Sean Moshier:

Thank you, operator and good morning, everyone. We look forward to discussing our first quarter 2024 results with you today. Joining me for Assurant's conference call are Keith Demmings, our President and Chief Executive Officer; and Keith Meier, our Chief Financial Officer. Yesterday after the market closed, we issued a news release announcing our results for the first quarter 2024. The release and corresponding financial supplement are available on assurant.com. Also on our website is a slide presentation for our webcast participants. Some of the statements made today are forward-looking. Forward-looking statements are based upon our historical performance and current expectations and subject to risks, uncertainties and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these factors can be found in the earnings release, presentation and financial supplement on our website as well as in our SEC reports. During today's call, we will refer to non-GAAP financial measures, which we believe are important in evaluating the company's performance. For more details on these measures, the most comparable GAAP measures and a reconciliation of the two, please refer to the news release and supporting materials. We'll start today's call with remarks before moving into Q&A. I will now turn the call over to Keith Demmings.

Keith Meier:

Thanks, Keith, and good morning, everyone. With our strong first quarter performance, we continue to focus on driving long-term shareholder value with thoughtful and decisive actions to continue to grow and outperform. To achieve this, we are committed to a deep understanding of our global partners and their end consumers' needs, executing on the opportunities identified as well as disciplined capital management to enable long-term growth. Now let's review the details of our first quarter results. In the first quarter, adjusted EBITDA grew 31% to $384 million and adjusted EPS increased by 42% to $4.97, both excluding reportable catastrophes. From a capital perspective, we generated $254 million of segment dividends in the first quarter, ending the quarter with $622 million of holding company liquidity, up from $606 million at year-end. Our strong capital position allowed us to return $77 million to shareholders in the quarter, including $40 million of share repurchases. In addition, we repurchased $10 million of shares between April 1 and May 3. Turning to our business segments. Let's begin with Global Lifestyle. For the quarter, adjusted EBITDA grew 4% to $208 million, or 5% on a constant currency basis. Year-over-year growth was driven by strong performance in Connected Living, particularly in the U.S., which was partially offset by lower results in Global Automotive. In Connected Living, earnings increased 14%, or $16 million, primarily driven by continued momentum in our U.S. mobile protection programs and higher investment income. Results were partially offset by investments in new capabilities and client partnerships. In the U.S. Connected Living growth also benefited from modest improvements in loss experience within extended service contracts, resulting from rate actions taken over the last 18 months to offset higher claim severities from inflation. Trade-in results were flat, as higher margins and contributions from new US programs were partially offset by a decline in carrier volumes, including impacts from lower promotional activity. International Connected Living results included a $7 million favorable onetime extended service contract client benefit in Japan. Excluding this item international results were stable on a constant currency basis, consistent with the trends from the end of 2023. Foreign exchange remains a headwind impacting Lifestyle's adjusted EBITDA growth by one percentage point in the quarter. In Global Automotive, first quarter adjusted EBITDA declined 9% or $7 million, driven by higher claims costs due to persistent inflation impacts, as well as the normalization of select ancillary products. The impacts of inflation continue to be felt throughout the auto industry as indicated in the March Consumer Price Index where motor vehicle repair costs rose nearly 12% year-over-year and accelerated over the quarter. Elevated claims costs were partially offset by higher investment income. Turning to net earned premiums fees and other income. Lifestyle grew by $148 million or 7% and Connected Living increased 11% benefiting from contributions from new trade-in programs and North American mobile protection programs. Growth from Global Automotive net earned premiums fees and other income was 3%, which was primarily driven by prior period sales of vehicle service contracts. For full year 2024, we continue to expect Global Lifestyle's adjusted EBITDA to grow driven by Connected Living. We expect growth in Connected Living to be led by the continued expansion of our US business. In Global Auto, we expect adjusted EBITDA to be flat as higher investment income is offset by continued loss pressure from inflation. Prospective rate actions taken over the past 18 months are expected to drive improvement over time, depending on the timing and pace of claims inflation impacts. Investments related to new clients and programs will temper lifestyle growth in 2024, but will be a critical driver in the strengthening of our business over the long term. We continue to monitor foreign exchange impacts broader macroeconomic conditions and interest rates which may impact the pace and timing of growth. As we enter the second quarter, we expect our sequential adjusted EBITDA trend to be impacted by the absence of the onetime client benefit and seasonally lower mobile trading volumes, both in Connected Living. Moving to Global Housing. First quarter adjusted EBITDA was $193 million which included $13 million of reportable catastrophes. Excluding reportable cats adjusted EBITDA increased by 74% or $88 million to $205 million. Over half of the increase was driven by improving non-cat loss ratios from moderating claims trends and higher average premiums. A portion of the claims improvement was related to a $16 million favorable year-over-year net impact to prior period reserve development. This was comprised of a $22 million reserve reduction in the current quarter compared to a $6 million reserve reduction in the first quarter of 2023. The remainder of the adjusted EBITDA increase was mainly driven by continued top line growth in homeowners and an increase in the number of in-force policies, lower catastrophe reinsurance costs and higher investment income. For renters and other, earnings increased from growth in our property management channel. As Keith mentioned, expense leverage throughout housing continues to be a strong differentiator as our technology investments and innovations are enabling a superior customer experience. This has played a critical role in our outperformance. Given the strong first quarter performance, we expect Global Housing's full year 2024 adjusted EBITDA growth excluding cats to lead our overall enterprise growth. We anticipate growth will be driven by favorable non-cat loss experience continued top line momentum in homeowners and lower catastrophe reinsurance costs. Over the course of 2024, our lender-placed business is expected to be impacted by ongoing client portfolio movements. This includes the addition of multiple client portfolios including the onboarding of Bank of America, as well as expected offboarding impacts from the sale of a client to another party. Given the unique composition of each portfolio, these movements are expected to impact tracked loans and placement rate from quarter-to-quarter. However, policies in force a key driver of earnings is expected to grow overall for 2024. As we turn to the second quarter, please keep in mind the following; first, we had $22 million of first quarter prior year reserve development. Second, we expect normalized catastrophe reinsurance costs following lower costs in the first quarter, which were impacted by timing differences related to the program transition to a single placement as well as favorable 2023 exposure true-ups. Beginning in the second quarter, we expect quarterly reinsurance premiums to be modestly above $50 million, which is an increase from the $34 million in the first quarter. And lastly, the second quarter tends to be an elevated period for non-cat loss experience. Next, I wanted to summarize the placement of our 2024 catastrophe reinsurance program which has now transitioned to a single April 1st placement date. We are pleased with our increased coverage at attractive terms including cost savings realized in this year's placement. 2024 catastrophe reinsurance premiums for the total program are estimated to be approximately $190 million, a reduction in comparison to $207 million in 2023. As previously communicated, our per event retention increased to $150 million aligning with a one-in five-year probable maximum loss or PML. Our main U.S. program will provide nearly $1.5 billion in loss coverage in excess of our retention, protecting Assurant and its policyholders against the PML of approximately one-in-265-year storm an increase above the 2023 limit aligned to a one-in-225-year PML. Overall, this year's placement was diversified and supported by the strength of our relationships with 40-plus highly rated reinsurers. Moving to corporate, the first quarter adjusted EBITDA loss was $30 million, a $5 million year-over-year increase, mainly due to higher enterprise growth initiatives. We now expect the 2024 corporate adjusted EBITDA loss to approximate $110 million, consistent with 2023. Turning to capital management, we generated significant deployable capital in the first quarter, upstreaming $254 million in segment dividends. For 2024, we expect our businesses to continue to generate meaningful cash flow. Cash conversion to the holding company is expected to approximate two-thirds of segment adjusted EBITDA including reportable catastrophes. Cash flow expectations assume a continuation of the current macroeconomic environment and are subject to the growth of the businesses, investment portfolio performance, and rating agency and regulatory requirements. As we look forward to the remainder of the year, we continue to be focused on maintaining balance and flexibility to support new business growth and return capital to shareholders. From a share repurchase perspective, we continue to expect to be in the range of $200 million to $300 million, which will depend on strategic M&A opportunities, market conditions, and cat activity. Through the strength of our differentiated business model and given our first quarter results, we are increasingly confident in achieving our 2024 financial objectives. Our strong capital position provides us with the necessary resources to support business growth and shareholder value over the long-term. And with that, operator, please open the call for questions.

Keith Demmings:

Good morning, Mark.

Keith Demmings:

Yes. No, it's a great question. I think we're really pleased with certainly how Connected Living started the year, largely driven by the strength of the US Connected Living business overall. And we've talked about this in the past, but we've had double-digit growth in Connected Living for probably seven or so years pretty consistently. As I look at the first quarter results domestic Connected Living again was up double-digits, high-single last year. So, I think we feel incredibly well positioned. We did see a little bit of softness in the devices covered count. A little bit of that is in Japan which we've talked about although our margins have been quite stable in that market. A little bit in the prepaid side as well. But the bulk of our US postpaid business, which drives the lion's share of the economics clients are performing incredibly well and feel really well positioned longer term.

Keith Demmings:

Yes. It will get updated July 1. It will be a very modest adjustment, roughly 1%. I think last year was a little north of 3%, and then the year before, it was in the low to mid-teens. So fairly normalized level, I think as we look forward this year.

Keith Demmings:

Yes. I think if you set aside the development, which we called out at $22 million in the quarter, the non-cat loss ratio was just under 39%. I'd say that was relatively in line with our expectations in line with what we would expect for the full year around that loss ratio factor. So I would say, certainly we've seen normalized severity levels as inflation has come down. And then to your point, obviously, a lot of impact in the business from rate but then a tremendous amount of leverage in terms of the operating expenses both with scale but also the efforts that we've made to continue to drive automation. And Keith, did you want to add anything?

Keith Meier:

Yes, sure. I think a good way to think about that Mark as well is, Keith mentioned, 39% non-cat loss ratio. We have an expense ratio of about 38%, combined is 77%. If you add in some cat coverage, you're probably in that mid to high-80s that we talk about on a normal basis. So I think it was pretty well in that line maybe a little bit better than that.

Keith Demmings:

Great. Thanks Mark.

Keith Demmings:

Good morning, Brian.

Keith Meier:

Yes. So on Bank of America, we've been ramping them up this -- over the last quarter. And so those loans are now being tracked. And then in the second and third quarter those policies should be coming online. And then by the end of the third quarter, we should be fully up and running on Bank of America. So, I think the outlook for Bank of America should be improving as we go through the year. And then with Telstra, we just launched the rest of the program -- the main part of the program earlier this month. And so we went through a lot of investment there. There's still more to come for Telstra, but we're in a really good place getting Telstra launched in terms of the main part of the program.

Brian Meredith:

Great. And my second question related to Global Auto. I know historically you said it was a couple of clients maybe that were really the issues. I'm wondering if it's become more pervasive. And is there anything that you're kind of thinking about doing with contracts to maybe mitigate -- some of this inflationary aspects here going forward?

Brian Meredith:

Great. Thank you.

Operator:

[Operator Instructions] We have another question comes from the line of Tommy McJoynt with KBW. Your line is open.

Keith Meier:

Hey, Tommy.

Keith Meier:

Yes. So I think I mentioned in the opening remarks where we've got various changes that go on within our portfolio. Obviously, Bank of America we've talked about. We have another client that was added by another one of our clients. So that was a positive. We also have another client that was acquired by a third-party. So those loans will be coming off. So I think there's going to be a little bit of ups and downs. Some of those have lower placement rates than the average. Some of them have higher placement rates. But when you think about between now and the end of the year overall we should be up in our policy counts when you net those kind of movements within the quarters?

Tommy McJoynt:

Okay. Got it. That's good color. And then switching over, can you talk about the current level and perhaps your expectations for trade-in programs and promotional activity from the carriers? And just whether or not you think that could be a swing factor in the bottom line of Connected Living as we proceed through the year?

Tommy McJoynt:

Okay. Got it. And then last one, I think I may have missed it during the remarks. I think I heard you say that the reinsurance costs decreased. I didn't catch -- well, first off could you repeat those numbers? And then secondly, did you mention like what is happening to the per event retention if there were changes to that?

Tommy McJoynt:

Got it. Thanks for recapping that. Thank you.

Operator:

There are no more further questions at this time.

Keith Meier:

Thank you.

Sean Moshier:

Thank you, operator. And good morning, everyone. We look forward to discussing our fourth quarter and full-year 2023 results with you today. Joining me for Assurant's conference call are Keith Demmings, our President and Chief Executive Officer, and Keith Meier, our Chief Financial Officer. Yesterday, after the market closed, we issued a news release announcing our results for the fourth quarter and full-year 2023. The release and corresponding financial supplements are available on assurant.com. Also on our website is a slide presentation that we introduced this quarter for our webcast participants. Some of the statements made today are forward-looking. Forward-looking statements are based upon our historical performance and current expectations and subject to risks, uncertainties and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these factors can be found in yesterday's earnings release, presentation and financial supplement on our website as well as in our SEC reports. During today's call, we will refer to non-GAAP financial measures, which we believe are important in evaluating the company's performance. For more details on these measures, the most comparable GAAP measures and a reconciliation of the two, please refer to the news release and supporting materials. We'll start today's call with remarks before moving in to Q&A. I will now turn the call over to Keith Demmings. Keith?

Keith Meier:

Thanks, Keith. And good morning, everyone. Before reviewing the quarterly results, I'd like to share my perspectives as I'm about to wrap up my first 90 days as Assurant CFO. During my time at Assurant, I've been fortunate to have led several businesses, as well as take on a variety of other roles across the organization, including most recently leading our technology and operational teams. These experiences have provided me with deep insights into our global clients, and the understanding of what is needed to deliver a high level of business performance, always backed by strong financial expertise and discipline. As CFO, driving growth and financial performance will continue to be my priorities. I'm focused on ensuring our capital position remains strong as we create additional shareholder value and drive profitable growth through further innovation and differentiation within our product portfolio. As I look toward the future, I'm also focused on continued expense efficiencies by utilizing digital and AI technology, which also enables us to deliver better customer experiences. Lastly, I've appreciated the opportunity to meet with many of our investors, employees and clients over the last several months, and their willingness to share observations about Assurant as I began my tenure as CFO. Our discussions have enabled me to better shape my views and the path going forward. Now, let's talk about our fourth quarter financial results, which reinforced the strength of our businesses and the performance that we've seen throughout the year. For the quarter, adjusted EBITDA grew 29% to $382 million and adjusted EPS increased by 38% to $4.90, both excluding reportable catastrophes. Adjusted earnings and EPS growth were driven by year-over-year growth in both Housing and Lifestyle. Our capital position remains strong, generating $280 million of segment dividends in the fourth quarter, and ending the year with $606 million of holding company liquidity. This allowed us to return $169 million to shareholders in the quarter, including $130 million of share repurchases. Let's review the businesses, beginning with Global Lifestyle. For the quarter, adjusted EBITDA grew 12% to $205 million, led by strong earnings growth of 23% within connected living, as our US mobile protection programs continued to grow. Higher yields on invested assets also contributed to the improved fourth quarter results. Globally, our trade-in programs represent a critical component of our device lifecycle value proposition, as well as a fee-based income driver supporting the growth of our mobile business. Throughout 2023, we serviced over 25 million devices, including 7.5 million in the fourth quarter, which represented a high watermark for the year. While trade-in results were down modestly year-over-year, we saw fee income growth from higher sale prices for used devices and contributions from new US trade-in programs. Internationally, we continue to be impacted by subscriber declines in Japan, but have stabilized performance in a challenging macroeconomic backdrop. In global auto, fourth quarter adjusted EBITDA was relatively flat, as higher claims costs from inflation were offset by higher investment income. Claims were also elevated from the expected normalization of auto ancillary products and from international clients. During the latter part of the year, we saw positive signs in US loss trends, as we began to benefit from prospective rate increases that were implemented. Turning to net earned premiums, fees and other income, Lifestyle grew by $268 million or 13%. Growth from global automotive, which increased 14%, was due to $85 million of non-run rate premium adjustments with no corresponding earnings impact, as well as prior periods sales of vehicle service contracts. Connected living's net earned premiums, fees and other income increased 12%, benefiting from contributions from new trade-in programs, higher prices on used mobile devices and modest growth in North American mobile subscribers. Looking ahead to 2024, we expect Global Lifestyle's adjusted EBITDA to grow, driven by both connected living and global automotive. We expect growth in connected living to be led by the continued expansion of our US business. We expect Japan and Europe to remain generally stable throughout the year. In global auto, we expect rate actions taken over the past 18 months to drive improvement over time, beginning in 2024. Investments related to new client implementations will temper growth in 2024 for Lifestyle, but are critical levers to expand our portfolio and strengthen our business over the long term. We continue to monitor foreign exchange impacts, broader macroeconomic conditions and interest rates, which may impact the pace and timing of growth. In terms of full year net earned premiums, fees and other income, lifestyle is expected to grow mainly from our connected living business. Moving to Global Housing, 2023 was truly a strong year. We drove growth from the actions taken over the past few years to ensure rate adequacy and drive expense leverage, while benefiting from the streamlining that we undertook to simplify our portfolio. Fourth quarter adjusted EBITDA was $186 million, which included $22 million of reportable cats. Excluding reportable cats, adjusted EBITDA increased by nearly 50% or $68 million to $208 million. Two-thirds of the increase was driven by favorable non-cat loss experience and homeowners, including a favorable year-over-year impact of $35 million related to prior-period reserve development. This was comprised of $40 million of reserve reductions in the current quarter compared to a $5 million reduction in the fourth quarter of 2022. The remainder of the adjusted EBITDA increase was from continued top line growth in homeowners from higher premiums and an increase in the number of in-force policies. Higher investment income also contributed to earnings growth. Growth was partially offset by incremental expenses to support new business and an increase to our catastrophe reinsurance premium. For renters and other, earnings were flat as growth in our property management channel was offset by softer affinity channel volumes. For the full-year 2024, we expect Global Housing adjusted EBITDA excluding reportable cats to grow, driven by continued top line momentum in homeowners. In 2023, we benefited from $54 million of favorable prior-year reserve development. Our expectation is to deliver growth in housing in 2024, overcoming the $54 million of favorable prior-year reserve development, demonstrating the strength of the housing business. As Keith discussed, we will begin onboarding 1.8 million loans from Bank of America in the first quarter. When fully onboarded, we expect the placement rate of the book to be below Assurant's current portfolio average of 1.8%, which may impact overall placement rate trends. Due to implementation expenses, we do not expect these loans to contribute significantly to adjusted EBITDA in 2024. In terms of our cat reinsurance program, we have transitioned to a single April 1 placement date beginning this year. This greatly simplifies our placement process while maintaining comprehensive coverage in the market. As this is a transition year, we placed virtually all of our 2024 program in January, with some smaller components remaining for the April placement. For our 2024 program, our program retention will increase to $150 million, aligning with a one in five year probable maximum loss or PML as we continue to optimize risk and return. This is consistent with our 2023 program. We've expanded our risk protection to align with exposure by increasing our top end limit to protect against a 1 in 265 PML event. Over the past two years, we've continued to increase our capital protection, increasing the top end of our program from a 1 in 174 PML in 2022 to a 1 in 225 PML in 2023 and now a 1 in 265 PML in 2024. Reflecting on these expected changes, we now estimate the appropriate cat load to be $155 million for 2024. Given the exit of our international property business and the better market pricing as we leverage our strong reinsurer relationships, we expect modest overall cost savings in 2024. We will provide further updates on the reinsurance program in May. Moving to corporate. The fourth quarter adjusted EBITDA loss was $30 million, a $3 million year-over-year increase, mainly due to higher employee-related expenses. For 2024, we expect the corporate adjusted EBITDA loss to approximate $105 million. Turning to capital management. As we look forward to 2024, we expect to continue to generate significant capital and focus on maintaining balance and flexibility to support business growth. For the full year, we expect our businesses to generate meaningful cash flows, approximating two thirds of segment adjusted EBITDA, including reportable cats. Cash flow expectations assume a continuation of the current macroeconomic environment and are subject to the growth of the businesses, investment portfolio performance and rating agency and regulatory requirements. We repurchased $200 million of common stock in 2023 and currently expect share repurchases to be in the range of $200 million to $300 million for 2024, which will depend on strategic M&A opportunities, market conditions, and cat activity. As you can see, we are well positioned to deliver another year of growth in 2024 through the power of the Assurant franchise. I'll now turn the call back to Keith Demmings to share his views on performance, as supported by our differentiated business model. Keith?

Operator:

[Operator Instructions]. Our first question is coming from Mark Hughes with Truist Securities.

Keith Demmings:

No, we're going to be picking up all of the loans and then all of the policies, but the placement rate on that particular block of business is just lower than the average. If you look at our current average, it's 1.8%. It'll be south of that, just the nature of the loans and the nature of the business. But to the more fundamental point, really excited about the opportunity and many years in the making, and a huge congratulations to our lender-placed team for doing an incredible job building a relationship. And then obviously getting to this point is incredibly exciting and extremely validating.

Keith Meier:

This is Keith Meier. So I think the first thing I would say is the positive reserve development was more in relation to the higher inflationary environment that we had previously. Now that that's more settled, that's what's really been the change in the estimates that our team has made there. So I think that was more the driver than any other type of weather activity or any other type of experience. So I think that was the key there. In terms of your question on the quarter, the way to think about that is if you take out the prior year, the prior period development, and over the whole year, we basically are about at about a 40% non-cat loss ratio. It's about a point better than last year. And then if you think about, looking at 2024, we would see our non-cat loss ratio to be somewhat level to what we're seeing in 2023. So that's probably the way to think about our views on the non-cat loss ratio.

Keith Demmings:

And just one final thought. Modestly better in the quarter when you make the adjustment at 38%. But that's just normal seasonality, nothing we would really point to there, Mark.

Keith Meier:

That's mainly the higher trade-in volumes that we have seen in the fourth quarter. So, in the fourth quarter, we also saw the addition of two new programs. So, one with one of the major OEMs and then also a program that cuts across several of our other clients. Then that's also tempered a little bit by some of the promotional activity. But, overall, we felt really good about the trade-in performance in the quarter.

