Q4 2020 Assurant Inc Earnings Call
Welcome to assurance fourth quarter 2020 earnings conference call and webcast. At this time all participants have been placed in a listen only mode and the floor will be open for your questions.
Following management's prepared remarks, if you would like to ask a question. During this time. Please press star one on your Touchtone phone if at any point. Your question has been answered you may lose yourself from the queue by pressing the pound key.
Could you please pickup your handset to allow optimal sound quality.
Lee if you should work higher operator assistance. Please press star zero and it is now my pleasure to turn the floor over to.
To Suzanne Shepherd Senior Vice President of Investor Relations you may begin thank.
Thank you operator, and good morning, everyone. We look forward to discussing our fourth quarter and full year 2020 results with you today.
Joining me for Assurant Conference call are Alan Colberg, our President and Chief Executive Officer, and Richard <unk>, Our Chief Financial Officer.
Yesterday after the market closed we issued a news release announcing our results for the fourth quarter and full year 2020.
The release and corresponding financial supplement are available on Assurant Dot com.
We'll start today's call with brief remarks from Alan and Richard before moving into a Q&A session.
Some of the 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 by these statements.
Additional information regarding these factors can be found in yesterday's earnings release as well as in our SEC reports.
During today's call, we will refer to non-GAAP financial measures, which we believe are important and 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 and good morning, everyone.
We're pleased with our performance for 2020.
Driven by our market, leading specialty P&C and connected living offerings 'twenty and 'twenty represented the fourth consecutive year of strong profitable operating earnings growth for Assurant.
This was a significant achievement demonstrating both the strength and resiliency of our business model and the dedication of our employees.
Guided by assurance core values, our over 14000 employees demonstrated and extraordinary commitment throughout this pandemic to each other our partners and the hundreds of millions of customers we serve around the world.
During this most challenging of years I'm equally as proud of the steps we took to further advance our long standing commitment as a responsible employer, including additional actions to foster a more diverse equitable and inclusive environment within our communities.
Some examples included.
Sustaining enterprise forums to openly discuss challenges still faced by many as we collectively combat racism and bigotry.
Expanding our supplier diversity and inclusion program to provide additional opportunities to increase the diversity of our vendor relationships.
And reaffirming our commitment to fair and equitable pay as we continue to review our policies and practices.
Already in 2021, we've launched several additional initiatives, including more comprehensive enterprise wide diversity trading and the mandatory adoption of diverse candidate slate and every teams to ensure we hired the best candidates.
We also expect to launch enterprise employee resource groups to support a more diverse workforce.
We believe these diversity initiatives will help us better connect to each other and the consumers we serve.
Now, let's move to our full year results net operating income excluding reportable catastrophes grew by 16% to $664 million and earnings per share increased 17% to $10.80.
Yes.
These results were in line with the outlook, we provided in November and far exceeded the initial expectations of 10% to 14% operating earnings per share growth, we outlined at the beginning of 2020.
This performance was driven by strong results and global housing and continued growth and global lifestyle, particularly connected living.
Throughout the year, our balance sheet remains strong.
Combined our three operating segments contributed a total of $821 million and dividends to the holding company.
During 2020, we increased our common stock dividend for the 16th consecutive year and returned $455 million and share repurchases and common stock dividends.
Our 2019 Investor day objective of returning $1 $35 billion by the end of 2021 is now 65% complete and we expect to return the balance over the course of this year.
As we build a stronger assurant for the future we've continued to make investments and enhancing key capabilities and the rollout of new and expanded offerings to support our growing global customer base.
Our superior customer experience remains a key differentiator.
This was critically important during the pandemic and will remain vital as we emerge from this period.
Specifically, our digital capabilities have contributed to new business opportunities and the longevity of our most important client partnerships across the assurant.
At the end of 'twenty and 'twenty, our top clients had an average tenure of almost 17 years.
We continue to believe there are significant future growth opportunities within our mobile and auto and renters businesses also taking into account the convergence of connected devices cars and homes, which we refer to as the connected world.
These opportunities also drove our decision to explore strategic alternatives for global preneed. So that we can deepen our focus on our lifestyle and housing businesses and the connected consumer.
Excluding global Preneed, and catastrophe losses, and he's connected businesses represented 66% of our 2020 segment net operating income roughly double that of 2015.
Together they are expected to generate strong above market growth with offerings that have embedded earnings complementing our specialty P&C offerings.
Given our compelling business model and expanded fee for service offerings with the key source to drive growth. We continue to believe our stock remains attractively priced.
We currently trade at a discount to more relevant peers, including those in the home services market.
However, we believe our consistent earnings growth cash flow generation and competitive position are in many ways stronger and more sustainable.
Now, let me share some 2020 highlights for each of our operating segments.
Within global lifestyle, we increased earnings 7% to $437 million.
