The operator welcomes participants to Assurant's Second Quarter 2024 Conference Call and Webcast. The floor will be open for questions after management's prepared remarks. Sean Moshier, Vice President of Investor Relations, introduces the speakers - Keith Demmings, President and CEO, and Keith Meier, CFO. The company's results for the second quarter 2024 were announced yesterday, and a news release and financial supplement are available on assurant.com. The speakers will refer to forward-looking statements and non-GAAP financial measures during the call. The call will begin with prepared remarks from Keith Demmings before moving into Q&A.

The strong first half 2024 results for Assurant demonstrate the success of their combined housing and lifestyle business model. The Global Lifestyle segment saw consistent adjusted EBITDA, with growth driven by the Connected Living business in the US. The company has made investments in new partnerships and programs, such as with Spectrum Mobile and Telstra, leading to strong sequential growth. Assurant has also secured long-term contract extensions with major US mobile device protection clients, including T-Mobile, strengthening their position in the market.

The renewal of T-Mobile allows for continued investment and innovation in the partnership. A multi-year contract with Chase will provide coverage for millions of cardholders and strengthen the relationship between the two companies. In the Global Automotive sector, inflation has impacted earnings and is expected to continue to do so in the second half of 2024. However, long-term outlook is positive due to rate actions and moderation of claims inflation. Elevated losses are being experienced in the GAP product due to declining used car prices, higher interest rates, and increased total losses by primary insurance carriers.

Global Housing has seen a 45% increase in earnings in the first half of the year, showing the importance of the business and the strength of their unique business model. They work with states to ensure fair and adequate rates for homeowners and have strong competitive advantages. Their efforts have led to renewing partnerships and winning new clients, resulting in increased scale and operational efficiencies. This will continue to benefit the business in the future.

Assurant's specialized product and client base give them an advantage over traditional homeowners insurance carriers, leading to the recovery and growth of their business. They are focused on expanding their presence in the Property Management Company channel and have seen strong demand for their Cover360 solution. They have also signed a partnership to provide their Assurant Tech Pro service to the industry. Assurant expects high-single-digit growth in adjusted EBITDA and low-double-digit growth in adjusted earnings per share, driven by strong growth in Global Housing and modest growth in Global Lifestyle. They also anticipate growth in Connected Living through new partnerships and programs.

Assurant's first half performance and increased 2024 outlook demonstrate the success of their unique business model, which focuses on capital efficient businesses in Lifestyle and Housing. They have established partnerships with industry leaders and offer protection solutions for devices, automobiles, and homes. Assurant's specialized markets and long-term secular tailwinds have contributed to their outperformance compared to the broader P&C market. They have recently transitioned to being classified as a P&C insurance company and have published a sustainability report highlighting their progress in advancing their sustainability strategy. Their new sustainability vision is focused on creating a connected, respected, and protected world.

In the second quarter, Assurant saw strong financial results, with adjusted EBITDA growing by 10% and adjusted earnings per share increasing by 17%. They have established long-term ambitions to support a thriving society, a circular economy, and a stable climate, which they believe will drive value for their business and stakeholders. They are also focused on attracting and retaining a diverse workforce, developing sustainable products, and reducing their climate impact. Assurant is confident in their ability to continue driving business momentum in the second half and beyond. They ended the quarter with a strong capital position and returned $80 million to shareholders, including $40 million in share repurchases.

In the past quarter, the company repurchased $20 million in shares and has completed $100 million in repurchases this year. The Global Lifestyle segment saw a 4% decrease in adjusted EBITDA, driven by a decline in Global Automotive. However, Connected Living saw modest earnings growth, driven by mobile protection programs and new clients. International results have started to show signs of growth, but were impacted by investments in new capabilities. Net earned premiums and fees grew by 4% in Lifestyle and 6% in Connected Living. For the full year, the company expects modest growth in Global Lifestyle, driven by strong performance in Connected Living and ongoing claims in Global Auto. The expansion of the U.S. business is expected to lead growth in Connected Living.

The company expects investments in new clients and programs to impact Lifestyle growth, but will drive long-term business growth. In the Global Auto sector, inflation and elevated losses in ancillary GAP products have led to flat to modestly down adjusted EBITDA. The company has implemented rate increases and made changes to enhance claims adjudication processes in response to auto claims inflation. Their underwriting risk in auto is limited to a few clients, and they are working with clients to find mutually beneficial solutions.

In the second quarter, the company remained profitable through investment income and administrative fees, despite retaining some risk with vehicle service contract clients. The company saw an increase in adjusted EBITDA, driven by growth in homeowners and lender-placed policies. Despite higher expenses, the company's housing expense ratio improved. However, there was an unfavorable net impact from prior period reserve development. The company expects Global Housing to be the main driver of overall enterprise performance for the full year.