John Barnidge:

My first question, I know there was an expense reduction program in December 2022 with full savings emerging in 2024. Are you able to talk about geography of those savings that's supposed to emerge in 2024 and how you view the run rate Global Housing expense ratio?

John Barnidge:

On auto input costs, can you maybe talk about the ability to recoup the elevated auto input costs through contracted actions for 2024? I think you talked about improvement expected this year?

Operator:

Our next question is coming from Tommy McJoyntt with KBW.

Keith Demmings:

I'll probably offer a couple of thoughts. Obviously, it's a pretty exciting development. We're super proud of the team in Australia. And it's a great example of leveraging our capabilities and our global reach. It's going to roll out in phases. We expect to launch in the first quarter, and then there's a number of different phases to the rollout. So it'll be, I would say, probably modestly EBITDA negative this year in terms of the investment to get that wrapped up. Obviously, I would expect it to be significantly improved certainly in 2025 – sorry, in 2025 over 2024. In terms of the size and scale of investments, so one thing I would say, Tommy, there's quite a bit of investment going on with Assurant. Certainly, we talked about BofA, but even just on the lifestyle and connected living side, Telstra is one example. Obviously, we're talking about it publicly. But there are also a lot of other investments that we're making, building out capabilities. And we're in many, many discussions with different clients, different prospects, about rolling out new product, new services. So I would say we probably have more investment going on, even beyond Telstra, within connected living this year than we would in a normal average year. When we talk about mid-single-digit growth for lifestyle, you could probably think about the investment, putting pressure on that by a few points. So it would be more in the high single-digit range, if we weren't making some of these – what for us are significant investments in the future.

Keith Meier:

Tommy, I think, one, in terms of our expectations for next year, we see investment income being relatively flat to slightly up. You mentioned the higher results for this quarter. We had our real estate joint venture sale. So, that contributed. We don't think we'll have as high of real estate sales into next year. But we do think it should be relatively positive going into next year. Right now, our portfolio book yield is at 4.99%, so just under 5%. New money rates will be a little bit higher than that. And so, we do expect as the year goes on, of course, the Feds expected to reduce rates through the year. So depending on the timing of some of those rate changes, those will be kind of offsetting the increase that you saw this year. So, overall, we think we're in a pretty good place from an investment income standpoint, but probably slightly up for next year.

Operator:

Our next question is coming from Brian Meredith with UBS.

Keith Meier:

Starting with Japan, we mentioned the four-year customer contracts that were running off, and then the new contracts were evergreen, that's still going to be a bit of a pressure for us, not as much as 2023, but they'll still be a pressure for us in 2024. I think that is offset a little bit by some new structures and new programs that we have launched in Japan. So that's where that you'll see that moderating. And I think longer term, I feel even better about Japan where, a few years ago, we only had a couple of relationships with the mobile carriers. Now you fast forward to today, we've got active business that we do with all of the four top mobile operators. And so, in our business, it's not easy to win big clients, but when you can be an existing partner already, and then be able to grow that relationship from there, I think that puts us in a very good position and why we have a lot of optimism for the future of Japan. But with some of those new programs coming up, I think that's what's allowed us to feel like we've gotten past some of those headwinds from before.

Keith Meier:

In terms of the macroeconomic conditions, Brian, I don't think we're expecting anything significant. Obviously, we talked about interest rates and things like that. But beyond that, there's nothing that's contemplated that's that significant.

Keith Meier:

Yes, it does.

Keith Demmings:

No problem. All right. And that was the last question. Am I correct?

Keith Demmings:

Wonderful. Okay. We will call it a wrap for today and we'll look forward to speaking to everybody again in May. And then, obviously, in the meantime, please feel free to reach out to our IR team who'll be happy to answer any questions that anybody has. But thanks very much, and we'll talk soon.

Suzanne Shepherd:

Thank you, operator, and good morning, everyone. We look forward to discussing our third quarter 2023 results with you today. Joining me for Assurant's conference call are Keith Demmings, our President and Chief Executive Officer; and Richard Dziadzio, our Chief Financial Officer. Yesterday, after the market closed, we issued a news release announcing our results for the third quarter of 2023. The release and corresponding financial supplements are available on assurant.com. We'll start today's call with remarks from Keith and Richard before moving into a Q&A session. Some of the statements made today are forward-looking. Forward-looking statements are based upon our historical performance and current expectations and subject to risks, uncertainties and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these factors can be found in yesterday's earnings release and financial supplement as well as in our SEC reports. During today's call, we will refer to our non-GAAP financial measures, which we believe are important in evaluating the company's performance. For more details on these measures, the most comparable GAAP measures and a reconciliation of the two, please refer to yesterday's news release and financial supplements. It is now my pleasure to turn the call over to Keith.

Richard Dziadzio:

Thank you, Keith, and good morning, everyone. For the third quarter of 2023, adjusted EBITDA, excluding reportable catastrophes, totaled $357 million, up $118 million or nearly 50% year-over-year. Adjusted earnings per share, excluding reportable catastrophes, totaled $4.68 for the quarter, delivering year-over-year growth of 67%. To review results in greater detail, let's start with Global Lifestyle. The segment reported adjusted EBITDA of $192 million in the third quarter, an increase of $12 million or 7% year-over-year. As a reminder, prior period results included a onetime client benefit of $11 million within Connected Living. Excluding the prior period gain, Global Lifestyle's adjusted EBITDA increased 14% or $24 million. This increase was primarily driven by higher contributions from investment income and mobile growth. Connected Living earnings increased $30 million or 32% excluding the onetime client benefit, demonstrating strong mobile growth from North American device protection programs from carrier and cable operator clients and better trade-in performance. Financial Services also contributed to the growth. Trading results benefited from improved margins related to higher sales prices for used devices, partially offset by lower volumes, impacted by the timing and structure of carrier promotions. In Europe, we stabilized performance through expense actions, mitigating the impact of headwinds that began in the second half of 2022. In Japan, results were impacted by subscriber decline which is expected to continue into 2024. Global Auto adjusted EBITDA declined $6 million or 8%. Results continue to be impacted by inflation of labor and parts leading to higher average claims costs. As expected, claims experience for auto ancillary products has also contributed to higher incurred claims costs in the quarter. The auto earnings decline was partially offset by an increase in investment income from higher yields and asset values. Turning to net earned premiums, fees and other income. Lifestyle was up by $83 million or 4%. This growth was primarily driven by Global Automotive, reflecting an increase of 6% from prior period sales of vehicle service contracts. Connected Living's net earned premiums, fees and other income increased 3%. Growth was muted by the previously disclosed mobile program contract changes of approximately $55 million with no corresponding impact to profitability. Excluding the impact of these contract changes, Connected Living's net earned premiums, fees and other income grew by 8%. The quarter benefited from higher prices on used mobile devices and modest growth in North America mobile subscribers, excluding ongoing client runoff. Turning to the full year 2023. We continue to expect Lifestyle's adjusted EBITDA to decline modestly. Global Auto will be down for the full year from unfavorable loss experience, including the impacts from continued normalization for select ancillary products previously mentioned. We've taken decisive actions this year in response to higher claims experience in our auto book, including prospective rate increases and repair cost reduction. While we've seen some improvement, the improvement is expected to take place over a longer period of time given the earnings pattern of the business. In Connected Living, we expect our U.S. business to grow for the full year. Overall, we are pleased with Lifestyle's strong third quarter performance, especially in light of ongoing challenges in auto claims. For the fourth quarter, we expect higher trade-in volumes in mobile, but we also expect ongoing top line challenges in Japan and Europe and investments to support business growth. In terms of full year net earned premiums, fees and other income, Lifestyle is expected to grow consistent with year-to-date trends. Moving to Global Housing. Adjusted EBITDA was $165 million, which included $26 million in reportable catastrophes, primarily from Hurricane Idalia and Hawaii wildfires. Excluding reportable catastrophes, adjusted EBITDA more than doubled to $191 million, with an increase of $106 million. Housing performance was mainly led by 3 main items

Mark Hughes:

Keith, Richard, I really like this housing business, and I'm glad you didn't listen to those people who said you should divest it. Little [indiscernible]. On the housing business, increased policy count, how much of that is coming from, say, voluntary versus some uptick perhaps in the delinquencies or foreclosures or REO?

Mark Hughes:

What's your sense of the opportunity for sustained momentum, say, in higher values or higher rate? Has that activity peaked perhaps? Or is there still some way to go on both those fronts?

Mark Hughes:

Then one final one. Your fee income was up in Lifestyle, your devices service were down 20%-plus. I think you mentioned the higher value per device. Anything else contributing to that, just the divergence between the fee income and the device fee service?

Operator:

Your next question comes from the line of Jeff Schmitt of William Blair.

Keith Demmings:

Yes. So maybe I can start and then certainly, Richard can jump in. Obviously, when you look at Housing's revenue year-over-year, it's up meaningfully, $100 million, $103 million year-over-year. All of that is from growth in homeowners, which is up 31% year-over-year in terms of revenue. If we think about what's driving the performance from an underlying EBITDA perspective and Richard obviously talked about the prior period development. If you adjust the development, $15 million this year against adverse development last year of '24, we still see a $67 million increase in our underlying EBITDA. And I would say 2/3 of that is really driven by rates average insured values, which obviously play together, and then relatively stable losses related to higher levels of premium rolling through. And then the balance, maybe 1/3 is split between policy growth, which is up 3.5% year-over-year and then investment income, which is obviously helping with cash yields and more assets being held. But Richard, happy to have you add any other detail.

Jeffrey Schmitt:

Got it. Very helpful. And then in Global Lifestyle, just looking at that benefit ratio kind of continue to move up. Despite rate increases, it was 23% in the quarter, mainly driven by auto, it sounds like. Could you maybe just discuss the pricing strategy there? Like when does that begin? What level of pricing can you get in this market? Really, any detail on that would be helpful.

Richard Dziadzio:

Yes, I think that's exactly right. And in our prepared remarks, we basically talked about it will take some time. The claims adjudication work we're doing and the teams are doing a fantastic job, that's helping us today bend the curve a little bit. We've been able to get rate, which is fantastic. But it's going to take time because we've sold what we've sold in the past, and that's going to run through and then the new rates and the new premiums we're getting, that will come through and help us bend the curve as we go in the future, but it will take some time.

Brian Meredith:

Could you talk a little bit about what's going on in Japan and maybe when we might see a flip there from a growth perspective? I know you said you'll still see some pressures in 2024, and I know you've got the new contracts that are going in. When do we see that flip? I would have thought that was going to be a nice little tailwind for growth in '24.

Brian Meredith:

Do you have like a percentage you can give us of how much of the Japanese business is now on a perpetual policy versus, I guess, it was a 4-year policy is what they were?

Brian Meredith:

Got you. And then second question, just going back to Global Housing. I'm just curious, what are you seeing right now from an inflationary perspective in that business, right? It sounds like it's pretty modest given what your loss ratios are pretty good. But if I look at some of the other homeowners insurance companies, they're still seeing a fair amount of inflationary pressure there. And maybe you can pivot that into maybe your business is a little bit different, and you've got better ways to control those that inflation than maybe some of the traditional homeowners companies?

Operator:

[Operator Instructions]. Your next question comes from the line of John Barnidge of Piper Sandler.

Keith Demmings:

Yes, I would say that we're not actively considering any other relocations. If you think back to when we acquired HYLA. So go back to December 2020, we acquired HYLA. HYLA had a large facility in Nashville, Tennessee, and then Assurant had a facility in New York and a facility in Texas. And as we've looked at our business model, and we always wanted to have multiple sites for redundancy, certainly in operational resilience, but trying to get back to 2 sites, feels like a strategically the right thing to do for the business. And then looking at geographies where we feel like we're really well positioned from a access to talent, from a logistics, access to clients, et cetera. So it's really more about the strategic decision here than it is purely on a cost basis. And it's trying to have scaled facilities that we can make proper investments in and then obviously get access to the talent. So that's what's driving that change. And we will be actually scaling our facility in Nashville. We're in the process of doing that work now. So we'll be building a newer, more modern and significantly larger facility to support the long-term growth of that business.

John Barnidge:

That's very helpful. I appreciate that. Earnings growth has been very strong. And my follow-up question, I'm not trying to get ahead of formal guidance coming in February, and I appreciate what you've offered today. But how do we think of reinsurance savings next year emerging on the book that's being run off within Global Housing, juxtaposed against what's fortunately, knock on wood, but somewhat favorable of a cat environment for you this year?

Richard Dziadzio:

Yes. Thanks, Keith. Yes, in terms of the reinsurance, it's a little bit early days to talk to specifically about it, but I think you hit it on the head in the question. The market has stabilized in terms of processing pricing, it has stabilized versus what it was in the last couple of years, so we're going into better market conditions. I would say we'll have a consistent approach that we've had in the last couple of years when we go into the market. And as Keith said, we're entering the market, I would say, as one of the good guys in terms of we have not gone up into our past our retention levels to the reinsurers this year for the cat reinsurance. So we walk into the meetings, we'll be there in presenting a very favorable position relative to the reinsurers, where they ended up in 2023.

Tommy McJoynt-Griffith:

I think you said, Keith said and this [indiscernible] for 2024 that you're expecting more modest growth in housing in 2024. Just want to clarify that, that is still expecting growth? And then is that in reference or I guess some terminology excluding catastrophes or including catastrophes?

Richard Dziadzio:

And just another addition on Housing. We will have something like $40 million of PYD going into next year. So obviously, can't count on that in the future years. So that's something we're going to need to overcome. And as Keith said, it's just a fantastic year we're having in Housing. And kind of the way I look at it, an we look at it inside is we look at it a multiyear journey. So really looking at -- last year was a bit of a tougher year. We turned the corner really quickly in terms of the uniqueness of our business, and we've talked about the inflation guard and the rates and the expense leverage that we're getting. So we are expecting it to be continued rate but at a slower pace. But again, it can -- it's not going to be like this year, it's going to be slower given all the elements that Keith and I have mentioned.

Richard Dziadzio:

Yes. Thanks, Tommy. And in fact, yields and interest rates have been a nice tailwind for us. It's helping us offset some of the inflationary issues that we've talked about, particularly in Auto, for example. So if you look at year-to-year, our investment income is up about 50% or $40 million. So a really nice number coming through. I would say, in answer to your question, that's probably think about it being maybe 1/3 Housing, 2/3 Lifestyle and in Lifestyle, the bigger component of it is in Auto. What you're seeing in this quarter is really the result of 2 things, and I've talked about it in past earnings calls, it's really -- it's coming from fixed income and fixed income yields. Our assets are up a little bit, but yields are up as that -- as those fixed income maturities roll over and we get more investment income on those, but also cash yields are really high, as you know. Who knows what's going to -- what the Fed is going to do next year. But for the moment, we're getting nice -- real high returns off the cash that we're holding. So nice sort of tailwinds to us, and that should continue as long as rates and so forth hold up. But if rates start coming down, I would say inflation is probably coming down. So we'll get some offset there, hopefully, as well.

Grace Carter:

I guess back to the expectations for housing next year. I was wondering if we could maybe talk a little bit about the components of the growth that's expected? I mean even excluding the reserve development this quarter, the underlying loss ratio looks pretty good. And just the extent to which maybe the improvement in the loss ratio and the expense ratio [indiscernible] is sustainable or the extent to which maybe they could improve even further just as the recent pricing actions continue to earn through the book. And I guess, just kind of the expectations for the top line, given that presumably maybe some of the benefits from the inflation adjustment and things like that start to decelerate a bit next year?

Richard Dziadzio:

Yes. I think that, I guess, I would also say that, Grace, when we look at the combined operating ratio, something we keep our eye on. So really a combination of everything we're getting. We've talked about the top line growth, and that would be tapering the expense ratio, we're in a good place with that. I think that could continue, maybe not as low as it is now because we'll always have -- maybe some -- have some investments and so forth. But we're in a good place there. The loss ratio think about 40%, 42% maybe full year, that kind of thing. But even then, it's going to depend on what weather we're going to get. What's the severity, what's the frequency, what are the storms, the convective storms that we had in the spring time. So obviously, that's something that's hard to call. But if we talk about the combined ratio at 86% to 91% with cat, that's probably something that we look to and say, on a normal cat year, we'd probably be in and around that range, if that's helpful.

Keith Demmings:

Yes. I think we're seeing maybe early signs of modest improvement there. I'd say it's probably too early to call it, Grace. But definitely, when we look at Renters, really strong performance, and we've signaled this over the last few years in the property management channel. So certainly diversifying our portfolio between affinity and property management, and we actually grew our PMC in the third quarter this year more than we grew it all of 2022. So the team has done an incredible job adding clients, driving attach and leveraging our Cover360 platform. And then to your point, should we start to see an acceleration in marketing relative to auto insurers, then that could certainly provide upside opportunity over time? I'd say it's too early to suggest that we're seeing firm trends, but definitely feel like there's opportunity there as we look forward and certainly in '24. Okay. I think that was the last question. So thank you, everybody, for joining the call. We'll certainly look forward to reconnecting in February. And as always, if you have questions, please reach out to Suzanne or Sean, and we'll get back in touch. Thanks so much.

Suzanne Shepherd:

Thank you, operator, and good morning, everyone. We look forward to discussing our second quarter 2023 results with you today. Joining me for Assurant's conference call are Keith Demmings, our President and Chief Executive Officer; and Richard Dziadzio, our Chief Financial Officer. Yesterday, after the market closed, we issued a news release announcing our results for the second quarter of 2023. The release and corresponding financial supplement are available on assurant.com. We'll start today's call with remarks from Keith and Richard before moving into a Q&A session. Some of the statements made today are forward-looking. Forward-looking statements are based upon our historical performance and current expectations and subject to risks, uncertainties and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these factors can be found in yesterday's earnings release and financial supplement as well as in our SEC reports. During today's call, we will refer to our non-GAAP financial measures, which we believe are important in evaluating the company's performance. For more details on these measures, the most comparable GAAP measures and a reconciliation of the 2, please refer to yesterday's news release and financial supplement. I will now turn the call over to Keith.

Richard Dziadzio:

Thank you, Keith, and good morning, everyone. For the second quarter of 2023, adjusted EBITDA, excluding reportable catastrophes, totaled $337 million, up $59 million or 21% year-over-year. And adjusted earnings per share, excluding reportable catastrophes, totaled $4.09 for the quarter, up 26% year-over-year. Let's start with Global Lifestyle for our segment results. This segment reported adjusted EBITDA of $197 million in the second quarter, an 11% decline year-over-year. However, prior period results included a real estate joint venture gain of $13 million, mainly impacting Global Automotive. If we exclude this prior period gain, adjusted EBITDA declined only 5% or $11 million, in line with our expectations. This decrease was primarily driven by lower results in Global Auto as continued inflationary impacts on labor and parts increased average claim severities. We also incurred increased claims cost on ancillary products as these costs revert to more normalized levels following their post-COVID lows. The Auto earnings decline was partially offset by higher investment income from higher yields and growth in the U.S. across distribution channels. In terms of Connected Living, excluding the prior period real estate gain and $3 million of unfavorable foreign exchange, earnings were roughly flat. In Mobile, earnings were down from soft results in Japan and Europe, as expected. As a reminder, headwinds in international earnings did not materialize until the second half of 2022. In Japan, we continue to experience subscriber declines as our 4-year protection product continues to run off. And in Europe, while we are benefiting from previous expense actions taken in the latter part of 2022 and the beginning of 2023, lower volumes have impacted year-over-year results. U.S. mobile earnings were flat year-over-year as growth in North American device protection programs from carrier and cable operator clients was offset by lower mobile trade-in results. Trading results were impacted by lower volumes due to the timing and structure of carrier promotions and lower fee income from the previously disclosed contract change. However, higher prices on used devices partially offset the decline. Extended service contract earnings increased as U.S. client performance improved, benefiting the rate increases implemented from several clients that began to offset the impact of higher claims costs. Turning to net earned premium fees and other income. Lifestyle was up by $96 million or 5%. This growth was primarily driven by Global Automotive, reflecting prior period sales of vehicle service contracts. Connected Living net earned premiums fees and other income increased 1%. However, this includes an approximate $60 million negative impact from the previously disclosed mobile program contract changes, which had no impact on profitability. Excluding these contract changes, Connected Living net earned premiums, fees and other income grew by 6%. The quarter benefited from growth in mobile subscribers in North America, excluding client runoff and higher contributions from extended service contracts. For the full year 2023, we now expect adjusted EBITDA to be down modestly for Global Lifestyle. Global Auto is expected to be down for the full year as we anticipate loss experience to remain unfavorable for several quarters and the impacts from continued normalization of loss experience for select ancillary products previously mentioned. As Keith described, we've taken specific actions such as rate increases on new business, repair cost reduction and changes to client contract structures to help mitigate these impacts, which is why we expect an increase in profitability over time. Higher investment income has and is expected to continue to partially offset these impacts. In Connected Living, we do expect our U.S. Connected Living business to grow modestly for the full year. As a reminder, third quarter results historically include both lower trade-in volumes and higher loss seasonality. These items typically improve in the fourth quarter. In addition, our third quarter results last year included an $11 million onetime client benefit in Connected Living. And while Japan and Europe have stabilized, we are focused on top line growth, which has been slower to materialize than expected. Finally, we will also continue to focus on expenses while investing in growth opportunities, we have strong momentum with clients. In terms of net earned premiums, fees and other income for the full year, Lifestyle is expected to grow as growth in Global Automotive is partially offset by ongoing foreign exchange headwinds. Moving now to Global Housing. Adjusted EBITDA was $155 million, which included $13 million in reportable catastrophes from severe windstorms in the Southeast U.S. and flooding in Florida. Excluding reportable catastrophes, adjusted EBITDA more than doubled to $168 million were up $87 million from both top line growth and favorable non-cat loss experience within homeowners. Top line growth in lender-placed came from higher average insured values and premium rates as well as more policies in force. These together accounted for approximately half of the increase in earnings. Favorable non-GAAP loss experience came from a $40 million year-over-year net reduction in reserves related to prior period development and is comprised of a $28 million reserve reduction in the current quarter plus a $12 million reserve strengthening in the second quarter of '22. Excluding prior period development, non-cat loss experience increased modestly due to the increase in frequency and severity. Higher investment income also contributed to earnings growth. Turning to our reinsurance program. We completed our 2023 catastrophe reinsurance program in June. We fared well in the market with this year's total cost increasing less than previously expected and only modestly over 2022. This increase is relatively small due to strategic actions taken, including exiting our international footprint, increasing our level of retention and adjusting our reinsurance coverage. As anticipated, our first event retention increased to $125 million from its previous level of $80 million and the retention level reduces to $100 million for second and third events. We also increased our total program coverage to a 1-in-225-year, probable maximum loss to further minimize our risk from extreme catastrophes. Moving to Renters and Other. Earnings increased largely due to a benefit within our NFIP flood business of $5 million. Excluding this item, results were in line with 2022. For the full year 2023, we expect Global Housing adjusted EBITDA, excluding reportable cats, to grow significantly due to strong performance in homeowners, driven by top line expansion from lender-placed. Regarding the second half of the year, we expect ongoing momentum from a continued gradual abatement of inflation, lower seasonal losses particularly in the fourth quarter and continued revenue strength. This momentum should offset a modest increase in catastrophe reinsurance costs in the absence of both another NFIP benefit and additional favorable reserve development, which can be difficult to predict. Together, these last 2 items contributed $33 million to our first half results. Moving to Corporate. The second quarter adjusted EBITDA loss was $29 million, up $4 million from lower investment income. For the full year 2023, we expect the corporate adjusted EBITDA loss to be approximately $105 million. I would also mention that the investment portfolio continues to perform well with higher interest rates improving both short- and longer-term returns. Turning to Holding Company Liquidity. We ended the quarter with $495 million. In the second quarter, dividends from our operating segments totaled $180 million. In addition to cash used for corporate and interest expenses, second quarter cash outflows included 3 main items

Jeffrey Schmitt:

Global Housing seems to really be turning a corner here. But just looking at that, you'd mentioned the favorable development charge, I think it was $28 million. When we back that out, the underlying loss ratio was at 44%, which is still sort of high relative to historical levels and especially, I think, considering with the way that housing material and labor cost inflation to move down. So are you just sort of taking a conservative posture there? Or what are you seeing?

