The Operator welcomed everyone to Assurant's Second Quarter 2023 Conference Call and Webcast. Suzanne Shepherd, the Senior Vice President of Investor Relations and Sustainability, introduced Keith Demmings, the President and Chief Executive Officer, and Richard Dziadzio, the Chief Financial Officer. They discussed Assurant's second quarter 2023 results and referred to non-GAAP financial measures. The results were strong and exceeded expectations, with adjusted EBITDA, excluding cats, growing 21% year-over-year.

Global Housing adjusted EBITDA increased 49% year-to-date, excluding catastrophes, due to actions taken to transform the Housing business, such as focusing on product lines and deploying digital solutions. Homeowners business saw an 18% year-over-year increase in top line performance due to higher average insured values and state-approved rate increases. The Renters business saw a 14% policy growth year-to-date, driven by the rollout of the Cover360 solution.

Global Housing has had strong earnings growth and Global Lifestyle has seen a $34 million or 9% increase in earnings from improved Connected Living results. Global Lifestyle has invested in technology platforms to increase customer experience and implemented actions to mitigate macroeconomic headwinds. In Global Auto, repair costs have increased due to inflation and actions have been taken to improve performance.

Assurant has implemented rate increases and cost savings with clients to improve their loss experience, and Global Lifestyle earnings were in line with expectations for the first half of 2023. However, the adjusted EBITDA is expected to be down modestly due to headwinds in Global Auto and lower international contributions. Assurant has also made progress on their sustainability efforts, such as reinforcing company culture and leveraging employee listening and feedback to support a diverse workforce.

The report reaffirms the company's focus on ESG for the next five years, and the company has already achieved its 2025 supplier diversity target two years ahead of schedule. The company has also achieved higher-than-expected adjusted EBITDA growth, which is now outpacing the increases to depreciation and tax expenses. The company has also upstreamed $180 million of segment dividends and ended the quarter with $495 million of holding company liquidity. The company has also resumed share repurchases and would expect to gradually accelerate its level of buybacks with the majority weighted toward the fourth quarter.

In the second quarter of 2023, Assurant's adjusted EBITDA totaled $337 million, a 21% increase year-over-year, and adjusted earnings per share totaled $4.09, a 26% increase year-over-year. Global Lifestyle reported an 11% decline in adjusted EBITDA, mostly due to lower results in Global Auto, increased inflationary impacts and increased claims costs. Connected Living and Mobile experienced flat and decreased earnings, respectively, due to soft results in Japan and Europe. Assurant is expecting to buyback $200 million in 2022 and is well-positioned for the full year.

In the second half of 2022, international earnings experienced headwinds, with Japan experiencing subscriber declines and Europe having lower volumes impacting year-over-year results. In the U.S., mobile earnings were flat year-over-year, but extended service contracts increased due to improved client performance. Net earned premiums and other income for Lifestyle increased 5%, with Global Automotive having prior period sales of vehicle service contracts. Connected Living net earned premiums and other income increased 1%, but excluding the contract changes, it increased by 6%. For the full year 2023, Global Lifestyle's adjusted EBITDA is expected to be down modestly.

Global Auto is expected to have a down year due to unfavorable loss experience and impacts from normalization of ancillary products. However, Global Auto is taking actions to mitigate these impacts and higher investment income is partially offsetting them. Connected Living is expected to grow modestly for the full year, though Japan and Europe are slower to realize top line growth. In Global Housing, adjusted EBITDA more than doubled to $168 million due to top line growth and favorable non-cat loss experience within homeowners. This was driven by higher average insured values, premium rates, and more policies in force.

The company's 2023 catastrophe reinsurance program was successful, with the total cost increasing less than expected and only modestly over 2022 due to strategic actions such as increasing their first event retention to $125 million and increasing their total program coverage. Global Housing adjusted EBITDA is expected to grow significantly due to strong performance in homeowners, with revenue strength continuing throughout the second half of the year. Additionally, a benefit within the NFIP flood business of $5 million contributed to earnings growth.