This was driven by connected living where earnings grew by 14% as we increased our mobile subscriber base for $54 million through new and expanded partnerships.
Across Asia Pacific and North America, we added almost $2 7 million subscribers last year.
A portion of this year over year growth can be attributed to our alignment with new market entrants like U S cable providers and a new wireless carrier and Asia Pacific.
We also processed 7 million devices through our share and trade and facilities and 2020 and closed on the acquisition of Highland mobile.
As a leading provider of smartphone software and trade in and upgrade high level for their increase our scale and strengthen our capabilities and expand our client roster as we look to capitalize on the five T upgrade cycle over the next several years.
And our extended service contract business, we expanded our 10 plus year relationship with Lowe's home improvement with the introduction of Loews Tech connect a white label version of our new pocket Geek home product, providing tech support for smart home devices.
And global automotive we've increased the number of vehicles, we protect by nearly 13% over 49 million since acquiring the warranty group adding.
Adding to the significant level of embedded earnings within the business.
More recently, we've added scale and value to our OEM Tpa and national deal clients through two acquisitions in key global automotive markets.
With American financial and automotive services or a Fas, we added scale and our direct to dealer channel and are already leveraging their best in class talent and dealer training programs.
And the fourth quarter, we acquired <unk>, a leading provider of service contracts and your insurance sold through heavy equipment dealers and manufacturers, including Volvo and Daimler.
Like a Fas we believe this is a natural extension of our extended service contract business and a niche market, we know well, which has attractive long term growth opportunities.
Given our focus on the customer experience. We also to continue to improve the claims process for vehicle owners through digital enhancements of our virtual claims inspection process.
Producing inspect and times and minimizing the amount of time without the vehicle.
Within global financial services, we're excited to announce a new partnership with a large U S credit card issuer for what providing administration services for search and embedded card benefits that leverage our enhanced omnichannel customer experience capabilities were.
We're excited about the businesses attractive growth prospects for the future.
Moving to global housing, we delivered net operating income excluding cats of $371 million up $71 million from 2019.
And our returns remained strong as our operating ROE, including cats was 15% for the year.
Within our lender placed business, we had another strong year of client renewals and we remain proud of our critical role and the mortgage lending process.
We attribute the strength and longevity of our client relationships through our focus on customer experience as well as compliance and risk management.
These will only get stronger as we continue to make progress on our proprietary single source processing platform, increasing productivity and improving customer experience over the long term.
And multifamily housing we increased policies, 8% since 2019, and now protect over $2 4 million renters nationwide.
We've continued to invest and future growth, particularly through digital enhancements and innovations.
As the ongoing rollout of our property management solution cover 360, <unk> continues to progress. We recently introduced a newly designed resident portal that makes renters insurance compliance for resident and simple and fully digital.
Which will ultimately increase attachment rates over the long term.
And global Preneed earnings were down year over year in light of the COVID-19, global pandemic and continued low interest rate environment.
But overall global preneed performed well and 2020 and has continued to produce strong cash flows with a high quality 6 billion dollar asset base.
To summarize 2020 was a strong year for assurant, despite a challenging global environment we.
We took additional transformative steps to continue to build a stronger assurant for the future and capitalize on the convergence of the connected world.
As we look at 'twenty 'twenty, one we expect to provide our annual outlook. Once we complete our evaluation of strategic alternatives for premium.
We have made progress exploring the potential sale of the business.
To date interest has been strong and we expect to provide and update on our progress before our next earnings call in May.
With that said as we look at Assurant and today, including Preneed, we are on track to deliver against the financial objective share as our 2019 Investor day, including 12% average annual operating EPS growth, excluding catastrophes for 'twenty, and 'twenty and 'twenty 'twenty one.
As expected this implies slower EPS growth and 2021 as we continue to invest for the future and build off of a stronger base in 2020.
And also assumes a more normalized level of non cat losses and global housing.
And 2021, we will continue to prioritize investments and product innovation further enhancing the customer experience and strengthening our social responsibility efforts, including actions to promote sustainability.
I'll now turn the call over to Richard to review fourth quarter results and our high level view of 2021 Richard.
Thank you Alan and good morning, everyone.
As Alan noted.
We are pleased with our performance for 2020, particularly amidst the pandemic.
And now going to review, our fourth quarter 2020 results and underlying business trends for the year.
For the fourth quarter 2020, net operating income, excluding catastrophes declined by $3 million to $136 million.
Mainly due to a $28 million reduction and net investment income across all operating segments, partially offset by more favorable non cat loss experience and housing.
This drop and investment income reflects both the lower interest rate environment and includes a $12 million decline and income from sales of real estate joint venture partnerships.
In the quarter, we also incurred $11 million of severance and real estate charges as we continue to manage expenses and evolved assurance workplace environment.
