Q2 2023 Assurant Inc Earnings Call
Walking to the shore in second quarter 2023 conference call and webcast. At this time all participants have been placed in a listen only mode and the floor will be opened for your questions. Following management's prepared remarks.
If you'd like to ask a question at that time. Please press star one on your Touchtone phone if at any point. Your question has been answered you may remove yourself from the queue by pressing the pound key we ask that you. Please pickup your handset to allow optimal sound quality lastly, if you should require.
Operator assistance. Please press Star zero. It is now my pleasure to turn the floor floor over to Suzanne Shepherd Senior Vice President of Investor Relations.
<unk> ability you may begin.
Thank you operator, and good morning, everyone. We look forward to discussing our second quarter 2023 results with you today.
Joining me for Assurance conference call are Keith Jennings, our President and Chief Executive Officer, and Richard Johnson, Our Chief Financial Officer.
Yesterday after the market closed yesterday, the news release announcing our results for the second quarter of 2023.
The release and corresponding financial supplement are available on Assurant Dot com.
We'll 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 and financial supplement as well as in our SEC reports.
During today's call we will refer to are non-GAAP financial measures, which we believe are important in evaluating the company's performance.
For more details on these measures the most comparable GAAP measures and a reconciliation of the two please refer to yesterday's news release and financial supplement.
I will now turn the call over to Pete.
Thanks, Suzanne and good morning, everyone.
Our results in the second quarter were strong and well ahead of our expectations with adjusted EBITDA, excluding cats growing 21% year over year for a total of 6% on a year to date basis.
Results were largely driven by continued momentum in global housing primarily from higher topline growth and more favorable loss experience from prior period development on claims.
Our performance is a testament to the resilience of our global business model are compelling client offerings and steadfast focus on operational excellence.
Looking at our business segments.
Global housing adjusted EBITDA increased 49% year to date, excluding catastrophes.
These results reflect actions taken to transform our housing business, including focusing on product lines, where we have a strong right to win.
Dramatically, reducing noncore areas and our international catastrophe exposure.
And aggressively deploying digital solutions to improve customer experience, while driving greater operational efficiencies.
This underscores our ability to quickly respond to ever evolving market dynamics, driving continuous improvement and better performance over time.
During the first half of 2023 top line performance in our homeowners business increased 18% year over year.
This reflects higher average insured values and state approved rate increases to account for higher claim severities from inflationary factors in lender placed.
Policy count increased double digit this year from expanded loan portfolios of new and existing clients.
While policy growth has been a contributor so far this year, we expect it to level off from the first half of the year.
And our renters business, our property management company distribution channel has shown strong policy growth year to date, increasing 14%.
This has been driven by the ongoing rollout of our cover 360 solution. One of the many long term investments. We've made in renters that has consistently added value to our PMC partners and customers over the last several years.
Our strong growth in the PMC channel has helped to diversify profit pools to partially offset lower contributions from our affinity partners along with higher non cat losses, which have returned to more normalized levels.
In summary, we're very pleased with global Housing's performance year to date and expect strong year over year earnings growth to continue into the second half of 2023.
Turning to global lifestyle underlying segment results were solid and demonstrated steady improvement from the second half of last year.
Lifestyle earnings for the first six months of the year have increased $34 million or 9% over the second half of last year from improved connected living results.
Within connected living we continue to invest in our technology platforms as we deepen our focus on product innovation and evolving our service delivery capabilities to improve customer experience.
Our focus on innovation and global trade and capabilities has continued to drive a significant level of interest from existing and prospective mobile partners.
As we continue to realize ongoing efficiencies, we've implemented actions to mitigate macroeconomic headwinds throughout our global operations.
In Europe . These actions have had a positive impact.
Ultimately, helping to stabilize earnings and allowing us to remain focused on growing the top line.
With an extended service contracts, we've made significant progress with our partners and executing large scale protection and administration programs.
In addition, after several quarters of elevated claims severity.
And an improvement in the second quarter loss ratio due to rate increases with several clients.
And our global auto business consistent across the industry, our repair costs have continued to increase from inflation.
We've taken decisive actions to improve performance.
