Q3 2021 Assurant Inc Earnings Call
Welcome to assurance third quarter, 2021 conference call and webcast.
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It is now my pleasure to turn the floor over to Suzanne.
Suzanne Shepherd.
Senior Vice President of Investor Relations and sustainability.
You may begin.
Thank you operator, and good morning, everyone. We look forward to discussing our third quarter 2021 results with you today.
Joining me for Assurance conference call are Alan Colberg, our Chief Executive Officer, Keith stemming, our president and Richard <unk>, Our Chief Financial Officer, Yes.
Yesterday after the market closed we issued a news release announcing our results for the third quarter 2021.
Release, and corresponding financial supplement are available on Assurant Dot com.
I'll start today's call with remarks from Alan Keith and Richard before moving into a Q&A session.
These 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 report.
During today's call, we will refer to non-GAAP financial measures, which we believe are important in evaluating the company's performance.
For more detail 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 will now turn the call over to al.
Thanks, Suzanne good morning, everyone. Our third quarter results were strong driven by double digit operating earnings growth in global lifestyle, the strength of our global automotive and connected living offerings continue to validate our long term strategy of focusing on our higher growth fee based and capa.
Life businesses.
We continue to make progress in building a more sustainable company for all stakeholders during.
During the quarter a few key highlights included for the first time Assurant was awarded a bronze accreditation by Echo bought US one of the largest sustainability ratings companies breaking assurant among the top 50% of all 75000 participating companies.
In addition, this quarter, we provided additional transparency to track our progress on our journey to build a more diverse and inclusive assurance.
With the recent disclosure of our EEO, One report, which provides gender race and ethnicity data by job category for our U S based employees.
We believe a diverse and inclusive workforce will best Foster innovation are key ingredients of sustaining our outperformance longer term.
Looking at our financial performance year to date net operating income per share excluding reportable catastrophes was $8 75.
Up 12% compared to the first nine months of last year.
Net operating income and adjusted EBITDA also excluding cats, both increased by 10% to $528 million and $862 million respectively.
These results support our full year outlook of 10% to 14% growth in net operating income per share excluding your reportable catastrophes, marking our fifth consecutive year of strong profitable growth.
Given year to date results and our expectations for the fourth quarter, we would expect to end the year closer to the top half of this range.
We've also now completed our three year $135 billion capital return objective from our 2019 Investor day, a quarter ahead of schedule.
Following the close on the sale of global Preneed in August we've also made meaningful progress in returning an additional $900 million to shareholders.
Our 2021 EPS outlook is driven by at least high single digit net operating income growth, excluding cats as well as share repurchases.
Turning to our business performance and global lifestyle, we are on track to grow adjusted EBITDA by double digits in 2021 from $637 million in 2020.
Driven by global automotive and connected living.
We have benefited from the stable recurring revenue stream of our installed base of mobile subscribers and our success in launching additional offerings and capabilities for mobile carrier cable, operator, OEM and retail clients globally.
Additionally, our mobile trade in and upgrade business and expanded service delivery options are increasingly important to our profitability and also in providing a differentiated and superior customer experience.
Within global automotive, we benefited from increased scale growing the number of vehicles, we protect by 20% over $52 million since the warranty group acquisition in 2018.
We believe auto will continue to be one of our key growth businesses in the future.
In global housing, we continue to be on track for another year of better than market returns with an annualized operating ROE of nearly 15% for the first nine months of this year.
This includes $113 million of catastrophe losses, which further demonstrates the superior returns of this differentiated business.
Our countercyclical lender placed insurance business remains an integral part of the mortgage industry framework in the U S.
Within lender placed as we renew existing clients and add new partners. We will continue to enhance the experience through the ongoing rollout of our single source processing platform.
Our multifamily housing business now supports over $2 5 million branches across the U S and has more than doubled earnings since 2015 through our strong partnerships with our affinity and property management company clients.
Our investments in digital capabilities, such as our cover 360 property management solution continues to drive more value for our partners and an enhanced customer experience.
Overall, we believe our portfolio a high growth fee based capital light offerings and high returns specialty P&C businesses.
Sets us apart as a long term outperformer and sustained value creator for our shareholders.
With my retirement at year end I wanted to take this opportunity to thank all of our stakeholders that have supported assurance strategic vision and path over the last seven years.
Most of all I'm humbled by our 15000 employees, who through their dedication to serve our clients and our 300 million customers worldwide of successfully transformed assurance.
Together, we have significantly strengthened our fortune 300 company.
We continue to deliver above market growth and superior cash flow.
With our president Keith stemming succeeding me as CEO in January I'm confident Assurant will accelerate our strategy and continue to differentiate our superior customer experience will further deepening client relationships.
I'll now turn the call over to Keith to review, our key business highlights in greater detail for the quarter.
Keith.
Thank you Alan and good morning, everyone.
On behalf of our employees I wanted to express our sincere thanks to Alan for his leadership as CEO.
