Q1 2022 Assurant Inc Earnings Call
And good morning, everyone. We look forward to discussing our first quarter 2022 results with you today.
Joining me for assurance conference call or keep them, 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 first quarter 2022.
The release and corresponding financial supplement are available on Assurant Dot com.
We will start today's call with remarks from Keith and Richard before moving into a Q&A session.
Some of the statements made today are forward looking.
Forward looking statements are based upon our historical performance and current expectations and 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.
Well as in our SEC reports.
During today's call, we will refer to non-GAAP financial measures, which we believe are important in evaluating the companys 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 as well as the Investor day presentation materials that can be found on our website.
I will now turn the call over to Keith.
Thanks, Suzanne and good morning, everyone.
We're pleased with our performance for the first quarter, which demonstrates the resiliency and strength of our business during a period of macroeconomic and geopolitical uncertainty.
Within global lifestyle stronger than expected performance in our capital light connected living and global automotive businesses offset softer than expected results within global housing mainly from our specialty offerings.
The ongoing growth of our fee based capital light offerings across global lifestyle and global housing accounted for nearly 80% of segment earnings in 2021.
<unk> differentiates assurant as both a service oriented partner to our clients.
And a compelling investment given our scale customer base in markets with strong tailwind.
Our continued alignment with World class partners and our ability to provide best in class products services and customer experiences has positioned us well for expected profitable growth this year and over the long term.
As we outlined at Investor Day in March we have a clear vision for the future to be the leading global business services company supporting the advancement of the connected world we.
We arent settling for the status quo, while we currently have scaled leadership positions in attractive and growing markets. We have our sights set on being the leader in all of the businesses in which we operate.
With that said, we believe the financial objectives, we outlined for Assurant over the next three years are attractive and will be supported by our focus on market leading innovation.
Business simplification operational optimization and the benefits of scale.
We believe this will lead to continued strong cash flow generation earnings growth and financial outperformance.
In global lifestyle, we remain focused on supporting our more than 250 million customers through our broad set of products and services across insurance operations mobile traded in repair and comprehensive administrative services throughout connected living and global automotive.
For this segment, we continue to expect adjusted EBITDA growth in the low double digits for 2022 with average annual growth of 10% in 2023 and 2024.
We anticipate connected living will lead our growth for the lifestyle segment, driven by our multi dimensional strategy.
Over the next three years connected living should benefit from increased mobile and retail client expansion and increase in fee based trade in and repair as well as contributions from strategic M&A.
We continue to be excited about opportunities to drive growth in our retail business as we think about longer term opportunities to serve the connected home.
As of May one we're pleased to announce that we've expanded our relationship with one of our largest U S retail partners.
We move beyond program underwriting and have expanded our services to provide for the end to end administration of the business, including call Center support claims management and oversight of service delivery.
Not only does this allow us to deepen our relationship with a critical client. It allows us to continue to grow our retail business, while dramatically increasing our scale to support claims and customer service.
Further improving our relevance with third party repair network that supports this business.
We now support a meaningfully larger number of appliance repairs, which we believe is strategically important to our ambitions to provide protection services to the evolving connected home.
This partnership will also support additional investments in digital tools and technology platforms that are key to our long term vision.
Global automotive is expected to benefit from our increased scale and strong national dealer third party administrator and international OEM partnerships.
We will continue to invest in technology integrating our systems and processes. Following several years of successful acquisitions.
Throughout lifestyle will also continue to invest to expand our market leading positions.
We anticipate incremental spending related to the development of new products, such as our connected home offerings and increased investments for new client implementations.
In global housing the business is expected to grow mid to high single digits in 2023 and 2024.
For 2022, we now expect mid single digit growth given the sharing economy performance in the first quarter.
Growth in housing is expected to be led by our lender placed business an important provider of property protection in the U S housing market.
This will be driven by efficiencies across our operating model that will position us to benefit from the modest increase to placement rates and Oreo volume recovery that we expect later this year.
Together these trends will create scale benefits with our large portfolio of over $30 million loans, which will drive lower expenses across the business.
Multifamily housing remains an attractive long term growth story, although 2022 will be pressured as we continue to make investments in our customer experience and technology.
These investments should ultimately support growth of our $2 6 million renters policies and further penetrate the approximately 20 million U S renters market.
Lastly, our specialty offerings are still expected to grow over the long term. Despite recent elevated losses in sharing economy from policies previously written under less favorable contract terms, including those from runoff clients.
As we consider potential impact from macro factors like inflation or supply chain disruptions throughout lifestyle and housing we've not experienced a material impact to assurant overall.
And our mobile business, where the availability of parts fluctuates, we're working proactively with large suppliers to keep higher levels of inventory on hand to ensure timely and cost effective repairs for customers.
We will continue to monitor developments and any corresponding impact on our business as is necessary.
Yeah.
