Welcome to Assurant’s First Quarter 2023 Conference Call and Webcast. [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 first quarter 2023 results with you today. Joining me for Assurant’s conference call are Keith Demmings, our President and Chief Executive Officer; and Richard Dziadzio, our Chief Financial Officer. Yesterday, after the market closed, we issued a news release announcing our results for the first quarter of 2023. The release and corresponding financial supplement are available on assurant.com. We will start today’s call with remarks from Keith and Richard before moving into a Q&A session. Some of the statements made today are forward-looking. Forward-looking statements are based upon our historical performance and current expectations and 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 and financial supplement 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 Keith.

Thanks, Suzanne and good morning everyone. We are pleased by our first quarter results, which reflected better-than-expected performance within our Global Housing business and our ongoing focus on driving operating excellence across Assurant. The actions we announced in 2022 to simplify our business and real estate portfolio realign our organizational structure and accelerate the deployment of digital-first experiences are beginning to yield measurable results. While early, gross savings generated from these initiatives are helping to mitigate the impact of broader macroeconomic headwinds and fund additional critical investments in innovation and our talent. This was reflected in Global Lifestyle’s results for the quarter, which improved sequentially in line with our expectations. Our first quarter results also continued to demonstrate the leadership advantages of our well-diversified business portfolio and our global client base. We believe we are well-positioned to deliver on our financial objectives for 2023 and we will continue to prudently manage our capital to drive shareholder value. Looking ahead, we will maintain a steadfast focus on execution: first, by strengthening and expanding our global partnerships; second, by driving innovation and delivering on our digital-first vision to improve the customer experience; and third, by realizing savings from ongoing expense management efforts. Recently, we were recognized as one of America’s most innovative companies by Fortune, demonstrating the importance we place on finding new ways to serve our clients and fostering a culture of innovation and inclusion. Through consumer research and investments in emerging technologies, we develop new products and services to meaningfully enhance the consumer experience and drive competitive advantages across our key markets, including mobile, auto and housing. We continue to strengthen our large embedded base of businesses. In Global Lifestyle, we work with 15 of the top 50 most valuable global brands and provide protection and services for nearly 62…

Thank you, Keith and good morning everyone. For the first quarter of 2023, adjusted EBITDA, excluding reportable catastrophes, totaled $293 million, down $22 million or 7% year-over-year and 5% on a constant currency basis. While the results were lower than the prior year, they came in above our expectations, driven by stronger Global Housing performance. Adjusted earnings per share, excluding reportable catastrophes, totaled $3 million and $0.49 for the quarter, down 12% year-over-year, primarily from lower segment earnings, a higher effective tax rate compared to favorability in the prior period and a higher depreciation expense. Now, let’s move to segment results, starting with Global Lifestyle. The segment reported adjusted EBITDA of $199 million in the first quarter, a 12% decline year-over-year or a 10% decline on a constant currency basis. The decrease came from lower results in both Connected Living and Global Automotive, partially offset by higher investment income. Connected Living’s earnings were down 15% or 11% on a constant currency basis from decreases in extended service contracts and weaker international results. Extended service contract results were lower due to an increase in claims costs and in particular, relative to the prior year quarter, which included favorable claims experience. We expect a modest level of higher cost to persist during the remainder of the year, the level of which will depend on the broader inflation trends in the market. However, we have recently implemented rate increases with several clients, which should begin to flow through during the course of the year, mitigating the increase. In mobile, earnings were down as expected from softer international results, mainly in Asia-Pacific and unfavorable foreign exchange, both of which are expected to continue. U.S. mobile earnings were flat year-over-year as modest mobile subscriber growth in North America device protection programs from carrier and cable…

Thank you. [Operator Instructions] Your first question is coming from Tommy McJoynt from KBW. Your line is open.

Good morning, Tommy.

Hey, good morning, guys. Thanks for taking my questions here. So the first one, with regards to your comments on the claims cost in the Lifestyle business, so in the past, you’ve distinguished between the lifestyle partners where you hold the ultimate risk and the partners where the risk ultimately goes back to the partners. Could you give into a bit more detail on the timing of how some of those unfavorable claims could weigh on earnings in the current period but ultimately get recovered in the future periods. And what is the magnitude of those swings? Just from our standpoint, should we kind of see these numbers kind of ebb and flow in the numbers.

