Christopher J. Swift
Chairman and Chief Executive Officer at The Hartford Financial Services Group
Good morning, and thank you for joining us. Last night, we reported strong financial and operational performance for the second quarter, completing a successful first half of the year. While we and the industry continue to navigate a dynamic market environment, including elevated catastrophe losses and persistent inflationary pressure in personal auto, once again we achieved exceptional results in Commercial Lines and outstanding performance in Group Benefits.
Highlights of the second quarter include top line growth in Commercial Lines of 12%, including double-digit contributions from each business with an underlying combined ratio of 88.3. Group Benefits fully-insured premium growth of 7% with a core earnings margin of 7.6%. Strong investment performance with increasing fixed-income portfolio yields and a trailing 12-month core earnings ROE of 13.6%, while returning $484 million of capital to shareholders. These results only strengthen my confidence in our ability to deliver a 2023 core earnings ROE in the range of 14% to 15%.
Now, let me dive deeper into our second quarter performance for each of our businesses. Momentum is strong in Commercial Lines. I expect continued top line growth at highly profitable margins during the second half of 2023, with full-year underlying combined ratio targets unchanged. In Small Commercial, written premium of $1.3 billion and new business of $237 million continue near-record high levels. Our best-in-class package product, which we call Spectrum, continues to outperform in a competitive marketplace. Spectrum new business premium of over $100 million was up 23% over prior year. Our unmatched ease of doing business with agents and customers and our unrivaled pricing, accuracy and consistency remain important drivers as demonstrated by strong sales and retention, and a 6% year-over-year increase in policies in-force. In addition, written premium for our excess and surplus lines binding product eclipsed $50 million in the quarter, up nearly 60% from a year ago with new business growth of just over 85%. Our expanding wholesale broker relationships are expected to drive continued robust growth and profitability for this important line. In short, Small Commercial continues to deliver outstanding results with industry-leading products and digital capabilities and is on track to exceed $5 billion of annual written premium in the near-term.
Middle and Large Commercial had an exceptional quarter. Written premiums were at their highest levels ever, up 12% in the quarter, driven by strong momentum in new business with elevated submissions in hit rates along with increasing average account premium. Cross-sell activities remain in full force and are helping to drive new business results. Written premium grew across almost all lines with excellent growth in our construction, energy and entertainment verticals. In addition, we are particularly pleased by the 24% top line growth in Middle Market property lines, which remains a key area of focus and a creative part of this business.
Looking across the enterprise, as discussed in prior quarters, we are taking thoughtful and disciplined steps using industry-leading tools to grow our property book within favorable market conditions. These efforts should put us in a position to expand commercial property written premium to approximately $2.5 billion, or up 25% by year-end. Underlying margins in Middle and Large Commercial were also at record levels, reflecting advancements in data science capabilities, industry-leading pricing and underwriting tools and exceptional talent, all of which position us well to maintain profitable growth in this business.
Global Specialty continues to deliver outstanding results with net written premium growth of 15% in the quarter. New business growth and improving renewal written pricing were important contributors. In addition, we remain excited about our position in the wholesale market in the ongoing benefits to the top line from our broadened product portfolio. U.S. Ocean Marine, Environmental, International and Global Reinsurance all achieved double-digit top line increases. Our underwriting discipline, along with enhanced capabilities developed over the past few years are driving targeted market share gains with a stellar underlying combined ratio that is hovered in the mid-80s for the past five quarters. In short, our execution has never been stronger.
Turning to pricing. Commercial Lines renewal pricing of 5.2% compared to 4.5% in the first quarter. Excluding workers' compensation, renewal pricing rose to 7.5%, up eight-tenths sequentially with accelerating pricing in property and auto. Across Commercial, property pricing is well into the double digits with auto in the high-single digits. Pricing in other liability and casualty lines also remained strong, while public D&O pricing remains challenged. In addition, workers' compensation pricing remains slightly positive. All in, our strong written pricing performance in Commercial Lines, combined with stable loss cost trends bolsters my confidence in our ability to maintain or slightly improve margins going forward.