Richard Dziadzio:

Yes, exactly. And I would just say, if we look year-over-year, you're exactly right, Jeff, with the 44%. That's a couple of points above last year's level, same time. And as Keith said, I think we do have some inflation that's -- it's higher last year than the costs are higher this year than last year. So that's running through a little more frequency and just also, there was more, I would call, severe convexity storms in the last quarter. And while those storms, most of those storms didn't make it to reportable cats for us, over $5 million, as you know, we had a very low level in the quarter. Some of them are in the non-cat loss ratio. So we did have our share of those, I would say, overall, and that's within the couple point increase that we see over the year as well.

Keith Demmings:

Yes. So we talked about inflation guard going in double-digit levels last July. So we would have put the final adjustments through based on that in June of this year. And then to your point, we do an annual adjustment, it's 3.1% adjustment that would go in on top of that for July to AIV. And then modest rate adjustments, plus and minus as we think about managing across all of our states, but certainly still have more to earn through from last year's AIV adjustments and then on top of that, the 3% that we just put in place in July.

Brian Meredith:

A couple of questions here for you. First, can you talk a little bit about the inflationary pressures you're seeing in Global Auto? And I understand it's going to pressure margins here through the remainder of 2023. Is this something we're going to see continuing to pressure margin throughout 2024 just as it takes time for these contract changes to work through numbers?

Brian Meredith:

Excellent. And then second question, Japan, when are we going to lap some of these kind of contract roll things that were going on? When will that finally kind of be done? Is that the end of this year? Is there any kind of going into 2024 as the contract changes in Japan?

Brian Meredith:

So that's a meaningful part of the headwind you're seeing is the Japan kind of contractual more than kind of an economic situation?

Operator:

Our next question comes from the line of Mark Hughes from Truist.

Keith Demmings:

Sure. And maybe I'll start and certainly, Richard, if you have other thoughts on fee income. But we saw -- and this can be volatile quarter-to-quarter really dependent on promotional activity within the industry. We're fortunate, particularly in the U.S., we partner with all of the major carriers, which is a great position to be in from a trade-in perspective. We definitely saw lower trade-in volume in Q2, whether you look at it sequentially or year-over-year. And that's really just a function of the amount of advertising, the promotion and how hard are carriers pushing to upgrade customers to new devices and then how aggressively are they promoting trade-in offers. And that ebbs and flows. It was a little bit down in the quarter. To the extent that as new devices come out in the fall, we certainly expect to see more aggressive marketing campaigns. But it's a little bit in the control of the hands of our clients, and it's a very dynamic market, but continues to be important for our clients and something that we're very focused on.

Mark Hughes:

Yes. Understood. You mentioned the inflation guard up 3%. Any prospect for additional rate on top of that based on the date approved increases?

Richard Dziadzio:

Sorry, Mark, as we look forward to the second half of the year, we could see slight increases, but we're not seeing large increases to revenues continuing. I think we've kind of gotten there already, plus we've gotten out of certain international areas. So overall, the revenues will be impacted a little bit by that. But overall, I think there will be a little more to come, but not -- certainly not the levels we've seen over the past year.

Richard Dziadzio:

Well, I'd divide into a couple of things. I mean, we've actually had some nice increase in investment income over the last year. Think Absent the real estate gains, probably $30 million in cash in short term. And then obviously, we didn't have a real estate gain this quarter. But just on your question on yields, we do have, in the long term, our fixed income portfolio is a 5-year duration. So we get a continuous role on that, and we'll get a continuous kind of increase in those longer-term yields. We've really benefited from short-term rates also, which is -- accounts for almost as much as the increase or as much as the increase in the longer-term yields, right, with the Fed increasing interest rates. At some point in the future, those will probably come down. So we'll see that cash return come down. Who knows when that will happen, but we could see that as well. But on a longer-term basis, we should continue to get some yield increase.

Tommy Griffith:

You mentioned the expectations for modest growth in Connected Living this year, and we've had a little bit of discussion on sort of U.S., Japan and Europe. Could you dissect those expectations for that modest growth just into any maybe sort of ranges for U.S. x percent, Japan down x percent. Just trying to get a gauge of exactly how much of a headwind in terms of the overall number that Japan and Europe actually are?

Tommy Griffith:

Okay. Yes. That's helpful. And then switching over to some of the line of questioning on Housing. Obviously, there's been pretty tremendous growth this year. I think you guys have last given your sort of normalized cat load expectations for $140 million for this year. With all the growth that you've seen in Housing, been any early indications for what you might consider a normalized cat load as we head into '24?

Operator:

[Operator Instructions]. Our next question comes from the line of John Barnidge from Piper Sandler.

Keith Demmings:

Yes. Certainly, a couple of thoughts. We've got great momentum with clients in Global Lifestyle around the world. If I think about our mobile business and the traction we've had over the course of the last 7 or 8 years has been pretty steady. We've got relationships with so many of the marquee brands globally, and that yields a lot of opportunity to do new things, introduce new services, innovate with new products, try to find new ways to help them drive success. So I would say we've got as much ongoing dialogue with clients today and prospects today as we've ever had, and there seems to be a constant interest in innovating and doing new things. And the fact that we've got a really wide-ranging capability set, I think, is a huge advantage for us, and we'd look to see that continue to drive growth long term.

Keith Demmings:

Yes. Maybe I'll start and then Richard can add on. But certainly, we've tried to be very disciplined around expense management. Our goal this year was to hold our G&A expenses relatively flat. That means we have to overcome merit increases, additional costs for health and well-being for our employees. We've got to absorb incremental growth and incremental investment and we've tried to do that with some of the expense actions that we took in the fourth quarter last year, but also a pretty intense focus on driving digital first and automation through all of our operations, whether they were call center, claims operations or even our depots. That continues to be a huge area of focus for us. And we're really pleased with the progress we've made so far. But Richard, anything else you want to add on expenses?

Operator:

Our last question is coming from the line of Grace Carter from Bank of America.

Keith Demmings:

Yes. Maybe I'll offer a couple of thoughts and then I ask Richard to jump in. But definitely, you're correct. We do see seasonality in Q3. We also see to Richard's point earlier, lower trade-in volume in the third quarter and higher trade-in volume in the fourth quarter. So as a result, we'd expect to see an improvement in Q4 over Q3 for Connected Living. And to the extent that we've got certain mobile programs where we're on risk, obviously, we see that impact on frequency in our quarterly results in the third quarter. Now we have moved one of our clients to a reinsurance structure, which we talked about, that noneconomic contract change. That certainly will help mitigate some of that impact. But I don't think we've sized what we would expect the delta to be. But Richard, you might want to add some commentary?

Grace Carter:

And then I guess on the decrease year-over-year in Global Devices service. To what extent is that driven by the discontinuation of the in-store repair capabilities versus any other factors?

Operator:

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time, and have a...

Suzanne Shepherd:

Thank you, operator, and good morning, everyone. We look forward to discussing our first quarter 2023 results with you today. Joining me for Assurant’s conference call are Keith Demmings, our President and Chief Executive Officer; and Richard Dziadzio, our Chief Financial Officer. Yesterday, after the market closed, we issued a news release announcing our results for the first quarter of 2023. The release and corresponding financial supplement are available on assurant.com. We will start today’s call with remarks from Keith and Richard before moving into a Q&A session. Some of the statements made today are forward-looking. Forward-looking statements are based upon our historical performance and current expectations and subject to risks, uncertainties and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these factors can be found in yesterday’s earnings release and financial supplement as well as in our SEC reports. During today’s call, we will refer to non-GAAP financial measures which we believe are important in evaluating the company’s performance. For more details on these measures, the most comparable GAAP measures and a reconciliation of the two, please refer to yesterday’s news release and financial supplement. I will now turn the call over to Keith.

Richard Dziadzio:

Thank you, Keith and good morning everyone. For the first quarter of 2023, adjusted EBITDA, excluding reportable catastrophes, totaled $293 million, down $22 million or 7% year-over-year and 5% on a constant currency basis. While the results were lower than the prior year, they came in above our expectations, driven by stronger Global Housing performance. Adjusted earnings per share, excluding reportable catastrophes, totaled $3 million and $0.49 for the quarter, down 12% year-over-year, primarily from lower segment earnings, a higher effective tax rate compared to favorability in the prior period and a higher depreciation expense. Now, let’s move to segment results, starting with Global Lifestyle. The segment reported adjusted EBITDA of $199 million in the first quarter, a 12% decline year-over-year or a 10% decline on a constant currency basis. The decrease came from lower results in both Connected Living and Global Automotive, partially offset by higher investment income. Connected Living’s earnings were down 15% or 11% on a constant currency basis from decreases in extended service contracts and weaker international results. Extended service contract results were lower due to an increase in claims costs and in particular, relative to the prior year quarter, which included favorable claims experience. We expect a modest level of higher cost to persist during the remainder of the year, the level of which will depend on the broader inflation trends in the market. However, we have recently implemented rate increases with several clients, which should begin to flow through during the course of the year, mitigating the increase. In mobile, earnings were down as expected from softer international results, mainly in Asia-Pacific and unfavorable foreign exchange, both of which are expected to continue. U.S. mobile earnings were flat year-over-year as modest mobile subscriber growth in North America device protection programs from carrier and cable operator clients was offset by lower mobile trading results. Trade and margins were impacted by device mix from carrier promotions and slightly lower volumes, mainly due to the discontinuation of in-store service and repair. Sequentially, however, we are seeing improved mobile performance, including in the U.S. and Europe, as results benefit from expense management and more favorable loss experience compared to trends that emerged in the second half of 2022, while declines in Japan have started to stabilize. Turning to Global Automotive, earnings decreased $8 million or 9% and $5 million, excluding real estate joint venture gains from the first quarter. Similar to others in the industry, the auto business was impacted by a rise in severity from higher parts and labor costs that contributed to elevated claims. We expect to recover a portion of the higher claims cost over time through client contract structures though we expect elevated claims experience to persist throughout this year. The auto earnings decrease was partially offset by growth in the U.S. across distribution channels. And although higher claims costs across auto and extended service contracts are being driven by inflation, these businesses are also benefiting from higher investment income due to higher yields. Turning to net earned premiums, fees and other income, Lifestyle was up by $52 million or 3%. This growth was primarily driven by Global Automotive, reflecting strong prior period sales of vehicle service contracts. Connected Living net earned premiums fees and other income decreased 5%. This reflects an approximately $65 million impact from the previously disclosed new contract structures as well as premium declines related to mobile runoff programs. Excluding these contract changes in foreign currency, Connected Living’s revenues grew by 4%. The quarter benefited from growth in mobile subscribers in North America and higher contributions from extended service contracts. For full year 2023, we expect modest growth for Global Lifestyle, supported by the ongoing expansion of new and existing partnerships, particularly in Connected Living and accelerating expense savings throughout the year. We also expect increasing contributions from investment income and the positive impact from the actions mentioned to address rising claims cost. In terms of net earned premiums fees and other income for 2023, Lifestyle is still expected to grow modestly as growth in Global Automotive is partially offset by ongoing foreign exchange headwinds. Moving to Global Housing. Adjusted EBITDA was $68 million which included a $43 million increase in reportable catastrophes from severe weather and tornado events. Excluding reportable catastrophes, adjusted EBITDA was $118 million up $7 million or 7%. The stronger-than-expected results were driven by Homeowners’ top line performance, mainly from lender-placed policy growth as well as higher average insured values and premium rates. Policy growth was mainly from expanded loan portfolios of new and existing clients, although we do expect the client portfolio to run off our books as the year progresses. While non-cat loss experienced across all major products increased by $32 million, our performance in the quarter demonstrates our ability to more than offset the inflation impacts. Catastrophe reinsurance costs also increased in line with our expectations. In renters and other, earnings decreased from expected higher non-cat losses, which should continue throughout the year. For full year 2023, we continue to expect Global Housing adjusted EBITDA, excluding reportable cats, to grow due to improved performance in Homeowners, driven by top line expansion from higher rates and policy growth in lender-placed and by ongoing expense actions to be realized over the course of the year. We are monitoring potential changes in the reinsurance market as we place the remaining third of our reinsurance program in the coming months. Currently, we anticipate the cost to increase year-over-year, in line with our previous expectations. Lastly, we are not anticipating a significant improvement in lender-placed non-catastrophe losses until later in the year and continue to monitor the impact of inflation closely. Please also keep in mind that the second quarter tends to be a seasonally elevated period for non-cat losses. Moving to corporate. The first quarter adjusted EBITDA loss was $24 million, up $2 million driven by lower investment income. For the full year 2023, we continue to expect corporate adjusted EBITDA loss to be approximately $105 million. Given the market volatility over the last quarter, I also want to take a moment to discuss our investment portfolio. Investments cash and cash equivalents had a value of $9.3 billion at the end of Q1. The portfolio is high quality and diversified, reflecting our conservative investment philosophy. Fixed maturity investments in cash and cash equivalents represented 86% of our total portfolio. An estimated 94% of our fixed income securities are investment-grade rated. And overall, our U.S. regional bank exposure is modest. We also have commercial real estate investments across a number of investment vehicles with the overall portfolio performing well. Our assets are diversified across geographic regions and property type with low average security size and have attractive loan-to-value and debt coverage servicing ratios. For example, our commercial mortgage loan portfolio represents approximately 3% of our investment portfolio with approximately 130 loans with an average loan amount of about $2.3 million. The loan portfolio is highly diversified across the U.S., including a variety of property classes and with office buildings representing 11% or approximately $34 million of the loan portfolio and our real estate equity portfolio represents only 2% of our investment portfolio. It is also a diverse portfolio with only four office assets with a $26 million book value. We also have CMBS and REIT positions with 98% of those investments being investment-grade rated. While certainly not risk-free, we believe our investment portfolio is relatively low risk as it relates to current macroeconomic headwinds. Turning to holding company liquidity. We ended the quarter with $383 million. In the first quarter, dividends from our operating segments totaled $112 million. During the quarter, we issued $175 million in 2026 senior notes and redeemed a portion of the $225 million of senior notes due in 2023. We intend to redeem the balance of the notes on or prior to maturity in September. In addition to the $136 million of cash used for corporate and interest expenses, first quarter cash flows included $37 million of common stock dividends. For the year, we expect our businesses to continue to generate meaningful cash flow, approximating 65% of segment adjusted EBITDA, including reportable catastrophes. Cash flow expectations assume a continuation of the current macroeconomic environment and are subject to the growth of the businesses, investment portfolio performance, and rating agency and regulatory requirements. As Keith mentioned, given our performance in the first quarter and our current expectations for cash generation, we plan to resume modest buybacks as we exit the second quarter. We will continue to monitor the macroeconomic environment and adjust accordingly. In summary, our performance in the first quarter provides us with the confidence in our full year outlook. And while macroeconomic uncertainty will likely continue throughout the year, we believe the strength and momentum of our businesses and strong cash flow generation are powerful differentiators for Assurant. And with that, operator, please open the call for questions.

Keith Demmings:

Good morning, Tommy.

Keith Demmings:

Yes. So maybe I can try to take that and then certainly, Richard, feel free to add in. I’d probably point to a couple of things. I’ll set aside housing, which I’m sure we will talk about later in the progress there from an inflation perspective. Nothing really to report on the mobile side. So a lot of stability mobile-ly – in terms of the mobile business around severity. So that’s come in line fairly nicely in the last couple of quarters. We signaled some pressure on the ESC. So the retail service contract side of the business. We’ve actually been taking rate increases with our partners adjusting program coverages, but also putting rate in place. So we saw a little bit of pressure in the first quarter, which is continued, I’d say, over the last three or four quarters or so. We expect that to moderate over the rest of the year. So we’ve taken action that will start to benefit through in terms of the earned premium this year. And hopefully, that will slow down that impact over the rest of ‘23. Where we are seeing a little more pressure is on the auto side, we talked about this a little bit last quarter, but certainly elevated severities in the repair shops, both in terms of parts costs and labor costs. We’re definitely seeing that come through in our performance. As you rightly suggested, we do share risk with a lot of our partners. So the vast majority of our deals are either reinsured or profit shared. So we’re keeping a residual amount of that severity risk. We do recover that in a lot of cases through repricing with our clients, whether contractually required, which is often the case or just with the partners, we will work to try to achieve target loss ratios over time. So we’ve already started taking pricing actions. We started taking certain actions more than 6 months ago around the auto business, and that should benefit us as we flow through probably more helpful in ‘24 than ‘23, we will definitely still see some pressure this year in the auto results. We do expect to see progress in auto over the balance of the year in ‘23. We are seeing good growth in revenue. We’re also seeing help in terms of the investment income portfolio, and those are helping to offset some of the pressure on severities.

Keith Demmings:

Yes, I think as we sit here today, we’ve got a lot of confidence in our cash flow generation as a company, the strength of the business model. And I would say the positive momentum that we’ve seen in the housing business, the fact that we are seeing improving housing cost inflation indicators. We obviously had a really strong fourth quarter that repeated in the first quarter. We’re seeing some improvement in terms of inflation, and that gave us more confidence as we think about the full year outlook and our ability to deliver against that. And to your point, we’re starting a little bit earlier but we do want to capitalize on the fact that we think our stock is attractively valued, and we feel like there is a good opportunity for us to get back into the market and be more consistent with our buyback activity as we move forward.

Keith Demmings:

Great. Thanks, Tommy.

Keith Demmings:

Good morning, Mark.

Keith Demmings:

Yes, sure. I would say a couple of things to unpack with renters. Broadly, our policy counts to your point, are pretty steady over the last year we’re seeing average premium per policy, pretty steady, and really growth in the PMC channel, we’re seeing double-digit revenue growth in our PMC channel, offset by some softness on the affinity side. When you do look at the revenue for the first quarter, a couple of things I would point out. First of all, we did have an adjustment that flowed through the premium line. If I back that out, our revenue would be roughly flat in the quarter. So I think if you take something away from renters, pretty stable, consistent performance underlying revenue pretty constant compared to Q4 compared to first quarter last year. We think there is an opportunity to drive long-term growth within this business. The second thing, we did see some favorability in the quarter from NFIP, where we’re getting paid to administer claims on behalf of the U.S. government. That does not flow through the revenue line. It flows through as a ceding fee that we receive and effectively a contra commission. So the real headline from my perspective around renters is well-positioned, steady results. The loss ratios are certainly normalizing in line with what we saw in the second half and still believe we have good long-term opportunity to grow that business.

Keith Demmings:

Yes. So we certainly had a pretty high watermark in 2022 with respect to trading activity, to your point, a lot of advertising around 5G. We saw pretty consistent volumes in the first quarter so if you strip out the impact of service and repair within that device to service line, trade-in volumes are pretty constant in Q1 versus Q1 last year. We did see a little bit of margin pressure around the mix, the mix of services we provided, the clients that have flowed through. But pretty steady from that perspective, I’d say it’s still an important part of the ecosystem, clients used as an important tool to attract customers and the marketing tends to ebb and flow and very much driven by the competitive state, particularly within the domestic mobile business. The second thing I would highlight is just the strength of our device protection business, in particular in the U.S. If you look at our top clients, and we operate with obviously one of the major mobile operators, two major cable operators picked up 84% of all net ads for postpaid customers in Q1. So our clients are growing. We’re obviously participating in that growth, and that will afford us opportunity to do more services and add more value over time.

Keith Demmings:

Great. Thank you.

Keith Demmings:

Good morning, John.

Keith Demmings:

Yes. The deficit isn’t that large. We’re obviously taking action and have been taking action now for a couple of quarters to make sure that, we are in the right side that, as we move forward. As I said, I think, we will see a little bit of pressure over the next three or four quarters, offset by the strong growth in the investment income. I definitely expect to see some of that recovery coming through in ‘24. And to your point, if I think about where we’ve seen some pressure in a good amount of the cases, we’re actually going to recover that deficit on an inception-to-date basis. Where in another cases, we will achieve target loss ratios on new business. We may not get historical losses back. But there is an ability to actually recover historical losses, to your point and recapture deficits. So, feel really good about how we are positioned in auto. We work closely with our clients on pricing. We don’t require regulatory approvals to make pricing changes. So, it’s really just working in partnership with our clients to do that. We have been dealing with this for 20-plus years as an organization, and we are very good at trying to find creative solutions with our clients to normalize results over time.

