Q2 2019 Earnings Call
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It is now my pleasure to turn the floor over to Suzanne Shepherd Senior Vice President of Investor Relations you may begin.
Thank you Christina and good morning, everyone. We look forward to discussing our second quarter 2019 results with you today.
Joining me for Assurants Conference call are Alan Colberg, our President and Chief Executive Officer, and Richard Josh <unk>, Our Chief Financial Officer.
Yesterday after the market closed we issued a news release announcing our results for the second quarter 2019.
The release and corresponding financial supplement are available on <unk> Dot com.
We'll start today's call with brief remarks from Alan and Richard before moving into a Q and a session.
Some of the statements made today maybe forward looking.
Forward looking statements are subject to risks uncertainties and other factors that may cause actual results could differ materially from those contemplated by these statements.
Additional information regarding these factors can be found in yesterday's earnings release as well as in our FCC 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 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 Alan.
Thanks, Suzanne good morning, everyone.
Our second quarter results surpassed our expectations as mobile benefited from increasing customer demand for our differentiated offerings.
Global lifestyle strong performance more than offset elevated non catastrophe loss experience in global housing and modestly higher corporate expenses.
This quarter, we continued to leverage our market leading positions in deep consumer insights to deliver value for customers along with double digit earnings growth and strong cash flows.
Global lifestyle, we're pleased to see earnings up 33% organically that's connected living earnings nearly doubled in the quarter.
New programs and client partnerships implemented over the last two years continue to ramp up driving an 11% increase in covered mobile devices year over year.
We now support over 48 million mobile customers globally.
Overall mobile it's been a strong performer.
Since the fourth quarter of 2017, we brought on a new partners accounting for almost 7 million covered mobile devices and have expanded several relationships through additional offerings.
We have multiple new opportunities on the horizon, which bodes well for our continued growth.
But will require increased investments, which Richard will discuss later.
Also within connected living we officially launched metro by T. Mobile's premium handset protection on July 1st.
Starting in the third quarter. This was several million subscribers to our mobile device count and once fully implemented will make us the exclusive provider of device protection to all T mobile customers.
Kurt turning to the warranty group, we're very pleased to have delivered on our operating synergies can <unk> and $60 million pre tax on a run rate basis for the acquisition.
This milestone comes two quarters ahead of schedule as we have moved swiftly to integrate the business over the last year optimizing our global operations, while strengthening our client relationships.
In global housing we saw continued success in multifamily housing as we grew within both our affinity and PMC partners and benefited from higher penetration rates to our new pointedly going and tracking platform.
The implementation of our enhanced integrators renters platform progressed with over 20 clients now active.
We've also expanded existing relationships with several of the largest property management companies in the U.S. through our differentiated offerings.
In the quarter, we further strengthened our leading lender placed franchise by renewing several more partnerships, including three of the top 10 mortgage servicers in the U.S.
With our focus on operational excellence and the customer experience.
We made good progress on the rollout of our dynamic claims fulfillment across all global housing lines of business.
This expedited claims adjudication by reducing time to review and pay claims as well as simplifying the overall customer experience.
The quarter was also characterized by higher non catastrophe weather losses, a trend seen across the industry.
In addition, these weather trends and overall elevated claims in our small commercial products lowered housing results.
We believe these higher claims in small commercial could continue throughout 2017, and we've adjusted our outlook for housing accordingly.
Our long term view of the business remains unchanged.
And we believe we will generate a 17% to 20% operating are we including an average expected cat load.
Turning to global Preneed, we produced strong earnings as we generated solid returns and cash flows.
Face sales hit another all time high of $273 million benefiting from the expansion of new distribution partners.
This gives us confidence that we can sustain an above market operating or are we at 13% in global pre need over the long term.
Looking at overall Assurant results for the first half of 2019, we reported net operating earnings per share excluding catastrophes of $4.62 an increase of 9% from the first half of 2018.
This was driven by strong earnings growth, partially offset by the impact of shares issued last year related to our TWC acquisition.
Net operating income also excluding catastrophes was up 25% to $293 million.
Mainly from Tw, Ci contributions, including realized synergies as well as significant organic mobile growth.
At the end of June holding company liquidity totaled $386 million after returning $88 million to shareholders.
For the full year 2019, we continue to expect double digit earnings growth.
As well as operating earnings per share to increase 6% to 10%.
This compares to the $8.65 we reported in 2018.
