Q2 2020 Assurant Inc Earnings Call
[noise] welcome to Usher in second quarter 2020 earnings conference call is what.
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It is now my pleasure to turn the floor over just adventure senior Vice President Investor Relations.
You may begin.
Thank you operator, and good morning, everyone. We look forward to discussing our second quarter 2020 results with you today.
Joining me Proassurance conference call, our Alan Colberg, our President and Chief Executive Officer.
And Richard Josh <unk>, our Chief Financial Officer.
Yesterday after the market close we issued a news release announcing our results for the second quarter 2020.
Relief and corresponding financial supplement are available on Assurant Dot com.
We'll start todays call with brief remarks from El Arrayn, Richard before moving into acuity session.
I'm going to statements made today are forward looking forward looking statements are subject to risks uncertainties and other factors that may cause actual results to differ materially from those contemplated bodies statement.
Additional information regarding these doctors can be found in yesterdays earnings release as well as in our FTC report.
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 details 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, Suzanne good morning, everyone.
We're pleased with our second quarter performance, we reported operating earnings per share excluding catastrophe losses of $2, a 90 cents up 27% from the prior year period.
Net operating income for the quarter also excluding catastrophe losses was $179 million, an increase of 24% from last year, demonstrating the continued strength and resiliency of our business.
As an old for above our expectations, reflecting the stability of our large installed customer base significant client partnerships and embedded growth in global lifestyle.
We also benefited from improved results in global housing.
Declines in investment income and foreign exchange will more than offset by lower claims activity and expense management efforts. The initial negative impacts from Coburn Nike in April gradually improved in May and June resulting in a modest net positive to overall net operating income in the quarter.
Year to date net operating earnings per share excluding catastrophe losses grew 24% net operating income increased 21%.
Even after adjusting for $16 million a onetime items during the first half of the year. Our results came in at the high end up our model pandemic scenarios.
Given our strong performance in the first Hal and improved visibility for remainder of the year, we've decided to reinstate and increase our outlook for full year Twentytwenty.
We now expect 12% to 16% growth in operating earnings per share excluding catastrophe losses, an increase from our initial outlook of 10% to 14%.
This reflects continued growth in connected living expansion within multifamily housing and improve profitability in our specialty business.
Our outlook assumes a continuation of current business trends and therefore, just not take into account material increase infection rates from cobot, 19, which could lead to a significant changing consumer behavior access to distribution channels or impact to financial markets.
Well, we expect earnings growth in the second half on a year over year basis, our outlook for the full year assumed the decline in earnings from the first six months of this year as we anticipate more normalize claims activity across most of our businesses and make incremental investments in our digital and customer experience capabilities.
The second half for the year, we'll also reflect lower investment income and foreign exchange headwinds the absence of $60 million, a onetime benefits as well as typical mobile seasonality.
Looking at our balance sheet of liquidity position remains strong.
In July we repaid the 200 million dollar credit facility draw from late March which was gone as the precautionary measure.
Given the attractiveness of our stock and strong capital position, we expect to resume share repurchases in the third quarter and we continue to expect to reach our objective of returning $1.35 billion a capital to shareholders between 20, Nike and 2021.
As always this is subject to a variety of factors, including no significant deterioration of economic or market conditions.
Recent market transactions across our space further reinforce our view that our stock remains attractively priced.
Earnings momentum in global lifestyle continues to be strong driven in particular by connected living.
This business had a compound annual earnings growth rate of 38% between 2015 and 29 team led by mobile.
Our installed base of customers, which represent a significant monthly recurring revenue stream continues to expand.
We are now at over 53 million mobile subscribers up 70% since 2015.
We continue to provide value to consumers and services like trading upgrade and technology support as part of our fee based offerings, resulting in a better ownership experience and multiple profit pools beyond device protection.
At the same time, we've continued to deepen our partnerships with market leaders to drive long term profitable growth.
We're pleased to announce it is sprint becomes part of T. Mobile will offer device protection to those new T mobile customers.
We believe this is another example to support the long term growth of our connected living business and we are proud of our longstanding partnership with T mobile.
In August we also strengthen our mobile device trading capabilities in Asia Pacific through the purchase of a light gray leading operator in the pre owned mobile device market.