John Barnidge:

Appreciate that color. And then on pricing increases, I would imagine another round for inflation guard will be coming in July. Am I correct in thinking it won’t be nearly the same degree as a year ago, but should benefit the overall premium profile?

Richard Dziadzio:

And just the other thing to add to that, John, and I am sure you are probably aware of it, but the 16% last year that takes a number of months to roll through as the policies renew themselves and new policies come in and so forth. So, that does take some time, just as when the 3% comes in, the first policies come in July when they renew that increase will come into place. So, it’s a little bit averaging as we get through the course of the year.

John Barnidge:

Thank you for the answers. Appreciate it.

Richard Dziadzio:

Thank you.

Keith Demmings:

Good morning Grace.

Grace Carter:

Hi everyone. So, I was wondering, just given that you said that the first quarter came in above expectations, but guidance remains flat. I know you all called out some seasonality in housing losses in the second quarter and obviously, inflationary pressure on claims cost across the book, but are there any sort of timing items or one-off favorable items in the first quarter that we need to consider when I am trying to square the first quarter performance versus the full year guidance?

Richard Dziadzio:

Yes. No, I think your question was well-phrased. I think we do see, as the year goes on, we can see some seasonality in claims and typically, Q1 is a little bit lower. We will see what happens. Obviously, there is inflation that’s coming down. So, that can help the claims cost due. We had some good investment income that depends what happens with interest rates as the year goes on. We did not have any real estate sales or gains in the numbers. So, there is no one-offs in that area as well. We have some good PIF counts in housing policies in force. And we do – we did mention that we see a client rolling off as the year goes down – a year goes on, that might temper the overall increase in policies in force. So, I would say more business than usual, nothing big in the first quarter to call out, Grace.

Keith Demmings:

Yes. Maybe I will start on that, Richard, and certainly, you can add in. I would say it’s really early in terms of the Florida reforms. I think long-term, it’s going to be really important for that market to improve the competitiveness and improve pricing for consumers without question. So – and we are starting to see lower AOBs coming through. So, that will take time to work through, and we will see how that emerges. But I do feel good about how that’s positioned for the future. In terms of the hard market, I would say we certainly saw PIF count grow in Florida last year. So, we had about 14,000 new policies over the course of the year because I would say largely the hard market, some of it from new clients, but a good amount from the hard market. We actually saw that begin to reverse a little bit, Grace in the first quarter. So, our PIF count in Florida actually went down a little bit. And I think that’s a sign of potentially more competitiveness into the marketplace. So, we won’t be monitoring that, but we are not expecting Florida to be a big driver of PIF from the hard market as we look forward in the rest of the year.

Operator:

[Operator Instructions] And your next question comes from the line of Brian Meredith from UBS. Your line is open.

Brian Meredith:

Yes. Thank you. Good morning, how you are all doing? So, a couple of questions here for you. The first one, you kind of described Japan starting to get a little bit better, Europe start to get a little bit better, when do you think we could start to see some year-over-year growth in global covered mobile devices in Connected Living?

Richard Dziadzio:

And I would just add to – yes, I would just say, Brian, in addition to the sub count, we have always talked about adding services to clients. So, you have the sub count and then you have what’s the services inside that. So, as we go on, we continue to innovate the products and innovate the services going into the client to provide us more revenue per client, I would say as well.

Keith Demmings:

Yes. And I think it’s as simple as we are just trying to be prudent. We work very disciplined as a company with the way we think about capital management and we are trying to get more information just in terms of how the macro picture is going to play out. Interest rates, whether there is going to be a recession, if so, when does that start to kick in? So, I just think we are trying to be prudent with our thinking on that and certainly expect as we get more information to be able to deploy more capital. But Richard, feel free to add anything else.

Richard Dziadzio:

When we look at the outlook, we do take into account, for example, more I would say, a decrease in inflation as the year goes on. We don’t take into account when we are projecting that there is any sort of hard landing of things. So, we do take into account, for example, when Keith was talking about in the conversation we had on claims service, the service charges, the claims costs going up. We do take into account that, that could continue to go up during the year when we reinforce our outlook for the quarter. In terms of capital, really what Keith was saying is right on, is that we are just trying to be prudent. When you look at the macroeconomic environment today and you look at the shaky what’s going on in some of the inflation aspects and the Fed increasing rates and the banking industry and things going on just generally, I think we are trying to be prudent and just be cautious about the steps we take. I agree with you. We have a – we are in a strong financial position. We have got a strong balance sheet. We have got a conservative investment portfolio. There is nothing today that we are sitting on looking at our investment portfolio that we are worried about, although we are keeping an eye on everything so to speak. So, it’s really from just being prudent to see how things play out over the next couple of months. But we do see us increasing the share buybacks towards the end of the year if things play out okay on the number of things we just talked about.

Brian Meredith:

Thank you.

Operator:

And that concludes our Q&A. I would like to hand back over to Keith and Richard for closing remarks.

Operator:

Thank you. This does conclude today’s teleconference. Please disconnect your lines at this time and have a wonderful day.

Suzanne Shepherd:

Thank you, operator. Good morning, everyone. We look forward to discussing our fourth quarter and full year 2022 results with you today. Joining me for Assurant's conference call are Keith Demmings, our President and Chief Executive Officer; and Richard Dziadzio, our Chief Financial Officer. Yesterday, after the market closed, we issued a news release, announcing our results for the fourth quarter and full year 2022. The release and corresponding financial supplement are available on assurant.com. We'll start today's call with remarks from Keith and Richard before moving into a Q&A session. Some of the statements made today are forward-looking. Forward-looking statements are based upon our historical performance and current expectations and subject to risks, uncertainties and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these factors can be found in yesterday's earnings release and financial supplement as well as in our SEC reports. During today's call, we will refer to non-GAAP financial measures, which we believe are important in evaluating the company's performance. For more details on these measures, the most comparable GAAP measures and a reconciliation of the two, please refer to yesterday's news release and financial supplement. Effective January 1, 2023, we realigned the composition of our segments to better manage our risk and fee-based capital-light businesses. Global Housing is now comprised of two primary lines of business, homeowners and renters and others. Certain product lines, including our lease and finance business, previously reported in housing, have been moved to Global Lifestyle to better align with our go-to-market strategy. While this change has no impact on our consolidated results, it will modestly impact the earnings trends within the segments. Our 2023 outlook is based on this realigned view. Please refer to the financial supplement for a reconciliation of certain key data for these changes. I will now turn the call over to Keith.

Richard Dziadzio:

Thank you, Keith, and good morning, everyone. As Keith has outlined, our full year 2022 performance, I will focus on fourth quarter trends, particularly as we outlined our expectations for 2023. Given some of the significant changes in foreign exchange rates during the year, I will be citing some growth rates in both absolute and constant currency terms. For the fourth quarter 2022, adjusted EBITDA, excluding catastrophes, totaled $296 million or $39 million or 15% year-over-year and 19% on a constant currency basis. Our performance reflected improved results from both Global Housing and Global Lifestyle. Adjusted earnings per share, excluding reportable catastrophes, totaled $3.56 for the quarter, up 24% year-over-year. Now let's move to segment results, starting with Global Lifestyle. The segment reported adjusted EBITDA of $166 million in the fourth quarter, a 6% increase year-over-year, but double that, or 12% on a constant currency basis. The increase was driven by higher Connected Living earnings, which grew 21% or 31% on a constant currency basis. Connected Living strong growth was primarily from three factors. First, reduced mobile service and repair expenses compared to the prior year period, second, continued modest mobile subscriber growth in North American device protection programs from carrier and cable operator clients, and third, higher investment income. As expected, strong U.S. results were partially offset by continued weak performance in Europe and declines in Japan as programs mature. In device trading, we serviced 7.5 million devices in the fourth quarter, our highest quarterly volume this year. While volumes were strong, trading results declined as margins were pressured by device mix resulting from carrier promotions. Claims cost in Connected Living overall remain steady. Although we did see some pockets of higher costs from labor and materials within our extended service contract business. In Global Automotive, earnings decreased $7 million or 10%, primarily from weaker global performance and higher claims costs. In the U.S., a higher portion of higher claims costs are expected to be recovered over time from client contract structures. The earnings decrease was partially offset by domestic growth across distribution channels. Turning to net earned premium fees and other income. Lifestyle was up $20 million, or 1% and 3% on a constant currency basis. This growth was primarily driven by Global Automotive, reflecting strong prior period sales of vehicle service contracts. When adjusting for unfavorable foreign exchange, Connected Living's earned premium fees and other income increased slightly from growth in mobile subscribers in North America, partially offset by premium declines in mobile from runoff programs. Based on the new reporting structure for full year 2023, Lifestyle adjusted EBITDA is expected to grow modestly from our revised 2022 baseline of $809 million, driven by both Connected Living and Global Automotive. Over the course of the year, we expect Connected Living to benefit from modest subscriber growth in existing North American mobile programs, as well as increases in U.S. auto. The gradual ramp-up of our new mobile and connected home programs, and expense savings from the previously announced restructuring plan should benefit results as we get into the second half of the year. We do anticipate some continued headwinds to partially offset these growth drivers. These will be more pronounced in the first half of the year. Specifically, in 2022, we benefited from a number of favorable items that are not expected to recur. These included $24 million in investment income from real estate joint venture investments, and $11 million from a client contract benefit. We also anticipate continued headwinds in our international business, particularly in the first half of the year given lower volumes in Europe, and modest subscriber declines as programs mature in Japan. In addition, unfavorable foreign exchange, which will impact both the top and bottom lines. And finally, we anticipate continued higher claims costs particularly in extended service contracts as well as less favorable loss experience for select ancillary auto products. In terms of net earned premiums, fees and other income for 2023, Lifestyle is expected to grow modestly as growth in Global Automotive is offset by declines in Connected Living and ongoing foreign exchange headwinds. Connected Living will be impacted by the implementation of two new contract structures, which we estimate will lower top line in 2023 by $230 million. It is important to note, though, that these two changes will have no impact to our bottom line. Excluding these changes, we would anticipate growth in Connected Living net earned premiums fees and other income. Moving now to Global Housing. Adjusted EBITDA was $135 million, which included $22 million of reportable catastrophes from winter storms and Hurricane Nicole during the quarter. Excluding catastrophe losses, adjusted EBITDA was $157 million, up $31 million or 25%. The increase was driven primarily by lender-placed insurance, partially offset by $15 million in higher non-cat loss experience across all major products, including multifamily housing. Lender-placed earnings significantly increased, accounting for most of the increase in housing earnings from higher average insured values and premium rates as well as policy growth. In addition, expense savings and higher investment income contributed to the increase. These items were partially offset by higher cat reinsurance costs. Based on the new reporting structure, for the full year 2023, we expect Global Housing adjusted EBITDA, excluding cats, to grow from a revised 2022 baseline of $417 million. Improved earnings performance is expected from two main drivers. First, top line growth from rate recovery and lender-placed, and second, ongoing expense actions to be realized over the course of the year. We expect ongoing elevated non-catastrophe losses, including higher seasonal weather-related claims in the first half and increased cat reinsurance costs to continue in 2023. Gradual improvement in lender-placed non-catastrophe losses is assumed later in the year. We also expect lower Multifamily Housing profitability from lower contributions from our affinity partners and higher non-cat losses as they return to more normalized levels. In terms of our cat reinsurance program, in January, we secured two thirds of our 2023 program. Similar to much of the industry, we've seen significant price increases, but the cost is relatively in line with our expectations. We anticipate elevated pricing will continue in June when we place the final third of the full program and have reflected this in our outlook. Given the significant increase in reinsurance prices, and in order to optimize risk and return, we expect our per event retention level to increase to $125 million. This incorporates the growth in lender-placed exposure, primarily from inflation, partially offset by some declines in our international risk exposure. Reflecting on these expected changes, we now believe the appropriate cat load for 2023 is $140 million. And finally, I'd also note that our outlook for housing assumes no meaningful deterioration in the broader U.S. housing market that would cause an increase in placement rates or a worsening of loss experience. Moving to Corporate. The fourth quarter adjusted EBITDA loss was $27 million, up $2 million, and was driven by lower investment income. For the full year 2023, we expect the Corporate adjusted EBITDA loss to be approximately $105 million. Turning to holding company liquidity. We ended the year with $446 million. In the fourth quarter, dividends from our operating segments totaled $89 million. In addition to our quarterly corporate and interest expenses, we also had outflows from three main items, $13 million of share repurchases, $38 million in common stock dividends and $81 million related to the two strategic acquisitions previously announced that will strengthen our position in the commercial equipment space. During 2022, Lifestyle and Housing contributed $550 million in dividends to the holding company. This was below our expectations given changes in investment portfolio values, reserve strengthening and accounting changes for non-core operations. In 2023, we expect our businesses to continue to generate meaningful cash flow. Cash conversion should approximate 65% of segment adjusted EBITDA, including reportable catastrophes. This accounts for the previously announced restructuring charges. This also assumes a continuation of the current economic environment and is subject to the growth of the business, investment portfolio performance and regulatory rating agency requirements. In summary, we continued our track record of profitable earnings growth and strong cash flow generation in 2022 despite some challenging conditions. And although we do expect to face continued macroeconomic uncertainty in 2023, we firmly believe we're well positioned to serve our current and future clients and customers and to continue to grow Assurant. And with that, operator, please open the call for questions.

Keith Demmings:

Morning, John.

John Barnidge:

Good morning. Thank you for – good morning. Thank you for the opportunity. There is definitely seems to be a lot of conservatism in the outlook as it relates to the first half of the year. How different does your outlook differ for the first half versus the second half? And why does the second half give you confidence? Thank you.

John Barnidge:

Thank you for that. And then my follow-up question. It looks like there was growth in global mobile devices protected, serviced and global protected vehicles. Can you maybe talk about that? One, maybe the upgrade cycle, market positioning and then that trade-in issue that was occurring in the third quarter, that seems to have resolved itself? Thank you.

John Barnidge:

Thank you very much for the answers.

Operator:

Your next question comes from the line of Mark Hughes from Truist Securities. Your line is open.

Mark Hughes:

Hey, good morning. Kind of along those lines, the 5G upgrade programs, I think you mentioned you're getting 70% of the net adds among your customers, that's an interesting number. Where do they stand in terms of the marketing, the push to get those 5G upgrades? Does that help or is that activity decelerating? How do you see it? A - Keith Demmings Yes, I think we saw a little bit of lower marketing activity in the fourth quarter. There were certainly some supply constraints in the market. So that affected some of the traded promotional offers that we would normally see that can bounce around and be quite seasonal and also depending on the competitive nature of the market. But there's no doubt the push by carriers to move customers to 5G, to unlimited plans, to higher-end devices continues. We'll see how that evolves in '23. We obviously had a tremendous amount of trade-in activity in 2022, a relatively high watermark. Expect to see continued strength around that as we go forward. But it ebbs and flows, I would say, depending on the dynamics and the competitive landscape.

Keith Demmings:

Yeah. If you look at the fourth quarter, and we think about lender-placed, we had about 12,000 incremental policies come into the book. So we are seeing growth in in-force policies. I'd say half of that growth is we brought on a new client, which is why you'll see loans tracked up fairly significantly. And then the other half is entirely due to what I would say is the hard market. Florida is certainly a big chunk of that as well as California and other areas. So I do think that is helping support policy growth. We saw a pretty strong policy growth for the full year in lender-placed. And none of that is really from deterioration in the economy more broadly where we might expect to see placement rates increase over time if there's a lot of pressure in the economy. It's all just the difficult insurance market. So it's definitely helping us. We're well priced with our products in those markets, and we feel we're well positioned to grow from it.

Keith Demmings:

Great.

Keith Demmings:

Morning, Tommy.

Tommy McJoynt:

Hey. Good morning, guys. Thanks for taking my questions. Yeah, so first one, can you just go into a bit more detail on some of the drivers for pausing the buyback? I guess, I think of this business really holistically is less exposed to the - some of the economic cyclicality. So it's a bit surprising to see that as the driver for pausing the capital distribution. So if you could just go into a little bit more detail on that, that would be great.

Richard Dziadzio:

Yeah. Thanks, Keith. Hi, Tommy. Yeah, I think exactly what Keith said in terms of being prudent and really wanting to see how the macroeconomic environment plays out. I'd also add that, last year, in terms of returns of capital to shareholders, it was a high point for us with a return of about $720 million when we talk about share repurchases and dividends together. So we have shown and demonstrated over time that we won't sit on excess capital for a long time, but we do want to be prudent in the markets here. And if everything plays out, we would expect, at some point, to be back in maybe late in the second half, but we'll see how things go. We want to be prudent.

Keith Demmings:

Sure. So we do business with both Verizon and AT&T and support their trade-in business domestically in the U.S. So great partnerships, actually came through the HYLA acquisition, and there's certainly long term opportunity. We talk about our business being built on deep client relationships with the world's leading brands. Those are certainly two examples of really, really important clients and brands that we can partner with. So no doubt there's opportunity over time to help them solve problems, innovate and create value for their customers. And we certainly work hard every day to serve them today, and then look for opportunities to grow with them in the future.

Keith Demmings:

You bet.

Brian Meredith:

Hey, good morning, everybody. A couple of them here for you. First, I'm just curious, Richard, maybe NII outlook here going forward in the Global Housing business? Or is there still potential upside given where new money rates are?

Brian Meredith:

That makes sense. Thanks. And then I guess my second question, Keith, you talked a little bit about the international markets and some pressure we're going to see in the first half of the year. I'm just curious what your thoughts are, and built in your expectations and guidance for kind of the domestic consumer here in the U.S. What do things look like potentially if we do go into a recession second half of the year?

Brian Meredith:

Makes sense. Thank you.

Operator:

Your next question comes from the line of Grace Carter from Bank of America. Your line is open.

Richard Dziadzio:

Good morning, Grace.

Keith Demmings:

Yeah. Certainly, and I've seen the same reports. And like I said, that would definitely have an impact on trade-in volumes if there is less devices being purchased by consumers. I still expect to see a healthy number, certainly in '23 overall, but maybe a little bit muted from '22 levels. A lot of the growth that we're getting is because our clients are actually adding subscribers. So we're seeing that through the fourth quarter as well. So from a device protection point of view, we think we're well positioned there, and we have seen meaningful growth in the last quarter as a result of that. So I do feel like we'll see strength in domestic Connected Living. And obviously, that will drive to offset some of the other factors that we talked about in 2022. So we had some help in 2022 from the items we discussed. We've got to overcome foreign exchange. And domestically, we expect our business to perform well to allow us to generate that growth in '23.

Keith Demmings:

Yeah. I think - so certainly, the housing - the reforms in Florida should be helpful to the industry over time without question and obviously looking to try to stabilize the insurance environment and really for the benefit of the end consumer try to control pricing over time. So I think, over time, that will benefit loss ratios and reduce some of the litigation. Obviously, that's not something that we're building into our forecast at this point. There's a lot of work yet to be done to see how that will roll through. I think growth in Florida for us is a positive thing. We're well priced and well positioned. And lender place is a scale business. We're tracking the loans already. So if we pick up some additional policies, we're not adding a tremendous amount of incremental expense. We've done an incredibly good job in housing in '22, actually driving down operational expenses year-over-year, even though we've seen policy growth, which demonstrates our focus on digital investments, but also the scale advantages of the business. So I think growth in Florida is a good thing for our business, and we're well positioned to take advantage of it over time.

Richard Dziadzio:

And we have been getting rate race as well. So as Keith said, it's - we have been getting a little bit more, but it's - from our point of view, it's good business. And the reforms, as you pointed out, should help over time.

Keith Demmings:

Great. Thanks, Grace.

Keith Demmings:

Hey, Mark.

Keith Demmings:

Yeah. Maybe I'll just start at a high level, Richard, and then you could add some color. But I definitely think we're - from an inflationary perspective, we're still seeing elevated claims costs, there's no question. I think where we are seeing the favorability overall is really the rate rolling through from both rate increases and average insured values, and that is obviously offsetting some of that inflationary pressure. But we definitely see inflation still, that will persist and construction inflation is different yet again from other measures of inflation. But what would you add, Richard?

Keith Demmings:

Yeah. And one - just one other point to make, and I referenced it earlier, we did see favorability - set aside lender-placed for a second, we did see favorability of loss ratios in some of our other lines, renters and some specialty products, particularly in the first half of '22. We've seen that normalize over the balance of '22 to what are more natural levels. I think we were really at kind of pandemic level lows with respect to some of the losses that we were seeing. So that also will normalize. That puts a little pressure on the first half of the year for housing and then obviously, lender-placed where we're getting a lot of rate tries to help overcome that over the course of the year.

Keith Demmings:

Great. Thank you.

Keith Demmings:

Wonderful. Well, thanks, everybody, for participating in today's call. And obviously, we'll look forward to speaking to you all again at the end of the first quarter and our call in May. In the meantime, reach out to Suzanne Shepherd or Sean Moshier, if you have any other follow-up questions. But again, thanks for the time. Have a great day.

Suzanne Shepherd:

Thank you, operator, and good morning, everyone. We look forward to discussing our third quarter 2022 results with you today. Joining me for Assurant’s conference call are Keith Demmings, our President and Chief Executive Officer; and Richard Dziadzio, our Chief Financial Officer. Yesterday after the market closed, we issued a news release announcing our results for the third quarter of 2022. The release and corresponding financial supplement are available on assurant.com. We will start today’s call with remarks from Keith and Richard before moving into a Q&A session. Some of the statements made today are forward-looking. Forward-looking statements are based upon our historical performance and current expectations and subject to risks, uncertainties and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these factors can be found in yesterday’s earnings release as well as in our SEC reports. During today’s call, we will refer to non-GAAP financial measures, which we believe are important in evaluating the Company’s performance. For more details on these measures, the most comparable GAAP measures and a reconciliation of the two, please refer to yesterday’s news release and financial supplement that can be found on our website. I will now turn the call over to Keith.