Our ability to meet our business goals is supported by the successful execution of our ESG efforts we.
We recently published our 2022 sustainability report highlighting our commitment to build a more sustainable future for all stakeholders through our ESG initiative.
We are continuing to advance our efforts specifically within our strategic focus areas of talent products and climate.
Our sustainability report showcases recent actions and recognitions, while also providing insight into the impact of assurance sustainability efforts utilizing key ESG reporting frameworks, such as SaaS and Tcf D.
In addition to setting long term targets for lifestyle and housing at our Investor Day. We also provided three key enterprise financial objectives, adjusted EBITDA adjusted earnings per share and cash generation.
For this year, we continue to expect to grow adjusted earnings per share, excluding catastrophe losses by 16% to 20% from the $12 12, we reported in 2021.
This will be driven by 8% to 10% adjusted EBITDA growth from the $1 $1 billion in 2021, as well as disciplined capital deployment through share repurchases, including using the remaining net proceeds from last year's sale of global Preneed.
For 2023, and 2024, we expect to grow average adjusted earnings per share by 12% or more with double digit average adjusted EBITDA expansion, both excluding reportable catastrophes.
Through the first quarter, we returned approximately 85% of the $900 million of preneed proceeds and we expect to return the balance by the end of the second quarter.
At the end of March holding company liquidity totaled $738 million after returning $280 million in share repurchases and common stock dividends.
Over the next three years as the business continues to grow we expect to generate approximately $2 9 billion of cash from our business segments, providing us with around $2 2 billion of deployable capital.
We will continue to be disciplined about capital deployment with the objective of maximizing long term returns.
Taking a balanced approach between investments in growth and returning capital to shareholders.
Our goal is to maintain greater capital flexibility as we see attractive opportunities for growth.
We might hold higher levels of cash depending on the opportunities we have in front of us, but we won't accumulate cash without line of sight to value creating opportunities.
We will continue to return excess capital through share buybacks.
Overall, we're pleased with our performance in the first quarter, we're confident in our ability to continue to expand earnings and cash flows. This will also allow us to continue to invest in our businesses and sustain our track record of returning excess capital to shareholders over the long term.
I'll now turn the call over to Richard to review, the first quarter results and our 2022 outlook.
Richard.
Thank you Keith and good morning, everyone.
Adjusted EBITDA, excluding the cash <unk> totaled $302 million equal to the first quarter of 2021.
<unk> was driven by strong growth across global lifestyle, which was offset by higher non cat loss experience in global housing primarily from our specialty operates.
So the quarter, we reported adjusted earnings per share, excluding reportable catastrophes, plus $3 80.
Up 17% from the prior year period, driven by buybacks and a $9 million nonrecurring tax benefit from one of our international businesses.
Now, let's move to segment results, starting with global lifestyle.
The segment reported adjusted EBITDA of $217 million in the first quarter.
A year over year increase of 13%.
Driven by continued earnings expansion in both connected living and global automotive.
Connected living earnings increased by $16 million or 13% year over year.
The increase was primarily driven by continued mobile expansion in North America device protection programs from cable, operator, and carrier clients, including more favorable loss experience and subscriber growth.
As well as an increase in global mobile devices surface, including higher trading volumes from continued carrier promotions.
In global automotive earnings increased $9 million or 12% from three items.
Investment income.
Favorable loss experience and select the ancillary products and continued growth in our U S National dealer and third party administrator channels.
Including growth of 5% and global vehicles protected.
As we look at revenues lifestyle revenues increased by $99 million or 5%.
Lining with our expectation that revenue would've increased mid single digits year over year.
This was driven by continued growth in global automotive and connected living.
In global automotive revenue increased 9%, reflecting strong prior period sales of vehicle service contracts.
Even with a decline in U S auto sales year over year net written premiums increased 4% as we continued to benefit from higher attachment rates on used vehicles.
Within connected living revenue increased 2% from higher mobile fee income driven by our global mobile devices service.
Devices service encompasses the devices, we touch in our trading with air and dynamic fulfillment ecosystem.
In the first quarter the number of global mobile devices service increased by 800000.
Approximately 13% to $6 8 million.
This was led by higher trading volumes supported by new phone introductions and carrier promotions from the introduction of <unk> devices as well as initial service and repair volumes.
In terms of mobile subscribers growth in North America subscribers was partially offset by declines in runoff mobile programs previously mentioned.
Which also impacted mobile devices protected sequentially.
For full year 2022, we continue to expect lifestyle adjusted EBITDA growth to be low double digits compared to the $714 million in 2021.
Connected living is expected to be the key driver of adjusted EBITDA growth driven by global expansion in existing and new clients across device protection and trading and upgrade programs.
This will be partially offset by strategic investments to support new business opportunities and client implementations as well as unfavorable impacts from foreign exchange in Asia Pacific and Europe .