Now, let's move to segment results for global lifestyle.
The segment reported earnings of $88 million, and the fourth quarter down $9 million.
The year over year decrease was primarily due to a $16 million decrease and net investment income spread across the businesses.
Half of which came from sales and real estate joint venture partnerships.
Excluding the decline and investment income segment earnings increased modestly on.
Underlying earnings growth was driven primarily by organic growth and global auto while connected living earnings were flat compared to the prior year.
Results in connected living were driven by continued mobile subscriber growth for.
Particularly in Asia Pacific and North America.
As well as contributions from the acquisition of highlight in December.
This was largely offset by lower mobile results and Europe, mainly from $5 million of non run rate items.
In addition, the segment had $4 million of severance and real estate charges in the quarter that we don't expect going forward.
Looking at total revenues net earned premiums and fees decreased by $37 million. This was driven mainly by a $78 million reduction and mobile trading revenue primarily due to the contract change, we disclosed and the second quarter.
Excluding this change lifestyle revenues were up $41 million or 2% driven by an 8% revenue increase and global auto from prior period sales of vehicle service contracts.
Overall trading activity, which flows through fee income was down year over year. However.
However, as was the case and the last few years, we saw an uptick in December this was driven by new phone introductions greater device availability and contributions from Highland during its first month with Assurant.
Given the continued strong trading activity in January we expect to see a sequential and year over year increase and volumes and the first quarter.
For the full year of 2021, we expect to see continued growth and global Lifestyle's net operating income.
With the growth more heavily weighted towards the second half of the year.
Overall earnings expansion will be led by mobile and will mainly come from new and expanded programs as well as contributions from recent acquisitions.
We also anticipate improved profitability and financial services, which is positioned to steadily improve.
On the lower volumes and unfavorable loss experience seen in 2020.
We are cautiously optimistic, particularly as it relates to some of our travel related programs, which were negatively impacted by the pandemic.
We expect global auto earnings to be down modestly, reflecting the pressure from the low interest rate environment.
Continued investments and our capabilities product offerings and customer experience are also anticipated during the course of the year.
Moving now to global housing net operating income for the fourth quarter totaled $61 million compared to $73 million and the fourth quarter of 2019.
The decrease was largely due to $28 million of higher reportable catastrophes over half of the losses were from hurricane data with the balance primarily related to claims from Hurricane Delta.
Excluding catastrophe losses earnings increased $16 million or 23%, despite lower investment income of $8 million.
The increase was driven by favorable non cat loss experience across all lines of business. We saw reduced claims frequency and drove improved profitability and our sharing economy portfolio.
Lender placed results also reflected higher premium rates, mostly offset by declining real volumes from ongoing foreclosure moratoriums.
Turning to revenue.
Global housing net earned premiums and fees decreased 3%.
Similar to previous quarters. This was driven mainly by three items.
The exit of small commercial.
The insolvent lender placed clients.
And lower <unk> volumes.
The decrease was partially offset by growth and both our specialty property and multifamily housing businesses.
We expect global housing net operating income excluding cats to be lower in 2021 compared to 2020.
And overall increase and our non cat loss ratio to more normalized levels and higher reinsurance costs will be the primary drivers.
We expect both index to begin in the first quarter.
Regarding our cat reinsurance costs and January we completed approximately two thirds of our 2021 catastrophe reinsurance program placement.
And that's part of the placement, we secured additional multi year coverage, resulting in approximately 52% of our U S program now benefiting from this feature.
As expected, we saw an increase and the overall pricing of reinsurance in our purchases to date.
Which are multiyear layers helped to offset.
As we finalize the remaining portion of the program in July we will continue to evaluate the risk and rewards of purchasing additional reinsurance and alternatives that could reduce our risk.
We are not however, currently assuming any increased coverage.
We expect some increase and our volumes in the second half of the year. However, we do not anticipate volumes reverting to pre COVID-19 levels immediately and.
And volumes will be influenced by the timing of the foreclosure moratoriums.
Now, let's move to global Preneed.
The segment reported net operating income of $9 million, a decrease of $7 million year over year.
In addition to lower investment income, we had nearly $4 million and nonrecurring items related to our system conversion and updated assumptions for the earnings pattern of new policies.
For the GAAP impact of these items was $4 million the statutory impact was immaterial.
In addition, we experienced an increase and mortality trends as we exited the quarter.
We continue to monitor trends and expect the increase and claims to continue into the first half of 2021.
Revenue for Preneed was up 5%, primarily due to growth and U S sales and <unk> sales have increased significantly since the second quarter of 2020, so they remain below pre COVID-19 levels.
For 2021 global Preneed will remain and our operating results until we conclude our evaluation of strategic alternatives.
Overall, we expect 2021 preneed earnings will be up slightly compared to 2020 reported results illustrating the strength of the business. Despite the ongoing challenge of the global pandemic.