After a small initial investment in 2018, we acquired the remaining equity for $12 million.
Turning to global automotive our installed base now includes over 48 million vehicles.
Continued to strengthen our client partnerships by working with them to enhance the digital customer experience offering live online dealer training and sales webinars.
We will continue to use our scale and diverse distribution channels to grow the business over the long term, especially as we look at future opportunities with the connected car.
Moving to global housing, our lender placed insurance and renters businesses, both continued to contribute to our attractive above market returns.
Our lender placed business plays a unique and vital role within the housing market protecting both lenders and homeowners.
We track over 32 million loans, including for eight of the top 10 largest U.S. mortgage servicers.
Since the beginning of 2019, we have renewed relationships with clients that represent nearly 80% of our loans tracked solidifying our position as market leader.
We've been investing in a new technology platform to improve the customer experience.
In addition, we've made progress with our efforts to streamline and reduce our operational cost.
And our renters business, we built a leadership position over the last 15 years, we now cover over 2.3 million renters and generate over $400 million and annual revenue.
Since 2015, we've gone earnings had an 18% compound annual growth rate with multifamily now representing roughly one third of global Housings 2019, net operating income excluding catastrophes illustrating the franchise strength.
We will continue to invest to enhance the customer experiences. This remains an important growth business for the company.
Especially as we think it had to supporting consumers within the Connectable.
And in global pre need we have more than 2 million policies and growing.
This business overtime gives us strong distributable cash flows with statutory earnings greater than GAAP earnings overall, the level of mortality risk remains lower relative to other life insurance type products ultimately contributing to above market returns.
More recently, we've introduced new fee for service offerings to support the growing senior lifestyle market, such as executive or assessed.
We believe our overall portfolio represents a compelling mix of above market growth and counter cyclical businesses with leading positions in a track record of innovation.
These businesses generates significant cash flow to reinvest and return capital to shareholders.
These are key characteristics and we believe set us apart as a long term outperformer.
And enable us to create value for our shareholders even against the backdrop of uncertainty in the global macro environment.
Before I turn it over to Richard I want to take a moment to thank our employees for their unwavering focus in supporting each other and our customers. During this time.
In the past few months, we've taken additional steps to support our employees to an array of actions.
These have included onetime relief payments for work from home employs incentive bonuses for onsite staff, providing additional floating holidays, and a number of wellbeing and mental health support surfaces.
The cost for these programs another incremental expenses directly related to covert 19 are reflected in net income similar to last quarter.
I'm proud and grateful for the exceptional service our employees have and continue to provide on behalf of our clients and our 300 million customers worldwide.
Well the Miss the grappling with Cobot 19, we've also recognize the need to continue to advance diversity and inclusion and assurant and within the communities, we serve particularly in light of the tragic murder of George Floyd and many others.
For us diversity and inclusion is not only about common decency in common sense, but it's also a strategic and business imperative.
Building on past initiatives, we posted candid enterprise wide conversations with our employees on race to ensure that we recognize these issues in our society and within the workplace.
We are evaluating additional actions to supported the more diverse equitable and inclusive community.
All of this has continued to reinforce the criticality of supporting the evolving needs of all of our key stakeholders with purpose and commitment.
In July we announced several organizational changes to enable us deliver on those objectives more effectively.
Under the leadership or Francesca luthi in a newly created role as chief administrative officer, we've realigned human resources facilities in procurement, along with marketing communications Investor Relations and corporate social responsibility.
Well move I believe is critical to ensure we bring a holistic view to integrated stakeholder management well at the same time elevating the employee experience to attract and retain the best and most diverse talent for the future.
We also promoted Jerry Rosen bomb to Chief legal officer.
He had been serving in that role in an interim capacity since February after joining us last year to lead our government relations and regulatory affairs team.
Chase diverse experienced spans 25 years in various legal and they travels and I'm pleased to have in lead our global legal function.
Overall I'm exceptionally proud of our leaders in our 14000 employees and how they have and will continue to live our values.
I'll now turn the call over to Richard to review second quarter results recent trends and our updated 2020 outlook in more detail Richard.
Thank you Alan and good morning, everyone.
Let's start with global lifestyle.
Segment reported earnings of $122 million up 11% compared to the prior year period.
