hartford financial services (hig) earnings report: q1 2015...

CompanyName:HartfordFinancialServicesGroupIncCompanyTicker:HIGSector:FinancialIndustry:Insurance

EventDescription:Q12015EarningsCallMarketCapasofEventDate:17.65BPriceasofEventDate:41.4

©2014TheStreet,Inc.Al l R ightsReserved Page1of21

HartfordFinancialServices(HIG)EarningsReport:Q12015ConferenceCallTranscriptThefollowingHartfordFinancialServicesconferencecalltookplaceonApril28,2015,09:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

SabraPurtill;HartfordFinancial;Head-IRChrisSwift;HartfordFinancial;Chairman,DougElliot;HartfordFinancial;PresidentBethBombara;HartfordFinancial;CFO

OtherPart icipants

MichaelNannizzi;GoldmanSachs;AnalystBrianMeredith;UBS;AnalystVincentDeAugustino;KBW;AnalystJayGelb;Barclays;AnalystJohnNadel;PiperJaffray;AnalystJayCohen;BankofAmericaMerrillLynch;AnalystTomGallagher;CreditSuisse;AnalystErikBass;Citigroup;AnalystRandyBinner;FBR;AnalystJimmyBhullar;JPMorgan;AnalystIanGutterman;Balyasny;AnalystScottFrost;BankofAmericaMerrillLynch;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Goodmorning.Mynameis[Sean].Iwillbeyourconferenceoperatortoday.Atthistime,IwouldliketowelcomeeveryonetoTheHartford'sfirst-quarter2015financialresultsconferencecall.(OperatorInstructions)Thankyou.HeadofInvestorRelations,SabraPurtill,youmaybeginyourconference.

SabraPurt ill(Head-IR):

Thankyou,[Sean].Goodmorningandwelcome,everyone,toTheHartford'sfirst-quarter2015financialresultsWebcast.Ournewsrelease,investorfinancialsupplement,first-quarterfinancialresultspresentation,andForm10-QwereallfiledyesterdayafternoonandtheyareavailableonourWebsite.OurspeakerstodayincludeChrisSwift,ChairmanandCEOofTheHartford;DougElliot,President;andBethBombara,CFO.

Followingtheirpreparedremarks,wewillhaveabout30minutesforQ&A.JustafewnotesbeforeChrisbegins.Today'scallincludesforward-lookingstatementsasdefinedunderthePrivateSecuritiesLitigationReformActof1995.Thesestatementsarenotguaranteesoffutureperformanceandactualresultscouldbemateriallydifferent.

Wedonotassumeanyobligationtoupdateforward-lookingstatementsandinvestorsshouldconsider




therisksanduncertaintiesthatcouldcauseactualresultstodifferfromthesestatements.AdetaileddescriptionoftheserisksanduncertaintiescanbefoundinourSECfilings,whichareavailableonourWebsite.

Ourpresentationtodayalsoincludesseveralnon-GAAPfinancialmeasures.ExplanationsandreconciliationsofthesemeasurestothemostcomparableGAAPmeasureareincludedinourSECfilingsaswellasinthenewsreleaseandthefinancialsupplement.IwillnowturnthecallovertoChris.

ChrisSwif t (Chairman,):

Thankyou,Sabra.Goodmorning,everyone,andthankyouforjoiningthecall.Lastnight,wereportedfinancialresultsforthefirstquarter.Ourresultsshowthatweareofftoagoodstartfortheyearandthatwearemanagingtheincreasingchallengesinthemarketplace.

Wecontinuedtoexecuteonourstrategyandmakeprogressacrossallofourbusinesses.Comparedtothesameperiodlastyear,coreearningspershareforthefirstquarter2015rose11%,adjustedfornetfavorableitemsinbothperiods,andbookvaluepershare,excludingAOCI,increased3%.Inaddition,wedelivereda12-monthcoreearningsROEof8.1%.

Ouroperatingbusinessesperformedwell,despitelowinterestratesinanincreasinglycompetitivepricingenvironment.Letmeshareafewhighlightsfromthequarter.InPMC,ourcombinedratioof91.7isessentiallyflatcomparedtoprioryearwhenadjustedforCATs,prior-yeardevelopment,andtheNewYorkassessments.

Thisisagoodresult,giventheweatherconditions,andDougwilldiscussmoreabouteachlineofbusinessinafewmoments.Ingroupbenefits,coreearningsmarginincreased8/10ofapointto5.9%,withoutstandingfirst-quartersalesthatincreased67%.Theseresultsreflectourfocusonpricingandunderwritingaswellassuperiorserviceandclaimshandling.Ourmutualfundbusinessesgenerated28%growthinsalesandmorethan$500millioninpositivenetflowsinthequarter.

Inaddition,wecontinuedtosuccessfullymanagetherunoffofTalcottwitha$500millionreturnofcapitalduringthequarterandyear-over-yeardeclinesinvariableandfixedannuitycontractcounts.Inaddition,wearepleasedwiththeupgradestoourratingsfromS&PandMoody's,whichwereceivedlastweek.Theseupgradesrepresentanotablemilestoneforusandearnanaffirmationofourimprovedbalancesheet,operatingperformance,andfinancialflexibility.

Aswelookahead,wearecommittedtoexpandingourcapabilitiestosupportourgrowth.Thisincludesmakinginvestmentsinourtechnologyplatform,wherewehaveanumberofsignificantprogramsinflight.Twooftheseprogramsarecurrentlybeingdeployedandarehavingaverypositiveimpactonourdistributionrelationshipsandthecustomerexperience.

FirstisournewP&Cclaimsystem,whichcontinueditsrolloutacrossthecountry.Ourcolleaguescontinuetocommentontheirvastlyimproveduserexperienceandhowthattranslatesintoimprovedcustomerexperience.Withenhanceddatacollection,weareimprovingourabilitytoassigntherightexpertisetoresolveclaimantneedsinatimelyandsupportivemanner.

Secondisournewconsolidatedunderwritingdesktopformiddlemarket.Wehavemodernizedourunderwritingprocesswiththisapplication,deliveringimmediatebenefitsinquoteturnaroundtimeandcommunicationwithouragents.

Overtime,thisplatformisthevehiclebywhichwewilldelivernewtoolsanddecisionsupporttoallourunderwriters,whichisanexcitingstepforward.Iamhappyabouttherolloutoftheseimportantnewtechnologiesandlookforwardtoupdatingyouonourcontinuedprogressinthefuture.Oneofour




strengthsatTheHartfordisourdeeppooloftalent.

Sinceourlastcall,wehavemadesomeleadershipchangesthatIwantedtosharewithyou.DavidRobinsonwillassumetheroleofGeneralCounselwhen[AlanCresco]stepsdownfromthepositionattheendofMay.Davidhasbeenwithussince2006andhasabroadrangeoflegalandbusinessexperiences,includingplayingakeyroleinourtransformationandwewelcomehimtotheexecutiveleadershipteam.Iwouldliketoacknowledgeandthank[Alan]forhisloyalservicetoourCompany.

FewpeoplehaveplayedsuchaninfluentialroleinourCompanyas[Alan],whoservedasGeneralCounseltothreeCEOsandhelpedustomanagethroughdifficulttimesandasuccessfultransformation.Wethankhimforhiscountlesscontributionsandwishhimallthebest.

WealsoappointedRaySpragueaspermanentHeadofPersonalLines.RayjoinedTheHartfordin1985andhasheldleadershippositionsinbothstrategyandpropertyandcasualty,includingrunningourmarket-leadingsmallcommercialbusiness.Personallinesisanimportantpartofourstrategyandweremaincommittedtoimprovingourperformanceaswegoforward.