Our corporate and net operating loss was $23 million compared to $22 million and the fourth quarter of 2019.
This was primarily due to lower investment income and expense actions in the quarter.
For the full year 2021, we expect the corporate net operating loss to improve from 2020.
I also wanted to provide a quick update on.
And on our investment portfolio.
The portfolio continued to perform well during the quarter.
While investment income levels are low due to the lower short and longer term yields available on the market and lower joint venture real estate income in the quarter.
The strength of the portfolio can be seen through three items the.
And the absence of defaults and the low level of credit downgrades and the increase and the value of those assets mark to market.
Turning to holding company liquidity, we ended the year with $407 million, which is $182 million above our current minimum target level.
And the fourth quarter dividends from our operating segments totaled $292 million.
In addition to our quarterly corporate and interest expenses. We also had outflows from three main items.
$147 million of share repurchases.
$44 million, and common and preferred stock dividends and $368 million related to the acquisitions of pilot and APG.
As a reminder, we partially finance highlights through the issuance of subordinated debt in the fourth quarter.
As we enter 2021, our capital and liquidity positions remained strong supported by the robust cash flows generated by global lifestyle and global housing.
For the year overall, we expect dividends to approximate segment earnings subject to the growth of the businesses and rating agency and regulatory capital requirements.
We have now returned approximately $880 million and the last two years and.
And we expect to complete our three year, one and three $5 billion capital return objectives to shareholders in 2021.
Similar to prior years, the pace of buybacks is expected to be somewhat weighted towards the second half of the year.
And the first quarter through February 5th we repurchased an additional 120000 shares for $16 million.
We have $770 million remaining and our share repurchase authorization, which includes the additional authorization recently improved for our board of directors.
Additionally in January we redeemed the remaining $50 million of our March 2021 notes.
Before closing I also wanted to provide a reminder, that our mandatory convertible shares will convert to common shares on March 15.
The number of common shares issued will depend on our share price leading up to the conversion date.
And assurance current share price, we would expect conversion would result in the minimum issuance of shares.
In summary, despite a year of uncertainty we took action to safeguard our employees to provide our clients with superior service and to maintain our strong financial footing.
As we turn the page to 2021, and we're focused on continuing to deliver profitable growth.
Enhancing our products and services.
And meeting our commitments to all stakeholders.
Look forward to the year ahead, as we continue to drive Assurant to a strong 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 comment. Please press star one on your Touchtone phone.
At any point. Your question is answered and you you may remove yourself from the queue by pressing the pound key.
Again, we do ask debt while you pose your question. Please pick up your handset to provide optimal sound quality. Thank you. Our first question comes from Bose George with <unk>. Your line is open.
Hey, good morning Bose good morning.
Hey, good morning.
Hey, good morning, minimally I wanted to ask.
And just about the potential sale of for preneed business and Theres been a lot of life insurance and annuity transactions recently and just broadly do you consider those to be good comps and.
Should we focus on net sales price being based on a multiple of book value as opposed to Inc earnings multiple.
So first of all it's important to reflect on our preneed business, we have a unique and strong business, we have imports and distribution partners on on a long term contract. We have a block of business. That's continued to perform well even through COVID-19, and what I would say on the process is we're encouraged.
There is strong interest and robust interest and our company and and preneed and we're hopeful that we'll be able to announce something in a bag.
And some of our Q1 earnings call.
And towards evaluation I think it's not really appropriate to speculate on that as we're in the middle of the process, but I do think we're on track to deliver a good and strong outcome for our shareholders at the end of the day and.
And for the repositioned the balance of Assurant to focus on our growth engines around the connected world and our strong specialty P&C offerings.
Okay. That's helpful. Thanks, and just actually switching over to the extended warranty business there've been a couple of headlines about competitors that we see home depot Allstate partnership can you just talk about competition and that states and just remind us what the targeted growth and returns on that business line.
So our extended service contracts for part of our connected living business, given the kind of convergence and overlap we see between mobile and service contracts and we mentioned on the call today that we've extended and deepened our relationship with Lowe's, which is an important and service contract partner and we've talked in the prepared remarks about <unk>.
<unk> and of what we call pocket Geek home, which we're excited about as kind of a next generation innovation, it's really around providing all the services to keep you connected for every connected device that you own and.
So that's exciting but broadly if you look and connected living it was another year of strong growth that includes and our surface contract business and we continue to believe and you see it with our success that we've been able to expand and grow and deepen and I think we've announced now more than it does and so new partnerships and the last three or four years.
And really driven by our innovation.
And our strength in key global markets around the world like Japan, and Europe. So I think we feel good about the momentum and we're going to continue to invest and differentiate we for example, and 2020, we substantially increased our investment and digital midyear.