Richard Dziadzio:

Thank you, Keith, and good morning, everyone. Adjusted EBITDA excluding catastrophes totaled $240 million down 11% from the third quarter of 2021. Our performance reflected weaker results in both Global Housing and Global Lifestyle. For the quarter, we reported adjusted earnings per share, excluding reportable catastrophes of $2.81 down 8% from the prior year period. Now let’s move to segment results, starting with Global Lifestyle. This segment reported adjusted EBITDA of $166 million in the third quarter, a year-over-year decreased to 6%, driven primarily by Connected Living. Excluding an $11 million one-time client contract benefit in Connected Living, Lifestyle earnings decreased by $22 million. The Connected Living decline of $18 million was primarily from four factors. First, $7 million of unfavorable foreign exchange, mainly from the weakening of the Japanese Yen. Second, lower margins in our device trade-in business from lower volumes. However, this is expected to improve starting in the fourth quarter, which we have already seen in October. Third, our Extended Service Contracts business was impacted by higher claims cost from wage and materials, and we did make some additional investments in Connected Home and lastly, softer international volumes for mobile particularly in Japan and Europe. The decline was partially offset by continued mobile subscriber growth in North America device protection programs from carrier and cable operator clients. In Global Automotive, earnings decrease $4 million or 6%, primarily from lower investment income and higher losses in Europe. Turning to revenue year-over-year Lifestyle revenue was up by $29 million or 1% driven by continued growth in Global Automotive. Global Automotive revenue increased 9% reflecting strong prior period sales of vehicle service contracts. On year-to-date basis, our net written premiums in auto were down 2%, demonstrating the resilience of the business relative to the broader U.S. auto market, which contracted at a faster pace. Within Connected Living revenue is down 4% year-over-year due to lower revenue in mobile mainly from premium declines from runoff programs and unfavorable foreign exchange. This was partially offset by growth in subscribers in North America. In the third quarter, we serviced 7.1 million global mobile devices supported by new phone introductions and carrier promotions from the growing adoption of 5G devices. For the full-year 2022, we now expect Lifestyle adjusted EBITDA to grow high single-digits compared to 2021, led by double-digit mobile expansion and Global Automotive growth. Earnings in the fourth quarter should grow year-over-year, mainly from growth and Connected Living. Moving to Global Housing the adjusted EBITDA loss was $25 million which included $124 million of reportable catastrophes. As a retention level event Hurricane Ian was the primary driver of reportable catastrophes in the quarter, along with the associated reinstatement premiums. Excluding catastrophe losses, adjusted EBITDA was $99 million down $18 million or 15%. The decrease was driven primarily by approximately $38 million in higher non-cat loss experience across all major products, including approximately $24 million of prior period reserve strengthening. Lender placed earnings were flat as elevated loss experienced a $13 million of higher catastrophe reinsurance costs were largely offset by higher average insured values and premium rates. The placement rate increased nine basis points sequentially, mainly from client portfolio additions having a higher average placement rate. The increase is not a reflection of a deterioration in the U.S. mortgage landscape. In Multi-Family Housing, increased non-cat losses, including some reserve strengthening and an increase in expenses from ongoing investments to expand our capabilities and strength in our customer experience resulted in lower profitability. Global Housing revenue increased 3% from growth within several specialty offerings as well as higher average insured values in premium rates and lender place. This was partially offset by higher catastrophe reinsurance costs noted earlier from Hurricane Ian. For the full-year, we expect Global Housing adjusted EBITDA, excluding cats to decline by low to mid teens from 2021 with an increasing benefit in the fourth quarter from higher AAVs and rate. We are also evaluating our catastrophe reinsurance program as we approach the January 1st purchase to ensure we optimize risk and return. This may include increasing our retention level, reflecting the growth of the book of business stemming from inflation. In the meantime, we believe the implemented rate adjustments will result in higher premiums that can help to mitigate the increase in cat reinsurance costs. At corporate the adjusted EBITDA loss was $25 million up $2 million driven by lower investment income. For the full-year, we continued to expect corporate adjusted EBITDA loss to be approximately $105 million. Turning now to holding company liquidity, we ended the third quarter with $529 million, $304 million above our current minimum target level. In the third quarter dividends from our operating segments totaled $143 million. In addition to our quarterly corporate interest expenses, we offset outflows from three main items, $80 million of share repurchases, $37 million of common stock dividends and $6 million mainly related to Assurant Venture investments. For the full-year in addition to the $365 million of preneed proceeds, we expect incremental share repurchases to be on the lower end of our targeted range of $200 million to $300 million. As always, segment dividends are subject to the growth of the businesses, investment portfolio performance and rating agency and regulatory capital requirements. Turning to future capital deployment, our objective continues to be to maintain our strong financial position, while continuing to invest in our future organic growth. However, given the interest rate volatility and uncertain global macro environment, we plan to be prudent relative to capital deployment in the near future. In conclusion, while our third quarter results were disappointing, we are confident that our fourth quarter results will improve and with the additional actions we are taking to grow the top-line and leverage our expense base, we are positioning ourselves for growth into 2023. And with that operator, please open the call for questions.

Michael Phillips:

Good morning, everybody. Thanks. I guess I wanted to touch on the comments on 2023. You mentioned you expect growth in those segments. And as I compare that to your stuff you gave in February. You are pretty specific with the financial objectives of numbers by segment of EBITDA growth. Hear I believe you said if you want to reevaluate that and it sounds like, you are also expecting a Lifestyle continue to hire claim calls. So kind of want to kind of marry those and make sure we are not reading too much into your wording of reevaluating 2023 growth, as compared to your objectives before?

Michael Phillips:

Okay. Thank you. I think that makes sense. I guess when you looked at the - in this quarter, one of the segments in the Lifestyle was the mobile margins. And you talk about how that is not going to continue and can I revert, I guess you mean in fourth quarter. Can you talk about why that is?

Michael Phillips:

Okay. Thank you for all the color. I appreciate it.

Operator:

Your next question comes from the line of Tommy McJoynt from KBW. Your line is open.

Keith Demmings:

Yes. I think, you know, when we sat here at the end of the second quarter, we certainly saw pressure in the Housing business. No question that was the driver of the step down last quarter, offset by really, really strong first half. When we think about Lifestyle, you know, record year in 2021 and then an incredibly robust first half, we projected that trend line would continue and that favorability would continue. I would say, you know, the adjustment that we are talking about now is entirely sort of backing out that favorability for the full-year from Lifestyle. So Lifestyle, like I said, it is going to come in very much in line with our original expectations from Investor Day, from the beginning of the year and the real impact is FX. If I think about Lifestyle overall, I would say domestic Connected Living will finish the year very much in line with what we had expected. So a really strong year, really robust growth. Global auto will be ahead of what we originally expected, mainly driven by investment income, which we have talked about being a nice tailwind for the auto business. That favorability in auto, I would say offset by softness in underlying international business results, mainly in Europe, a little bit of pressure in Japan, and then we have got FX layered on top of that. But again, ignoring FX, pretty much in line and I would say auto outperforming and offsetting softness internationally. And then Housing is very much in line with expectations. If we think about what we expected in the third quarter, you know, Housing came in very much in line. We have made tremendous progress to transform Housing. We have reacted with urgency. I’m really proud of the way the team has come together. We have simplified the focus. You saw the exit of sharing economy. We have signaled the exit of international Housing related cat business. We are implementing a new org design to delineate between our Housing risk and capital light to increase our focus, drive even more efficiency. And then just a tremendous amount of work on offsetting inflation not just with expense discipline and prudence, but the work with AIVs that, you know, has started to take hold a little bit this quarter. A lot of progress on rate 31 approved rates with states that are implemented in 2022, several more for early 2023. So just a lot of progress there and I would say Housing pretty much in line as we think about what we said last quarter.

Keith Demmings:

Yes, we have, you know, we certainly expect the pressure in Europe and in Japan to continue. I would say, you know, obviously they are both profitable markets for us. Japan has been an incredible success story. And I think even though there is some softness in the economy, we are very well positioned in the market and there is tremendous long-term opportunity for growth and our team is doing an incredible job. So I feel really good long-term about our position there. Europe’s even more challenged, obviously with the economy and with FX in that marketplace so that we are seeing some softness. I think that persists and continues. We are taking actions to make sure we are simplifying our focus, rationalizing our expense base, but nothing that we are going to do is going to destroy long-term value, disrupt what we do with clients or customers. And then in North America, we have actually seen really robust results. You know, our subscriber counts on mobile in North America postpaid are up sequentially. They are up year-over-year, obviously with the T-mobile acquisition of Sprint. But good momentum, our clients are growing. If you think about our device protection clients in the US on the postpaid side, they are gaining a lot of net adds. I think 70% of the net adds are coming through our client - the client partnerships that we have. So that bodes well for device protection and then trade-in continues to be strong as there is a lot of competition in the broader market, particularly domestically.

Keith Demmings:

So I think, we certainly expected higher claims cost in the quarter and that came through in prior period development versus current accident quarter development and maybe Richard can share some highlights on that. But I would say that, the offset to the prior period development was the significance that we saw both in terms of rate. From AIVs a little bit, but mainly from all the rate adjustments that we have made over the course of last year and then policy growth. We have got 26,000 incremental LPI policies that came through in the quarter as well, which we can talk about. But maybe Richard talk a little bit about the prior period?

Tommy McJoynt:

Got it. Thanks.

Mark Hughes:

Yes thank you good morning. The delay on the trading activity, I got some questions on that. What was the logistical cause of the delay?

Mark Hughes:

On the reinsurance, I think you had mentioned that, you were looking at taking up your attention. Could you refresh me the timing of your renewals, I think it renews it a couple of different times through the year. How you anticipate what your early thoughts say about the cost of that program for 2023 versus 2022? And then I guess I would ask from the timing. So just timing, cost retention, if you could address those?

Richard Dziadzio:

Yes. Great. Thank you, and, good morning, Mark. So when we think about our reinsurance program full-year, this year will probably be about a 190 million in total cost in it. And how do we looking at the reinsurance program? Really, we need to look at it in terms of total Housing prices. Starting with the total Housing prices and Housing prices have gone up. Inflation has been boosting them, other factors have been boosting them. So if you think about the insurance that we put on the properties, we are putting more insurance on. And then that obviously results in us needing to purchase more insurance. So really by a kind of just a function of the overall book of business growing, we will be placing more reinsurance on the premium will grow. If you think about it having a bigger book of business and more premiums means we do have more exposure at the lower levels and a higher probability that those lower levels will be touched. So as we look at it, it's more of a proportional position that we would take and say, "Okay, well, what's the right new level for our retention?" That's why we wanted to signal that, that lower layer will probably go up. It's just kind of a logical conclusion in terms of what's been happening in the market. I would say, as we said a number of times, we are getting rate increases. We are getting increases in average insured values. So we are getting premium increases, the rise in the reinsurance costs, and we are expecting some increase in reinsurance costs given the state of the reinsurance market. That would be an offset to some of the premium increases that we are getting. So I would say sort of logical in that sense. In terms of timing, we typically purchase about 2/3 of our reinsurance at the beginning of the year and then the rest of it at mid-year. We always look at that, that proportion could change as we get into the market and see the dynamics of it.

Mark Hughes:

So it sounds like what you are seeing on rate in your judgment at this point will more than offset both the underlying inflation and the higher reinsurance costs. Is that right?

Mark Hughes:

Your SG&A in lifestyle was up a point sequentially, that number has been a little bit volatile, but any change in the economics of the agreements that you have got with the auto dealers or your carrier partners? I know you just renewed with T-Mobile. Is there maybe a little more sharing you are having to do with those partners these days?

Richard Dziadzio:

Yes, thanks Keith. Yes, exactly, exactly. And no changes to client contracts, but I would say the increase in the overall SG&A is reflecting, you know, some increases in the business growth in the business, you know, particularly in the auto business, obviously there is distribution costs with regard to that. And we have been growing the business over the last year. So there is some commissions in there. Also in our prepared remarks, you heard us talk about some additional investments in our home solutions and, you know, yes, a chunk of that obviously is expensed in the quarter. So those would be the two main drivers Mark.

Operator:

Your next question comes from a line of Gary Ransom from Dowling and Partners. Your line is open.

Keith Demmings:

Sure. And it does include the Caribbean exposure and really anything that we write internationally that is cat exposed homeowners related business, we have made the decision strategically to exit. I would say we will be done writing policies. Most of it will be done this year. There is a little bit that will finish at the end of the first quarter, but we won’t be writing new policies as of Q2 2023. And then depending on how some of the final discussions unwind, you know, maximum, we would have a 12-month runoff on those policies, in some cases shorter. So that is to be finalized and determined. But in terms of the scale of it, I would think about, you know, maybe $50 million in net earned premium in a year as being kind of typical probably takes 10% of our tower. So if you think about the tower that Richard talked about, our reinsurance tower, 10% of that goes to protect the international exposures. And strategically it is been a challenging market hard to get rate. There has been rising costs as we know of claims. We expect rising costs of reinsurance adds a lot of complexity to not only manage the business, but negotiate the reinsurance that backs it. And ultimately with modeled ALLs, fairly limited effect to all-in EBITDA, certainly EBITDA ex-cat, but all-in EBITDA with cat, not hitting our target levels of return risk adjusted. So we are making the decision to further simplify and focus in places, where we think we have clear competitive advantages and where we are differentiated. We are not just a risk taker, we are providing deeply integrated, more differentiated services. That wasn’t the case with this business and we weren’t able to get the returns we wanted.

Keith Demmings:

No.

Keith Demmings:

Yes, separate homeowners, some of it were a reinsurer, some of it were direct writer. But none of it connects to what we do in LPI. An LPI is really unique. It is an incredibly advantaged business in terms of how we operate, how we are integrated and we create much more value than just being a risk taker. And we are able to get rate and we are able to drive the right level of profitability over time in that business. So it is quite a different business to manage versus what we have been working within the international property side.

Keith Demmings:

Yes, I think that is exactly right. If we think about the EPG acquisition and then the acquisition that we are talking about now, it is really to build on the strength that we have got in that market around commercial equipment, leased and finance equipment. We have had good results and strong growth. And we operate this business both in our Housing side and Lifestyle side. So we are going to evaluate how to drive more synergies through the organization, as we move forward. But absolutely, it is capital light fee income. We are talking about small tuck-in acquisitions of existing clients that are high performing. We are already underwriting the business and it is really just buying the administrative capability and the scale to drive that forward. So we definitely see growth in this line of business, and we think it can accelerate as we make some - what are really quite small acquisitions, but can add a lot of value to our franchise.

Keith Demmings:

Very much. I think we write two different product lines when we think about heavy equipment and commercial equipment, some of it is service contracts, some of it is physical damage. Operates very consistently, really predictable strong profitability and that has been the legacy of how we have been set up as an organization. So one of the things that we are focused on now is, as I talked about some of the Housing realignment between risk-based homeowner’s business and fee income capital light is just thinking about how do we create maximum efficiency and effectiveness organizationally, how do we create clarity in terms of where we want to focus to drive growth? What is the mindset that we need leading various different products? And then make sure that, we have got the least amount of friction in how we are organized as possible. So more changes to come as we think about our go-to-market strategy longer-term.

Keith Demmings:

Yes, I think it probably - we step back and reflect on just how uncertain and complicated the environment is. That is true for Assurant and it is true for most companies today. So there is a lot of market volatility, market uncertainty. Interest rates are moving quickly. The economy obviously is going to shift over the course of the coming quarters, and we will see how that lands. So there is just a recognition of the complexity. And then like I talked about earlier, we knew Housing was going to be weaker this year. We thought the outperformance in Lifestyle would make up that gap as we thought about 2024. We certainly expect to continue to see the Housing growth. It is no doubt going to grow as we think forward over the next couple of years. But the question mark is around can Lifestyle outperform at the level that we would have needed to in order to offset that Housing softness? And Housing is probably more of a delay than a pivot in terms of what our expectations are. It is really just that we are a year behind where we thought we would be. But we are seeing evidence of significant improvement. And I think right now, given the uncertainty is particularly in the international markets, just taking a step back, like I said, finish the fourth quarter, deliver on a really strong plan in terms of what we expect to accomplish in 2023 relative to expenses as well as driving the right outcomes with our clients. And then stepping back and revisiting what is possible as we think about the longer term and then providing some color on a more informed basis in February.

Keith Demmings:

You are welcome.

John Barnidge:

Good morning and thank you very much. You have had expanded partnerships in the lifestyle business announced this year. I had a couple of questions on that. In light of inflationary pressures, one, can you talk about how you manage that inflationary volatility? And then can you contrast that with - could that pressure actually lead to more partners looking to outsource more of their service management and refurbishment of mobile devices?

John Barnidge:

Thank you. That is helpful. And then following up on that, wanted to go back to, you know, the pre-announcement. You talked about simplifying the business portfolio. You talked about exiting commercial liability and international Housing catastrophe. Have you completed that simplification of the business portfolio or could there be additional niche lines you look to exit in the near to intermediate term?

John Barnidge:

Thank you very much. And my last question, you talked about $12 million in buybacks in October. Does that seem like a reasonable run rate for the fourth quarter given the M&A transactions?

Richard Dziadzio:

Yes. I guess, just to add on to what you said, I mean, in terms of share repurchases this year, we are already through October at little than $550 million in addition to that, $113 million in dividends. So that brings us to about say $670 million. So we had targets at the beginning of the year. We wanted to make sure we hit them for the year. And I would say we have hit them, which is why we signaled we would be at the lower end of that $200 million to $300 we had talked about earlier in terms of repurchases outside of the Preneed proceeds that we repurchased. And as Keith said, it is uncertain market conditions, and we want to make sure we continue to invest in ourselves and we continue to do the right things and remain disciplined with capital. So no change in our philosophy, our capital philosophy, the discipline we have, keeping the balance sheet very strong. As Keith said, we have always said, we always look at deployment of capital between share repurchases and M&A and in these markets with the share price where it is, the share price obviously from our perspective is extremely attractive today. So that creates a higher bar for M&A.

Keith Demmings:

Great. Thank you.

Jeff Schmitt:

Good morning everyone. In Global Lifestyle, I understand the inflation impact being low on the claims side just because you don’t retain a ton of the risk. But what about for SG&A? How much of that is employee comp and what level of wage inflation are you seeing there kind of relative to last year?

Jeff Schmitt:

Okay. And then in Global Housing, I’m just trying to understand the numbers. When I adjust for add back that reinstatement premium, brings that attritional loss ratio down to I think 38%. And then if you back out the unfavorable development, it brings it down quite a bit more, 33%, 34%. So I’m trying to understand, you are talking about the pressures that you are seeing there. I think you are pushing for double-digit rate increases. I guess where is that pressure being felt or I guess why is that sort of loss pick as low as it is?

Richard Dziadzio:

Yes. And I would start, it is a great question, Jeff. I think - I would first start by - when we go in for rate increases, we are looking at it kind of bottom line. So you have to take in - you are looking at the non-cat loss ratio. I think you have to look at all-in. If you look at our combined ratio for the quarter with Hurricane Ian, it is over 100%, obviously. So that will be taken into account when we go and go for rate increases. And essentially, what we end up doing with our non-cat loss ratio, there are a couple of different moving parts. If you think about it from a net earned premium part, we have cats that the reinstatement premium, we have to add that back, but also from the incurred claims, we have to take out the prior year development. When we add back the cats and we get to kind of like from a 68% that you see in the supplement to about 45%, and then we take out the $24 million of prior period development, we get to about 40%. You are a little bit lighter. So there is maybe a numerator/denominator thing. But I think your point is a good one. You would say 40%, that looks low. But it is really the all-in cost, including cat, including the expenses, the tracking, et cetera, that are taken into account when we go for rates. So it is a bigger number on an all-in basis.

Keith Demmings:

Thank you.

Grace Carter:

Hello everyone. So I was wondering in the Lifestyle book, just given how much of that risk that you don’t retain, it seems like inflationary pressures have been a bit more persistent than maybe a lot of people originally hoped. I know that you had mentioned in the past that you hadn’t really been seeing too much pushback from your clients regarding your profit sharing and reinsurance arrangements. I was just wondering if given the persistency of inflationary pressures and that actually started to show a little bit in the results in the quarter, if those conversations had evolved any in the past few months?

Grace Carter:

Perfect, thank you. And I guess just kind of thinking of how the Lifestyle book has evolved over time, moving from sort of more of the protection in towards more fee-based services. I mean is the recent emphasis on growing fee-based services like trade-ins, upgrades, whatnot change the level of macro sensitivity today versus maybe what we have seen in downturns in the past or do you consider it to be pretty even?

Grace Carter:

Thank you.

Operator:

Thank you. This does conclude today’s teleconference. Please disconnect your lines at this time and have a wonderful day.

Suzanne Shepherd:

Thank you, operator, and good morning, everyone. We look forward to discussing our second quarter 2022 results with you today. Joining me for Assurant's conference call are Keith Demmings, our President and Chief Executive Officer; and Richard Dziadzio, our Chief Financial Officer. Yesterday after the market closed, we issued a news release announcing our results for the second quarter of 2022. The release and corresponding financial supplement are available on assurant.com. We will start today's call with remarks from Keith and Richard before moving into a Q&A session. Some of the statements made today are forward-looking. Forward-looking statements are based upon our historical performance and current expectations and subject to risks, uncertainties and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these factors can be found in yesterday's earnings release as well as in our SEC reports. During today's call, we will refer to non-GAAP financial measures, which we believe are important in evaluating the company's performance. For more details on these measures, the most comparable GAAP measures and a reconciliation of the two, please refer to yesterday's news release and financial supplement that can be found on our website. We have revised all quarterly and annual results for full year 2020 through first quarter 2022 periods to reflect the change in the adjusted EBITDA calculation to exclude certain businesses that we now expect to exit fully, including our sharing economy and small commercial businesses and Global Housing as well as certain legacy long-duration insurance policies within Global Lifestyle. Results have been revised for the correction of any errors related to reinsurance of claims and benefits payable within the Global Lifestyle segment that occurred in late 2018 through first quarter 2022 as well as other immaterial corrections. The impact of these changes individually or in the aggregate, is not material to results for any prior period. A full reconciliation of certain reported and revised key measures of performance and metrics is provided in our second quarter financial supplement posted on assurant.com. I will now turn the call over to Keith.