Significant profitable growth in mobile.
Continued earnings expansion auto multifamily housing as well as disciplined capital deployment will be key drivers.
The strong performance in global lifestyle, even after including the increased investments to support growth should help offset the higher non cat claims in global housing.
Overall, we believe we will deliver strong results in 2019 with an attractive business portfolio that should continue to produce more diversified higher quality earnings.
This will allow us to continue making investments to accelerate our innovation for the connected consumer improve the customer experience 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 second real results and our 2019 outlook in greater detail.
Richard.
Thank you Alan and good morning, everyone.
Let's begin with global lifestyle.
The segment reported record earnings of $109 million for the second quarter up $41 million year over year.
The increase reflects an additional $22 million of income from TPG compared to only one month of earnings recorded in the prior year period.
Overall TWC results for this quarter included $3 million of intangible amortization and $11 million of realized expense synergies, bringing the total realized synergies to $35 million after tax since the acquisition closed.
Excluding tw Chief Global lifestyle results were up 33%, which was primarily driven by an impressive $25 million increase in connected living year over year.
Mobile benefited from an increase in subscribers in both Asia Pacific and North America.
Led by growth in our carrier OEM and cable operator distribution channels.
In addition, operating performance in Europe was a driver strong underwriting results.
In global automotive, excluding TPG earnings were down modestly year over year due to increased investments to support growth and new offerings.
Keep in mind that the second quarter of 2018 included $2 million one time benefit.
Looking at total revenue for the segment net earned premiums and fees were up $707 million, mainly from the $481 million of additional revenue from tw.
Excluding TWB revenue was up $226 million or 25%.
This was a reflection of the many mobile programs launched during the past two years.
Auto revenue, excluding tw Jeep was up 17%.
Benefiting from strong prior period sales in our national dealer and TPG distribution channels.
Looking ahead and as Alan noted, we expect additional mobile and auto investments in the third and fourth quarters associated with IP enhancements and program implementations to support our continued growth in new opportunities.
In addition to typical seasonal patterns, mainly increased mobile loss ratios and the impact of new program launches. These additional investments are expected to result in modestly lower earnings for lifestyle in the second half of 2019 compared to the first half.
Overall for the full year, we still expect significant earnings growth.
They will have a stronger foundation to maintain our momentum into 2020.
Moving to global housing.
Net operating income for the quarter totaled $72 million down $1 million from the second quarter of 2018.
Both periods benefited from the absence of meaningful reportable catastrophes.
Excluding reportable catastrophes earnings declined $3 million.
Growth in multifamily housing was more than offset by less favorable non catastrophe losses in small commercial products and expected higher reinsurance costs.
Second quarter last year also included losses from the mortgage solution business prior to the sale in the third quarter.
Looking specifically at small commercial we had several large claims and an overall increase in frequency.
Which we believe could continue.
We have made the decision to exit the business and have begun the process of exiting the portfolio.
Global housing revenue declined reflecting the sale of mortgage solutions, excluding mortgage solutions revenue grew 4%.
Due to the growth in both our specialty portfolio and our multifamily housing business.
The placement rate was unchanged for the first quarter of this year as we onboarded, a new portfolio of loans with a higher placement rate.
Without this small block the placement rate would have declined more in line with our expectations or about two or three basis points.
In addition, one of our lender placed clients has decided to transfer their portfolio to another provider.
Reducing our loans tracked by approximately $2 million in the third quarter.
These loans have a much lower than average placement rate and policies will transition off that renewal.
The net effect of these two portfolio changes is expected to be neutral to our financial results over the next several quarters.
As Alan noted, we now expect global housing that operating income for 2019 to be down modestly excluding cat losses due to the elevated small commercial claims.
We continue to expect lender place to be stable, excluding the higher cap costs.
And we are pleased to see the sustained growth in multifamily housing, which should partially offset the decline.
Now, let's move to global printing.
The segment recorded another strong quarter of $70 million net operating income.
The $2 million year over year increase was driven by higher net investment income as asset levels increased from continued growth in this business as well as the move toward a more profitable sales mix.
Revenue in Preneed was up 6% driven mainly by growth in the U.S., including sales of our fight on the product.
Global Preneed outlook for the year remains unchanged with earnings roughly flat with 2018 as we continue to manage expenses closely and look to grow long term from new and existing clients and adjacent product offerings.