Inclosing,Iwanttoreiteratethatthefirstquarterwasagoodstartto2015.Iamconfidentthatwearewellpositionedtonavigatethemorecompetitivemarketinacontinuedlowinterestrateenvironment.Wewillmaintainourunderwritingandpricingdiscipline,whilealsoinvestinginourbusinesseswithagoalofincreasingourROEandbookvaluepersharetodriveshareholdervaluecreation.Thankyou.NowIwillturnthecallovertoDoug.

Doug?

DougElliot (President):

Thankyou,Chris,andgoodmorning,everyone.Ourpropertyandcasualtyandgroupbenefitsbusinessesstarted2015withsolidresultsforthefirstquarter.Retentionscontinuetobestrong,helpingtopostmodesttop-linegrowth.Losstrendinourmajorlinesofbusinessremainbenignandwithinourpricingtargets.

Andingeneral,ouroperatingperformancewasverysteady,anoutcomewearepleasedwith.Wearelockedininourcoremetricsandperformanceindicatorsaswecontinuetobalancemarginsandgrowthamidincreasingcompetition.Wearefocusedonnewbusinessriskselection,retentionofourbestperformingaccounts,andoverallrateadequacy.

Themarketplacehasgrownmorecompetitiveoverthelastquarter.Wearebeginningtofindthattherearefewernewbusinessopportunitiestransactingatourtargetreturnslevels.Wearealsoseeingmorepressureonourrenewals,astherateadequacyofourbookhasclearlyimprovedinrecentyears.Wearegoingtocompeteaggressively.

However,wearenotgoingtochasebusinessoutsideofourunderwritingandprofitabilityparameters.Ourintenseoperatingfocusoverthelastseveralyears,aswellastheinvestmentswehavebeenmakinginproduct,underwriting,andtechnology,positionusonasolidfoundationtocompeteeffectivelyundervariousmarketdynamics.

IwillshareabitmoreaboutthisasIrecapthefirst-quarterperformanceforourbusinessunits.Incommerciallines,wedeliveredcoreearningsof$234millionwithacombinedratioof95.9.Thiswasanearningsdecreaseof$30millionfromfirstquarter2014,largelydrivenbylastyear'sone-timeexpensebenefitfromchangesinNewYorkWorkers'CompensationBoardassessments.

Adjustingforthisitem,ourcombinedratioimproved4/10ofapoint.Renewalwrittenpricinginstandardcommerciallineswas3%forthequarter.Thisisactuallydownabouthalfapointfromfourthquarter,




althoughbothquartersroundedto3%.

Overall,pricingisbeingbuoyedsomewhatbyincreasesincommercialauto.Inworkers'compensation,improvedrateadequacyfortheindustryhasresultedingreatercompetition,especiallyinmiddlemarket,whereourrenewalwrittenpricingof1%wasdownjustover2pointsfromfourthquarter.Insmallcommercial,workers'compensationrenewalwrittenpricingwas2%,decliningbyjusthalfapoint.

Ourlosstrendsinworkers'compensationcontinuetobefavorableandourreturnsarewithinourtargetrange.Catastrophelossesforthefirstquarter2015wereverysimilartowhatweexperiencedayearago,althoughstormsthisyearweremuchheavilyconcentratedintheNortheastthanlastyear'swidespreadactivity.

Weagainsawhigherlossactivityincommerciallinesratherthanpersonallines,largelyattributabletothedifferentgeographicconcentrationsinthesebusinesses.Insmallcommercial,writtenpremiumforthequartergrew5%,withstrongpolicyretentionandaslightuptickinnewbusiness.Theunderlyingcombinedratio,excludingcatastrophesandprior-yeardevelopment,was89.6,up4/10ofapointversuslastyear,afteradjustingfortheNewYorkAssessmentbenefit.

Theincreasereflectshigherexpensesaswecontinuetomakeinvestmentstoimprovethecustomerexperience,enhanceourproducts,deploynewtechnologyfeatures,andaddlocalsalesrepresentatives.Wealsosawanincreaseinagencysupplementalcompensationcosts,drivenbyimprovementsinourlossratio.Weremainverypleasedwithouroverallmarginsinthisbusinessandthecapabilitieswearebringingtomarket.

Catastropheshitoursmallcommercialbusinessabitharderinthisquarterversuslastyear,largelytheresultofwinterstormshereintheNortheast,wherewehaveahigherconcentrationofbusiness.Asalways,ourclaimsresponsewasoutstandingandwewillcontinuetoevolveourcatastrophemodelingandpricingtokeeppacewithemergingweatherpatterns.

Inmiddlemarket,wepostedanothersolidquarter,withanunderlyingcombinedratioof93.7,improving1.1pointsafteradjustingfortheNewYorkAssessmentbenefitin2014.Muchofthisgainiscomingfrommarginimprovementinworkers'compensationasourpricingandunderwritingmixactionsearnthroughthebookofbusiness.

Writtenpremiumgrowthwas3%,asretentionsremainsteadyandnewbusinessproductionbenefitedfromahighermixoflargeraccounts.AsImentionedinmyopening,weareseeingaslowdowninournewbusinesspipelineforaccountsthatmeetourunderwritingprofile.Boththeselectionofnewaccountsandtherenewalofexistingaccountsisdrivenbythetalent,portfoliomanagementtools,anddataanalyticswehaveenhancedinrecentyears.

Wewillcontinuetowritebusinesswhenitiswellpricedandexercisethedisciplinetowalkawaywhenitisnot.Middlemarketcommercialautohasbeenanareathathasnotmetourreturntargets.Inparticular,ourcorrectiveactionshavetakenlongertogaintractionandshowtheimprovementsweexpected.

Priceincreasesinthequarterwereinthehighsingledigitsandwearecontinuingtopushevenhardertoachieverateadequacyinthisline.Withinspecialtycommercial,theunderlyingcombinedratioof99.1improvedversusprioryearafteradjustingfortheNewYorkAssessmentbenefitin2014.Atthiscombinedratio,theoverallbusinessisoperatingwithinourtargetreturnrange,reflectingparticularlystrongperformanceinbondandfinancialproducts.

Favorableprior-yeardevelopmentinfinancialproductscontributedtospecialtycommercials'combinedratioof94.5.D&OclaimtrendssincethefinancialcrisishavebeenmorefavorablethanourinitialestimatesandwecontinuetoseestrongperformanceintheE&Oline.Thesecoveragesare




becominganimportantpartofouroverallvaluepropositionacrossallourcommerciallinebusinessunitsanditisgreattohavestrongresultscomingfromfinancialproducts.Nationalaccountscontinuestoperformwellandwearepleasedwiththeoverallprofileofthisbusiness.

Wefeelcomfortablewithourretentionsandnewbusinesshitratesinaverycompetitivemarket.Inpersonallines,coreearningswere$75millionforthequarter,downfrom$101millionlastyear.Theunderlyingcombinedratioof89.9deteriorated1.2pointsfromlastyear,largelydrivenbyauto,wherewehaveseenaslightuptickinourphysicaldamageseveritytrends.Totalwrittenpremiumforthequartergrewslightlybetterthan1%.Thatincluded1%growthinAARPDirectand23%growthinAARPthroughagents.

WearepleasedwiththemomentumoftheAARPofferingthroughindependentagentsandwecontinuetobalancegrowthwithoverallrateadequacytoensurethatwearebuildingastrongbookofbusiness.Onthedirectside,weareadjustingouradvertisingcampaignandearlytestresultshavebeenpositive.

Ourfocusonmembervalue,withthesupportandinsightoftheAARPorganization,continuestoevolvethisprogramanddriveitssuccess.Inthenon-AARPagencychannel,writtenpremiumwasdown7%versusthefirstquarterof2014.Thisispartlyduetothehighlycompetitivecomparativeraterdynamicsofthechannel,andpartlyduetoourownunderwritingactions.