I've been fortunate to have had a front row seat and our role in supporting Allens vision and the transformation of Assurant.
Importantly, he has continued to evolve the purpose of our company to drive value for all stakeholders customers employees communities and shareholders.
The impact he has had on our people and the overall culture of our company has been exemplary and I appreciate Allen's personal mentorship and partnership and wish him the very best in his retirement.
As we build on assurance momentum over the long term I believe our talent and innovation will be critical factors to achieving success and growth, especially as we focus more on the convergence around the connected consumer.
From a talent perspective, Assurant has developed a deep and diverse bench of internal leaders.
A few weeks ago, I announced a refreshed management committee effective in January including two new leadership appointments illustrating our strong bench.
First Keith Meyer, our current president of International will succeed Jean Margo Meyer as Chief operating officer as gene will be retiring at year end.
Jean significant contributions to assurant over the last 30 plus years.
Including his COO over his last five years have been instrumental in creating market, leading positions producing profitable growth and transforming the organization.
It's exceeding gene Keith Meyer brings nearly 25 years of experience at Assurant to the COO role.
Since 2016 as president of Assurant International is driven growth across our global markets. Most recently with strong success in Asia Pacific.
In this new role Keith will be focused on advancing assurance business strategy and market leadership positions as well as identifying additional opportunities to deliver a superior customer experience.
Second.
Jens will become president of global automotive.
With over 30 years of experience. He currently leads the transformation and growth strategy for auto and has been instrumental in our introduction of innovative new products like E V. One our electric vehicle warranty protection.
In addition to emerging opportunities in innovation.
Martin will be focused on driving growth and improving the customer experience, including working with our partners to deliver best in class dealer training.
These two new appointments along with recent appointments of Bijou Nair as president of connected living and many basara as our Chief Innovation officer as well as the other management Committee members represent a strong team to help lead us into the future.
In addition to talent innovation is an important strength of the organization.
Not only the development of new digital products and offerings for our clients, but also through new path to grow and scale assurance businesses.
Within connected living innovation was a significant theme this quarter through ongoing enhancements of our mobile service delivery options.
As part of the recently finalized multiyear contract extension with T. Mobile, we're expanding the services Assurant provides to continuously improve the customer experience for millions of T mobile customers.
As of November one Assurant is partnering with T mobile to begin the nationwide rollout of in store device repair services to approximately 500 stores provided by assurance industry certified repair experts.
In addition, we have also transitioned all of the legacy sprint protection subscribers to the new T mobile device protection offering.
As a result, this significantly add to our mobile device count now at roughly $63 million as of November one.
Overall, the expansion of our service delivery option is critical to sustaining our competitive advantage.
We also recently signed a multiyear renewal with spectrum mobile.
Continuing to provide a comprehensive and pocket geek mobile assurance.
On device diagnostic tool.
With the renewal, we will also be expanding the offering.
To include pocket, Geek privacy, which enables consumers to better protect and manage their personal information online through various features.
This is another example of how we're able to grow by adding services and capabilities to existing clients.
In addition, the mobile business continues to see strong attachment rates given the increased reliance on mobile devices as well as rising device prices.
Our fee driven trade in and upgrade business, including the previous acquisitions of Hyla and a leg ray have performed extraordinarily well already this year as we enter the early innings of the <unk> upgrade cycle.
In fact, almost a year after the transaction of pilot closed I am happy to report the acquisition has performed better than expected.
Head of the low teens forward EBITDA the acquisition was valued on.
With the growing availability and popularity of <unk> enabled smartphones, we expect to see our 30 plus trade in and upgrade programs continue to grow.
Our progress is demonstrated through our ability to manage large scale programs with superior technology.
This is further supported by increasing our attach rates for trading programs as our clients promotional efforts encourage consumers to upgrade.
Overall, we have processed nearly 18 million devices, so far this year, reducing waste and increasing digital access with high quality affordable phones.
Through the scale and capabilities of our trade in and upgrade programs, we benefit from an additional source of profits and improved client economics and customer retention.
This quarter, we are pleased to announce that we have signed a multi year contract extension with AT&T to manage their device trade in program.
This includes providing analytics as well as device collection and processing for all of their sales channels, including retail BTB dealer and direct to consumer.
AT&T was a key client added with the Hyla acquisition and we look forward to.
Continuing to do business with them, specifically as we help support the growing adoption of <unk> enabled devices.
In global automotive policies increased by $4 million or 8% year over year and production as well above pre pandemic levels as we continue to take advantage of our scale and talent.
So far this year. The business has also benefited from strong used car growth, which turns are faster than new car sales.
This along with the fact that earnings from that business are recognized over a multiyear period provides good visibility into future performance of the business.
As we drive innovation within auto we continued the global rollout of EV one.
An electric vehicle and hybrid protection product to North America.
<unk> has now been rolled out in seven countries.