This increase was primarily driven by continued mobile growth mainly from programs added in the last several years in North America in Asia Pacific.
Well or claims activity outside of the U.S. and connected living and auto also drove improved results.
I'm over trading business benefited from higher average selling prices due to scare supply for used devices.
This was partially offset by lower overall volumes due to covert 19.
Global automotive reflected a $4 million discrete client benefit in addition to reduce claims activity mainly from our OEM client outside of the U.S. as the result of covert 19 stay at home orders.
Overall earnings growth was partially offset by decline in global financial services from weaker results in Canada and anticipated declines in legacy credit insurance.
Unfavorable foreign exchange also pressured results in the quarter.
Looking at total revenue for lifestyle net earned premiums and fees were down $40 million or 2% decrease was driven primarily by lower mobile trading volumes due to store closures from covert 19, and foreign exchange movements. This was partially offset by increased enrollment and new mobile programs.
Especially as carrier stores begin to reopen in the latter part of the quarter.
Within global automotive revenue grew 3%, primarily reflecting prior period sales of vehicle service contracts.
Sales in auto have rebounded since April and our nearly back to pre covert levels year over here.
We will continue to monitor trends as sales levels today will impact future earnings for the business.
Looking forward to full year 2020, we expect growth and lifestyle. Its net operating income compared to full year 2019.
However, we also expect that earnings in the second half of the year will be lower compared to the strong first half results.
This is due to five key factors.
First we recognize $16 million of onetime benefits in the first six months at the year.
$4 million of which was incurred in the second quarter.
We do not expect these items to reoccur in the second half of the year.
Second we expect claims activity and connected living in auto to normalize at higher levels in coming quarters as the global economy continues to reopen.
Third similar to previous years, the timing and availability for new phone introductions will impact trading activity in the second half a year.
We are not though assuming any material increases in volumes before year end.
Fourth we're ramping up our investments in digital and customer experience capabilities to further increase our competitive differentiation.
And finally, we expect both foreign exchange and lower investment income to remain headwinds into the second half of the year.
I will also note that effective July onest falling a change in contract terms, we're transitioning our revenue accounting treatment from a gross sales basis per device to a flat feet per device for one of our mobile trading and upgrade programs.
This will reduce our fees and other income by approximately $275 million on an annualized basis.
Our cost of goods sold embedded in lifestyles SGN April substantially offset this decrease.
We're pleased with this change as it will remove some of the revenue and expense variability we have historically seen in our financial results.
It will also mitigates supply and demand pricing risk in the future.
Moving now to global housing net operating income for the second quarter total $85 million.
An increase of $14 million or 19% year over year, despite higher reportable catastrophes.
Excluding catastrophe losses earnings of $96 million represented an increase of $27 million or 39% year over year.
Just over half of the increase was due to favorable non cat loss experience across all major products, reflecting lower overall claims frequency and improvements in underwriting, including the benefits from artificial intelligence and claims processing initiatives.
Also the absence of losses from small commercial along with growth in certain other specialty products contributed to the increase.
Lender placed results increased year over year.
Higher premium rates and favorable loss experience were partially offset by a reduction of policies. In force. This reduction was mainly related to the previously disclosed financially insolvent client and lower our real volumes to the current foreclosure moratoriums.
The modest sequential increase in the placement rate to 1.56% was attributable to a shift in business mix. It is not an indication of broader macro housing market shifts.
Multifamily housing earnings were up slightly due to favorable non catastrophe loss experience and modest growth from the affinity partners.
Turning to global housing revenues net earned premiums and fees decreased 4% mainly from three items.
Solve and client.
Lower RTL volumes and the exit of small commercial.
This decrease was partially offset by growth in our specialty property and multifamily housing businesses.
Moving to multifamily housing revenue increased 4% year over year, driven mainly by growth from our affinity partners.
The impact of Cobot 19 has been minimal year to date, although we continue to monitor state actions related to premium deferrals.
At the end of June we completed our 2020 catastrophe reinsurance program.
Maintaining our 80 million dollar per event retention and increasing our multiyear coverage to nearly 50% of our U.S. tower.
We also reduced overall risk exposure, primarily through the exit of small commercial.
