Assurant, Inc. (AIZ) Q3 2018 Earnings Report, Transcript and Summary

Welcome to Assurant's Third Quarter 2018 Earnings 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. [Operator Instructions]. It is now my pleasure to turn the floor over to Suzanne Shepherd, Vice President of Investor Relations. You may begin.

Thank you, Christina, and good morning, everyone. We look forward to discussing our third quarter 2018 results with you today. Joining me for Assurant's conference call are Alan Colberg, our President and Chief Executive Officer; and Richard Dziadzio, our Chief Financial Officer and Treasurer. Yesterday, after the market closed, we issued a news release announcing our results for the third quarter 2018. The release and corresponding financial supplement are available on assurant.com. We'll start today's call with brief remarks from Alan and Richard before moving into a Q&A session. As a reminder on May 31st, we closed the acquisition of The Warranty Group, or TWG. Beginning June 1st, net operating income and net operating income per diluted share include TWG results, the $1.2 billion of acquisition financing obtained this past March and related costs. Dividends on the preferred stock issued as part of the deal financing are an ongoing expense reflected in net operating income. In addition, starting August 1st, the mortgage solutions business is no longer included in operating results, given the sale. 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 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 other non-GAAP financial measures, which we believe are important in evaluating the company's performance. For more details on these non-GAAP measures, the most comparable GAAP measures, and a reconciliation of the two, please refer to yesterday's news release and financial supplement available on assurant.com. I will now turn the call over to Alan.

