Q3 for Q3 2021 Financial Earnings Transcript 2021

Assurant 3Q 2021 Earnings Transcript

PARTICIPANTS

Corporate Participants

Suzanne Shepherd - Senior Vice President, Investor Relations and Sustainability, Assurant, Inc. Alan Colberg - Chief Executive Officer & Director, Assurant, Inc.

Keith Demmings - President, Assurant, Inc.

Richard Dziadzio - Executive Vice President, Chief Financial Officer, Assurant, Inc.

Other Participants

Thomas McJoynt-Griffith - Analyst, Keefe, Bruyette & Woods

Gary Ransom - Analyst, Dowling & Partners Securities

Brian Meredith - Analyst, UBS Securities

Michael Phillips - Analyst, Morgan Stanley & Co.

Mark Hughes - Analyst, Truist Securities

Jeff Schmitt - Analyst, William Blair & Co.

Grace Carter, Analyst, BofA Securities

MANAGEMENT DISCUSSION SECTION

Operator: Hello and good day. Thank you for standing by. Welcome to Assurant's Third Quarter 2021 Conference Call and Webcast. At this time, all participants have been placed on a listen-only mode and the floor will be open for questions following management's prepared remarks. [Operator Instructions]

It is now my pleasure to turn the floor over to Suzanne Shepherd, Senior Vice President of Investor Relations and Sustainability. You may begin.

Suzanne Shepherd, Senior Vice President, Investor Relations and Sustainability, Assurant, Inc.

Thank you, operator and good morning, everyone. We look forward to discussing our third quarter 2021 results with you today. Joining me for Assurant's conference call are Alan Colberg, our Chief Executive Officer, Keith Demmings, our President, and Richard Dziadzio, our Chief Financial Officer.

Yesterday, after the market closed, we issued a news release announcing our results for the third quarter 2021. The release and corresponding financial supplement are available on assurant.com. We'll start today's call with remarks from Alan, Keith and Richard, before moving into a Q&A session.

Some of the statements made today are forward looking. Forward-looking statements are subject to risks, uncertainties and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these factors can be found in yesterday's earnings release, as well as in our SEC reports.

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.

Alan Colberg, Chief Executive Officer & Director, Assurant, Inc.

Thanks Suzanne, and good morning everyone. Our third quarter results were strong, driven by double-digit operating earnings growth in Global Lifestyle. The strength of our Global Automotive and Connected Living offerings continue to validate our long-term strategy of focusing on our higher growth, fee-based and capital-light businesses. We continued to make progress on building a more sustainable company for all stakeholders.

During the quarter, a few key highlights included: For the first time, Assurant was awarded a Bronze accreditation by EcoVadis, one of the largest sustainability ratings companies -- ranking Assurant among the Top 50 percent of all 75 thousand participating companies. In addition, this quarter we provided additional transparency to track our progress on our journey to build a more diverse and inclusive Assurant with the recent disclosure of our EEO-1 report which provides gender, race and ethnicity data by job category for our US-based employees. We believe a diverse and inclusive workforce will best foster innovation - a key ingredient to sustaining our outperformance longer-term.

Looking at our financial performance, year-to-date, net operating income per share, excluding reportable catastrophes, was $8 dollars and 75 cents, up 12 percent compared to the first nine months of last year. Net operating income and Adjusted EBITDA, also excluding cats, both increased by 10 percent to $528 million and $862 million dollars, respectively.

These results support our full-year outlook of 10 to 14 percent growth in net operating income per share, excluding reportable catastrophes, marking our fifth consecutive year of strong profitable growth. Given year-to-date results and our expectations for the fourth quarter, we would expect to end the year closer to the top half of this range.

We've also now completed our three-year $1.35 billion dollar capital return objective from our 2019 Investor Day - a quarter ahead of schedule. Following the close on the sale of Global Preneed in August, we've also made meaningful progress in returning an additional $900 million dollars to shareholders. Our 2021 EPS outlook is driven by at least high single-digit net operating income growth, excluding cats, as well as share repurchases.

Turning to our business performance, in Global Lifestyle, we are on track to grow adjusted EBTIDA by double-digits in 2021 from $637 million dollars in 2020 - driven by Global Automotive and Connected Living. We have benefitted from the stable, recurring revenue stream of our installed base of mobile subscribers, and our success in launching additional offerings and capabilities for our mobile carrier, cable operator, OEM and retail clients globally.

