Prepared remarks
Hello everyone, thank you for joining us and welcome to The Hartford Second Quarter 2026 Financial Results Webcast. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. I will now hand the conference over to Kate Jorens, Senior Vice President, Treasurer, and Head of Investor Relations. Kate, please go ahead.
Good morning, and thank you for joining us today for The Hartford's second quarter 2026 Earnings Call and Webcast. Yesterday, we reported results and posted all earnings related materials on our website. Before we begin, please note that our presentation includes forward-looking statements that are not guarantees of future performance and may differ materially from actual results. We do not assume any obligation to update these statements. Investors should consider the risks and uncertainties detailed in our recent SEC filings, news release, and financial supplement, which are available on the Investor Relations section of thehartford.com. Our commentary includes non-GAAP financial measures, with explanations and GAAP reconciliations available in our recent SEC filings, news release, and financial supplement. Now I would like to introduce our speakers: Christopher Jerome Swift, Chairman and Chief Executive Officer, and Beth A. Costello, Chief Financial Officer. After their remarks, we will take your questions, assisted by several members of our management team. And now I will turn the call over to Christopher.
Good morning, and thank you for joining us today. Hartford delivered another quarter of strong results reflecting the strength of our franchise, the depth of our distribution relationships, and our commitment to a superior customer experience. Supported by market-leading positions and differentiated capabilities across property and casualty and employee benefits, The Hartford remains well positioned to continue delivering outstanding returns. During the quarter, we announced an agreement to sell Hartford Funds to Wellington Management, strategically monetizing a noncore long-term investment. I am also pleased to announce that our board of directors approved a new share repurchase authorization of $4.2 billion reflecting strong capital generation from our businesses as well as expected cash proceeds from the Hartford Funds sale. We will continue to balance growth, investing in our businesses, and returning excess capital to shareholders through repurchases and dividends. Now let me share a few details from the quarter. Business insurance delivered strong written premium growth of 5% with an underlying combined ratio of 89.3. In personal insurance, underlying combined ratio improved 1.7 points year over year with growth impacted by a competitive market. Employee benefits had another quarter of strong premium growth, with a core earnings margin of 7.4%, and the investment portfolio continued to generate strong net investment income. All these factors contributed to core earnings of $945 million and an outstanding core earnings ROE of 18.7% over the trailing 12 months. Let's take a closer look at second quarter performance. Business insurance delivered another strong quarter reflecting excellent execution across our portfolio. The current market conditions highlight the importance of underwriting discipline, pricing rigor, and risk selection, areas where we continue to differentiate ourselves. This was evident in our performance during the quarter as we continue to outpace the market in small business while remaining disciplined and selective across middle, large, and specialty lines, demonstrating our ability to perform well across cycles. Small business results were excellent with written premium growth of 7% and an underlying combined ratio of 86.5. Growth was driven by double-digit increases in both package and ENS binding. Our investments in automation and digital service, which have driven speed, ease, and accuracy of quoting, also position us well as wholesale and retail brokers seek to consolidate business with a smaller number of underwriting partners. These market-leading capabilities will continue to drive meaningful growth in 2026 and beyond. Moving to middle and large, written premium growth was solid at 4% with an underlying combined ratio of 95.3 which included normal quarter-to-quarter volatility in non-cat property losses. The team remains focused on disciplined underwriting and selecting opportunities that deliver attractive risk-adjusted returns in an increasingly competitive environment. We continue to invest in AI-enabled capabilities that enhance underwriting effectiveness by providing faster access to risk insights directly in our underwriting workflows. For example, in middle and large, early results are encouraging with underwriting activities being completed in a fraction of the time, increasing