Thanks, Suzanne. Good morning, everyone. Overall, the third quarter was in line with our expectations. This marks the first full quarter since closing our acquisition of The Warranty Group. We are pleased with performance thus far and we're starting to jointly develop new offerings to capitalize on our leading position in the global automotive market. We remain focused on completing our global integration and are on track to deliver on our commitment of $60 million policies of run rate operating synergies by the end of next year. Results for the quarter also included solid organic growth across Connected Living, Preneed, and multifamily housing. We believe this momentum will help sustain profitable growth. As we pre-announced we incurred more than $50 million of after-tax losses related to Hurricane Florence, well within the retention limit of our reinsurance program. I want to thank all of our employees who supported our policyholders in their time of need. Let me now share some recent highlights for our three business segments. They underscore our ongoing success building strong partnerships with leading brands, our focus on innovation, and customer excellence. Starting with Global Lifestyle, the segment posted solid earnings for the quarter, particularly in mobile, where new subscriber growth more than offset higher loss experience and lower trade-in volumes. Mobile revenue increased 12% as Global Protection programs launched last year continued to gain momentum. In total, we now protect more than 44 million devices worldwide. And we continue to gain traction in the mobile marketplace. Most recently, in September, we worked with Apple to launch AppleCare+ with Theft and Loss. This represents Apple's newest and most comprehensive option in its family of device protection plans available on their stores, online, and select resellers like BestBuy. The offering provides coverage for hardware service, accidental damage, theft and loss, as well as software and technical support, something we believe continues to be a growing need for consumers. This comes on the heels of several other device programs we helped launched globally in the last two years to enable our carrier and cable partners to offer access to AppleCare services. While still very early, performance has been tracking our expectations. Also on the one-year anniversary of our partnership with KDDI, we expanded our relationship by introducing an enhanced mobile device support program for all of their Apple customers in Japan. This includes four years of coverage for mechanical breakdown, accidental damage and loss and theft. We are encouraged by the success with KDDI and look forward to finding new and unique ways to serve them and their end-consumers. Global Automotive business also continues to generate strong top-line growth, with more than 47 million protected vehicles worldwide. As the industry evolves, we're making targeted investments to expand our connected car capabilities. During the quarter, we made a strategic investment in Mojio, a leading technology platform and software service provider for connected cars, as we explore digital protection and support solutions for vehicle owners and automotive partners. We are finding ways to enhance our vehicle protection offerings with real-time telematics data and remote diagnostic information. This is in addition to connecting vehicle owners and their cars with numerous on-demand services. Overall, we see opportunities to continue to scale our businesses and introduce innovative offerings around the increasingly connected lifestyle of consumers. Turning to Global Housing, this segment generated solid results excluding catastrophe losses. We continue to evolve and strengthen our specialty property offerings where we have leadership positions and differentiated capabilities. Our lender-placed insurance franchise remains strong and generates substantial cash flow. We recently renewed two significant clients with multi-year agreements and continue to make progress with our operating system migration. As we close out 2018, we believe lender-placed earnings will stabilize next year, after several years of market declines. In multifamily housing, we continue to generate strong growth with a nearly 11% increase in revenue this quarter and we now protect 2 million renters across the U.S. During the quarter, we became the exclusive provider of renters insurance to Village Green, one of the nation's premier property management companies providing our suite of renters' products and services to their more than 25,000 rental units in the U.S. Over the last several years we have steadily built out our capabilities and offerings in the sharing economy space. We have focused on three key areas. On-demand mobility insurance mainly an auto peer-to-peer and car fleet sharing shared accommodations primarily in the vacation rental market and shipping insurance. We now work with around 30 clients including some of the most sought after brand names in this sharing economy market like Etsy, GMs car sharing program Maven, and Flexdrive. Well, not yet a significant driver of revenue or earnings, we believe this is an area of growth potential we have developed to recognized brand, due to our innovative and adaptive approach. Overall, we believe these specialty offerings will help support profitable growth for Global Housing in the years ahead. And finally, Global Preneed. The segment posted record earnings driven by recent growth in sales and total assets under management. Our specialty products in the alignment with SCI in North America and other market leaders in Canada are key differentiators. We've recently expanded our offerings to include ancillary products such as support and assistance to world executive tours and those navigating the state planning process. Overall Preneed continues to produce strong returns and robust cash flows. Turning to our consolidated financial results, we currently measure our success against three key metrics: net operating income, net operating income per diluted share, and operating return on equity all excluding catastrophe losses. Beginning in June, these metrics include results for TWG and related acquisition financing. For the first nine months of 2018, Assurant's net operating income increased by $58 million or 19% year-over-year to $371 million, driven by contributions from TWG, a lower effective tax rate, and organic growth. Operating earnings per diluted share was $6.37, up 13%. Annualized operating return on equity excluding AOCI was 11%, up 60 basis points since year-end mainly due to growth in earnings. At the end of September holding company capital totaled $473 million after returning $119 million in share repurchases and common dividends in the quarter. We also recently announced a new $600 million share repurchase authorization. This brings our total available authorization to $776 million as of November 2nd. As always, our buybacks are subject to market conditions and other factors. We are committed to managing our capital prudently, maintaining balance sheet strength, and sustaining our track record of investing in the business to support long-term profitable growth. All of this while returning excess capital to shareholders over time. As we approach the end of 2018, we continue to expect Assurant net operating earnings excluding reportable catastrophes to increase 20% to 25% from last year. As we look ahead to 2019, we remain focused on continuing to grow earnings and cash flow. To do so, we are fostering even greater collaboration across our lines of business to leverage our newly expanded global scale and expertise. This will be especially important as our lifestyle and housing markets converge around the connected consumer. We see opportunities to drive greater efficiency and effectiveness across our global operations through simplification, standardization, and deployment of technologies such as artificial intelligence. And technology investments, we've made this year will support an even better customer experience across channels globally. I'll now turn the call over to Richard to review our third quarter 2018 results and outlook in greater detail. Richard?