Richard Dziadzio:

Thank you, Keith, and good morning, everyone. Adjusted EBITDA, excluding catastrophes, totaled $277 million, down 8% from the second quarter of 2021. As Keith mentioned, performance reflected the strong growth across global lifestyle and weaker results in Global Housing. For the quarter, we reported adjusted earnings per share excluding reportable catastrophes, of $3.25, flat from the prior year period. The 2021 baseline for lifestyle and housing adjusted EBITDA has been updated to remove noncore operations and reflect the accounting correction, Suzanne noted to our prior period results. Now let's move to segment results, starting in Global Lifestyle. The segment reported adjusted EBITDA of $207 million in the second quarter, a year-over-year increase of 12% driven by growth across both Connected Living and Global Automotive. Connected Living earnings increased by $12 million or 11% year-over-year. The increase was primarily driven by continued mobile expansion in North America device protection programs from cable operator and carrier clients, including subscriber growth and more favorable loss experience. This was partially offset by unfavorable foreign exchange. In Global Automotive, earnings increased $10 million or 15%, primarily from higher investment income, including higher real estate gains and yields, favorable loss experience and select ancillary products also contributed to the results. As we look at revenue, Lifestyle revenue was up by $48 million or 3%, driven by continued growth in Global Automotive. Global Automotive revenue increased 7%, reflecting strong prior period sales of vehicle service contracts. Despite the overall U.S. auto market showing signs of slowing, our net written premiums remained strong even against the record second quarter of 2021, as additional dealerships and strong attachment rates are offsetting the market headwinds. Within Connected Living, revenue was down slightly due to lower revenue in mobile, mainly from premium declines from runoff programs and unfavorable foreign exchange. This was partially offset by growth in subscribers in North America and higher mobile fee income driven by global mobile devices serviced. In the second quarter, the number of global mobile devices service increased by $1.1 million or approximately 18% to $7.2 million. This was due to higher trading volumes, supported by new phone introductions and carrier promotions from the growing adoption of 5G devices. In terms of mobile subscribers, growth in North America was partially offset by declines in runoff mobile programs previously mentioned, which also impacted mobile devices protected sequentially. For full year 2022, we now expect lifestyle adjusted EBITDA growth to be mid- to high teens compared to 2021 baseline of $702 million. Mobile is expected to be the key driver of adjusted EBITDA growth for global expansion in existing and new clients across device protection and trade-in and upgrade programs. This will be partially offset by unfavorable impacts, from foreign exchange and strategic investments to support new business opportunities and client implementations. Auto adjusted EBITDA is expected to grow for the full year. But earnings in the second half are expected to be lower than the first half, mainly due to the absence of $14 million of real estate gains. Growth for the year will be partially offset by higher investment income and more favorable loss experience in select ancillary products. Moving to Global Housing. Adjusted EBITDA was $75 million, which included $20 million of reportable catastrophes for the second quarter. Excluding catastrophe losses, earnings decreased $40 million, primarily driven by $25 million in higher non-cat loss experience, largely in lender-placed and to a lesser extent, Multifamily Housing. This included $12 million in year-over-year reserve strengthening and higher fire losses in the quarter. The balance of the earnings reduction was driven mainly from $17 million in higher catastrophe reinsurance costs. The cost of our reinsurance program reflected both the higher exposures and increased pricing within the reinsurance market. And with the completion of our 2022 catastrophe reinsurance program in June, we believe we fared relatively well in the market given our strong relationships with our more than 40 reinsurance partners. We maintained an $80 million per event retention including second and third events. We also continued to benefit from the placement of multiyear coverage covering 45% of our program and a cascading feature that provides multi-event protection. In Multifamily Housing, growth in our P&C channels was offset by increased non-cat losses and expenses from ongoing investments to expand our capabilities and further strengthen our client experience. Global Housing revenue was flat year-over-year as higher catastrophe reinsurance costs were offset by higher average insured values and lender placed. For the full year, we now expect Global Housing adjusted EBITDA, excluding cats, to decline by low to mid-teens from the 2021 baseline of $512 million. In addition to the higher claims costs, REO volumes have continued to be muted and placement rate trends we are seeing are softer than originally expected. At the same time, we continue to realize expense efficiencies from new system enhancements and strength in digital capabilities. While the duration and magnitude of inflationary trends remain fluid, rate filings and inflation guards are expected to start to flow through premiums as we exit the year. At corporate, adjusted EBITDA loss was $25 million, up $8 million compared to the unusually low second quarter of 2021. This was mainly driven by higher employee-related and technology expenses. For full year 2022, we expect the corporate adjusted EBITDA loss to be approximately $105 million. Turning to holding company liquidity. We ended the second quarter with $595 million, $370 million above our current minimum target level. In the second quarter, dividends from our operating segments totaled $189 million. In addition to our quarterly corporate and interest expenses, we also had outflows from three main items

Michael Phillips:

So I guess I want to talk on the inflationary pressures you're seeing on the lender-placed, but can we switch that over to the lifestyle side? And anything that you're seeing there on either Auto or Mobile, maybe you can talk about how much risk you retain on that side. It's clearly not 100%. But anything that you're seeing there that might cause pressure from inflationary pressures there? And if so, kind of your ability to combat that?

Michael Phillips:

Okay. Okay. You mentioned, Keith, on the opening comments about -- on the lender-placed side, in inflation guard and then you also mentioned double-digit on renewals. Was that the same -- was that double digit? Was that the inflation guard? Or is that on top of the inflation gaurd?

Michael Phillips:

Is there any difference in here, can you maybe just talk about the difference that you have in those other rate filings by state that you're alluding to, different than a traditional, say, homeowners insurance company where the clients are individuals like me and you, your clients knowing your place are a little different. So does that give any differences in the ability, the speed at which or the ability to take higher rate and the speed that you can take them than maybe a traditional insurance company?

Michael Phillips:

Congrats, and best of luck in the future.

Jeffrey Schmitt:

What is your view on where the placement rate in the lender-placed business could go next year if we move into a recession, whether we're in one now or not, let's say, sort of a deeper recession if interest rates continue to move up, could that move above 2% pretty quickly? Or where do you think that could go?

Jeffrey Schmitt:

Right. Okay. That makes sense. And then the expense ratio in Global Housing continues to run above 46%. I think in the past, you've guided to sort of 44% to 46%. Is there some kind of inflation driving that higher? Or when do you think it could move below that 46% level?

Richard Dziadzio:

Yes. Yes, it's a great question. It is up a little bit over the last quarter to 46%. So I think you're right. It's a little bit higher than we'd like to see it. We are -- we've talked about in previous calls. We are investing digitalization in projects like that, create more efficiencies, as Keith said in his opening remarks. So we would see that, I would say, over time as these projects and these efforts come through. Also, the first question on placement rates as the volumes of the business grow, obviously, the things that we have in place in our operations are very leverageable. So that would also bring down the expense ratio over time.

Tommy McJoynt:

So what are the expectations for the noncore operations loss contribution going forward? Is that meant to be more of a breakeven? I know it's excluded from the guidance. And what's the general time horizon for that wind down?

Tommy McJoynt:

Okay. And I guess, as you kind of explored what to do with those businesses, there was no way to sort of monetize what you've built there. And I guess, just you have typically been kind of sellers and ways to monetize things, there just wouldn't be any kind of takers for those businesses?

Operator:

Your next question comes from the line of Mark Hughes from Truist Securities.

Keith Demmings:

Yes. So a couple of things. First of all, I would say we feel like we're really well-positioned in the retros business. We've got 2.6 million customers. So it's giving us a great opportunity in terms of market leadership, scale. We've been investing in the customer experience, deepening our expertise. So we do expect long-term growth. It's a very attractive part of the market. I would say in terms of the results being flat, we do have strength in growth within the property management company channel. So that continues to grow exceptionally well. We're gaining share. We're driving attach rates, and we're having a lot of success with our Cover360 product, really just more integrated into the byflow. We've talked about better digital tools, collecting the insurance as part of the rent and just leveraging our full capability. So that's going extremely well. We have an affinity portion of our business, which the growth has slowed where we partner with insurance companies. I think as insurance companies have been focusing on getting rate and dealing with inflationary pressures, a little less marketing generally with some of our partners. So I think that normalizes over time as the economy finds more stability in the future. But we are seeing growth, and we do think long-term growth will emerge as we continue to focus on this part of our business.

Richard Dziadzio:

Yes, sure, Mark. Yes. First of all, I would say that rising interest rates overall are good for the business, and we've been seeing that in this quarter as well. We've had some real estate gains, as we mentioned in our remarks, but we also have fixed income and yields on fixed income raising. We have a 5-year duration. So think about 20% of the portfolio rolling over every year. So we won't have any quantum step in terms of long-term rates and long-term yields. But it will gradually increase over time, which is a good thing. I think you probably saw the yield for this quarter over 3.5%, which is quite good. What's interesting too about it is if we look at our book of business, if we go back a year from now, the assets that were coming to maturity or the fixed income coming to maturity, we're rolling over at lower levels than they were maturing at. Now they're rolling over for the most part at higher levels. So that bodes well for the future. And short-term rates, yes, we have some of our money and cash, obviously. And we're getting an immediate impact on that. Obviously, smaller dollars given a smaller level of cash that we have relative to the fixed income portfolio.

Keith Demmings:

Yes. I think as we look at the year at 3% to 6% in terms of our EBITDA growth. We certainly expect that to be increasing as we move into 2023. And I'd say, largely, we do expect the lender-placed business and Housing overall to continue to improve as we get more rate. And then we do have great momentum in Lifestyle. So we haven't set the specific target for 2023 and 2024. What we have said is on average, we want to deliver north of 10% EBITDA growth. We're still committed to our long-term objectives from Investor Day, which I think is really important. And we're going to do everything we can to deliver those results and be accountable to delivering our financial commitments.

Keith Demmings:

Yes. So the policies are annual, and they renew it each year. So if you think about, let's take July, for example, we put in place double-digit rate increases for the cohort of annual policies that renewed in July. So think about that rate going in 1\12 at a time over 12 months and then think about it earning 1/12 at a time after it's in place. So the whole cycle takes 24 months, but it builds momentum month by month by month. And then we've also got, as I said, state-related rate increases that go in at different periods in the year. That's also contributing. And I mentioned 30 approved rates really affecting about 75% of our premium overall and then a number of additional filings that are ongoing. So we do feel like we've got a great opportunity with rate, it's a terrific mechanism and designed to deal with inflationary pressures. And we expect it to work, and we expect to get the housing business where it needs to be from a total return perspective. The one thing that's interesting, if you think about Housing, and it's a tough quarter, right? We're not pleased with the results in the quarter. The first half housing combined ratio is 86%. The first half annualized ROE, it's 20.6%. That will normalize as we get through the rest of the year. But we still think it will be quite strong overall, given we're underperforming our own expectations. So I do want to highlight that as the backdrop. It is a strong business. It generates tremendous cash flow. We've got great market-leading advantages, and the financial performance is still strong. It's just not where we want it to be to deliver on our total commitments.

John Barnidge:

You talked about a -- signing a multiyear renewal with a cable operator. Last quarter, you also talked about an expanded relationship. Can you talk about maybe what the renewal calendar looks like? And how do you think about potential hit rates for expanded relationships as you come up on renewal?

John Barnidge:

And then as it relates to expanded relationships similar to what you announced today and then in the first quarter, how do you think about the potential to leverage what you've done so far?

John Barnidge:

Great. And then if I could ask one more question. On the expense initiatives that you talked about, which should help to offset inflation. Is there a way to size or dimension how we should be thinking about these scale economies?

Operator:

Your next question comes from the line of Brian Meredith from UBS.

Keith Demmings:

Yes. I think from a mobile perspective, I would say that, first of all, there still seems to be very strong demand for high-end smartphones in key markets, even as we see pressure in the economy. The high-end smartphone market is up year-over-year, and it's up in our core markets. So that's a really good thing. We see clients continuing to push for growth today to take advantage of their investments in 5G and the relevance of the mobile device today, it's increasingly important for consumers. So that's helpful backdrop. I would say that the majority of our total economics in mobile are driven by our device protection subscribers. We've got 63.5 million global subs. Whether a customer buys a new device or retains their old device, it doesn't move that number a significant amount. Obviously, if our clients are growing or shrinking in terms of net adds, that can have an impact over time, but fairly moderated and based on the nature of the subscription service. Where I would see more pressure would be potentially less trade-in activity, if there were less mobile phone sales, which we certainly haven't seen. Mobile phone sales are strong, trade-ins are very strong, but that would be the leading indicator if trade-in starts to slow down. That's not a big driver of total economics. The counterpoint would be used devices will become more valuable, more attractive, and there may be other ways for us to monetize it. So I think mobile is relatively protected from any kind of short-term shocks from a recessionary environment.

Keith Demmings:

No, I don't think so. I think we've seen really steady attach, really steady churn. I think consumers are inclined to protect high-end devices generally. And certainly, if there are more strap for cash having protection in place is probably a good thing. But we haven't seen through economic cycles, really material changes in terms of the attach of the churn over time. So we don't expect that would be a big driver.

Keith Demmings:

Yes. Definitely, there is some incremental increases in the non-cat loss ratio. Certainly, a little bit of that is inflation. But I would say, broadly, it's more getting to in-line with pre-pandemic. So we saw more favorability in loss ratios as people were home more during the pandemic. I think we've seen that normalize. And obviously, we get rate adjustments on that product line, too, as needed and as justified. But I don't see a huge inflationary impact. It's more just lining up with historicals.

Keith Demmings:

Correct.

Richard Dziadzio:

Yes. When we back out the reserving that we did, the strengthening of the reserves that we did, we're getting closer to the low 40s. I would say -- on the other hand, call it 43%. On the other hand, what I would say, as Keith articulated earlier, we do have inflation coming through. There will be a lag in terms of when the rates and inflation guards come through. So I wouldn't see that rate coming down so faster than that, faster than 43% or lower than 43% any time kind of in the next quarter. I think over time, we're going to see that improve and probably go closer to 40% as we go through the end of the year into next year, so forth. It's hard to predict because, obviously, it's hard to predict what inflation is going to do for the rest of the year. But essentially, as we're looking forward at our forecasting, that's what we're looking at.

Grace Carter:

So I just had kind of a quick clarification question to start from one of the prior questions. I guess thinking about the original adjusted EBITDA growth targets for 2023 and 2024, I think average of 10%. And I mean just thinking about like the lower base, I guess, expected for 2022. I mean is -- should we just assume that the 2024 adjusted EBITDA levels will come out a little bit lower than maybe the original growth expectations implied? Or I guess, what is the likelihood that EBITDA growth over the next couple of years could accelerate sufficiently to get it kind of back in that original range?

Grace Carter:

And then, I guess, I just wanted to confirm that the -- kind of target combined ratio range that Doug mentioned before, I think 84% to 89% in the housing book still holds even with the exit of certain businesses? And I guess just kind of how should we think about the ability to stay within that range over the next few quarters as -- just given the pressure from inflation, versus still kind of waiting for the rate increases turn through?

Operator:

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time, and have a wonderful day.

Suzanne Shepherd:

Thank you, operator, and good morning, everyone. We look forward to discussing our first quarter 2022 results with you today. Joining me for Assurant's conference call are Keith Demmings, our President and Chief Executive Officer; and Richard Dziadzio, our Chief Financial Officer. Yesterday, after the market closed, we issued a news release announcing our results for the first quarter 2022. The release and corresponding financial supplement are available on assurant.com. We will start today's call with remarks from Keith and Richard before moving into a Q&A session. Some of the statements made today are forward-looking. Forward-looking statements are based upon our historical performance and current expectations and subject to risks, uncertainties and other factors that may cause actual results to differ materially from those contemplated value statements. Additional information regarding these factors can be found in yesterday's earnings release as well as in our SEC reports. During today's call, we will refer to non-GAAP financial measures, which we believe are important in evaluating the company's performance. For more details on these measures, the most comparable GAAP measures and a reconciliation of the 2, please refer to yesterday's news release and financial supplements as well as the Investor Day presentation materials that can be found on our website. I will now turn the call over to Keith.

Richard Dziadzio:

Thank you, Keith, and good morning, everyone. Adjusted EBITDA, excluding catastrophes, totaled $302 million, equal to the first quarter of 2021. Performance was driven by strong growth across Global Lifestyle, which was offset by higher non-cat loss experience in Global Housing, primarily from our specialty offerings. For the quarter, we reported adjusted earnings per share, excluding reportable catastrophes, of $3.80 , up 17% from the prior year period, driven by buybacks and a $9 million nonrecurring tax benefit from one of our international businesses. Now let's move to segment results, starting with Global Lifestyle. This segment reported adjusted EBITDA of $217 million in the first quarter, a year-over-year increase of 13%, driven by continued earnings expansion in both Connected Living and Global Automotive. Connected Living earnings increased by $16 million, or 13% year-over-year. The increase was primarily driven by continued mobile expansion in North America device protection programs from cable operator and carrier clients, including more favorable loss experience and subscriber growth as well as an increase in global mobile devices service, including higher trade-in volumes from continued carrier promotions. In Global Automotive, earnings increased $9 million or 12% from 3 items

Michael Phillips:

First question is on the comments, Keith, you made about the expanded partnership with the retail. How much -- anything you can quantify there and how that might impact the outlook for 2022?

Michael Phillips:

Okay. Congrats on that. Second question is just again on the outlook and maybe trying to get into some of the drivers behind that. Specifically, can you say to what extent you have -- in the Lifestyle, mobile business, what's your outlook for mobile sales for the year? And how does that influence your outlook for the year there?

Michael Phillips:

Okay. Last one for now. On the specialty business and the charge there. Actually, Richard, you alluded to some steps you're taking to improve the performance there. Can you kind of talk about what are the things you're doing there to make sure that doesn't happen in future results.

Keith Demmings:

I was going to say, why don't you talk a little bit about some of the work that we're doing, Richard, and I'll talk more strategically.

Keith Demmings:

Yes. The only thing I would add, I think the business that we're writing today, to Richard's point, the team has done a really good job modifying pricing, terminating certain partnerships that we didn't think were going to pay off long term and changing deal structures, changing the terms and conditions around the products. There's been a lot of good work done. The charges that you're seeing flow through for the most part relate to business that's since been modified through a lot of those actions that we've taken. I'd say the underlying profitability on the business we write today, new business that we're putting on the books is significantly better than the historical. So that's definitely a good thing. But the team is not happy overall with how this business is performing at the moment. So we're definitely looking at it very closely. One of the strategic I guess in terms of the thesis with this business was not just giving us access to the gig economy, really fast-growing kind of emerging marketplace that we thought was really interesting, a place where we could innovate and develop some new distribution opportunities. We also thought there would be opportunities to provide additional coverages, like mobile protection, vehicle service contracts. Those are pretty important types of coverages for a gig economy worker, that hasn't materialized to this point. That was part of the strategic rationale and the thesis behind entering this marketplace. So obviously, we're evaluating whether those opportunities can exist for us in the future. So more work to be done. To Richard's point, we're not happy with the results. We're definitely going to be making sure this business is built to deliver the economics that we would expect based on the risk reward trade in the marketplace.

Gary Ransom:

I had a couple of questions on the interpretation of the new items that you're giving in the earnings. One is the EBITDA margin. I know in the past you've talked about how different contracts have different revenues versus different margin levels based on how they're structured. Is there any different way I might interpret the 11% margin that came in, in Lifestyle? Or are those -- just how are you thinking about that?

Keith Demmings:

Go ahead, Richard.

Gary Ransom:

And the other one I wanted to ask about is the mobile devices service, which you did talk about it being up strongly year-over-year. But there also seems to be some seasonality, the decline sequentially. Can you just remind us what the -- how to think about the sequential seasonality for that measurement?

Operator:

Your next question comes from the line of Mark Hughes from Truist.

Keith Demmings:

Yes. I mean, first of all, I'm really happy with the overall performance of the auto business, and it was a particularly strong first quarter, not just in terms of the ultimate profitability of the business as we look at the EBITDA growth that we were able to deliver. But also just in terms of the performance on a net written premium basis, if you look at revenue was up 9%, net written premium was up 4%, and that's dealing with Q1 auto sales this year, which were down 12% versus Q1 last year. So I would say that our team is outperforming the underlying results within the auto industry in terms of car sales. So I think that's really positive. That's a testament to the I think the breadth of our client partnerships, the fact that we've got really, really well diversified distribution channels and our partners are being successful in the market, and they're gaining share. So that's helped us significantly. And our teams are also expanding our own market share just because of the scale and breadth of our offering. So feel really good about automotive broadly. Covered vehicles is relatively flat, as you mentioned right now, but we are seeing underlying growth in net written premium, which to me is a really good sign. And we'll see what happens with the auto industry. I certainly expect, at some point, there's a lot of pent-up demand for new vehicles. And as new vehicles become more readily available, obviously, we'll start to see the benefits of that flowing through on the new vehicle side. That will probably alleviate some of the pricing pressure on the used car market. Used car markets are extremely elevated right now and that too should normalize. So -- but again, I feel like there's definitely upside in this business over time, particularly as we look at interest rates today. We had favorability in the quarter, both from interest rates as well as from the underlying performance and growth of the business. And certainly, that's an opportunity as we look forward.

Keith Demmings:

Yes. I think we -- first of all, we really like the renters business. We've got a strong market position. We cover 2.6 million renters. So we've got a really nice market share as well, and it's been growing historically over time. And the renters market has also been growing. If we look back just because of attach rates improving historically. So I really like the position that we're in. You're correct. We saw a little bit slower growth in the quarter. Slower growth from some of our affinity partners offset, I would say, by really favorable strong growth within the PMC channel. We've talked before about the success we're having with Cover360 with our property management partners, where we've got just a more much more integrated solution into the buy flow with better digital access. Premiums for renters are collected as part of the rent. So there's a lot more opportunity for us to continue to grow in that market as we scale that solution and as more clients adopt it. So I do expect this business to drive long-term growth. It's a key focus. We continue to look for ways to differentiate our solutions and then broaden distribution, and that's going to be a key focus for the team as we move through the year.