At corporate the net operating loss was $24 million $7 million increase compared to the prior year period.
This was attributable to reduced investment income a result of lower investable assets in comparison to the second quarter of last year.
Higher employee related expenses and third party professional fees to support growth also drove an increase in the quarterly loss.
We continue to expect the quarter love the corporate loss to approximate 2018 levels for roughly $85 million.
Turning to capital, we ended March with $386 million, and holding company liquidity or about $161 million above our current minimum target level of $225 million.
Dividends in the quarter from our operating segments totaled $177 million.
In addition to our quarterly corporate and interest expenses key outflows included $50 million in share repurchases.
$43 million in common and preferred dividends and $8 million, mainly mainly in mobile technology capabilities as part of our venture capital program.
In the third quarter through August 2nd we purchased an additional 168000 shares for $19 million.
For full year 2019, we expect dividends from our operating segments to approximate segment operating earnings we brought up 66% of segment net operating earnings as dividends to the holding company through the first half of the year.
This aligns with our historical pattern.
Overall, the dividend should provide flexibility to invest in our businesses and return capital to shareholders subject to market conditions.
In summary, we demonstrated strong first half performance and remain focused on delivering profitable growth and meeting our financial commitments for 2019.
And with that operator, please open the call for questions.
The floor is now opened for questions. At this time, if you have a question or comment. Please press star one on your Touchtone phone if at any point. Your question is answered you may remove yourself from the queue by pressing the pound key again, we do ask that while you pose your question. Please pick up your handset to provide optimal sound quality. Thank you. Our first question is coming from Mark Hughes from Suntrust.
Please go ahead.
Hey, good. Thank you very much good morning.
Morning.
A couple of questions your global housing expense ratio.
Really dropped the year over year.
Could you talk about the drivers on that I know you've got some expense initiatives that you've been working on that mix will that decline continue.
Yes, good morning, Mark It's Richard I think a couple of things are.
Going on to improve the expense ratio I mean, I think the first thing is last year, obviously as mentioned in our comments. We had mortgage solutions that was that was weighing down a little bit that ratio I think secondly, there is some good expense initiatives going on in the housing area.
That are that are bringing that down and third we have multifamily housing that's continuing to grow.
As well so.
Couple of things there that are all helping that exceed expense ratio to be at that level.
When we think about that.
The global lifestyle growth, 25%, obviously quite strong in that.
The growth rate doubled compared to last quarter.
When we think about kind of the puts and takes that new business coming on line may be lapping some of that new business from last year.
Is there any reason why third quarter growth.
It should be.
Demonstrably slower or faster.
Just thinking in terms of as I say, if you'd been bringing new customers online.
Is there a the timing how much did that impact the second half growth outlook.
Yeah, Mark No first of all I think we're very proud of our team and global lifestyle on the strong results that are delivering let me separate kind of revenue from an NOI. So if you think about revenue we are continuing to ramp the programs that were launched in the last 18 months, we're going to add subscribers. Those firms are going to continue to grow and that should continue in Q3 and beyond.
If you think about the second half a year that when you go to and why we do have some seasonality that tends to play out with the causing the second half of the year in recent years to be below the first half in mobile even with the growth.
That's seasonality really is around a few things one is think about when new phones are launched over the last few years. Those launches have been later in the cycle and often availability not really there until early in the next year, which has pushed some of the growth into Q1.
The second thing we see is when we launched new clients and new programs. They normally launch in Q3 or early Q4 around the npis.
So thats also a something we have to invest every time, we launch those new programs, we have to invest in technology, we have to do the training we have to do the integration.
And then just in Q3, we normally have some seasonality in the underwriting results people are outside more they dropped their phones they get them wed.
So I think we will we expect to continue to have strong growth overtime and lifestyle, you'll see it probably in revenue in Q3, we expect and why will be down modestly in the second half from the first half.
And then just a.
Longer term question your growth has been so strong and the connected living.
When we think about return there's the lifestyle segment.
I think most of the capital if I understand it is there to support the auto business. If you continue to good growth in connected living.
How much.
Sensitivity or is there in terms of return.
Should we.
Should really.
Returning to improve the mix become less capital intensive than.
And.
Is there any way to throw any sort of numbers or a relative guidance at that idea.
Sure.
It's Richard again, so see a couple I think thats a great question I think a couple a couple of things in there I think first of all going back to Investor day, when we when we look at lifestyle, we're not really as much looking at returns as we are in growth really net income growth in the in the area.