productivity, and enabling underwriters to spend more time expanding agent and broker relationships to drive increased submission flow. Our underwriters continue to own the decision, leveraging AI-enabled capabilities that provide deeper insights and enhance underwriting consistency. Turning to global specialty, underlying margins remained strong in the mid-80s, demonstrating disciplined underwriting and active portfolio management. Written premium growth of 4% reflected continued momentum across several lines of business, led by wholesale excess casualty, and auto, bond, and financial lines. Market conditions vary across businesses, and we remain focused on deploying capital where we see attractive risk-adjusted returns. The breadth of our global specialty platform and underwriting capabilities enables us to adjust to changing market conditions and pursue profitable growth across the portfolio. Turning to pricing, business insurance renewal written pricing excluding workers' compensation remained relatively consistent at 5.8% in the quarter. Pricing in commercial auto and general liability remained strong and above loss trend, with umbrella and excess achieving some of the highest rate increases across the portfolio. Property continues to remain highly profitable and an attractive area for growth, though pricing moderated during the quarter, driven primarily by large property. Importantly, aggregate property pricing for small business package and middle market general industries remain fairly steady in the mid-single digits. Shifting to personal insurance, the underlying combined ratio was strong at 86.3. In auto, the underlying combined ratio improved 1.9 points year over year as earned pricing continues to exceed loss trend. Home results remain strong, supported by consistent underwriting execution and low double-digit pricing. Competition for new business remained elevated and continued to impact growth. Within agency, following our July rollout, our contemporary product offering is now available in 23 states and progressing as planned. In direct, with the AARP relationship, we are focused on strengthening customer acquisition and retention. Across personal insurance, we continue to invest in strategic capabilities required to compete effectively and sustainably, including competitive pricing, seamless customer experiences, and products and services targeting the mature market. Before moving on to employee benefits, I would like to briefly touch upon our annual P&C agent summit held in May. Discussions with key distribution partners reinforced The Hartford's differentiated claims and risk engineering capabilities. A key theme at the summit was the importance of risk mitigation as customers increasingly look for insights and expertise to help prevent losses. Our focus is on practical, scalable solutions that help customers operate more safely. By combining claims insights, risk engineering expertise, and technology-enabled tools we help customers identify risk earlier, take action sooner, and improve outcomes over time. Moving on to employee benefits. Core earnings margin of 7.4% was driven by excellent life and solid disability results. We were pleased with another strong quarter of fully insured premium growth, benefiting from excellent sales execution, persistency in the low 90s, and continued investments in technology. We were able to achieve these results while maintaining our pricing and underwriting discipline. Demand for solutions that help improve workforce productivity and simplify absence and leave management remains high. We believe our integrated benefits platform differentiates us in the market and together with strong persistency and disciplined execution positions employee benefits to continue generating attractive growth and margins. In closing, second quarter results demonstrate continued momentum and execution of our strategy. In business insurance, a diversified portfolio, strong distribution relationships, disciplined underwriting, and technology-enabled execution continue to drive profitable growth at attractive returns. In personal insurance, our focus remains on thoughtful market share expansion supported by continued progress in the agency channel. Employee benefits remains a high-quality, accretive business where our leadership in absence and leave positions us well at the large end of the market, and our ongoing investments will enable us to extend those capabilities to more small and mid-sized customers. Investment income remained strong supported by a diversified and durable portfolio. With another strong quarter, I am confident in The Hartford's ability to continue delivering outstanding ROEs and attractive returns for our shareholders. Now let me turn the call over to Beth to provide more detailed commentary on the quarter.