Richard Dziadzio:

Yes. Thanks for the question, Mark. I mean definitely, the increase in interest rates is a positive thing for us, both long term and short term. So we are benefiting from that, and we'll continue to benefit from that as kind of the book rolls through, so to speak, and the assets come to maturity. So very, very positive news for us. I would say -- in terms of your question on run rate, I wouldn't necessarily take this as a run rate because in this quarter, let's say, we're up about $8 million over the prior year quarter. That's coming part from some real estate gains. So part from interest rates and investment income coming from the fixed income book, but also part from real estate gains. We had a few million dollars of real estate gains in there, just a little under 5, I would say. So part of that, I would consider a little bit of a one-timer. But the rest of it is good news and hopefully a harbinger of things to come as interest rates continue to stay at an elevated level and even increase as we've seen over the last couple of months.

Tommy McJoynt:

So it sounds like just kind of going back to the sharing economy and on delivery products that further reserve strengthening this quarter. So while it's a growing kind of exciting piece of the economy, to the extent that you do deem that it's unlikely to meet your return hurdles? Or if you think that cross-selling to those gig economy workers just looks too challenging. Can you talk about what a wind down of that business would look like? I know in the past, you've exited things like small commercial that didn't meet your return hurdles. So just kind of how material is that business? And is it a profitable business right now? Or is it a drag? Just kind of any more kind of numbers you can put around that?

Richard Dziadzio:

No. I think your last comment is the one I would underscore for Tommy, which is it was a business that we started 5 years ago as an incubator to innovate and see if there was a part to get into the gig economy that way and see that. Over time, with 5 years, the overall profitability, I would say, has been fairly neutral for us. The new contracts that we have in place are profitable. And so that's what we're going to dive into is to say, okay, well, do we have something here that we can build upon? Or is this a business that we need to change drastically? So that's what we're deep diving, as Keith said, to do and really to understand it. So overall, for this year, given the results of the first quarter, I wouldn't think it would be a positive or a negative to the rest of the year, right, in terms of the outlook that we have out there. So some work to do there, Tommy.

Keith Demmings:

Yes, maybe I'll offer a couple of thoughts. We -- and there's a few moving pieces, but I would say if we look at -- the first thing to underscore is that for the vast majority of the business we're -- either we're risk sharing or reinsuring or we're profit sharing back with partners. So we're not on the majority of the risk, and we've talked about that, historically. And then where we are on risk, there are some interesting things that are happening. If I think about the auto business, we write some gap insurance. And obviously, with used car values at all-time highs, the GAAP losses have been dramatically lower as you think about the depreciated value of the used car is much higher today than it would have been under normal circumstances. So that's creating some favorability. That normalizes over time, I would say, is the used car market moderates. And when will that happen, it's hard to know, right? Because it's all connected with more broadly the supply chain issues that are creating that situation. And then in terms of the mobile side, we had a little bit of elevated losses if you look back to Q1 of '21. When you think about some of the business where we actually are on the risk, a little bit more elevated losses last year due to just some parts availability pressure in that business. Our teams have done an incredibly good job buying inventory, maintaining inventory to make sure that we're able to deal with our claims efficiently. You've got, obviously, as product continues to roll out in the market in terms of new devices, the quality of those devices continues to improve, which is also helpful. And we've just seen some underlying strength in our ability to manage loss costs around that mobile experience. We're doing a lot more repair as well. So there are several factors at play. Again, most of that accrues to the benefit of our partners because of the deal structures. But for those where we are on the risk on balance, we've been really pleased with how the team has performed.

Jeffrey Schmitt:

The cost for the T-Mobile in-store repair rollout, they looked at peak in the fourth quarter of last year, but you'd mentioned that should continue in the first half of the year. Can we get a sense on how much costs for the quarter? And would you expect to see some -- there still wasn't year-over-year margin expansion, but should we sort of expect that next quarter? Or is that more of a second half of the year? Just any detail you could provide there.

Jeffrey Schmitt:

Okay. Great. The -- and then on the covered mobile devices, was down a little bit sequentially, but could you talk about the sort of underlying growth there, excluding the legacy Sprint customers coming on? What was the impact of the runoff clients? And what's your outlook for that kind of underlying growth? So I think if you go back to quarter 2 before Sprint came over, you'd mentioned that maybe going in the mid-single digits. But what is your sort of outlook for that?

Operator:

Your next question comes from the line of John Barnidge from Piper Sandler.

Keith Demmings:

Yes, I definitely think there are opportunities to expand. I think scale, and I've talked about this previously, scale is important, right? And I think this relationship will give us a tremendous increase to our scale. It's quite material in terms of what it means for our ability to deliver customer service to manage a third-party repair network and then to make the underlying investments I think that will happen quickly. And I think we will have opportunities to drive growth, both in new and interesting ways with this partner, who is significant and always trying to innovate around the customer, but also as we think about the capabilities and the foundation that we continue to build, how do we then leverage that foundation. And I would say that foundation will get built and scaled fairly quickly. It won't be 3 or 4 years from now, we'll finally have solution that then is really relevant in the market. That relevance will emerge fairly quickly.

Keith Demmings:

Yes. So no doubt, as we look at Q1, we saw some effects from FX. We expect that to continue as we look towards the rest of the year. Luckily, as Richard has talked about, we're pretty resilient. There are a number of pluses and minuses as we look at more broadly, inflation macroeconomic factors, interest rates. So we feel like we're well positioned. But there's definitely we'll see some effect from FX. Think about Europe and Japan, as good examples, where we'll expect to see that. I do think we've got great momentum around the world. I mean our international footprint has continued to mature over the last many years. We haven't expanded into new countries. We've really focused on how do we gain relevance and scale within the key markets that we want to be in. And I think our teams are doing a great job. Our services, our solutions, we continue to deploy them on a global basis. So as we build services like you think about it an easy example like same unit repair or premium technical support or trade in, those services are relevant everywhere in the world. They may be more relevant in a certain market today and 2 years from now, that trend catches up in another part of the world. So I think that's one of the powers of operating as a global business. It's allowed us to build things once, build them in a standard way, build kind of global platforms that we can scale and then deploy those internationally. And we've got some incredible clients around the world. I'm so proud of what our international team has done, and I think there's lots and lots of opportunities. And today, it's mobile. Connected Living is the biggest part of international. We've got through the acquisition of TWG, much more automotive going on in various parts of the world. And as we continue to find the other relevant parts of Assurant to export to take advantage of our biggest markets, I think that will create longer-term tailwinds for us. But certainly, in the short term, FX is a challenge.

Grace Carter:

I was wondering if you all could talk about, I guess, the percent of the LPI book that's historically been in REO and just how that compares today versus historical and I guess, just kind of the evolution of that over the course of the year?

Grace Carter:

And sticking with the housing book, if there's any more color you could offer on the cost efficiencies that you referenced, just kind of thinking if that should ramp over the year or there should be kind of a more even impact starting next quarter? And just any sort of directional guidance on maybe the magnitude of the impact?

Richard Dziadzio:

Yes, I think that's exactly right. I don't think there will be a threshold moment per se. And a lot of the leverage that we're getting today is based on projects that have already been launched, that already were doing. So we're going to continuously, as Keith said, gets leverage out of it. And where I see some good leverage coming out is coming back to your previous question, Grace on REO, as we get more revenues out of that as revenues grow overall in lender-placed, we should hopefully get some leverage out of the expenses as well. Knowing, of course, that over time, it's more of a revenue and top line issue as opposed to just pure expenses because, obviously, we have rate filings to do. And over the longer term, that will balance itself out. But we do see over the short term that expenses and the leverage we're creating will really be helpful to us.

Operator:

Thank you. This does conclude today's conference. Please disconnect your lines at this time, and have a wonderful day.

Operator:

00:04 Welcome to Assurant’s Fourth Quarter and Full-Year 2021 Conference Call and Webcast. At this time, all participants have been placed in a listen-only mode, and the floor will be opened for your questions following management's prepared remarks. [Operator Instructions]. 00:41 It is now my pleasure to turn the floor over to Suzanne Shepherd, Senior Vice President of Investor Relations and Sustainability. You may begin your conference.

Keith Demmings:

02:17 Thank you, Suzanne, and good morning everyone. As I begin my tenure as CEO, I'm extremely proud of the opportunity to lead our nearly 16,000 employees across the world, as we support consumers ever connected lifestyles. As I reflect on Assurant’s transformation over the past several years, not only have we evolved our business model, but also significantly expanded the breadth of our offerings and our customer base. 02:44 Today, Assurant represents a cohesive group of higher growth service oriented businesses serving more than 300 million consumers globally. Collectively, our connected consumer and specialty P&C businesses have generated and are expected to drive continued profitable growth and strong returns. As we position Assurant for 2022 and beyond, we see compelling opportunities to sustain growth, particularly with the convergence of the connected consumer in the global markets and geographies in which we operate. 03:19 Continued success will require us to deliver on our vision for the future to empower leading brands to connect, protect and support their customers connected lifestyles. Ongoing investments in our people and capabilities will enable us to meet our customers how, where and when they want to be met, differentiating our offerings through a superior customer experience. 03:44 Continuously adapting to the changing needs of the connected consumer will be critical to achieving our long-term growth. To continue to capture new opportunities, I believe, success will require more than ever our focus on 5 priorities. First, attracting, retaining and developing the best talent to unlock future potential; Second, delivering a superior digital first customer experience; Third deepening our strong partnerships with major clients and prospects worldwide, while also developing offerings and capabilities that continue to differentiate Assurant; Fourth, accelerating the pace of innovation and prioritizing the necessary investments across our operations and technology; And finally, continuing to further embed and support sustainability and inclusivity for the benefit of all stakeholders and the communities in which we operate. 04:44 And already this year, we've made progress in our continued objective to build a more sustainable Assurant. I'm proud of our recognition by CDP on our environmental impact and commitment and our continued inclusion in the Corporate Equality and Bloomberg Gender Equality Indices. I want to take a moment to highlight our lifestyle and housing businesses and how we successfully executed our strategy throughout 2021. 05:12 Within Connected Living, our mobile device lifecycle management solution has enhanced our ability to introduce value-added services and capabilities to monthly device protection plans and trade in and upgrade programs. This has helped expand our market share and further differentiate our offerings. We now cover almost 63 million mobile devices. A figure that's doubled since 2015 and increased 18% in 2021 alone. 05:44 At year-end, we launched a partnership with Deutsche Telekom in Germany to provide an innovative mobile phone device protection program and trade-in program. Assurant has already been recognized by Deutsche Telekom for our commitment to sustainability with a hash tag Green Magenta label highlighting how our products and services make a positive climate contribution and reflect a responsible use of resources. This is another example of further integrating ESG into Assurant’s business operations and offerings worldwide to drive more value for our partners and for our consumers. 06:22 Throughout the year critical investments continued to drive growth and differentiate the customer experience. Our trade-in and upgrade business now inclusive of HYLA Mobile drove exceptional performance, processing over 25 million devices supported by the rollout of 5G as well as our repair asset disposition and technology capabilities. We recently expanded our long-standing partnership with Telefonica to provide a comprehensive device trade-in program across several key countries in Europe, in Latin America where Telefonica is a market leader. The program will enable Telefonica to access our leading trade-in technology. 07:06 We also continue to integrate mobile service delivery options into our offerings through CPRs local same day capability and they come to you repair capability through our acquisition of Fixed. Demonstrating our commitment to improving the customer experience CPR by Assurant ranked first in the 2022 Entrepreneurial Franchise 500 for electronics repair. This is a testament to the success of our CPR franchisees and our commitment to provide customers with exceptional experiences, services and support. And we successfully executed on the major rollout of the in-store repair capability to nearly 500 T-Mobile store locations nationwide, showcasing our ability to adapt to rapidly changing consumer preferences. 07:54 Over a period of 5 months we recruited, trained and deployed nearly 2,000 technicians to deliver a seamless experience to T-Mobile customers in store, while also converting approximately 10 million Sprint subscribers to Assurant. The in-store repair rollout will continue in 2022 as we further enhance the overall experience for T-Mobile customers. 08:19 Turning to our global automotive business, where we also have a strong track record of growth and innovation. We've continue to capture market share and see significant opportunities ahead. In 2021, we grew global protected vehicles by 10% to nearly $54 million, and increased in net operating income by 21%. The auto business is critical to the long-term success of Assurant and we should continue to benefit in the future from increased scale through our alignment with industry leaders and our ability to support customers through digital channels. 08:55 Turning to renters. The business grew policies and revenue by 7% in 2021, a testament to strong affinity and property management company relationships. We also secured multi-year renewals with 2 top 10 property management companies. Technology and innovation are critical components to our success in this business. And we'll continue to invest in our technology over the next several years to further enhance the customer experience for our 2.6 million policyholders. 09:27 Investments in 2021 included the continued rollout of Cover360, lunching new customer facing sales portals and expanding self service capabilities that leverage machine learning to enable automation of claim payments. Ultimately, our investments should increase policy attachment rates which have not yet hit mature level throughout the industry. 09:49 Additionally, in our attractive P&C offerings, including lender placed insurance, we have maintained our market leading position with large US services and banks tracking over 30 million loans. Last year alone, we renewed 10 clients and partnered with 2 new clients. As we look to 2022, we'll continue investments in operations, such as our customer centric single source processing platform, differentiating our tracking capabilities and improving efficiency. 10:21 Overall, I'm pleased that our businesses have delivered on our commitments for 2021 as we delivered value for our clients and customers. We also further demonstrated the resiliency of our unique business model as we navigated the pandemic and manage inflationary pressures. Excluding reportable catastrophes, we generated 14% earnings per share growth, on the high end of our expectations. 10:47 Net operating income also excluding cats grew by 11% to $672 million, making 2021 our fifth consecutive year of profitable growth. Our balance sheet remains strong. Combined, our businesses contributed a total of $729 million in dividends to the holding company, representing approximately 100% of segment earnings. This allowed us to return a total of $1 billion in share repurchases and common stock dividends and complete our 3 year $1.35 billion capital return objective. In addition, we completed 60% of the $900 million we committed to return through share repurchases as part of the sale of our Preneed business. We anticipate returning the remainder by the end of the second quarter. 11:38 Next, I'd like to review some initial thoughts for 2022. As we look ahead to sharing our long-term vision, strategy and financial objectives at Investor Day in March, we can make an even more compelling case for the future. Given our ongoing shift to more service oriented fee-based businesses we believe adjusted EBITDA rather than net operating income is a better representation of how to evaluate our operating performance for the enterprise and segments. 12:08 In 2021 adjusted EBITDA excluding cats increased 9% to $1.1 billion, driven by strong results in Global Lifestyle, particularly in Global Automotive and Connected Living, as well as a lower corporate lost. In 2022, we expect growth in adjusted EBITDA ex-cats of 8% to 10%, a reflection of the strength of our business portfolio. Within Global Lifestyle, we expect adjusted EBITDA to increase by low-double digits, but likely not exceed the 12% growth we had in 2021. 12:43 Segment growth will be driven by Connected Living, particularly mobile, even as we make strategic investments to support new business, including continued investments in our in-store mobile repair capabilities. Within Global Housing, adjusted EBITDA excluding cats is expected to grow mid to high single digits, driven primarily by lender placed from higher average insured values, operating efficiencies and improved results in specialty offerings. Our corporate segment is expected to generate a loss of approximately $105 million of adjusted EBITDA, which is in line with our historical levels. 13:22 Cash flow generation is also expected to remain strong and is a core component of Assurant’s financial profile, allowing us to continue to invest in and transform this company. As we look at our capital management priorities going forward, we will continue to be strong stewards of capital. Our goal is to continue to maximize long-term value creation through disciplined capital deployment, while also maintaining our investment grade and financial strength ratings. Given the attractive business opportunities we see ahead, we expect a more balanced capital deployment mix, targeting compelling investments to drive long-term growth, whether organic or through M&A, as well as ongoing return of capital to shareholders. We believe this combination will enable us to sustain above market profitable growth and generate significant value for our shareholders. 14:14 We recognize that for periods of time this may result in higher than average levels of holding company liquidity to ensure we have the flexibility to make investments that generate compelling returns, while also returning capital mainly through buybacks, given the attractiveness of our stock. 14:31 Lastly, I wanted to acknowledge and thank all who have supported my transition to CEO over the last several quarters. Your feedback and ongoing dialog has been incredibly valuable as we collectively look to build upon the success of Assurant for the future. And I want to thank our employees around the world for their extraordinary efforts in 2021, a year in which we again outperformed despite the challenges of the pandemic. 14:56 I will turn the call over to Richard to review the fourth quarter results, our ‘22 outlook and business trends. Richard?

Operator:

26:14 The floor is now open for questions. [Operator Instructions] Our first question comes from the line of Tommy McJoynt from KBW. Your line is open.

Keith Demmings:

27:05 Sure and good morning. Maybe I'll start -- talk a little bit about mobile and then Richard, you can talk more broadly about inflation overall. I'd say, on the mobile business it had a relatively neutral impact on our financials. As we've talked about before, the business is largely reinsured and profit shared with our clients. So you do see a little bit of impact on loss ratios when we're on risk, but it's been fairly immaterial as we look over the course of the last many months. 27:33 I would also say, from our perspective, we also think about delivering service to the end consumer and making sure we've got the right levels of inventory. So that's equally important to make sure we're delivering and we've done a really good job stocking inventory, making sure we've got good lead time for parts delivery. From time to time we do see delays in terms of claim fulfillment, sometimes that means some repair might take a little longer or might have to replace a device versus doing a repair. But overall, customer service has been excellent and NPS scores in terms of what customers are telling us have been really, really strong. 28:09 So that's more from the parts side. I'd say in the labor market, no doubt, it remains challenging, and this is true across all of the businesses around the world. I would say, I’m really proud of how the teams have navigated, not just the labor market, but really the pandemic overall with work from home. I think because we kept health and safety at the front of everything that we did from a decision making perspective, we've built an incredible culture within the organization and I think we haven't seen a lot of the great resignation that you hear about every day. We've done an incredible job of protecting our employee base. And in fact we hired 2,000 employees to staff the 500 T-Mobile stores to do repairs. And obviously, including leadership positions we did that extremely well in a very challenging market. So really proud of how we've navigated labor. And I think one of our advantages is the talent that we have. 29:04 But maybe, Richard, just a little bit more on macro inflation as we think about the housing business as well.

Tommy McJoynt:

30:19 Thanks. Appreciate the feedback. And then just switching gears a little bit to the outlook and into the guidance on EBITDA. So if I look over the past couple of years, the EBITDA margin has kind of been in the 10% to 11% range. When you kind of think of long-term where EBITDA should go, do you think you should build in some margin expansion on EBITDA or do you think that 10% to 11% is kind of a good long-term rate.

Tommy McJoynt:

31:31 Thanks. I look forward to speaking on. Thanks.

Operator:

31:36 Your next question comes from the line of Michael Phillips from Morgan Stanley. Your line is open.

Keith Demmings:

32:08 Yeah. I would say we expect to make more investments overall across the company in 2022 than in 2021. We obviously had some material investments when you look at standing up, taking a repair with T-Mobile, there was a significant lift to do that, obviously, converting the Sprint business. So there certainly were investments in ’21. I would signal a little bit more investment to drive organic growth. And I would probably highlight a couple of areas. Certainly, we're going to continue to invest in service and repair capabilities, really building out the platform, the technology and the integrations. 32:45 We talked about investments in digital first in the prepared remarks, that's a really important priority for the organization. Obviously, it drives efficiency longer term, but it radically improves the customer experience, so that's a big priority. We've got several new client launches that are planned that obviously take a significant amount of energy to get right and make sure we execute and deliver. And then investment in longer term growth, new capabilities around the connected home, around innovation to drive new product bundles, a new cross-selling opportunities, and I would say further scaling capability in Europe and Japan. 33:21 So there's a lot of areas that we're trying to focus on. There is a significant amount of long-term growth potential across all of our product line. So I would say, a pretty balanced set of opportunities.

Keith Demmings:

34:03 Yeah, I would say it will moderate from what we saw in the fourth quarter. We did a great job, that was a lot of work as you can imagine, staffing up 500 stores over the course of really 4 or 5 months and then training, onboarding all of our leadership, all of our technicians. It’s just an incredible effort. I would -- First thing I would say, it underscores our ability to not only adapt to changing consumer preferences, but then drive significant focus on execution as a company and we did the same unit repair launch while we were migrating all of the Sprint business and while we were staffing up to manage all of the Sprint business as well separate from same unit repair. So a significant lift, certainly in fourth quarter. I would say, it came in broadly in line with expectations in the quarter and it will certainly moderate as we get into 2002 as we look to -- the first and second quarter, we'll certainly see more investment going forward and it will taper as we get through the rest of the year.

Keith Demmings:

35:35 Yeah. I mean we've been really pleased with the performance this year, but as you say, over time really good strong consistent growth and also growing market share. I mean, if you look back over the years, and we'll talk more about that, I'm sure at Investor Day as well. But really strong overall share gains in the market. And we've seen a lot of good trends as well. The product is -- the attachment rates on the products have gone up over time and that's certainly helping. We've grown our relationships with property management companies. And I certainly expect us to continue to drive policy growth and revenue growth going forward. That's another business that we're investing significantly in trying to evolve how we deliver services. 36:21 Thinking about investments in technology, investments in customer experience, digital integration with our partners and then thinking about other services that we can add that are relevant for renters. So, really excited about that business long term and certainly expect momentum to continue as we move forward.

Keith Demmings:

36:42 Great, thank you.

Tom Shimp:

36:50 Hi, good morning. Congrats on the strong quarter. So, very strong growth in Global Automotive in the past, you've spoken about the increase in attachment rates from the high '30s to the high '40s, given the increase in prices and technology. Given the chip shortage, there has been a number of reports of buyers paying over sticker for new cars, and we've got used car prices up as much as 40%. So, do you believe this is having an effect on attachment rates? And maybe you could just give some general thoughts on whether the pie is getting bigger? Whether Assurant is getting a bigger piece of the pie, or both?

Tom Shimp:

38:55 Okay, great. Maybe moving to mobile. There has been a lot of moving pieces in 5G after what seems like a delayed rollout. There is an uptick in 5G promotions and activity around that potential catalyst, but then we recently had the delay in 5G implementation due to the FAA. So maybe you could frame for us how to think about the potential benefit from 5G? Whether it's total covered mobile device count or trade in volumes? How should we think about the cadence of the benefit to ‘22 earnings and the years that follow?