And as you can see we just really had a fantastic first half of the year. So I think thats sort of the first thing I would I would say.
And just in terms of capital I think you're exactly right I mean auto does take a little more capital than and then connected living albeit auto is.
I would consider the capital like two given the arrangements that we have in the structures that were.
That we have so overall I think as we look at Assurant as an enterprise, we are going to a less capital intensive environment.
As time goes on so overall the returns of Assurant should be should be increasing we talked about drilling.
Overall, our are we going up a couple hundred bips over the next.
Over the next few years.
I'll get back in queue. Thank you.
Thanks for thanks Martin.
Our next question comes from John Nadel from you yes.
Please go ahead.
Well, John Hi, Good morning, John Hey, Good morning, Alan Good morning, Richard It maybe just to start on housing.
Can you quantify for US I think you've quantified for us the small commercial business is about.
Just maybe 15% of the specialty and other premiums fees and other income is that accurate.
Yes, Thats a good range yet.
And so so again you know what looks like maybe I don't know $75 million kind of run rate of of revenue.
How much in operating loss.
Did that particular business generate.
Whether it's and where they want to refer to the second quarter or maybe even the first half of the year.
Yeah.
So so yes, I mean, we did talk about the small commercial product and Thats a couple of things its property and its liability and you know as we said in our statements last time in this time.
It did it did produce some losses for us and we are exiting the business. So.
I think we've we've taken some some good actions management actions to rectify that.
In terms of the qualification.
Q2, Q1, where we are right around 6 million each quarter I would say in terms of a lost it added to the bottom line.
Yes, John got it so so after tax loss in each quarter was roughly similar in about $12 million on a year to date basis.
That's right John .
Yes, John put articles and let me just make one other comment on housing if you put aside the the small commercial which was an experiment and growth that we quickly shutdown when it didnt perform as expected we feel very good about how the performance of housing is performing multifamily is continuing to grow we're still early in the rollout of our point of lease but that looks very promising for driving penetration and lender placed is performing as expected.
So we feel generally very encouraged about housing other than the challenges, we had with small commercial and elevated non cat overall.
Yeah, no that's what I'm trying to get at bye bye sort of stripping away the small commercial business, which obviously I agree with your.
The decision to get out of that business at this point. So it does look like housing underneath that are ex that is performing well the if I can move over to global lifestyle then.
I I just want to.
I just want to understand the piece of earnings or that the pattern of earnings.
Your revenue growth is much stronger than I think just about anybody has been expecting certainly I can speak for myself.
But if if earnings are going to be down a little bit in the second half relative to the first half I guess I can understand why margin would be down but given how fast revenues are growing is it should we really expect that earnings are going to decline.
Or just that margin will decline.
Yes.
I think there is it theres a couple a couple of things in there again, John good question.
I think as we look at it and as we've talked about before I think we have to be very careful in looking at the margin of the lifestyle business because of the I would say the differences are nuances in the accounting for example in Q2, there was a contract change with one client that had.
No impact really on the bottom line, but more revenues coming on top line, so theres a little bit in noise in the rail line that can skew a little bit of the margin type issues and as Alan said earlier, we are looking for the earnings to be lower in the second half of the year. The underwriting results, we talked about in the investments were making the launches that end up going into Q1. So all of those things together really we we really focus on the net income and driving net income growth, which obviously, we've had a tremendous first half.
John the other thing and think about yes, we've talked often about the new clients in the pipeline our pipeline is actually even stronger than we had anticipated and it's really a tribute to the adjusted presentation. We have in the market.
We are investing as we go into Q3 to make sure we can capture as many of those as possible because they will create substantial long term value.
And that was going to be my next sort of segue was just thinking about the longer term outlook here.
If we rewind the clock a couple of months to your Investor day.
It it seems like with a couple of quarters under our belt since then.
The baseline of both revenues and earnings for lifestyle is.
Higher than you had expected it would be this year.
And I, just wonder how that may be impacts the expected growth.
For the business in particular earnings growth.
As you look out to 2020 and 21 should we expect that there has been any real change in that outlook or is it just a similar growth pattern just off of a higher base of earnings.
So a couple of thoughts on that John first of all I think we feel even better position today than we did at Investor day and lifestyle. The momentum is strong and so thats very encouraging as a reminder, the targets at investor day or multi year.
