Q4 2019 Earnings Call
[music].
Welcome to Assurants fourth quarter, and full year 2019 earnings conference call and webcast.
This time, all participants have been placed in listen only mode and the four will be open for your questions. Following management's prepared remarks, he would like to ask a question at that time. Please press star one on your Touchtone phone if at any point. Your question has been answered you may remember yourself from the Q by pressing the pound ski we ask that you. Please.
Pick up your handset to allow optimal sound quality.
Lastly, if you should require operator assistance. Please press star zero. It is now my pleasure to turn the floor over to Francesca Luthi Executive Vice President and Chief Communications Marketing Officer, you may begin.
Thanks, Christine and good morning, everyone. We look forward to discussing our fourth quarter and full year 2019 results with you today, joining me for Shrontz conference call or Alan Colberg, Our President and Chief Executive Officer, and Richard Jojo, Our Chief Financial Officer.
Yesterday after the market closed we issued a news release announcing our results for the fourth quarter and full year 2019, the release and corresponding financial supplement are available on a short dotcom well start today's call with remarks from Alan and Richard before moving onto queuing.
Some of the statements made today are forward looking forward looking statements are subject to risks uncertainties and other factors that could cause actual results to differ materially from those contemplated by these statements.
Additional information regarding these factors can be found in yesterdays earnings release as well as in our FCC 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 detailed 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'll now turn the call over to Alan.
Thanks, Francesca good morning, everyone. We're pleased with our operating results for both fourth quarter and full year 2019, that's a illustrate our ongoing ability to deliver superior value for our customers employees and shareholders.
For the full year net operating income excluding reportable catastrophes increased 11% well earnings per share grew 6%, reflecting the shares issued for the warranty group acquisition.
After adjusting for certain nonrecurring items, which Richard will detail later net operating income increased 15% and earnings per share grew 10% at the high end of our expectations.
These results primarily reflected the stronger than expected performance of our mobile business and full year contributions from the warranty group.
Overall, we continue to evolve our mix of business with about three quarters of our segment earnings now coming from non catastrophe exposed businesses driven by strong growth in connected living.
We believe this allows us to generate more diversified earnings and cash flow.
In 2019 or operating segments contributed a total of $748 million in dividends to the holding company.
This allowed us to raise our common stock dividend for the fiftyth consecutive years since our IPO and returned $426 million to our shareholders.
This positions us to deliver on our Investor day objective to return a total of $1.35 billion to shareholders by the end of 2021.
We delivered strong earnings and cash flows will also taking actions to strengthen assurant for the future.
We added a renewed more than 60 valuable client partnerships across our lifestyle in housing segments and launched several new product offerings to drive even greater value for our customers.
Our targeted investments in emerging technologies, such as artificial intelligence and other capabilities will ensure that we continue to deliver superior experience for the 300 million consumers we serve worldwide.
These investments will also were made possible by the $100 million in gross expense saves we've now realized since 2016.
Our performance wouldn't be possible without the unwavering dedication of our 14000 employees across the world.
They continue to serve not only our customers, but their local communities as well.
Our share in foundation during 2019, we provided support to nearly 1300 charities focused on helping our local communities grow stronger.
Most recently this included relief for the Australian wildfires and the earthquakes in Puerto Rico.
In March we will publish our next Assurant social responsibility report to share our progress on multiple environmental social and governance priorities, which we believe are key to the execution of our strategy.
Now, let me provide additional hyatt highlights from the year for each of our business segments.
Within global lifestyle 2019 was a record years, we increased earnings 37% to $409 million.
Connected living was the major contributor as this segment benefited from several longstanding partnerships and the market success of 10, new mobile programs added since 2017.
As of yearend, we now protect over 53 million mobile subscribers, an increase of 15% year over year.
Importantly, we cemented several key partnerships, including securing a long term extension of a major client relationship in Japan, where we've increased the number of cover devices by over 50% just in the last year.
Key to our success has been our ability to drive additional value for customers by expanding our fee for service offerings beyond traditional vice protection.
To include value added offerings like personal tech pro and pocket Geek.
These platforms allow customers to help solve technical issues optimize performance of their devices and can net to life technical assistance, all of which delivers a better experience has tracked through our strong net promoter scores.
In the year ahead, we will look to further expand our services to include new offerings, such as I'd protection.
And global automotive, we protect over 47 million vehicles worldwide up by almost 3 million since 2018.
