Assurant Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 1, 2023

Key Takeaways

  • Assurant reported exceptionally strong Q3 results, with adjusted EBITDA excluding catastrophes up nearly 50% year-over-year, prompting a raise in full-year EBITDA growth guidance to the mid-to-high teens range.
  • The Global Housing segment more than doubled its Q3 adjusted EBITDA ex-cats, driven by homeowners top-line growth (rate increases, higher average insured values, more in-force policies), favorable non-cat loss experience, and expense leverage.
  • The Global Lifestyle segment delivered 7% EBITDA growth (14% ex-one-time benefit), led by Connected Living’s mobile protection expansion and improved trade-in margins, while Global Auto still faces inflationary claims costs but is showing early stabilization from rate hikes and operational actions.
  • Assurant extended its 2022 restructuring program, now expecting $90–95 million of pre-tax charges to further simplify the business, optimize real estate, enhance operational efficiency, and support long-term growth.
  • Strong cash generation funded $493 million of upstream dividends and $100 million of share repurchases YTD, with full-year buybacks now expected around $200 million, and holding company liquidity of $491 million at quarter end.
AI Generated. May Contain Errors.
Earnings Conference Call
Assurant Q3 2023
00:00 / 00:00

There are 10 speakers on the call.

Operator

Welcome to Assurant's Third Quarter 2023 Conference Call and Webcast. At this time, all participants have been placed in a listen only mode and the floor will be open for your questions following management's prepared remarks. We ask that you please pick up your handset and to allow optimal sound quality. It is now my pleasure to turn the floor over to Suzanne Shepherd, Senior Vice President of Investor Relations and Sustainability. You may begin.

Speaker 1

Thank you, operator, and good morning, everyone. We look forward to discussing our Q3 2023 results with you today. Joining me for Assurant's conference call are Keith Demings, our President and Chief Executive Officer and Richard Dziadzo, our Chief Financial Officer. Yesterday, after the market closed, we issued a news release announcing our results for the Q3 of 2023. The release and corresponding financial supplement are available on assurant.com.

Speaker 1

We'll start today's call with remarks from Keith and Richard before moving into a Q and 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.

Speaker 1

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 It is now my pleasure to turn the call over to Keith.

Speaker 2

Thanks, Suzanne, and good morning, everyone. We're very pleased with the exceptionally strong results we achieved in the Q3, with adjusted EBITDA, excluding catastrophes, growing nearly 50% year over year or 19% on a year to date basis, both ahead of our expectations. Our results were largely driven by continued momentum in Global Housing and our steadfast focus on executing our strategy, including driving innovation, creating efficiencies and strengthening our global partnerships. These efforts have positioned us to ceed our previous expectations of high single digit adjusted EBITDA growth excluding catastrophes. We now expect adjusted EBITDA growth of mid to high teens.

Speaker 2

Our year to date performance highlights Assurant's competitive differentiators, including our advantaged global housing and global lifestyle businesses but have proven leadership positions with scale and significant cash generation. Combined, these businesses are extending Assurant's track record A strong financial performance, thanks in part to the swift actions we've taken across our global operations to improve results and strengthen the business given broader macroeconomic headwinds. We continue to realize benefits from the actions we announced in 2022 To simplify our business and corporate real estate and realign our organizational structure, allowing us to reinvest throughout the enterprise, We extended our 2022 restructuring plan to include additional actions across the enterprise as we believe further enhancing Assurant's Operational efficiency will support our long term profitable growth and value creation. We now expect total restructuring costs Associated with our extended plan to be between $90,000,000 $95,000,000 pre tax, above our previously announced Expectations of $60,000,000 to $65,000,000 Looking at our business segments, in Global Housing, I want to thank all of our employees We supported policyholders impacted by Hurricane Idalia and the Hawaii wildfires as well as several other significant weather events during the quarter. Assurant plays a critical role in safeguarding our policyholders and supporting the U.

Speaker 2

S. Mortgage industry. Our global housing adjusted EBITDA excluding cats more than doubled year over year and increased 72% year to date led by significant growth in our homeowners business through top line growth and improving loss experience. Our ability to quickly execute changes, particularly in our lender placed business, has helped us gain earnings momentum from higher in force policies, Average insured values and state approved rate increases following inflation impacts in 2022. Our performance so far this year highlights Global Housing's compelling and uniquely positioned portfolio.

