Hello, and good day. Thank you for standing by. Welcome to the Assurant Second Quarter 2021 Conference Call and Webcast. At this time, all participants have been placed in listen-only mode. And floor will be open for question 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.

Thank you, operator, and good morning, everyone. We look forward to discussing our second 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 second quarter of 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 information 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. We are very pleased with our second quarter results. Our performance so far this year across our Global Lifestyle and Global Housing businesses demonstrates the power of our strategy to support consumers connected lifestyle and continues to give us strong confidence in the future growth prospects for Assurant. Prior to reviewing our progress against our 2021 financial objectives, I wanted to take a moment to express my deep gratitude to our employees around the world, specifically for their continued dedication and support for all of Assurant's stakeholders during my tenure as CEO and especially over the last 18 months of the pandemic. Our talent is a great enabler of our company's growth and progress, and Keith Demmings' appointment as my successor is evidence of that. With a 25-year-long career with the company, Keith has a clear track record of success and personifies the values and integrity that are emblematic of Assurant's culture and he's a natural choice as our next CEO. His deep operational experience and strong engagement with clients has been instrumental in guiding Assurant's growth across the enterprise. As CEO, Keith will drive innovation through our connected world and Specialty P&C businesses. The completion of the sale of Global Preneed to CUNA Mutual Group marks another important milestone for Assurant as it enables our organization to further deepen our focus on our market-leading lifestyle and housing businesses. I would like to thank all of our former Preneed employees who have transitioned to CUNA Mutual Group for their tremendous support to Assurant and our clients and policyholders. As we look to the convergence of the connected mobile device, car and home, we believe our Connected Living, Global Automotive and Multifamily Housing businesses will continue their compelling history of strong growth into the future. Not…

Thank you, Alan, and good morning, everyone. I wanted to begin by expressing my thanks to Alan for his steadfast leadership and the successful transformation of Assurant since becoming CEO at the beginning of 2015. Through his strategic vision and intense focus on the evolving needs of our clients and end consumers, Alan and our team have solidified market-leading positions in our Connected World and Specialty P&C businesses, helped Assurant establish a strong growth, capital-light service-oriented business model where our Connected World offerings now comprise approximately two-thirds of our segment earnings and ultimately, work together to unlock the power of our Fortune 300 organization, prioritizing resources against initiatives with the highest growth potential and standing up key enterprise capabilities and functions, which we can now leverage across our growing client and customer base. As a result, Assurant is on track to deliver our fifth consecutive year of strong profitable growth. As I continue to work closely with Alan over the coming months, I'm also engaging with many of our key stakeholders, including shareholders and analysts, who have shared valuable perspectives as we define our multiyear plan. As I identify key focus areas, I will prioritize developing and recruiting top talent, investing strategically to sustain and accelerate growth through product innovation and new distribution models, differentiating us further from our competition through continuous improvement in our customer service delivery and supporting the investment community in better understanding our portfolio as we look to drive further value creation. Our long-term goal will continue to be to deliver sustained growth and value to all of our stakeholders. Our ability to deliver on these ambitions will require additional innovation and investments to ultimately provide a superior customer experience and deepen our client relationships. Innovation will continue to be a key differentiator for Assurant, especially…

Thank you, Keith, and good morning, everyone. We're pleased with our second quarter performance, especially when compared to our strong results last year. For the quarter, we reported net operating income per share, excluding reportable catastrophes of $2.99, up 12% from the prior year period. Excluding GAAP's net operating income for the quarter, totaled $184 million. And adjusted EBITDA amounted to $298 million, a year-over-year increase of 12% and 10% respectively. Our performance across Lifestyle and Housing remains strong and we also benefited from a lower corporate loss and higher investment income, primarily related to the sale of a real estate joint venture partnership. Now let's move to segment results, starting with Global Lifestyle. The segment reported net operating income of $124 million in the second quarter, a year-over-year increase of 2%. This was driven by growth in Global Automotive and more favorable experience in Global Financial Services. Earnings increased $7 million or 16% from continued strong year-over-year growth related to our U.S. clients across various distribution channels. Results within auto also included a $4 million increase from the sale of a real estate joint venture partnership. Absent this gain, investment income in auto was down. Connected Living earnings decreased by $9 million compared to a strong prior year period. The decline was primarily driven by less favorable loss experience in our extended service contract business. Mobile earnings were modestly lower. The less favorable loss experience in service contracts in mobile was primarily related to our European and Latin American businesses. These regions benefited from lower claims activity in the prior year period due to the pandemic. Our underlying mobile business continued to grow in North America and Asia Pacific from enrollment increases at mobile carriers and cable operators with an increase of over 1 million covered devices in the…

[Operator Instructions] Our first question comes from the line of Brian Meredith from UBS. Your line is open.