Wecontinuetoseeopportunityinthischanneltogrowourbusinessthroughhighlypartneredagents.Theseactionswillbetterpositionustoalignwithourbestdistributorrelationshipsanddelivercompetitiveproductstotheircustomers.Shiftingovertogroupbenefits,coreearningsforthefirstquarterwere$52million,up16%from2014,deliveringacoreearningsmarginof5.9%.

Wecontinuetoseefavorabletrendsinourgrouplifeanddisabilitylossratiosversusprioryear,althoughtherateofimprovementhasslowed.Lookingatthetopline,fullyinsuredongoingpremium,excludingassociation-financialinstitutions,wasup4%forthequarter.Overallbookpersistencyonouremployergroupblockofbusinessisinthelow[90%s]andwecontinuetoachieveourrenewalpricingtargets.

Fullyinsuredongoingsaleswere$300millionforthequarter,astrongstartto2015,andasIhadpreviouslyindicated.Approximately25%ofthesalesgainsarewinbacks,customersthatleftusinrecentyears,buthavenowcomeback.Weconsistentlyhearthatourservicecapabilitiesareakeydifferentiatorandtheprimaryreasonclientscomeback.WeareproudofourHartfordteammateswhomakethatvaluepropositionrealeveryday.Andwearecontinuingtoinvestinthetoolsandtechnologynecessarytomeettheneedsofourcustomers.

Letmeconcludewithafewgeneralthemes.Acrossourpropertyandcasualtyandgroupbenefitsbusinesses,wearewellpositionedtocompete.Wehavemadeimportantinvestmentstoimproveourcapabilitiesandtakensomehardactionstoaddressshortcomingsinourportfolio.Notwithstandingthisconsistentprogressinrecentyears,therearealwayspocketswherewecanandwilldobetter.

Wewillcontinuetodigdeepintoourbusinessmetricstoeffectivelymanageourperformance,retainourbestcustomers,andbuildvalue.2015isshowingsignsofgreatercompetitionandthisisthetimeforourskillandexperiencetoguideouractionsforlong-termsuccess.Wehaveamuchstrongerfoundationforthejourneyahead.LetmenowturnthecallovertoBeth.

BethBombara(CFO):

Thankyou,Doug.Iamgoingtobrieflycoverfirst-quarterresultsfortheotherbusinessesandthenprovideanupdateontheinvestmentportfolioandourcapitalmanagementactivities.Mutualfundscoreearningsrose5%inthefirstquarter,primarilyduetoanincreaseinfeesfromhigheraverageassetsundermanagement,excludingTalcottvariableannuityfunds.




Asexpected,Talcott-relatedAUMcontinuedtorunoff,whichreducedthesegment'stotalAUMcomparedwithayearago.Fundperformanceremainedsolidthisquarter,with70%offundsoutperformingtheirpeersoverthelast5years.

Ourstrongperformancetrackrecordhashelpeddrivestrongmutualfundsales,resultinginnetpositiveflowsof$529million.Talcottpostedgoodresultsthisquarter,withcoreearningsof$111million,about$20millionaboveourexpectationbecauseofhigherinvestmentreturns,includinglimitedpartnershipreturns.Wemodellimitedpartnershipincomeata6%annualizedreturn.

Assumingthatreturn,Talcott'squarterlycoreearningsforthebalanceoftheyearwouldbeinthe$85millionto$90millionrange.AsChrismentioned,Talcott'sannuitycontractcountscontinuetodecline.OurISVandESVprogramsaddedslightlytothevariableandfixedannuityrunoff.Andwewillcontinuetolookatcontractholderinitiativesandotherprogramsthatcanhelpacceleratethedeclineinthesebooksofbusiness.

SinceweputTalcottintorunoff,variableandfixedannuitycontractcountshavedroppedbyalmostone-third,down32%and29%,respectively,sinceJune30,2012.Duringthequarter,Talcottpaida$500milliondividendtotheholdingcompany,whichcontributedtothedeclineinstatutorysurplusto$5.1billionfrom$5.6billion.Wegeneratedabout$63millionofnetstatutorysurplusthisquarter,inlinewithourprioroutlookof$200millionto$300millionofsurplusgenerationforthefullyear.

However,lowinterestratescouldprovidedownwardpressureonthatestimateasweapproachedyearend.Wedonotexpectthistoimpactourcurrentintentiontotaketwodividendsof$500millioneachfromTalcott:oneinthesecondhalfof2015andanotheroneagaininearly2016.Corporatesegmentfirst-quarter2015corelosseswereaboutflattotheprioryear.Weexpectsomereductionininterestexpenseduring2015aswerepay$280millionofmaturingdebtduringthequarterandalsointendtorepayanother$167millionofscheduleddebtmaturitieslaterthisyear.

Inaddition,wewillutilizeupto$500millionforadditionaldebtmanagement,includingthecallofourOctober2017debtmaturitywerecentlyannounced.Turningtoinvestments,thecreditperformanceofourportfolioremainsstrong,withamodest$15millionofimpairmentsduringthequarter.Ourportfolioyieldalsoheldupreasonablywellthisquarter,despitetheheadwindsfromlowinterestrates.,withanannualizedyieldof4.1%,excludinglimitedpartnerships.

Inaddition,wehadmorefixedincomemake-wholepremiumsthisquarterthannormal,whichaddedafewbasispointstotheall-inyieldcomparedwithfourthquarter.Newmoneyyieldsremainlow.Althoughwithintherangeweexpectedfortheyear,whichwillcontinuetoputpressureoninvestmentincomelevels.Limitedpartnershipreturns,ontheotherhand,werewellaboveouroutlook,withanannualizedreturnofabout14%,consistentwiththeprioryear,butmorethandoublethe6%averageweuseforplanningpurposes.ThisimpactedTalcott'sresultsinparticular,asInotedearlier.

Ourprivateequityandrealestatepartnershipsdrovemostofthisupside,whileourhedgefundinvestments,whichareprincipallyglobalmacrofunds,hadlowsingle-digitannualizedreturnsconsistentwithouroutlook.Towrapuponourresults,wehadagoodquarter,withconsolidatedcoreearningsperdilutedshareup11%,excludingnetfavorableitemsinbothperiods,suchascatastrophesbelowbudget,prior-yeardevelopment,andtheNewYorkAssessments.

Inaddition,bookvalueperdilutedshare,excludingAOCI,rose2%fromyearend2014,reflectingthatgrowthinshareholders'equityandtheaccretiveimpactofthesharerepurchaseprogram.GrowingbookvaluepershareisakeyfinancialgoalforTheHartfordandanimportantdriverofshareholdervaluecreationovertime.

AsecondkeyfinancialgoalisincreasingourcoreROE.The12-monthcoreearningsROEwas8.1%,a




goodimprovementovertheprioryear,whichincludedthebenefitfromseveralnetfavorableitems.Whilethisremainsbelowourcostofcapital,weintendtoimprovetheROEovertimewithcontinuedcoreearningsgrowthandcapitalmanagement.The12-monthunleveredROEforourP&Cgroupbenefitsandmutualfundsbusinesseswas10.6%.

BeforeturningtoQ&A,Iwouldliketoprovideabriefupdateonourcapitalmanagementplan.Asareminder,thetwo-yearplan,initiatedin2014,was$2.775billionforsharerepurchasesand$1.2billionfordebtcapitalmanagement.

ThatplanremainsunchangedandthroughApril24,wehaverepurchasedapproximately$2.1billionofcommonequity,totaling57millionshares,foranaveragepurchasepriceof$36.93.Wehave$656millionremainingundertheequityprogram,whichwewillcompleteoverthebalanceoftheyear,includingatotalofapproximately$250millionduringthesecondquarter.