Speaker 2

Year to date, including $89,000,000 of reportable catastrophes, our combined ratio is 82% And our annualized ROE is 29%, demonstrating strong returns and cash generation. In our renters business, we saw continued strength in our property management channel, where policies in force have grown double digits this year. We continue to win new clients, grow existing partnerships and release new capabilities, including our upgraded leasing agent portal And digital insurance tracking enhancements. We're very pleased with Global Housing's strong performance year to date, which reflects our focused execution around streamlined product lines where we have a clear competitive advantage and scale. Turning to Global Lifestyle.

Speaker 2

3rd quarter earnings increased 7% year over year or 14% excluding a one time client benefit within Connected Living last year. Year to date adjusted EBITDA, down 6% versus the same period in 2022, Has continued to improve throughout the year and is tracking in line with our expectations of a modest decline for the full year. Within Connected Living, we continue to support long term growth through the development of innovative offerings for our partners. U. S.

Speaker 2

Connected Living is poised for another year of solid growth, particularly within our mobile protection business, a testament to our breadth of innovative offerings, customer experience, expertise and deep relationships with mobile carriers and cable operators. As macroeconomic headwinds have persisted, including impacts from inflation, we've taken decisive action across our global operations to mitigate these impacts. In Europe, expense actions have allowed us to stabilize earnings as we focus on critical opportunities to grow our top line. We also continue to invest to advance product innovation and anticipate our clients' needs as well as improved customer experience through expanded service delivery capabilities. For example, as part of the extension of our 2022 plan to realize benefits and simplify our business and corporate real estate, We're consolidating our mobile device care centers into 2 sites in the U.

Speaker 2

S. We'll move the services currently offered in York, Pennsylvania to our existing facility in Texas. Over time, we'll be investing in a new site in Nashville, where we can leverage a strong talent market and greater logistics efficiencies as we evolve with emerging clients. Turning to our global auto business, We're beginning to see initial signs of claims improvement as a result of the decisive actions taken over the last year to improve performance. These actions included implementing rate increases on new policies across impacted clients and advancing opportunities to improve loss experience for programs where we hold the risk.

Speaker 2

We continue to monitor claims costs closely and expect improvement will be gradual over time given the way the auto business earns. In auto, we launched Assurant Vehicle Care at over 500 dealers. Building on decades of proprietary data on cost of claims, Assurant Vehicle Care is a comprehensive new suite of vehicle protection products. It was developed to help our dealer partners optimize product design, pricing, training and sales to ultimately enhance attachment and economics. For the consumer, Assurant Vehicle Care provides a digital experience with more vehicle coverage, flexibility and transparency.

Speaker 2

Now let's turn to our enterprise outlook and capital. Given our year to date results and our business outlook for the remainder of 2023, We now expect adjusted EBITDA to grow mid to high teens, excluding catastrophes. Adjusted EPS growth is now expected to exceed adjusted EBITDA growth, each excluding catastrophes. This is primarily due to higher earnings growth that now more than offsets the increase in depreciation Thanks. From a capital perspective, we upstreamed $202,000,000 of segment dividends during the 3rd quarter and $493,000,000 year to date.

Speaker 2

We ended the Q3 with $491,000,000 of holding company liquidity, consistent with the end of the Q2. In terms of share repurchases, during the Q3, repurchases totaled $50,000,000 This brings our total repurchases to approximately $100,000,000 for the year, including an additional $30,000,000 of shares purchased through the end of October. Based on our strong year to date results, we expect 4th quarter buybacks to accelerate from 3rd quarter levels and to be approximately $200,000,000 for the year, consistent with our underlying repurchase activity in 2022. We're pleased with our strong capital position, which affords us more long term flexibility over time. Looking to 2024, we expect a more modest level of earnings growth in Global Housing, excluding catastrophes, Building on strong 2023 financial results, which included $40,000,000 of favorable prior year reserve development.