This growth is the result of the strength of our relationships with global Oems National dealers, and Ta phase and the scale and expertise we acquired with warranty group.
In 2019, Tw GE contributed an estimated $130 million to global lifestyles earnings after accounting for intangibles and synergies.
As we announced in the second quarter, we've delivered operating synergies beyond our initial goal of $60 million pretax since the close of the acquisition.
Well 2020 earnings growth is expected to moderate from a record 2019 that supports our view that we can grow net operating income by at least 10% on average from 2019 through 2021 and continue to produce strong cash flows in global lifestyle.
Moving to global housing, we generated operating return on equity, including Katz of almost 17%, which we believe continues to surpass the PNC industry average.
We benefited from a relatively mild cat year and continued growth within our multifamily housing business.
Well, we incurred higher losses within our specialty housing portfolio, we have taken actions to limit our go forward exposure and improve results this year.
Within our lender placed business, we renewed 16 clients, representing approximately 60% of our track loans, a testament to our superior offerings.
As we look to sustain our leadership position, we will continue to invest in our more efficient and customer centric single source platform, where we've now onboard and multiple clients and have plans to onboard others in the pipeline.
In multifamily housing we grew our veterans policies to 2.2 million up 10% will also growing revenue by 6%.
Our focus remains on driving a superior experience for both our clients and renters.
We continued the rollout of our integrated billing and tracking platform, which provides substantial value to renters and landlords to allow us to increase attachment rates going forward.
Overall, we believe the actions we've taken within global housing positions that business for profitable growth in 2020 enables us to further generate above average returns and strong cash flows.
In global pre need we delivered $52 million in net operating income after the onetime tax adjustment in the third quarter.
During the course of the year, we continue to leverage our strong long term partnership with Sci an industry leader will also growing our final need business with new distribution partners.
This has allowed us to create a more profitable sales mix as we continue to generate strong cash flows.
The unique characteristics of this business, including low mortality risk relative to other life insurance products steadily growing earnings and strong cash flows provides us with confidence that we can sustain operating yara, we have 13% in global pre need long term.
To summarize 2019 was a strong year for assurance, we deepened our relationships with many leading brands delivered superior value or Frank consumers and strengthened our bench of talent.
All of this helped us generate a more diversified base of earnings from which we expect to continue to grow.
For full year 2020, we expect operating earnings per diluted share, excluding catastrophe losses to increased by 10% to 14% from $9 in 21 cents in 2019.
The range includes a 1% negative impact related to convertible shares being dilutive for 2020.
EPS growth of we've driven primarily by higher net operating income across each of our segments as well as continued share repurchases.
We believe our 2020 outlook builds off a larger and more diversified mix of businesses.
Overall, it gives us confidence that we can meet our financial objective of 12% annual EPS growth on average for 2020 and 2021.
As we entered the connected decade, we believe will create opportunities for assurance as consumer lifestyles will increasingly intertwined with are connected ecosystems. For example, with the rollout of Fiveg and major enhancements to vehicle technology on the horizon, we look to address consumer needs in both the connected home and connected car.
We believe that investing in our people customer experience and innovation should allow us to continue to expand earnings and cash flow over the long term.
Japan payer, we will drive investments, both organic and through targeted acquisitions to scale, our operations develop new offerings and launch new client programs, while strengthening our infrastructure to support future growth.
I'll now turn the call over to Richard to review fourth quarter results in 2020 outlook in more detail richer.
Thank you and good morning, everyone. As Alan noted we are pleased with our overall performance for 2019.
Now going to review, our fourth quarter results and our 2020 outlook in more detail.
Excluding cats fourth quarter 2019, net operating income declined by $5 million to $140 million due to the absence of a client recoverable in the prior year period.
In the quarter, we accelerate investments within global lifestyle to support future growth driven by strong business momentum.
At the same time, we also took actions to transform our IP operations, which resulted in $8 million of severance.
Savings are expected to fund future investments in our infrastructure and cloud capabilities.
Now, let's move to segment results for global lifestyle.
The segment posted earnings of $97 million, an increase of 15% when excluding $4 million of IP severance and a $9 million client recoverable from the prior year period.
It was driven primarily by continued mobile subscriber growth from programs in Asia Pacific in North America.
This was partially offset by investments to support business growth.