Auto adjusted EBITDA is expected to increase due to higher investment income and business performance throughout the year, which will be partially offset by higher expenses.
Moving to global housing adjusted.
Adjusted EBITDA was $104 million for the first quarter compared to $94 million in the first quarter of 2021.
Driven by lower reportable catastrophes.
Excluding catastrophe losses earnings decreased $30 million, primarily due to higher non cat losses in our specialty in lender placed businesses.
Nearly two thirds of the earnings decrease was unfavorable non cat loss experience in our specialty offerings, including a $14 million increase within sharing economy.
Primarily related to a reserve adjustment and adverse development from policies previously written under less favorable contract terms.
Taking a closer look at sharing economy, the product, where we are seeing higher claims relates to on demand delivery. It's a short term liability policy covering the period when a driver may be used in their vehicles for commercial purposes, which is not covered by a traditional auto insurance policy.
We started writing this business in 2017 and is a relatively small portion of our global housing business, representing roughly 12% of specialist annualized net earned premium.
We have taken several actions over the years, including modifying contract terms with some of our partners and discontinuing less profitable business to improve performance.
However, based on the recent higher claims frequency and severity were taking a closer look at the business, we expect to take appropriate steps to improve performance as we look to deliver on our financial objectives.
Turning to lender place.
It was comprised the majority of the balance of the increase in our non cat loss experience within the segment.
This was mainly related to elevated frequency and claim severity from fire claims.
Ultimately leading to lower earnings year over year.
I did want to note that wildfire claims tend to ebb and flow throughout the year. We continued to see higher cost of claims throughout our book due to inflationary factors, including labor and materials.
These impacts continue to be largely offset by higher average insured values.
In multifamily housing underlying growth in our P&C and affinity channels was offset by more normalized losses compared to an abnormally low first quarter of 2021.
As well as increased expenses from ongoing investments to further strengthen the customer experience.
Global housing residue was up slightly year over year, mainly from higher average insured values of lender placed and growth in multifamily housing. This was partially offset by lower specialty revenues from client runoff.
Overall, we announced that global housing adjusted EBITDA, excluding cats to grow mid single digits from the $486 million in 2021.
Lender placed is expected to be a key driver for the following four items.
First expense efficiencies across the business, including system enhancements and new digital capabilities. We expect these to create additional scale as the volume of our business grows.
Second higher average insured values.
Third a modest lift from expected placement rate increases and Atlanta RVO recovery later in the year, noting that volumes were significantly reduced from foreclosure moratoriums during the pandemic.
Additionally, we are monitoring higher claims costs as well as reinsurance costs, which are aligned with the increase in AIG.
Overall for housing, we would expect the combined ratio, including cats of 84% to 89%.
At corporate adjusted EBITDA was a loss of $22 million and.
<unk> of $6 million compared to the first quarter of 2021.
This was mainly driven by two items first lower employee related expenses and second higher investment income from higher asset balances following the sale of premium.
For full year 2022, we expect the corporate adjusted EBITDA loss to be approximately $105 million.
This reflects lower investment income compared to 2021.
In addition, the first half of the year historically experiences lower expenses as investments ramp throughout the year.
Turning to holding company liquidity, we ended the first quarter was $738 million $513 million above our current minimum target level.
In the first quarter dividends from our operating segments totaled $129 million.
In addition to our quarterly corporate and interest expenses. We also had outflows from two main items.
$242 million of share repurchases and $37 million in common stock dividends.
As Keith mentioned, we expect to return the remaining portion of the $900 million of premium proceeds were approximately $125 million in the second quarter.
Our outlook assumes returning an additional <unk> $300 million.
Throughout the year.
For the year overall, we continue to expect segment dividends to be roughly three quarters of segment adjusted EBITDA, including catastrophes as always segment dividends are subject to the growth of the businesses rating agency and regulatory capital requirements and investment portfolio performance.
In summary.
We're confident in our ability to achieve our financial objectives for 2022 and over the long term as we discussed at Investor Day.
Earnings growth strong capital generation product and service offerings as well as our business resiliency continuing to differentiate assurant as a strong partner and is a compelling investment.
And with that operator, please open the call for questions.
So Florida 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 in your question is answered you may remove yourself from the queue by pressing star one.
Again, we do ask that while you pose your question that you pick up your handset to provide optimal sound quality.
And our first question comes from the line of Michael Phillips from Morgan Stanley . Your line is open.
Mike.
Hey, good morning, Thanks, Good morning, guys.
First question is on the.
On the comments Keith you made about the.
Extended partnership with the retail how much of anything you can quantify there and how that might impact.
The outlook for 2000 2022.
Yes, certainly it's considered in the full year outlook.
I would say not not a material driver there'll be some investments that we're making we've been making already to this point in the year that will continue as we kind of ramp the full scale of services. We will also see volume and revenue start coming in as well so that will typically be very fairly well aligned in this case.
