The absolute level of performance across comp, across multiple sectors is very healthy right now, and certainly, our book demonstrates that as well. The other fact is that as rates are worked on across the industry and loss cost trends are filed by the NCCI and carriers like ourselves are adopting multipliers and dropping our own experience over the top, they're using prior experience period. So as I look out across the various states and I think about the various effective dates for the changes dropping into '19, they're still looking back at prior years, which are very healthy. So we're balancing that. We're obviously working levers in our own underwriting machine, trying to make sure that our underwriters have the greatest sense of where we sense trends are. We're adjusting based on experience to the account, what we know about the class, et cetera, et cetera, and bringing all that to bear in making choices to either write, renew or to not offer a quote when we feel like the price won't match our fundamental economic goals.

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Elyse Beth Greenspan, Wells Fargo Securities, LLC, Research Division - VP and Senior Analyst [17]

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Okay, great. And then one last question. Overall prices for small and Middle Market did decelerate. Away from comp, can you just give us a sense of what's going on broadly in the Commercial Lines market? And would the Q3 pricing levels be what you would expect to continue into the fourth quarter?

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Douglas Graham Elliot, The Hartford Financial Services Group, Inc. - President [18]

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Yes. I see a pretty stable environment non-comp across all the other lines, and I expect to see that into the fourth quarter. So I don't see any drivers of change, with the one exception that we continue to see weather in certain pockets of the country, and I expect to see a bit of tightening maybe in terms and also on pricing on the property side, geography based.

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Operator [19]

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Your next question comes from the line of Mike Phillips from Morgan Stanley.

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Michael Wayne Phillips, Morgan Stanley, Research Division - Equity Analyst [20]

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First question, kind of to follow up on Elyse's last question there. I guess more at a higher level, if you could talk about -- your margin in the Small Commercial are clearly better and have been than the Middle Market. So if you could just, at a higher level, the difference in the competitive landscape between the 2, if you're seeing any shifts and more competitive environment in general for small book versus the Middle Market book?

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Douglas Graham Elliot, The Hartford Financial Services Group, Inc. - President [21]

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Relative to small, what I would say is we have been a focused small business carrier for a long time. It's a combination of underwriting acumen, platform, speed, automation, retail relationships, et cetera, and that formula continues, although, in this new digital age, we are refreshing that for a world where customers will want to reach out 24/7 and be serviced in different ways. So that is the formula. I think that's driven our success, and we clearly think that's a great foundation going forward with adjustments we'll continue to make. In the Middle, it's been slightly more competitive. I think that has at least been the case in my career, that the cycles have had a bit more maybe amplitude to them over time. We see a lot of -- we do see competition there. I think we've been successful. We are clearly, in the last 5 to 7 years, growing our product breadth. Chris has talked to you about what The Navigators will add to our dimension. I think our underwriting acumen continues to improve. Yes, it's a challenged environment, but I think we've got great upside and I see us as a key player in that market for the long term. So I'm excited about our prospects. What's happening now, I see these as kind of shorter-term challenges that we'll work our way through, but I love what we're doing in Middle and I think we're going to be a terrific player there.

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Michael Wayne Phillips, Morgan Stanley, Research Division - Equity Analyst [22]

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Okay, great. Let me switch over, if I could, to the Personal Lines side and personal auto specifically. You're still getting pretty decent rate there, maybe down a bit sequentially. But the core margins, core combined is at 96 or so, maybe plus a little bit. Are you where you want to be with profitability in personal auto? And maybe throw in kind of what you're seeing from the competitive landscape and -- on that line and your drop in PIF, what that means about your competitive position.

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Douglas Graham Elliot, The Hartford Financial Services Group, Inc. - President [23]

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From a profit perspective, we're very pleased about where we are, pleased about our performance, pleased about the trends we see in our book. So just an aggregate performance comment that, yes, we're very pleased about today. The other side is we'd like to be growing a bit more. And so as we have gone through and made changes to get the health back in the profitability piece, we know we've got to continue to adjust to get our new business stimulated. So we are keenly aware of that, focused on that, working every side of that, as I've talked in prior quarters about what we're doing inside our sales engine, what we're working on the actuarial front. And I've now seen progress, as I've evidenced through the numbers I've shared, with our direct auto AARP growth on new over the last couple of quarters. I expect that to continue and working hard to make that happen.