Speaker 2

In Global Lifestyle, we expect earnings growth to be led by Connected Living, particularly in the U. S. From the expansion of current programs, as we work to gradually improve the auto business, which we will continue to manage closely. From a capital perspective, We're committed to maintaining flexibility through our strong balance sheet and deploying capital for share repurchases and opportunistic acquisitions to support our growth objectives. We will share our 2024 outlook in February, factoring in our 4th quarter earnings, business trends, as well as the latest forecast of the macro environment for the year.

Speaker 2

In the near term, we're focused on achieving our 2023 objectives and setting a path for continued growth and value creation in 2024 and beyond. As we look ahead, we remain committed to execution, innovation and enhancing the customer experience for our clients and their end consumers, particularly as we look to capitalize on growth opportunities while supporting continued momentum. Before I turn the call over to Richard to review the Q3 results Our 2023 outlook in greater detail, I want to once again thank our employees for their hard work and dedication to deliver for our clients. Our company was recently recognized as one of Time's best companies in the world, highlighting Assurant's strong employee satisfaction, Revenue growth and sustainability efforts. Assurant was also recognized by Newsweek as one of America's Greenest Companies, demonstrating our commitment to and progress in operating more sustainably.

Speaker 2

The recognition was timely as we recently introduced CarbonIQ by Assurant. This offering enables clients to see the carbon impact of each device, including new and refurbished devices and provides them with estimated CO2 emissions throughout the We're honored to be recognized for our outstanding culture, Product sustainability, all of which help us better serve our clients. And now, over to Richard.

Speaker 3

Thank you, Keith, and good morning, everyone. For the Q3 of 2023, adjusted EBITDA excluding reportable catastrophes totaled $357,000,000 up $118,000,000 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 $192,000,000 in the 3rd quarter, an increase of $12,000,000 or 7% year over year.

Speaker 3

As a reminder, prior period results included a one time client benefit of $11,000,000 within Connected Living. Excluding the prior period gain, Global Lifestyle's adjusted EBITDA increased 14% or $24,000,000 This increase was primarily driven by higher contributions from investment income and mobile growth. Connected Living earnings increased $30,000,000 32%, excluding the one time 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.

Speaker 3

In Europe, we stabilized performance through expense actions, mitigating the impact of headwinds that began in the second half of twenty twenty two. In Japan, results were impacted by subscriber decline, which is expected to continue into 2024. Global Auto adjusted EBITDA declined $6,000,000 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.

Speaker 3

The auto earnings decline It 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 $83,000,000 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 $55,000,000 with no corresponding impacts to profitability.

Speaker 3

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.

Speaker 3

In Connected Living, we expect our U. S. Business to grow for the full year. Overall, we are pleased with LifeStyle's strong 3rd quarter performance, especially in light of ongoing challenges in auto claims. For the Q4, 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.

Speaker 3

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 $165,000,000 which included $26,000,000 in reportable catastrophes, primarily from Hurricane Adelphia and Hawaii wildfires. Excluding reportable catastrophes, adjusted EBITDA more than doubled to $191,000,000 with an increase of $106,000,000 Housing performance was mainly led by 3 main items. 1st, continued top line growth in homeowners from higher premium rates and average insured values and lender placed as well as an increase in the number of in force policies.

Speaker 3

2nd, favorable non cat loss experience across the segment, including a year over year positive impact of $39,000,000 related to prior period reserve development. This was comprised of $15,000,000 of reserve reductions in the current quarter compared to reserve strengthening of $24,000,000 in the prior period. And lastly, additional scale within our homeowners' expense base, ultimately driving stronger operating leverage. Higher investment income also contributed to earnings growth for homeowners. For renters and others, earnings grew modestly from favorable prior period reserve development.

Speaker 3

Growth within the property management channel It was offset by softer affinity channel volumes. For the full year 2023, we expect Global Housing adjusted EBITDA, excluding reportable cats, to grow significantly due to the strong homeowners performance driven by top line expansion lender placed and favorable non cat loss experience. In the Q4, we expect higher expenses to support business growth. In addition, the 3rd quarter included $15,000,000 of favorable prior period development. Moving to corporate.

