has launched an aggressive effort to boost the profitabilityof the personal auto line, including through a broad series of rate increases,as rising loss costs continued to negatively impact underwriting results duringthe first quarter.
Thecompany's actions will not pay off overnight, however, and CEO ChristopherSwift cautioned during a conference call that he expects The Hartford's full-year2016 personal lines combined ratio, excluding the impact of catastrophe lossesand prior-year reserve development, to be at or above the high end of apreviously issued range of between 90% and 92%.
TheHartford reported an underwriting gain of approximately $1 million in itspersonal lines business for the first quarter, down from $75 million in theyear-earlier period, as it posted unfavorable prior-year reserve development of$52 million, according to a statistical supplement. Citing higher-than-expectedbodily injury severity for accident years 2014 and 2015, as well as an increasein bodily injury frequency for the second half of accident year 2015, the companyreported $65 million in unfavorable development in the personal auto liabilityline.
Thepersonal lines combined ratio, excluding catastrophes and prior-yeardevelopment, totaled 89.7% for the first quarter, down from 89.9% in theyear-earlier period. Including catastrophes and prior-year development, thepersonal lines combined ratio increased to 99.9% from 92.1%. In personal auto,the combined ratios were 96.2%, excluding catastrophes and the prior-yearreserve build, and 106.6% on an overall basis, up from 94.6% and 95.4%,respectively, in the first three months of 2015.
TheHartford had identified higher-than-expected loss frequency as adriver of higher personal auto loss costs during the second half of 2015, butPresident Douglas Elliot reported that it appeared to have moderated"somewhat" during the first quarter of 2016. He put the company'sfirst-quarter frequency trend at about 2%, down from the range of between 3.5%and 4% that he had previously assigned to the third and fourth quarters of2015. The loss severity trend, meanwhile, increased to 4% during the firstquarter. Executives previously indicated that the normal range for the lossseverity trend is between 2% and 3%.
Elliotsaid that the company's response to the rising loss cost has taken severalforms.
"First,our rate filings in the first quarter of 2016 were double the number from firstquarter of last year, representing an average rate change in the applicableterritories of 6.5%," he said, later adding that the company had builtinto its pricing what it believes to be the "new norms" in frequencyand severity trends. For the full year, the number of filings planned by TheHartford would exceed the 2015 tally by 40%.
"Giventhat we mainly issued 12-month policies, much of the 2016 filed rate changewill earn into the book in 2017," he cautioned. The Hartford reportedrenewal written price increases of 7% in the first quarter in the personal autobusiness, according to the supplement.
TheHartford has also terminated unproductive agency relationships, de-authorizednumerous agents from its AARP program and introduced a new compensationstructure that is focused on key partner agents. In its direct business, thecompany has adjusted its marketing spend to focus on adequately priced customersegments and made certain underwriting adjustments.
DirectAARP business accounted for $711 million of the personal lines segment's $953million in written premiums in the first quarter, as compared with $677 millionof the $939 million in business volume generated in the year-earlier period.Personal lines written premium classified as "other agency" fell to$136 million from $161 million.
"Weare doubling our efforts down to fully understand these trends, take the litanyof actions — and it's not only rate," Swift said. "There's a numberof other actions that we are aggressively getting after. … So I'm confident wecan get our arms around this. We know what needs to be done. It's going to takea little bit of time. But just know the energy and commitment that we aredevoting to this."
Thoughpersonal auto business trends served as a focus of the April 29 call, Elliotalso said that he was "very pleased" with The Hartford's commerciallines results. The first-quarter underwriting gain for the commercial linessegment soared to $145 million from $65 million in the year-earlier period andthe combined ratio, excluding catastrophes and prior-year development, narrowedto 89.6% from 92.4%.
TheHartford has been emphasizing retention and margins over growth as commerciallines competition intensifies, Elliot added.