And so what we normally do as part of our Q4 earnings call. We'll give you granular detail on what to expect in 2020 with our Q4 earnings call, but I would just leave it as momentum is strong and we feel even better position than we were back at Investor day.
Okay Fair enough and then two more real quick ones. One is do you expect small commercial will be Uh huh.
It will be an earnings impact on 2020 or do you think it will be gone.
Exited by the end of this year.
You know as I said, we are exiting the business I mean, so really when we're thinking that it will be substantially over can I say zero for next year, no probably not but we're not expecting okay Karen.
And then last one is just the pace of buybacks I guess I pushed on this a little bit in the last couple of quarters, but.
Your momentum is so strong.
I guess I'm just trying to understand.
I know you've been a consistent return of capital.
Just I guess I'm wondering why not a little bit faster on the buyback I'm your opportunity to retire shares.
In advance of what seems to be really good underlying momentum in earnings growth.
No you John It's fair, we obviously feel very good about where our business is and how it's performing we did make a commitment in investor day to return 1.35 billion over the next three years.
We're making progress against that as a reminder, that we do buyback under Tenbfive ones. We can't just change them on the fly so use you've seen what we're doing you should expect we will continue to buy back we'll buy back through cat season. This year as we've done in the last few years.
So we're on track to meet our expectation over that multiyear period.
Okay. Thanks, I'll get back in the queue. Thanks.
Thanks, Thanks, Jim.
Our next question comes from Christopher Campbell from KBW. Please go ahead.
Hi, good morning.
Morning, Chris.
Hey, Great I guess, just starting off.
The small commercial part of our global housing.
Yes, just looking I mean, you guys said 12 million in year to date losses, So I get about a 138% combined ratio something like that so I guess just.
With with rates hardening in commercial property and liability lines.
Why did you guys why did you decide to exit versus just taking rate increases on above.
Yes, I think you know and all the businesses. We're in we bring something special and we add a lot of value. We add innovation you can see the growth that we have in lifestyle. What we're doing in lender placed multifamily housing the new systems were rolling out.
And even within special property were always launching new things to try to create something something special something different.
And I think we've come to conclusion that in this area. We just we can't do that in the short term.
So we have made the strategic decision to exit.
Chris I'd add a couple of thoughts to that one is the book developed we didnt like the geographic exposure.
It was more coastal than we wanted and we really didnt want to build that part of the book.
And then when we look across our portfolio and deploying our resources and capital we have substantially better opportunities elsewhere, and so that let us to very quickly make the decision and we're better off to move on and put that investment elsewhere.
Okay got it that makes sense.
Switching to lifestyle I was looking at the mobile device growth, which only grew like 10.6%, which is I think the lowest growth rate you've had since threeq. You 17, So how should we think about the mobile device growth like you know going forward and then what's your current U.S. market share and where do you think you can get to over time.
So quite a few questions in there Chris So if I forget some of them. Please come back to me I mean I think the.
If you look at mobile devices, we think of it as a long term driver of value for our shareholders and we're going to continue to add them as we've talked about as we launch new programs. They generally take anywhere from three to four years to ramp to maturity and we have a lot of new programs that have just be gone and so we expect that it's going to grow and we will grow well independent of what happens in the market.
We're also adding services and if you remember back in Investor Day, We had that chart that show how weve started to try to stack additional services in many of them are fee income onto that growth.
So again quarterly growth.
Yeah, I wouldn't put too much focus on that I think it's more the longer term, we look year on year the momentum that we're driving.
In the business.
In terms of market share again, we have.
You know a leadership position with one important client and there are several others that we have little position and so we have substantial opportunities for growth in the us market.
As we look forward.
Okay, Great and then just on global auto I notice growth slowed down there to like it was like 3% or three or 4%.
Any color on what's happening on the auto side and lifestyle.
No I think I think when we look at auto we're really pleased I mean as Alan talked about.
TWC integration hitting the synergies and the growth that we are getting behind the scenes.
We've talked in previous calls about our ability to retain the claims that came over.
In the Tw GE acquisition, so you know.
When we look at it we're on to.
Good growth pattern, and we look probably less quarter to quarter as over a longer period of time, we are investing here so you'll see.
The earnings are not as strong as they otherwise could have been but we are investing to continue to grow in the future.
