Q3 2020 Assurant Inc Earnings Call
Welcome to <unk> third quarter, Twentytwenty earnings conference call and webcast.
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It is now my pleasure to turn the floor over to Fred.
Squishy Chief administrative officer of assurance you may begin.
Thank you operator, and good morning, everyone. We look forward to discussing our third quarter 2020 results with you today joining me for shrunk conference call are Alan Colberg, Our President Chief Executive Officer, and Richard Jog, Our Chief Financial Officer yesterday. After the market closed we issued a news release announcing our results for the third quarter.
Her 2020, the release and corresponding financial supplement are available on our shrink dotcom.
I'll start today's call with brief remarks from Alan and Richard before moving into a Q and a session.
Those statements made today are forward looking forward looking statements are subject to risks uncertainties and other factors that may cause actual results could differ materially from those contemplated by these statements.
Additional information regarding these factors can be found in yesterdays earnings release as well as an art I can see 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.
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 now I will turn the call over to Alan.
Thanks, Francesca good morning, everyone.
We are pleased with our third quarter operating results, which demonstrate the continued resiliency and strength of our business portfolio.
Our track record of delivering strong profitable growth not just this quarter, but over the past few years reinforces our strategic direction and our confidence in the future growth prospects of Assurant.
Last week, we made two announcements that underscore our focus on our market leading lifestyle when housing businesses well capitalizing on the convergence of the connected mobile device car in home.
Our connected living global automotive and multifamily housing businesses have a history of profitable growth and we believe compelling future growth potential.
In addition, our specialty PNC offerings, including lender placed insurance are extremely well positioned the counter cyclical nature and strong returns of the business continue to make it a critical part of our portfolio.
Together lifestyle in housing should drive ongoing above market growth and superior cash flow generation with the ability to outperform in any economic cycle and ultimately to create greater shareholder value overtime.
Our acquisition of pilot mobile a leading provider of smartphone software in trade and upgrade services will strengthen our market position with increased scale complementary client bases and favorable tailwinds in the global mobile market.
We valued high blood the multiple of low teens forward EBITDA.
Combination of its patented software technology and trading capabilities with assurance end to end mobile device lifecycle management expertise will deliver three primary benefits.
First the one hence the customer experience, making it easier for consumers to get trade in value for their use mobile devices without an in person inspection.
Second it will improve program economics and performance for our partners, including higher trading attachment rates.
And finally, they will further strengthen assurance ability to take advantage of the fiveg smartphone upgrade cycle.
Hi will also have strong relationships with marquee partners complimentary to assurance client base across our critical distribution channels and geographies, including leading U.S. and Japanese mobile carriers as well as major global Oems.
As we announced we intend to fund our acquisition through a combination of cash on hand at the holding company and new debt issued prior to closing so that we can continue to optimize our capital structure, while maintaining investment grade ratings.
To better align resources to the best market opportunities within lifestyle in housing. We've also announced a review of strategic alternatives for global pre need including a potential sale.
This decision was not an easy one given the strength of the business and the considerable value its employees brought to assurant.
Well Bill pre need is a strong business with over 2 million policyholders throughout the U.S. in Canada.
It has delivered consistent growth well generating robust cash flow and above market returns it.
That's nearly $6 billion investable assets is relatively low risk compared to other life insurance type products.
However, we believe the business has been historically undervalued as part of Assurant.
So transaction should unlock significant value by allowing us to deepen our focus on consumers connected lifestyle and our differentiated PNC businesses.
We expected any proceeds from a potential transaction will be deployed to fund business growth with excess funds returned to shareholders over time.
In the months ahead, we will provide updates on our progress as appropriate.
And as always during this time, we will continue to honor our commitments to clients and policy holders well delivering exceptional service.
Now I'll provide a few key highlights from the third quarter EBITDA from our continued progress within our lifestyle and housing businesses.
Within connected living we've grown earnings 22% year to date.
As we focus on continuing to drive long term growth. We are moving forward with the build out of our full service customer capabilities to deliver superior customer service to our 54 million mobile subscribers.
This quarter, we also acquired fixed providing mobile customers increased choice through a come to you repair capability.
Acquisition complements last years purchase of cellphone repair or CPR that delivers the same day vocal repair option.