For example, we've implemented prospective rate increases with several key clients and we're also partnering with our clients to identify cost savings on claims to improved loss experience for programs, where we hold the risk.
It's difficult to predict the timing of an earnings inflection point, but we expect to see continued improvements as new business earned through although improvement may take several quarters to materialize.
Overall global lifestyle earnings were in line with our expectations for the first half of 2023.
And while we work to create new vectors of growth for lifestyle. We now anticipate global Lifestyle's adjusted EBITDA will be down modestly for the full year.
This is mainly due to the headwinds in global auto, we just discussed and lower international contributions primarily from Japan.
Reflecting on the first half of 2023, our results have demonstrated the attractiveness of our compelling business model with clear competitive advantages, including our alignment with global market leaders across lines of business.
Leadership positions with scale advantages and attractive and growing lifestyle and housing markets.
Demonstrated ability to innovate and differentiate through specialized solutions.
And a strong track record of taking decisive actions to overcome market challenges and drive performance.
Combined global lifestyle, and global housing should continue to generate strong returns and cash flow.
Highlighting the strength and resiliency of Assurant.
Prior to moving to our enterprise outlook and results I want to take a moment to discuss the progress we've made through our sustainability efforts a key differentiator for sure.
In June we published our 2023 sustainability report.
Reaffirming our long term priorities around talent products and climate.
The report highlights our progress in reinforcing our company culture, and leveraging ongoing employee listening and feedback to help support our global diverse workforce.
The report reaffirms, our 2020 to 2025, ESG strategic focus areas of talent products and climate to build a more sustainable future together with our clients customers employees and suppliers.
We continue to view our commitment to sustainability as a competitive advantage that deliver short and long term business value of note. We achieved our 2025 supplier diversity target two years ahead of schedule.
We increased our global gender diversity overall.
We expanded coverage for electric vehicle protection products and.
And we repurposed 22 million mobile devices globally.
Now, let's turn to our enterprise outlook and capital.
Given first half results and anticipated performance for the remainder of the year. We now expect adjusted EBITDA to grow high single digits, excluding cats.
This represents an increase from our original expectation of low single digit growth.
Adjusted EPS growth is now expected to approximate adjusted EBITDA growth, each excluding reportable catastrophes and improvement over our previous expectations for EPS growth to trail our EBITDA growth.
The increase is mainly due to our higher than expected adjusted EBITDA growth, which is now outpacing the increases to depreciation and tax expenses.
From a capital perspective, we upstream $180 million of segment dividends during the quarter and $292 million year to date nearly half of segment adjusted EBITDA, including cats.
We ended the quarter with $495 million of holding company liquidity, a significantly higher level than at the end of the first quarter.
As expected we resumed share repurchases during the second quarter repurchasing $20 million of common stock as well as an additional $10 million throw July .
For the remainder of the year, we would expect to gradually accelerate our level of buybacks with the majority weighted toward the fourth quarter keeping in mind third quarter as hurricane season, and we will look to preserve our capital flexibility.
For 2023, we don't currently expect to exceed the 2022 underlying buyback activity of $200 million.
Overall, it's been a strong first half of the year and we are well positioned for the full year.
And both housing and lifestyle it will be critical for us to continue to execute through innovation and enhanced customer experience for our clients and their end consumers, which is what differentiates assurant and supports long term growth.
I'll now turn the call over to Richard to review second quarter results and our 2023 outlook in greater detail Richard.
Thank you Keith and good morning, everyone.
For the second quarter of 2023, adjusted EBITDA, excluding reportable catastrophes totaled $337 million up $59 million or 21% year over year.
And adjusted earnings per share, excluding reportable catastrophes totaled $4 nine for the quarter up 26% year over year.
Let's start with global lifestyle for our segment results.
<unk> reported adjusted EBITDA of $197 million in the second quarter, an 11% decline year over year. However, prior period results included a real estate joint venture gain of $13 million, mainly impacting global automotive.
If we exclude this prior period gain adjusted EBIT declined only 5% or $11 million in line with our expectations.
This decrease was primarily driven by lower results in global auto as continued inflationary impacts on labor and parts increased average claim severity.
We also incurred increased claims costs on ancillary products as these cost revert to more normalized levels following their post COVID-19 lows.