Moving to Personal Lines. Persistent severity loss increases in auto have had a meaningful influence on overall industry results. We continue to respond with significant pricing actions. During the quarter, we achieved renewal written price increases of 13.8%, and expect acceleration to above 20% by the fourth quarter. As loss cost trends emerge, we will aggressively push for appropriate rate actions. In homeowners, renewal written pricing of 14.4% in the quarter comprised of net rate and insured value increases, outpaced underlying loss cost trends. We are very selective and actively manage our homeowners' book at a state and territory level, diligently managing risk and growth with sophisticated underwriting capabilities that allow us to effectively manage new business risk selection. A few examples of our risk management include the actions we took many years ago to stop writing new homeowners business in Florida, a conservative stance on coastal cat risks, and wildfire mitigation efforts that have yielded strong outcomes. We are on the right path in Personal Lines, driving towards appropriate pricing and managing exposure and growth while continuing to serve our customers with award-winning service.
In Group Benefits, I am pleased with both top line and bottom line performance, including an outstanding core earnings margin of 7.6%. Group disability continues to post strong results, driven by favorable long-term disability incidence trends and claim recoveries. In group life, the loss ratio was up versus prior year. Mortality losses in the second quarter continued to run above pre-pandemic levels, but improved sequentially. Looking at the top line, growth was driven by book persistency above 90%, plus strong year-to-date new sales. Overall, the strength of our diversified product portfolio, as well as our commitment to outstanding customer experience through the use of data and technology resonates in this marketplace, giving us a leadership position.
Moving now to investments. I want to highlight another quarter of strong performance as fixed-income yields continue to trend higher with solid credit results. Beth will provide further details.
Before concluding, I would like to comment on the advances we continue to make in technology and the competitive advantage it brings to our businesses and distribution partners, along with a superior customer experience. At our Investor Day, in November of 2021, I highlighted the significant investments we had made in our core technology platforms, which are allowing us to extend our digital and data capabilities. Back then, we were already focused on leveraging artificial intelligence to enhance execution, and today, AI is mainstream at The Hartford. The breadth and depth of our data and analytics and AI has grown into all parts of our business and is enabling greater agility and faster decision-making, while improving and streamlining the experiences of our customers and distribution partners. While some organizations talk about what they expect to do in the future, we are already doing this at scale. With several hundred AI models in production and driving business results, we believe our capabilities are leading-edge.
Let me give you just one example of how we are already using what we call our information advantage, fueled by advanced analytics and AI to drive results. We developed an award-winning medical record digestion and extraction tool that has transformed the way we conduct our workers' compensation business. This tool ingests and translates medical records into digital content, characterizes the data and highlights relevant information. In workers' compensation, we are streamlining the adjudication process by suppressing 30% of the extraneous information contained in medical records that otherwise results in significant distraction or lost time to our claim handlers. Since the inception of this tool, we have processed more than 500 million pages of medical records and perhaps more importantly, established a foundation for next level AI use cases across our business. When it comes to generative AI, we are actively experimenting with this technology in a highly controlled environment. The Hartford understands the potential of this technology and we believe we're at the forefront in piloting use cases that will augment the capabilities of our employees. All the transformational work we have done over the past three or four years has put us in a strong position to accelerate our market-leading competitive advantage, driven by technology, data science and our experienced workforce.
In closing, we have a unique portfolio of diverse yet complementary businesses that contribute to our industry-leading returns. As we have reached the midpoint of 2023, it's a good time to reiterate our strategic priorities that we believe will continue to drive our success. First, leveraging our product breadth and competitive advantage across the P&C and Group Benefits platforms will drive profitable organic growth. Second, underwriting discipline will guide a balanced risk profile, supporting long-term book value growth. Third, we will continue to prioritize digital, analytics and data science investments that enhance the customer and agent experience to improve underwriting in claims decision-making.
Finally, we believe, ROE is the ultimate measure of quality underwriting, execution on priorities, and prudent capital deployment. As such, we will continue to focus on exceptional ROE performance. We will continue to deploy excess capital in a thoughtful manner, prioritizing shareholder return and investments in future growth. Results over several successive quarters affirm that this strategy is working. With our strong track record, we are confident in our ability to deliver core earnings ROEs in the 14% to 15% range.
Now, I'll turn it over to Beth to provide more detailed commentary on the quarter