Underthedebtmanagementprogram,werepaidmaturingdebtof$200millionin2014,$289millionin2015,andexpecttorepay$167millioninNovember,whichleavesapproximately$500millionforotherdebtcapitalmanagement.

OnFriday,wenotedthecustodianofourintentiontocallthe4%notesdueinOctober2017,whichhavePARoutstandingof$296million.Includingaccruedinterestandthemake-wholepremium,thisbondcallwilluseapproximately$320millionoftheremaining$500million.Weexpecttousethebalanceforotherdebtmanagementactions.

AsIpreviouslymentioned,duringthesecondhalfof2015,weexpectTalcotttodividend$500milliontotheholdingcompanyandP&Cgroupbenefitsandmutualfundstoalsogenerateabout$700millionofdividends.Wehavemadesignificantstridesinreducingdebtandimprovingourbalancesheetandriskprofileoverthepastseveralyears,whichcontributedtotheS&PandMoody'supgrades.

Weexpectourcapitalmanagementplanstoincludebothequityanddebtaswelookforopportunitiestoredeployexcesscapitalaccretively,bothascapitalmanagementandinvestmentinourbusinesses.Wewillcontinuetoexecutethecurrentcapitalmanagementplanandduringthesecondhalfofthisyear,wewillupdateyouonourcapitalmanagementoutlookfortheremainderoftheyearand2016.Tosummarize,first-quarterresultswereagoodstarttotheyear.

OurstrategyremainsunchangedasweremainfocusedongrowingcoreearningsinourP&C,groupbenefits,andmutualfundbusinessestooffsettherunoffofTalcott'scoreearnings.Whilecompetitiveconditionsmaybemorechallenging,theunderlyingreturnsinourbusinesseshaveimprovedsignificantlycomparedtoseveralyearsago,andwearewellpositioned,bothfinanciallyandcompetitively,tocontinuetocreateshareholdervalue.IwillnowturnthecallovertoSabrasowecanbegintheQ&Asession.


Thankyou,Beth.AsInotedearlier,wehaveabout30minutesforQ&A.Inordertogetthroughthequeueandalloweveryonetohavetimetoasktheirquestion,wewouldrequestthatyoulimityourselftoonequestionandafollow-upandthenrequeueifyouhaveadditionalquestions.Sean,couldyoupleasegivetheQ&Ainstructions?

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)




MichaelNannizzi,GoldmanSachs.

MichaelNannizzi(Analyst-GoldmanSachs):

Couplequestions.Isthereanywaywecouldquantify,Doug,thetechnologyinvestmentsandthehighercommissionsbasedonbusinessprofitabilityon1Qresults?


Mike,wedon'tsharethedetailstoallowyoutodothat.Iwouldsaythis,thatChrisandIhavesharedthatourtechnologyinvestplanoverthisthree-yearperiodisa$1billion-plusplan.Thatisputtingalittlebitmorethanhalfofthe--abouthalfoftheexpensepressure,namelyinsidesmallcommercial,asIcalledoutthismorning.


Right.


AndasImentioned,weobviouslyareseeingaverysolid,profitablerunthroughourlossratio,sowearefeelingalittleexpensepressureinoursupplementalsbecausewehavegotathree-yeartriggerforlossratioswithmanyofouragentsandbrokers.


Okay.Gotit.Okay.SoImean,asthatcontinues,then,wecouldexpecttosee--Iguesswewillcontinuetoseetheexpensepressurefromsupplementals.Andthenasyouworkthroughyourtechnologyspend,thenweshouldprobablyseethatnormalizeatsomepoint.


Yes.Iwouldsaythat.Andclearly,aswereplace2012with2015--2015startsoutinagoodspotfromalossratiostandpoint.Thethree-yearrunwith2015willbe2013,2014,2015,whichwillbethreegoodyears.2015clearlyisinabetterplacethan2012wouldhavebeen.SoIthinknowwegettoanormalizedlevelasweapproach2015.


Mike,Iwouldjustadd,too,ontheexpenseside,weareharvestinggainstoday.Soyoushouldnotthinkthatwearenottryingtobeefficienttodayandimproveourexistingprocesses,particularlyaswespendmoneyonnewtechnology,whichwillcontinue.Wedocapitalizesomeofthoseinvestmentsthatwillbeamortizedoverafive-toseven-yearperioddependingontheproject.

Butweultimatelyexpectthepaybackthroughincreased--I'llcallitproductivity,reducedunitcostandultimately,fastergrowth.SothatishowDougandIhavebeenthinkingaboutit.


Great.Thanks.Andthenjustonequickone.Ontheupgradesthislastweek,Beth,thinkingaboutthose,wheredothosefallinyourexpectation?Imean,clearly,youareworkingtowardsthistypeofrecognition.Isthisearlierthanyouexpected?Earlieraffirmationthanyouexpected?Anddoesthischangeinanywayhowyou'rethinkingaboutyourcapitalmanagementplanasyoustartpencilingthesecondhalfoftheyear?Thanks.

BethBombara(CFO):




Thanks,Mike.Soobviouslywe'reverypleasedwiththeactionsthatbothS&PandMoody'shavetaken.Obviously,overthelastseveralyears,wehavebeenworkingwiththemcloselytosharewiththemourplansandweplantocontinuetoworkforcontinuedimprovement.SoIdon'tseeitchangingourviewsrelativetoourcapitalmanagementplans.Again,itisnicetogettherecognitionfortheimprovementsthatwehavemade.


Great.Thankyousomuch.

Operator :

BrianMeredith,UBS.

BrianMeredith (Analyst-UBS):

Couplequestionshereforyou.Doug,justcurious,ontheincreasethatwesawandsomeoftheseverityonthepersonalauto,wouldyouattributethattokindofindustrywhatisgoingon?Orisanything--anyofthatrelatedtomaybesomeselectionissueswiththebigrapidgrowthyou'regettingintheAARPagencybusiness?


Wearelookingateverycomponentofthat.Andwedofeelliketherearesomethingshappeningherethatweneedtokindofleanintoandwehavesomeworkprogramsaround.Weareclearlylookingatvehicleyearandmakingsurethatournewopenroadproductisappropriatelypricingthose.

Inthequarter,itlookedlikeoursubrogationwasalittlelight.Soweareleaningintosubrogation.Andasyouunderstandthat,thatissomethingwecancatchbackupwith.Sowehavegotanumberofthingsthatwearelookingatinternally,butweunderstandtherehasprobablybeenalittlebitofphysicaldamagepressureacrosstheindustryaswell.


Great.AndthenstayingontheP&Ctopic,Iwillletyoukeepgoinghere,Doug.Commercialauto.Whatexactlyaretheissueswithyourbookthatyouaredealingwithrightnow?Seemslikesomeothercompaniesareactuallysayingtheyarefinallygettingtotherightprofitabilityleveloncommercialauto.


Yes,Iwouldstartbysayingthepressurewearefeelingtodayincommercialautoisverydifferentthansomeoftheprogramsandcaptiveswehadseveralyearsback.SothoseareinourhistoryandIfeelgoodaboutthewaywehavemovedawayfromthoseprograms.Thisismoreorganicmiddlemarketandtoalesserextentsmallpressurejustacrossseverity.

Weareseeingseveritytrendsinthosebooksofbusiness.Wearepricingforthem.Wearelookingatvehicleweightsagainstourpriceperpound.We'relookingatdriverexperience.Iwouldsaythatweareleaningprobablyalittlebitmoreaggressivelyintodriverexperiencethisyearthanwehadinthepast.Soweareworkingacrossthatautobook.We'regoingtogetthisbookperformingmuchbetterassoonaspossible.AndIwouldsayrightnow,weareleavingnostoneunturned.