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Christopher Jerome Swift, The Hartford Financial Services Group, Inc. - Chairman & CEO [24]

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Doug, I think you really pointed out, too, that we're spending more to stimulate response. Responses are up. Conversions are up. New business period-over-period is up. We're working with AARP differently about how we can begin to market to their membership base. The partnership's never been stronger or more vibrant in my particular point of view. And I think '19 growth will start to kick in, in a more meaningful way that you'll be able to see, Mike.

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Operator [25]

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Your next question comes from the line of Ryan Tunis from Autonomous Research.

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Ryan James Tunis, Autonomous Research LLP - Partner of Property & Casualty Insurance [26]

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First one for Doug. Just trying to get some confidence that next quarter, we're not going to be taking another charge for workers' comp. You brought this up second quarter, and then there's another charge this quarter. So just trying to understand what are you assuming -- what exactly needs to happen for you to have to take up your loss pick again? Are you assuming positive frequency now? I mean, where exactly are we?

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Douglas Graham Elliot, The Hartford Financial Services Group, Inc. - President [27]

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Ryan, our accident year 2018 pick for comp we feel very solid about across all our lines of business, and we're assuming that our estimate of trends in those assumptions is solid and will repeat itself in Q4. So that's about all I can share. I feel like we're on top of what we need to. I don't expect any surprises, but I also don't think we're going to see the world return to negative frequency in the next 3 months.

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Ryan James Tunis, Autonomous Research LLP - Partner of Property & Casualty Insurance [28]

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Got you. Okay. And I just -- the other one is really just for Chris, and it's more just about -- it's, I guess, the stock price underperformance year-to-date. You guys gave guidance in February, and I think you're going to exceed guidance in basically every single segment. You've deployed capital. I guess, when you just kind of look at how the stock has been working, is there anything you think that you could be doing differently over the next 12 months or that you plan on doing that Hartford could do better or differently that you think could maybe be helpful?

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Christopher Jerome Swift, The Hartford Financial Services Group, Inc. - Chairman & CEO [29]

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Sure. You're right. I'm just going to tag on to Doug's last comment on the prior question on fourth quarter and basically heading into '19. Remember, the frequency numbers, we quote as a rate of change. It's not an absolute, I'll call it, numeric level of frequency. So my noneconomic analysis is we should not see a continued rate of change increase even at lower employment levels, given time does help with training, with job skills. So as long as employment doesn't lag down to, say, in the 2.5% range, I think there is a general level of stability in the workforce education and training in the sectors that Doug mentioned. So -- but again, it's something to watch, which, again, with our advanced data and analytics, we're all over. I think your commentary on the stock price, we share your frustration, if I could read between the lines. We think we're doing the right things to create shareholder value over a longer period of time, and we're going to continue to do what we believe is right. I think the only thing that Beth and I will probably particularly do is just spend a little bit more time with investors, communicating, being crystal clear on priorities, execution going forward. So that's probably the big thing that I see that we could do at this point in time.

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Ryan James Tunis, Autonomous Research LLP - Partner of Property & Casualty Insurance [30]

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So I'd take that to mean that you think the market is reading too much into this workers' comp issue as a material problem at Hartford.

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Christopher Jerome Swift, The Hartford Financial Services Group, Inc. - Chairman & CEO [31]

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Yes, I do. I mean, if I think about intrinsic value, if I think about cash flows, if I think about starting points on ROEs and margins, this is a modest pullback in a margin or a loss ratio, 1 point or 2. Particularly as we head into '19, the fundamentals of our business, our broad-based business, isn't really changing. If I look at benefits and the numbers we've been putting up there, if I look at all the organic product lines that we've been building that will add meaningfully to earnings going forward, again, I still believe we're doing all the right long-term things. And can't control short-term mark to markets and fluctuations and people's views. All we're going to try to do is be as consistent as possible in producing the results that shareholders expect.