Thank you, Christopher. Core earnings for the quarter were $945 million or $3.42 per diluted share with a trailing 12-month core earnings ROE of 18.7%. Book value per share, excluding AOCI, of $78.91 increased 7% from year end and 15% from a year ago, reflecting the earnings power of our businesses and disciplined approach to capital management. In business insurance, core earnings were $605 million with written premium growth of 5% and an underlying combined ratio of 89.3. Small business continues to deliver excellent results with written premium growth of 7% and an underlying combined ratio of 86.5. The underlying combined ratio improved 2.5 points from the prior year, primarily due to lower non-cat property losses and improved operating leverage. Middle and large business had a solid quarter with written premium growth of 4% and an underlying combined ratio of 95.3. Underlying results include elevated non-cat property losses due to a few large fire losses, and a shift in business mix towards national accounts and commercial auto. Global specialty second quarter was strong, with written premium growth of 4% and an underlying combined ratio of 85.8. The underlying combined ratio increased from the prior year primarily due to an increase in the international loss ratio and a higher expense ratio driven by technology costs. The business insurance expense ratio of 30.7 was generally consistent with the prior year and in line with our expectations. We remain on track to achieve our 2027 year-end targets. In personal insurance, core earnings were $128 million with an underlying combined ratio of 86.3. The underlying combined ratio improved 1.7 points in the quarter with improvement in the underlying loss and loss adjustment expense ratio in both auto and home. The personal insurance expense ratio of 26.3 increased from 25.1 in second quarter 2025 primarily driven by the impact of lower earned premiums and higher commissions due to an increasing mix of agency business. Written premium in personal insurance declined 7% with a 10% decline in auto and flat growth in home. Agency growth remained strong at 7% over the prior year. Renewal written pricing increases were 5.5% in auto and 10.4% in home. Effective policy count retention improved slightly in auto and remained relatively stable in home. Turning to reserves. Favorable prior year development was driven by reserves in workers' compensation, catastrophes, bond, and personal insurance, partially offset by an increase in general liability and commercial auto liability reserves. General liability reserves were increased in the quarter primarily to reflect a higher frequency of large losses in excess casualty and umbrella lines across multiple accident years. Commercial auto liability reserves were increased primarily due to adverse loss development within accident years 2023 and 2024 driven by higher severity than previously estimated. This activity reflects increasing attorney representation and time limit demands, which have been incorporated into our reserve estimate. With respect to catastrophes, P&C current accident year losses were $222 million before tax, up from $212 million in the prior year while the catastrophe ratio remained unchanged at 4.9 combined ratio points. Moving to employee benefits. Core earnings of $139 million and a core earnings margin of 7.4% reflect excellent group life and solid disability performance. The group life loss ratio of 74.2% was relatively flat to the prior year, and the group disability loss ratio of 74.8% increased by 6.3 points. Disability results were partially driven by increased claim incidents across short and long-term disability. In addition, long-term disability claim recoveries were in line with long-term expectations although less favorable than the prior year, which benefited from particularly strong recoveries. The employee benefits expense ratio of 25.2 improved 0.5 points compared with 25.7 in second quarter 2025, driven by the impact of earned premium growth and a lower commission ratio, partially offset by higher technology costs. Turning to investments. Our diversified portfolio delivered strong results in the second quarter. Net investment income was $800 million, up $142 million or 22% from the second quarter of 2025, driven by higher income from limited partnerships and other alternative investments and a higher level of invested assets. Excluding limited partnerships, the annualized portfolio yield was 4.7% before tax, up 20 basis points from the first quarter. We continue to strategically manage the portfolio balancing risk and pursuing accretive trading opportunities. Annualized limited partnership returns were 7.6% before tax, up from 5.1% in the first quarter. Results benefited from multiple real estate joint venture sales and strong performance from infrastructure and energy transition funds. Looking ahead to the second half of 2026, we expect limited partnership returns to remain generally consistent with the average annualized return achieved in the first half of the year, although further geopolitical and economic volatility could affect results. For full year 2026, given the current market conditions, we continue to expect net investment income to increase supported by growth in invested assets with overall portfolio yields expected to remain broadly in line with 2025. Yesterday, the board of directors approved a new share repurchase authorization of $4.2 billion effective through December 2028 reflecting the strong capital generation of our businesses as well as expected cash proceeds from the Hartford Funds transaction. This authorization is in addition to the existing authorization which as of June 30 had approximately $650 million remaining. During the quarter, we repurchased 3.4 million shares for $450 million. We expect to increase our quarterly repurchases to $475 million through the remainder of 2026. In summary, we are very pleased with our strong performance for the second quarter and believe we are well positioned to continue to enhance value for our stakeholders. I will now turn the call back to Kate.
Thank you, Beth. We will now take your questions. Operator, please repeat the instructions for asking a question.
Questions and answers
We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Andrew Kligerman with TD Cowen. Your line is open. Please go ahead.