Overall, we were able to leverage strong relationships with our reinsurance partners to keep rate increases on the lower end at the overall market.
We also recognize those higher costs may persist into the future.
Looking forward to the full year Twentytwenty, we expect global housing net operating income excluding cats to increase over full year 2019 earnings driven by improved results in our specialty businesses and growth in multifamily housing.
We also believe the results for the second half of the year will be lower than the first half for global housing.
This is due to four key factors.
First we expect a more normalized level of claims frequency as previously mentioned.
Second we expect our yield volumes to continue to be reduced throughout the remainder of the year.
Third the absence of income from the financially insolvent client and lender placed.
And finally the segment will also continue to be impacted by lower investment income due to the lower yields available in the current interest rate environment.
Well lender placed shouldn't grow through to the counter cyclical nature of the business. It economic conditions worsen today's mortgage industry and economic environment differ significantly from the housing crisis over 10 years ago.
For example, mortgage loan underwriting standards have tightened with a number of sub prime and adjustable rate mortgages down over 60%.
And homeowners today have higher rates of home equity compared to that period.
Now, let's move to global Preening.
The segment reported $14 million net operating income of $3 million decrease compared to the second quarter of 2019.
This was driven by a combination of lower investment yields and a modest increase than mortality due to covert 19.
We continue to monitor mortality trends, especially in California, Texas, and South Carolina, given our policy concentration in those areas.
So far we have not experienced significant increases.
Revenue for pre need was up slightly supported by sales in the U.S. and we'll face sales have begun trip down recently, given funeral home Reopenings and increased online sales since April July year over year face sales were still down approximately 15%.
We would expect new sales to continue to fluctuate.
Overall for global pre need we believe 2020 earnings will increase modestly compared to 2019 reported results.
The second half of the year, we expect earnings to be up slightly versus the first half of the year due to more favorable mortality trends.
We will continue to monitor these trends as our current outlook does not assume is significant worsening in coated 19 cases.
We expect the reduction in mortality to be partially offset by investment income declines.
Corporate the net operating loss was $27 million versus $24 million in the second quarter 2019.
This was due to a lower tax rate from the consolidating tax rate adjustment and less investment income from lower yields on cash assets.
For the full year, we expect the corporate net operating loss to be in the range of 86 million to $90 million as the result of lower investment income and onetime transition costs associated with the outsourcing of our investment management function.
Across Assurant, our ongoing expense management efforts are contributing to our results.
In addition, this year, we benefited from lower travel expenses due to covert 19 restrictions as well as a reduction in discretionary spending including deferring hiring for some positions.
We are though filling all critical roles, particularly those needed to meet our client customer expectations.
As we look to sustained profitable growth, we expect to continue to invest in our core capabilities in the upcoming quarters, while closely managing discretionary spend given the continued uncertainty from coated 19.
Next I want to provide a brief update on our investment portfolio.
Overall, our $12.6 billion portfolio of fixed maturities is of high quality, well diversified and manage for its income yield with low turnover.
And as previously mentioned, we have minimal exposure to harder hit sectors like energy hospitality retail stores and airlines.
Current yield on our total investment portfolio dropped by 55 basis points year over year to 3.62%. This was largely driven by a decline in short term cash yields we continue to manage the portfolio to preserve yield our expectation is that our investment income will remain under pressure for some time as we do expect.
Interest rates will remain relatively low for the foreseeable future.
However, we believe our consistent investment approach will continue to serve us well as it has in the past.
In conjunction with our decision to outsource the management of our core investment portfolio, we sold our CLL platform for a modest gain in July.
The sale will be recorded in the third quarter.
While we will still have a small amount of investments into yellows, our exposure to the asset class has been significantly reduced.
Turning to holding company liquidity, we ended June with $357 million or $132 million above our current minimum target level. This excludes that 200 million dollar credit facility draw, which was reimbursed in July.
In the second quarter dividends from our operating segments totaled $157 million or 71% of segment earnings.
In addition to our quarterly corporate interest expenses, we also bought back $26 million of stock.
As we indicated we slowed and then ultimately pause share repurchases in the second quarter.
We paid $44 million in common and preferred stock and dividends.
Acquired after they asked for $158 million and we sold 8-K, which resulted in cash outflow of $51 million from the holding company.