Great.Thankyou.




Operator :

VincentDeAugustino,KBW.

VincentDeAugustino (Analyst-KBW):

Justaquickfollow-uponapreviousquestionontheautolosscostside.Justwiththishittingthephysicaldamageseverityside,Iamcuriousifthisistheresultofjustgreateractualdamagetovehiclesorifthere'sanyinflationintherepaircost.AndthereasonIaskhereisifitisontheactualdamagelevelstothevehicles,Iamwonderingifthereisanytypeofcorrelationonthebodilyinjuryside,justmaybetoalessermagnitude.


Vince,thisisDougagain.Wearelookingatyearofvehicle.Soobviously,thenewervehicleswillhavemoretechnologyinthebumpersonbothsides.Sothatissomethingthathasgotourfullattention.

Weobviouslyfeelgreataboutourclaimprocess,butwearegoingback.Asyouknow,wehaveanewclaimsystemthatisrollingoutaswespeak.Sowearelookingattheworkstreamsthatnowrevolvearoundthatnewsystemandlookingat[simil]typeandyeartomakesureweareontopofallthosetrends.


Okay.Soyourdriverbaseisn'tassensitivetogasprices,butanynotableshiftsonthefrequencyside?


Ageneralupshift,butnotdramatically.We'vewatchedthiscarefullyoverthelast10months,12months.AndsonotthatIthinkthisisinsideourpatternsrelativetolossatthemoment.


Okay.AndifIcansqueezeanotheroneonjustpricingontheworkers'compside.Workers'compisageneralizationofalotofsmallermicromarketsandgeographiesandinjuryclasscodes.I'mcurious,basedonyourcommentthismorning,withinthoseaggregatenumbers,ifthereareanypocketsofreallyfavorableordestructivepricingthatyougottowatchoutfor?


Ithinkyouprobablyhaveagreatsenseofthemarketplace.Ingeneral,therehasbeenadownwardpressureacrossthefilingsinworkers'comp.Sosomeofthemajorstatesarelookingatmovesinthepricingrealmthatnowareflattodown.Iwouldsay,acrossthemiddlemarket,Idon'tthemajorswingsfromthegeographicstandpoint.Ithinkwearecompetingwell.Ithinkthetoolsareinplace;thebooksareveryadequatelypriced.

SotheimprovementswehavemadeoverthelastthreeyearsIthinkdopositionabitmorecompetition,whichiswhatweareseeing.ButwearegoingtokeepourdisciplineandIamverycomfortablethatwearegoingtobethoughtfulasweplaythisout.


Okay,great.Thanksfortheanswers.Bestofluck,guys.

Operator :




JayGelb,Barclays.

JayGelb(Analyst-Barclays):

First,onTalcott,Ijustwanttogetabitofabetterunderstandingwhyyoufeelthequarterlyrunrateofearningswouldbe$85millionto$95million,giventhestrong--ormuchstrongerperformanceyousawinthefirstquarter.Wasthatjustallsimplyduetoexcesslimitedpartnershipincome?

BethBombara(CFO):

Yes.Thatisexactlywhatdrovetheoutperformanceforthequarter.Sowhenwelookatjustnormalizingtherunrateforinvestmentincome,itgetsbackdownwithintherangethatwepreviouslygave.


Okay.Andthenonthecapitalstructure,Beth.I'mlookingatpage5ofthesupplement.Ithinkthislaysitoutprettyclearly.Couldyoureminduswhereyoufeelatargetrangeshouldbeforthedollaramountofdebtandalsodebttocapital?Myguessisyouarefocusedonratingagencyadjusteddebttocapital?Ifyoucouldremindusyourtargetsthere,thatwouldbehelpfulformodelingpurposes.

BethBombara(CFO):

Yes,absolutely.Sowedofocusonthelastlinethatyouseeonthatschedule,whichistheratingagencyadjusteddebttocapitalization.Soendedthequarterat27.3%.WhenwelookforwardtotheyearandanticipatethedebtreductionthatIcoveredinmyremarks,allthingselsebeingequal,wouldexpectthat27.3%tobeonaslightlyunder25%.Andwestatedallalongourgoalhasbeenmarchingdowntothelow20%s.


Okay.SoevenaftertheCompanyfinishesupitsdebtreductionforthisyear,thatseemstoimplytherecouldbemoretocomeintheyearsaheadtogetthatratiolower.

BethBombara(CFO):

Yes.Soaswelookforwardandwethinkaboutcapitalmanagementactionsinthefuture,debtreductionissomethingwewillalwaysconsider.Aswesaidinthepast,wedon'tneedtogettothattargetimmediately.Soweintendtocontinuetobebalancedinhowweapproachthat.Butobviously,asyoudoequityrepurchases,thatalsoputspressureontheratio.Sowearereallyjustlookingtobalanceallofthat.AndIwilljustcallitasteadymarchdowntothelow20%s.


Iappreciateit.Thankyou.

Operator :

JohnNadel,PiperJaffray.

JohnNadel(Analyst-PiperJaffray):

AquestionforDougonthecommerciallinesside.Andmaybeitissortofwrappingupacoupleoftheearlierquestions,maybeinonemaybeeasierfashionforustounderstand.Ithinkfor2015,youhadtargetedacombinedratioex-CATsinprioryearbetween89.5and91.5.1Qwasdefinitelyabitabovethatrange,butobviouslytoughweather.




Butalsoontheexpenseside,itsoundslikethingsaregoingtobealittlebithigher.Canyougiveusasense--doyoustillfeelgoodaboutthatrangefor2015?Orcouldthisexpensecomponentpushyoumodestlyabovetheupperendofthat?


John,Iwouldsaythatwestillfeellikethatrangeisachievable.Acoupleofthoughts.Oneis,Idothinkthefirstquarterontheexpensesideisatoughcomparebecauseoftheone-timersthatwereachievedlastyear.Butweareconsciousofthat,andasChrissaidbefore,wearedrivingefficienciesinsidethisoperation.

Soalthoughwearedrivingsomeofthedollarsbackinsidetheinvestpartofourbusiness,wearelookingtobecomeamorestreamlinedefficientcompanyovertime.AndIdothink,obviously,wehavegottowaitandseehowweatherplaysoutsecondandthirdquarter.ButIlookatthisasasolidstarttotheyearandthosetargetsdefinitelyachievable.


Okay.Thankyou.Thenseparately,maybeaquestionforBethontherunoffannuityblock.Thevariableannuitysurrenderrateremainshigh,althoughIguessitiscomingdownmodestly.Butcan'tstayinthe20%sforever,Isuppose.Butthefixedannuitysurrenderratethisquarterdroppedprettysignificantly.Wasthereanyspecificthingthathappenedthere?

BethBombara(CFO):

Yes.SoIwillremindyou,John,wehadaprograminplacein2014thatincreasedthatsurrenderrate,ourISVprogram.Sothatobviouslyimpactedthosesurrenderratesthatwesawin2014andthengoinginto2015.AndasIsaidinmyremarks,wewillcontinuetolookatwaysthatwecantargetspecificportionsofthebook,aswehaveinthepast.Andobviously,thatcanmakethesurrenderratessortofebbandflow.


Okay.Soex-somesortofmodifiedprogram,weshouldexpectprobablysomethingmoreinthelowtomidsingledigitsonthefixedannuityblock?

BethBombara(CFO):

Yes.Itdoestendtobouncearoundabit,too.ButIthinkonaverage,Iwouldsaythatthatwouldmakesense.Butquartertoquarter,dependingonjustwherevariouscontractsstandrelativetochoicesthattheyhavetomake,youcansometimesseethenumbersbounce.Butonaverage,Ithinkthatisagoodplacetobe.