The auto earnings decline was partially offset by higher investment income from higher yields and growth in the U S across distribution channels.
In terms of connected living excluding the prior period real estate gains and $3 million of unfavorable foreign exchange earnings were roughly flat.
In mobile earnings were down from softer results in Japan, and Europe as expected as a reminder, headwinds in international earnings did not materialize until the second half of 2022.
In Japan, we continue to experienced subscriber decline as our four year protection product continues to run off and.
And in Europe , while we are benefiting from previous expense actions taken in the latter part of 2022 and the beginning of 2023 lower volumes have impacted year over year results.
U S mobile earnings were flat year over year as growth in North American device protection programs from carrier and cable operator clients was offset by lower mobile trading results.
Trading results were impacted by lower volumes due to the timing and structure of carrier promotions and lower fee income from the previously disclosed contract change.
However, higher prices on used devices, partially offset the decline.
Extended service contract earnings increased as U S client performance improved.
Benefiting the rate increases implemented from several clients that began to offset the impact of higher claims costs.
Turning to net earned premiums fees and other income lifestyle was up by $96 million or 5%.
This growth was primarily driven by global automotive, reflecting prior period sales of vehicle service contracts.
Connected living as net earned premiums fees and other income increased 1%. However, this includes an approximate $60 million negative impact from the previously disclosed mobile program contract changes, which had no impact on profitability.
Basically in these contract changes connected living net earned premiums fees and other income grew by 6%.
The quarter benefited from growth in mobile subscribers in North America, excluding client runoff and higher contributions from extended service contracts.
For the full year 2023, we now expect adjusted EBITDA to be down modestly for global lifestyle.
Global auto is expected to be down for the full year as we anticipate loss experience to remain unfavorable for several quarters and the impacts from continued normalization of loss experience for select ancillary products previously mentioned.
As Keith described we've taken specific actions such as rate increases on new business repair cost reduction and changes to client contract structures to help mitigate these impacts.
Which is why we expect an increase in profitability over time.
Higher investment income has and is expected to continue to partially offset these impacts.
In connected living we do expect our U S connected living business to grow modestly for the full year.
As a reminder, third quarter results historically include both lower trade in volumes and higher loss seasonality.
These items typically improve in the fourth quarter.
In addition, our third quarter results last year included an $11 million onetime client benefit in connected living.
And while Japan, and Europe has stabilized we are focused on top line growth, which has been slower to materialize than expected.
Finally, we will also continue to focus on expenses, while investing in growth opportunities, we have strong momentum with clients.
In terms of net earned premiums fees and other income for the full year lifestyle is expected to grow as growth in global automotive is partially offset by ongoing foreign exchange headwinds.
Moving now to global housing adjusted EBITDA was $155 million, which included $13 million in reportable catastrophes from severe windstorms in the southeast U S and flooding in Florida.
Excluding reportable catastrophe adjusted EBIT more than doubled to $168 million were up $87 million from both topline growth and favorable non cat loss experience within homeowners.
Topline growth in lender placed came from higher average insured values and premium rates as we.
Well as more policies enforced.
These together accounted for approximately half of the increase in earnings.
Favorable non cat loss experience came from a $40 million year over year net reduction in reserves related to prior period development.
And is comprised of a $28 million reserve reduction in the current quarter, plus a 12 million dollar reserve strengthening in the second quarter of 'twenty two.
Excluding prior period development non cat loss experience increased modestly due to the increase in frequency and severity.
Higher investment income also contributed to earnings growth.
Turning to our reinsurance program, we completed our 2023 catastrophe reinsurance program in June we.
We fared well in the market with this year's total cost increasing less than previously expected and only modestly over 2022.
This increase is relatively small to the strategic actions taken including exiting our international footprint, increasing our level of retention and adjusting our reinsurance coverage.
As anticipated our first event retention increased to $125 million from its previous level of $80 million.
And the retention level reduces to $100 million per second and third events.
We also increased our total program coverage to a one in 225 year probable maximum loss to further minimize our risk from extreme catastrophes.
Moving to renters and other earnings increased largely due to a benefit within our NFIB flood business of $5 million. Excluding this item results were in line with 2022.