In late July we also received the onetime tax cash benefit related to the acceleration of our net operating losses included in the cares Act passed in March.
As a result liquidity at the holding company will increase by $84 million in the third quarter.
For the full year, we expect segment dividends to approximate segment earnings. This is subject to the growth of the businesses rating agency it regulatory capital requirements and the performance of the investment portfolio.
As Alan mentioned, we expect to resume buybacks in the third quarter and we'll continue to manage our capital prudently.
Our approach to buybacks will be measured as we continue to monitor business performance as well as the broader macroeconomic and credit market environments.
In summary, we demonstrated strong first half performance, while navigating the challenges of cobot 19, as we focused on continuing to deliver on our financial commitments for Twentytwenty, We will continue to invest in our growth businesses for the future while monitoring global market trends.
And with that operator, please open the call for questions.
Thank you before is now open for questions. At this time, if you have a question or comment. Please press star one on your Touchtone phone.
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Thank you.
Our first question comes from Mark Hughes Truce Securities. Your line is open Hey, good morning, Good morning, Mark.
Hi, Mark good morning.
Thank you.
Could you talk about the T mobile.
Announcement.
Sounds like you're going to.
The providing.
Maybe a contract services the new customers is there.
Could you give me any detail.
This is going to include the back book as well as the just new customers, what's the timing potential financial impact all of that.
Yes, no mark. Thank you for the question you know I'd start by saying, we're very proud to be T. Mobile's partner for the past decade, and assisting them in their journey to be the uncarrier.
You know as they migrate to stores over the legacy sprint source, which they started last weekend, we will be offering our device protection program to all of the legacy sprint customers as they come into a store. So that's very positive. It is only go forward, though which is typical in our markets. So we're starting was arose former sprint customers. It.
I'll take time to grow that book of business. Although obviously, it's a very positive long term thing and we're going to be investing as the the program starts ramping over the next month or two or quarters, or so, but again very positive and we're really proud of the partnership we built with T mobile.
Okay.
And then.
Tim This is publicly available, but the pace of new sprint customers any.
Since on the you can share.
Yes, I think it would just be what we normally see which is over a cycle call. It somewhere around three to four years is when people come into the store to turn in their hands that get new handset or purchased in their one. So we would it's similar to the other programs was launched in the last couple of years, we would expected to grow and build over the next three plus years.
That's great.
About the mobile contract overall, you had mentioned in the auto business that you are.
Pretty close to where you were pre coded how about on the mobile service contracts here kind of sales trajectory as you sit here today versus pre kobin.
Yes, if I, if I step back, we'll farther and talk about broadly the impacts from cobot on mobile and what we've seen over the last quarter. So as lower trading volumes really a stores were closed and there was disruption in the marketplace. We were fortunate that that was offset by higher margins as we went through.
The the quarter, but we definitely have see lower trading volumes, although thats now recovered as we head into June and July.
Things are really return more back to pre cobot. If you look at our subscriber count we feel great about where we are installed base is 53 million. We continue to grow in the us in Japan, which are critical markets. We did see pressure in Latin America, which is really the most disrupted region globally in terms of new sales.
But overall, it's really a large recurring revenue base that really sets us up well for the future.
The.
Losses in the housing the.
Underlying losses, I think you'd mentioned you got them benefited from favorable weather.
Rich.
Thank you seem to run counter to many or most other carriers, but then you got some benefit from.
At our underwriting and claims processing. If you mentioned you see good bye.
Could you talk about that you know how much does that mean for your loss.
Persists.
Yeah, maybe all starting Richard fuel fruit out onto this stuff, but we look at kind of the non cat loss ratio was a little bit below what we normally see really driven by a couple of things seem with people at home. There was less so loss than there was less water damage, we mentioned little bit less weather, just though in the core.
Order.
Equally importantly, we've been investing over the last few years, and our AI and underwriting initiatives and we're starting to see the real benefits of bad and dramatically better customer experience with much quicker payment of claims much faster processing.
Richard what would you add.
Yeah, I think it just just a few things Mark good question I think part of it obviously people are staying home and so cobot I think in some respect helped us during this period as you know they're watching their their houses a little more closely as Alan said, you know really the AI initiatives. The claims initiatives that we have really help us.