Thank you, Alan, and good morning everyone. Let's start with Global Housing, where net operating income totaled $19 million for the third quarter compared to a net loss of $110 million in the same period of 2017. The increase was primarily due to $120 million of lower tax. Third quarter included $67 million of losses related to wind and flood damage from Hurricane Florence and an increase in reserves for claims from Hurricane Maria. As a reminder, we incurred a total of $187 million in cat losses in the third quarter of last year. Excluding catastrophe losses, and the tax rate change, net operating income declined by $8 million year-over-year, driven by less favorable non-catastrophe loss experience and expected declines in lender-placed. We also incurred additional technology expenses as we reinvested a portion of our tax savings with additional investments planned for the fourth quarter. Growth from our Affinity partners and property management companies and multifamily housing and more favorable non-cat loss experience from other specialty property products like International Dwelling partially offset the decline. The risk-based combined ratio for our lender-placed and manufactured housing businesses excluding cat losses increased to 83.2% from 80.7% in the prior year period. This was mainly due to less favorable non-cat loss experience from other weather-related claims and water damage in lender-placed insurance, a trend we expect to continue through year-end. We also incurred higher expenses in the quarter to support new business. With the sale of mortgage solutions and the expansion of other specialty property offerings, we are reevaluating Global Housing's profitability metrics for our capital-light businesses. We expect to share our conclusions with you along with relevant segment targets at our upcoming Investor Day in March. Moving to revenue, total Global Housing net earned premium and fees were down slightly in the third quarter, reflecting the sale of mortgage solutions on August 1st. Excluding mortgage solutions, revenue was up 9% driven by growth in our commercial property products and multifamily housing. Revenue also increased from the absence of catastrophe reinstatement premiums which were paid in the prior-year period. This increase was partially offset by a reduction in lender-placed premiums mainly from lower real estate owned volumes and declining placement rates. The placement rate for lender-placed dropped 15 basis points year-over-year or three basis points from the second quarter in line with our expectations. This reduction reflects the overall strength of the housing market and a higher mix of low placement loans. We expect placement rate declines to continue to moderate. As we preannounced fourth quarter results will include claims from Hurricane Michael. We continue to process claims and based on our view today, we believe losses will likely be in the range of $75 million to $105 million pretax. This is below our cat reinsurance prevent retention of $120 million. Excluding catastrophe losses, we expect Global Housing net operating income for this year to increase, driven by the benefit of a lower U.S. tax rate. While earnings will be lower absent tax, we are encouraged by the progress we've made to refocus our housing portfolio and moderate lender-placed declines. In addition, we expect to continue to grow revenue and earnings in multifamily housing and other specialty offerings over the long-term. Moving to Global Lifestyle, the segment earnings increased to $76 million for the third quarter. This included $29.9 million from acquisition of The Warranty Group. Net of $2.5 million primarily related to intangible amortization. This also includes $5 million in realized operating synergies in the quarter. We also saw solid organic growth in Connected Living mainly from new mobile programs launched in 2017 and ongoing expense management efforts within our extended service contract business. Effective tax rate was not a driver in the quarter because the net benefit from tax reform was nearly matched by a one-time gain in 2017. Lifestyle growth was partially offset by continued declines in financial services driven by discontinued partnerships, as we reposition our offerings within the banking sector. Turning to revenue, net earned premiums and fees were up $700 million year-over-year primarily due to the $626 million contribution from TWG. We saw continued growth in the North American auto business predominantly through the national dealer distribution channel. Organic growth within Global Lifestyle was driven by higher service contract volumes from our third-party distribution channel within global auto and strong subscriber growth for mobile programs which started in 2017. Lower mobile trade-in volumes and a depreciation of the Argentine peso partially offset this increase. Turning to the segments profitability metrics, the combined ratio for the risk-based businesses improved to 97.2% from 99.2% due to catastrophe loss experience and the favorable impact from the TWG acquisition. As a reminder, in the third quarter 2017, we incurred losses mainly in our auto business of $7.7 million related to Hurricane Harvey compared to $1.4 million of claims this quarter related to Hurricane Florence. The pretax margin for fee-based capital-light businesses was 5.3% in the third quarter or 6.5% excluding TWG earnings. This compares to 3.8% in the prior year period. Overall the improvement was driven by higher profit from global mobile programs started in 2017 and realized expense savings in the extended service contract business. Less favorable U.S. loss experience and lower contributions from Europe partially offset the increase. As noted last quarter, the Connected Living margins reflect the inclusion of the TWG business mainly more service contract offerings with lower margins. Overall for full-year 2018, we expect continued organic growth in Global Lifestyle driven by mobile and global automotive. Global Lifestyle earnings growth this year will reflect the TWG acquisition and organic growth along with the benefit of a lower effective U.S. tax rate. Organic growth should be mainly driven by mobile, partially offset by declines in financial services. Now let's move to Global Preneed. The segment reported $70 million in net operating income. This was an increase of $4.5 million year-over-year. Results included a $2 million benefit from the lower U.S. tax rate net of some reinvestments in the business. Excluding the tax benefit, earnings were up from greater investment income due to both higher invested assets and interest rates as well as growth in the business. Revenue in Preneed was up 8% for the quarter. Growth was driven by prior period sales of pre-funded funerals and the Final-Need product across U.S. and Canada. Base sales increased for the second consecutive quarter from expansion of our Final-Need product with new distribution partners. To a lesser degree, results benefited from greater volume of pre-funded funeral offerings in Canada and the U.S. As a reminder, last year sales were adversely impacted by the significant hurricane activity in the quarter. We are pleased with Preneed strong results, but expect to see earnings moderate in the fourth quarter, given seasonality and higher mortality as we near the winter months. For the full-year, we still expect Preneed earnings will increase modestly for the impact of tax. Business from new and existing clients and adjacent product offerings should drive this expansion. At Corporate, the net operating loss was $19 million a year-over-year increase of $6 million. Approximately half of the increase was due to higher employee-related expenses as well as some additional technology investments. The other half was related to an adverse impact from the lower effective tax rate. For the fourth quarter, we expect the corporate loss to increase from third quarter levels, similar to historic trends. Continued investments in our artificial intelligence, the Connected Home and the Connected Car should also be drivers. As a result, we believe that Corporate operating loss will be in the range of $80 million to $85 million for the full-year as previously discussed. This includes the adverse impact of lower U.S. tax rate at roughly 20% with some investment. This will be partially offset by continued expense management. Turning to capital. We ended September with $473 million in total holding company capital or about $223 million of deployable capital. Dividends from Global Housing, Lifestyle, and Preneed totaled $139 million and this included $75 million from the TWG entities. We also received $35 million for the August 1st sale of mortgage solutions. Looking at outflows, we deployed $83 million in share buybacks and $40 million in dividends. This is comprised of $35 million for our common stock and $5 million for our preferreds. In the fourth quarter through November 2nd, we have purchased 333,000 shares for approximately $34 million. For the full-year 2018, we expect dividends from our operating segments to be greater than segment operating earnings. This is mainly due to excess dividend capacity from the reduction of our deferred tax liability and full-year dividends from TWG. Excluding this deferred tax liability and dividends from TWG, Assurant dividends are still expected to be aligned with their segment earnings, inclusive of catastrophe losses. As always, our dividend outlook is subject to customary regulatory capital requirements, rating agency considerations, and the profitable growth of the businesses. In summary, we're pleased with our performance this quarter and we remain focused on delivering on our full-year commitments, a strong financial position as well for continued profitable growth in 2019. And with that, operator, please open the call for questions.