Additionally, our mobile trade-in and upgrade business and expanded service delivery options are increasingly important to our profitability, and also in providing a differentiated and superior customer experience.

Within Global Automotive, we've benefitted from increased scale, growing the number of vehicles we protect by 20 percent to over 52 million since The Warranty Group acquisition in 2018. We believe Auto will continue to be one of our key growth businesses in the future.

In Global Housing, we continue to be on track for another year of better-than-market returns -- with an annualized operating ROE of nearly 15 percent for the first nine months of this year. This included $113 million dollars of catastrophe losses, which further demonstrates the superior returns of this differentiated business.

Our countercyclical lender-placed insurance business remains an integral part of the mortgage industry framework in the U.S. Within lender-placed, as we renew existing clients and add new partners, we will continue to enhance the experience through the ongoing rollout of our single-source processing platform.

Our multifamily housing business now supports over 2.5 million renters across the U.S. and has more than doubled earnings since 2015 through our strong partnerships with our affinity and property management company clients. Our investments in digital capabilities, such as our Cover360 property management solution, continues to drive more value for our partners and an enhanced customer experience.

Overall, we believe our portfolio of high growth, fee-based,capital-light offerings and high return Specialty P&C businesses sets us apart as a long-term outperformer and sustained value-creator for our shareholders.

With my retirement at year-end, I wanted to take this opportunity to thank all of our stakeholders that have supported Assurant's strategic vision and path over the last seven years. Most of all, I am humbled by our 15 thousand employees, who through their dedication to serve our clients and our 300 million customers worldwide, have successfully transformed Assurant. Together, we have significantly strengthened our Fortune 300 company that should continue to deliver above market growth and superior cashflow.

With our President, Keith Demmings, succeeding me as CEO in January, I am confident Assurant will accelerate our strategy and continue to differentiate our superior customer experience while further deepening client relationships. I will now turn the call over to Keith to review our key business highlights in greater detail for the quarter. Keith…

Keith Demmings, President, Assurant, Inc.

Thank you, Alan, and good morning, everyone. On behalf of our employees, I wanted to express our sincere thanks to Alan for his leadership as CEO. I have been fortunate to have had a front row seat and a role in supporting Alan's vision and transformation of Assurant. Importantly, he has continued to evolve the purpose of our company to drive value for all stakeholders - customers, employees, communities and shareholders. The impact he's had on our people and the overall culture of our company has been exemplary and I appreciate Alan's personal mentorship and partnership and wish him the very best in his retirement.

As we build on Assurant's momentum over the long-term, I believe our talent and innovation will be critical factors to achieving success and growth - especially as we focus more on the convergence around the connected consumer. From a talent perspective -- Assurant has developed a deep and diverse bench of internal leaders. A few weeks ago, I announced our refreshed management committee effective in January, including two new leadership appointments illustrating our strong bench.

First - Keith Meier, our current president of International, will succeed Gene Mergelmeyer as Chief Operating Officer -- as Gene will be retiring at year-end. Gene's significant contributions to Assurant over the last 30-plus years, including as COO over his last 5 years, have been instrumental in creating market- leading positions, producing profitable growth and transforming the organization.

In succeeding Gene, Keith Meier brings nearly 25 years of experience at Assurant to the COO role. Since 2016, as president of Assurant international, he has driven growth across our global markets, most recently with strong success in Asia Pacific. In this new role, Keith will be focused on advancing Assurant's business strategy and market leadership positions, as well as identifying additional opportunities to deliver a superior customer experience.

Second - Martin Jenns will become president of Global Automotive. With over 30 years of experience, he currently leads the transformation and growth strategy for Auto and has been instrumental in our introduction of innovative new product offerings like EV-One - our electric vehicle warranty protection. In addition to emerging opportunities and innovation, Martin will be focused on driving growth and improving the customer experience, including working with our partners to deliver best-in-class dealer training.

These two new appointments, along with recent appointments of Biju Nair as president of Connected Living and Manny Becerra as our Chief Innovation Officer, as well as the other management committee members, represent a strong team to help lead us into the future.

In addition to talent, innovation is an important strength of the organization - not only the development of new digital products and offerings for our clients -- but also through new paths to grow and scale Assurant's businesses.