Speaker 3

The 3rd quarter adjusted EBITDA loss was $26,000,000 representing a modest year over year increase, mainly related to higher employee expenses. For the full year 2023, We continue to expect the corporate adjusted EBITDA loss to approximate $105,000,000 Turning to holding company liquidity, ended the quarter with $491,000,000 and dividends from our operating segments totaled $202,000,000 In addition to cash used for corporate and interest expenses, 3rd quarter cash outflows included 3 items: $50,000,000 of share repurchases, dollars 37,000,000 for common stock dividends and $50,000,000 to complete the repayment of our September 2023 notes. As Keith mentioned, given our year to date performance and outlook for the year, As well as the strength of Assurant's balance sheet, we expect to achieve full year share repurchases of approximately $200,000,000 For the full year, we continue to expect our businesses to generate meaningful cash flows, approximating 65% of segment adjusted EBITDA, including reportable catastrophes. Cash flow expectations assume a continuation of the current economic environment and are subject to the growth of the businesses, investment portfolio performance and rating agency and regulatory requirements. In closing, through the resilience of our unique business model, the decisive management actions taken In our intense client focus, we are confident in our ability to achieve the higher full year objectives we have outlined today.

Speaker 3

And with that, operator, please open the call for questions.

Operator

The floor is now open for questions. Your first question is coming from the line of Mark Hughes of Twist. Your line is open.

Speaker 2

Good morning, Mark.

Speaker 4

Yes. Thank you. Good morning, 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. On the housing business, the Increased policy count, how much of that is coming from, say, voluntary versus some uptick perhaps in delinquencies or

Speaker 2

Yes. I'd say, first of all, yes, we're pretty excited about The results in housing and tremendous amount of work by the team in the last year, and it's really showing through here the last few And we're building a lot of momentum. I would say very little of the policy growth relates to the underlying economy or REO at all. We're really seeing No change in placement rate based on economic conditions. Maybe a little bit of increase in policy count In a state like California, I'd say very modest, but a bit of a harder market.

Speaker 2

So we're seeing a little bit of growth there. Florida, Basically flat year to date. So most of the growth is clients and client loan related mix and Nothing yet in terms of the broader economy.

Speaker 4

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

Speaker 2

Yes. I mean, obviously, we work on Rates related to that product line consistently state by state. We also have, As you know, the average insured value adjustment that we do in the summer every year and obviously last summer we put a Meaningful double digit increase into average insured values. This year, it was just over 3%, 3.1% that went in, in July. And then state by state based on historical performance and expected costs, we continue to work with SAID.

Speaker 2

I feel like we still have momentum running through The portfolio, we haven't certainly haven't topped out in terms of the impact from the rate adjustments, but we do see it Tapering and slowing certainly as we think about Q4 as we head into 2024. But year to date, feel good with where our loss ratios sit. In housing, we're 42% non cat loss ratio if you adjust for prior period development, very consistent with where we were last year. So we feel like The rates that we have are certainly appropriate. And as we see impacts on cost of claims, we'll modify as we go forward.

Speaker 4

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

Speaker 2

Yes. So if we think about that year over year, certainly volumes are down. We saw softer promotional activity In the Q3, not out of alignment with what we expected. We did see a pickup in the back half of September, Obviously, after new product introduction by Apple. So hopefully, that sets us up with what we'd expect in the Q4 to be An improvement there.

Speaker 2

And as I look at that business, we've done a really nice job in driving operational efficiency and automation to Continue to improve the efficiency with which we operate. And then as you said, we've gotten higher sale prices when we're selling devices and obviously we derive revenue based on how well we sell devices in the secondary market. But I'd say there's not much else to report. Profitability a little bit stronger, but if you'll remember, Q3 last year, we had a bit of a mismatch between expenses and revenue. So Q3 trade in results were a little bit depressed last year.

Speaker 4

Okay. Appreciate it. Thank you.

Speaker 2

Great. Thanks.

Operator

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

Speaker 4

Hi, good morning. Good morning. Good morning.

Speaker 5

Back to growth in Global Housing. So PFO growth was 23% in the quarter. I'm just trying to think through the components. You had mentioned Inflation Guard was 3%, I think in June or July, but I guess 12% last year, so maybe kind of a mix there earning through. What's rate at?