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Operator [32]

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Your next question comes from the line of Mike Zaremski from Crédit Suisse.

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Michael David Zaremski, Crédit Suisse AG, Research Division - Research Analyst [33]

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First question is on the Group Benefits. It's -- it feels like it's been running ahead of expectations. I know you -- there was some prepared remarks about maybe things were -- better development than expected. I just wanted to kind of get a sense for whether the loss ratio is trending more favorably and we shouldn't take that as kind of a run-rate level.

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Beth Ann Bombara, The Hartford Financial Services Group, Inc. - Executive VP & CFO [34]

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Yes. It's Beth. I'll take that. So yes, we have seen, on our disability book, continued favorable experience. And sitting here today, we'd expect, from a loss ratio perspective, to see some continuation of that. Again, if you look at our development there, it definitely had been higher than we would have expected. But again, a lot of that is related to more recent experience so you do sort of expect that experience to continue in the short term, sort of different than when you think of longer-term P&C-type liabilities where you're making adjustments on very old accident years that maybe don't indicate kind of current trends. So we're very pleased with how that book is performing overall and like the momentum that we see.

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Michael David Zaremski, Crédit Suisse AG, Research Division - Research Analyst [35]

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That's helpful, Beth. Switching gears to homeowners. We've had -- a couple of peers saw deterioration in the underlying. You guys didn't. But some of those peers also mentioned kind of trends that were negatively impacting the -- they think, the broader space in terms of more water and fire losses. Are you guys seeing any of that in your book?

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Douglas Graham Elliot, The Hartford Financial Services Group, Inc. - President [36]

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Mike, our homeowners book has been running really sound this year. Now we've worked on that for the last 3 to 4 years. So as we were rebuilding auto, both its financial health and the product, we were also doing a lot of work in homeowners. So I attribute our strong performance, number one, to the underwriting actions, the earned pricing actions over the last couple of years, and then there's always volatility. And this is a pretty good quarter, so I'm not going to suggest that we're not going to ever have volatility again in the line. But I feel pretty good about our homeowners line. And our ex-CAT weather, running very favorable at the moment.

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Michael David Zaremski, Crédit Suisse AG, Research Division - Research Analyst [37]

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Okay. And if I can sneak one last one in for Beth. It sounded like Talcott, from the prepared remarks, had some benefit from capital markets. And that could be choppy going forward, and this might not be the run rate. Is that the right way to categorize that?

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Beth Ann Bombara, The Hartford Financial Services Group, Inc. - Executive VP & CFO [38]

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Yes. I mean, again, if you go back and look at when we owned 100% of Talcott and again look at the net income numbers, because, again, oftentimes, people focus on core earnings, which are a little bit more predictable, but we'll be picking up our share of their total net income, which would include any impact of hedging. And my only point is it just could be volatile period-to-period so I wouldn't want someone to take $2 million for 1 month and assume that, that's sort of the run rate.

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Operator [39]

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Your next question comes from the line of Josh Shanker from Deutsche Bank.

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Joshua David Shanker, Deutsche Bank AG, Research Division - Research Analyst [40]

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Yes, 2 questions. The first one is a quick one, and you might have said it. I'm looking at my notes for the dollar value number of the 3Q reset in workers' comp versus the 2Q reset. I don't know if you've said that, but if you have that, it would be great.

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Douglas Graham Elliot, The Hartford Financial Services Group, Inc. - President [41]

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Josh, I don't have that. What I did say is that our accident year '18 number in Middle Market is up 3.5 points over the '17 accident year number, that's 3.5. We did move that in the quarter a couple of points. I don't have the dollar component of that, but it's just math. So it's millions, not tens of millions.

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Joshua David Shanker, Deutsche Bank AG, Research Division - Research Analyst [42]

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And that's all workers' comp?