The floor is now open for questions. [Operator Instructions]. Thank you. Our first question is coming from Kai Pan with Morgan Stanley.

Hey, good morning, Kai.

Thank you. Good morning, Alan. So my first question is on your homeowners business, if you look at past three years your cat losses have been -- you have three consecutive years of cat losses above your long-term average. I just wonder can you reflect on your volatility versus your expectation, your reinsurance program, and would you consider down the road separating out this business because that results have been masked with the progress you're making on the warranty business.

Yes, no Kai, so few thoughts on this. So first of all I think we feel very good about the reinsurance program we have in place, you saw last year which was a very extreme weather year that the program worked well. We were not really that affected by the company other than the losses we took and so we feel like we've done a good job of protecting our customers, our policyholders, our shareholders with the program. Over the years, we've been gradually reducing our retention so that our exposure has gone down significantly and as we've added other lines of business like The Warranty Group and with the growth in Connected Living and Mobile a much smaller portion of our earnings is cat exposed today. But certainly the last few years have been more volatile for storms than in the past and we will be revisiting our reinsureds program what's the right retention point as we go into the repurchase cycle for that in January.

So do you think this is still core business for you to keep in the foreseeable future?

Yes, absolutely. If you look at Global Housing, we've gone through a few years of market declines and lender-placed which are now largely behind us. We're positioned as we've said for flat earnings in lender-placed next year excluding cat which is very positive and we've got strong growth across the balance of Global Housing. So we feel very good about that business as we look to 2019 and beyond.