Okay.Thanks.AndthenI'mgoingtosneakonelastonein,unlessSabrawantstobeatmeup.Butaswelookforwardtoanupdatedcapitalmanagementoutlookinthebackhalfoftheyear,canyoujustreminduswhattheongoingcashneedsoftheparentcompany?Howmuchcashdoyouwanttoholdthererelativetointerestexpenseanddividendpayments,etcetera?

BethBombara(CFO):

Sure.Soaswehavetalkedaboutinthepast,whenwethinkaboutholdingcompanycashandlevelsthatwe'dfeelcomfortableat,wetypicallytargetaround1.5timesinterestanddividendrequirements.Andwhenyoulookatwherewearewithinterestanddividends,youcanthinkaboutthatasbeinginlikethe[$650million]range.





Perfect.Thankyousomuch.

Operator :

JayCohen,BankofAmericaMerrillLynch.

JayCohen (Analyst-BankofAmericaMerrillLynch):

Acoupleofquestions.Firstis,Doug,IthinkyoumentionedthatyouhadplannedtoadjustyouradcampaignfortheAARPbusiness.Whatspecificallywillyoubedoingandhowdoyouthinkthatwillaffecttherevenues?


Whatwehavedoneintheadcampaigniswehaveadjustedslightlytobealittlebitmorevalue-based,tiedinwiththeAARPmembership.Soaswehavemadesometweaksoverthepast90days,ourresponseratehasrisenpositively.Andourcloserateonthoseresponseshasalsoseensomefavorablereactions.Somoretocomeasweworkouttherestof2015,butveryencouragedbytheearlystart.


Great.Andthenstickingwithpersonallines,theagency--non-AARPagencybusiness,youhadsaiditisgettingprettycompetitivewithcomparativeraters.Wasthereachangeinthequarteroristhisjustagradualcontinuationofwhatyouhaveseenoverthepastseveralyears?


Iwouldsayfromtheindustryside,nochangethatwecantell.Wehavemadesomeadjustmentsinourownstrategy,reallyaroundclassesinvehiclesandgeographies,justnormaltuningthatgoesondaytoday.Andsothecombinedactionsofcompetitivepressuresonourownactionscontributedtothequarter.


Gotit.


Letmejustaddjustaperspective,too,becauseIcalleditout,particularlyinmypreparedremarks,thatweare--Imean,personallinesisanimportantstrategyforTheHartfordandcomplementary,obviously,withourstrongcommercialcapabilities.

Sothatiswhyweappointedoneofourseasonedleaders,RaySprague,toreallyleadinthisandhelpuscontinuetoimproveit,becausewehaveawonderful30-plusyearrelationshipwithAARPthatwewanttocontinuetoleverageandservetheircustomers.Specificallyonyouradquestion,ifyouhaven'tseenthem,IwillgetSabrasenttosendyouaclip.

Buttheyarereallypowerfulconnections--emotionalconnections,Doug,Iwouldsay.Theyarestrongtestimonial-based,hearingdirectlyfromAARPmembersthemselvesandexplainingthevaluepropositionthatweoffer.

Asopposedtojustcompetingonpriceandjustaminimum,I'llcallit,featuresandcapabilitiesintheproducts.Soweofferarichproductthatweareproudoffromacoverageside.AndIthinkwe'regoingtotrytodoabetterjobinexplainingwhythosecoveragesareneededtoinsurefortheunforeseen.So




thosearejustacouplethoughtsIjustsharewithyou.


That'sgreat.Thanksalot.

Operator :

TomGallagher,CreditSuisse.

T omGallagher (Analyst-CreditSuisse):

IwillhaveaquestionandthenIwillturnitoverto[RyanTunis]forafollow-upP&Cquestion.Beth,justcomingbackasafollow-uptowhatJohnNadelaskedaboutonthecapitalmanagementfront,ifIunderstoodyouranswercorrectly,thatshouldleavethefull,wewillcallit,$500milliondividendthatyouexpecttogetoutofTalcottinthebackhalf,plusthe$700millionofoperatingdividendsor$1.2billion.

Itshouldleaveallofthatforincrementalcapitalmanagementorother,overandaboveyourexistingcapitalplan.Isthatrightorisitsomefractionofthe$1.2billionthatwouldnothavebeenaccountedforyet?

BethBombara(CFO):

Yes.SothewayIwouldhaveyouthinkaboutthat,Tom,ifyourecall,backinFebruary,weprovidedyouwithanupdateonourprojectionsofholdingcompanycashandwhereweexpectedtheholdingcompanytoendtheyearat.

Andthatwasatabout$1.8billion.Andthatremainsunchanged.Thattookintoconsiderationallthedividendsthatwejusttalkedabout.SowhenIwasansweringJohn'squestionontheholdingcompanyrequirements,andifyouthinkabout$650million-ishbeingtheannualinterestanddividendsthattheholdingcompanypays,andourtargettohold1.5timesthat,Ithinkthatgivesyoualittlebitofmapashowwethinkaboutyearend2015.

Andthenagain,aswesaid,goinginto2016,wehavetheadditional$500milliondividendthatweanticipatetakingoutofTalcottaswellasjustournormaldividendsthatwewouldtakeoutoftheotherbusinesses.


Gotyou.Sothatwouldleavealittleunder$1billion,then,ifIamsolving--inresponsetothat--withthatresponseinmind,itwouldleavealittleunder$1billionintermsofincrementalcapitalmanagement?Isthattherightnumbertothinkabout?Andthenobviously,itisadeterminationofwhatdoyouuseforbuybacksversusdebtmanagement,butisthattherightfigure?

BethBombara(CFO):

Yes.SoTom,Idon'treallywanttogetintoaspecificnumber.Aswesaid,wearegoingtolooktoupdateourplansinthesecondhalfoncewearegoingtoseehowthefirsthalfof2015goesandourviewsoftheremainderof2015goinginto2016.ThereisnothinghiddeninthemaththatIgivingyou,soyoucandrawyourownconclusion.Butagain,whenwetalkaboutupdatingourplans,itwouldbe2015through2016.


Gotyou.AndIwillturnitovertoRyanonP&C.




Unidentif iedPart icipant :

SoIguessmyquestionis…


Ryan,letmejustfollowuponTomand(multiplespeakers)Iappreciateyourreconciliationandtryingtopinpointit.ButIthinkBethsaiditwellisthatwewillgetintothesecondhalfof2015,gothroughourregularforward-lookingplanningprocess,andseethe--andjustmakesomefinaldecisions.Ithink,frommyperspective,Itakegreatcomfortinthefactthattheagencieshaveseentheimprovementsthatwearemaking.

Wearesittingonexcesscapital.thatweintendtodeployinaccretiveways.Youhaveheardourpenchanttokeepingthingsinbalancebetweendebtandequity,soIdon'tthinkthereisanythingreallychanged.Andifyoucouldjustcontinuetobejustalittlepatientwithusinthatwewanttobearegularcompanyandsortoflookatthesethingsinanormalcycleandrhythmandwewillcommunicateourviewstoyouattheappropriatetime.Butthankyouforyourinterest.


Thanks,Chris.


Soyes,Iguessmyquestionontheongoingbusinesses,alittlebithigherlevelonpersonallines.ItisforeitherRayorDoug.ButIguessjustlookingatauto,7%renewalrateincreasesthisquarter.Shouldweexpectmarginimprovementinthatbusinessthisyear,giventhemagnitudeofthoserateincreases?Orwouldyousaythoserateincreasesarenecessaryjusttokeepup,basedonsomeoftheelevatedphysicaldamageseverityyoumentioned?Thanks.