The company expects growth in the upcoming year due to various factors such as increased revenue, reduced expenses, and lower reinsurance costs. They anticipate challenges in the second half of the year due to client portfolio transitions, but overall, they expect healthy growth. The company also expects a loss from Hurricane Beryl, but the exact amount is still being determined. In terms of capital management, the company generated significant cash flow in the first half of the year and expects to continue generating cash flow in the future. They plan to use this capital for new business growth and returning capital to shareholders through share repurchases. The amount of share repurchases will depend on various factors such as market conditions and potential mergers and acquisitions.

The company has had a strong first half of 2024 and is confident in achieving their financial goals for the year. The operator opens the call for questions, and the first question is about the impact of inflation on the Global Auto sector. The company experienced inflation in the first quarter from vehicle service contracts and in the second quarter from GAP insurance. However, they expect rates to stabilize and improve in the second half of the year. They have also been working on reducing and transitioning risk with clients for the GAP product.

The company's GAP product is expected to improve faster than vehicle service contracts in the next couple of years, which will create a tailwind for their auto business. The company has been strategically reducing their GAP risk, but it remains a volatile product line. The negative impact on the business is factored into their 2024 outlook, and they expect an improvement in 2025. The company's card benefits business has been growing successfully, and the agreement with Chase is a significant opportunity for further expansion and growth.

The company has a long-standing relationship with Chase and is expanding into new product lines. They are investing in this launch and expect it to be EBITDA positive in 2025. The company sees this as a strategic growth lever and a driver of growth for the Connected Living business. They have seen a moderation in physical damage severity in the auto industry, but the GAP was a negative in the quarter. They did not see any significant acceleration in improvement on the vehicle service contract side, but they have seen loss cost trends moderate in the first couple of quarters.

The Consumer Price Index (CPI) for auto repairs has gone down slightly, leading to a 9% decrease year-over-year. This, combined with 14 rate increases over the past few years, is expected to improve the company's financial performance. The mix of used and new cars in the market has also normalized, with a 50:50 balance. In the financial services sector, the company has seen profitability improvements, particularly in the US market, due to its successful programs and recent win with Chase.

In this paragraph, Keith Demmings and Keith Meier thank Dan for his questions and then answer a question from Jeff Schmitt about the company's auto revenue mix. They explain that the GAP business is a small part of their overall business and that they have been working to transition some of the risk associated with it. They also mention that they share profits with only five clients and that this part of the business is becoming more profitable. When asked about the renters business, they state that it has been weaker than expected and that they are getting rate increases in that area as well.

Keith Demmings discusses the current rate and revenue levels at Global Housing, noting a 2% increase in revenue and an 8% increase in gross written premium. He attributes this growth to the property management company and expects the affinity business to improve over time. He also mentions consistent profitability in the business and potential for expense leverage in the future.

The speaker discusses the performance of the business, stating that they aim for a combined ratio of mid-80s and have shown discipline in expense management and leveraging technology. They have seen growth in policies and AIVs and are proud of their team. The expense ratio story is sustainable due to their scale, digital enhancements, AI investments, and integration platforms. The Global Lifestyle business has seen nice unit growth, particularly with Telstra and Spectrum, and investors are anticipating the launch of a new program.

In the paragraph, Keith Demmings discusses the impact of investments made by Telstra and Spectrum on EBITDA in the quarter for Connected Living. He quantifies the level of investment at $13 million year-to-date and explains that this trend is expected to continue in the second half of the year. He also mentions the growth in subscriber counts and the positive performance of the company in this area. The operator then asks a question about investment income offsetting weakness in the auto segment.

The speaker, Keith Meier, responds to a question about the percentage of auto's bottom line EBITDA that is investment income and the potential risk of short-term interest rates decreasing. Meier explains that the company is in a good position with a high-quality portfolio and a five-year duration. He also mentions that they share investment income with some clients, which would offset any impact from lower interest rates. The next question is about the retention of risk in the Lifestyle book, to which Keith Demmings responds that it is generally accurate to think of it as one-third retained, but it may be slightly less for the auto side.

The speaker discusses the reinsurance and client partnerships in the dealer business, which allows for better management and control of the VSC side. They also mention their confidence in their strong capital position and ability to deploy capital back to shareholders, leading to an increase in the outlook for repurchases for the remainder of the year. This is supported by their strong track record of cash flow generation and the completion of $100 million in buybacks. They expect to meet the higher end of their $200 million to $300 million range for buybacks.

In this paragraph, Keith Meier discusses the company's strong capital position and how it allows them to operate from a position of strength. He also mentions a reclassification of fee income and a potential client transition in the Housing division that could impact the second half of the year, but overall policy counts are expected to remain stable. He then concludes the call with a final comment before wrapping up.

The speaker emphasizes the company's strong track record of driving performance through various economic cycles and their pride in the current year's achievements and raised guidance. They also mention their 10% EBITDA growth and 16% CAGR in earnings per share over the past five years. They express excitement for future growth and creating shareholder value. The call will reconvene in November after the Q3 report.

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