It with efficiency and you know just.
Staying on top of claims you know much better and processing them better I'd also say that the underwriting has improved.
Should we talked about small commercial and some losses, we had there we got out of that business. So that's a plus for us that won't come back and also within our specialty area.
We we looked at we talked about a single contract with a client that.
We changed significantly so all of these things will will bode well for us in the future.
Then just a final one to 275 million you mentioned in the trade and you're going to a fee rather than groups that'll all show up in the the fee line in is.
Is that neutral to earnings.
Ongoing pickup.
Please Richard yes, yes, so so yeah that the 275 million that's the the contract change that we had in in lifestyle that you're referring to that's an annualized impact that we'll have and if you think about it before we were actually buying in the units and then selling them out. So we had kind of the gross amount going through.
You know the fee income.
That amounts go into cost of goods sold now were more administrating that business. So you'll see those two lines go down.
The income line, but also cost of goods sold BSG in a line that we show in the supplement.
We'll go down as well and then I guess I think that we pointed out in our prepared remarks as we think it's a really good move for US. It provides more stability in terms that trade in business. It takes some of the pricing risk out from us. So all in all we're really pleased with it we did want to set up to that to the market.
That revenues will go down, but we're not expecting a a material by highlighting Donna.
Thank you very much.
All right. Thanks Mark.
Our next question comes from Brian Meritas of UBI US Your line is open.
Hey, good morning, Thanks morning morning, Brian a couple of couple of questions here for your first I'm just back on a whole T. Mobile transact is it possible to frame kind of what the potential revenue opportunity is from picking up the additional sprint Cup customers.
You know.
What I've book at is you can see publicly how many subscribers sprint has and you can assume over the next three years will pick up those subscribers. So that's how I'd think about it but other than that we generally don't.
Talk about clients specifics, but it is a very positive development for mobile franchise.
And I'm just curious as I think about it historically when you pick up a large customer like that it's kind of a drag on earnings maybe for a year or so.
Should we still expect that.
Yeah. That's typically the cases, we have the upfront costs for things like you're integrating technology for regulatory filings for marketing for screening. So we're in the middle of starting to invest those costs right. Now. So it certainly is a a bit of a drag in the short term, but a very positive long term.
Sure No absolutely and then I assume is in your guidance for the year, so you're expecting that to kind of kicked up in the second half.
Yes, the investments right because we started again as I mentioned earlier, we start with no subscribers from legacy sprint, but it will build overtime as we go through next few years.
Terrific and then a quick question here on the API business I understand that.
Quality mortgages today foreclosures are probably delaying.
Some of activity there penetration, but have you got any statistics or do you take a look at what mortgage delinquencies and how they track relative to your LPI penetration.
Yes, so a couple of thoughts on that so we want to be clear, we don't expect a benefit in LPI. This year. If you look at what's going on with mortgage for parents were actually it's a bit of a co, Connecticut 19 headwind, we're seeing a lower Oreo volumes and that's impacting 2000 twentys outlook, but if you look broadly at the housing market we.
Are starting to see delinquencies begin to creep up and obviously our product is an important product to protect both the consumer end the banks and we're well positioned at the housing market does weekend for a growth there in 2021 and beyond.
Yeah, that's I mean, I figured risk that looking more 2021. It is no. Yes, if you've got any to kind of correlation statistics, if mortgage delinquency trends are good Fannie and Freddie they're running around 7% does that equate to a certain amount of penetration that you typically see.
Yeah, you know what I would say is we're monitoring what's happening there there is always a lagging our placement, but we're well positioned then it's just hard to predict whether those delinquencies will translate into our product being placed for not just given what's going on currently in the market.
But I mean, we do feel well position than we do you anticipate there will be upside in 2021 beyond if the economy weekends.
Gotcha and then last question here I'm, just curious any thoughts on the bank of America renewal, obviously net churn is getting purchased by Allstate.
Any thoughts around that when that could potentially happen.
Yeah. So as it's been talked about previously it's common knowledge that that RFP is in the market, which is the first time that we've ever had a chance in the last decade to participate in that business.
And we'll see what happens overtime, but we do believe we have the industry leading capability in the market. We've been investing heavily in our technology, we offer a superior client and consumer experience. So.