Like highlight these investments will support the acceleration of our strategy by expanding our capabilities and offerings as we anticipate the ever evolving needs of connected consumers.
We also recently launched paki cone, which offers personalized tech support and bundled protection about home technology, including laptops gaming systems, and other electronics, an accidental damage and mechanical breakdown.
Well it is still early we believe this offering is an important step in the development of future connected lifestyle protection products.
Global automotive, we remain focused on opportunities to leverage our leadership position to scale in key global markets.
In the UK, we recently launched a new product for electric and hybrid vehicles called E. B one.
This includes a new partnership with the London Electric vehicle company that will cover their iconic London Black clouds in electric band models.
This supports the continued growth abroad business globally, well also gaining further insights into the evolving electric vehicle market and it supports the UK, it's moved toward E. B as a standard by 2035.
Within global financial services, we are pleased to announce the launch of a new partnership in Canada with the bank of Montreal, leveraging our omni channel customer capabilities as we continue to reposition the business for profitable growth long term.
Moving to global housing, we extended our agreement with yet another client in the lender placed business, we've now where new 20 clients representing more than 85% of our track loans since the beginning of 2019.
Lender placed as a critical part of the mortgage landscape in the U.S. and continues to be an important component of our long term strategy.
In multifamily housing, we grew revenue and policies by 8% and 9% respectively year over year.
Our cover Threesixty property management solution continues to gain momentum and drive higher penetration of renters insurance with our property management Company partners.
Product, formerly known as point of lease allows the customer to combine their payment of rent and insurance.
The solution now includes insurance tracking verification and policy placement to eliminate coverage gaps.
We're now tracking more than 335000 rental units, which grew 40% since the second quarter.
We also believe that our increased investments around the connected home and connected apartment will drive new opportunities to increase the M.C. penetration rates.
Turning to our key financial metrics were pleased with our progress against our 2020 objectives.
Through the first nine months net operating earnings per share, excluding catastrophes increased 25% year over year $8.69.
Net operating income, excluding catastrophes was up 21% to $527 million.
Overnight team did not have a material impact on year to date results.
For the full year, we now expect our operating earnings per share excluding catastrophes to grow between 17% to 21% compared to 2019, well ahead of our initial expectations.
The revised outlook largely reflects global housing is favorable non catastrophe loss experience through the first nine months of 2020.
As well as continued growth in connected living and our disciplined expense management.
Our capital position has remained strong throughout the pandemic.
In the quarter, we resumed buybacks and we've now returned over 50% of our 1.35 billion dollar objective from 2019 through the end of September.
We expect to return the balance by the end of 2021 as we originally planned primary.
Primarily supported by the strong cash flow generated by our lifestyle and housing businesses.
All of this is a reflection of the continued dedication of our 14000 plus employees globally.
It continues to do an outstanding job managing through the cobot pandemic, well, providing exceptional support to our customers, including those impacted by natural disasters. This year.
I'll now turn the call over to Richard to review third quarter results recent trends and our 2020 outlook in more detail Richard.
Thank you Alan and good morning, everyone.
I'd like to start by saying that we're really pleased with our third quarter.
We reported operating earnings per share, excluding catastrophe losses of $2.85 up 25% from the prior year period.
Net operating income for the quarter also excluding catastrophe losses was $172 million.
An increase of 22% from last year, largely due to more favorable non cat loss experience in global housing.
Continued momentum in global lifestyle and improved results in global Preneed.
Sales trends across the board have been improving from Lowe's recorded in March and April at the high that pandemic.
And we are seeing more normalized levels of Cobiz related claims activity.
Global lifestyle and global housing.
Now lets review segment results in greater detail.
Starting with global lifestyle.
The segment reported earnings of $107 million in the third quarter up 4% compared to the prior year period.
This increase was primarily driven by connected living where we benefited from new mobile subscribers.
The improved profitability with an extended service contracts also contributed to growth in the quarter.
Within global automotive results reflected continued pressure from lower investment income and investments to support growth.
Declines in global financial services reflected Miller card balances in volumes as well as less favorable loss experience some of which was attributable to cold it.
We also incurred additional expenses to launch new client programs.
Looking at total revenue net earned premiums and fees grew by $56 million or 3%.