While the electric vehicle market is still in its infancy, our EV, one product will allow assurant and opportunity to better evaluate customer demand and leverage our learnings to position us well for the expected increase in electric vehicle adoption in the future.
Our multifamily housing business grew policies by 7% year over year from growth in our affinity partners as well as our PMC relationships, where we continue the rollout of our innovative cover 360 product.
In addition, we have seen other digital investments create opportunities for future growth.
Our newly designed digital sales portal, which makes it faster and easier for residents to sign up for our policy is driving significantly higher product attachment rates are.
Our new portal has seen an increase in conversion rates versus our legacy website. Since it was first introduced last year.
In summary, our ability to strengthen assurance talent and innovation supported by critical.
Investments has and should continue to drive momentum for the future.
I will now turn the call over to Richard to review, the third quarter results and our 2021 outlook.
Richard.
Thank you Keith and good morning, everyone.
As Alan noted we are pleased with our third quarter performance as our results reflect strong growth across global lifestyle and solid earnings in global housing.
For the quarter, we reported net operating income per share excluding reportable catastrophes of $2 73.
Up 5% from the prior year period.
Excluding cats net operating income and adjusted EBITDA for the quarter, each increased 4% to $162 million and $262 million respectively.
Now, let's move to segment results, starting with global lifestyle the.
The segment reported net operating income of $124 million in the third quarter continued earnings expansion within connected living and mobile business.
In global automotive earnings increased $8 million or 21% from continued global growth in our U S National dealer and third party administrator channels, including contributions from our eight at a S and international OEM channels.
That our loss experience and select ancillary products and higher investment income also supported earnings growth in the quarter.
Connected living earnings increased by $6 million or 9% year over year.
The increase was primarily driven by continued mobile subscriber growth in North America, and better performance in Asia Pacific as well as higher trading volumes led by contributions from our highly acquisition and carrier promotions.
This quarter global automotive and connected living results also included a modest one time tax benefit that improved earnings.
For the quarter lifestyle, as adjusted EBITDA increased 17% to $177 million.
This reflects the segments increased amortization, resulting from higher deal related intangibles from more recent transactions in mobile and global automotive.
Depreciation expense also increase stemming from higher investments.
As we look at revenues lifestyle revenues increased by $158 million or 9%.
This was driven mainly by continued growth in connected living and global automotive.
Within connected living revenue increased 10% boosted by mobile fee income that was driven by strong trading volumes, including contributions from high level.
Trading volumes were supported by new phone introductions and carrier promotions from the introduction of new <unk> devices.
Higher revenue from growth in domestic mobile subscribers was offset by declines in runoff mobile programs.
Mobile subscribers were up slightly year over year and flat year to date is mid single digit subscriber growth in North America.
Was offset by declines in other geographies.
Mostly due to three factors.
First the 750000 subscribers related to a runoff European banking program previously mentioned, which is not expected to be a significant impact in our profitability.
Second subscriber growth for existing programs moderating in Asia Pacific and.
And third a slower than expected recovery from the pandemic in Latin America.
In global automotive revenue increased 8%, reflecting strong prior period sales of vehicle service contracts.
Industry Auto sales remained elevated in the third quarter and we benefited from this trend as reflected in the year over year growth of our net written premium by 12%.
We have though seen this trend began to normalize beginning into the fourth quarter.
For the full year lifestyle revenues are expected to increase modestly compared to last year's seven $3 billion.
Mainly driven by global auto and connected living growth.
For all of 2021, we still expect global Lifestyle's net operating income to grow in the high single digits compared to 2020.
Adjusted EBITDA for this segment is expected to grow double digits year over year, which continues to grow at a faster pace.
Segment net operating income.
As previously reported we began our investment in the T mobile in store repair capability this quarter. However.
However, due to the timing of the rollout most of our associated startup costs will occur in the fourth quarter.
These costs, primarily relate the technician hiring and parts sourcing.
We do expect these costs to meaningfully impact connected living <unk> profitability as we end the year.
In addition, we expect our effective tax rate to return to a more normal level approximately 23%.
Looking ahead to 2022, we expect earnings expansion to continue but more likely at more moderated levels as we continued to invest for growth, including additional implementation startup costs for in store service and repair.
Moving to global housing net operating income excluding catastrophe losses was $81 million for the third quarter.
Including $78 million of pre announced catastrophe losses, mainly from Hurricane Ida net operating income totaled $3 million.
Excluding catastrophe losses earnings decreased $19 million due to anticipated higher non cat losses, which returned to levels more in line with historical averages.
As a reminder, favorable non cat losses in 2020 were not representative of historical trends in third quarter 2020 marked the lowest point of last year.
Mainly driven by loss experience within lender placed and specialty products.
The year over year earnings decline was nearly all driven by unfavorable non cat loss experience from several factors.
The largest driver which contributed close to half of the increase.
Nation of the non cat loss ratio.