A couple of questions here for you. First, I'm just curious, the LPI customer that you lost, why did you lose that customer? Is it competitive reasons? I always thought that's kind of a pretty sticky business.

No, I think it is actually a very sticky business. If you look at that line of business over the last two or three years, we've renewed or early renewed almost all of the clients on occasion business does move. And as you saw in our prepared remarks, we did pick up two new clients that will begin to onboard as we move into Q3 and Q4. And the reason we've had such strong success has been our investments in both the customer experience as well as the client experience and making sure we're delivering a fully compliant product. But no, we feel good about LPI and are well positioned when the housing market does weaken.

Great. And then second question, I'm just curious, how are conversions going with respect to the T-Mobile and Sprint customers? And are you seeing a pickup in that at this point?

Yes. It's Keith, maybe I'll jump in. Thanks for the question. Obviously, we continue to be pleased with the progress of the ramp of Sprint customers. As T-Mobile continues to ramp and migrate Sprint to T-Mob products and rate plans, we continue to see additional enrollments into our programs. I would say it's happening, as we would have expected, largely on track. And we talked about the renewal and extension of our relationship. We're clearly really excited about our long-term opportunities with T-Mobile. We've had a great track record working together for the last 8 years, innovating in the market, adding new products and services. And certainly, as we think about Sprint continuing to ramp over time, we're really excited about working together to grow the overall business.

And then one last one just quickly here, probably for Richard. As we look at the capital management that's going to happen here over the next 12 to 18 months, a lot of stock to buy back. Do you all considered ASRs or celebrate share repurchase programs as a part of capital management?

Thanks for the question, Brian. I think a couple things first, as you heard in the remarks, we're really pleased to have put a check next to our $1.35 billion commitment, with the third quarter dividend that will be issued we'll meet that objective before time. So we're very pleased about that. We did close on Preneed and received the proceeds this week on that. And as we said earlier, we will be buying back our shares at about -- over the next 12 months, I would say. So that's going to be put in place very quickly. We consider all options, we think share repurchases is the best way to go.

And Brian, this is Alan. The one thing I would add is we're also excited that we were able to complete our expectation from the 2019 Investor Day with what we did in July and then the announcement of the quarterly dividend in Q3, we are now effectively done with that expectation and we can move on to returning the $900 million from premiums in orderly fashion as Richard just said.

And your next question is from Tommy McJoynt from KBW. Your line is open.

So that's great to see the T-Mobile contract renewal is underway. Are there any notable changes to the economics or contract terms or anything else with that multiyear extension that you would want to share with us? And just confirming that the contract for Sprint as well, which doesn't need to be separately negotiated.

Correct. Yes. So it's for the totality of T-Mobile's business as we move forward. We mentioned earlier, we're still negotiating the final details of the agreement. So more to come as we lock down some of the moving parts. In terms of economics, I'd probably make two points. First, I'd say that it's not uncommon for us to forgo some economics when we recontract with major clients. We recontract obviously, quite regularly, often think about the broader long-term potential of the relationships. The potential for additional volume and for offering new products and services over time. Specifically with respect to T-Mobile, given that the relationship continues to scale with significant volume from Sprint, we do expect to achieve lower per unit economics, but we expect that to be offset by significant volume growth and economies of scale within the overall programs. I would also say that we're well positioned as partners to help them introduce new products and services over time. We've had a great track record of expanding the services we provide over the last 8 years to continue to evolve to serve the consumer. And finally, I'd point out from a mobile perspective, we really are excited about our overall long-term potential to compete in this market across the value chain and from an efficiency point of view.

And switching gears a little bit. Would you characterize the loss in claim rates that we saw in 2Q as fully back to normal? Or should we still expect some kind of further normalization over the medium term, if you could answer that with respect to both Lifestyle and Housing, that would be helpful.

Yes, Keith, you want to take a Lifestyle, then I can comment on housing maybe.