Hey. Thanks, and good morning, everyone. I appreciated the granularity in the queue on loss reserve development and the additional remarks about more frequency in general liability and severity in commercial auto. I would like to just zero in on three numbers in that table: the $110 million favorable in workers' comp, the $116 million adverse in general liability, and the $26 million in commercial auto. Could you share some thoughts on whether you feel this is a one-time item or something that could become chronic?
How are you thinking about these lines and the reserve adequacy going forward, Andrew? Thanks for your question and appreciate the commentary on transparency and granularity. Loss reserving is both a science and an art, and I think we have combined them well over a long period. We have had great stability, but this quarter required some changes. I will let Beth give a little more color on what drove some of those changes.
Sure. The numbers you referred to, Andrew, are six-month numbers so the numbers for the quarter are a bit smaller. If I start with general liability, we increased prior year reserves by $46 million this quarter. That was across multiple accident years. We saw some elevated large loss activity in these lines and we want to be cautious, so we reacted to that. On commercial auto, we saw activity in more recent years with a higher frequency of large losses. What we are seeing there is more attorney involvement in accidents that in the past would probably have been more minor in nature. We made the adjustments you referenced. On workers' comp, we continue to see favorability there. We review these reserves every quarter. I do not like predictions about the future, but the underlying book as it relates to prior years continues to perform very well.
Excellent. Very helpful. Along the same lines with the employee benefits business, zeroing in on the group disability loss ratio at 74.8%, which was up a fair amount year over year. You made the comment on this call and in the release that it is in line with long-term expectations. We are hearing a little about some peers seeing that line tick up as well. Do you think it stays in line with your target, or do you think this is something that could start driving up over time? Maybe share a little on the backdrop of what you are seeing in that product area from a loss standpoint.
Thanks for the question, Andrew. I will start with some context and then ask Mike Fish to add his perspective. This is a strong business for us and has performed well over a long period. You could argue that its performance over the last couple years probably exceeded expectations and we are at the high end of expectations. Our long-term margin view has been 6% to 7%, and while we've outperformed recently, through the first six months of this year we are still operating at the high end of that margin, although down a bit from prior years. I do not see anything fundamentally changing other than seasonality and the way underwriting and pricing flow through the P&L. Many of these are three-year policies, so some seasoning is required before we make major adjustments. The key message is it is still performing within expectations. We always look hard at pricing on cycles. These are generally long-duration policies and at the 6% to 7% margin we continue to generate attractive tangible ROEs. Mike, please add comments on LTD, STD, and paid family medical leave.
Andrew, I would add that about half of disability premium is long-term disability (LTD), with the remainder in shorter-tail lines including paid family medical leave (PFML). For LTD specifically in the quarter, recoveries were in line with long-term expectations, and overall performance remains slightly above our pricing expectations, though less favorable versus the particularly strong recoveries in the prior year. On short-tail lines, we are seeing higher incident counts year to date, with behavioral health claims up a bit; those tend to carry more severity in short-term disability. On PFML, we continue to see higher utilization in states that have recently gone live, and utilization is also up in states that have been in force for years. We are placing rate on top of that book and are monitoring it closely. Overall, we feel good about where our pricing is and where results are trending.
Very helpful. Thank you.
Your next question comes from the line of Brian Meredith with UBS. Your line is open. Please go ahead.
Hey. Thanks. Christopher, I'm curious if you could unpack the underlying loss ratio in Commercial Lines a little bit. Maybe give us the impact of the fire losses year-over-year so we can get a baseline of what the underlying loss ratio deterioration was in the quarter?
Beth, do you want to break that down?
I am not going to go into every put-and-take within that line. As we said, non-cat property was a significant contributor to the performance year to year. To help frame it, if I look at Middle and Large Commercial (MLC) and their year-to-date underlying combined ratio of 93.3, and consider what we expect for the second half of the year, assuming non-cat property evens out a bit, we would expect the full year to probably come in roughly a point better than that. That gives you a sense of some of the elevation we saw in the first half that we would not expect to see in the second half.