Not that we arent already strong and digital but we see the impact of Covid and we wanted to make sure we're doing everything possible to drive a complete digital omnichannel experience for our customers.
Okay, great. Thanks.
Our next question comes from the line of Brian Meredith with UBS. Your line is open.
Hey, good morning.
Good morning.
First question I guess can we take a little bit more into kind of covered devices and mobile and kind of what's happening there growth continues to slow.
I know you mentioned a little bit how you expect some pickup and the beginning of the year, but just how do you think this plays out, particularly also related to sprint T mobile.
Does that kind of play out through the year when do we expect to see some kind of meaningful impact from that at least from a growth perspective and topline.
Yeah, you know if I reflect on the subscriber count certainly 2020 was still a positive year. We grew the subscriber count despite COVID-19 and despite the numerous disruptions and store closures that happened throughout the year.
We had challenges in Latin America. The region that was most disrupted probably by Covid, but as I mentioned in the prepared remarks, we had strong growth in North America, and and Asia Pacific and with the sprint business. We are beginning to ramp that and that will grow strongly as we go through 'twenty and 'twenty, one and beyond so certainly.
A little bit slower than prior years really because of COVID-19, but the underlying momentum and strength of that business remains strong.
Great and then I guess my second question just back to the pre need and you just kind of remind us.
What are your thoughts as far as use of proceeds on the pre need sale as you kind of think about it today.
Yes, Brian I think the most important thing on pre need as you know, we're very hopeful that we will get to a great outcome for our shareholders as the first and most important thing. If you look at our history. We have a strong track record of disciplined capital management and deploying capital to support and grow our company over time normally we focus for.
First on organic growth and ensuring that we're funding the growth that's happening we have strong underlying organic growth across our company.
And then we look at M&A and return of capital with M&A. As a reminder, we have a very high hurdle, we look at cash on cash IRR and we're really just focused in our key growth engines of the connected world. So that's mobile auto and renters, and that's where the bulk of that would be.
And if we have excess capital our track record of returning it to shareholders over time is strong.
Gotcha and.
Just one last one and I'm curious.
Renters insurance marketplace.
Talk a little bit and maybe about the competitive environment there.
And we hear a lot about some of these ensure Texas.
Very active in that marketplace.
Could you give a little perspective on what's going on there.
Yes, if you look at our business, we continue to grow and gain share our policies were up 8% last year. So we added net something like 200000 policies to give or take to $2 4 million and.
And we've really invested over the last couple of years, if you do a side by side of our purchase experience digitally it's as good and easy to use for consumers is any digital experience. That's out there from any company and then importantly, and the property management channel. We're rolling out cover 360, which really will drive attached and over time it makes the whole.
Process of compliance and having the appropriate coverage easy. So we feel good about our momentum we continue to grow and gain share relative to the market. If you think about multifamily it was disrupted by COVID-19 more than many of the markets and the U S. Just given the challenges with renters.
We have a lot less mobility last year are people moving and despite that we grew policies, 8%. So it's a good business, we continue to gain share and we continue to invest to differentiate our offering.
Great. Thank you.
Our next question comes from the line and Mark Hughes with true your line is open.
Hey, good morning, Mark good morning.
Good morning.
And the global auto business what are the.
Across specs there for growth. So I think you've talked about the net income being down on interest rates.
Last question I think Ive asked before if interest rates are low could you adjust your offering adjust your pricing perhaps to compensate for that.
And.
And that question and then kind of.
We think about top line and 2021 and global auto.
So mark appreciate that maybe I'll start and then Richard you can go deeper on the question around investment income if you look at that business. Since we closed on the warranty group. We mentioned this in the prepared remarks, we've added something like 13% to our service contract count and that's over the last couple of years debt bodes very well for the future those are.
Bedded future earnings and Theyre going to come through and.
If you look at the underlying growth and the business before considering the investment income impacts this is a longer duration product and others and our portfolio other than pre need and there are strong underlying growth really driven by expanding share and our key dealer relationships and beginning to drive some of our capabilities for mobile into the business.
We've also recently announced partnerships in Europe.
And we've announced previously a partnership in China around electric vehicles, that's it.
Another source of innovation growth I think put aside the kind of short term what shows up on our earnings the underlying strength is strong, but Richard you should comment more on investment income and how we think about that.
Sure and then and just to add on to that I mean, only part of the earnings obviously are coming from investment income and the the overall portfolio I would say is more shorter in duration relative to preneed.
You think about pre need and having a duration and maybe of 10 years I think about half that are less for.
For auto so the current drop and interest rates has had somewhat of a headwind impact on us.
Who knows how long that that's going to last right.
But in terms of moving forward I think for.
For a large part.
We've taken into account the short term interest rate impact this year, so far so that I.
And I don't think short term rates are going to go any lower much lower so I think that's all settled in and Thats, just cash coming in and out of the enterprise there and then from a longer term basis I think your question's a good one.