Auto has an interesting dynamic and that it's really about share gain so unlike mobile where the partnerships tend to be more exclusive. These are businesses, where there are many competitors. So we are really focused on differentiating our service our products to our offerings to allow us to gain share overtime leveraging our position.
Got it and then what are what are the nature of the investment that you guys are going to accelerate in the second half of the year.
Well there.
It's in lifestyle, they really fall into a couple of buckets. One in every product we are working to add services to create value beyond the underlying insurance or service contracts. So we have roadmaps that we've been executing against a mobile we're now execute against an auto an example would be pocket drive and auto.
So thats one set of the investments the second area of investment really is around consumer experience now we are in the process of driving significant digital.
Capability through every one of our products really evolving that and then finally, we are continuing to add clients and programs and so theres a significant investment to ramp those programs that will be going on in the second half of the year.
Okay, Great and then just one last one you all after pre need question. So I think you had mentioned in the scrap you know additional pre need distribution opportunities. So what are those.
So in pre need as you know we've had a long term historic partnership with the industry leader in recent years, we've been looking for additional growth that can really help us strengthen our position. So we've been both adding distribution and then also looking for ancillary products similar to what Weve done elsewhere I mentioned on previous earnings calls we've started to experiment with things like an executive or product really ways to add more value beyond the pre need product. So we were encouraged by the momentum in that business as well.
Got it wouldn't organic growth or inorganic growth make make sense in that segment would there be anybody worth acquiring.
Yes, I think we feel well positioned with our business today and I think we're just going to continue to execute against our plan.
Okay, great. Thanks for the answers.
Thank you. Thank you.
Our next question comes from Michael Philip from Morgan Stanley .
Please go ahead.
Thank you good morning, everybody.
Good morning, just want to start on the housing side again.
Your your love your expense ratio there.
I'm sorry, your combined ratio there is pretty good.
Kind of at the low end of that long term target of 86 to 90, I guess you know since its there at the end. It's been there you know X cat, it's been there for a while so.
How do you think about the impact that has maybe on the housing strategy in terms of I don't know maybe growth goals and you've got some cushion there since we're at the low end of the margin so.
You know just how does that affect your strategy of that business for growth.
So maybe maybe I'll start and Richard you can add to it the way. We think about housing is we have a really strong growth engine in multifamily in rental and we've been continuing to gain share. There you can see the policy counts for example in our supplement and we're continuing to invest to differentiate what we do there we're driving digital throughout that entire business weve working hard on the point of lease.
Thats really the growth driver.
For the more traditional risk businesses like lender place, we've really been focused on.
Ensuring we are well positioned to be participating in any kind of upside that comes in to have those businesses, which generate a lot of cash flow for us continued until I read a lot of cash flow. So we've done things like.
Lower the attach point in the reinsurance tower, so that theres less volatility in the earnings coming out of those traditional risk businesses. We've been investing in what we call single source platform SSP, which is really to differentiate the user experience and allow us to scale the economics over time.
I would think about growth really in multifamily.
And the balance of it keep it stable and throw off cash with upside if we get into any kind of housing slowdown.
And I would I would just say that are adjusting as we talked about commercial something's not working.
We take action so I mean.
It's a great business.
Okay. Thank you I guess.
On the T. W. G.
The synergies you are well ahead of plan there I guess anything else, we could expect going forward to supplement the 60 million and then also on the same kind of note you you've talked about some revenue synergies there and any developments on revenue synergies so since last quarter.
Yes, I think we feel very good about where we are we're now a year plus into the integration our client relationships are stronger across the board than they were at the time of the merger we are investing to leverage the joint capabilities. So we will continue to push for incremental expense synergies, but that's largely complete at this point. Our focus now is much more on growth and how do we leverage both sides and that will continue.
Okay, great. Thanks, I guess, maybe one or two more from from the specialty PNC business that you got out of is there any benefits in 2020 from reinsurance because of that.
Yes, I do out in terms of overall exposure will come down so the absolute.
Reinsurance costs would come down.
With that.
Okay, Great I guess, just one one last one then just an update you mentioned, some new developments and things Rowan element technology platforms and you mentioned.
That may be kind of a roll up since last quarter pocket drive I guess, maybe what what does that do and any early reads on how that's going.
Yes, so Mike it's very early with pocket try but what we're trying to do there is leverage our capabilities that we develop something called hockey, which is now well entrenched in mobile that's all about the user experience and creating a better ownership experience for the consumer we leverage those capabilities to create pocket drive which has a similar goal. It's all about the user experience of owning your car.