Makes sense. Thanks. Then the second question. I was a little confused by a comment that the underlying loss ratio was up because of more commercial auto and national accounts in the mix. Have you been leaning more into commercial auto or is that simply higher loss coming in? If there is growth in commercial auto, is it in a different area of commercial auto?
Brian, I'll let Moe answer that.
We saw commercial auto premium up in the half of the year. I would not call it a change in strategy; it is just the way the business binds. Another piece is that we've mixed a bit more toward national accounts in middle and large. Our national accounts business is different from some peers: it's adjacent to our middle market business and generally involves loss picks less than $5 million, occasionally reaching $10 million. It's a way for us to follow middle market customers into loss-sensitive structures. It tends to run at a higher combined ratio based on excess casualty lines, so we end up booking a little bit higher. In short, it is more about mix toward national accounts and commercial auto rather than a strategic shift into higher-risk commercial auto.
To make a finer point, it really is about mix toward that business rather than a change in view of the loss trend for those particular lines.
Great. Makes sense. Thank you.
Your next question comes from the line of Mike Zaremski with BMO Capital Markets. Your line is open. Please go ahead.
Okay. Great. Just probably an easy yes or no. Based on what was just said, it sounds like there was no meaningful change to expected forward loss trend, especially in casualty lines, based on all the color you gave on the call so far. Is that correct that this is not impacting the underlying or forward basis we should be considering?
Yes. Very minor impact. Whenever we have prior year development, we always look at the more current years to see if that changes our view on loss trend. We did not call it out because it did not have a significant impact year-over-year. It is a very small effect, on the order of tenths of basis points.
Perfect. My follow-up: stepping back and thinking about the competitive environment in commercial lines, there's a lot of focus on pricing and we've seen many competitors show pricing KPIs decelerate. It seems the deceleration is more coming from large accounts. Can you talk about whether you have been surprised by the stability on the smaller end in terms of pricing? Given healthy returns and interest rates, would you expect a deceleration or downward trend in the coming year?
Mike, I will give you some data for the quarter. Through the first six months of the year there are no surprises other than normal volatility in non-cat property exposure. The market segments we participate in are holding up fairly well. We have been able to maintain pricing in commercial auto and general liability, where pricing keeps up with loss trend, particularly with umbrella and excess achieving some of the highest rates of increase across the portfolio. Property pricing continues to moderate but remains highly profitable and attractive for growth. Aggregate pricing for small business package and middle market general industry property was fairly steady in the mid-single digits. On aggregate, business insurance renewal written pricing was 5.8%, down 30 basis points from the first quarter. General liability was at 9.9%, up 30 basis points from last quarter, and excess and umbrella were in the low double digits, improving 70 basis points from last quarter. Small renewal written pricing was 7% and flat versus the first quarter. Middle market excluding workers' comp was down 130 basis points to 4.4% with declines across most lines but still healthy in auto and general liability. Global specialty pricing improved 60 basis points to 5.5%. Overall, I feel good about our ability to execute and generate attractive risk-adjusted returns; where we cannot, we step away.
Thank you.
Your next question comes from the line of Gregory Peters with Raymond James. Your line is open. Please go ahead.
Hey. Good morning, everyone. I was going to pivot to personal lines, but I can't help myself on the pricing commentary. Maybe you can help frame it differently. The areas that have come under scrutiny for substantial rate decreases are large property schedules, where I don't think you have much exposure. When I see growth in your middle and large business, it doesn't look skewed to the area under the microscope. Can you help frame that?
You framed it well. Our large property book is relatively small, about $200 million on a full year basis, and our E&S book is also relatively small. The markets where most pressure is present are our smallest exposures. Our Spectrum product is a small business product and our general industry properties are two of the biggest lines. We are holding mid-single digit price increases and we think that's keeping up with trend. We may not grow at the rate we thought at the start of the year, but we can still grow our overall property book in the mid-single digits through the end of the year. Moe, would you add anything?