The balance of the decline was split relatively evenly between increased reserves related to our specialty P&C offerings, primarily in our on demand sharing economy business as well as higher claims severity.
Claims severity included moderate impacts from inflationary factors, such as higher labor and material costs.
There is always a lag if this trend continues we would expect higher loss costs to be offset by increased rates over time.
In multifamily housing underlying growth was offset by increased investments to further strengthen our customer experience, including our digital capability.
Global housing revenue decreased slightly year over year from lower specialty P&C revenues as well as a cat reinstatement premium, resulting from hurricane Ida and lower <unk> volumes in lender placed.
Partially offset by higher average insured values and premium rates in lender placed and growth in multifamily housing.
We continue to expect global housing net operating income excluding cats to be flat for the full year compared to 2020.
For the fourth quarter and into 2022, we would expect non cat losses to continue to be above 2020.
But in line with year to date, 2021 experience, which is consistent with long term trends.
We also continue to monitor the REO foreclosure moratoriums and any additional extensions that may be announced.
At corporate the net operating loss was $21 million, an improvement of $4 million compared to the third quarter of 2020.
This was driven by two items first lower employee related expenses and third party fees.
And second expense savings associated with reducing our real estate footprint.
In the fourth quarter, we do anticipate a higher loss due to the timing of spend.
For the full year 2021, we now expect the corporate net operating loss to be approximately $80 million driven by favorable year to date results, mainly from the onetime tax real estate joint venture benefit in the second quarter.
This compares to our previous estimate of $85 million.
As we look forward to 2022, we would expect our net operating loss in corporate to be closer to $90 million more in line with historical trends.
Turning to the holding company liquidity, including the net proceeds from the sale of Preneed in August we ended the third quarter with over one 3 billion well above our current minimum target level.
In the third quarter dividends from operating segments totaled $127 million.
In addition to our quarterly corporate and interest expenses. We also had outflows from three main items.
$323 million of share repurchases $39 million in common stock dividends and $11 million, mainly related to assuring ventures' investments.
In addition to completing our 2019 Investor day objective of returning $1 35 billion to.
To shareholders from 2019 through 2021, we have also completed roughly one quarter of our objective to return $900 million in.
In global Preneed sale proceeds through share repurchases.
For the year overall, we continue to expect dividends to approximate segment earnings.
Object to the growth of the businesses.
Waiting agency and regulatory capital requirements.
And investment portfolio performance.
I also want to provide a quick update on Assurant ventures, our venture capital arm.
In the third quarter three investments in our portfolio when public via stacks.
We are pleased with the results as the three investment exceeded a seven times multiple on investment capital under their respective stack transaction terms.
These transactions combined with strong performance in the broader ventures portfolio led to a $75 million after tax gain flowing through net income in the quarter.
In addition to strong returns. These investments also provide key insights into emerging technologies and capabilities within our connected consumer growth businesses.
Before turning to Q&A I too would like to take a minute to thank Alan for his partnership over the last five years.
The positioning assurant for long term success and growth.
Created an environment of inclusion and community.
Truly representative of our core values common sense and common decency.
Alan I wish you all the very best in retirement well deserved.
And with that operator, please open the call for questions.
Thank you.
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.
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Thank you. Our first question is coming from balmy join with K B W.
Hey, good morning.
Hey, good morning, guys. Thanks.
Thanks for taking my question.
So the the transfer of sprint subscribers that you mentioned increased you're covered devices by about 20%.
Could you talk about the revenue potential per device and I'm, just kind of the bottom line profitability for those didn't new devices relative to your.
$53 million in force devices at quarter end.
Sure, maybe I'll take that and back up for just a second so first thing I'd emphasize is just the strong partnership that we've had with T mobile for many years.
Which is obviously scaled significantly over time. So we're extremely pleased to have reached.
Your extension and then the migration of the sprint customers on November 1st along with the ramping of same unit repair inside of 500 T. Mobile stores is obviously very exciting as we look to the future.
As we've discussed on previous calls, it's not uncommon for us to forgo economics, when we re contract with major clients and Thats, particularly true if a client scale dramatically over time, which obviously is the case with.
With T mobile as a result of the new agreement going forward, we do expect lower per unit economics, but I would say that once we get the same unit repair fully ramped and normalize our performance, which will take some time, we do expect overall to be able to more than offset the margin pressure.
With the additional sprint volume with economies of scale within the business and obviously with the addition of the additional in store repair services, and we're really well positioned as partners as we look to continue to drive customer experiences and innovation for the future. So overall, a really strategically important.
<unk> for us not just the renewal, but launching senior repair I think is critical as we look to accelerate our competitive advantage in the collective connected living business and this positions us really well.
Great. Thanks, and then switching gears a little bit with the 2019 to 2021 capital plan you laid out the general target for capital allocation of 25% reinvestment, 25% dividends and 50% share repurchases.
Has anything fundamentally changed that should lead us to expect anything different kind of going forward, perhaps getting a sneak peak of the next three years.