But it's very early we have been in pilots are were in pilots now with.
Well, we expect to roll it out broadly, but it really differentiates.
Our position in the market and helps us be well positioned to gain share over time.
Great. Thank you guys appreciate it.
All right. Thank you. Thank you.
Our next question comes from Gary Ransom from Dowling and partners. Please go ahead.
Hey, good morning, good morning, good morning I.
Hi, you mentioned along the way that there was a client that was that left and lender placed and I wondered if you could describe what the reasons why the Vin and maybe even thinking back over time I'm sure there's ins and outs over time, what is it the causes of the.
Mortgage servicers to move like that.
Probably not appropriate to speculate on what caused any given client to do something I think what we'd say there as we've had a strong track record of gaining share in that business to the position we now have.
We're aligned with effectively all the major market leaders now in that business and with the movement that we saw in the second quarter and then what we talked about in the prepared remarks. It has no effect is not material to our overall earnings. So again I think we're well positioned we are investing heavily to differentiate that business as well.
So again I think we feel good about where we are with lender placed.
Okay.
I also wanted to ask about the a little bit about the commercial but sort of broader I assume you you looked at it as an experiment so youre trying something but in thinking about your.
Your broad based strategy I guess, the way I think about it as you have a servicing value chain thats embedded in a consumer purchase value chain and I.
What was it about the commercial business that.
Fit into that strategy or am I, maybe I'm missing something.
No Gary.
I think about our business is having to real sources of differentiation. One you mentioned is we partner and were embedded in the value chain that really is a lifestyle. That's mobile thats agree where multifamily is actually headed.
In our housing risk businesses, we do better than market, because we find kind of unique capabilities unique distribution. We were experiment to see if we could find another one like that.
And it just didn't work out so that's why we took the decision quickly, but we like risk businesses, where we can have some sort of unique advantage and we had a thesis that just didn't work out on that one.
Or are there any of the other.
The quote unquote experiments that you're working on in that area that are starting to take off or show more promise.
Yes.
In the in the multifamily world the rental we've been doing a lot of experimenting around the sharing economy and some of those have gone quite well.
As we grow now those are a little bit different they're not as they're not really traditional risk businesses. The same way, but we're encouraged by some of those experiments and if they work will scale them.
Okay and.
And.
One more on the capital intensity I one of the things that I was thinking about is how sometimes it's a fee business, sometimes its insurance, but when its insurance, it's running through a insurance entity that has regulatory capital requirements and the like.
And and trying to make it capital light.
Is.
Could be doing more contracts that are not insurance oriented or not structured as insurance I wonder is that is that something you control or can control or is that almost all on the client side and their decision process.
I think there is there is a couple of things.
And that I think first if I step back and look at the overall enterprise you'd say I would say that lifestyle is less capital intensive than housing, obviously and you're exactly right. I mean, one of the things that I think is is it is a real.
Great. It's a great value that a short brings declines as we are able to bring this insurance business and also all the other value adds that we have that are not necessarily insurance base. The premium tech support type things that we do the administrative support the marking the training that everything that we do that's not that we get paid a fee for that's not that's not based.
Do we control it I I think what we what we do as we go out to our clients and one of our values as we say clients what would you like and we can we can customize an offering for them with the growth of with the growth of lifestyle and the growth of mobile and all the added services were adding I think just by nature of that it's becoming less capital intensive and as we win new clients. They are.
Probably net less capital intensive given all the added services that we're bringing to them.
So is it.
Is it fair to say based on what you just said that the the trend toward the client desires is toward a slightly lower capital intensive approach.
I think in a lot of the businesses, we're doing it I mean, if we look at if we look at.
For example, the auto business I mean, it is theres insurance behind it.
But in many instances the transactions, we're doing with our clients they're sharing the risk you know if not all but a good part of it. So that is that is capital light.
So no I think I think the trend is more toward capital light.
At the same time as we see that fee business growing more than the capital business. It's just a weighted average calculation at the end of the day that the overall business becomes less capital intensive intensive as we go forward also the things the moves that we've made on the housing business, where we brought down the retention.
It also helps us as well.
Right.
Alright Thats helpful. Thank you very much okay. Thanks, Thanks, Gary.
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 Mark Hughes from Suntrust.