The increase was driven primarily by 14% growth in global automotive, including prior period sales of vehicle service contracts.
We're continuing to monitor sales trends, which has stabilized but still trail 2019 levels on a year to date basis due to impacts from cogan.
Global lifestyle revenue growth was partially offset by lower revenue from mobile trading right.
Primarily due to the contract change we disclosed last quarter.
This change lowered revenues by $39 million as we changed reporting from a gross sales basis per device to a flat fee per device.
As a reminder, this change will remove some of the revenue and expense variability we have historically seen in our financial results and mitigate supply and demand pricing risk.
Overall for the full year 2020, we continue to expect global lifestyle to grow net operating income when compared to full year 2019.
Looking ahead.
We anticipate an uptick in trading activity in the fourth quarter, which will continue into the beginning of next year.
Volumes will depend on the following.
The timing and availability of devices for new phone introductions level.
The level of carrier promotions and the growth from new business.
Looking ahead to 2021, we expect earnings expansion within lifestyle could moderate from the strong 2020 levels, which benefited from three items.
First $60 million of onetime benefits year to date.
Second lower claims during the first few months of the coding and dynamic.
And finally lower expenditures on categories, such as travel given the uncertainty around the pandemic.
We also expect ongoing headwinds from low interest rates on investment income.
Moving now to global housing net operating income for the third quarter totaled $13 million compared to $42 million in the third quarter of 2019.
The decrease was primarily due to $51 million of higher reportable catastrophes.
As we pre announced we incurred a total of $87 million of after tax cat losses related to several hurricanes and wild fires in the U.S.
Nearly half of the losses in the quarter were from Hurricane Laura.
With the remainder primarily related to hurricane Sally and you say, yes, as well as wildfires in California and Oregon.
Excluding catastrophe losses earnings increased $23 million year over year or 30% to $100 million.
Approximately two thirds of the increase was due to favorable non cat loss experience across specialty products and lender placed.
This included $8 million of favorable experience that we don't expect going forward, including reserve releases related to run off businesses.
Improvements in underwriting and product changes also led to more favorable experience.
We also benefited from continued growth in multifamily housing from affinity partners.
It was in lender placed the results also reflected higher premium rates.
Growth was partially offset by the reduction in policies in force driven by declining RTL volumes from the current foreclosure moratoriums and the previously disclosed financial consulting client.
Looking at placement rates, we recorded a two basis point sequential increase in the quarter to 1.58%.
This was attributable to a shift in business mix, it's not an indication of a broader macro housing shift.
Turning to global housing revenues net earned premiums and fees decreased 4%.
Similar to last quarter. This was driven mainly by three items yes.
The exit of small commercial insolvent lender placed client and lower our real volumes.
This decrease was partially offset by growth in both our multifamily housing and specialty property businesses.
Multifamily housing revenues increased driven mainly by growth from our affinity partners.
For the full year, we expect global housings net operating income excluding cats to increase year over year, driven by favorable non cat loss experience as well as improved results in each line of business.
Looking ahead, we expect to see more normalized non cat loss experience lower Oreo volumes do the foreclosure more 20 games that have now been extended through the remainder of 2020 and lower investment income due to lower yields.
Specifically in the fourth quarter, we also expect hurricane delta to be a reportable event.
Likely in the range of $12 million to $20 million pretax subject to further claims analysis.
And while it's still too early in the claims process to speculate hurricanes data will likely be a reportable event as well.
We will provide an update prior to fourth quarter earnings if necessary.
Now, let's move to global printing.
Overall, the business continues to perform well.
The segment reported net operating income of $13 million, an increase of $6 million year over year.
The absence of a negative one time accounting adjustment in the third quarter of last year was offset by lower investment income this quarter.
While market mortality trends have fluctuated during the pandemic the impact on mortality on earnings continued to be immaterial in the quarter.
Revenue for pre need was up slightly primarily due to continued growth in sales of our fine on the product.
We're pleased to see a rebound in pay sales since the second quarter, reflecting the reopening of funeral homes.
Overall for global Preneed, we expect Twentytwenty earnings will approximate 2019 reported results.
Moving to corporate the net operating loss was $23 million compared to $21 million in the third quarter of 2019.