No. It's a great question and were obviously planning an investor day in March of next.
Next year, So we'll talk more about our long term vision for the company and our capital management philosophy at that point in more detail, but I would emphasize our goal.
As it has been is to deliver long term profitable growth to increase our market leading positions and really focus on long term value creation for our investors and we intend to maintain.
Disciplined capital management philosophy, but also looking to invest in growth organically and certainly some inorganic as well, but we will come back in Investor day and share a broader vision around around the future yes.
This is Alan the one thing I would add to Keith's comments. If you think about our company. We've always had a great business that generates earnings.
Business level that we can then upstream to the holding company and going back since our IPO, we've been very strong stewards of the company's capital over the last 20 years I think that's going to continue fully under Keith's leadership as we go forward I don't see any major changes in the ability to generate cash and then to manage it appropriately for shareholders.
Yes, we do we do remain committed to returning the balance of the $900 million from preneed that we've talked about previously so we intend for that to continue as planned and get that done within 12 months of the close of the preneed transaction as well.
Great. Thanks, guys.
Okay.
Thank you.
Our next question is coming from Gary Ransom with Dowling and partners.
Yes.
Yes. Good morning, I also had a question on the cover devices.
We've had a period of a couple of years, where it's been flattish in covered devices and you you explained that on your prepared remarks now we've got essentially in one month.
20% jump or so.
I'm just trying to think through how that might roll forward. If we're are we getting an unusual share of it in this first step of the rollout or I don't know can you give us any color of how that might unfold going over the next the rest of this year and into next year.
Yes, so we migrated all of the sprint customers.
Effective November one so all of that volume is now enrolled and assurance program going forward. Obviously, we will continue to see growth through the overall partnership as T. Mobile continues to win new customers in the marketplace and continues to add insurance to those customers account. So this does create a really.
Interesting long term opportunity for growth.
And as we've demonstrated over many years, we continue to innovate not just around the products, but services capabilities, how can we invest more around delivering exceptional customer experience and certainly a partnership with T. Mobile that is now significantly more scaled we believe it's going to yield more opportunities to partner together.
For the future.
But as we've talked about Theres a trade in terms of economics between whats our per unit fee that we're going to get relative to a much larger base of customers.
Right. Okay, and then is there any remaining drag from the other things you mentioned internationally, where where things were running off are not growing as much.
No I think we've seen a little bit of a slowdown in growth. If we're talking specifically about mobile just as we've come out of Covid in a couple of regions, primarily Latin America, a little bit in Europe as things have opened back up but overall raw.
Really really strong performance in the U S market in the Japanese market and really do see good long term growth for that business overall in international as we continue to scale over time.
Okay. Thank you and then the other the other counts statistic you could give us the autos covered in global automotive and that was growing very well.
And again trying to think through how that might continue forward is there any.
Anything that has momentum there that we might expect to see additional growth in those numbers going forward.
Yes, I would say that the overall industry sales on the auto side remain quite elevated as you saw our covered policies increased a lot 4 million and 8% from last year, but I would I would also highlight sales production was well above pre pandemic levels that we're seeing.
Really really strong performance, we achieved almost $1 2 billion of net written premium when you look at the quarterly results.
I'd say that began to normalize a little bit from where we were in the first and second quarter, but it was only modestly down from Q2 up 12% over 2020, and actually up 27% over 2019, so that would certainly expect to taper off going forward as obviously constraints around supply.
Chain thats affecting new car sales, but.
Those constraints have been more than offset by the volume that our clients are doing on the used side of the business, which has been very dramatic and overall leading to elevated levels of sales.
Thank you if I could squeeze in a couple of numbers questions. There were a couple of items that were mentioned that you didn't really quantify was the tax benefit that helped the numbers in global lifestyle and you also mentioned in housing.
Reinstatement premium are those can you help quantify those at all.
Sure Hi, Gerry Good morning, Gary It's Richard.
Yes, I mean in terms of the tax benefit it was about $4 million.
And then the reinsurance reinstatement premium I think that was about.
$7 million.
Okay exactly.
And just to be clear the $99 million of pre tax cash does not include that reinstatement premiums.
Correct.
In terms of the of the reinstatement premium it actually does and if you look at that.
The numbers, we have a retention of $80 million and the total cat impact for us in the in the quarter was $87 million so that.
That comes through on that for either.
I got it okay, alright, thank you alright, thanks, guys.
Yeah.
Thank you. Our next question is from Bob <unk> from Piper Sandler.
Hey, good morning, Tom.
Hi, Good morning, guys. So I'm thinking about the rollout of your TV one product.
The corresponding transition to electric vehicles.
How do the attachment rates compare.
For this product compared to the internal combustion engine. There's a lot of there's a good amount of tectum those EV cars, but they do have less moving parts. So how do those dynamics affect the attachment rates that youre seeing.
Okay.