In global automotive earnings declined due to higher expenses to support business growth, partially offset by growth in national dealer in PA distribution channels.
Total revenue for the segment was up $233 million or 14%.
The increase was driven by expansion within connected living primarily from mobile carriers in Oems and to a lesser extent extended service contracts.
Within global automotive revenue grew 11%, primarily reflecting prior period sales of the cease across all three distribution channels, while our protected vehicle count increased by 7%.
For the full year 2020, we expect global lifestyles net operating income to be up modestly.
Compared to an exceptionally strong 2019.
This is in line with the expectations, we presented at Investor Day.
Hey driver will be growth from maturing connected living programs launched since 2017.
As always trading activity will be driven by the timing and success of new phone introductions and carrier promotions, which can vary from quarter to quarter.
Throughout the year, we expect to make additional investments to support new programs in future growth.
Our global automotive business is also expected to grow next year, but to a lesser degree than connected living.
Growth will be driven by prior period sales of vehicle service contracts.
Auto results will continue to be impacted by the low interest rate environment and expected declines in investment income.
Within global financial services, we continue to anticipate declines in our legacy credit insurance business, which will offset growth from embedded card benefit offerings as we scale our programs in the United States.
Moving to global housing.
Net operating income for the quarter totaled $73 million, an increase of $85 million year over year.
Partially driven by lower reportable catastrophes.
Excluding catastrophe losses, and a $3 million and $3 million of IP severance earnings declined $8 million.
This was driven by higher loss experience, primarily related to a client within our sharing economy portfolio.
In response, we have taken actions to improve results, including terminating certain coverages and we're continuing to monitor experience closely.
Lender placed income contracted reflecting the reduction in policies in force from the financially and solve and client we previously disclosed.
Higher premium rates and lower expenses helped to partially offset the decline.
Within small commercial policies are now in runoff and results improved during the quarter inline with our expectations.
Going forward, we expect contributions from the business to be immaterial.
Turning to revenue global housing net earned premiums and fees increased 2% driven by our specialty property in multifamily housing businesses.
Lender placed revenues decreased reflecting the reduction in loans referenced earlier, partially offset by higher premium rates.
The placement rate within lender placed business decreased 1.58% down five basis points year over year, and three basis points sequentially, reflecting our mix of loans.
In January we placed two thirds of our Twentytwenty catastrophe reinsurance program and expect to finalize the program in July.
We secured additional multiyear coverage with now 47% of our US program benefiting from this feature.
We maintained our per event retention levels at $80 million as we believe the actions we took last year combined with growth in our non cat exposed businesses provide appropriate risk return balance for twentytwenty.
As always we will continue to reevaluate our exposure.
For Twentytwenty, we expect global housing net operating income excluding cats to increase for the first time after several years of decline driven by expansion across all of our lines of business.
Results should benefit from improved profitability in our specialty property offerings, including the wind down of our small commercial business.
Lender place growth will be partially offset by the transition of loans from the financial in solving client over the next few quarters.
Lastly, we expect continued growth in multifamily, reflecting increased penetration across our PMC and entity partner channels.
While still early we're monitoring claims from the earthquakes in Puerto Rico in January and believe that they will surpass our reportable catastrophe threshold to $5 million pretax.
Overall, we continue to believe that we can generate above market operating returns on equity of 17% to 20%, including cats through 2021.
Sure the economy softened the segment has potential for additional upside.
Now, let's move to global Preening.
The segment reported $16 million net operating income down slightly year over year due to a combination of lower real estate income and lower investment yields.
Revenue for premium was up 6% driven by us growth, including finally sales as we continue to add new distribution partners.
In 2020, we expect global premiums earnings to be up compared to 2019 reported results and relatively flat, excluding the third quarter DAC adjustment.
Growth from existing distribution partners in adjacent offerings will be offset by lower portfolio yields due to the current interest rate environment.
At corporate than net operating loss was $22 million, a $6 million improvement compared to the prior year period that decrease was due to the benefit from our annual consolidating tax rate adjustment and lower employee related expenses.
For the full year Twentytwenty, we expect the corporate loss to be similar to 2019 around $85 million as we continue to benefit from scale efficiencies.
Interest expense should be approximately $81 million a modest savings from 2019, driven by our debt financing last year.
Preferred dividends are expected to be approximately $19 million.
Turning to holding company liquidity, we ended the year with $534 million or $309 million above our current minimum target level of $225 million.