Sure. And I think we obviously saw favorability if we look back to Q2 of 2020. We've seen that normalize quite a bit as we look at the results in this quarter. So for the most part, losses have sort of come back to a more normalized level. There's still some moving parts, I would say, within international. As we look at COVID and various lockdowns and how things are progressing in different markets. But overall, we're at a much more normalized level from a loss ratio point of view.

Yes. It's effectively the same in Housing. We had a better Q1 loss experience than we would have expected, just some of the lingering impacts of the COVID and the lockdowns in various parts of the economy. But in Q2, we're more back to what we expected, and we expect that will continue the rest of the year.

Then I'll just sneak one more in here. So with the strong second quarter and the first half of the year, it was a bit surprising to see the full year NOI guidance to be higher that you went through some of the puts and takes as to why the second half should be lower than the first half. If you were to see some upside, but where do you think it would be, kind of which cause would you most likely to see upside?

Yes. What I would say is, first of all, we're very pleased, obviously, with the first half and second quarter, very strong. In fact, probably a little better than we'd expected going into the year. If you think about what could cause us to exceed our outlook. First of all, we're still confident that we're in that range. But it would be things that are less within our control like what happens with the loss ratio in the market or could there be some other impact from COVID and the delta variants. But with all that said, it's a really strong first half. In the second half of the year, even as we've guided to be lower than the first half, we still expect to grow strongly versus second half of 2020. And the business is performing well, and we continue to expect that looking to the future.

And your next question is from Mark Hughes from Truist Securities. Your line is open.

You had a particularly good results in the automotive business. Could you maybe try to break out how much of that was just kind of strong rebounding economy versus new relationships, higher attachment rates? How much momentum does that give you in the second half in terms of new business?

Sure. And it's Keith, maybe I'll take that. I mean, overall, I would say we've seen healthy double-digit growth rates in car volumes from pre-pandemic levels. So yes, you're correct, a huge recovery in Q2 versus Q2 of last year. Obviously, Q2 of last year was quite depressed. This year was an incredible rebound. We saw a net written premium up 68% over the same quarter last year. But a lot of that is -- the depression last year and then a really strong quarter this year. If you look at it over 2019, which is sort of pre-pandemic normal, it was a 36% increase this year. So really, really strong. And yes, we're seeing strong attach rates in the business. We've seen a slight shift between new and used. So our new and used mix is normally around 50-50 or maybe 53% used today. Used tends to have slightly higher attach rates. Obviously, it earns a little bit quicker. We've seen our clients taking share through consolidation. We've seen clients expanding their used car operations, rolling out strong digital brands. So there's a lot of growth, I would say, within our core client base. And then certainly, we've added some new clients as well. But strong car sales, large clients that are gaining share and then winning some new deals in the market.

In the lender-placed insurance business, any issues around inflation in materials or labor?

Yes. It's interesting. We kind of have offsetting effects there. So if you think about our premiums, it's driven by average insured value. So as house prices rise and we issue new policies, those are going to naturally be at a higher premium rate. So we're getting some positive benefit there. The offset is cost of claims will rise as well. And ultimately, we'll be able to reflect our experience in future rate filings. But if you put it all together, we don't think it's particularly material to our business. It may not be perfectly aligned quarter-to-quarter those effects, but over time, not material.

The lender-placed insurance, your placement rates is the end of the foreclosure moratorium. Is that an important -- or how important an trigger is that for your placement rate? I know your REO is directly impacted, but are there other drivers that are restraining our placement rates based on government action. Could you just talk a little bit about that?

Yes. What I think you've seen over the last year or so is that our placement rate is roughly flat at this point, with really no significant trend up or down. And the good news is through the actions we've taken over the years, the business is in a really strong position. We're delivering great customer and client experiences. And if the -- it weakens, we will benefit and grow over time. So in terms of moratoriums and when they come off, if and when they do come off, we will see the impact with a lag. So even if they came off today broadly, which is -- there's still a lot to work through there and there'll be modifications and other things that will happen. We don't expect anything to happen in our placement rate this year, and where we could see an impact is when you get into 2022 and beyond. But I think the important takeaway on lender-placed is, we're still a clear market leader with a strong commitment to customer and client experience. And we will be there to partner with the world's leading U.S. as leading banks when the housing market weakens.

And we have a question from Michael Phillips with Morgan Stanley. Your line is open.