Okay, great. My second question on the Lifestyle margin 5.3% this quarter, this improvements from last year's results but you highlight that The Warranty Group probably dragged the margin by 1, 1.2 points and you also highlight some less favorable loss experience in Mobile and Europe, could you quantify sort of like the margin impact from those like on your core business outside The Warranty Group?

Good morning, Kai. It's Richard and I think you phrased it correctly. I mean -- we -- overall it's an improvement from last year 3.8%. So positive news there, but we do note, we have noted in the past that when we bring the TWG business in, the margins were a little bit lower. So that does bring it down relative to what it had been as you mentioned, it ultimately ends up being a business mix we have, and then also as we called out there was some impact from Europe and some losses but fairly, fairly small overall in the mix.

Yes, and Kai, I would add, I think over the last few years we've been very pleased with the margin growth that we've seen in Lifestyle. We did allude to in this quarter we had the normal seasonality the third quarter usually is the worst loss experience in Mobile. And in Europe what we're working through in the U.S. we control our supply chain. In Europe in Mobile we work with partners and so that's had more challenges for us and so we're working through solutions as we head into 2019 to have more control over our mobile supply chain in Europe.

Okay. Is your 9.5% margin target for the segments still achievable over the next few years given now you have TWG in the mix?

Yes, we're going to have an Investor Day in March where we will refresh what the right way to think about that is. If you recall a couple of years ago, we changed the target from 8% to the 9.5% we have now as a result of the way one of our contract changes happened. So we'll revisit all of that but I think the main headline for us is we've had good growth in margins over the last few years and we're going to remain focused on growing the margins.

Our next question is coming from John Nadel from UBS.

Hey good morning, John.

Good morning.

Yes, good morning. Yes, now I think it would be great for you to sell your lender-placed business at the cyclical placement very low. Anyway, Alan, the new Apple program, can you go into that in a little bit more detail, it sounds like -- it sounds on the surface from your description like it's pretty incremental maybe even significant but I just want to understand that better?

Yes. So maybe we have many partnerships across the Connected Living space, one that we're proud of and is important to us is Apple that really began years ago in Brazil when we worked with them to really launch a trade-in program in that market, they were an important part of our progress and success in Japan. And off of that we were able to build enough I think great relationship, credibility that they chose to work with us as their partner in really extending and deepening AppleCare. So we've included our capabilities into AppleCare, we're now distributing it through them in their stores through apple.com. So it's going to be significant broadly the relationship we have with Apple and we continue to grow it in various markets around the world.

Okay, that's helpful. The second question is just lender-placed, it looks like the placement rate is slowing -- the decline in the placement rate is slowing down and I think you guys have been talking about for a while that that's stabilizing at some point here in the relatively near-term. If we think about though your 2019 outlook for earnings for that segment or for that business ex-cat, can we see earnings for lender-placed to grow if the placement rate actually does stabilize and wouldn't the driver there be the migration to the single operating platform, I think you had expected that there'd be pretty significant cost savings from that?

Yes, good morning, John. It's Richard.

Hi, Richard.

I think you hit on a lot of good points there, I think as we said in our statements a little bit earlier, we do see the placement rate decreasing or a decrease in the decrease so to speak, so it was only three basis points over the last quarter. So we see that continuing to moderate as we go forward. We're not calling an inflection point because obviously it depends on a lot of macro events, how the housing market is doing. Having said that I think you did hit on the fact that it is decreasing that we're in the process of implementing a single source platform over the next few years, that will start coming in and start helping as we go along. So we do feel that we're turning a corner and the large part of the decreases is behind us. So we're feeling really good about the business.

Okay. And then last one and then I'll get back in the queue as I'm just thinking about the Corporate $250 million capital buffer, I'm wondering whether that can be reduced if I think back many years ago on the rationale for that buffer, I think you related at least in part maybe in large part to some of the pandemic type of risk that existed when you guys were still in the health and the employee benefit businesses, so am I right in that sort of recollection and any chance you can re-evaluate whether that cushion can come down?