This was primarily due to lower investment income.
For the full year, we expect Twentytwenty corporate net operating loss to approximate $90 million.
Mainly as the result of lower investment income and investments for growth.
Turning to holding company liquidity, we ended September with $460 million for $235 million above our current minimum target level.
In the third quarter dividends from our operating segments totaled $245 million.
In addition to our quarterly corporate and interest expenses. We also had outflows from three items.
First we bought back $70 million of stock after resuming share purchases in the quarter.
Second we paid $42 million in common and preferred stock dividends and finally, we had approximately $10 million of net cash outflows related to the acquisitions of OLED grain fixed and the sale of our CLL platform.
In the fourth quarter to October Thirtyth, we repurchased an additional 330000 shares for $41 million.
Regarding the new debt issuance to support the financing a pilot we continue to target an overall debt to capital ratio of less than 30%.
And expect to remain within that target, while also maintaining investment grade ratings.
The global Preneed, we reported a $136 million goodwill impairment charge. This was related to the decision to explore strategic alternatives for the segment combined with the impact of the low interest rate environment.
This is a noncash charge and one's through net income.
Moving forward for the year overall, we still expect dividends to approximate segment earnings subject to the growth of the businesses rating agency and regulatory capital requirements and the performance of the investment portfolio.
In summary, we delivered solid results and maintained a strong financial position throughout the pandemic.
As we approach year end, we remained focused on meeting our 2020 financial objectives and on building a stronger assurant for the future.
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 comments press star one on your Touchtone phone.
At any point. Your question is answered you may renewed yourself from the queue like press the pound key again, we do asks that while you pose your question that you pick up your handset to provide sound quality. Thank you. Our first question is coming from the line.
She was from CIBC Your line is open.
Hey, good morning, Marc Thank you Marty Mark good morning.
Well if you all are well.
On the vehicle business, the global automotive had a nice acceleration in earned premiums and fees.
Then to the 13, 14%.
I think you had said that the new sales were still kind of lagging behind last year on a year to date.
Oh, what was going on with the earn it would be a pick up there.
Yeah, maybe a mark let me start and then Richard you can give a little more color you know if you look at the impacts of Kobe them auto we saw a real slow down and sales back in March and April since then we've been recovering and our you know if you look at the current run rate, it's basically at or above 2019 level.
So we just haven't fully caught up the gap that happened early in the year on kind of new sales for this year, but you know the momentum is strong and the business is strong Richard you want to talk little bit more about what's happening with NBP.
Exactly and then then I'd yeah, that's exactly right. The only other thing I would add is is obviously some of the earned premium is what weve written historically not just this year in prior years too. So from time to time Weve had season seasonality with where sales can be a little bit higher. So the earnings can be a little bit higher I always think relative to auto.
As in other lines of business. It's good to look at it on a on a kind of a year to date basis and look over the last six months or year for trends.
Yeah. The other thing I might add Mark is as we look to the future we feel very well positioned going back to the reasons why we purchase the warranty group and you heard in the prepared remarks, we highlighted another step forward in electric which I think will position us to be one of the leaders around that as it grows in the market. So you know Walt.
Positioned performing well when we look good as we look to the future for auto.
Let's talk a little bit about the the highlight acquisition in terms of the potential for customer expansion, where they have relationships that you could perhaps below.
Yeah, what's what's interesting about highlights it really complements our business and what we do so we have our set of clients. We have end to end capabilities, but they have are generally different clients. So they bring a variety of clients that we currently don't have significant business with they also bring a really superior saw.
Software as a service and analytic capability that we can incorporate and drive into our programs overtime save delivered strong double digit growth over the past three years within their base now they've started to expand and together we'll have now more than 30 plus trade in programs are operating in key markets around the world.
Positions us well for the Fiveg Mega trend.
We don't know fully whether that will be a 21 event or a 22 events like that will be the partner of choice I think for traded buyback around the world. After we close on highlights.
And then finally your current thoughts on the lender placed business when you look at the.
None of the serious delinquencies what.
What do you think are going to shape up and 21.
You know so right now were as Weve talked about in the prepared remarks were seeing some well let me back up even more that business is in a good place right weve been able over the last few years to get the earnings ex cat to be stable independent of any growth in the business and through the evolution of our product the things we've done over there.