Yes. So maybe I can try to take that and then certainly, Richard, feel free to add in. I’d probably point to a couple of things. I’ll set aside housing, which I’m sure we will talk about later in the progress there from an inflation perspective. Nothing really to report on the mobile side. So a lot of stability mobile-ly – in terms of the mobile business around severity. So that’s come in line fairly nicely in the last couple of quarters. We signaled some pressure on the ESC. So the retail service contract side of the business. We’ve actually been taking rate increases with our partners adjusting program coverages, but also putting rate in place. So we saw a little bit of pressure in the first quarter, which is continued, I’d say, over the last three or four quarters or so. We expect that to moderate over the rest of the year. So we’ve taken action that will start to benefit through in terms of the earned premium this year. And hopefully, that will slow down that impact over the rest of ‘23. Where we are seeing a little more pressure is on the auto side, we talked about this a little bit last quarter, but certainly elevated severities in the repair shops, both in terms of parts costs and labor costs. We’re definitely seeing that come through in our performance. As you rightly suggested, we do share risk with a lot of our partners. So the vast majority of our deals are either reinsured or profit shared. So we’re keeping a residual amount of that severity risk. We do recover that in a lot of cases through repricing with our clients, whether contractually required, which is often the case or just with the partners, we will work to try to achieve target loss ratios over time. So we’ve already started taking pricing actions. We started taking certain actions more than 6 months ago around the auto business, and that should benefit us as we flow through probably more helpful in ‘24 than ‘23, we will definitely still see some pressure this year in the auto results. We do expect to see progress in auto over the balance of the year in ‘23. We are seeing good growth in revenue. We’re also seeing help in terms of the investment income portfolio, and those are helping to offset some of the pressure on severities.

Thanks. And then just my second question, what specifically are you seeing that’s different from previously that gives you comfort to resume the buyback assumingly just maybe a month or two ahead of prior plan? And how much of that is attributed to just looking at where the stock is trading relative to your assessment of intrinsic value?

Yes, I think as we sit here today, we’ve got a lot of confidence in our cash flow generation as a company, the strength of the business model. And I would say the positive momentum that we’ve seen in the housing business, the fact that we are seeing improving housing cost inflation indicators. We obviously had a really strong fourth quarter that repeated in the first quarter. We’re seeing some improvement in terms of inflation, and that gave us more confidence as we think about the full year outlook and our ability to deliver against that. And to your point, we’re starting a little bit earlier but we do want to capitalize on the fact that we think our stock is attractively valued, and we feel like there is a good opportunity for us to get back into the market and be more consistent with our buyback activity as we move forward.

That makes sense. Thank you.

Great. Thanks, Tommy.

Your next question comes from the line of Mark Hughes from Truist Securities. Your line is open.

Good morning, Mark.

Yes. Thank you. Good morning. The renters insurance business here, your number of renters has held up pretty well, but your revenue has dipped a little bit. Is that a mix shift? Could you give a little detail on that?

Yes, sure. I would say a couple of things to unpack with renters. Broadly, our policy counts to your point, are pretty steady over the last year we’re seeing average premium per policy, pretty steady, and really growth in the PMC channel, we’re seeing double-digit revenue growth in our PMC channel, offset by some softness on the affinity side. When you do look at the revenue for the first quarter, a couple of things I would point out. First of all, we did have an adjustment that flowed through the premium line. If I back that out, our revenue would be roughly flat in the quarter. So I think if you take something away from renters, pretty stable, consistent performance underlying revenue pretty constant compared to Q4 compared to first quarter last year. We think there is an opportunity to drive long-term growth within this business. The second thing, we did see some favorability in the quarter from NFIP, where we’re getting paid to administer claims on behalf of the U.S. government. That does not flow through the revenue line. It flows through as a ceding fee that we receive and effectively a contra commission. So the real headline from my perspective around renters is well-positioned, steady results. The loss ratios are certainly normalizing in line with what we saw in the second half and still believe we have good long-term opportunity to grow that business.