Yes, John, I mean I think if I take a long-view we're very proud of the way we've managed the capital of the company for both our creditors and our shareholders. And as we work toward Investor Day next March, we are looking at how we think about capital, how we think about what's the appropriate buffer where we hold it and so I'll defer that question in March, but we have work underway to how best to think about that to protect our creditors and our shareholders and grow our company.

Okay, but that that's seems to go.

Yes.

Thank you.

Our next question is coming from Jimmy Bhullar with J.P. Morgan.

Hey good morning, Jimmy.

Hi, good morning. Hi so first I had a question on just your expense savings program and if you could just discuss progress on that and just the expected trajectory of expenses in next few years, how much of the cost savings you expect to fall to the bottom-line and by when?

I'll take it. Okay, good morning, Jimmy. Yes, so in terms of overall expenses, I mean we continue to drive hard on managing our expenses, our overall headcount et cetera. As I mentioned in the remarks, we were on track for our synergies with TWG, we took out $5 million, looking forward to at least $10 million for the end of this year, and on a run rate basis being half of the $60 million we talked about across the enterprise, we're working on things like procurement and facilities et cetera and being very careful about how we are spending and making sure that whatever we spend, we're creating value. In terms of the saves back in Investor Day, we had talked about $100 million of gross saves in last quarter we reported that we were halfway to that mark. We continue to advance. So this quarter I would just say we're a little bit above that mark and continuing to move forward and in terms of the goal that we had set there for being a $100 million at the end of 2020, we're well in track for that.

Yes, and Jimmy you can see some of the benefit of it flowing through the P&L for example our pretax margin that we're talking about earlier in Connected Living, some of that growth is coming from these expense initiatives. You can also see it in Corporate where our loss for this year, if tax adjusted is effectively the same as last year and we're a much bigger company this year. So we've been able to grow the company without adding corporate expense. So we're seeing significant benefits already coming through the P&L even as Richard said we're still in process on these.

And then on the acquired Warranty Group business have you've been able to look at it little bit -- take a little bit more deeper look at it. Have your views on any of the financial metrics that you gave out changed positively or negatively?

No, what I would say is I think we're very pleased with the Warranty Group the integration so far. The client feedback has been strong both our clients and their clients about the fact that we're a stronger deeper company you can help adapt and build new products for the evolving auto market. We've said the deal we expected to be modestly accretive on 2019, by the end of 2019 run rate synergies; we're still on track for that, we're still on track to meet our cost savings commitments. So I think we feel very good about it and it really has strategically strengthened us in the auto market.

Okay. And then just lastly on the Preneed business, your earnings are higher than they've been I think in the last several years on a quarterly basis and part of that was just very high investment income. So just any insight into what drove that? And is this sustainable level of earnings, I understand there's seasonality in earnings typically declined in 4Q but other than seasonality, if you think that this being a sustainable level of earnings in that business?

Well we see some, thank you, Jimmy. We see some good momentum in the business as we said. Sales were up quarter-over-quarter. We're bringing in new clients and we're very pleased about that. The product offering is being accepted well by the marketplace. So that organic growth is helpful obviously Preneed is more of a longer-term business and those profits are spread out in the future. But in this particular quarter we had not only effects of the past, good news coming through, but we also had higher overall assets in the business and higher overall interest rates really just reflect, what's happening out there in the markets. So we do feel that there's good momentum going forward despite some seasonality that that we get sort of in the winter months.

Our next question is coming from Mark Hughes with SunTrust.

Hey, good morning, Mark.

Thank you very much. Good morning, Alan. With Apple, sounds like a nice expansion of the relationship, how much more is there to go, how meaningful is your penetration with Apple versus other suppliers perhaps is this are we going to continue to see further expansion?

Well you know it's early in the U.S. relationship with Apple and we will hopefully execute that well. So far as I mentioned is performing to expectations. And our focus really is been to evolve our products and services if the market evolves, so as you've heard us talk about before we've gone from the original handset protection into things like premium tech support and on-board phone diagnostics and more recently with an extended warranty in Japan on the phone. So I think there's a lot of runway broadly in mobile with our various partners around the world.

Yes, manufactured housing and other you mentioned international dwelling, could you expand a little more on that, was the big growth number at least within that category in the quarter? Just refresh us on what you're doing there and is this kind of growth sustainable?