As things move on if interest rates stay low it's a competitive environment. So we will see with pricing, but that typically would happen in any market, where there is some some sort of interest rate.
Spreads embedded and products. So over time that should reprice, obviously, mark there's typically a lag and and things like that in terms of 'twenty 'twenty. One we feel really good as Alan said I mean, the business has good momentum we've grown the number of protected vehicles that we've had our recent acquisition of APG bodes well for.
For the synergies and the integration that we have with that company into ours and future growth.
<unk> this summer as well good good strong acquisition for us. So we think we're the strongest player on the strongest players in the market and positioned to win as we go forward.
And Mark maybe the other thing I'd add on investment income apologies, if we look at pre need and the process. We're in and assuming we get to a good outcome. There pre need is something like 40 or 45% of our total investment portfolio and even more of the volatility just given long duration. So one of the other benefits.
Of successful outcome of preneed and Steve even further reduce our exposure to interest rates as a company, which will create more stability on the future.
On the thank you for that on the non cat.
Losses and housing.
Is that an industry phenomenon.
Thank you.
Covid related.
Probably weather related.
Or perhaps you have the underwriting phenomenon, how do you view that.
Yeah. Good question, we have had lower non cat loss ratio.
This year, a lower non cat loss ratio relative to last year and that comes from a couple of different per.
Parts.
The first part is small commercial we exited that business, which was weighing on our our overall non cat loss ratio.
The second part would be the underwriting we've done and improvements within our specialty property and particularly the sharing economy part of the business with the growth there that we've had and some nice results. There. So those two items I would say are very particular to assurant.
So not a phenomenon across the market.
And then we've also seen claims come down and frequency of claims this year.
We're not so much thinking it's due to COVID-19 as we're thinking it's really due to kind of weather more or less weather and.
The when the flood and things like that this year, we did have a little more increase in the cash that we've had this year. So maybe theres a play against those two as well.
Looking forward, we think debt as we said in 2021% non cat loss ratio will move up but we don't think it's going to move up that much there's probably protect potentially a slow conversion towards where we were in the past, but given what we've done in our underwriting on the.
And <unk> that I discussed a moment ago, we think we're gonna be and a better place next year than we were historically, so move up a little bit progressively.
But it's not as much as not to where we work and 2021 and it's our prediction, yes, Mark the other thing I would add.
To summarize kind of what Richard said more than half of our improvement. We believe has been driven by actions. We have taken the ones. Richard mentioned the other thing we've been investing heavily and as AI and automation, which has the benefit of driving better see acts as well as improved efficiency. So.
There is some effect of what's happening and the industry, but we feel most of this is true drove by us and we do expect some step up in 'twenty. One given 2020 was particularly low but we feel good about the actions we've taken to drive improvement here.
And then.
Alan.
And maybe a little bit on the softball, but you said you had mentioned.
You feel like Assurant and trades at a discount to peers and the.
The home services market any elaboration, you you'd like to get.
On the.
Yes, you know one of the things that we look at is if you really step back and look at our company.
Over the last for five years really evolve to be much more of a fee income service business type company, we have a track record of strong profitable growth.
Look at it we've delivered now we mentioned on this call you know for years in a row and strong operating earnings growth.
We have a cash flow ability as we've said many times over the years, if we earn a dollar and our segments. We can on average debt that to a holding company.
And if you look at that if you look at the competitors that we're evolving into people and the home services market or others. They all trade on multiples of EBITDA that are and the mid teens and we're well below that and so we continue to look at how do we help for our investors better understand just.
The quality of our franchise the 17 plus year client tenure that we mentioned earlier the investments we've made to differentiate.
And over time, we continue to believe our stock as attractively priced and we're going to work on continuing to evolve our metrics and disclosures and how we deploy capital to maximize the value for our shareholders.
Thank you.
Again, if you'd like to ask a question. Please press star one our next question comes from the line and Michael Phillips with Morgan Stanley. Your line is open.
Hey, good morning, Mike good.
Good morning, Thanks, guys.
And good morning.
And Richard you mentioned in your comments that headwind in Europe.
Non run rate on them of about $5 million was there anything else and Europe. It. Besides that that you would point to that would cause a headwind there.
No I think that the biggest part of the headwind was really in terms of them positioning themselves for 2021 and for growth I mean overall they had a good year despite the pandemic.
And we do think debt going forward the profitability is going to increase over over Q4 in Europe. So we really do think it was it kind of a onetime thing where there were several small items that we do not expect to recur.
Okay, Great and this is a kind of a follow on to prior question on housing.
A little bit of a different angle on the frequency benefits that you've seen again and you.
You mentioned prior and prior calls recently and theft and vandalism has been down I guess I'm curious is that COVID-19 related types of benefits that to nail them down or is that more of what Alan was saying kind of things that you've done to re underwrite that have helped to that piece of the business.