Aswestarttheyear,losstrendiscertainlyeatingintoourpricingequation.Wehopethatthatwillchange.Wehavegotanumberofworkstreamstotrytobringincrementalmarginbackinsidethatbook.Iwouldremindyouthatoverall,ourautobookisinactuallyprettyreasonableshape.Andclearly,ontheAARPside,verysolidshape.Wehavesomeworktodointheagencychannelandwehavechattedaboutthatinthepast.SoIhopethatwecanturnthatpricingintoabenefitinsidetheratio.Thatisthegoal.


Thanks,Doug.

Operator :

ErikBass,Citigroup.

ErikBass (Analyst-Citigroup):

Justwantedtotouchonthegroupbenefitsbusiness.Obviously,itwasaverystrongquarterforsalesandyoucitedthebenefitfromthewinbacks.Canyoualsotalkaboutthecontributionfromnewproducts?Andmaybe,also,justdiscussthecompetitivetrendsthatyouareseeinginthegroupbenefitsmarket?


Iwilltrytocoverafewofthoseitemsinthequestion,whichwasagoodone.Verypleasedwiththequarter,obviously.Astrongsalesquarter--ourstrongestsalesquarterinseveralyears.AlthoughIwould




remindyouthatwehavehadquarterslikethatinthepastwhenthisbusinesswasreallyrunningwellforusbackinthelate2000sandeveninto2010.Sopleasedwithourstart2015.Youcanalsoseethatabitmoresuccesshasbeenonthelifeside.

Soaswelookatthelong-termdurationcontractsinLTD,strongstart,butnotasstrong,probably,aswehadseenonthelifecontractside.Sojustsomethingintermsofmarketplace.Yes,weareexcitedaboutthenewproductdevelopmentoverthepastseveralyearsandwehavegottwonewvoluntaryproductsinmarket,includinganewdisabilityflexproduct.

Wehavesoldseveralofthosedeals.Iwillalsotellyouthatwearelookingtopopulatethemwithemployeesofthecontractsthatwehavewrittenthemon,butIthinkofftoagoodstart.They'rerecognizedbymanyofourpolicyholdersandIthinkwearegoingtobegintoseethatsuccessplayoutin2015.Soverypleasedwithourgroupbenefitstart.


Gotit.Thankyou.Andjustanycommentontheoverallcompetition?Iguesswhenyouhavetalkedabout--yourcommentsaroundcompetitionpickingupgenerally,itseemsitwasmorerelatedtoP&C.Butanythingsimilarthatyouareseeingonthegroupbenefitssideorisitstillarelativelybenignenvironment?


Iwouldsayitisarelativelyconsistentenvironment.Soweseecompetitionthere.MaybeabitmoreontheLTDsidethanwhatwehadexperiencedinthepast.Andagain,whatissointerestingaboutthegroupbenefitworldisthat,particularlyinthenationalaccounts,weareworkingsixmonths,ninemonthsinadvance.Sosomeofthesuccesseswehadinthefirstquarterwerereallytheresultofactionsandproposalsthatwentonlastsummer.

Butwearefeelinggoodaboutourabilitytobesuccessfulinthemiddlemarket.Thatwillbeanincreasinglyimportantpartofourgroupbenefitstrategy.ButIdothinkrationalcompetitionreallyacrossinaconsistentmanner.


Great.Thankyou.


IwouldjustaddacoupleofthemesthatDougexplained.One,ifyoulookatsales,thelifeTIpieceisinteresting.Soshorterdurationversuslongerduration.Wearehavingalittlebitmoresuccess,particularlyinthelowinterestrateenvironment.Two,itisobviouslyaheavynationalaccountseason,the1-1.

Butequally,thereisalotofgoodcontributionthatDougandtheteamhavebeenfocusedoninmiddlemarketinthesmallside.Soourbalanceofsalesisspreadamongstthedifferentsegments.Andthenthirdly,thechannel.Iwouldsayexchangesarebeginningtocontributeinawaythatweanticipated,butisapositivedevelopment,too.Sowerelyonourexistingagentsandbrokers.Butthereareanumberofexchangesthatweareparticipatinginthatarecontributingnicelytoourincreaseinsales.


Allright.Thankyou.

Operator :




RandyBinner,FBR.

RandyBinner (Analyst-FBR):

Alotofgoodstuff,somostlyanswered.ButIwanttoactuallyjumpbacktothecommercialautodiscussionandthensomecommentsintheopeningscript,thatD&OandE&Oclaimactivityhasbeenfavorable.

Soitisareservequestioninthatthenetreservereleaseinthequarterforcommerciallineswasrelativelyflat.Anditwasrelativelyflatoverall.SothequestioniswasthereadversePOIDincommercialautothatoffsetthemorefavorableD&OandE&OactivityorwastherenotPOIDinthoseitemsthisquarter?


Ithinkyoucanseeinthesupthat,yes,wehadsomeadverseautoliabilityactionstakenonourreserveposition,forsure.Mostlymiddlemarket,Imightcomment.Andthenthefinancialproductgoodnewsessentiallydidoffsetthat.Justathoughtaboutthefinancialproduct,D&O,E&O,book.Wewereheavierinthefinancialinstitutionblockbackduringtherecessionaryperiod,sowemadeappropriatereservepositionjudgmentsbackinthatperiod.

We'vewatchedthemplayoutasthelastfiveandsixyearshaveplayedout.Thisquarter,wecametothedecisionthatwehad--itwastimetomakesomeofthoseadjustments.SothenettingofthosetwoiswhatisplayingoutinourreservepositiononthepriorandIthinkitiswelllaidoutinthesupforyou.


Thankyou.Andthenthefollow-upisjustonthinkingofmorerecentaccidentyears.Soif--especiallywithD&OandE&O,withtheeconomycontinuingtobegoodandlosscostrelativelybenign,especiallyin2012and2013,therewasbetterpricing.Isthereanearlyreadyouhaveonsomeofthose--thecasualtylineswritteninthosemorerecentaccidentyearsandhowtheymaydevelop?


Ithinkitistooearlyforustocommentonthat.Wehaveawell-balancedbookofbusinessacrosssector,geography,etcetera.ButIthinkitwouldbeearlyformetomakeacallon2014and2013.


Allright,fairenough.Thanks.

Operator :

JimmyBhullar,JPMorgan.

JimmyBhullar (Analyst-JPMorgan):

Manyofmyquestionswereactuallyanswered,butonthepersonallinesside,canyoudiscussjustwhatisgoingoninthenon-AARPagencychannelpremiums?Theyhavebeendownforawild.Isitcompetitionorareyoubeingmoreselectiveinwhatyouarechoosingtounderwrite?

Andthen,BethhadmentionedinherremarksonTalcottsurplusbeingsensitivetointerestrates.Maybeifyoucouldquantifyorgiveussomecoloronjusthowsensitiveitwouldbeto20basispoints,30basispoints,50basispointsofachangeinrates.





IwillstartandtakethefirsthalfandthenwewillfliptoBeth.IwouldsaythatwithRay'sleadership--andheandInowhavebeenengagedheavilywiththegroupoverthepastninemonths--itisagreatchanceforustodoarefresh.Wehavementionedthatwearerollingoutanewautoclassplanthatalwaysencouragestuning,asthesethingsrollintomarket.

SoIwouldconsiderwhatwearedoinginthemarketplacekindofnormalforacompetitiveproductadjustmentstrategythatwewillcontinuetoevolveaswemoveforward.Yes,itisacompetitivechannel,butIthinkourreturnsarereallyinverysolidshape.Wewouldlikethemtobeabitbetter,butIamsatisfiedwithwhereweareandIthinkwewillcontinuetodotuningaswemoveforward.