So I would say fairly neutral this year and then obviously as we kind of build scale and ramp it will become more meaningful as we look to 'twenty, three and beyond and really exciting opportunity for us. If you think about the retail landscape in the United States. If you think about the opportunity to broadly serve the connected consumer in the future.
Bundled solutions around the connected home. This does give us a pretty material step change in terms of the scale of our services, particularly around the appliance side of the business. It's a disproportionate increase to our volume and I think it will definitely bear fruit longer term and we're really excited and it's an important client certainly it helps us.
The client, but really expanding our services and then making investments in our platforms that I think will support further growth longer term is what gets me most excited.
Okay. Thank you Keith Thank you and congrats on that.
Second question is again on the outlook and we'll be trying to get into some of the drivers behind that specifically can you say to what extent you have.
And the lifestyle mobile business Whats your outlook for mobile sales for the year and how does that influence your outlook for the year there.
Yes, I mean, I think we're seeing really strong results in the mobile business. If you look back over many years it.
It doesn't always show up in the in the subscriber count number and now we've started to give devices service, where youre seeing a fairly significant ramp in our trading volume, which has been true over the last several quarters. I think we are seeing underlying growth in our most mature markets, that's masked a little bit.
So in North America, we're definitely seeing increases in our subscriber counts that's true with our mobile partners in terms of mobile operators, but it's also true with the cable operators that we do business with for device protection Theyre growing theyre, achieving net adds every quarter in terms of postpaid customers. So we're definitely seeing growth there those are the most mature.
<unk> and then that's kind of masked by little bit more softness in some of our international markets and then some client runoff. That's got a fairly limited economic impact overall, we're still seeing strong demand in the market for mobile devices, we're seeing a lot of.
Carrier competition carrier promotions, I think we're extremely well positioned with clients. Both in terms of device protection, but then the breadth of clients. We serve with respect to trade in which has only grown over the last couple of years. So I feel like we're really well positioned in and there is still a tremendous amount of consumer demand, we will see as the year progresses.
If that changes, but but certainly at this point, we feel really good about how we're positioned.
Okay. Thank you last one for now on the specialty business and the charge there.
Actually Richard you alluded to some steps you're taking to improve the performance. There can you kind of talk about what are the things you are doing there.
Make sure that doesn't happen in future results.
Yes.
<unk>.
Go ahead I was going to say why don't you talk a little bit about <unk>.
Some of the work that we're doing Richard and I will talk more strategically.
Okay. Okay, great. Thank you and first they start out.
In the specialty area, we talked about sharing economy and the charge, we took a $14 million.
Really most of that that charge is linked to past business past contracts, we had in place so.
All it run off I think about it run off in my mind that they are old contracts clients that we we canceled over time and we're getting those charges come through right. Now. So we have done I would say as Keith said in his remarks, we have done some actions we're going to continue to do more actions I think we are deep diving into types of contracts.
We're understanding the volatility about those contracts we are understanding the quality of the clients we have behind those contracts. So our goal is to is to make sure that we're hitting our financial objectives as we said.
In our remarks, and so we're not happy with taking the charge and we're going to want to work on that.
Very hard.
Sure.
Yes, the only thing I would add I think.
The business that we're writing today to Richard's point the team has done a really good job.
Modifying pricing terminating certain partnerships that we didn't think we're going to pay off long term at changing deal structures changing the terms and conditions around the products. There's been a lot of good work done on the charges that youre seeing flow through for the most part relate to business. That's been since since been modified through through a lot of those actions that we've taken.
I'd say the underlying profitability on the business, we write today new business that we're putting on the books is significantly better than the historical so that's definitely a good thing, but the team is not happy overall with how this business is performing at the moment. So we're definitely looking at it very closely one of their strategic.
I guess in terms of the thesis with this business was not just giving us access to the gig economy really fast growing kind of emerging marketplace that we thought was really interesting a place where we can innovate and develop some new distribution opportunities. We also thought there would be opportunities to provide additional coverages like mobile protection.
Vehicle service contracts those are pretty important types of coverages for a gig economy worker that hasnt materialized at this point that was part of the strategic rationale and the thesis behind entering this marketplace. So obviously, we're evaluating whether those opportunities can exist for us in the future. So more work to be done to Richard's point.
We're not happy with the results, we're definitely going to be making sure. This businesses is built to deliver the economics that we would expect based on the risk reward trade in the marketplace.
Okay.
Okay guys. Thanks, Thanks for the details and congrats on the quarter.
Thank you. Thank you.
Your next question comes from the line of Gary Ransom from Gallium partners. Your line is open.
Good morning, Gary Good morning, Yes.
I had a couple of questions on the interpretation of the of the new.
Items that youre, giving in the earnings one is the EBITDA margin I know in the past you've talked about how different contracts of different.