Past decade, we're really well positioned as an integral part of the mortgage process and as you know we've been investing in our technology to really deliver superior customer experience.
Now what's happening in the short term is were actually not seeing any growth in that business in terms of placement.
Oreo volumes for example are down and are down significantly because of the foreclosure moratorium set are in place, but we're well positioned if the market does weaken next year as we mentioned in the prepared remarks, we've now renewed the vast majority of our track loans.
And so you know we don't know what will happen in the housing market, but certainly nothing will happen in the short term, but if the housing market does weekend you could see strong growth beginning maybe the second half of 20 ones.
Thank you.
Great. Thanks, Mark.
Thanks, Mike.
And again, if you would like to ask a question. Please press Star then the number one on your Touchtone phone at this time. Your next question comes from a line of Brian Meredith with you.
Brian Your line is open.
Hey, good morning, Thanks, Martin Good morning, everybody.
Couple of questions here for you first on global lifestyle.
First I guess did this Brent deal have any kind of impact on global covered devices much in the quarter and then I guess following.
Following on in that what do you kind of maybe give some more color around what do you think potential backlog here is with respect to trade and I know you talked about it picking up in the fourth quarter. It may be a little more context around with respect to the iPhone upgrade the NIST fiveg upgrade cycle [noise].
Yeah, Brian. Thank you for the questions you know on on Sprint and T. Mobile you know first of all again I want to recognize the importance that we have of that relationship for T. Mobile we've been their partner supporting their innovation and disruption for the last decade and that is really the driver of our 10 now participating in the growth of spread we are starting from.
Zero and ignore the really the program is just beginning to get going it took a couple of months. After the closing before T. Mobile really began to convert the stores as they wanted to make sure. They didn't disrupt things during that conversion phase. So we're starting to see some impact, but it's going to be a gradual ramp. We're also investing as you might expect to help us.
But the legacy sprint stores being a good position to sell our products as people come in so not a lot of impact so far but will be a significant growth driver over the next two to three years as that program really ramps you know in terms of the trading in buybacks cycle, but we've seen the last three or four years is that the volume.
Really begins in the latter part of Q4, and then really into Q1 and that's again, what we expect to see this year, we'll see some volume beginning in Q4, but the bulk of the volume.
In the last couple of years, it's been lagged into the first quarter of next year and it really is driven by when that new I phones are available.
And if you noticed their announcement a couple of the new models route right away, but a couple of the new models are still not out and so you will see that over time and I mention Fiveg earlier.
This is the first year that the I phones really how fiveg capability, which is which is a real positive, but when will consumers really get excited about fiveg. We don't know for sure but as I mentioned earlier, we're now well positioned to support our carrier partners with Fiveg when it happens.
Great and then two quick question try and global housing.
The first one the underwriting initiatives that you guys sense, but it may be a little more color on what those were and and you know what the impact was on the underlying combined ratio because I assume that's going to be sustainable here going forward.
Yeah, Richard you want to maybe you got one.
Yeah sure sure and good morning, right, Yeah, I think that the changes that we made in the underwriting were more copper were across a couple of different products. So first would be you know we've talked about it before small commercial you know we had gone into that.
I Didnt have a positive experience with it and then put it into run off so obviously that will persist in the future because we have no plans to get back into that so that's one positive and then within the sharing economy I think we mentioned it on in a call earlier in the year, we had to add one type of product with one client who we are.
Good getting good experience within that we re underwrote two or.
So again I think there we have well give gotten good results out of that and are moving forward with positive results you know the.
Part of your question, which is how what will persist or not you know we have had within the within the non cat loss ratio you know some positives this year that won't reoccur for example, some reserve releases of a limited amount that we mentioned.
In our in our prepared remarks of about $8 million. Those won't continue we don't think we've also had a really good run in terms of lower frequency severity and things like theft and vandalism little.
And will that continue that's sort of a question Mark in terms of how that will go in the future. So there's some things that will continue.
Some things that probably won't you know the reserve releases and then some things we'll wait to see what happens in the future with arc our experience.
Great and then just one last one on the global housing segment, you know, it's been a fairly active year, obviously for catastrophe losses.