For the full year 2023, we expect global housing adjusted EBITDA, excluding reportable cat to grow significantly due to strong performance in homeowners driven by top line expansion from lender placed.
Regarding the second half of the year, we expect ongoing momentum from our continued gradual abatement of inflation lower seasonal losses, particularly in the fourth quarter and continued revenue strength.
This momentum should offset a modest increase in catastrophe reinsurance costs and the absence of both another NFIB benefit and additional favorable reserve development, which can be difficult to predict together. These last two items contributed $33 million to our first half results.
Moving to corporate the second quarter, adjusted EBITDA loss was $29 million up $4 million from lower investment income for.
For the full year 2023, we expect the corporate adjusted EBITDA loss to be approximately $105 million.
I would also mention that the investment portfolio continues to perform well with higher interest rates, improving both short and longer term returns.
Turning to holding company liquidity, we ended the quarter with $495 million.
In the second quarter dividends from our operating segments totaled $180 million in.
In addition to cash used for corporate and interest expenses second quarter cash outflows included three main items.
$20 million of share repurchases.
$40 million of common stock dividends and $50 million related to previous acquisitions within global auto.
For the full year, we expect our businesses to continue to generate meaningful cash flows approximating 65% of segment adjusted EBITDA, including reportable catastrophes.
This is consistent with our previous forecast.
Cash flow expectations assume a continuation of the current economic environment and are subject to the growth of the businesses investment portfolio performance and <unk>.
Adding agency and regulatory requirements.
In closing.
We're quite pleased with our first half overall performance, which continues to demonstrate the strength and the diversity of our businesses and believe we are well positioned to achieve our increased full year financial objectives.
And with that operator, please open the call for questions.
Yes.
The floor is now open for your questions. At this time you have a question or comment. Please press star one on your Touchtone phone.
Your question is answered you may remove yourself from the queue by pressing the pound key.
When we do asset while you can pose your question that you pick up your handset to provide optimal sound quality.
Thank you.
Our first question is coming from.
The line of Jeff Schmidt from William Blair. Please go ahead.
Hi, good morning.
Good morning.
Global housing seems to really be turning a corner here.
But just looking at that you had mentioned the favorable development charge I think it was $28 million.
When we back that out.
Underlying loss ratio was at 44%, which is still sort of high relative to historical levels.
And especially I think considering with the way that housing material and labor cost inflation move down. So are you just sort of taking a conservative posture, there or what are you seeing.
The strong fundamental performance and housing it's not a result of unusually low loss ratios in fact.
Kind of our year to date normalized combines are kind of right in the range of what we would have otherwise expected, but Richard I don't know if you wanted to add anything else to that yeah.
Yeah, exactly and and I would just say if we look year over year, you're you're exactly right, Jeff with the 44%. That's a couple of points above above last year's level same time and is key said I think we do have some inflation. That's it's higher last year than the costs are higher this year than last year. So that's running through a little more frequency.
And just also there was more I would call severe convexity storms.
In the last quarter.
And while those storms most of those storms didn't make it to <unk>.
Portable cats for us over $5 million as you know, we had a very low level and in the quarter.
Some of them are in are in the non cat loss ratio. So we did have our share of those I would say overall and that's you know that's within the couple point increase that we see over the year as well.
Okay that makes sense and then what was the inflation guard adjustment you know I.
I think that goes in maybe once a year, but what is that going to be this year versus last year. Obviously, that's going to go to premium and then are you are you still getting right turn of above that as.
As well yeah.
Yeah. So we talked about inflation guard going in double digit levels last July .
So we would have put the final adjustments through based on that in June of this year and then to your point, we do an annual adjustment, it's 3.1% adjustment that would go in on top of that for July to HIV, and then modest rate adjustments plus and minus as we think about managing.
Across all of our states, but but certainly still have more.
<unk> earned through from last year's add the adjustments and then on top of that the 3% that you that we just put in place in July .
Mhm.
Okay, great. Thank you.
You're welcome thank you.
Our next question comes from the line of Bryan Meredith from UBS. Please go ahead.
Yeah. Thanks, <unk> good morning, more than a couple of questions. You have for your first Q can you talk a little bit about the inflationary pressures you're seeing.