Revenues versus different margin levels based on how they're structured is there is there any different way I might interpret the 11% margin that came in in lifestyle.
Or are those just how are you thinking about that.
And maybe I can go ahead Richard.
Yes, no I think I think the EBIT margin to a certain extent, it's it's a reflection of the mix of business that we have Gary.
I think that as we as we go when we become more fee based as we've talked about you're going to get naturally to as opposed to putting it over premiums or gross premiums youre going to have that margin.
Actually improve.
He talked about <unk> talked earlier about kind of the mix of products and the fact that we.
We do have clients with more fee based services, so so that definitely.
<unk> is a positive for us and also I guess the bottom bottom line. Two is lifestyle had a very good quarter overall in terms of profitability and that that obviously, then then translates into the margin as well which helps.
Yeah.
And the other one I wanted to ask about is the mobile devices service, which you did talk about it being up strongly year over year, but there also seems to be some seasonality that decline sequentially can you just remind us what the how to think about a sequential seasonality for that measurement.
Sure.
Youre right there is definitely seasonality we tend to see.
A fairly significant Q4 related to devices service. We also tend to see strengthen in Q1.
As we look at devices iconic devices launched in the back half of the year that obviously leads into a lot more activity in terms of customers trading in old devices in the fourth quarter to try and get the new devices that are being actively marketed in the marketplace. We tend to see that spill over into Q1 as well.
It really is a function of the promotional activity that the carriers are doing in the market. So if you think about all of our global partners.
Offer trade in programs as they are being more aggressive with trade in offers to try and get consumers into the latest technology in which is particularly.
<unk> through today with the push for <unk>.
Ultimately what drives the seasonality as those promotions that are that are driven by by the carrier. So we saw strong activity in Q1.
Expect we'll continue to see strength as we go through the year, but you are correct. We tend to see a really strong first quarter really strong fourth quarter and then we'll see what happens with respect to the promotions as we go through the year and obviously, we'll see what also happens with consumer demand and other factors that that our partners are trying to navigate as well.
Alright, Thank you very much for those answers.
Thank you.
Thanks, Ken.
Our next question comes from the line of Mark Hughes from Suntrust. Your line is open.
Good morning, Mark.
Yes. Thank you good morning.
Question on the.
The global automotive business, the vehicle business, what kind of new business.
Okay.
In the.
And I'm, sorry, it's kind of a strange time in the in the auto market in terms of sales should we anticipate growth in terms of the vehicles covered or is this.
More steady as she goes.
Yes, I mean first of all Im really happy with the overall performance of the auto business and it was a particularly strong first quarter.
Not just in terms of the ultimate profitability of the business as we look at the the EBIT growth that we were able to deliver but.
Also just in terms of the performance on a net written premium basis. If you look at our revenue was up 9% net written premium was up 4% and thats dealing with Q1 auto sales this year, which were down 12% versus Q1 last year. So I would say that our team is outperforming.
The underlying results within the auto industry in terms of car sales. So I think that's really positive and Thats a testament to the I think the breadth of our client partnerships.
The fact that we've got really really well diversified distribution channels and our partners are being successful in the market and they are gaining share. So that has helped us significantly in and our teams are also expanding our own market share just because of the scale and breadth of our offerings. So feel really good about automotive broadly cover.
Covered vehicles is relatively flat as you mentioned right now, but we are seeing underlying growth in net written premium which to me is a really good sign in and we'll see what happens with the auto industry I certainly expect at some point, there's a lot of pent up demand for new vehicles.
And as new vehicles become more readily available obviously, we will start to see the benefits of that flowing through on the new vehicle side that will probably alleviate some of the pricing pressure on the used car market used car markets are extremely elevated right now and that too should normalize so but again I feel like there is there's definitely.
Upside in this business over time, particularly as we look at interest rates today, we had favorability in the quarter, both from interest rates as well as from the underlying performance and growth of the business and certainly that's an opportunity as we look forward.
No. That's good maybe a similar question on multifamily I think your.
Renters.
The count.
Count was up five 6%.
Revenue was up low single digits.
Is this which is a little bit below the recent trend.
What do you think is the.
Sure.
Is the prospect there.
Yes, I think first of all we really like the renters business, we've got a strong.
Market position, we cover $2 6 million renters. So we've got a really nice market share as well and it's been growing historically over time and the rental renters market has also been growing if we look back just because of attach rates improving historically, so really like the position that we're in you are correct, we saw a little.
Slower growth in the quarter slower growth from some of our affinity partners.
Offset I would say by really favorable strong growth with within the PMC channel and we've talked before about the.
The success, we're having with cover 360 with our property management partners, where we've got just a more much more integrated solution into the bi flow with better digital access pre.
Premiums for renters are collected as part of the rent. So there is a lot more.
Opportunity for us to continue to grow in that market as we scale that solution and as more clients adopt it so.