And then on the Connected Living, what’s your assessment of the amount of marketing or advertising, advertising the norm around 5G programs kind of feeding into your mobile device count, maybe feeding into your fee income driven by the upgrade and logistical operations. Are you still seeing the same tempo? How do you see that play out over the coming years?

Yes. So we certainly had a pretty high watermark in 2022 with respect to trading activity, to your point, a lot of advertising around 5G. We saw pretty consistent volumes in the first quarter so if you strip out the impact of service and repair within that device to service line, trade-in volumes are pretty constant in Q1 versus Q1 last year. We did see a little bit of margin pressure around the mix, the mix of services we provided, the clients that have flowed through. But pretty steady from that perspective, I’d say it’s still an important part of the ecosystem, clients used as an important tool to attract customers and the marketing tends to ebb and flow and very much driven by the competitive state, particularly within the domestic mobile business. The second thing I would highlight is just the strength of our device protection business, in particular in the U.S. If you look at our top clients, and we operate with obviously one of the major mobile operators, two major cable operators picked up 84% of all net ads for postpaid customers in Q1. So our clients are growing. We’re obviously participating in that growth, and that will afford us opportunity to do more services and add more value over time.

Thank you very much.

Great. Thank you.

Your next question is coming from John Barnidge, Piper Sandler. Your line is open.

Good morning, John.

Good morning. Appreciate the opportunity. If we could stick with the auto business, I know there is an ability to recoup part of the deficit, but it can take a number of quarters to do so, if I’m understanding that correctly. How large is the deficit and how much of that will recruitment will leak into ‘24? Thank you.

Yes. The deficit isn’t that large. We’re obviously taking action and have been taking action now for a couple of quarters to make sure that, we are in the right side that, as we move forward. As I said, I think, we will see a little bit of pressure over the next three or four quarters, offset by the strong growth in the investment income. I definitely expect to see some of that recovery coming through in ‘24. And to your point, if I think about where we’ve seen some pressure in a good amount of the cases, we’re actually going to recover that deficit on an inception-to-date basis. Where in another cases, we will achieve target loss ratios on new business. We may not get historical losses back. But there is an ability to actually recover historical losses, to your point and recapture deficits. So, feel really good about how we are positioned in auto. We work closely with our clients on pricing. We don’t require regulatory approvals to make pricing changes. So, it’s really just working in partnership with our clients to do that. We have been dealing with this for 20-plus years as an organization, and we are very good at trying to find creative solutions with our clients to normalize results over time.

And I would just add too, John. I mean the other side of that, as Keith mentioned earlier in the remarks is that we are getting investment income. So, what we are seeing on the claims costs rising in auto and extended service contracts is just part of the inflationary environment, prices going up, but also interest rates have come up, which is part of what you are seeing in the investment income increase during the quarter.

Appreciate that color. And then on pricing increases, I would imagine another round for inflation guard will be coming in July. Am I correct in thinking it won’t be nearly the same degree as a year ago, but should benefit the overall premium profile?

Yes, that’s right. And if we look at the core logic industry factor for inflation around housing, materials and labor. And if you look at where it was April 1st, last year, it was 16%. If you look at that this year, it’s just a little over 3%. So, a much more modest adjustment to average insured values, which obviously, it will have less of an impact on rate, but I think it’s more positive in terms of the health of the broader market. Seeing inflation rates normalize is very important for the performance of the business and obviously trying to keep premiums manageable from a consumer perspective. So, I actually feel really good about what we are seeing from CoreLogic. It matches up closely with a lot of the data that we look at within our business. So, feel good about how we are positioned there.

And just the other thing to add to that, John, and I am sure you are probably aware of it, but the 16% last year that takes a number of months to roll through as the policies renew themselves and new policies come in and so forth. So, that does take some time, just as when the 3% comes in, the first policies come in July when they renew that increase will come into place. So, it’s a little bit averaging as we get through the course of the year.

Great. Yes, it’s a great point. We haven’t fully written in the 16% AIVs that will fully write in through June, and then it will take 12 months from there to fully earn through the book. So, you are still going to feel significant rate and premium growth acceleration over the course of this year, regardless of what factor goes in, in July.

Thank you for the answers. Appreciate it.

Great.

Thank you.

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

Good morning Grace.

Good morning Grace.