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Douglas Graham Elliot, The Hartford Financial Services Group, Inc. - President [43]

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That was workers' comp I'm talking about, what we did.

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Joshua David Shanker, Deutsche Bank AG, Research Division - Research Analyst [44]

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Okay. And the second question, maybe I'll dig in a little bit. With the sale of Talcott, it looks like the Mutual Fund business still is producing the same type of earnings power. With that loss, are you going to continue -- is there any risk that those funds go away, I guess, and that kind of dovetails into very strong Corporate results, which, I think, there's a lot of moving pieces and, I think, is mostly Talcott related? If you can sort of talk about what the going-forward earnings power is, I guess, of the Corporate segment and the Mutual Fund business post Talcott.

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Christopher Jerome Swift, The Hartford Financial Services Group, Inc. - Chairman & CEO [45]

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Yes. I'll let Beth talk about the Corporate segment. But on Mutual Funds, again, I think you can see the Talcott AUM roughly $16 million-ish...

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Douglas Graham Elliot, The Hartford Financial Services Group, Inc. - President [46]

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Billion.

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Christopher Jerome Swift, The Hartford Financial Services Group, Inc. - Chairman & CEO [47]

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It's billion, excuse me, been pretty stable. So there shouldn't -- just by our ownership change to new owners, in and by itself, that would -- it's not going to change that relationship. Those funds inside -- the VAs are still managed by Wellington. So the only thing, Josh, there is just your views on how quickly does that block run off and what happens to the AUM in -- if there's any changes in market conditions and performance. But I don't see much change right now. It should be pretty stable. Beth, can you add your color on...

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Beth Ann Bombara, The Hartford Financial Services Group, Inc. - Executive VP & CFO [48]

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Yes. So on the Corporate piece, I mean, again, as you pointed out, there were a couple of moving pieces this quarter. I think -- the biggest one really, I think, is the reduction in interest expense. When you kind of think about that from an ongoing perspective, a lot of the Talcott balances that I referenced, some of those kind of net out with the revenue versus the costs that we have. So when I look at the quarter, a $45 million loss for Q3, I kind of see that run rate going forward being around 50-ish. It's kind of probably a safe place to be. And I would say that will change depending on what happens with debt costs and then, as I said, what the actual income pickup we get quarter-to-quarter from the Talcott piece. Because, again, this quarter it was $2 million. I would expect that to bounce around a bit.

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Operator [49]

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Your next question comes from the line of Tom Gallagher from Evercore.

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Thomas George Gallagher, Evercore ISI Institutional Equities, Research Division - Senior MD [50]

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Doug, just to come back with a few workers' comp questions. The pickup in frequency that you saw, was that just most pronounced in Middle Market or do you also see that in Small Commercial?

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Douglas Graham Elliot, The Hartford Financial Services Group, Inc. - President [51]

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Tom, we also saw the pickup in Small Commercial as well, yes.

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Thomas George Gallagher, Evercore ISI Institutional Equities, Research Division - Senior MD [52]

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Got it. And then when you mentioned it went from negative to positive frequency, can you quantify that a bit? Was it a small negative to a small positive or a bit wider, the band?

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Douglas Graham Elliot, The Hartford Financial Services Group, Inc. - President [53]

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The frequency trends, really going back 5, 6, 7 years but even longer than that, have generally been favorable and negative. So that's the overall industry, and certainly, our book has performed equally as well. So we're talking single-digit minuses going back in time. That did move to this moderate single digit -- small single digits, mid-single digits as we moved into 2018 accident year.

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Thomas George Gallagher, Evercore ISI Institutional Equities, Research Division - Senior MD [54]

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Got it. And then just on the severity side, I think that's been coming in favorably for a while. Has that trend really been claim durations? Or is that lack of wage inflation? And would you still expect that to develop favorably on the severity side?