I do expect this business to drive long term growth. It's a key focus we continue to look for ways to differentiate our solutions and then brought in distribution and thats going to be a key focus for the team as we move through the year.
And then Richard on investment income.
Anything you would.
Is this a good kind of run rate at this point.
When we think about new money yields.
Yes.
Is that going to lead to an increase in investment income as we get into.
The rest of this year and next year.
Okay.
Yes. Thanks, Thanks for the question Mark I mean definitely.
The increase in interest rates is a positive thing for us both long term and short term. So we are benefiting from that and we will continue to benefit from that as kind of the the book rolls through so to speak in the assets come to maturity. So very very positive news for us I would say.
In terms of your question on run rate I wouldn't necessarily take this as a run rate because in this quarter, let's say, we're up about $8 million.
Over the prior year quarter.
That's coming from some real estate gains so apart from interest rates and investment income coming from the fixed income book, but also parts from real estate gains we had.
Accumulate real estate gains in there just a little under five I would say so part of that I would consider a little bit of a one timer, but the rest of it is good news and hopefully a harbinger of things to come as interest rates continue to stay at an elevated level and even increase as we've seen over the last couple of months.
Thank you very much.
Thanks Mark.
Your next question comes from the line of Thomas joined from K B W. Your line is open.
Tommy.
Hey, good morning, guys. Thanks for taking my questions here.
It sounds like.
I'm, just kind of going back to the sharing economy and on delivering products that incurred the reserve strengthening this quarter.
So while it's been growing kind of exciting piece of the economy to the extent that you do deem that it's unlikely to meet your return hurdles or.
If you think that cross selling to those gig economy workers, just looks too challenging can you talk about what a wind down of that business would look like I know in the past.
Could things like small commercial that didn't meet your return hurdles.
Just kind of how material is that business and is it a profitable business right now or is it a drag I'm just kind of any more kind of numbers you can put around that.
Yes, maybe I'll offer a couple of thoughts and then Richard feel free to chip in but we've talked about it being 12% of.
The specialty line, I'd say $50 million to $60 million a year in.
Net earned premium in terms of the size and scale of that business today operates across multiple clients primarily in food delivery.
If I look at the P&L over the lifetime of the business I would say, it's relatively neutral it has not been a big drag in terms of losing money. We look at the inception to date profitability of the business forget about quarter to quarter and year over year change as this business, making money so.
Pretty marginal at this point overall, but as we talked about that's absorbing the learnings the investment to scale the business.
Early losses, as we sort of had to learn the market as the market was being created so.
Not a not a terrible result in something that we built and incubated and then I think our team has done a really good job. It's a really well diversified mix of business. There is a lot more protections and how that product and how the programs are structured today, we've built a lot of expertise around managing the claims.
Integrating with our partners and then obviously, there's a lot of complexity in this business. So I think from that perspective, it's it's worked.
In terms of what can this mean for us going forward, how large can it be.
Can we get the strategic value out to your point, that's that's something that we've got to continue to work on and making sure. We can define that but not it's not a big drain in terms of.
The actual P&L effect that we're feeling it's just not hitting the hurdle rates that we would expect at this 0.5 years into.
Learning this part of the market.
And Richard feel free to add anything else.
I think your last comments when I would underscore for Tommy which is.
It was a business that we started five years ago as an incubator.
To innovate and see if there was a part to get into the gig economy that way and see that over time. The five years. The overall profitability I would say, it's been fairly neutral for us the new contracts that we have in place are profitable and so that's what we're going to dive into is to say, okay, well do we have something here.
That we can build upon.
Or is this a business that we need to change dramatically drastically. So that's what we're deep dive and as Keith said to do and really to understand it. So overall for this year given given b.
<unk> for the first quarter I wouldn't I wouldn't think it would be a positive or negative the rest of the year right in terms of the outlook that we have out there. So some work to do there Tommy.
That's great. Thanks, very all of those numbers that you guys gave there and then just my other question could you guys talk about what could be some of the drivers for that favorable loss experience and lifestyle that you guys referenced and there was really widespread reports of higher severity higher costs in parts and labor in most most industries out there.
Yes, maybe I'll offer a couple of thoughts.
And there's a few moving pieces, but I would say if we look at the first thing to underscore is that for.
The vast majority of the business where.
Either where risk sharing where reinsurance we're a profit sharing back with partners. So we're not on the majority of the risk and we've talked about that historically and then where we are on risk. There are some interesting things that are happening if I think about the auto business, we write some gap insurance and obviously.
With used car values at all time highs.
GAAP losses have been dramatically lower as you think about the depreciated value of the used car is much higher today than it would have been under normal circumstances. So that's creating some favorability that normalizes over time is I would say is the used car market moderates and when will that happen. It's hard to know right because it's all connected with more broadly the supply.