You know given what's going on you know with.
Global warming and stuff I mean, some people expect us to be.
For the norm than the exception I guess my question. Then is you just as a year like two years. This year make you kind of question. Your reinsurance program changes to the reinsurance program, maybe using more aggregate cover to kind of mitigate some of the volatility in the business.
Yeah, maybe I can offer a few thoughts and then Richard you should offer a few more I mean, if you look at the last few years, we've dramatically changed our exposure to cat, we've done things like taking the retention down to 80 million, where it is today from 240 million five years ago, we exited certain lines that we were participating in the call.
Vivian we've reduced exposure by exiting the small commercial business.
And so we do feel very good about the portfolio and is performing well if you look at through the third quarter, even with an active cat year are are we in housing is something like 14 or 15%. So its still performing and delivering well now with that said every year, we revisit how we think about the risk reward.
Our trade offs on the Cat program and Oh, Richard maybe you want to comment a little more on how we're thinking about that in 2021.
Yeah. Thank you and I think and when you hit on a lot of the very key points, which is part of cat is managing the exposure to cat. So we're very thoughtful in terms of what risk were taking on obviously lender placed we have the exposure. We have given you that flows through from the clients to ourselves.
But every year, we look at it as Alan said, we we look at what can we do to manage our exposure.
Whether it be bringing down our retention, Brian you you'd mentioned buying an aggregate. That's obviously something that we look at every year at the end of the day, there's there's economics around it and there's pricing in the market. So we look at that and say is it is a thoughtful for us to to buy more reinsurance or is this a risk we're happy to hold given the pricing.
They're in the market as Alan said, you know, we can have a quarter like last quarter, where you know we do get hit by natural catastrophes.
But over a period of time and I would say just one year, our combined operating ratio it ends up being well below 100, and they are always on this business are very positive. So we're managing around that being thoughtful around that and where there are good economic opportunities to lower our exposure.
Yes, we will definitely take them.
And Brian if I step back from housing and look at our overall portfolio. At this point you know be delivered strong profitable growth. We expect to continue to deliver strong growth no matter whats the market environment is and it's really that combination of lifestyle and housing capabilities and products that does that and as we look to the.
Future and we mentioned briefly in the prepared remarks, paki Colm, we see a real convergence coming between lifestyle and housing and great opportunities around the connected home the connected apartment and a whole new set of growth drivers for us as we look to the future. So we feel good about the portfolio will always fine tuning our cat exposure, but we feel like.
We're in a pretty good place without at the moment as well.
Great. Thanks.
Yes.
Your next question comes from the line of Michael Phillips with Morgan Stanley Michael Your line is open.
Hey, good morning, Mike.
Good morning, guys. Thanks for the questions.
One more on the housing side not just the last two quarters, but probably looks like the last couple of years you had a nice downdraft in the expense ratio I guess, maybe you can talk about what you're doing to make that happen and should we expect that to continue or are we kind of at a level you you'd like it to be.
Yeah, maybe again all started in Richard you should you should add into it I mean that business is in a good position today as we've worked to drive efficiencies. We for example been investing in improving various processes using artificial intelligence and automation and that has helped US we are in the middle of converting clients.
Two our single source processing platform, which really delivers over the next few years, a much simpler and better customer experience.
But I don't think we'll have continued improvement in that ratio what I mean by that is we worked with our regulators to kind of agree a normal range combined ratio and.
And Richard May want to talk about that and how we think about that with our regulators, but we feel good about where it is today.
Yeah, we do and I think you know that the team has done a great job in managing expenses. If we think about the last couple of years. We've seen you know the revenues come down and now they're coming down you know very little I mean, we've talked about the financial insolvent client that put a little bit of headwind, but over the nine.
Loans were down you know not much at all you know just call it 5%.
So in terms of the expense management I think we are at the bottom which exceeds the discipline, we have and what we need to deliver to our customers which is obviously.
At the at the forefront of our thoughts and with regard to the regulators obviously the regulators take into account the experience. We have so if there's years, where you know the overall loss ratio is really high we can go in and ask for some pricing improvements if it's too low obviously that gets taken into a.
So overall I think even if the loss the expense ratio go a lot lower we would see that come through rate over time.