Speaker 5

How much was the rate component? And how much was the unit growth component? I'm just trying to think of the different parts there.

Speaker 2

Yes. So maybe I can start and then certainly Richard I can jump in. Obviously, when you look at housing's revenue year over year, it's up meaningfully, dollars 100,000,000 $103,000,000 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, dollars 50,000,000 this year against an adverse development last year of $24,000,000 We still see a $67,000,000 increase in our underlying EBITDA.

Speaker 2

And I would say 2 thirds 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 a third 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.

Speaker 3

Yes, sure. Yes, that's exact. And I guess I would add, by the way, good morning, Jeff. What I would add is that if you just look at the premium component that Keith just talked about, think about it generally as being a third for each The components that we've just discussed, it's the increase in rates, average insured values And inflation guard. That's sort of the way to look at it.

Speaker 3

And the other thing too that I would mention is you see You heard Keith talk about how much drops to the bottom line. I think that's also a credit to the expense discipline that we've had and the leverage we're getting. And You can see that coming out in the expense ratios that the growth in the premiums and the leverage that we have in the business is really allowing us to increase the bottom line.

Speaker 5

Got it. Very helpful. And then in Global Lifestyle, just looking at that benefit ratio, kind of continues to move up Despite rate increases, it was 23% in the quarter, mainly driven by auto, it sounds like. Could you maybe Discuss the pricing strategy there, like when did that begin? What level of pricing can you get in this market?

Speaker 5

Really any Detail on that would be helpful.

Speaker 2

Yes. I can certainly start, Richard. So if I think about the auto business, actually pleased with The work done by our team. So we started making adjustments to rate late last year. So we've probably been In about a 12 month cycle, making adjustments with clients, we're really on the risk, in a meaningful way for 4 or 5 different programs.

Speaker 2

So it's not the bulk of our business as we've talked about before. Most of that business is reinsured. So there's a handful of clients that we're working with very closely, And we put rate in place that we feel is appropriate to get the business to perform at the levels that are expected. So That work has been done. It's been ongoing for the last 4 quarters or so.

Speaker 2

Feel good about the adjustments we've made. We've had incredible Discussions with our clients to try to get the programs to the right level of profitability. We've also been working incredibly hard, not just on rate, but on The claims adjudication process, how we're acquiring parts, how we're thinking about repairs and which repair shops to use and when the options are available to us to drive more Efficiency and a lot of diligence end to end and very much in partnership with the clients. So as we look at the results in the quarter, Certainly seeing a similar pattern to what we saw in Q2, but the good news is we've seen relative stability. The cost of severity on the auto side is up a little bit in Q3 over Q2, but the premium earning through is also up And we're seeing a modest improvement in the underlying loss ratio when we look at the risk clients.

Speaker 2

So feel like we're doing the right things. It's going to take time certainly to earn through, but Early signs of good momentum at least in starting to stabilize as we look to bend the curve. But Richard, certainly anything else you want to add?

Speaker 3

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 sold what we've sold in the past and that's going to run through.

Speaker 3

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.

Speaker 5

Great. Thank you.

Operator

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

Speaker 2

open. Yes.

Speaker 6

Hey, 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 2024?

Speaker 2

Yes, sure. Let me start at the highest level with Japan. I mean, and I've talked about this before and hopefully this comes through. I mean, this is a Really, really critical market for Asurion. It's a tremendous mobile marketplace.

Speaker 2

It's the 2nd largest in the world after And I do think we are well positioned for long term growth. That's the fundamental point. We're doing a lot of investing In the market, investing in not just capabilities, but also talent. And we're in a really fortunate position today and that we have relationships with every major operator in the marketplace. We don't do all things for all operators, but we've got access, we've got deep relationships and I think over time that will bear fruit.

Speaker 2

I would say as we think about exiting 2023, we're certainly stabilizing the financial performance In Japan, we've seen some subscriber runoff as we've talked about in the past. I expect that to continue to decelerate into 2024. And we do think we'll grow EBITDA in Japan year over year 2024 over 23. So I am really pleased with the hard work that the teams are doing and how we're positioned in the market. But that market is about what is it going to look like in 5 years And how do we unlock the full potential of what I think we can achieve in that market?