Chain issues that are creating that situation and then in terms of the mobile side, we had a little bit of elevated losses. If you look back to Q1 of 'twenty. One when you think about some of the business, where we actually are on the risk a little bit more elevated losses last year due to just some some parts.
Availability pressure in that business our teams have done an incredibly good job.
Buying inventory maintaining inventory to make sure that we're able to deal with our claims efficiently you have got obviously as product continues to rollout in the market in terms of new devices. The quality of those devices continues to improve which is also helpful.
And we've just seen some underlying strength in our ability to to manage loss costs around that mobile experience, we're doing a lot more repair as well. So there are several factors at play again most of that accrues to the benefit of our partners because of the deal structures, but for those where we are on the risk on balance we've been really pleased with how the teams perf.
Formed.
Yeah.
Okay.
That's great. Thanks, guys.
And once again, if you do have a question you May press star one on your Touchtone phone at this time.
Our next question comes from the line of Jeff Schmidt from William Blair. Your line is open.
Good morning, Jay.
Good morning, everyone.
<unk> cost for the T mobile install repair rollout.
It peaked in the fourth quarter of last year, but you had mentioned that should continue in the first half of the year can we get sense on how much cost for the quarter in would you expect to see some.
There's still a lot of it year over year margin expansion, but should we sort of expect that next quarter or is that more of a second half of the year.
Any detail you can provide there.
I would say first of all we are we're thrilled with.
Everything that we've done with T mobile as we look back over the last several months.
The migration of the sprint customers went incredibly well and we're really proud of the work that we've done there and then the build out of.
Same unit repair in the T mobile stores.
A lot of that work happened in Q4, we had to.
Recruit technicians, we had to train we had to develop all of our technology interfaces all of our.
Inventory management solutions all of that work to stand that up and was largely done by the end of 2021 and as we look at Q1, I would say relatively neutral effect overall in terms of the P&L. So there's some ongoing investments a little bit less about.
New store scaling and more about refining process refining platforms investing in the underlying technology.
And then just trying to make sure that we're evolving how we execute and deliver value to end consumers in partnership with T mobile and that that will never stop right, we'll always be looking to invest to improve and we're seeing incredible net promoter scores I would say, we had really really high.
NPS prior to same unit repair, it's taken it to another level and it's pretty exciting to see.
The favorable reactions were getting from the customers and obviously thats, reflecting well on on T mobile on their brand, so but relatively neutral in the quarter end and expect that to improve.
Improve as we go through the year and as we as we reach a more mature in steady state with the solution, but it couldnt be prouder of.
The work that the team has done and that the actual results that are being delivered to the end customer.
Okay great.
And then on the covered mobile devices.
Down a little bit sequentially, but could you talk about the sort of underlying growth there excluding the legacy sprint customers coming on.
What was the impact of the runoff clients and what's your outlook for that kind of underlying growth. So I think if you go back a quarter or two before sprint came over you had mentioned that maybe go into the.
The mid single digits.
But what is your sort of outlook for that.
Sure, Yes, obviously, when you look year over year.
It's a big step change because of of sprint and we've talked about the importance of that relationship, but youre right in terms of the underlying subscriber growth.
Seeing the U S market continued to drive growth.
It's masked in the numbers because obviously, we're showing our global total, but we are seeing fundamental growth. There I expect that to continue as we move quarter to quarter to quarter. So that's and as I referenced earlier, both in terms of mobile operators, but also.
Our cable partners as well, who are having success and doing well with respect to <unk>.
<unk> our services to end consumers, so that will continue a little bit of softness in some of the international markets, where things have been a little bit slower to open up from Covid not a big economic concern.
Obviously it shows up in the numbers in terms of accounts, but not not a massive <unk>.
From an economic point of view and then we had a client that we talked about last year that.
That had run off again, not not material economically so I have no concerns with respect when I look at where we are for mobile devices protected I think what's important is where we're building deeper and deeper relationships with.
Some incredible global partners.
And the deeper those relationships get the more services, we provide the more we can help solve problems and innovate to deliver value and that's what gets US really excited there is a lot of great momentum in the market our teams are.
A really really integrated and we're passionate about serving clients solving problems and delivering for end consumers and I think that's the game that we're trying to win over the long term.
Okay.
Okay, great. Thank you.
Okay.
Our next question comes from the line of John Barnidge from Piper Sandler Your line is open.
Thank you very much.
Good morning to you.
That new partnership that you talked about the end to end sounds very exciting.
Are there opportunities to expand that for other similar relationships or do you need to get past the ramp up phase to really create the leverage to expand with others.
Yes, I definitely think there are opportunities to expand I think scale and I've talked about this previously scale is important right and I think this relationship will give us a tremendous increase to our scale, it's quite material in terms of what it means for our ability to deliver customer service.
To manage the third party repair network and then to make the underlying investments I think that will happen quickly and I think we will have opportunities to drive growth both in new and interesting ways with this partner.