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Douglas Graham Elliot, The Hartford Financial Services Group, Inc. - President [55]

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Tom, when we think about severity, we separate the medical from the nonmedical, and both parts of severity look pretty much in check. So we are aggressively managing, with our claim resources and talented medical executives inside of claim, the medical side and feel good about that, feel good about our workers' compensation networks, feel good about our, strategies and, I think, are doing a lot to control the medical costs inside our workers' compensation environment. On the nonmedical, our expectation and what we're seeing in our trends is very moderated. So pleased about those trends, right in line with expectations. And as an all-in basis, the severity estimates are pretty much on top of what we're seeing. So I feel good about the severity end of the story.

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Operator [56]

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Your next question comes from the line of Brian Meredith from UBS.

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Brian Robert Meredith, UBS Investment Bank, Research Division - MD, Financials Research Sector Head & Global Insurance Strategist [57]

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A couple of quick questions here. First off, aside from workers' comp, you guys are still getting reasonable rate. And I know Doug you talked a little bit about some concerns about maybe GL claims inflation, and you did that you haven't said it in this call, curious what your views are going forward. But as I look going forward, as that earned rate comes through, is there perhaps some offsets here with the rest of the commercial book on your kind of underlying loss picks versus what's happening with comp?

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Douglas Graham Elliot, The Hartford Financial Services Group, Inc. - President [58]

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Brian, I look across and we're spending time on our loss trends across all the lines. And yes, I have talked about liability in the past, and we're watchful of that. We've seen a little bit, across the industry, not just in our book, but others have talked about product, others have talked about D&O. It's a watchful area for us, but in general, our loss trends across the nonworker's comp line, basically in line with our expectations for the year.

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Brian Robert Meredith, UBS Investment Bank, Research Division - MD, Financials Research Sector Head & Global Insurance Strategist [59]

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Okay. And then -- and are you seeing rate in excess of trend right now, aside from workers' comp?

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Douglas Graham Elliot, The Hartford Financial Services Group, Inc. - President [60]

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I would say it's more about equal to trend in the aggregate. And again, there's a property story off to the side of this with CAT that we all have to come to grips with, right? We're disappointed in our CAT results and have some work to do in our CAT pricing and our CAT underwriting, et cetera. But that aside, generally, I think we're holding serve relative to our margins in our non-comp lines.

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Brian Robert Meredith, UBS Investment Bank, Research Division - MD, Financials Research Sector Head & Global Insurance Strategist [61]

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Great. And then one other just quick question. Is there any kind of read-throughs on what's going on with comp over to the Group Benefits area? Perhaps maybe the lower incidence has something to maybe do with the real good employment situation. Do you think about it that way?

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Douglas Graham Elliot, The Hartford Financial Services Group, Inc. - President [62]

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Good question. We actually, obviously, watch for that carefully. Our incidence trends in group disability continue to run very strong, but we are watchful. But we don't see anywhere near or anything like what we're seeing in workers' comp but know that we're on that as well in our group business.

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Christopher Jerome Swift, The Hartford Financial Services Group, Inc. - Chairman & CEO [63]

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Generally, Brian, injuries versus true disabilities are uncorrelated except in high-unemployment scenarios.

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Operator [64]

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Your next question comes from the line of Jay Cohen from Bank of America Merrill Lynch.

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Jay Adam Cohen, BofA Merrill Lynch, Research Division - Research Analyst [65]

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Two questions on workers' compensation. The first is -- and maybe correct me if I'm wrong. I thought you said that you changed your loss pick in Middle Market, but you did not change the loss pick in Small Commercial. Does that -- did I hear that right?

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Douglas Graham Elliot, The Hartford Financial Services Group, Inc. - President [66]

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That is correct, Jay.

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Jay Adam Cohen, BofA Merrill Lynch, Research Division - Research Analyst [67]

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But you just told somebody else that you are seeing increased frequency in Small Commercial as well as Middle Market.

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Douglas Graham Elliot, The Hartford Financial Services Group, Inc. - President [68]

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Yes. Our loss pick in total and small, as we estimated trends and pricing in the year, all in, contains everything we're seeing, including a little uptick in frequency in the first 9 months of the year.