Speaker 6

Do you have like a percentage you

Operator

can give us of how much

Speaker 6

of the Japanese business is now on a perpetual policy versus, I guess, it was a 4 year policy is what they were?

Speaker 2

Yes. So the 4 year policies continue To run down, certainly, the majority of the business is on an evergreen policy. 100% of the business that is sold Today is on an evergreen policy, but certainly the vast majority.

Speaker 6

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 rates 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.

Speaker 6

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?

Speaker 2

Yes. So we definitely have still seen inflationary pressure. If we look at the Q3 results as an example, we did see Higher severities year over year. We did see higher frequencies year over year. But because of the rate action that we've taken and The change with inflation guard on insured values, the premiums that we're getting more than offset those increases from a claims perspective.

Speaker 2

So I'd say That's largely why we're outperforming in this market. And obviously, our team is doing a really good job. To Richard's point, Not just on the way we operate claims and the diligence that we work with, but the effort around expense efficiency. I mean, if you think about Housing, we've scaled that business and it really is a scaled business. We've scaled tremendously and our expenses operational expenses are flat to down for the bulk of the housing business and overall done a really good job on containing G and A, simplifying and focusing And driving a lot of digital initiatives to drive efficiency.

Speaker 2

So it's a combination of 4 or 5 things that are coming together to lead to the outperformance. It's not as simple as Great. It's a lot of work across the board over the last 12 months or so.

Speaker 4

Makes sense. Thank you.

Speaker 2

Great. Thank

Operator

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

Speaker 2

Hi, John.

Speaker 7

Good morning. Thanks for the opportunity. Appreciate it. You talked about on the call consolidating mobile service centers Two areas, I believe you name checked Texas and Tennessee, if I heard correctly. Both are low tax, previously low cost states.

Speaker 7

Are there further opportunities in the 2024 to move businesses or operations in cheaper areas in the U. S. That you're considering?

Speaker 2

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, and 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 an Access to talent from a logistics, access to clients, etcetera. 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 So that's what's driving that change.

Speaker 2

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.

Speaker 3

I'd also just that's exactly right. And I'd just add to that too is one of the other areas we've been getting Some real estate efficiency, if I can put it that way, is on our corporate real estate. We have been either downsizing Some of our offices or eliminating some of the offices and that helps us from an expense base That overall corporate expense that we have. So that's another area that we've gotten some pretty good efficiency in, John.

Speaker 7

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?

Speaker 2

Yes. So maybe I'll just offer one thought and then Richard can speak to the process. But To your point, we've obviously had a favorable cat year to this point, significantly below last year, and we talked about A target cat load of $140,000,000 we're sitting at $89,000,000 year to date. So obviously, that's fortunate from that perspective, and we'll certainly look To those statistics as we talk to our partners heading into the renewal cycle and hopefully a little bit of a different environment than we were in last year. But Richard, maybe talk a little bit about how we're thinking about reinsurance?

Speaker 3

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 the Pricing, it has stabilized versus what it was in the last couple of years.

Speaker 3

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 and presenting a very favorable position relative to the reinsurers where they ended up in 2023.

Speaker 7

Thanks a lot for the answers. Best of luck.

Speaker 2

Great. Thank you.

Speaker 4

Thank you.

Operator

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

Speaker 2

Hey, Tommy.

Speaker 8

Good morning, Tommy. Hey, good morning, guys. Thanks for taking my questions. I think you said, Keith, that And those bread crumbs 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 in terminology of excluding catastrophes or including catastrophes?

Speaker 2

Yes. Great question. So we're looking at ex cat, first of all, obviously hard to predict what cats are going to

Speaker 3

look like. But As I

Speaker 2

think about housing in 2024, I think when we suggest modest growth, there's a couple of things to remember. First of all, A phenomenal 2023. I mean, this is a pretty significant recovery year, obviously, a little bit more challenged in 2022, but Roaring back in 2023. So we're extremely pleased about that. And of course, that trend line can't continue because it's been such a turnaround.