Dividends in the quarter from operating segments totaled $276 million.
In terms of inflows, we received $27 million, an upfront cash related to the sale of rights to future claims from our AC a risk corridor program receivables.
In addition to our quarterly corporate and interest expenses key outflows included $109 million and share repurchases and $43 million in common and preferred dividends.
In 2020, we will continue to be strong stewards of our capital for the full year, we expect segment dividends to approximate segment earnings providing us the flexibility to invest in our businesses to organic growth in acquisitions as well as return of capital to shareholders inline with our stated objectives.
Subject to market conditions.
We expect the pace and level of buybacks to be somewhat similar to 2019 and weighted toward the second half of the year.
In January we signed an agreement to sell our interest in each state to certain management shareholders subject to regulatory approvals, we expect to closing to occur in the second quarter.
This should result in an expected net cash outflow of approximately $54 million.
This amount represents the difference between the balance owed on the put call and the agreed sale price the amount could increase up to an additional $40 million in the event, we provide seller financing at closing.
As a result of the pending sale, we required to further adjust the fair value at end year, which resulted in an additional charge to net income of $33 million.
We believe divesting any gate will enable us to deploy our capital and management attention toward targeted areas, where we can drive greater shareholder value.
In summary, we are pleased with our results for the fourth quarter and for the full year 2019, which provide a solid foundation to drive continued growth into 2020.
And with that operator, please open the call for questions.
The floor is now open for questions. At this time, if you have a question or comment. Please press star one on your Touchtone phone if at any point your questions answered you may remember yourself from the Q by pressing the pound key again, we do asset value pose. Your question you pick up your handset to provide optimal sound.
Quality. Thank you. Our first question is coming from Mark Hughes from Suntrust. Your line is open.
Hey, good morning, Thank you good morning.
Morning.
The investments in the global lifestyle business that was one of the interesting things in the quarter with the step up in the expensive quoted you could just give a little detail above the.
Timing of expensive.
The magnitude of that investment compared the prior period, you're talking about.
And then why in the lifestyle being up modestly.
Clearly stepped up the investment and 29 came.
And does that continue into $2020, a little more detail there'd be helpful.
Yes, no Mark appreciate the question you know a couple thoughts on how to think about expenses in global lifestyle first it's important to remember that we have an ongoing mix shift occurring in that business, whereas we increasingly drive services in fee income youre going to CSG in a growing and youre going to see the traditional underwriting or pre.
Yes, not growing and so part of what you're seeing there is just that mix shift and that's going to continue we're going to continue to add the additional services.
Most of what went on in 2019 was really to absorb the growth, which was extraordinary and lifestyle and 19 and to set up for continued growth. In 2020. You also have the onetime severance that ran through Q4, which is also about setting up in helping fund the transition we need to continue to make to cloud to digital to even.
Strengthened further our customer experience, but we feel good about lifestyles 2019 results in very well positioned for continued growth in 2020.
The sharing economy losses within the global housing.
You described that the.
Having an influence on the overall loss ratio could you expand on that a little bit more.
You I think described here the one client.
Any more detail would be helpful.
Yes, let me provide some context on how we think about the sharing economy. So as we look to the future and the shift in ownership models from owning term renting we see a strong alignment between what we're doing in the connected car, what we see happening around rental and the sharing economy and we've been investing in it.
Variety of experiments over the last couple years to understand.
How might these covers evolve how might our services evolve one of them didn't perform the way we expected. This year in 2019. So we took aggressive action at the end of year to improve the results and we expect those results through improved significantly as we head into next year, but again, the sharing economy very strategic for us and something we're going to continue.
Due to invest in as we go forward.
Is that can say, maybe a little bit of the catch up on.
The losses in the in that segment on the fourth quarter.
Yes that it's Richard Highmark got yes, Thats, that's right. We had some increase in claims come in in Q4, and then put up some IP in our related to that.
And then one final question you mentioned on global auto the lower interest rates, having an impact on that business anyway to quantify that for us.
I would I would sort of say.
If you look at the lifestyle the balance sheet into lifestyle business. There is a level of invested assets in that a lot of that is related to auto.
Think about auto having some level of duration that's linked to the premiums we underwrite the and the time of business. We put in so there will be oh rollover in that business. So as interest rates have come down in the business rolls through there will be an impact on the other hand, the businesses growing and so that will offset that and thats why we say as we go forward that the overall auto business will.