I think where we're looking at the expense ratio was from a competitive point of view to be able to operate and produce the most efficiency for our customers.
So they get the best experience that we can offer them.
<unk>.
Okay. Thanks for that.
So you both mentioned.
Or did I think Oh I know what it was in your press release from improved profitability and the extended service contracts and maybe what's driving that and how you expect that to continue or or where should we expect that to be a as we get into into next year.
Richard you aren't as it does yes, yes, yes, I think first it has had a.
Some good good operations good results in the beginning of the year here you know in the last quarter in particular, that's really coming from lower client losses experience last year and now what we're seeing is a little bit more normalized experience so better experience.
This year. So we think now where we are we're kind of in a more normalized more normalized place than we were in the past.
I can put it that way.
Okay. That's helpful and then a bit of a good question apologize, but you talked about the UK and the D.V. cars, how does how does the just the business or the contracts of core warranty extended service contracts and auto change as car.
Cars become more.
Technology, driven or maybe an add on to what year, we have a higher percentage of of cars that are essentially computers on wheels as compared to the difficulty of of course, how does that change over time, but that makes an award contracts. So yes.
Yeah, I know you raise a great point, so as we think about the future a couple of things happen with the car. One is the car just becomes a big connected device. So if you think about the early days of the Carphone 25, 30 years ago now in the future everything in the cars connected all the time, particularly once fiveg gets rolled out so there'll be a whole set of value.
We can deliver through our service contract around keeping you connected it's basically what we do in mobile today, and we see that coming to auto. So thats. One thing and then if you think about electric vehicles. For example, you will have fewer things that can go wrong, but you'll have much higher severity when something does go wrong and so we're learning.
One of the reasons, we've been pushing hard with electric we've done a deal in China. We've now done the deal on the UK is to really develop the data and the learning. So we can be the most compelling offer to support what we think for a consumer will be even a greater interest in the service contract both because of the nature of the risk, but because of the connectivity of.
A car and that really is an area, where we feel our business being in both mobile and auto gives us a unique set of advantages in the market.
Okay makes sense public interesting times in that regard so I look forward to that the theatrical.
Thank you hi, Thanks, Mike.
And again, if you would like to ask a question. Please press Star then the number one on your telephone keypad. Your next question comes from the line of Bose George of KBW. Your line is open.
Hey, good morning Bose.
Just actually wanted to go back to the global housing any update on the that bank of America.
That piece.
You know I.
Well the way we think about it is we have the best capabilities. The most value that we can offer our clients. Obviously that process is ongoing and confidential and as I've talked about before the incumbent always has a significant advantage, but with that said.
We are doing all we can to put our best foot forward and every process that I will turn the market and we really do feel we have a compelling offer so well just have to see what happens over time.
Okay, great. Thanks, and then actually switching over to your commentary on year over year growth.
And that's why they are quite a few moving pieces there, but do you think you can do double digit and then like growth of 2021.
Yes.
Yeah, Let me a couple of comments on that first of all we'll provide an outlook.
In Q4 earnings call. So that'd be in early February about what we really expect and you should expect for 2021, a couple of comments, though you know 2020 has been a very strong earnings growth year.
Really proud I think we're all really proud of how our people have delivered for our customers and our clients and for our shareholders, but the really strong 2020. It does create some a year on year challenges. If you look at 21, we had about 60 million of onetime benefits in lifestyle earlier. This year, we've never assume a onetime benefits will recur.
We had about $8 million of a favorable experience. We just mentioned in Q3 and housing we don't really expect that to recur.
Yeah, we did have some other benefits from for example, our expense management actions, where we deferred some hiring we reduced travel that'll come back. So definitely you know 2021, we do expect to grow.
But we expect it to moderate from 2020 and overall, if you think back to our Investor Day, We said in Investor day that on average in 2020 and 2021, we would grow operating earnings so analyte ex cat by 12% on average.
Fashion Investor Day, we thought it would be a little bit lower in 2020 relative to the 12% in the little bit higher in 2021.
Now we had a stronger 2020, and we now expect to moderate a little bit in 2021.
The combination of the EPS growth do we expect the 12% on average 2021, we still believe that's appropriate.
Okay, great. Thanks very much.