The other thing I would add on that one and then Richard feel free to add onto it as our book today is very different than 567 years ago. If you think about after the last housing crisis, we had a lot of bacon and foreclosed properties and the portfolio, that's where you tend to see that the most.
Today, we're in a strong housing market and we're really providing a backstop when people arent able to price get coverage. So you normally see lower theft and vandalism overtime when you're on a stronger housing market anyway. So I think that's part of what we're seeing better and Richard would you add anything else.
And that's exactly right Alan and I think the other thing is we were seeing a trend coming down even prior to the pandemic. So we're not thinking that pandemic I mean, there could be a small part of that but thats not something debt as a driver.
Okay, Great. Thanks, and then last one for me on the global financial services area, and you've talked a bit about the impact from Covid there from balance is being down.
And I guess has that turned around any and.
And then on the legacy business. There are we on a trough that you talked about what you expect for this year and to be better than last year, but how much of that is a turnaround from COVID-19 and again on the legacy business or are we at the bottom there.
I think in that business I'm really encouraged about and excuse me the momentum we're starting to see you know when we acquired the warranty group. They had just signed a significant new client and that space and then as we announced on the call earlier today, we've just signed another new clients. So we've got several potential growth drivers and the future.
That makes us pretty optimistic about that in terms of the areas that have been disrupted by travel Covid and Thats really travel and we'll see how that plays out this year, but we expect to see improvement over time, and the new clients and the new offerings over the last couple of years have us and a much better position for this business to grow and contribute.
And you know in the coming years.
Okay. Thank you for free.
Got it.
Our next question comes from Gary Ransom with Dowling Alright.
Line is open.
Hey, good morning, Gary.
Good morning, Gary.
I wanted to ask on the severance and real estate change whether.
That represents any kind of employee business model change and if so is there more to come.
And maybe for so long as Alan just briefly I'll start briefly and then you can provide more at a high level. We're looking at kind of the future of work and what those models are.
We've shown we had about 30% of our employees virtual pre Covid and post Covid will no doubt have a higher percent. So we are looking at that and evaluating it but I think the main drivers really are ongoing expense management and just aligning our resources with the growth of the company, but a virtual what would you add particularly on the real estate.
Yes, I think I think when we think of real estate.
I think of the word facilities. So it is linked to our facilities and how we're using our facilities going forward. We had a couple of leases that were coming due.
Early in 2021, we're not going to be going back to that space.
We'll be getting new space or working from home and a new work environment. So we just had to take and acceleration of the expense on that leasehold improvements and so forth.
So it's really positioning when we get to the fourth quarter, we start to position ourselves. Okay next year whats our footprint where should we be.
From a head count point of view, but also from our facilities point of view. So we don't think that the actions we've taken and fourth quarter are harbinger of things to come as really just a one time.
$11 million total impact, which is why we called it out and as such.
Alright Thats helpful. Thank you.
Another one on the.
You mentioned competition and and life.
Life style I wonder the competition on global housing and the and the lender placed business.
Obviously, you said you renewed a lot of contracts, but can you give us a sense of what goes on on those renewals.
Our other competitors trying to get in on it I assume.
That happens regularly but I was wondering whether it's any more intense or has changed at all.
I think the important thing with that business is fall of all of ours. It is competitive and that's just the reality of the markets that we all compete in.
With that said, we have a really strong position there we've invested and continue to invest and differentiating our capabilities around compliance around customer experience. We're early in this rolling out our SSP, our single source platform, which really differentiates our tracking capabilities.
And as we mentioned, we've renewed something like 85% of our relationships over the last two years many of them early as we prepare to work with our clients on the conversion to our new tracking system. So I don't see the competitive pressure changing a lot it's always there.
But we've shown our ability if you look at the last decade, we've been able to grow that business dramatically really driven off of the value that we're creating for our partners and for our customers.
Yes.
And in that business youre going through this process of reducing risk and becoming more fee oriented and.
And pre need we can assume that that.
On which has some volatility on the investment side.
Global housing is the last business with some.
And some volatility embedded and it is this a a strong enough business for you that you're.
Content with handling that volatility or is there.
Or is there something else that debt.
You might think about it and the future.
A couple of comments on that so if we look over the last 567 years, we've significantly reduced our exposure through the purchase of reinsurance you know if you go back to 2012 to 13, we were at about $240 million of retained of that.
Exposure were down down to 80.
And we've also morphed, our reinsurance tower more than half of its multi year now, which also creates a lot of stability and we've also been pruning non strategic risk and so a great example of that was our exit of small commercial a year or so ago, So and when we look at it we will always look at are there other actions that could further share some.
And that cat exposure away, but if we look at the overlap between our housing business and our lifestyle business is strong.