Please call me good morning, if you might touch on the investment income it's been.
Little bit the up and down the last few quarters.
Definitely down sequentially in the second quarter is this a reasonable run rate or is it just going to continue to.
Be a volatile.
Excuse me.
Well in the first quarter really ahead of a mark to market of a real estate portfolio that we have and so that gave us some nice earnings as we reported out so.
From time to time, we will get those real estate gains that we report out we we haven't in the supplement and so forth. So the choppiness that comes is typically good news I would say over a kind of a.
A run rate, we manage the portfolio more on an income basis. So we don't see.
Big volatility within the underlying portfolio from period to period most of portfolios in high grade fixed income so the volatility if anything it's a good thing for us. So I would look at it market more over a longer period of time and you'll get a nice run rate there.
And just so I'm clear with the Mark to market on the real estate portfolio that for Q1 Q.
No. It was it was one Q.
We had some JV gains in Fourq, you as well.
So so yes, there were gains there and there were gains Q1 as well as well.
Okay. Thank you.
Thank you.
Our last last question is coming from John Nadel from you. Yes. Please go ahead.
Hey, good morning again John .
Hey, good morning again, thanks for taking the follow up just a couple of real quick ones.
One is there any.
Update you can provide publicly as it relates to how things are moving along were around eight Ks defense yes.
I think that I think the update is.
We are still on the path that we had set out last last quarter.
We're looking at our strategic options were.
I would say looking out in the market at those options. It's very it's still early days, obviously as we we kind of gear up to look out and so forth.
So no other update other than that we will be back every quarter, if something you know.
Material habits.
Okay, but I mean, but do you feel like Theres actually any progress or is it just you know just quiet.
No no no we've set a path for ourselves and to go out on kind of market that our strategic options can't say, what thats going to go it's early days, but no we're progressing well.
Okay, and then and then I guess last one is just this Alan I think in your prepared remarks, you talked a little bit about T mobile.
And I don't recall exactly what the what you said on my to join just a little bit too late.
But maybe you could just sort of reiterate what's happening there.
And then related Lee.
You know, whether they whether they gain approval or they don't gain approval to merge with sprint.
What do you think it would take.
You know for Assurant to win.
Sprint business or somebody's business like that.
And is that part of the investment spending that you.
Our characterizing is sort of already part of your plans or would that be something that you would expect would be incremental if you felt like that opportunity was right in front of you.
Yes, So John let me start with T mobile since that was what I mentioned in the prepared remarks, what I was referring to there is that we are in the process now of implementing the move of metro by T mobile over to Assurant and as we complete that we're proud now to be the device protection partner for all of T. Mobile's businesses. So thats a great has got you.
It's really a result of the years of working side by side with them really helping differentiate their business as they revolutionize the.
So we feel well positioned with T mobile.
No matter what happens in the market with mergers and in terms of what's happening in the market, we couldn't speculate on what might or might not happen.
In Investor Day, when we gave our long term outlook, we didnt contemplate any major new client coming our way. So if we didn't get one that would be incremental to what we've been talking about.
Okay and incremental on both sides of the of the entire <unk> on both sides of the income statement. If you will the incremental from a revenue perspective, but also incremental from a you know.
You have these upfront costs related to new clients.
Acquisition, if you will.
Yes, we built our plan with the line of sight, we had with the clients that we have partnerships with we didnt contemplate in the long term outlook new clients Gotcha.
And if I can sneak one more in can you just give us an update on how things are going with respect to Apple.
As well as the modest, but but new arrangement, you've got with Verizon.
You know a without going into a lot of specifics on how individual clash performing I think we feel good with our evolving partnership with Apple.
We're now working with them in multiple geographies and we're expanding our reach in their value chain over time. So I think we feel good with that.
And with rising and the other major prospects both in the U.S. and outside of the World, We're working hard to differentiate and show that we can bring innovation.
And we'll see where those go overtime, but we do believe were disruptive player and that we can help really these clients went over time.
Thanks, so much really good quarter keep up the momentum.
All right. We appreciate it. Thank you everyone. So thanks, yes. Thanks for participating in today's call. We're pleased with our first half performance and believe were well positioned to deliver on our financial objectives for the year.
We look forward to updating you on our progress on our third quarter earnings call in November .
In the meantime, please reach out to either Suzanne Shepherd or Sean Mosher with any follow up questions. Thanks, everyone.
Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.