Increase its profitability.
Thank you.
Thank you Mark.
Your next question comes from Brian Meredith from you'll be at your line is good morning, Brian morning, Brian morning.
A couple ones here for you just first I appreciate you walked through the new catastrophe reinsurance program, but was there any additional cost that we should expect from that program in 2020, maybe.
Depressing margins, a little bit and the global housing area hurting.
Well I mean, I guess first this first I would say that as you heard their prepared remarks overall housing is going to be growing next year really turning the corner. So we think thats a great thing and a great moment for for this segment.
In terms of the catastrophe reinsurance, we renewed a big portion of it at year end.
We did have some uptick in the rates it wasn't huge that's been built into the planning in the 10% to 14% EPS growth that Alan I mentioned earlier on the other hand, some of our exposures will come down so that will offset the aggregator absolute level of of the reinsurance premium.
Great and then another one little broader so yesterday, there was any announcement that the sprint T mobile.
Merger looks like it's going to happen here I'm wondering if anything you can kind of provide on kind of opportunity there and timing you know how long is typically take for these things kind of worked on play out once once the merger is completed and they decided what carry they're going to use.
Yes, first I want to congratulate our partner on what could be potentially transformative merger for them and for the us wireless industry.
I think we're in a good position with T mobile over the last seven eight years, we've become their partner of choice for everything they're doing broadly in the mobile ecosystem.
And that sets us up well to continue to grow with them. So too early to speculate on what might happen and to be clear. We said this in Investor day, we havent factored.
Anything related to new clients into our outlook.
And Im just curious Alan could you is there any anything kind of tell us how long is it typically take post let's say a merger close.
Or is it happened coincident with the merger closed that decisions are made with respect to.
Who gets the business.
Yes.
Hard to speculate on this were an unprecedented situation with the merger of major carriers I would just come back to well positioned to support T mobile's growth into the future.
Great that's helping out for us right now thanks.
Thank you think.
Your next question comes from Michael Phillips from Morgan Stanley. Your line is open.
Hey, Good morning, My closing Mike Good morning, guys. Good morning. Thanks.
I guess first off one on the guidance I want to talk about that little bit the six that's on the 14% starting with a 921 from this year I guess, if you adjust the 921 for some of the items this year.
Moving parts, but it can bring that up maybe from from the severance. So that that can you brought up to maybe line 50.
And so I just wanted something about the trade if we do that that 10 to 14 kind of looks more like.
Six and a half the time.
Which sounds a lot like the last year's guidance.
Good day does that sound right am I think what the right and then if I am.
Is it simply because of your guidance talks on the lifestyle being more modest this year versus last year or what we call the guidance to the if I just that correctly to guide me about the same as last year.
Thanks.
Absolutely so a few thoughts on that first.
Outlook for 2020 is very much in line with what we had shared at Investor day back in the spring of 2019.
Second we are continuing to invest and it's important to invest on the back of an extraordinary growth year in connected living last year. So you'll see us continue to invest in the migration of our infrastructure to the cloud, which improves our delivery and reliability and capabilities, you'll see us continuing to best in the next product I mentioned.
Briefly I'd protection, but we have a whole pipeline of things that we're going to embed into our offerings in the year as I had that also creates additional future profit, but it's an investment today.
The other thing I would say, we're growing off of a much larger base in 2020 2019 had the benefit of a full year of really capturing the warranty room synergies and driving that into our business. That's just that's good news, but creates a much larger starting point as we head into 2020.
The final couple of things I'd say on it is it's early in the year.
We are being appropriately measured in how we think about the outlook. When we set an expectation we fully intend to meet that expectation and we have a strong pipeline that if that develops this year as we've talked about in the past if we launch another new program. Another client that will actually hurt in the short term and earnings but has a very positive long term deval.
And for our shareholders.
Okay, great. Thank you very much for that.
Yes.
A quick one on the.
The UK, let's say in the wrong the.
Okay investment.
I guess, what our expectations there for maybe some capital releases that could form on our cash all in second quarter, but.
Any capital leases that may come from that end expectations will not make employed this year.
So I'll ask Richard to answer that and just a minute, but I think it's important just to remind everyone. The context of why we made the decision to exit the K that investment was originally put in place seven years ago in a very different assurant and it was put in place with the objective to really grow scale in Latin America, as well as potentially expand some fee.