Speaker 2

But What I would say is we've also seen about $40,000,000 of prior year development benefiting the P and L in 2023. But we still think we'll grow housing even though we've got to grow through that $40,000,000 of PYD before we generate $1 of growth. We still think we'll grow housing because of the momentum that we see and all the great work done by the team. So that's what we're trying to signal. Obviously, we'll get Into the detailed forecast as we come back in February, but we do feel good about how we're positioned, right?

Speaker 2

Housing obviously It's going to moderate, but we've got great trend lines sitting behind us and great momentum. And then as we saw in lifestyle in the Q3, although we've got Challenges we're working through on the auto side overall were exactly where we thought we would be. We're still signaling Down modestly for the year. We are signaling growth in 2024 for lifestyle and we'll come back with more details, but certainly driven by the strength of the U. S.

Speaker 2

Connected Living business, which has been growing nicely for 7 or 8 years.

Speaker 3

And just another addition on housing, we will have something like $40,000,000 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. As Keith said, it's just a fantastic year we're having in housing. And kind of the way I look at it and we look at it inside is we look at a multiyear journey. So really looking at last year was a bit of a tougher year.

Speaker 3

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's not going to be like this year. It's going to be slower given all the elements that Keith and I have mentioned.

Speaker 8

Makes sense. Thanks. And then, Richard, can you talk a little bit about the new money yields that you guys are getting, the duration of Your investment portfolio, and just how much the tailwinds of sort of reinvesting over time could be? And then also how that allocates between Potential upside for connected living versus auto versus housing, just kind of how that investment income fits within each of those?

Speaker 3

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 $40,000,000 So a really nice number coming through.

Speaker 3

I would say, and to answer your question, that's probably think about it being maybe 1 third housing, 2 thirds 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.

Speaker 3

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. Got it.

Speaker 3

Thanks guys.

Speaker 2

Thanks,

Operator

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

Speaker 2

Good morning, Grace. Hey, Grace. Good morning.

Speaker 9

Good morning. 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 looked pretty good. And Just the extent to which maybe, the improvement in the loss ratio and the expense ratio 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 for the top line given that presumably, maybe some of the benefits from the inflation adjustment and things like that start to decelerate a

Speaker 3

bit next year? Thank you.

Speaker 2

Yes. No, it's a great question. And certainly, Richard can add in. But when I think about that business and we've talked about Over the long term, an expected combined ratio range of 86% to 91%. If you look at where we sit on a reported basis, This year looks a little bit lower, but adjusting for the prior year development, it's about 85% year to date with a relatively light Cat year, so far in terms of the P and L.

Speaker 2

So we're relatively close to that range today, which is good. Obviously, we think that's an appropriate long term Range for the business. We do think rate will continue to come through. But as we've said, at a more moderated pace, as we have less of that double digit AIV earning through and then it obviously comes through at just over 3% going forward, let's call that a more normalized level. I think policy count is relatively stable, but we do think we're well positioned.

Speaker 2

If you think about industry consolidation and think about the clients that we operate with, We partner with a lot of major players in the space and hopefully as the market dynamics move around, there could be some opportunity for us to continue to grow Policies over time. So I do think it will be just a moderated trend line from what we saw this year, but certainly still Expect strong results in housing and hence overcoming the $40,000,000 of prior year development. But Richard, what else might you add?

Speaker 3

Yes. I think that I guess, I would also say that, Grace, when we look at the combined operating ratio, it's 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.

Speaker 3

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 springtime. So obviously, that's something that's hard to call.

Speaker 3

But if we talk about the combined ratio at 86% to 91% with cat, that's probably something that we look And say on a normal cat year, we'd probably be in and around that range, if that's helpful.

Speaker 9

Yes, that's helpful. Thank you. Thanks, Grace.

Operator

And again,

Speaker 9

on the renters book, we've heard some personal auto players This quarter say that they're starting to see severity trends maybe flatten out a bit. And I was just curious on the affinity partners aspect of that business, If you all are seeing any green shoots there or when that might inflect back to strong growth?

Speaker 2

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 Q3 This year more than we grew it, all of 2022.

Speaker 2

So the team has done an incredible job adding clients, driving attach and leveraging our Cover 360 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 2024.

Speaker 1

Thank you.

Speaker 2

Thanks, Grace. 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.

Speaker 2

Thanks so much.

Operator

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

Powered by Quartr