It's been a bit of an annus horribilis, a horrible year indeed for The Hartford Insurance Group–between declining investment income, speculation about a selloff of its property and casualty unit, and the announcement of the retirement this December of longtime president and chief executive officer Ramani Ayer.
But in spite of the challenges, the beleaguered insurer believes there are brighter times ahead, in large part due to the efforts of its 12,000 appointed agents.
We spoke with Juan Andrade on July 16–the day he was appointed president and chief operating officer of The Hartford's p& c operations, about how he intends to handle his new post.
Earlier this month, prior to his promotion, we interviewed Mr. Andrade from his perspective as executive vice president for sales and distribution, about what lies ahead for The Hartford and its independent agent and broker partners.
An edited version of those Q&As appears below, with the full version at www.agentandbroker.com.
Q: You've worked with Progressive, AIG and within Hartford in the claims and distribution area. What strengths will you bring to your new position as president of p&c operations?
A: I have been involved in virtually all aspects of this industry, including underwriting, pricing, sales and general management roles. This background provides me with a holistic view of how a property and casualty company runs, which is critical in my new position. This experience means I've grown up in the business and has been extremely helpful in connecting with Hartford's employees.
Q: What do you believe Hartford's current strengths and weaknesses are in the p&c arena, and how do you plan on exploiting or improving them?
A: Our strengths start with our people, who are a tremendously creative and loyal group of employees. Another is our underwriting discipline and our focus on the right risk for the right price, which is a huge advantage. The fact that our first-quarter results still show us running at a 90 combined ratio is pretty phenomenal, especially in this economy. Also, the loyalty we have with our distributors is unique and unparalleled in our industry.
Our culture of service is another unique strength of the company. For example, J.D. Power just rated The Hartford among the top three carriers in the country for services operations and claims.
Q: What do you see are your biggest challenges in your new position, and how will you tackle them?
A: Probably the biggest challenge right now is the macroeconomic environment we're dealing with as business owners.
Fewer employees and fewer payrolls mean less business, especially as small-business owners struggle with liquidity and maintaining inventories. But we're well positioned to take advantage of the market when the economy turns around.
Q: What are you considering in the way of new products and services?
A: The key has to do with launching our health care practice–particularly in workers' compensation and property, targeting midsize hospitals. We're also in the process of piloting and launching a renewable energy practice focused on wind and solar power. And we're still focused on our construction practice, in which we recently launched wrap-ups for larger, loss-sensitive accounts and infrastructure, where we've been very successful so far.
Q: Who will be taking over your position as head of marketing and distribution?
A: My goal is to select an internal candidate. I plan to work very closely with him or her. Frankly, I will miss the day-to-day relationships I have with our large agents and brokers throughout the country.
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In our interview earlier this month with Mr. Andrade, we covered other topics.
Q: The Hartford has been going through many dramatic changes. What's your message to independent agents and brokers who might be concerned about your stability?
A: The good news is that we're in a very good place from a capital standpoint. While we recently accepted $3.4 billion from TARP, we have an additional $3.4 billion on hand as a cushion to get through any downturn and $15 billion in liquidity.
Our p&c company has always been stable; our main issues were with our investment portfolio. The p&c division still maintained capital above "double-A" levels, and although downgraded to "A," that says more about volatility in the economy than the unit's performance.
With a surplus of $6.1 billion, our claims-paying ability is solid.
We're also resilient: our first-quarter core earnings were at $321 million, [which is] phenomenal…in the sixth year of a soft market. [On the top line,] we only saw a 5 percent decrease from prior year's first quarter. Our decision to exit the Florida homeowners market and the sale of our First State excess and surplus line to Beazley Group in March brings that down to 3.5 percent, which is…in line with competitors.
Q: What do you see as your agents' biggest challenges now?
A: There's no question that the economy has hurt everyone….We recently conducted a study based on the total U.S. job losses of about 5 million, which translates to $1.6 billion of workers' compensation premium that simply vanished from the economy. This obviously hurts both agents and us.
Another unprecedented trend we're seeing is customers–both personal lines and small businesses–engineering their own policies by taking higher deductibles and lower limits, which again means lower premiums. Agents must be more aggressive to retain customers, so there's a lot of churn in the marketplace right now.
Q: Are you seeing any evidence of hardening rates?
A: We are definitely seeing firming pricing. Personal lines have definitely firmed; we track our competitors and most are increasing auto rates, and now homeowners is catching up. For our first-quarter midmarket commercial business, we reported only a 2 percent drop for written pricing, the best since 2004, and like our competitors, we're seeing positive pricing in auto, property, directors and officers, and professional liability.
I foresee that as the economy begins to improve, 2010 may be the year we really see the hard market return. However, it will be a different hard market than we've seen in the past–much more gradual.
Also, customers have gotten used to getting big decreases in their premiums. With pricing now flat to positive on renewals when they can least afford it, there may be an adverse reaction from some of those customers.
Q: Any plans to expand or reduce your distribution force?
A: We now have about 12,000 appointed agents, and in 2009 we're looking to add another 1,000 throughout the country. The Midwest and parts of the West Coast are good for expansion, although we don't necessarily target regions. We typically focus on areas we feel are underpenetrated or where we are underrepresented.
Q: What are your plans for the near future?
A: The clouds have parted for us, and I'm bullish about the next few months, especially as we see green shoots in the economy as consumer demand picks up and small-business owners become more confident. With rates firming up, we're setting up for a pretty good run. We're in a good place with solid capital, good products, outstanding profitability and a great bunch of independent agents and brokers.
Laura Toops is Editor in Chief of American Agent & Broker, a member of Summit Business Media's P&C Magazine Group and a sister publication of National Underwriter.
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