Question is I would say, it's really early in terms of.
<unk>.
Scaling around electric vehicles in terms of the service contract programs. You are correct. There are there are less moving parts.
There's a lot of technology some of the parts tend to be very expensive to get repaired. So we may see lower frequency, we may see higher severities. There's also a little less certainty in the minds of consumers around the reliability of all of the technology. So we do expect to see strong performance overtime I would say it's really.
Early and it will evolve.
We start to see more and more evs in the market and as we start to see our clients maturing around not just selling electric vehicles, but but attaching F&I products and services. So this will evolve I think over the next few years quite dramatically.
Okay.
So.
<unk>, it's top of mind for insurance investors right now Sharon operates in businesses that are.
Retracted more attention regard to inflation parts and labor costs in automotive chip shortages in mobile.
In global housing.
Housing is a risk based business, where you have inflation exposure they can mitigate with rate, but I think a lot of investors, who look at assurant or your typical insurance investor and sometimes.
I misunderstand to the extent of which risk in mobile and automotive the ceded off to clients.
How it operates on a like basis so.
I think investors understand this dynamic exists, but not the degree of which so maybe you could give us your thoughts there and how assurances is positioned.
<unk>.
And increasingly inflationary environment, yes.
And maybe I'll offer a couple of comments and then and then I'll ask Richard because his team has done a lot of work on this question, but I think youre right. I mean, we think our risk is quite well insulated and mitigated based on the deal structures that we have on the lifestyle side. Most of the deals are reinsured or profit shared.
Not all of the deals, but we've been pretty insulated in terms of seeing volatility there and then obviously as we look at housing as you talked about there are opportunities with.
With rate increases increasing insured values and then investment income will obviously be a big driver as we go forward.
Richard starting full analysis to kind of look at the.
Net overall, so maybe talk about that Richard.
Sure. Thanks, Thanks, Keith and I think you've sort of bolted on the main points and when we look at it I would say.
Short term and this quarter, we mentioned that severities were up a little bit probably a quarter of the whole change in the non cat loss ratio.
Those severities are really labor and claims cost increasing there.
But over the long term I think we're we look at it maybe being slightly positive at.
At least neutral.
Because what happens I mean, Keith mentioned, the reinsurance that we have with our clients on the fee based side. So there is a large sharing the profitability on that side of the business, but then on the P&C side, where housing whatever where we are taking on the claims and the risk.
There is two things that would happen lender placed we have average insured values would go up so as the prices of housing goes up go up with inflation.
Would see an increase in our in the premiums to the average insured value also over time, we would we would be able to recover a large part if not all of that through our rate filings. So we feel that obviously insulates us quite well and then finally with inflation over time, we would anticipate that into.
Test rates.
Would increase and we would get a an uptick in our investment income. So overall, we're not looking at it as being any type of significant significant negative anything it's neutral could be could be a small positive.
Okay. Thank you for your answers.
Thank you.
Thank you. Our next question is coming from Brian Meredith with UBS.
Hey, good morning, Brian Good morning morning morning, So I'm just curious.
Housing I know early on when we were thinking maybe we'd see an increase in placement rates towards the end of this year, obviously forbearance kind of hurt that now that Thats gone.
Is your kind of views with respect to placement rates there are we ever going to see a pickup.
Yes, I think.
We signaled a modest change in placement rate this quarter, mainly driven by the mix. So I would say it's broadly flat.
I would expect as we look to maybe the back half of 'twenty two we start to see it increase modestly in the placement rates over time.
Expect servicers to actively work with borrowers on loan modifications to keep the loans performing and theres. So much strength generally in the housing market customers have positive equity in the home. So I think a lot of that activity will delay.
The placement rate from flowing through and certainly the same thing's true on the foreclosure side as well that will affect the <unk> business. So probably second half of 'twenty two would be.
Our best estimate on when we might start to see that coming through the portfolio.
Great.
And then second question just curious the reserve increases that happened in the quarter, what was that related to and the specialty P&C.
Yes. This is Alan maybe let me take that one and give a little bit of history on what we're doing there. So in specialty we have a variety of products things like antique auto a little bit of the international property, we right.
And we also have a few years ago started to do.
Of on demand products related to really following the consumer as they own and rent their home in their car and.
Trying to really build off of our experience here on rental on the franchise that we have there and what we're really doing today is we're ensuring a short term transactions. So think about you're renting your home or you're using your car to make food delivery.
And what we're excited about with that business and then ill answer the question directly.
It's a new distribution channel for us. So if you think about we can embed some of our capabilities around rental into a rental or a home and then what's particularly interesting is the gig economy and if you think about the workers, who are now delivering food or using their car to provide services. It's.
It's an interesting opportunity for us to drive not that product as much as our other products are service contracts, our mobile capabilities. Our renters insurance. So that's really been the Genesis of what we're doing there.
In terms of the reserve this quarter.
It's affecting really maybe.