If you think about the convergence around the home the device for car, we're starting to see opportunities to rollout and what we do and lifestyle into housing a lot of our mobile capabilities are really relevant and renters and and the connected home.
Also as we mentioned in the prepared remarks, even and a relatively high cat year, we had a 15% Roe.
And with Cats and housing so it's generating strong earnings lots of cash to reinvest.
And <unk>.
Continues to be and important part of our strategy and portfolio with the caveat that we have reduced our cat volatility a lot and we will continue to look at ways to reduce debt cap volatility.
And if I could just add to that I mean, as Alan said is true reduce our cat volatility we do get the question and.
And we do look at it every year I mean, obviously this year was a little bit special with the pandemic and with the amount of capital that was in the reinsurance market. We've seen that capital now come back. So we will keep looking at things like bringing down the retention purchasing aggregates and doing other things quota shares or whatever that could.
Reduce the volatility a little as we go as we go forward and.
And my prepared remarks, I said, we can't plan on anything and we're not planning on anything for 2021, but as Alan said, we are keeping our eyes wide open.
Two opportunities there.
Very very helpful. Thank you very much.
Our last question comes from the line and Mark Hughes with Truest. Your line is open.
Hey, good morning, Mark.
Yes. Thank you.
Another one of my usual questions, which is when we think about the lender placed placement rate.
Delinquencies are quite high you talked about the RVO program, you can certainly understand that.
And being under.
Under pressure with the more for.
Foreclosure moratorium in place, but how about the.
Just these higher delinquencies and presumably the.
Escrow funds are getting used up and.
People aren't paying their mortgages.
And lot of them are not paying insurance, how do we think about the it seems like you've had.
Limited impact so far but these have been delinquencies have been and places.
Early mid last year, it seems like there'd be falling into your bucket.
Soon but but.
So I'm just curious what's going on there.
Yes, Mark I think the imports and way to think about lender placed is whether the housing market weakens or not we don't know and we're not.
Not seeing a lot of real evidence that the housing market is weakening.
But through the actions over the last for five years, we've now got and lender place to where it's roughly stable on an earnings ex cat, even if the housing market remains strong and.
And obviously, if the housing market does weekend at some point, we're going to be there to provide the support to the mortgage market that we've historically provided so we don't know.
What might happen. This year, there is always a lag.
It depends a lot on what happens with the government foreclosure moratoriums, but we've certainly called out that our business has been impacted negatively in 2020 and continuing with just the lack of Oreo volume given the foreclosure moratoriums that are going on with the business is well positioned and if the market does weekend and we're gonna be.
There and we will support the mortgage industry through that.
If we continue to see these delinquencies the 90 day plus delinquencies are up substantially and maybe they are tapering a bit the taper and slowly.
Does that.
They have and impact on the business.
It really is I mentioned, it really depends on what happens with foreclosure moratoriums, if there is weakness and the housing market.
Eventually we should see that flow through into our business. We just it's hard to say when given whats happening and the broader economy and with our government dealing with Covid.
So I guess, the it's really the foreclosure numbers that are more relevant for our.
And for your business.
But no we our business is driven by many things, but where we've seen the biggest kind of short term negative impact is just the foreclosure moratoriums and therefore properties arent moving through the process.
And normally have seen.
But again, we are well positioned if the market does weaken and it's allowed to function like it historically has well positioned to benefit and support that.
And as I said in my prepared remarks, as I said in the prepared remarks Mark.
We're not counting on any sort of big return and Oreo volumes next year, given the forbearance moratoriums and extension of them.
So we do think that over time, when the market kind of.
It gets back to a balance when we get past the pandemic and the moratoriums. It will start to increase maybe second half for the year, a little bit probably more into 2022, and as we kind of get back to.
And we call it a nickel librium, but more normal times.
Thank you for that.
Alright, excellent and if I, just take Mullen and reflect more broadly you know, we're really proud of 2020, and what our employees debt to support our customers and clients through Covid. It was a strong growth year for us both in connected living and that broadly and housing we continue to execute against our long term strategy.
<unk> heard us say that we still expect to deliver on the 2019 investor day objectives, including the 12% average annual operating EPS growth and 2000, and 'twenty and 'twenty one.
And we continue to gain share.
Which really augurs well for the future as we invest to differentiate and encourage our clients to add more of our capabilities into their products.
And then finally, we mentioned it but we're encouraged by the progress on the potential sales global free and hope to have some positive outcome to share shortly.
So thank you for participating on today's call to summarize we're really pleased with our performance in 2020, and we're going to continue to focus on building a stronger company and 2021.
Following the conclusion of our evaluation of strategic alternatives for global Preneed, we are planning to provide our full year outlook for 2021 at that point in the meantime, please reach out to Suzanne Shepherd and Sean Moshier 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.