In in global Auto and I understand it's gonna pressure, you know margin cheer to remainder of 2023 is this something we're gonna see continuing to pressure margin throughout 2024, just as it takes time for this contract changes to work through numbers.
Yeah, I definitely think there'll be continued pressure I do expect 24 to be improved from 2003.
But definitely will will see elevated levels of losses from the inflationary pressure on the parts and labor and auto.
Think about sizing that for you I'd probably think maybe.
Maybe a little north of 10 for $10 million a quarter.
And EBIT impact so if I was going to size. It for this year, that's probably the range that we would put on it I would say that we expect that to recover over time, both in terms of the rate increases that I mentioned earlier, but also the actions we're taking to try to optimize the service network to improve access to <unk>.
Hearts and to try and drive down claim cost as well and that obviously can have a more near term benefit and the rate takes a little longer to earn through what I would say is we've taken the actions that we want to take so we've had great dialogue with our clients, there's only a handful of clients.
Where this is really an impact for us and we've made rate adjustments already in partnership our interest are very well aligned with our clients and we feel confident that we're going to get.
To the right level over time, you've seen us <unk>.
Resolve issues from inflation and housing we've resolved issues on ESC, obviously auto as the new area of focus in our team is 100 per cent focused on delivering and executing.
Excellent and then the second question, Japan when are we gonna lap some of these kind of contract with things that were going on.
When would that finally be kind of be done is at the end of this year is there any kind of going into 2024 is the is the contract changes in Japan.
Yeah, I think that runs through really this year and I would expect to see a lot more stability as we head into 24, and then I do think we've got an incredible position in the Japanese market, we partner with all four carriers.
There's a tremendous amount of long term growth opportunity in that market it and I definitely think we will see.
Growth again in 2004 and over the long term.
So that's a meaningful part of the the headwind you're seeing is that Japan kind of contract will more than any kind of an economic situations.
Yes, the financial performance is still very strong in Japan, I would say the first half of this year stabilize from the second half of last year, we had a very strong first half both in Japan, and Europe and are 22 results.
From a year over year comparison definitely they look down but in terms of sequential as we looked at exiting last year. They are both very stable. So I'm really pleased with that performance in fact, Europe is above where it finished the year in Japan very stable to where it finished.
But it is a meaningful contributor for us and it's an important part of long term growth. So it will no doubt be a priority.
Alright, thank you.
Great. Thank you.
Our next question comes from the line of Mark Hughes from tourists. Please go ahead.
Yeah. Thank you good morning.
Mmm, Keith Richard <unk>.
The fee income, what's your outlook in terms of kind of programs or trading promotion thinking.
Think about the balance of the year.
Sure, maybe I'll I'll start and certainly Richard if you have other thoughts on fee income but.
We saw this can be volatile quarter to quarter really dependent on promotional activity within the industry. We are fortunate, particularly in the US we partner with all of the major carriers, which is a great position to be in from a trade in perspective, we definitely saw lower trading volume in queue to weather.
You look at it sequentially or year over year, and that's really just a function of the amount of advertising the promotion and how harder carriers pushing to upgrade customers to new devices and then how aggressively are they promoting trade in offers that ebbs and flows it was a little bit down in the quarter.
To the extent that.
As new devices come out in the fall, we certainly expect to see more aggressive marketing campaigns, but.
It's a little bit in the control of the hands of our clients and it's a very dynamic market, but continues to be important.
For our clients and something that we're very focused on.
And typically.
Typically typically mark we would.
Q3, we're not expecting big increases typically a higher period would be kind of Q for for us. So.
What we mentioned in our remarks as well. So there is some seasonality too. It is Keith mentioned in the second half of the year.
Okay understood.
You mentioned in the.
Inflation guard up 3%.
Any prospect for additional right on top of the based on the date approved increases.
I would say some.
A marginal rate increases certainly state by state and obviously, we look at our rates very closely so there's there'll be a little bit of additional rate coming through but obviously the big adjustments, we put through last year that are still earning through the book.
Yeah, I think it's really low.
Sorry.
Marcus as we look forward to the second half of the year, we could see slight increases, but we're not seeing.