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Jay Adam Cohen, BofA Merrill Lynch, Research Division - Research Analyst [69]

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Got it. And then secondly, on the claims system, you sort of suggested that because of the investments you've made in claims, you've identified trends quicker than you might have in the past. Can you give us a sense of how that actually worked? What specifically -- what changes did you make that allowed you to pick up those trends?

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Douglas Graham Elliot, The Hartford Financial Services Group, Inc. - President [70]

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I'm going to try to do this in 5 or 6 sentences or less. It's a much longer conversation. But essentially, we have now installed a new claim platform over our 5,000 desks throughout claim. And the ability to access what I'll call structured data and to slice and dice and be on top of it and to look at your metrics and watch your trends is much advanced from where we were 5 years ago. And so we have monthly and weekly discussions, but we're sitting on top of trends that, candidly, 5 years ago, were very manual in nature to try to get our arms around and they were slower than we'd like them to be. And so it's a completely different environment and one that I think is leading to outstanding claim performance.

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Operator [71]

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Your next question comes from the line of Bob Glasspiegel from Janney Montgomery Scott.

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Robert Ray Glasspiegel, Janney Montgomery Scott LLC, Research Division - MD of Insurance [72]

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On the year-to-date catch-up on comp in Middle Markets, it seems like your deterioration was overstated sequentially or year-over-year by Q1, Q2 adjustments. So on any way that you can do with, is -- the 300 basis points-plus sequential increase, how much of that was catch-up for comp?

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Douglas Graham Elliot, The Hartford Financial Services Group, Inc. - President [73]

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So Bob, the 3.5 points of change occurred over the 3 quarters, primarily the last 2 quarters because Q1 didn't change much. And essentially, half of that change was in Q2 and half of it in Q3. So in our Q3 change of a couple of points, 2/3 of that change would have related to the first 2 quarters of the year in terms of impact in the quarter.

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Robert Ray Glasspiegel, Janney Montgomery Scott LLC, Research Division - MD of Insurance [74]

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Okay. And that's just within comp. So overall, you take -- comp was 75% of the deterioration, I think you said.

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Douglas Graham Elliot, The Hartford Financial Services Group, Inc. - President [75]

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I don't know if I said that. I'll go back and think about that math. But I did say that our other lines are essentially holding and comp is the only line that we've made an adjustment to in the current accident year primarily. Beth?

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Operator [76]

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Your next question comes from the line of Sean Reitenbach from KBW.

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Sean Keller Reitenbach, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [77]

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How well can you incorporate the trend of inexperienced workers into workers' comp underwriting and pricing going forward?

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Douglas Graham Elliot, The Hartford Financial Services Group, Inc. - President [78]

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Good question. We certainly can ask the questions of, our prospective clients and renewal clients, how fast they're growing on the payroll side, how many new workers do they expect. So you can get a sense by looking at their payroll and their sales projections, et cetera. Sean, we're trying to do all that and more today as we speak, kind of leaning into this environment, trying to understand where those sectors and those clients are that need a little more rate if they've got a lot of inexperienced at the desk level or at the machinery level.

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Sean Keller Reitenbach, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [79]

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Okay. That's helpful. My second question, on the Personal Line Other Agency book, is that something you guys are looking to turn around growth in? Or should we expect that book to keep shrinking?

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Christopher Jerome Swift, The Hartford Financial Services Group, Inc. - Chairman & CEO [80]

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Yes. I think it's the latter, Sean. It's a book we have -- we don't want to call it runoff or discontinued per se, but it's -- AARP has got 100-plus percent of our attention and energy going forward.

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Operator [81]

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And with that, I'd like to turn the call back to Sabra Purtill for some closing remarks.

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Sabra Rose Purtill, The Hartford Financial Services Group, Inc. - SVP, Head of IR & Treasurer [82]

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Thank you. We appreciate that you all joined us today, and we look forward to seeing you in the future. If you have any additional questions, please don't hesitate to follow up with the Investor Relations team. Thank you, and have a good day.

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Operator [83]

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This concludes today's conference call. You may now disconnect.