To add a couple of points, our shared and layered book within large property in middle and large has shrunk to less than $25 million. We've reduced that because that part of the market is moving quickly and it no longer meets our benchmarks. We are watching the middle and large space closely. We felt increasing pressure in the second quarter and potentially a divergent view from some competitors, especially on general liability and workers' compensation. Our middle market book is subject to market conditions and we are watching closely because increased competition will impact our growth in the second half if it persists.
Thank you for indulging me. Now pivoting to personal lines: that market is intense. It looks like your agency business is doing fine and the direct business might be challenged. Christopher, you mentioned the contemporary product rollout. As we look forward, how should we think about growth given the intensity of competition?
We are completing the agency rollout as quickly as possible and expect to be in 30 states by early 2027. That's the same product we are using in the direct channel. The direct channel will likely continue to face pressure with elevated shopping and strong competition, so we expect some headwinds in direct as we head into 2027. We will focus on improving retention and customer experience and creating value for the mature market.
We want to find, win, and keep more customers while maintaining target profitability. Near-term channel dynamics will be bifurcated: we are very encouraged by agency results, strong execution by our teams, and excellent progress toward our long-term growth objectives.
Home also has a unique positive story. We've continued to secure rate in that book to keep up with trend. For the agency channel, a competitive home product is important and we feel well positioned.
Yep. Great. Thanks.
Your next question comes from the line of Taylor Scott with Barclays. Your line is open. Please go ahead.
Hey. Good morning. Could you dig into capital management strategy in light of the Hartford Funds transaction and the resulting flexibility? Specifically, how do you approach replacing the dilution initially from that transaction?
I'll let Beth talk to the specifics of the capital management plan we announced. From my perspective, monetizing this long-held noncore investment was a priority given changing dynamics in asset management and wealth. We have had a long relationship with Wellington, and combining Wellington's capabilities with our distribution platform should create added benefits and reach more clients through various channels with differentiated investment capabilities. The transaction is structured to allow us to participate in upside as the combined organizations come together and create value.
We took expected proceeds over the next couple of years from the Funds transaction into consideration when sizing our new share repurchase authorization. Our previous authorization was $3.3 billion; this new one is $4.2 billion, a $900 million increase or about 27% higher. About 15% of that increase reflects the incremental cash we expect from the Hartford Funds transaction above what we would normally have received in dividends. The remaining 12% comes from growth in our business. We view this as a balanced approach and as the combined entity performs over the next several years, we will continue to deploy excess capital prudently.
Thank you. A follow-up on prior year development: looking back at 2023 and 2024 there was some consistency in unfavorable items. Is there anything different about the activity this quarter compared to how you reviewed reserves in 2023 and 2024?
No, I would not call anything different. We review our reserves every quarter. We saw elevated activity in general liability, primarily in excess and umbrella, and made modest adjustments. On commercial auto, we saw trends to reflect. Nothing changes our overall reserve review process or alignment among claims, actuarial, and underwriting teams. We feel good about the pricing and underwriting actions we've taken over many years in those lines.
Your next question comes from the line of Katie Sakys with Autonomous Research. Your line is open. Please go ahead.
Thanks. Good morning. First, Beth, you mentioned the expense ratio and that you expect to still be able to hit the 2027 exit-year targets. Last quarter you had talked about opportunities for incremental improvement in expense ratios across the three segments in 2026. Do you still have a line of sight on that?
Kate, thank you. To reframe: we are not providing formal guidance; these are goals. As of today I think we will see improvement in 2026 and remain optimistic about hitting our goals in business insurance and employee benefits. There is increasing pressure in personal insurance to hit the target, so that is a higher bar given growth dynamics and competitive market conditions. Melinda and her team remain committed to progress there.
We want to find, win, and keep more customers while maintaining target profitability. All three components are important to our growth strategy. We are encouraged by our agency performance, strong execution, and progress toward long-term growth objectives.
I appreciate the color. Second, small commercial: growth there continues to impress. Given commentary from some competitors about identifying better growth opportunities for the down market, how are you thinking about competition and trends, including activity from traditional carriers and technology-enabled entrants?