Within Connected Living, innovation was a significant theme this quarter through ongoing enhancements of our mobile service delivery options. As part of the recently finalized multiyear contract extension with T- Mobile, we're expanding the services Assurant provides to continuously improve the customer experience for millions of T-Mobile customers.

As of November 1st, Assurant is partnering with T-Mobile to begin the nationwide rollout of in-store device repair services to approximately 500 stores provided by Assurant's industry-certified repair experts.

In addition, we have also transitioned all of the legacy Sprint protection subscribers to the new T-Mobile device protection offering. As a result, this significantly adds to our mobile device count, now at roughly 63 million as of November 1st. Overall, the expansion of our service delivery options is critical to sustaining our competitive advantage.

We also recently signed a multiyear renewal with Spectrum Mobile -- continuing to provide a comprehensive device protection program which includes trade-in, premium tech support and PocketGeek Mobile, Assurant's on-device diagnostic tool. With the renewal, we will be expanding the offering to also include PocketGeek Privacy, which enables consumers to better protect and manage their personal information online through various features. This is another example of how we're able to grow by adding services and capabilities to existing clients.

In addition, the mobile business continues to see strong attachment rates, given the increased reliance on mobile devices as well as rising device prices. Our fee-driventrade-in and upgrade business, including the previous acquisitions of HYLA and Alegre, have performed extraordinarily well already this year as we enter the early innings of the 5G upgrade cycle. In fact, almost a year after the transaction of HYLA closed, I am

happy to report the acquisition has performed better than expected -- ahead of the low-teens forward EBITDA the acquisition was valued on.

With the growing availability and popularity of 5G-enabled smartphones, we expect to see our 30+ trade-in and upgrade programs continue to grow. Our progress is demonstrated through our ability to manage large scale programs with superior technology. This is further supported by increasing our attach rates for trade- in programs as our clients' promotional efforts encourage consumers to upgrade.

Overall, we have processed nearly 18 million devices so far this year, reducing e-waste and increasing digital access with high-quality, affordable phones. Through the scale and capabilities of our trade-in and upgrade programs, we benefit from an additional source of profits and improved client economics and customer retention.

This quarter, we are pleased to announce that we have signed a multi-year contract extension with AT&T, to manage their device trade-in program. This includes providing analytics as well as device collection and processing for all of their sales channels - including retail, B2B, dealer and direct-to-consumer. AT&T was a key client added with the HYLA acquisition and we look forward to continuing to do business with them, specifically as we help support the growing adoption of 5G-enabled devices.

In Global Automotive, policies increased by 4 million, or 8 percent, year-over-year and production is well- above pre-pandemic levels as we continue to take advantage of our scale and talent. So far this year, the business has also benefitted from strong used car growth which tends to earn faster than new car sales.

This, along with the fact that earnings from the business are recognized over a multiyear period, provides good visibility into future performance of the business.

As we drive innovation within Auto, we continued the global rollout of EV-One, an electric vehicle and hybrid protection product to North America. EV-One has now been rolled out in seven countries.

While the electric vehicle market is still in its infancy, our EV-One product will allow Assurant an opportunity to better evaluate customer demand and leverage our learnings to position us well for the expected increase in electric vehicle adoption in the future.

Our multifamily housing business grew policies by 7 percent year-over-year from growth in our affinity partners as well as our PMC relationships where we continue the rollout of our innovative Cover360 product. In addition, we have seen other digital investments create opportunities for future growth.

Our newly designed digital sales portal, which makes it faster and easier for residents to sign-up for a policy, is driving significantly higher product attachment rates. Our new portal has seen an increase in conversion rates versus our legacy website since it was first introduced last year.

In summary, our ability to strengthen Assurant's talent and innovation supported by critical investments has and should continue to drive momentum for the future.

I will now turn the call over to Richard to review the third quarter results and our 2021 outlook. Richard?

Richard Dziadzio, Executive Vice President, Chief Financial Officer, Assurant, Inc.

Thank you, Keith, and good morning, everyone. As Alan noted, we are pleased with our third quarter performance as our results reflect strong growth across Global Lifestyle and solid earnings in Global Housing. For the quarter, we reported net operating income per share, excluding reportable catastrophes,