BethBombara(CFO):

AndJimmy,onthequestiononinterestrates,Idon'thaveanexactsensitivitythatIcangiveyouvis-a-visabasispointchangeandwhatthatmightmean.WhatIwouldtellyouisthatwhenwelookattheoverallbookinTalcott,wefeelverygoodaboutthecashflowgenerationthatweseecomingfromtheVAbook.Andaswegetclosertotheendoftheyear,lowratescouldjustputpressureonthatpreviousrangethatwegave.

Butoverall,stillfeelverygoodaboutthebalancesheetstrengthandfeelverycomfortablewiththedividendplansthatwe'veputoutthere.Andaswegettotheendof2015,wewillevaluatesurpluslevelstodeterminewhat,ifany,additionaldividendswewouldseein2016,besideswhatwehavealreadyannounced.


Andjustlastly,isthereaminimumlevelofsurplusyouwouldwanttoleaveinTalcott,assuminganormaldeclineinthesizeoftheblock?

BethBombara(CFO):

Idon'thaveaspecifictargetinmind.Overtimeobviously,wefocusonRBCratios.Welookattheoverallsurplus,especiallyinstresssituations.Andthenalsobalancingliquidity.Soagain,theplanthatwehaveannouncedandthedividendsthatweexpecttotakeoutputuswellwithinallofthosethresholdsthatwemonitor.Andagain,asthebook[getssmaller],wewillevaluateabsolutesurpluslevels.


Andthoseamountsyouarecomfortablewith,evenwithrateswheretheyare,right?

BethBombara(CFO):

Yes.Theitemsthatwehavealreadydisclosed,wefeelverycomfortablewith.


Okay.Thankyou.

Operator :

IanGutterman,Balyasny.

IanGutterman (Analyst-Balyasny):

IwantedtofollowuponRandy'squestionaboutthereservesintherecentaccidentyears.Doug,I




specificallyfocusedonworkers'comp.Obviously,thatisyourbiggestareaofreserves.AndwhenIlookattherecentaccidentyears,theyarereportedtoincur--theinitialreportedtoincurredissomuchbetterthanhasbeenhistoricallythatIcan'tdrawanyotherconclusionthatyouseemtobereservingalotmoreconservatively.

Theonlypossibleexceptiontothatismaybetherehasbeensomemeaningfulshiftinthebook,wherereportswouldbecominginlaterthanitusedtobecauseofmixorsomeotherunderwritingchange.Isthereanythinglikethatgoingon?OrshouldIbeencouragedbyseeingtheearlyreportedtoincurredratioslookingsomuchbetterthanhistoric?


First,Iampleasedthatyouareencouraged.Weareencouragedbyourbookprofileoverthepastfewyears.Notonlyonthepricingside,butreallyverypleasedaboutthemixchangesandhowthey'veplayedoutinsideourearningsandreserveprofile.

SoIthink2013and2014arestillearlytocall,butweareverypleasedastohowtheylookandwehopetheycontinuetolookassolidastheyaretoday.Butyouknow,wecallthemasweseethem.Wefeelgoodaboutprogress,butthesearelongtaillinesthattakeawhiletomature.


Ofcourse.Ofcourse.Iwasthinkingmorehowtheyplayoutovertimethanexpectingitthisyear.Butthat'sokay.Andthenjustafollow-upontheagencyautobusiness,then,foryouand/orChris.Juststrategically--andI--youobviouslytalkedalotaboutsomeofthechangesyouaremaking,butassortofJimmyalludedto,thatbookshrunkforalongtime.

Andagain,Iamspecificallytalkingaboutthenon-AARPhere.Aretheactionsyouaretakingenoughthatyoucancompetewhereyouneedtoatthescaleyouareat?Orareyougoingtohavetofaceadecisioneventuallyofeitheryouneedtogetbiggerinthennon-AARPbusinessormaybegetoutofthenon-AARPbusiness?


Ian,Ithinkyouaskverysolidquestions.AsChrishadsuggested,wearetotallycommittedtothisspace.Thisisbeenarealsolidcomplementtonotonlyourpersonallinesagencyfranchise,butalsotothecommercialaswell.

Butwehavebeenchallengedandwehavegottogetthosehitchallengesheadonfromafinancialstandpoint.Wearedoingsoaswespeaktoday.Iamoptimisticaboutwhatthenextcoupleyearswillbring,butIalsoknowthatchallengeinthechannel,basedonhowcompetitioncompetesandthecomparativeraters,etcetera.SoIthinkwewillbetalkingaboutthisastimeplaysout.Andknowithasourfullattention.Andweareonitandwearepullingleverstodriveabetterfinancialoutcome.


Ian,IthinkDougsaiditwell.ButIthinkwhenyouthinkaboutitalsostrategically,westillbelieveinadvicethattheindependentagentsprovide,providedthatwehaveagoodcompetitivehomeandautoproduct.

SoIthinkwhenyouspeakofauto,don'tforgetabouthomeinmakingsurethatwehaveatotalsolutionforourindependentagentsandourcustomers.SoasDougsaiditandhesaiditwell.Wearecommittedtofiguringthisoutandhowwecancontinuetoaddvalueinthissegment.





Perfect.Thanks,guys.


Thankyou.Sean,wearecomingupthehour,sowehavetimeforonemorequestion,please.

Operator :

ScottFrost,BankofAmericaMerrillLynch.

Scott Frost (Analyst-BankofAmericaMerrillLynch):

Withoutgettingintoanypredictionsofratings--creditratingtrajectory,canyougiveusanideaofwhereyouthinkyourtargetedmetricsmapintermsofNRSROquantitativeratings?AndIhaveafollow-up.


I'msorry,Scott.Thetailendofyourquestiongotalittlegarbled.Themetricsrelativeto--


Yes.IntermsofjustthequantitativeratingsthatNRSROshaveoutthere,youhavetargetedmetrics.Wheredoyou--whatdoyouthinktheymap?


Right.Likethe22%to23%,forinstance,onthedebttototalcapital.

BethBombara(CFO):

Yes.Iwouldsayjustslightlyhigher.


Okay.AndcanyoualsoremindusacouplethingsIwanttoaskabouttheGlenMeadowsandthe[8and8]juniorsubs.WhatMoody'sbaskettreatmentdotheygetandaretheywithinS&P'sequitybucketforyou?Andhowwouldyoucharacterizetheattractivenessofthosetwoinstrumentsinyourcapitalstructure?

BethBombara(CFO):

ForMoody's,itis25%andforS&P,100%.ThewayIthinkaboutit,welookedatourdebtstackintotalintryingtomanagetothetargetsthatIsaid.Sothoseobviouslyweighintothataswelookatreallyfocusingontheratingagencyadjustedtargets.Sorightnow,theyfitverynicely.Andaswecontinuetomanagethedebtstack,wereallyarelookingatitmorefromtheperspectiveofmanagingtothosetargets.


Soareyousayingthatbothofthoseinstrumentsareattractivetoyounow?

BethBombara(CFO):

Rightnow,yes,theyareattractive.Theydohelpusachievethetargetsthatwehave.Overtime,thatcouldchange,butforwherewesittoday,wedoseethemasattractive.





Okay.Thankyouverymuch.

Operator :

Therearenofurtherquestions.


Thankyou,Sean.WewouldliketothankyouallforjoiningustodayandforyourinterestinTheHartford.Ifanyonehasanyremainingquestions,pleasefeelfreetocontactSeanormyselfbyphoneore-mailandwewillbehappytohelpyou.Thankyouandhaveagreatday.

Operator :

Thisconcludestoday'sconferencecall.

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