Tom Shimp:

40:55 Great. Thank you for your answers.

Operator:

40:59 Your next question comes from the line of Mark Hughes from Truist Securities. Your line is open.

Mark Hughes:

41:07 Yeah. Thank you. Good morning. You had mentioned that you're looking to evaluate perhaps alternative risk strategies in Global Housing, maybe lay off a material portion of your catastrophe exposure. As I understood you to say, I had thought that had kind of been put to bed. But it sounds like you're still working on it, still evaluating it. Could you talk about what you're thinking is there? How serious that initiative might be?

Mark Hughes:

43:55 And then you had made, I think, a point of saying that you were looking for a balanced mix of investments in share buyback. If I did the simple person and said, if you look at free cash flow for 2022 is it half share buyback, half retained for investments or M&A.

Mark Hughes:

45:10 Yeah. And then just one if I may. You talked about expanding the Connected Home, does that suggest an appetite or maybe a broader home warranty exposure?

Mark Hughes:

46:26 Great. Thank you.

Operator:

46:30 [Operator Instructions] Your next question comes from the line of Brian Meredith from UBS Financial. Your line is open.

Brian Meredith:

46:44 Good morning. A couple of questions here. Firstly, I’m just curious on the repair centers in T-Mobile stores. Is that an exclusive deal? Or could you roll that out to other customers? And what is kind of in the inquiries you perceived on doing that? I think that a lot of the other customers would be really interested in that type of a program.

Brian Meredith:

47:48 Great. And then I'm just curious, one quick one on the catastrophe reinsurance program renewal. It sounds like fairly similar structure to the program. What about the cost of it? What was the additional costs associated with it?

Richard Dziadzio:

48:13 Yeah, I think as we've said before on renewals in the beginning, we have to invest. And then as we go along we make profits over time. And it's gone really well so to date, I mean, to date. Our partners can deliver better solutions for our customers with what we're doing. So it's not just in service repair. I would say today we've covered most of it through the end of the year, we're probably about 2/3 of the coverage being placed. And we'll place the rest of it in the year as you know. And we had success in the pricing of it. We have a pretty stable reinsurers and if we look out in the market we had some reinsurers that -- has some insurance who have trouble placing. We placed 100%, we placed it at the low end of the market as well. It ranges from anywhere from 5% to 30% on reinsurance. So we've done a really good job.

Richard Dziadzio:

49:17 Yeah. Single – I’d put it in the kind of the mid to single digits overall. So in a really good place.

Richard Dziadzio:

49:43 I mean we're – certainly both. I mean, we are grow revenues as a company, but we're also expanding margins if you think about the makeup of our business. We typically have grown profitability at a quicker pace than we've grown revenue, just based on some of the ways that revenue flows through the P&L. So I do expect to see margin expansion in terms of the breadth of services that we deliver to clients over time. So defiantly growing revenue but growing margins quicker than revenues which is typically been the case.

Keith Demmings:

50:21 Thank you.

Keith Demmings:

50:28 Good morning. Grace.

Richard Dziadzio:

50:56 Maybe Keith, you want to take the first part in terms of the next year?

Richard Dziadzio:

51:01 Yeah, just to start with the numbers. I mean, it doesn't -- the numbers that we've given in the earnings outlook really doesn't include any future acquisitions we buy, it's really the current acquisitions we've done and how it kind of rolls forward. So I would just say, remember, we've done deals at the end of last year where we have HYLA and AFAS. And that's going to be running through.

Grace Carter:

53:11 Thank you. And just another one. Looking at the housing adjusted EBITDA guidance for next year. It sounds like the combined ratio might drift a little below that historical guidance of 86% to 90%. I was just wondering how sustainable maybe a combined ratio below that could be? And just how we should think about that going forward, just given ongoing changes in the mix of business with Multifamily Housing Kind of outgrowing lender placed?

Richard Dziadzio:

53:48 Yeah, I think the historical guidance that we gave 86% to 90% is a long-term measure. And I would kind of base things on that. Obviously it depends on the mix we have within the business. And I think you're exactly right, as multifamily grows that kind of comes into the waiting on it. But I think what's more important to is, there is one part which is the combined operating ratio, the 86% to 90%, there is a second part which is the premiums. 54:20 And as we see markets changing over time, as we see the forbearance moratorium is running off and we see the inflation in average insured values and whatever. I think we're going to see premiums move up as well. So in terms of profitability, when we're talking about lender placed, for example, we are talking about looking at higher -- better performance in next year. And that is going to be driven by higher average insured values, the non-cat loss ratio staying at about current levels and that will help profitability overall. And in addition to that, obviously, we're working our expenses as we go along and the operation of efficiencies that we cited are helping the bottom line as well.

A - Keith Demmings:

55:09 Great. Thanks, Grace. And thank you everyone for participating in today's call. We're very pleased with our performance in 2021 and excited for another year of profitable growth in 2022. We're also looking forward to our upcoming virtual Investor Day on March 24, where we'll have the opportunity to share the Assurant vision, our strategy and multi-year financial objectives. So stay tuned for registration details coming out soon. And in the meantime, please reach out to Suzanne Shepherd and Sean Moshier with any follow-up questions. And thank you very much. Have a great day.

Suzanne Shepherd:

Thank you, Operator, and good morning, everyone. We look forward to discussing our Third Quarter 2021 results with you today. Joining me for Assurant's conference call are Alan Colberg, our Chief Executive Officer, Keith Demmings, our President, and Richard Dziadzio, our Chief Financial Officer. Yesterday, after the market closed, we issued a news release announcing our results for the Third Quarter 2021. The released and corresponding financial supplement are available on assurant.com. We'll start today's call with remarks from Alan, Keith, and Richard before moving into a Q&A session. Some of the statements made today are forward-looking. Forward-looking statements are subject to risks, uncertainties, and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these factors can be found in yesterday's earnings release, as well as in our SEC report. During today's call, we will refer to non-GAAP financial measures, which we believe are important in evaluating the Company's performance. For more detail on these measures, the most comparable GAAP measures, and a reconciliation of the two, please refer to yesterday's news release and financial supplement. I will now turn the call over to Alan.

Keith Demmings:

Thank you, Alan. And good morning, everyone. On behalf of our employees, I wanted to express our sincere thanks to Alan for his leadership as CEO. I've been fortunate to have had a front row seat and a role in supporting Alan's vision and the transformation of Assurant. Importantly, he has continued to evolve the purpose of our Company to drive value for all stakeholders, customers, employees, communities, and shareholders. The impact he has had on our people and the overall culture of our Company has been exemplary. And I appreciate Alan's personal mentorship and partnership and wish him the very best in his retirement. As we build on assurance momentum over the long term, I believe our talent and innovation will be critical factors to achieving success and growth, especially as we focus more on the convergence around the connected consumer. From a talent perspective, Assurant has developed a deep and diverse bench of internal leaders. A few weeks ago, I announced our refreshed management committee effective in January, including 2 new leadership appointments illustrating our strong bench. First, Keith Meier, our current President of International, will succeed Gene Mergelmeyer as Chief Operating Officer, as Gene will be retiring at year-end. Gene 's significant contributions to Assurant over the last 30+ years, including as COO over his last 5 years, have been instrumental in creating market-leading positions, producing profitable growth, and transforming the organization. In succeeding Gene, Keith Meier brings nearly 25 years of experience at Assurant to the COO role. Since 2016 as President of Assurant International, he's driven growth across our global markets most recently with strong success in Asia-Pacific. In this new role, Keith will be focused on advancing Assurant's business strategy and market leadership positions, as well as identifying additional opportunities to deliver a superior customer experience. Second, Martin Jens will become President of Global Automotive. With over 30 years of experience, he currently leads the transformation and growth strategy for auto and has been instrumental in our introduction of innovative new products like EV One, our electric vehicle warranty protection. In addition to emerging opportunities and innovation, Martin will be focused on driving growth and improving the customer experience, including working with our partners to deliver best-in-class dealer training. These two new appointments along with recent appointments of Biju Nair as President of Connected Living, and Manny Becerra as our Chief Innovation Officer, as well as the other management committee members, represent a strong team to help lead us into the future. In addition to talent, innovation is an important strength of the organization. Not only the development of new digital products and offerings for our clients, but also through new paths to grow and scale Assurant's businesses. Within Connected Living, innovation was a significant theme this quarter through ongoing enhancements of our mobile service delivery options. As part of the recently finalized multiyear contract extension with T-Mobile, we're expanding the services Assurant provides to continuously improve the customer experience for millions of T-Mobile customers. As of November 1st, Assurant is partnering with T-Mobile to begin the nationwide rollout of in-store device repair services to approximately 500 stores provided by Assurant 's industry-certified repair experts. In addition, we have also transitioned all of the legacy Sprint protection subscribers to the new T-Mobile device protection offering. As a result, this significantly adds to our mobile device count, now at roughly 63 million as of November 1st. Overall, the expansion of our service delivery options is critical to sustaining our competitive advantage. We also recently signed a multiyear renewal with Spectrum Mobile, continuing to provide a comprehensive device protection program, which includes trade-in, premium tech support, and Pocket geek mobile. Assurance on-device diagnostic tool. With the renewal, we will also be expanding the offering to include Pocket Geek Privacy, which enables consumers to better protect and manage their personal information online through various features. This is another example of how we're able to grow by adding services and capabilities to existing clients. In addition, the mobile business continues to see strong attachment rates given the increased reliance on mobile devices, as well as rising device prices. Our fee driven trade in an upgrade business, including the previous acquisitions of Hyla and Alegre have performed extraordinarily well already this year as we enter the early innings of the 5G upgrade cycle. In fact, almost a year after the transaction of Hyla closed, I'm happy to report the acquisition has performed better than expected ahead of the low-teens forward EBITDA, the acquisition was valued on. With the growing availability and popularity of 5G enabled smartphones, we expect to see our 30-plus trade-in and upgrade programs continue to grow. Our progress is demonstrated through our ability to manage large-scale programs with superior technology. This is further supported by increasing our attach rates for trade-in programs as our clients’ promotional efforts encourage consumers to upgrade. Overall, we have processed nearly 18 million devices so far this year, reducing e-waste, and increasing digital access with high-quality, affordable phones. Through the scale and capabilities of our trading and upgrade programs, we benefit from an additional source of profits and improved client economics and customer retention. This quarter, we are pleased to announce that we have signed a multiyear contract extension with AT&T to manage their device trade-in program. This includes providing analytics, as well as device collection and processing for all of their sales channels, including retail, B2B, dealer, and direct-to-consumer. AT&T was a key client added with the Hyla acquisition, and we look forward to continuing to do business with them, specifically as we help support the growing adoption of 5G-enabled devices. In Global Automotive, policies increased by $4 million or 8% year-over-year and production is well above pre -pandemic levels as we continue to take advantage of our scale and talent. So far this year, the business has also benefited from strong used car growth, which tends to earn faster than new car sales. This along with the fact that earnings from the business are recognized over a multiyear period, provides good visibility into future performance of the business. As we drive innovation within auto, we continue the global roll out of EV One, an electric vehicle and hybrid protection product from North America. EV One has now been rolled out in 7 countries. While the electric vehicle market is still in its infancy, our EV1 product will allow Assurant and opportunity to better evaluate customer demand and leverage our learnings to position us well for the expected increase in electric vehicle adoption in the future. Our multi-family housing business grew policies by 7% year-over-year from growth in our affinity partners, as well as our PMC relationships, where we continue the rollout of our innovative Cover360 product. In addition, we have seen other digital investments create opportunities for future growth. Our newly designed digital sales portal, which makes it faster and easier for residents to sign up for a policy, is driving significantly higher product attachment rates. Our new portal has seen an increase in conversion rates versus our legacy website that was first introduced last year. In summary, our ability to strengthen Assurant's talent and innovation supported by critical investments has and should continue to drive momentum for the future. I will now turn the call over to Richard to review the third quarter results and our 2021 outlook. Richard.

Operator:

Thank you. The floor is now open for questions. . Again, we do ask that while you pose your question that you pick up your handset

Alan Colberg:

Sure. Maybe I will take that and backup for just a second. So, first thing I'd emphasize is just the strong partnership that we've had with T-Mobile for many years, which is obviously scaled significantly over time. We're extremely pleased to have reached multiyear extension. And then the migration of the Sprint customers on November 1st along with the ramping of same-unit repair inside of 500 T-Mobile stores is obviously very exciting as we look to the future. As we've discussed on previous calls, it's not uncommon for us to forgo economics when we re-contract with major clients. That's particularly true if the client scales dramatically over time, which obviously is the case

Alan Colberg:

Yeah, and this is Alan, though the one thing I would add to Keith's comments if you think about our Company, we've always had a great business that generates earnings. That business level that we can then upstream to the holding Company. And going back since our IPO, we've been very strong stewards have companies’ capital over the last 20 years. I think that's going to continue fully. Under Keith leadership as we go forward, I don't see any major changes in the ability to generate cash and then to manage it appropriately for shareholders.

Unidentified Analyst:

Great. Thanks, guys.

Alan Colberg:

Good morning.

Keith Demmings:

Yeah. So, we migrated all of the Sprint customers effective November 1st, so all of that volume is now enrolled in Assurant's program going forward. Obviously, we'll continue to see growth through the overall partnership as T-Mobile continues to win new customers in the marketplace, and continues to add insurance to those customers' accounts. So, this does create a really interesting long-term opportunity for growth. And as we've demonstrated over many years, we continue to innovate, not just around the products, but services, capabilities, how can we invest more around delivering exceptional customer experience. And certainly, a partnership with T-Mobile that is now significantly more scaled, we believe it's going to yield more opportunities to partner together for the future. But as we've talked about, there's a trade in terms of economics between what's our per unit fee that we're going to get relative to a much larger base of customers.

Keith Demmings:

No. I think we've seen a little bit of a slowdown in growth if we're talking specifically about mobile, just as we've come out of COVID in a couple of regions, primarily Latin America, a little bit in Europe as things have opened back up. But overall, really, really strong performance in the U.S. market and the Japanese market and really do see good long-term growth for that business overall in international as we continue to scale over time.

Keith Demmings:

Yeah. I would say that the overall industry sales on the auto side remained quite elevated as you saw our covered policies increased a lot, $4 million and 8% from last year. But I would also highlight sales production was well above pre -pandemic levels, so we're seeing really, really strong performance. We achieved almost $1.2 billion of net written premium when you look at the quarterly results. I would say that began to normalize a little bit from where we were in the first and second quarter. But it was only modestly down from Q2, up 12% over 2020, and actually up 27% over 2019. So that would certainly expect to taper off going forward because obviously constraints around supply chain that's affecting new car sales. But those constraints have been more than offset by the volume that our clients are doing on the used side of the business, which has been very dramatic and overall leading to elevated levels of sales.

Richard Dziadzio:

Hi. Good morning, Gary. It's Richard. Yeah. I mean, in terms of the tax benefit, it was about $4 million and then the reinsurance, the reinstatement premium, I think that was about $7 million.

Gary Ransom:

And just to be clear, the $99 million of pretax cuts does not exclude that reinstatement preview, correct.

Gary Ransom:

I got it. Okay. Thanks very much.

Operator:

Thank you. Our next question is from Tom Shimp from Piper Sandler

Tom Shimp:

Hi. Good morning, guys. So, I'm thinking about the roll out of your EV1 product corresponding transition to the electric vehicle. How do the attachment rates compare -- for this product compared to the internal combustion engine? There's a lot of -- there's good amount of tech in those EV cars, but they do have less moving parts. So, how do those dynamics affect the attachment rates that you're seeing?

Tom Shimp:

Okay. So, inflation, it's top of mind for insurance investors right now, Assurant operates in businesses that have attracted more attention regard to inflation parts and labor costs and automotive chip shortages in mobile global housing. Housing as a risk-based business where you have inflation exposure that you can mitigate with rate but I think a lot of investors who look at Assurant are your typical insurance investor and sometimes misunderstand to the extent of which the risk in mobile and automotive is ceded off to clients and how it operates on a fee like basis. So, I think investors understand this dynamic exists, but not the degree of which. So maybe you could give us your thoughts there and how assurances is positioned in an increasingly inflationary environment.

Richard Dziadzio:

Sure. Thanks, Keith. And I think you sort of bolted on the main points. When we look at it, I would say short term in this quarter, we mentioned that severities were up a little bit, probably a quarter of the whole change in a non-CAT loss ratio. Those severities are really labor and claims costs increasing there. But over the long term, I think we're -- we look at it maybe being slightly positive, at least neutral because what happens, I mean, Keith mentioned the reinsurance that we have with our clients on the fee-based side. So, there's a large sharing of profitability on that side of the business, but then on the P&C side where housing, whatever where we are taking on the claims and the risk. There's two things that would happen. Lender place, we have advert insured values would go up. So as the prices of housing goes up -- go up with inflation, we would see an increase in our premiums to the average insured value. Also, over time, we would be able to recover a large part, if not all of that, through our rate filings. So, we feel that obviously insulates us quite well. And then finally with inflation over time, we would anticipate that interest rates would increase and we would get an uptick in our investment income. So overall we're not looking at it as being any type of significant negative, anything it's neutral could be a small positive.

Alan Colberg:

Thank you.

Alan Colberg:

Hey. Good morning, Brian.

Keith Demmings:

Yeah, I think we signaled a modest change in placement rate this quarter, mainly driven by the mix. So, I'd say it's broadly flat. I would expect -- as we look to maybe the back half of '22, we'd start to see an increase modestly in the placement rates over time, expect servicers to actively work with borrowers on loan modifications to keep the loans performing. There's so much strength generally in the housing market. Customers have positive equity in the home. So, I think a lot of that activity will delay some of the placement rate from flowing through. And certainly, same thing's true on foreclosure side as well that will affect the REO business. So probably second half of '22 would be our best estimate on when we might start to see that coming through the portfolio.

Alan Colberg:

This is Alan. Maybe let me take that one and give a little bit of history on what we're doing there. So, in specialty, we have a variety of products, things like antique auto, a little bit of the international property we right. And we also, a few years ago, started to do a couple of on-demand products related to really following the consumer as they own and rent their home in their car and trying to really build off of our experience and our own rental and the franchise that we have there. And what we're really doing today is we're ensuring. Your short-term transaction. So, think about you're renting your home, or you're using your car to make food delivery. And what we're excited about with that business, and I'll answer the question directly. Both -- it's a new distribution channel for us. If you think about, we can embed some of our capabilities around rental into a rental of a home. And then what's particularly interesting is the gig economy. And if you think about the workers who are now delivering food or using their car to provide services, it's an interesting opportunity for us to drive not that product as much as our other products, our service contracts, our mobile capabilities, our renters, insurance. So that's really been the genesis of what we're doing there. In terms of the reserve this quarter, it’s affecting really maybe, but $5 million I think was the amount and its really development on prior reported claims. So, think of it as to catch up to align with all of our future expectations. And then over the last couple of years, as we've gained experienced in this business, we've been modifying our product structures. We've increased rates and we put in place extensive reinsurance so that will never -- we don't anticipate having any significant on material losses from this business. In fact, it's been a very well-performing business for us over the last couple of years.

Alan Colberg:

We do. We've got very strong structures there and it's really for us, we are trying to do the same thing we do in Auto and Mobile generally, which is making it into administration and feed business as we manage around a consumer transaction.

Keith Demmings:

And I think as we look at overall profits in Lifestyle and in Connected Living, we do expect to see growth in Q4 over Q4 last year and continue to see growth into 2021. We had --- as you saw, a strong third quarter for Connected Living, up significantly over last year. So, I think that continues in Q4, even with the additional investments that we need to make to really not just stand up, same-unit repair, but make sure that we're executing and delivering to a really high standard. And then as we think about 2022, yeah, we expect overall. We'll see some moderation but we still expect to see strong growth across both the Lifestyle and housing businesses.

Keith Demmings:

Correct. Yeah. The per unit economics are going to are going to look a little lighter, but the overall economics are going to be strong.

Alan Colberg:

Thank you.

Alan Colberg:

Hey, good morning, Mike (ph).

Richard Dziadzio:

Yeah. Thanks for the question, Mike. In terms of quantifying it, I guess I would say we've given sort of aggregate -- an aggregate indication in terms of where we think Lifestyle is going to come in all year, and we talked about being a high single-digit. So, if you really look at last year where we came in and look at high single-digits, it will give you a pretty good view of where we think -- sorry, where we think, Lifestyle is going to come in for the full year, and part of that decrease is going to -- is based on the increase in the setting up the service and repair and investments that we're making in Connected Living broadly. So that will be in the fourth quarter. And then we would anticipate some coming in next year. So, I mean, in terms of rolling into next year, there will be some amount of big amount -- biggest amount I would say it would be in the fourth quarter of this year. We are thinking a few million and ramp up quite a bit into into the fourth quarter. So, we are talking in terms of millions here in terms of doing it.

Michael Phillips:

Okay, that makes sense. Two more kind of quick ones, I guess then. On the labor and material costs and the severity there, talked about that quite a bit. I guess a follow-up. Richard, you said if things continue -- I think you said if things continue, obviously that could be offset in the future by higher rates over time. Does that mean you're currently pricing in for that or still kind of waiting to see how that plays out?

Michael Phillips:

Okay. That makes sense. I guess last quick one. Was any impact in the quarter on your sub -- mobile sub numbers from the T-Mobile cyber -attacks like on this?

Michael Phillips:

Okay. Thank you, guys.

Keith Demmings:

Good morning, Mark.

Mark Hughes:

Yes. Thank you. Good morning. Congratulations, Alan.

Mark Hughes:

The -- can you refresh me on the revenue model for the in-store business that T-Mobile, is it kind of time and materials? Is it repair per device? Hourly reimbursement? How does that work?

Mark Hughes:

And are they going to be advertising it? How are customer is going to know that the prepare capabilities available?

Mark Hughes:

And then Richard, I think you all have addressed this to a degree, but any more adjectives or maybe even numbers you might throw when you're talking about 2022. Earnings expansion to continue though at more moderate levels, I think you also referred to strong growth in 2022. Anything else you want to add to that?

Mark Hughes:

Thank you.

Alan Colberg:

Hey, good morning, Jeff.