Hi everyone. So, I was wondering, just given that you said that the first quarter came in above expectations, but guidance remains flat. I know you all called out some seasonality in housing losses in the second quarter and obviously, inflationary pressure on claims cost across the book, but are there any sort of timing items or one-off favorable items in the first quarter that we need to consider when I am trying to square the first quarter performance versus the full year guidance?

You want to start on that, Richard?

Yes. No, I think your question was well-phrased. I think we do see, as the year goes on, we can see some seasonality in claims and typically, Q1 is a little bit lower. We will see what happens. Obviously, there is inflation that’s coming down. So, that can help the claims cost due. We had some good investment income that depends what happens with interest rates as the year goes on. We did not have any real estate sales or gains in the numbers. So, there is no one-offs in that area as well. We have some good PIF counts in housing policies in force. And we do – we did mention that we see a client rolling off as the year goes down – a year goes on, that might temper the overall increase in policies in force. So, I would say more business than usual, nothing big in the first quarter to call out, Grace.

Okay. Thank you. And I think you had previously mentioned the hard market in certain states, including Florida, as driving some of the growth in the housing book. Is there any impact that you all expect from the recent reforms in Florida on growth levels going forward or more on margins?

Yes. Maybe I will start on that, Richard, and certainly, you can add in. I would say it’s really early in terms of the Florida reforms. I think long-term, it’s going to be really important for that market to improve the competitiveness and improve pricing for consumers without question. So – and we are starting to see lower AOBs coming through. So, that will take time to work through, and we will see how that emerges. But I do feel good about how that’s positioned for the future. In terms of the hard market, I would say we certainly saw PIF count grow in Florida last year. So, we had about 14,000 new policies over the course of the year because I would say largely the hard market, some of it from new clients, but a good amount from the hard market. We actually saw that begin to reverse a little bit, Grace in the first quarter. So, our PIF count in Florida actually went down a little bit. And I think that’s a sign of potentially more competitiveness into the marketplace. So, we won’t be monitoring that, but we are not expecting Florida to be a big driver of PIF from the hard market as we look forward in the rest of the year.

Thank you.

[Operator Instructions] And your next question comes from the line of Brian Meredith from UBS. Your line is open.

Good morning Brian.

Yes. Thank you. Good morning, how you are all doing? So, a couple of questions here for you. The first one, you kind of described Japan starting to get a little bit better, Europe start to get a little bit better, when do you think we could start to see some year-over-year growth in global covered mobile devices in Connected Living?

Yes, it’s a great question. So, let me just address Europe quickly, and then I will talk about Japan. So, I am really pleased with the progress that our team has made in Europe, and we had a pretty significant turnaround in the first quarter. A tough second half of last year without question, but significantly improved results in the first quarter and a lot of that was due to the expense actions that our team took in the back half of 2022. So, I think we are well-positioned there and expect strong stable results in Europe over the course of the year. And I would say Japan, that’s been the market where we have seen some subscriber declines. Everywhere else has been relatively stable. The U.S. historically has been growing for us, so that – I expect that will continue. And I would say in Japan, a couple of things that are really important. Number one, it’s a really important market for the mobile business. I think we are incredibly well-positioned and we have made a lot of progress in that market. And that’s progress around investing in local talent, capabilities, technology. We actually now have relationships with all four carriers in the Japanese market. So, that creates interesting opportunities to innovate and drive growth. The subs are definitely down quarter-over-quarter. And I would point to two things and give you a little bit more color on that. One, we see slightly lower attach rates more recently. And that’s mainly because customers have migrated to more affordable devices. Because of foreign exchange, devices became more expensive last fall, and we have seen a little bit lower attach on less expensive devices in older models, but nothing of concern. And then the second thing, which is actually the bigger driver, when we launched in Japan in 2018 with our initial device protection product, it had a 4-year term. So, a monthly pay product for 4 years as opposed to an Evergreen structure. And that was appropriate at the time in the Japanese market. After a couple of years, we actually moved to an Evergreen product, what you are seeing in Japan is some of that transition rolling through where some of those 4-year contracts are hitting their end date and the cancellation rate plus those contracts ending is a higher number than the new ads that we are putting on the book. I would say, before the end of this year, that will be fully gone and then we will be positioned in Japan for growth going forward. And to my earlier point, we expect to continue to grow U.S. mobile as we have for many years.