It was significant and always trying to innovate around the customer, but also as we think about the capabilities and the foundation that we continue to build how do we then leverage that foundation and I would say that foundation will get built and scaled fairly quickly it won't be three or four years from now. We'll finally have a solution that is really relevant in the market.
Relevance will emerge fairly quickly.
Okay.
And then follow up question.
What is the international growth opportunity look like given increased FX volatility.
Yes, so there's no doubt.
As we look at at Q1, we saw some effects from FX, we expect that to continue as we look towards the rest of the year Luckily Richard's talked about work.
We're pretty resilient and there are a number of pluses and minuses as we look at more broadly inflation macro economic factors interest rates. So we feel like we're well positioned but there's definitely we will see some effect from FX think about Europe and Japan as good examples where we'll expect to see that I do think we've got great momentum.
Some around the world I mean, our international.
<unk> has continued to mature over the last.
Many years, we havent expanded into new countries.
We've really focused on how do we gain relevance and scale within the key markets that we want to be in and I think our teams are doing a great job our services or solutions, we continue to deploy them on a global basis. So as we build services like you think about an easy example, like same unit repair or premium technical support.
Or trade in those services are relevant everywhere in the world. They may be they may be more relevant in a certain market today than two years from now that trend catches up in another part of the world. So I think thats one of the powers of operating as a global business. It's allowed us to build things once build them in a standard way build.
Kind of global platforms that we can scale and deploy those internationally and we've got some incredible clients around the world.
I'm so proud of what our international team has done and I think theres, a lots and lots of opportunities and today. Its mobile connected living is the biggest part of international we've got through the acquisition of TWD much more automotive going on in various parts of the world.
As we continue to find.
Yes.
The other relevant parts of Assurant to export to take advantage of of our biggest markets I think that will create longer term tailwind for us, but certainly in the short term FX is a challenge.
Thanks for the answers congrats <unk>.
Wonderful thank you.
Thank you.
And your final question comes from the line of Grace Carter from Bank of America. Your line is open good morning.
Great.
Good morning.
I was wondering if you all could.
Talk about I guess percent of.
The book that has historically been in.
Oreo and just how that compares today versus historical and I guess, just kind of the evolution of that over the course of the year.
Yes, I would say in simple terms, our Oreo volume is down significantly it's probably.
A third of what it would have been pre pandemic roughly in that order of magnitude.
I'd say I'd say, we've seen it stabilize in terms of volume in the first quarter.
I would expect that to slowly increase over time.
As properties.
Enter foreclosure.
Later in the year, so I definitely see that growing over time, obviously, there's a ton of strength in the housing market.
Our partners are working closely with customers in terms of loss mitigation activity. There's a lot of equity still in the homes for customers. So theres a lot of opportunity.
For mortgage Servicers to work with customers. So that'll that'll take some time to normalize, but certainly it's dramatically lower than pre pandemic and we'd expect things to normalize.
Over a reasonable period of time over the next couple of years I would say.
Thank you and then sticking with that housing Buck if theres any color you could offer on the cost efficiencies that you referenced just kind of thinking if that should ramp over the year, our third should be kind of a more even impact starting next quarter and just any.
Sort of directional guidance on maybe the magnitude of the impact.
Yes, I think I think we're we're investing.
Heavily in terms of digital investments automation, we've got a large operation that we run within the housing business.
Fairly intensive labor intensive in terms of the services that we provide we've talked about how deeply integrated we are with our partners and really it's just.
Operational transformation initiatives around digital and and finding simpler ways to serve customers more quickly.
In partnership with our clients and I would expect it to ramp.
Naturally over the year as we continue to deploy digital tools digital solutions and that will allow us to drive that efficiency going forward, but Richard what else might you want to add.
Yes, I think I think that's exactly right.
Don't think there'll be a threshold moment per se in a lot of the leverage that we're getting today is based on projects that have already been launched that already we're doing so we're going to continuously as Keith said get leverage out of it and where I see some good leverage coming out as coming back to your previous question raised on Oreo as we get more revenues.
Out of that as revenues grow overall in lender placed.
We should hopefully get some some leverage out of the expenses as well knowing of course that over time, it's more of a revenue.
Topline issue as opposed to just pure expenses, because obviously, we have rate filings to do in and over the longer term that will balance itself out, but we do see over the short term that expenses and the leverage we are creating will really be helpful to us.
Thank you.
Great. Thanks, Chris.
Thank you.
Alright, well. Thank you again, everyone and I would just like to close by saying, we're really pleased with our first quarter performance certainly look forward to updating everyone on our second quarter results in August and then in the meantime, please reach out to Suzanne Shepherd and Sean Moshier with any follow up questions, but thank you very much and have a great day.
Thank you. This does conclude today's conference. Please disconnect your lines at this time and have a wonderful day.
Yeah.