People at $5 million I think was the amount and it is really development on prior reported claims so think of it as the catch up to align with all of our future expectations and then over the last couple of years as we've gained experience in this business we've been modifying our product structures, we've increased rates and we've put in place extensive reinsurance so well.
Never we don't anticipate having any significant or material losses from this business. In fact, it's been a very well performing business for us over the last couple of years.
Got you and I assume you would get a lot of reinsurance on it protections on it.
We do we do we've got very strong structures, there and it's really for US. We're trying to do the same thing we do in auto and mobile generally which is making intuitive administration and fee business as we manage around a consumer transaction.
Great and then my last one just curious so I take a look at the global lifestyle is there's a lot of moving parts happening here.
Going into the fourth quarter, when I think about kind of the pre tax margin on that business.
We've seen additional subs coming in at a lower kind of.
Revenue per sub and then you've got the investment coming in.
Should we think about kind of margins in that business declining here as we look into fourth quarter in 2022.
And I think as we look at overall profits in in lifestyle and in connected living we do expect to see growth.
In Q4 over Q4 last year and continue to see growth into 2021, we had as you saw a strong third quarter for connected living.
Up significantly over last year. So I think that continues in Q4, even with the additional investments that we need to make to really not just stand up same unit repair, but make sure that we're executing and delivering.
A really high standard and then as we think about 2022, yes. We expect overall, we will see some moderation, but we still expect to see strong growth across both the lifestyle and housing businesses.
So good solid operating income growth still is just maybe some pressure on margins, but its topline growth of more than offset that.
Are you, saying right correct, yes, yes. The per unit economics are going to are going to look a little lighter, but the overall economics are going to be strong.
Terrific. Thanks, so much for the answers and all the best in your retirement home.
Thank you.
Thank you.
Our next question is coming from Michael Phillips from Morgan Stanley.
Hey, good morning, Mike.
Hey, good morning, everybody. Thanks, good morning.
Richard when you talked about the impact in the fourth quarter from.
Rollouts expenses from from T mobile.
I guess any way you can help us quantify that meaningful impact and then b is that just a <unk> or any of that extended into <unk> next year.
Yes, I think thanks for the question Mike.
In terms of quantifying it I guess I would say, we've given sort of aggregate and aggregate indication in terms of where we think lifestyle, it's going to come in.
Full year.
And we talk about being a high single digit. So if you really look at last year, where we came in and look at high single digit still give you.
A pretty good view of where we think where we think lifestyle is going to come in for the full year.
And part of that decrease is going to is based on the increase.
And.
Setting up the service and repair and investments that we're making in connected living broadly.
So that will be in the fourth quarter and then we would anticipate.
Take some coming in next year.
I mean.
Yes.
In terms of rolling into next year there'll be some amount of big amount. The biggest amount I would say would be in the fourth quarter of this year.
We are thinking a few million dollars and it will ramp up quite a bit into the into the into the fourth quarter. So.
We are talking in terms of millions here.
In terms of doing it.
I would just add in addition to the startup costs really ramping doing all of the recruiting the training the hiring and getting all the build outs done. There is also just the ongoing evolution of the service that we're going to deliver which inevitably will change and evolve over time as we continue to work with T. Mo.
<unk> to optimize that experience. So I do expect some investments in 2022, partly supporting the rollout to completion, but also ramping execution and investing in our technology to make sure that we're delivering services seamlessly as possible. So you definitely would expect to see some <unk>.
Investments as we continue to shape this.
This part of our business going forward.
Okay, Yeah that makes sense guys.
Two more quick ones I guess.
On the labor and material costs and the severity there.
What about that quite a bit I guess, a follow up Richard you said.
If things continue I think you said if things continue obviously that could be offset in the future by higher rates over time does that mean youre currently pricing in for that or we're still kind of waiting to see how that plays out.
Yes, some of it is currently coming through.
Every year in our contracts, we get an increase.
What I referred to as average insured values, that's embedded in the contracts, where you look at inflation and we do get some increase in the overall premiums from that.
When I was talking about the trends over time and the rate filing.
We can't put in a rate filing for one quarter when we file rates based on averages over a couple of years. So that's really for inflation that come in in the <unk>.
Can be lasting and have an impact on the non cat loss ratio.
It would need to come.
Would need to happen over time is what I was referring to there Mike.
And then we would put it in and then you get it. So there is a lag but it would be offset over time is what I was saying.
Sure, Okay that makes sense.
And I guess last last but any impact in the quarter on your sub mobile some numbers from.
The T mobile Cyberattacks economics.
Now I would say nothing meaningful that that will.
We're aware of or that we saw I mean, we had.
A really strong base of customers and I don't think we saw anything of note that im aware of.
Okay. Thanks.
Hey, guys.
Yeah.
Thank you.
Our next question.
It is coming from Mark <unk> with <unk>.
<unk> Securities.