Income opportunities with the warranty group deal we are in a much stronger position in Latin America, and international and it just became not nearly as strategically relevant and we're trying to focus our efforts around our true growth businesses and so that led to the decision and then Richard you want to answer the question Ray just just in terms of the overall cash.
Cash that that would free up or liquidity.
Think about them, obviously, we have a cash outflow with that they're seeing that could put call and the price were sent we're we're selling it for.
The overall cash out that would be freed up would be about 100 million dollar I think $100 million think about it net net level.
And again as we talked about in Investor day that would go to potentially fund.
Incremental organic growth as Alan just talked about momentum we have behind us. It would go to M&A and it would go to capital repurchases. So really keeping that discipline that we've had all along and thinking about whereas the best way to employ that that that new capital.
Okay perfect. Thank you. That's that's very helpful. And then just lastly, a little bit on global housing you've talked a lot about expense savings and efficiencies there and I Wonder if you can elaborate more on what we can expect going forward from here for this year.
Yes, so I'll start and then Richard feel for down onto it first of all we were disappointed in the 2019 results of housing.
But I think we took actions collectively that put housing into a much better position as we head into 2020, if you look at lender placed homeowners.
Extraordinary progress last year kind of and consolidating our franchise beginning to make real progress in converting clients to our single source processing system, which will continue that affects our expenses every time, we convert one we can then reduce some expenses related to that so that business is well positioned in with the reductions we've taken in the retention on.
Hurricane exposure, we feel good about that business multifamily, although the growth was a little bit slower it's still above market. We continue to gain share and we have consolidated our position there by investing in digital and being able to provide new way to acquire that product and then finally in specialty obviously, the the real disappointments last year.
Sure, but at the end of the day, we're running experiments.
They work Great and then we scale them if they don't we take decisive action as you heard Richard say, we did that in small commercial and it's now going to be kind of immaterial in 2020.
I would just that just overall, we have a great expense expense discipline in the company and culture in the company. So we are looking at across the board to make sure we're leveraging.
The power of the size that we have so that's one thing I guess in terms of the ratio itself expense ratio as as we've cut down a couple of these businesses that havent been positive for US you might see a little pressure on that but not much at all and then the last thing I'd say is if you look at our combined ratio and housing for the year at about 80.
9%, including cats, it's a very good ratio all in and it's well within what we've talked about at Investor day.
Okay. Thank you and this last one sorry, I might've missed this split so little confused on on the lifestyle side kind of increases therefore expenses this year versus last year in terms of investment from you talked about earlier one of the questions, but again I may have missed it but.
Can you kind of maybe going a little bit more on what we can expect core kind of our run rate going forward for the lifestyle expenses this year.
Yes so.
To clarify maybe what I said earlier, so the probably the biggest thing going on in lifestyle is this evolving business mix, where as we grow what's growing disproportionately our fee income and services. Those are primarily expense driven and so you're going to see that affect continuing especially in a growing faster than you might expect but it's.
Because we're creating new fee income streams that are diversifying our earnings that don't have exposure or volatility really in those earnings.
That's a big positive if you look at investments.
Hard to say exactly how investments this year will compared to last year, a lot will depend on whether we're able to sign some new clients.
Because a big part of our investment is when we signed a new client we have to ramp up the people the technology the marketing that.
They are filings et cetera, but we're going to continue to invest this is a business that has a history now for many years of strong double digit growth on average and we see that continuing into the future. So we're going to continue to invest in lifestyle.
Okay perfect. Thanks very much.
Thank you. Thank you.
Once again, if you do have a question you May press star one on your Touchtone phone at this time. Your next question is coming from Gary Ransom from Dowling and partners. Your line is open.
Hey, good morning Garrett good.
Good morning.
I had a question on global Health care recovery was the.
Was that the amount you received the actual reduction in the valuation allowance and is there anything is there any additional potential on that.
Yes, so for those who weren't following the company five years ago. This relates to the 2015 risk corridor.
When we were winding down the health insurance business.
We rode a little bit over $100 million by the U.S. government. We did not thinking was collectible. So we fully wrote it off back in 2015, So we had zero carrying value.
We received to 20 from $27 million pre tax in flow as part of selling our right to that recoverable. We also have a gain share. If there is recovery above the 27 million, but given the uncertainty that's still exist to whether they'll ever be a payment on that we have not put anything on the books for that gainshare.