Flow for our small business team in both retail and wholesale channels remains strong. We grew in Spectrum and ENS binding. The technology advantages we offer agents create efficiency and a differentiated experience. We continue to receive excellent feedback from brokers using our platforms, and that supports our confidence in maintaining margins and growing at a similar pace based on our capabilities.
Great to hear. Thank you.
Your next question comes from the line of David Motemaden with Evercore ISI. Your line is open. Please go ahead.
Hey. Thanks. Good morning. Following up on the adverse development in general liability this quarter, could you talk about the accident year mix? You said multiple accident years; which years were primarily impacted? Did you add anything to accident year 2025?
It was multiple years. We saw activity going back to 2017, 2018, 2019, and some activity in 2022 and 2023. We did not add anything to 2025. The increases were spread across those earlier years and focused on excess and umbrella lines.
Got it. Thanks. Last year you spoke about about one point better-than-expected non-cat property experience in BI and it sounds like it was elevated this quarter. Was it elevated but worse than expected this quarter? How should we think about that one point of favorable non-cat property experience—will that normalize or is it more durable given changes in terms and conditions?
It moves quarter to quarter. Overall for this quarter, non-cat property came in a little worse than we would have anticipated, favorable in small business but unfavorable in middle, which netted to an unfavorable impact on the overall business insurance ratio. It's hard to predict quarter-to-quarter movement because of inherent volatility. A few large fire losses in middle and large contributed to the quarter. We do not see underwriting issues that would indicate these were not appropriate risks to place. That's why we characterize the impact as normal volatility and why I provided context on how MLC might end the year if non-cat property returns to more normal levels.
Your next question comes from the line of Elyse Greenspan with Wells Fargo. Your line is open. Please go ahead.
Hi. Thanks. Good morning. One peer talked about LAE improvement driven by AI and claims efficiencies benefiting their commercial lines underlying loss ratio. How are you thinking about AI efficiencies and the potential benefit for LAE?
Elyse, our AI initiatives build on strong existing platforms and focus on underwriting, operations, and claims. We're focused on customer-facing activities like call centers, billing, audit premiums, and claims. Our teams are exploring custom-built AI and vendor solutions. Those are key areas to improve efficiency and claims outcomes. Claire and the claims organization have exciting use cases underway to improve efficiency and outcomes.
We have some exciting AI use cases across underwriting and claims. While we have not disclosed KPIs yet, we are making significant investments that we believe will improve LAE and expense ratios over time.
Thanks. Follow-up: you increased the buyback program after the Funds transaction. Does that mean there's less focus on M&A now, or how should we think about potential M&A activity?
We announced our plan for the next couple of years. We remain aware of market activity, but our primary focus is organic growth: investing in products, capabilities, and underwriting appetite. Organic growth is our preferred approach to grow safely and protect margins. We remain open to opportunities, but there is nothing to announce today.
Thank you.
Your next question comes from the line of Robert Cox with Goldman Sachs. Your line is open. Please go ahead.
Hey. Good morning. Thanks for fitting me in. I wanted to ask about retention in the middle and large commercial book. I noticed it flipped a bit—was that related to pruning linked to the GL and auto reserve additions or is it more market-driven?
Robert, it is entirely market-driven. There was nothing specific we did on GL or auto in the quarter. The team is making disciplined decisions. The retention change reflects increased competition in the middle and large space. As we've said, we will make choices and not grow in areas where the competitive dynamic goes too far. The retention movement is evidence of that approach.
Okay. Great. That makes sense. Following up on global specialty, pricing accelerated in the quarter. What is driving that acceleration? Is U.S. wholesale part of the driver?
A couple things: we have less negative rates internationally, and our Lloyd's syndicate financial lines book was less negative, which helps. Our financial lines book is moving slightly more positive. Wholesale overall saw rate tick up. It's important that we continue to get adequate rates on the wholesale book given its complexity, and that contributed to the improvement in global specialty pricing.
Thank you.
We have reached the end of the question and answer session. I will now turn the call back to Kate Jorens for closing remarks.
Thanks for joining us today. As always, feel free to follow up with additional questions. Have a great day.
This concludes today's call. Thank you for attending. You may now disconnect.