ASSURANT, INC. Q2 FY2024 earnings call

• First half 2024 results showed strong performance from Global Housing and underlying momentum in Connected Living, leading to increased full year growth expectations. Excluding reportable catastrophes, adjusted EBITDA up 20% YTD and adjusted EPS up 29%.
• Global Lifestyle first half 2024 adjusted EBITDA $397 million consistent with H1 2023, Connected Living adjusted EBITDA up 6% or 8% constant currency with incremental investments. Global Automotive first half earnings pressured by inflation and GAP product losses.
• Global Housing first half earnings increased nearly 45% excluding reportable catastrophes, driven by homeowners and lender-placed insurance growth, with expense leverage from scale and technology investments.
• Second quarter adjusted EBITDA $369 million, adjusted EPS $4.77, generated $142 million of segment dividends, ended quarter with $735 million of holding company liquidity, returned $80 million to shareholders including $40 million share repurchases.

Global Lifestyle

• Second quarter adjusted EBITDA decreased 4% to $190 million, or 2% on a constant currency basis, driven by Global Automotive which declined by 8% or $6 million due to higher claims costs from inflation and elevated losses from ancillary GAP products. Connected Living earnings increased modestly on a constant currency basis, driven by global mobile protection programs. International results stable with modest growth potential but muted by investments in new capabilities. Lifestyle grew net earned premiums fees and other income by $75 million or 4%.
• For full year 2024, Global Lifestyle expected to grow modestly, with Connected Living expected to lead growth but tempered by investments, and Global Auto expected to be flat to modestly down due to loss pressures from inflation and GAP products.

Global Housing

• Second quarter adjusted EBITDA including catastrophes was $161 million. Excluding reportable catastrophes, adjusted EBITDA increased 23% to $206 million. Driven by top-line growth in homeowners from onboarding Bank of America portfolio and lender-placed policies increase. Despite higher expenses, expense leverage from scale, technology, and operational efficiencies remained a key driver. Second quarter had $17 million of favorable reserve development compared to $28 million in Q2 2023. Full year 2024 expected to be growth driver with top-line momentum, expense leverage, and lower catastrophe reinsurance costs, but placement rate and policies in-force impacted by client portfolio transitions in second half.

• Expect full year adjusted EBITDA to grow high-single-digits and adjusted earnings per share to increase low-double-digits excluding catastrophes. Global Housing expected to lead enterprise growth, Global Lifestyle modest growth, Connected Living expected to deliver another year of growth, Global Auto expected to be flat to modestly down due to loss pressures.
• Anticipate strong top-line growth in homeowners, expense leverage, and lower catastrophe reinsurance costs in Global Housing; Connected Living growth driven by new partnerships and programs; Global Auto impacted by inflation and GAP product losses.

• Auto business pressured by ongoing inflation impacts on motor vehicle repair costs and elevated losses in ancillary GAP products. Unfavorable foreign exchange a headwind for Global Lifestyle. Hurricane Beryl expected to be a reportable catastrophe in third quarter with estimated losses between $30 million to $50 million.

Q: On the Global Auto the sustained impact of inflation, when do we kind of turn the corner on that?

A: The first half had different stories, first quarter driven by vehicle service contract inflation, second quarter by GAP. Rates put into place with clients to stabilize and improve modestly in back half, GAP risk reducing faster than vehicle service contracts, expected to be less of a drag in next couple of years.

Q: On the card benefit business, could you talk a little bit more about the opportunity there?

A: Phenomenal opportunity to expand relationship with Chase, investing in launch, converting all active Chase customer cardholders in fourth quarter, expected to be EBITDA positive in 2025 and a driver of Connected Living growth.

Q: On the auto, just curious, on the vehicle service contract side, did you guys see any acceleration on the improvement?

A: Loss cost trends moderated, CPI index for auto repairs went down modestly, about 9% year-over-year, seeing moderation, with rate increases and inflation moderation building momentum over time.

Q: How much of the auto revenue mix is the GAP business?

A: GAP is a very small part of the business, continuing to become smaller as risk is transitioned, only five clients with a smaller part of the business, not a big driver of auto business.

Q: On the renters business, what's the weakness and are you getting rate in that business?

A: Revenue relatively flat, policies up 4%, gross written premium up 8%, property management company part up 20% YTD, affinity business relatively stable, expecting momentum in PMC side to continue.

Q: On the Global Housing combined ratio, how do you view the long-term combined ratio guide?

A: Mid-80s combined ratio targeted, non-cat loss ratio around 40%, cat losses about 7 points, expenses in high-30s, demonstrated expense management discipline and scale benefits.

Q: How much is higher investment income offsetting core weakness in the auto segment?

A: Investment portfolio duration about five years, high-quality portfolio, book yield up 12 basis points to $5.16, new money yields higher, some clients share investment income, offsetting impact of interest rate changes to some extent.

Q: On the auto risk question, historically retain about a third of the risk, continues to be the best way to think about it?

A: Generally right way to think about it at Lifestyle level, a little less retained on auto side, manageable with handful of clients and 14 rate increases over last couple of years.

Q: On the Global Housing fee income, anything unusual?

A: Reclassification between fee income and expense lines, no bottom line P&L impact, just movement between lines.

Q: On client transition in Housing that could impact second half, what's the import?

A: Ongoing activity in lender-placed business with portfolios rolling off and on, policy counts relatively stable in second half with losses offset by pickups in other portfolios.