Hi, great. Thanks, Justin.
Your next question comes from the line of Gary Ransom with Dowling and partners Gary Your line is open.
Hey, good morning, Gary.
Good morning, Gary.
I wanted to ask a.
Bigger picture question about.
Customer behavior, we've been through a big experiment in the United States about what happens when economies get shut down and when people work from home and how they change what they do with electronics or other things and.
And I'm trying to discern what might.
Might be a permanent change in there versus what might be just temporary and goes away next year and I I was just wanted to hear your thoughts on whether there whether you think there is anything that has been permit.
Permanently accelerated or changed and how you engage with your customers.
No Gary Thank you for the question in this you imagine we've spent a fair amount of our time thinking about what are the long term implications of Cove. It I think for US. The first thing I'd highlight is just how resilient our business is it it shows the value of kind of an embedded subscriber base.
Range of services that really allow consumers to stay connected and one of the things that I think cogut is highlighted with the move to be at home more that moves to some sort of a hybrid working model more likely post cobot being connected is everything and what we do around connecting your devices, making sure everything you're homeless working that's why.
Really important so I think that actually helps us even more as we look to the future you know a.
A couple of other things, we see with Cobot digital digital was obviously already a trend that we've been investing against for years, but I think the acceleration of digital is real and permanent and we for example in the last six months or so we've really upped our investment in digital everywhere. So today, we feel like in exam.
In rental multifamily our digital capabilities are at or better than anybody else in the market. So we see digital kind of as a long growing trend.
And then the other thing we're thinking about are are there changes for example in global supply chains. So we may think about that overtime, but you know at the end of the day I would highlight just how strong our businesses performed through this uncertainty and just shows the value of what we're doing for our customers and how much they appreciate being able.
To stay connected in having everything in their home work the way they wanted it to.
Thank you for that.
I also had a question on.
A highlight comments about.
The higher attachment of trade in.
And I just wanted to understand better what it is that highlight is doing to make the customer more.
More interested in trading in rather than keeping their phone.
There there are a couple of things that are interesting and that will be additive for us. One is their analytics are very impressive. So they can give effectively three analytics you can offer a better price to the consumer so thats one important item second with their analytics and their capabilities often now we can offer a quote without having to see the phone.
And have certainty that will be the quota for the consumer that also increases the attach rates and then the other thing they've done well and we also do is work with our clients to really help them understand how trading can drive persistency and retention for their customers. So.
So it's a combination of all those things so they've got a strong track record of being able to drive up the attachment of trade and which which is still an opportunity to continue to get better at but they've shown the ability to work on an improvement year on year for several years in a row now.
Alright, Thank you very much that's it for me.
Alright, Thanks, Gary.
Okay. Our last question comes from the line of Brian Meredith, if you'd be yes, Brian Your line is open.
Yeah. Thanks, one last one just follow sporting good just one last quick follow up on the pre need sales any timing that you can kind of give us some kind of when you think the process maybe done and then also on that.
Any kind of thoughts on what the potential valuation would be.
Yeah, you know in terms of the process and valuation. We're just getting started so I want to clarify that were very early.
But we are looking at a range at all alternatives and you know a good guide is what we do with employee benefits, which took it took us back.
Then something like four or five months to get to an offer and then you know another similar period of time to close.
Who knows what that will be the case here, but that that's probably a reasonable way to think about it you know in terms of the valuation I wouldn't speculate but we are confident it's going to be an attractive valuation for our shareholders. We know from other life insurance transactions recently, there is a wide range of interest and assets like our pre need business and we're confident that it.
It's not valued appropriately in our stock and that whatever we do here will unlock and create value for our shareholders over the next you know for nine months as we worked through a process and that hopefully at closing.
Great. Thanks.
All right. Thank you I think that was the last question so with that I want to thank everyone for participating in todays call. In summary were very pleased with our year to date performance and believe the recent strategic announcements. We've just made to focus even further on her lifestyle and housing offerings will ultimately increase our earnings momentum and cash flow and.
Deliver value for our shareholders over time.
We'll update you on our progress in the fourth quarter earnings call in early February in the meantime, please reach out to Suzanne Shepherd or Sean Mosher with any follow up questions. Thanks, everyone.
Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.
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