Large increases to revenues continuing I think we've kind of gotten there already.
Plus we've gotten out of certain international areas. So overall, the revenues will be impacted a little bit by that.
But overall I think there'll be a little more a little more to come but but not certainly not the levels, we've seen over the past year.
Yeah, and how 'bout to pneumonia yield on investments versus the portfolio yield, but what are the prospects for.
More improvement there.
I divided into a couple of things I mean, we've actually had some some nice increase in investment income over the last year.
Think absent.
Think absent the real estate gains probably $30 million in cash and short term and then obviously, we didn't have a real estate gain.
This quarter, but just on your question on yields.
We do have in the long term or fixed income portfolio five year duration. So we get Ah Ah continuous roll on that and we'll get a continuous kind of increase in those longer term yields. We've really benefited from short term rates also which is which is accounts for almost as much as the increase or as much as the increase in the longer term yields right with the <unk>.
Creasing interest rates.
At some point in the future those will probably come down so we will see that that cash return come down who.
Who knows when that will happen, but we could see that as well.
But on a longer term basis, we should continue to get some yields increase.
I appreciate it thank you.
Thank you Mark Thank you.
Our next question comes from the line of Tommy Joint was key DW. Please go ahead.
Good morning, Tommy.
Hey, good morning, guys. Thanks for taking my questions here, you mentioned the expectations for modest growth and connected living this year and we've had a little bit of discussion on sort of U S. Japan and Europe could you dissect those expectations for that modest growth into any maybe sort of ranges for you.
U S X percent, Japan down X percent, just trying to get a gauge of exactly how much of a of a headwind in terms of the overall number that Japan and Europe actually are.
Yeah, I would say if I look at lifestyle, and we think about the outlook for 23, I would say domestic connected living I think we had a strong first half and that will continue consistently for the back half of the year and that will yield modest growth for connected living U S.
So performance pretty steady, but that's going to be an increase year over year and again that is overcoming the one time client benefit we had last year in the third quarter for $11 million.
In terms of international I'd say, our expectations in the second half would be consistent with what we saw in the first half so continued stability.
And obviously, then putting our attention to driving longer term growth opportunities, particularly in Europe and Asia Pacific.
And then in terms of.
The auto side of the business I'd say auto losses will remain kind of AD elevated levels as we saw in the first half will continue to see the normalization of gap and I would expect auto in the back half of the year to reflect something more similar to what we saw it in the second quarter.
That'd be the simple way for me to think about the tummy.
Okay Yep that's nuts.
Helpful and then switching over to some of the line of questioning on housing obviously, there has been pretty tremendous growth. This year. I think you guys have lax given your sort of normalize cattalo expectations for 140 million for this year with all the growth that you've seen and how.
You have any early indications for what you might consider it.
Normalized cartload as we as we head into 24.
Yeah, we haven't we haven't really updated our cat load I mean, we put it in we put it in for the year and then to be to be honest after that it's sort of like the weather the weather the.
The cats will get will get I would say.
So we're still at that that 140.
40 million dollar $40 million number.
So far but speaking of that we were really happy with the reinsurance the cat reinsurance placement that we put into place where we had thought going into the season at the end of last year, we get.
An increase not negligible increase in our cat reinsurance and actually at the end of the day, we're only going to be modestly up over over the year and we've done that to a number of things whether it's increasing the retention level working with our reinsurers exiting some of the international or exiting the international property footprint that we have.
So we've done a lot of things to kind of protect the company, we increase the top end as well to one in 225 year.
Maximal probable loss.
We think we're in good good good position.
So far in through July we haven't had any any cats hit us that are real portable so far so we'll wait and see obviously, we're in in cat season, right now so we'll see how it comes out.
Got it yep knock on wood alright. Thank you thanks Tommy.
Indeed.
Once again, if you do have a question you May press star one on your touch tone phone at this time.
Our next question comes from the line of John .
Carnage from Piper Sandler. Please go ahead.
John .
Hi, good morning.
Thanks for the opportunity and your prepared remarks, you talked about a new vaccine errors of global lifestyle growth. How do you think through that sounds like expanding business.
Yeah certainly.
A couple of thoughts of it we've got great momentum with clients.