So it sounds like the 27 million as sort of.
Close to the final part of the story.
Yes, unless there's some extraordinary payout on that eventually but yes for now thats, what we realistically expect to get from that receivable okay.
I also had a question on pre need isn't really say a lot about.
The guidance for that business is that is there anything to add about what do you expect on the operating earnings in that segment.
Yes, I think the important thing to remember on pre need is it's a strong pretty predictable business that is delivering on average 13% or are we which we believe is better than typical for that industry.
We have long term partnership with the industry leader and we expect slow we're not trying to grow that business in a meaningful way. It's just a slow steady growth just growing with the industry contributing cash flow that we're using to invest elsewhere in the company.
Does does owning that business give you any advantages or disadvantages or diversification benefits with the rating agencies.
Well, yes, I mean it is it is it as part of the diversity that we get you know overall I mean, I'd I'd put it into perspective, though I mean, given the size of it in a relative size of Assurant I would say that's fairly fairly small and I mean, some of the headwinds we have an investment rates interest rates to kind of our our part.
Out of what allows us to say that earnings will be fairly modest next year would be up relative to what we posted this year on DAC, but then.
Fairly flat next year.
Okay.
Thank you and I guess I wanted also follow up on the.
[music].
We all do reconciling in my own line. The guidance you gave at Investor day, with 2020 kind of being a dip in this path that 12% ETF growth and then more or less recovering in 2021.
Is everything you're talking about today consistent with that from your point of view are there any nuances that you'd like to add on that.
No I would say, it's very consistent with what we saw as we were preparing for Investor day last year I would say I think that business is stronger today with more momentum in a diversified larger base of earnings, but largely consistent with what we had expected for 2020 and looking out into the future.
Did you actually pull for I think I heard during your original remark.
Maybe Richard that you had pulled forward some of the expenses and lists severance charge.
Could you clarify on that.
Well essentially what we're saying is at the end of 2019, we had some so we had severance charges. So severance charges would be that reduction in staff going into this year that reduction staff would decrease the expenses were not expecting that to fall to the bottom line, what we're expecting to do is redeploy that in.
The IP infrastructure, the cloud capabilities that we mentioned to et cetera.
Are there additional severance charges that late might be coming as we go into 2020.
Nothing that wouldn't be outside BA you type of stuff that was.
That was.
Exceptional for us.
Okay.
Oh.
Yeah, and just one more thing on the sharing economy loss it sounds like there would be.
By saying you're.
Your correcting it and getting the underwriting or pricing you're right that there's some sort of.
Loss characteristic of this business that.
That's a feature of the business so to speak.
I mean can you help clarify is there something about sharing economy risk that is notably different than what you thought.
No. This was really an issue with one client where we ran into some unexpected problems and how their business performed with us, but overall I think where we continue to be encouraged by that progress there and ultimately see some of the products and capabilities there being integrated into our offerings around the auto for example.
Okay I guess, that's all I have thank you very much.
Thanks, Eric.
Our last question is coming from Mark Hughes from Suntrust. Your line is open.
Hey, Mark Thank you.
Hey, just a quick question on the lender placed business when we think about great in 2020 versus 20 million team.
How is your view or pricing year on year, presumably there is some underlying inflation them materials et cetera.
What would want to anticipate the other things being equal.
Aggregate price increase.
Well if it is up.
Yeah, Let me, let me start on that I mean, the good news on lender placed as that businesses in a really strong position today. We've we've addressed all of the regulatory issues now many years in the past our rates our ordinary course, they reflect our experience and on balance rates are going up.
Any way to characterize a low single mid single.
I guess I guess the way that we look at it.
As we look at the rates, but we also look at the placement rates. So overall was the impact on the profitability of the business and we've seen that the rates I mean, obviously they vary by state to state, but as Alan said overall, they're up and they offset or partially offset kind of the placement rate. The decrease in the placement rate that we have so that kind of balancing it to certainty.
Stan.
Thank you.
Okay. Thanks Mark.
All right well I want to thank everyone for participating in today's call. We're very pleased with our performance in 2019, and we're looking forward to another strong year in 2020.
We look forward to updating you on our progress on our first quarter earnings call in May in the meantime, please reach out to Sean Mosher with any follow up questions. Thanks, everyone.
Thank you. This does concludes today's teleconference. Please disconnect your lines at this time and have a wonderful day.
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