We'll see what happens, but we feel well positioned for any piece of business that comes into the market.
Great. Thank you.
Thank you Brian.
Your next question comes from Michael Phillips of Morgan Stanley. Your line is open.
Hey, good morning, Mike. Thank you want to guys. Thanks.
First off just high level on Colombia revised outlook I guess, how how do we think about your we've seen some reversal in the open reopenings and some uptick and cases across the country and more concerns there. So how do we match that with your uptick and.
In your and your outlook with your comment that it doesnt contemplate any uptick in co infection rates.
Yes, so I think.
The starting point is our business is really driven by our installed base and that large installed base of nearly 300 million customers over 300 million customers is there.
We have a very resilient business and what we've seen even in July for example, if you go through the various sectors.
Auto new sales of our product in July or back at or above pre kokas levels, even as there's disruption in the U.S. marketplace. If you look at mobile we mentioned that trading activity in July was back what we expected earlier in the year multifamily we were impacted early buy cobot.
Clearly, but as we've gotten into July we began seeing the new sales rebounded to be back to what we expected to see so pretty much across the board. The exception is probably pre need a pre need new sales are still lagging tend to 50% below where they were seeing your pre cobot.
But our business is strong and really driven by that installed base and so the other important point I'd make is as we talked about the per marks we still expect to grow second half of 19, a second I'm, sorry second half a 20 versus second half of 19. Despite some of the uncertainty in headwinds from coping 19. So we'll certainly continue to monitor.
It, but we feel good about the business trends, we're seeing in our portfolio.
Okay. Thanks, Thanks, Thats helpful. Just pickup a little nuances here well questions you've talked previously about.
In places where overseas where things were shut down I think Hong Kong Some trading places at Hong Kong any impact this quarter on on things like that and are those are those places up and then again orders, we expect kind of a future impact from those going forward.
Yes, so just to clarify on that comment what we're referring to there is in the first quarter, we had some disruption in our ability to cell phones into Hong Kong in China. This goes back to January and February that normalized in February and.
The virus migrated from east to West we've not seen any further disruptions in Asia Pacific.
So you look around the world.
Market, that's been most drugs disruptive broadly of Latin America, and we've seen a greater impact on new sales in that geography than anywhere else in the world. We are seeing a little bit lower claims unexpected in places like Europe again, probably a reflection of the shutdown, but we're starting to see that normalizes, we head into Q3. So at this.
Point, we see things trending kind of back to normal both on new sales as well as on claims.
Okay. Thanks, and then multifamily housing typically you get a bit of a bump there because it sometime.
So in Theres, a little bit of impact there can you talk about that and maybe.
Any impact on I guess demand or any impacts on the rental business because the recession.
Yes, we were clearly impacted back in the second half of March and April as people, just didnt move, but that has rebounded and our sales are pretty much back to what we expect is where in July. So we were off track, but pretty much back on track now and if I really step back on our multifamily business, we're really proud of the Fran.
Hi, guys. We built we now have 2.3 million policyholders were profitable we've been growing that franchise rapidly over the last few years, we've outgrown the market even as different competitors have entered and it's really driven by our strong diverse distribution.
With both property management companies as well as our affinity partners, it's driven by our ongoing investments in digital and CX, which helps us stain sustain are really competitive attractive product for consumers.
And then we've got a lot of potential over time with our point of lease product, which has gone slowly. This year just as landlords have been disrupted with cover 19, but overtime, we expect penetration to grow as we rollout our point of lease which really provides a seamless kind of consumer experience as they move into a property.
Okay, great. Thank you I appreciate it.
Alright, thank you.
Our next question comes from Gary Ransom of Dowling and partners. Your line is open.
Hey, good morning, Aerie, yes regarding I.
I wanted to see if I could tie the new guidance at least a little bit into your original Investor day guidance.
12% going into 2021, it sounds like you're ahead of what you. Originally you were talking about at this point and I just.
Can you add any commentary on what what your new guidance might mean for that.
Guidance.
Yes, Gary it's a very fair question, we do always look at a multiyear period because overtime.
Short term fluctuations might impact any given year, but if you look at net operating earnings growth. So this is ex cat not EPS, but earnings we grew earnings 11% last year. If you look at the midpoint of our new outlook. We're looking at least 12% earnings growth. This year. So we're ahead, both in 19 and 20 Onest.