Global lifestyle around the world, if I think about our our mobile business and the traction we've had over the course of the last seven or eight years has been pretty steady we've got relationships with so many of the marquee brands globally and that yields a lot of opportunity to do new things introduced new services.
Innovate with new products try to find new ways to help them drive success. So I would say, we've got as much ongoing dialogue with clients today and prospects today as we've ever had in there seems to be a constant interest in innovating and doing new things and the fact that we've got a really wide.
Raising capability set I think is a huge advantage for us and we'd like to see that continue to drive growth long term.
Thank you for that and then my follow up question talked about expense reductions across the global franchise.
Is that above what was previously contemplated into the lifestyle input cost trends drive an increase in cost reductions. Thank you.
Maybe I'll start and then Richard.
Can add on but certainly we've tried to be very disciplined around expense management in our goal. This year was the hold our G&A expenses relatively flat.
That means we have to overcome merit increases additional costs for health and wellbeing for our employees, we've gotta absorb incremental growth and incremental investment and we've tried to do that with some of the expense actions that we took in the fourth quarter last year, but also a pretty intense focus on driving digital first.
And automation through all of our operations, whether their call center claims operations or even our depots <unk>.
That continues to be a huge area of focus for us and we're really pleased with the progress we've made so far but Richard anything else you'd Wanna add on expenses.
Yeah, I would just say you know and then turned to the to the to the housing site in particular, we've gotten some some really good leverage off our expense base with some of the investments we've made an an automation and digital capabilities and you've seen in our supplement the expense ratio go down a number a number.
<unk> points, you know over the last year, where we're at 38.8 now part of that we had that entophyte the bonus Keith mentioned, but really the the lion's share of it is the fact that we've had increases in revenues and not a proportionate increase in expenses. So that really demonstrates we are getting leverage out of the business out of the the op.
Operations in all of the work that we talked about last year that the housing areas doing.
Thank you.
Great. Thanks, John .
Our last question is coming from the line of Grace, Canada from Bank of America. Please go ahead.
Morning, Grace Grace.
Good morning Uhm.
Uhm.
I think that we had previously talked about maybe some seasonality and my connected living book and three Q, just with people more likely to be out and about and maybe damage. Their devices. I was just curious if you could.
Quantify that on a historical basis.
How we're thinking about how the loss ratio might shape up in the second half of the year.
Yeah, maybe maybe I'll offer a couple of thoughts and then and then ask Richard to jump in but definitely you are correct. We do see seasonality in Q3, we also see to Richard's point earlier lower trading volume in the third quarter and higher trading volume in the fourth quarter. So as a result, we would expect to see.
An improvement in Q4 over Q3 for connected living in.
To the extent that we've got certain mobile programs, where we're on risk obviously, we see that impact on frequency in our quarterly results in the third quarter. Now we have moved one of our clients to to have reinsurance structure, which we talked about that non economic contract change that sir.
And we will help mitigate some of that impact, but I don't think we've sized what we would expect that delta to be but Richard you might want to add some commentary.
Yeah, we haven't sized it but I would I would say, it's modest I mean really what we wanted to portray is is really Q3 is it is typically a softer quarter from us for us for the trade in and and some claims increase it's not hugely material, but it's enough for us to talk about to really say, hey, when you're looking at Q3 and Q.
Four if you're modeling that Q3 is going to be softer in queue for is usually stronger because we don't have the claims.
The increase in claims that we just talked about and then trade ins are usually are they usually hire.
Thank you and then.
I guess the decrease you're over a year and mobile devices service.
<unk> is that driven by the discontinuation of in store repair capabilities person any other factors. Thank you yeah that was that was 400000.
On a year over year basis. So you could remove 400000 from Q2 last year and that'll give you an appropriate comparison.
Thank you.
Great. Thanks.
Thanks Grace.
Alright, I think we took all of the questions. So thank you everyone for joining today and we will certainly look forward to speaking to you again in November for a third quarter earnings call and as usual please reach out to Suzanne and Sean If you have any follow up questions and again thanks everybody.
Thank you just does conclude today's teleconference. Please just connect your lines at this time and have a wonderful day.
Thank you just does conclude today's teleconference.