First question on the investments that you talked about and the impact of that in the second half of the year. But really, the question is when will we see the impact of that -- the benefits of those? Is that more -- you talked about growth potential, is that more top line benefits? Is it more margin benefits or both? And then when you say long term, kind of -- can you kind of put a time frame around it. Is that something we'll start to see benefits of those things in next year or even longer than that?

Maybe I'll take that one, Alan. So let me just clarify first the two buckets where we're making the investments or at least the most significant investments. So first we talked about is around same-day service and repair, this has been -- become a really important component of our value proposition. It's become more critical in the market demanded by clients, demanded by consumers and really improve the overall service experience. So we are going to be accelerating investments in the second half in terms of leadership personnel, in terms of technology and equipment. We're also working very hard to integrate our service delivery options seamlessly into the claims experience to really create a more dynamic claims process to give customers a better choice and options. That's, I think, critically important strategically for us. And I think we've got great advantages there today. So we're trying to accelerate those advantages in the market. That will drive revenue as we think about moving into 2022. We see this as a important opportunity to expand services with existing clients and also expand with new clients. In terms of the second bucket, I would say, operational investments that are focused on really the entire enterprise between both housing and lifestyle, investing more heavily in digital capabilities, self-service and automation. Think about things like digital sales and self-service portals, investing in our customer-facing applications integrating our communication channels, automating decisions around claims to make the process more efficient and more repeatable and then automating back-office tasks. We've got a fairly large project going across multiple lines of business and multiple geographies. And that will generate cost efficiency over time. But more than anything, it will create a much more seamless customer experience and I think make us that much more competitive in the market.

Two more, I guess, a quicker ones. What can you share about the cost or the impact on the cost of the reinsurance structure that Richard talked about?

Richard, do you want that take?

Yes, maybe I can take that. The overall cost is going to be up this year from last year, but not that much. But essentially, what we did is we bought a -- what we call a second and third cover. So if ever we have an event that goes up into our retention -- past our retention on a second and third event, we actually go and reduce the retention down to $55 million from $80 million or if we didn't use that and there was a major event, it would help us at the top of the tower, too. So that will add a little bit, but it's a modest increase in our overall placement. And we were actually pleased to see that every year when we go to the market, we have a stable list of reinsurers that follow us. Think about 40 carriers being A- or better. And we are able to place our reinsurance on a kind of a like-for-like basis without this new feature I talked about at a little bit below where the market is. So we're really proud of what we've done with cat. And I guess the last thing I would say is the cat exposure that we have today is less than we had in previous years, given how we've been working on our cat exposure overall, but also the growth in our other businesses, Multifamily Housing, Global, Auto, Connected Living. So one of the things we mentioned in our press release earlier this year that, for example, in a 1 in 50-year event, back in 2017, we would have kept 40% of our earnings. Now in a 1 in 50-year event, we retained 70% of those earnings. So it would just show you the big change that's been made in our management of our cat exposure and the growth of the company elsewhere.

Last quick one for me. On the impact of rising home prices on the LPI premiums, is that true just for new policies or also for fire issue policies as well?

So for the new policies, it's obviously immediate. And when we place them for existing policies, it's on the renewal date. And these are annual policies. So it would happen on the renewal.

Your next question is from Jeff Schmitt from William Blair. Your line is open.

Could you discuss just how that legacy Sprint customer transition works. I believe they get an option to sort of switch over to the T-Mobile network if they want when they sort of trade in or upgrade their phone. Switching to mobile protection plan to Assurant, is that a separate decision? And do you have a sense on what that uptake rate is? How many are coming over versus kind of staying with what they have?

Yes, I would say that as they're moving customers on to T-Mobile product, T-Mobile REIT plans and services at that point, they're offering the customer the opportunity to enroll in insurance and effectively reenroll as they're enrolled today and that's automatically moving over to Assurant. So I would say, very typically, as that happens and as T-Mobile pushes more and more customers onto T-Mobile product, we're seeing the increase sort of one-for-one come through.

And then you'd mentioned that covered mobile device growth should start moving up here in the second half. I think you said mid-single digits. And I know it takes a couple of years for an account to mature, you kind of start at 0 there. But what are some of the newer accounts there that would drive that ramp up? Is that KBDI, the cable operators, how far into those relationships are you?

