Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Assurant Inc (AIZ, Financial) reported a 20% year-to-date increase in adjusted EBITDA and a 29% growth in adjusted EPS, excluding reportable catastrophes.
- The Connected Living segment saw a 6% increase in adjusted EBITDA, driven by new partnerships and programs, with a 14% growth on a constant currency basis when excluding first-half investments.
- Global Housing's earnings increased nearly 45% year-to-date, excluding reportable catastrophes, demonstrating strong performance and operational efficiencies.
- The company completed long-term contract extensions with major US mobile device protection clients, including T-Mobile, ensuring continued support and innovation.
- Assurant Inc (AIZ) expanded its relationship with Chase, securing a multi-year contract to provide coverage to millions of Chase cardholders, which is expected to drive long-term growth.
Negative Points
- Global Automotive earnings have been pressured by ongoing inflation impacts on motor vehicle repair costs, with expectations of continued elevated loss experience in the second half of 2024.
- The GAP product within Global Automotive is experiencing elevated losses due to declining used car prices, higher interest rates, and an increase in total loss declarations by primary insurers.
- Trade-in results in the Connected Living segment were down due to a decline in carrier volumes and business mix, including lower promotional activity.
- Unfavorable foreign exchange impacted Lifestyle's adjusted EBITDA growth by 2 percentage points in the quarter.
- The company anticipates continued investments over the second half of the year, which may temper growth in the short term.
Q & A Highlights
Q: On the Global Auto the sustained impact of inflation, when do we kind of turn the corner on that? When does it become less negative?
A: Keith Warner Demmings, President, CEO & Director: The first half of the year showed different stories for the first and second quarters. The first quarter was driven by inflation from vehicle service contracts, while the second quarter was impacted by GAP due to declining used car values and higher interest rates. We expect rates to stabilize and improve modestly in the back half of the year. GAP should improve faster than vehicle service contracts, likely within the next couple of years.
Q: In the card benefit business, could you talk a little bit more about the opportunity there?
A: Keith Warner Demmings, President, CEO & Director: We've been growing our card benefits business, particularly in the US. The new partnership with Chase is a significant opportunity, expanding our relationship beyond lender-placed business. We are investing in this launch, converting all active Chase customer cardholders in the fourth quarter. It will be EBITDA positive as we enter 2025.
Q: On the vehicle service contract side, did you see any acceleration on the improvement?
A: Keith Roland Meier, Executive VP & CFO: We saw loss cost trends moderate in the first couple of quarters, with CPI for auto repairs down modestly. We've implemented 14 rate increases over five clients in the last couple of years, and we are starting to see that earn through, combined with moderation on the inflationary side.
Q: How much of the auto revenue mix is the GAP business?
A: Keith Roland Meier, Executive VP & CFO: GAP is a very small part of our business and is becoming even smaller as we transition some of that risk. It's not a big driver of our auto business, and we are reducing that part of the business.
Q: How do you view the long-term combined ratio guide for Global Housing?
A: Keith Warner Demmings, President, CEO & Director: Mid-80s combined is the right way to think about the business, with a non-cat loss ratio of around 40%, 7 points for cat losses, and expenses in the high-30s. We've demonstrated discipline around expense management and driving efficiency through technology.
Q: Are you able to quantify the level of investment for Telstra and Spectrum that impacted EBITDA in the quarter for Connected Living?
A: Keith Warner Demmings, President, CEO & Director: We've quantified the overall level of investment at $13 million year-to-date, with $5 million in the first quarter and $8 million in the second quarter. This trend line is expected to be maintained in the second half of the year.
Q: How much is higher investment income offsetting the core weakness in the auto segment?
A: Keith Roland Meier, Executive VP & CFO: Our investment portfolio has a duration of about five years, with a high-quality portfolio. Our book yield is up 12 basis points over the last quarter. We share some investment income with certain clients, which offsets the impact of interest rate changes.
Q: On the auto risk question, do you retain about a third of the risk across the Lifestyle book?
A: Keith Warner Demmings, President, CEO & Director: Generally, we retain a little bit less on the auto side. Many deals are reinsured within the dealer business and with various clients. The pressure on the VSC side is manageable, with only five partners involved.
Q: Can you talk about what gives you the confidence to increase the outlook for repurchases for the remainder of the year?
A: Keith Roland Meier, Executive VP & CFO: Our strong capital position and robust reinsurance program give us confidence. We have a strong track record of deploying capital back to shareholders and have already completed $100 million of buybacks. We expect to be on pace to deliver the higher end of the $200 million to $300 million range.
Q: In the Global Housing, your fee income was quite strong this quarter. Anything unusual there?
A: Keith Roland Meier, Executive VP & CFO: There was a reclassification between fee income and our expense lines, with no bottom line P&L impact, just movement between expenses and the fee income line.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