As our long term.
So as we think about 2021 I would say a few things we have a strong track record of profitable growth I think we've demonstrated that we have a resilient business model that's been proven to be able to navigate the pandemic. We have strong cash flow generation and we still expect to grow in 2021, It's obviously very early so we havent.
Completed all of our planning a modeling for next year, but we are ahead and so we may grow a little slower next year than we might have originally thought just because we growing more rapidly in 19 and 20, but we remain confident that we will continue to grow earnings over time in next year really driven off of our installed base of customers. Some.
The new programs that we've just one and we just announced for example, the sprint T mobile and just you know we continue to expand our offerings. The purchase of the luxury in Australia is another example of which really allows us to strengthen our repair and logistics capability not only in Australia, but in Asia Pacific. So we'll provide an update later, but.
We feel good about long term profitable growth of our company.
Thank you for that's helpful I.
Slightly related question is this dip in revenues that you saw and maybe this is mostly about auto but it wasn't a big enough dip that it will actually affect what we see in the or premium and fees as it gets earned out in the future somewhere will there be an echo of this or is that am I kind of maybe mid.
Making too much out of that.
Alan do let me take that yes. Please please refer to it. It's a good question I mean, what we're really seeing as a quarter.
Yep and primarily from March and April when the dealerships close down and as you know.
The the unearned premium actually earns out over a number of years called think about three to five years and future. So the way I think about it. It's it's it's a small thing I think you used the word echo baby.
But it dealerships as Alan said are now opening our volumes are back so I wouldn't think that going long term, we would see much of an impact if anything from justice blip in the last couple of months There March April.
Okay that Richard what I'd also add is if you look at car sales car sales are still down a little bit, but our volumes have more than recovered which is what we normally see an economic downturns dealers work harder to place our products when they're having fewer car sales and we're definitely seeing that in June July.
Yes.
And and one more over on the renters.
Product, we had a public company.
For an IPO of lemonade with a new technology and I wondered if.
How you think about that if that's a threat at all or just if you have any comments about it.
Yeah, you know we spend a lot of time looking at our markets and potential new entrance and changes in the marketplace and what I would say is over the last couple of years, even as new entrants have come in we have continued to outgrow the market and gain market share and it's really a function of our strength and distribution as well as the investment.
As we've made and continue to make in digital CX. So we feel good about our position and we expect continued growth in multifamily regardless of who's entering market.
Alright, Thank you very much.
Alright, thank you.
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Our final question comes from Mark Hughes of Truest Securities. Your line is open.
Hey, good morning again Mark.
Yes. Thank you.
The typical penetration when we think about the sprint customer base are you able to share with their current penetration is in terms of service contracts are just broadly speaking what might want to expect.
We look at their overall subscriber count but.
But presumably some portion of that are actually going to be a.
Service contract customers.
If the right ratio to think.
Yes.
Without commenting on a specific client because we normally don't do that if you look at the U.S. The average penetration now for our product is call it roughly high Fortys high 40%.
So you could assume something like down overtime.
For for new clients as well.
And then.
No Jan the.
Sure acquisition by all they expect to all state to do anything here in the lender placed market.
You know I couldn't really speculate on what Allstate might do what I would say is we're in a very good position right. So we mentioned on their prepared remarks that over the last year or so weve renewed 80% cost of our tracked loans.
That was in part as we're rolling out our new technology, which is a real differentiator. We wanted to work with our clients make sure our business was solid and in place. So I think our track record speaks for itself and we feel like we have a strong and compelling proposition no matter who were competing against.
Understood. Thank you.
All right I think thats. It for question, so I want to thank everyone for participating in today's call.
In summary, we had a strong second quarter and a strong first half of the year. We will continue to monitor trends in global market related Koby 19, but we believe we're well positioned to deliver on our strategy and financial objectives, both in 2020 and beyond.
We'll update you on our progress on our third quarter earnings call November in the meantime, please reach out to either Suzanne Shepherd or Sean Mosher with any follow up questions. Thanks, everyone.
Thank you.
This concludes today's teleconference. Please disconnect your lines at this time and have a wonderful day.
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