Yes. I would say the one thing to remember with the sub count is we did have a loss of client in Europe, a banking client for 750,000 subs. So that has moved down our sub count, which is why it's flat as we sit here today year-to-date, but we do expect it to be mid-single digits by the end of the year. And I would say largely the U.S. and Japan are driving the majority of that growth. And certainly, I think all of our clients in both markets are growing.

Your next question is from Grace Carter from Bank of America. Your line is open.

I was wondering, since we saw growth in Global Financial Services for the first time in a little bit, does that have to do with the disruption last year at this time? Or is this an inflection point? And if we could just talk a little bit about the outlook for that segment.

Yes. I think it's more to do with the disruption last year. Q2 was depressed. We had some additional losses related to some travel products in a couple of our markets. I some travel products in a couple of our markets. I would say as we look at the results today, there are more normalized which we think is a good jumping off point. We certainly have ambitions to grow that business over time. We're excited about the work that our teams are doing around the world, but it's mainly due to the depression in results last year.

And then I was wondering with the Lifestyle business, given the recent concerns about the delta variant, if you all have seen any impact on your global supply chains in that business?

I think broadly, our teams have done an incredible job. We operate physical depots in many markets around the world. So making sure that we're able to perform essential services is critical, keeping our employees safe has been a priority. I think we've done a very good job of executing service. There's some parts disruption due to the chip shortages as we think about repairing devices. Our teams have done a really good job working with manufacturers to procure and acquire parts. Broadly speaking, we haven't seen much disruption to our business to date. Hopefully, that will continue as we move forward. But overall, this is a strength of Assurant. Supply chain is one of our key differentiators in the Connected Living business and really proud of the work the team has done.

And your last question is from Gary Ransom from Dowling & Partners. Your line is open.

A lot of my questions have been answered. But I wanted to ask the -- a little bit broader question on the opening economy and recovering economy. You did respond a little bit on the auto market. But are there other parts of your business that you -- that will show more growth or be influenced significantly by an assumption that the economy continues to strengthen and reopen this year?

Yes. Maybe I'll start and talk a little bit about housing. And then, Keith, maybe you can add any more color on lifestyle. If you look at housing, our largest growth business is Multifamily Housing or our renters business. Arguably, in a market perspective, that was one of the most disruptive markets through COVID. But with that, we've still seen strong growth. So even with the disruption, even with the impacts on COVID, we've had a very strong growth in line with our long-term expectations in Multifamily. And driven in part by the strength of our partnerships, also driven by the launch of our new product, Cover360. If you looked at LPI, that business, as I mentioned earlier, is stable. We have a very strong base of customers and clients there. And if the economy weakens, we'll grow. So from a housing perspective, we've seen growth even through the disruption of COVID. And we would expect in a weaker market economy, we'll see growth, and we'll continue to see growth if the economy just chugs along. But that's housing, but let's go to Lifestyle, Keith.

I'd probably add that on the Lifestyle side, and particularly in Connected Living, we see really strong positive impacts from 5G. We talk a lot about our trade-in business. I would say trade-in is a really important part of our value proposition, something that our carrier partners lean quite heavily on to drive promotions in the market to try to get additional dollars in the hands of consumers to allow them to be able to upgrade to the latest 5G technology. We've seen obviously very aggressive promotions in that space, and we're supporting our clients scaling our operations. And I think doing an incredible job leveraging all of our acquisitions, think about Hyla, Alegre, all of our -- we've made several investments around trade-in capabilities. I think we've got a global market-leading position and this continues to be more important. We've seen dramatic increases in trade-ins in terms of volumes and promotional activity, but also the attach rates at point of sale and consumers' willingness and education about trade-ins has increased dramatically. So expect that to continue as we move forward in the year. Obviously hard to predict what will happen with COVID, but there's some pretty strong trends on mobile.

Yes. And if I just elevate to an overall Assurant level, and I mentioned this in the prepared remarks, we are well positioned and expect to outperform no matter what the external environment is. And the COVID really again demonstrated that resiliency of our business model, driven by the great value that we're bringing to consumers around the world. And with that, I want to thank everyone for participating in today's call. With the close of the sale of Global Preneed and our strong year-to-date performance, we believe we're well positioned for the future. We'll update you on our progress on our third quarter earnings call in November. In the meantime, please reach out to Suzanne Shepherd and Sean Moshier with any follow-up questions. Thanks, everyone.

Thank you. This concludes today's conference. Please disconnect your lines at this time, and have a wonderful day.