And I would just add to – yes, I would just say, Brian, in addition to the sub count, we have always talked about adding services to clients. So, you have the sub count and then you have what’s the services inside that. So, as we go on, we continue to innovate the products and innovate the services going into the client to provide us more revenue per client, I would say as well.

Got it. That’s helpful. And then my second question, I am just curious, going to capital management. I appreciate probably starting to buy back a little more stock at the end of the second quarter. But given the cash flow you are expecting and given the excess capital already at the holding company, why modest, right? I mean I understand there is a little macro uncertainty, but you have got a pretty conservative investment portfolio, as you pointed out, cash flows look like they are pretty strong. Why wouldn’t you take advantage of the really inexpensive valuation, your stock more aggressively at this point?

Yes. And I think it’s as simple as we are just trying to be prudent. We work very disciplined as a company with the way we think about capital management and we are trying to get more information just in terms of how the macro picture is going to play out. Interest rates, whether there is going to be a recession, if so, when does that start to kick in? So, I just think we are trying to be prudent with our thinking on that and certainly expect as we get more information to be able to deploy more capital. But Richard, feel free to add anything else.

Outlook, also can you add does the outlook contemplate a recession?

When we look at the outlook, we do take into account, for example, more I would say, a decrease in inflation as the year goes on. We don’t take into account when we are projecting that there is any sort of hard landing of things. So, we do take into account, for example, when Keith was talking about in the conversation we had on claims service, the service charges, the claims costs going up. We do take into account that, that could continue to go up during the year when we reinforce our outlook for the quarter. In terms of capital, really what Keith was saying is right on, is that we are just trying to be prudent. When you look at the macroeconomic environment today and you look at the shaky what’s going on in some of the inflation aspects and the Fed increasing rates and the banking industry and things going on just generally, I think we are trying to be prudent and just be cautious about the steps we take. I agree with you. We have a – we are in a strong financial position. We have got a strong balance sheet. We have got a conservative investment portfolio. There is nothing today that we are sitting on looking at our investment portfolio that we are worried about, although we are keeping an eye on everything so to speak. So, it’s really from just being prudent to see how things play out over the next couple of months. But we do see us increasing the share buybacks towards the end of the year if things play out okay on the number of things we just talked about.

Yes. And maybe just a little bit more color on the recession question and how we think about that. We are certainly updating our views for the full year to take into account all of the trends that we are seeing within each of our lines of business. So, there is no doubt that we are paying close attention and modifying as appropriate there. I am not having a crystal ball, but certainly we can see some of those trends emerging. I would say a couple of things, though. Number one, we haven’t assumed any change in placement rate related to a recession. So, we haven’t banked on the idea that if the economy gets tougher, we will see placement rates evolve over time. So, that we have kept relatively static, and we will see how that emerges. And then I would just remind you on the Lifestyle business, a lot of our mobile economics were driven by the in-force subscribers that we have, which is $62 million monthly pay recurring. We don’t expect that to move around a lot certainly in 2023, regardless of recessionary impacts or consumer demand because that’s an in-force block of recurring revenue. And then on the auto side, we are sitting on over $10.5 billion of unearned premium reserves that are going to roll through. The bulk of the earnings this year are on business that’s already been written. So, from that perspective, in ‘23, we feel really good about projecting forward. And to Richard’s point, really watching closely inflationary trends, good and bad, right, inflationary maybe upside if housing continues to perform well and then obviously, some pressure on auto and ESC and keeping a close eye on those two things.

Thank you.

Great. Thank you.

And that concludes our Q&A. I would like to hand back over to Keith and Richard for closing remarks.

Well, great. Just quickly, thanks everyone. Appreciate your time. As always, we are pleased with the quarter and the strong start we have had to the year and obviously very focused on delivering on all of our commitments for ‘23. We will look forward to reconnecting again for our second quarter call in August. And in the meantime, please reach out to Sean and Suzanne, if you have any other questions. And thanks everybody. Have a great day.

Thank you. This does conclude today’s teleconference. Please disconnect your lines at this time and have a wonderful day.