The Global Housing segment appears to be improving, with the company noting that they are well-positioned to achieve their increased full-year financial objectives. In the second quarter, the Corporate adjusted EBITDA loss was $29 million, up $4 million from lower investment income. For the full year 2023, the Corporate adjusted EBITDA loss is expected to be approximately $105 million. Dividends from the operating segments totaled $180 million in the second quarter, with cash outflows including $20 million of share repurchases, $40 million of common stock dividends, and $50 million related to previous acquisitions within Global Auto. Cash flow expectations are expected to approximate 65% of segment adjusted EBITDA, including reportable catastrophes, assuming a continuation of the current economic environment.

Keith Demmings and Richard Dziadzio discussed the favorable development charge of $28 million and the underlying loss ratio of 44%. They noted that the team had taken many actions to streamline the business and focus on core products, which was reflected in the first half of the year. They also noted that the current accident quarter loss ratios were 44%, a couple of points above last year's level, and that the inflationary pressure was largely offset by the rate adjustments, but not fully back to the levels seen last year.

Keith Demmings explains that there were storms in the last quarter that didn't reach reportable levels, but still had an effect on the non-cat loss ratio. Inflation guard adjustments were put in place in June and will have a 3.1% adjustment in July. Demmings also notes that there will be continued pressure on margins due to inflationary pressures in Global Auto through 2024.

Keith Demmings expects an EBITDA impact of around $10 million a quarter in 2021 due to inflationary pressure on parts and labor. The company has taken the necessary actions to try to optimize the service network to improve access to parts and to try and drive down claim costs. The resolution of inflation issues in housing and ESC have been successful and auto is the new area of focus. The contract changes in Japan are expected to be completed by the end of 2021, and the company is in a strong position in the Japanese market.

Keith Demmings discussed the financial performance in Japan and Europe, which is strong year-over-year but stable sequentially. He also discussed fee income, which can be volatile quarter-to-quarter depending on promotional activity. He noted that trade-in volume was lower in the second quarter due to decreased advertising and promotional activity, but he expects to see more aggressive marketing campaigns in the fall when new devices are released.

Richard Dziadzio and Keith Demmings discussed the prospects of revenue increases in the second half of the year, noting that there may be some slight increases, but not to the levels seen in the past year. They also discussed the new money yield on investments versus portfolio yield, noting that there has been an increase in investment income over the past year, and that the fixed income portfolio has a 5-year duration.

Keith Demmings discussed expectations for modest growth in Connected Living this year, with domestic Connected Living expecting a steady increase year-over-year despite a one-time client benefit in the third quarter of last year. International Connected Living is expected to remain stable in the second half, with attention to driving longer-term growth opportunities in Europe and Asia Pacific. Auto losses are expected to remain at elevated levels.

Richard Dziadzio discussed the cat reinsurance placement that was put in place in order to protect the company, which included increasing the retention level, working with reinsurers, and exiting some of the international property footprint. He also mentioned that, so far, there have been no reportable cats hitting them in July.

Keith Demmings discusses the company's Global Lifestyle growth, citing their relationships with many marquee brands and their wide-ranging capability set as advantages. He also mentions their focus on expense management and digital first and automation initiatives to reduce costs. They have tried to keep their G&A expenses flat while also absorbing incremental growth and investment. They have been pleased with the progress made so far.

Richard Dziadzio discussed the Housing area's investments in automation and digital capabilities which have allowed them to reduce their expense ratio. Keith Demmings then discussed the seasonality of the Connected Living book in the third quarter, which is typically lower than the fourth quarter due to lower trade-in volume and certain mobile programs. To mitigate the impact of this, one of their clients has been moved to a reinsurance structure.

Richard Dziadzio and Keith Demmings discussed the impact of Q3 on their company, stating that it is typically a softer quarter due to increased claims and trade-ins. Keith Demmings then went on to explain that the decrease in Global Devices service was driven by the discontinuation of the in-store repair capabilities, with a year-over-year difference of $400,000. Finally, they thanked everyone for joining the call and encouraged them to reach out to Suzanne and Sean with any follow-up questions.

This summary was generated with AI and may contain some inaccuracies.