In terms of the international area in manufactured housing that's really going to be dwelling, where we have partnerships with clients and offering that insurance there. And then, more domestically we do have an increase in commercial property we have a small program there small size type premiums and starting to get a little bit of growth there is as well.

Is this sort of traction that can be sustained with this a book roll or something that might have driven growth in this quarter or this something that the relationship should help drive volume -- similar volume growth in coming quarters?

No, Mark, I think the way I think about this is we're running various pilots as we try to look for example I referenced in my remarks the sharing economy that's part of what I think close to what you're referencing and it's early but we are building new relationships, new distribution partners, and we feel like we've established our brand and we'll see how successful these programs are over time but so far we're gaining good traction.

Last question you sort of touched on this, Alan, but if I think about 2019 you definitely walk us through a lot of new programs, a lot of new initiatives emerging products. And obviously those involved investments, when we think about how all this stacked up for 2019 is that a margin expansion year, is it an investment year, how do you think about next year?

Yes, Mark, what I would say is we will provide a full outlook for 2019 as part of our Q4 earnings call in February, but we do feel very well-positioned for continued profitable growth and we look forward to a good 2019 as well.

Our next question comes from Christopher Campbell with KBW.

Hey, good morning Chris.

Hey, good morning. I guess just a few questions on Global Housing just to start off I guess so how much capital is freed up as the LTI placement rate declines?

Yes, good morning Chris. There obviously is a little bit of capital freed up as it -- I would say declines but again I come back to the earlier comments that that decline is getting smaller and smaller. So we don't see big releases because that business I would say is in a good -- is getting to be in a really nice place with only three basis point decrease in placements rates this year. You can see actually in the top-line and the net earned premiums not a big move there. So we're really not looking at the release of capital from property to increase the overall I would say ROEs with the company that's going to come from the profitable growth across housing and across the capital parts of lifestyle business like Global Auto.

Okay. And then just a question on the Global Housing guidance. So there is some, there is some qualitative statements in there Global Housing savings by year-end 2018 and into 2019. Have you've been able to realize cease through some numbers on that yet just in terms of what you're thinking as saving on the expense base there?

I would say this sort of again I'll come back to Alan's earlier comments about we'll do outlook and be more specific about 2019 when Q4 comes around. But as we look at Global Housing, we see that we do have an expense ratio that's elevated as the revenues have come down and we haven't yet put in all the platform. That will come in over the next year so we do see that expense ratio coming back down over the next few years, I would say more gradually than rapidly in 2019.

Okay, thanks, that's very helpful. And then just pivoting to Global Lifestyle and thinking about the new AppleCare relationship, how should we think about premium growth and then the margin performance particularly as this relationship develops and potentially expands?

So we normally don't give any specifics on clients and the performance of the given client. What I would say about Lifestyle broadly, we've had a longstanding commitment that we can on average grow that businesses earnings by 10% per year. Now it's not 10% every year sometimes it's more, sometimes it's less. And if you go back to 2013, when we first put out that commitment, we've delivered on that and we feel well-positioned to continue to deliver on that in part because of expanding relationships like with Apple and KDDI and Comcast and others that we've talked about.

Got it. And then just as you’re thinking about like all the cat -- going back to Global Housing for a second, if you’re thinking about like the cat, is there anything else that you can do on the reinsurance side potentially to save cost especially as you're bringing in some new products?

I think its Richard. As Alan mentioned earlier, we have over time I guess I would say brought down the retention rate, the market obviously is very receptive to our placing reinsurance. I mean we've worked with the reinsurance market for a long period of time; we have some good stable reinsurers in there. So I think just as the relationship we have with them, the knowledge they have with our business will helps us get very good pricing in the marketplace when we do that. But we are thinking about as we go forward, what is should our retention be, should we bring it down, what our aggregate. So there’s we've got some pretty smart people in the company that spend a lot of time thinking about exactly how we should position it and we'll give more guidance on that as we go forward.

Okay, thanks for all the answers. Best of luck for the rest of the year.

Okay, thanks.

Thanks, Chris.

Our next question is coming from John Nadel with UBS.

Hey, good morning again, John.