Hey, good morning, Mark Mark Yes. Thank you good morning, and congratulations everyone.
Thanks.
Can you refresh me on the revenue model for the in store business the T mobile us.
Kind of a time and materials is it.
Repair per device hourly reimbursement how does that work.
Yeah. It's a great question, it's I would think of it as fee income oriented.
And getting paid for the labor that we perform and then four.
From the management of the overall program, we don't really have risk around.
Around how the business performed from a from a parts and labor other than we get stated fees and we've got to manage ourselves within within those levels to drive profitability. So I think it's a really really well structured.
Financial deal and our interests are very aligned and it's very motivated around delivering an exceptional experience in the store. So I feel really good about.
Not just the deal that we put together, but how we're working together with T mobile to really change the industry.
Are they going to be advertising it how are customers going to know that.
Their capabilities available.
Well, we obviously manage the claim process within consumers and now thats with the entire base.
T mobile subscribers. So we will be directing customers as appropriate to take advantage of really the best option that's available to them to get repairs done. So I think it'll be it'll be largely through our claims flow, but also through T mobile awareness campaigns et cetera.
And then.
Richard I think you all have addressed this to a degree but any more adjectives or maybe the numbers you might throw when youre talking about 2022 earnings expansion to continue though at more moderate levels I. Thank you.
So referred to strong growth in 2022.
Sales to other end to the.
Well I wouldn't want to jump in kind of Investor day, and when we talk about our outlook next year I guess I would say two things I mean, we're as you've heard during the call. We're really we're really pleased with where we are across our set of businesses.
The growth that we're seeing in global auto.
The extension of the contract with T mobile the growth.
Other health square domestically in the U S in mobile in Japan in mobile.
And also in the housing business.
You bet.
We do seem to be at a bottom with placement rates now when the forbearance and foreclosure period will end it'll be a slow take up.
We continue to grow in multifamily housing. So we think we're well positioned for 2022, having said that as Keith mentioned, we still need to continue to invest in ourselves and in our business and its not like were without headwinds in terms of some interest rates or inflation.
But I really feel good about where we are as a business.
Totally and I think alan's put us in a good position to succeed over the future under Keith's leadership.
Thank you.
Thank you.
Our next question is coming from Jeff Schmitt from William Blair.
Hey, good morning.
Hey, good morning.
How much of the.
Increase in fee income in connected living.
Due to the hydro acquisition.
Obviously, there's kind of a weak comparison too but just.
Curious how much of that is sort of organic growth may be driven by the <unk> upgrade cycle versus.
<unk> being added to the mix.
Yes, I would say highlight has been.
Performing exceptionally well so as we look at.
What's happened since close trading volumes are up significantly we've seen obviously not just demand from <unk> significant client promotions were trade ins are the main incentive being used increasing attach rates and just I think pent up demand coming out of the pandemic. So.
We talk about the performance of the of the acquisition, 50% better than we modeled.
Based on 'twenty, one so we're thrilled with how it's going but more than that really excited about the integration how well that's working our ability to protect talent, obviously a significant renewal.
A major relationship with AT&T and then as you think about the overall.
Volumes process, we talked about $18 million devices. So far this year that compares to $14 million for full year 2020, and Thats overall in total combining high land assurance. So yes, hyla is a big driver of fee income, but we've also seen growth on what I would call the legacy assurance side of the trade in.
Business, as well and and similar trends are happening across clients and across the market. So it's a really strong time for <unk>.
For trading in the global market.
Okay great.
And then the same day service capabilities, you've touched on that quite a bit of rolling it out with T. Mobile here a few days ago it sounds like.
How much of it.
Please scenario environment that we're looking at if you've seen any sort of tangible impacts from the inflation impact on pricing.
Driving up attachment rates at all and to the extent that.
We continue to see a bit of higher inflation. If you think that that should have any impact going forward.
Yes, it's a great question.
I think they could still go up over time, certainly I think awareness for the programs the value proposition for our products continues to improve the service delivery and the options for consumers and how much more convenient.
An important services to them today than it was a few years ago I think all of those elements can drive.
More attach rates in the future so still still some upside, but really robust if I look at it in mature markets and then certainly growth opportunity in more of the emerging or more nascent market.
Thank you and congrats Allen all.
All right. Thank you Greg.
Thank you everyone for participating in today's call.
In summary, we're very pleased with our year to date performance and we're excited about the opportunities we have to serve our partners are and consumers while delivering results for our shareholders.
I look forward to officially taking the CEO role in January and updating you on our progress on the fourth quarter earnings call in February.
We're also hard at work and anticipating assurance 2022, virtual Investor day, which we expect to hold on March 24th and more details will be forthcoming in the weeks and months ahead in the meantime, please reach out to Suzanne Shepherd and Sean Mosier with any follow up questions. Thank you all and have a great day.
Thank you Mr.
Conclude today's solid conference. Please disconnect your lines at this time and have a wonderful day.
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