Hey, good morning again, thanks for the follow-up. I think Alan if I go back over the past couple of months, it seems like the tone shifted just a little bit in terms of whether you guys could participate in buying back stock directly or as part of TPG sale. I'm just wondering if there's any clarity on that given obviously you guys are in great vision to be able to do that if they decided to sell more stock?

John, what I would say about TPG is as I've said there they've been and we expect them to continue to be economically rationale as they sell their positions. We were encouraged by their first two sales that happened earlier. And as we think about the future, I'm not going to speculate on what they might do or what we might do. But I think they'll continue to be economically rationale.

Yes, no, I’m not asking for you to speculate on what they'll do obviously they will do whatever they do but I'm just curious whether from a legal perspective or structural perspective I guess and you guys participate to the extent that they -- that they decided that they want to sell.

Yes, legally we could. But again or let's just see how this plays out, but I think so far it’s played out well.

Yes, and then second question little bit more delicate, Alan, but let me phrase it this way, there's a couple -- a couple of months ago maybe there was some speculation that you guys were maybe approached by a large foreign insurance company and there was some specificity around what that company may have offered, I'm not looking for you to confirm whether an approach actually took place unless of course you want to. But what I am interested is the thought process you and the board might go through, if such an approach did take place and I'm thinking about this primarily given the longer-term growth story, you're laying out is pretty attractive global vehicle, mobile, renter's just to name a few and then all the new product expansion that you guys are investing in today. It just seems your top and bottom-line growth over the next several years, if not longer be pretty strong and I just want to understand how you and the board would balance that longer-term growth outlook against the near-term potential offer.

Yes, I appreciate that. First we never comment on market rumors I won't comment on that. We do feel very well-positioned as a company. We've driven profitable growth the last couple of years. We are well-positioned in many lines of business, continue to grow. I'm a Director we have a fiduciary duty to create value for our shareholders and if somebody did approach us with an attractive offer we obviously would take it appropriately.

Our next question comes from Kai Pan from Morgan Stanley.

Hi, Kai.

Thank you for the follow-up. Yes I just one follow-up on the AppleCare. Do you have any early indication of the take up rates, how does that compare with your typical mobile offerings?

Again we normally don't go into specifics of any given client program what I would say is, it is performing as we expect.

All right, I think I'll give a try. Thank you so much. Good luck.

Thanks, Kai.

Our last question is coming from Mark Hughes with SunTrust.

Hi, Mark.

Yes, good morning. Thank you. And just on the capacity retention maybe even this is more of a comment but you see some of the Florida specific carriers that have reduced their retention. It would be interesting as the investor and analyst to see kind of the tradeoff of lowering your retention and what that would mean to quarterly earnings reasonable case could probably be made that it would end up being a net positive for the value creation, let's call it the multiple that the market would be willing to pay for your stream of earnings with lower volatility a lot of big diversified companies have made the decision that that cat exposure and these volatile quarters are just not worth it. I think over the long-term, they probably are, but the -- it would be, it would be interesting to see what the tradeoff would be on that front. So just and I know that's a decision you make internally but it seems like a lot of folks have gone in that direction. Anyway so no question there just a little pontificating. Thank you.

No, Mark. It's Richard just to respond to your statements. I would say I think you're spot on with them. And we have as I mentioned earlier working groups working on exactly that to think of I think about it as we do have a cursor to set in terms of exactly what risk we accept, what risk we lay off and what is the stability of the earnings overall. We've brought it down our earnings are more stable. As Alan said, in an earlier question, our company is getting bigger and so the exposure we have to catch is getting smaller just by definition, particularly as multifamily grows and lifestyle grows. So we definitely are looking at all of those things and but I would say if we -- if we look year-to-date through Q3 even with Hurricane Florence we had a little bit sub 92% combined ratio, so even there that's a nice ROE for the business overall.

Thank you.

All right, thanks Mark. I want to thank everyone for participating in today's call. We're pleased with our results so far this year and we look forward to updating you on progress for our fourth quarter earnings call in February and we are going to hold an Investor Day now scheduled for March 14th in New York and more details will be coming on that in the coming months. In the meantime please reach out to Suzanne Shepherd or Sean Moshier 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.