Welcome to Assurant's Fourth Quarter and Full-Year 2023 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 Sean Moshier, Vice President of Investor Relations. You may begin.

Thank you, operator. And good morning, everyone. We look forward to discussing our fourth quarter and full-year 2023 results with you today. Joining me for Assurant's conference call are Keith Demmings, our President and Chief Executive Officer, and Keith Meier, our Chief Financial Officer. Yesterday, after the market closed, we issued a news release announcing our results for the fourth quarter and full-year 2023. The release and corresponding financial supplements are available on assurant.com. Also on our website is a slide presentation that we introduced this quarter for our webcast participants. 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, presentation and financial supplement on our website 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 the news release and supporting materials. We'll start today's call with remarks before moving in to Q&A. I will now turn the call over to Keith Demmings. Keith?

Thanks, Sean. And good morning, everyone. 2023 was an extraordinary year for Assurant, our seventh consecutive year of profitable growth. We drove shareholder value by delivering financial outperformance, maintaining a strong capital position and generating significant momentum throughout our businesses. Adjusted EBITDA grew 21% to nearly $1.4 billion and adjusted EPS increased by 26%, both excluding reportable catastrophes. Our results were driven by the strength of our homeowners business within Global Housing, which delivered adjusted EBITDA growth of nearly 65% excluding cats. In addition, our connected living business continued to grow, supported by our strong US partnerships with mobile carriers and cable operators, and our ability to innovate and execute for our clients. Together, Lifestyle and Housing generated nearly $775 million in dividends. This allowed us to return over $350 million to shareholders, including $200 million of share repurchases. 2023 was a testament to the power and attractive financial profile of our unique and differentiated lifestyle and housing businesses. Assurant would not have been able to achieve this level of success without our talented people, including our newly refreshed management committee, further strengthening our leadership team. As we celebrate our 20th year as a public company, I am proud of the world class culture we've created, exemplified by the many recognitions Assurant has received throughout 2023. Earlier this week, JUST 100 included Assurant as part of its 2024 rankings of America's most just companies, recognizing our commitment to serving our employees, customers, communities, the environment, and our shareholders. In addition, we received recognition from Fortune as one of America's most innovative companies, and Newsweek recognized the progress we've made to incorporate sustainability into our strategy by placing us on its list of America's most responsible companies. The dedication from our employees and leadership team, who strive to achieve our vision…

Thanks, Keith. And good morning, everyone. Before reviewing the quarterly results, I'd like to share my perspectives as I'm about to wrap up my first 90 days as Assurant CFO. During my time at Assurant, I've been fortunate to have led several businesses, as well as take on a variety of other roles across the organization, including most recently leading our technology and operational teams. These experiences have provided me with deep insights into our global clients, and the understanding of what is needed to deliver a high level of business performance, always backed by strong financial expertise and discipline. As CFO, driving growth and financial performance will continue to be my priorities. I'm focused on ensuring our capital position remains strong as we create additional shareholder value and drive profitable growth through further innovation and differentiation within our product portfolio. As I look toward the future, I'm also focused on continued expense efficiencies by utilizing digital and AI technology, which also enables us to deliver better customer experiences. Lastly, I've appreciated the opportunity to meet with many of our investors, employees and clients over the last several months, and their willingness to share observations about Assurant as I began my tenure as CFO. Our discussions have enabled me to better shape my views and the path going forward. Now, let's talk about our fourth quarter financial results, which reinforced the strength of our businesses and the performance that we've seen throughout the year. For the quarter, adjusted EBITDA grew 29% to $382 million and adjusted EPS increased by 38% to $4.90, both excluding reportable catastrophes. Adjusted earnings and EPS growth were driven by year-over-year growth in both Housing and Lifestyle. Our capital position remains strong, generating $280 million of segment dividends in the fourth quarter, and ending the year…

I'd like to take a few minutes to discuss why we believe that Assurant is so attractively valued today. Assurant is a powerful differentiated business with unique advantages that have outperformed over time. Our B2B2C business model throughout lifestyle and housing is different from other insurers and service-oriented companies. Not only do we operate in unique, highly specialized and attractive markets, but we hold strong market positions and benefit from our scale. At our core, we provide specialty insurance solutions and fee-based services that are often deeply integrated with our large clients as we play an important role delivering services to their end customers. Our alignment with industry leaders and market disruptors has helped us generate significant scale within our businesses. Our competitive advantages are further strengthened by our broad set of capabilities that allow us to innovate and execute for our partners and customers, enabling us to be flexible and agile. We have compelling and unique aspects of our business model that we believe create advantages. Our low capital intensity businesses allow us to grow efficiently, while generating additional capital for deployment. This is evident through our capital efficiency and strong cash generation of $3.5 billion over the last five years. Our risk profile is attractive. Earnings volatility is lowered by the risk sharing structures within our business models, reducing the impacts of macroeconomic volatility. For example, throughout connected living and global auto, approximately two-thirds of total risk is reinsured or profit shared to our partners. Within housing, our portfolio simplification efforts have focused on exiting more capital intensive businesses, which has enhanced our risk profile. In addition, our robust catastrophe program substantially limits retained risk due to the low per occurrence retention level and high limit at the top end of the tower. Lastly, we're well positioned to…

[Operator Instructions]. Our first question is coming from Mark Hughes with Truist Securities.

The BofA, you said that the placement rate is going to be lower? Is that just because of placement rate on an underlying basis is lower? Or is that – the actual premiums and the covered homes are not being transferred over to you?

No, we're going to be picking up all of the loans and then all of the policies, but the placement rate on that particular block of business is just lower than the average. If you look at our current average, it's 1.8%. It'll be south of that, just the nature of the loans and the nature of the business. But to the more fundamental point, really excited about the opportunity and many years in the making, and a huge congratulations to our lender-placed team for doing an incredible job building a relationship. And then obviously getting to this point is incredibly exciting and extremely validating.

On the homeowners business, a favorable reserve development. Was that just because Hurricane Ian turned out better than expected or are you seeing a fundamental change in underlying trends? It seems like the non-cat losses have been very favorable lately? Is it something we should view as a sustained, sustainable?

This is Keith Meier. So I think the first thing I would say is the positive reserve development was more in relation to the higher inflationary environment that we had previously. Now that that's more settled, that's what's really been the change in the estimates that our team has made there. So I think that was more the driver than any other type of weather activity or any other type of experience. So I think that was the key there. In terms of your question on the quarter, the way to think about that is if you take out the prior year, the prior period development, and over the whole year, we basically are about at about a 40% non-cat loss ratio. It's about a point better than last year. And then if you think about, looking at 2024, we would see our non-cat loss ratio to be somewhat level to what we're seeing in 2023. So that's probably the way to think about our views on the non-cat loss ratio.

And just one final thought. Modestly better in the quarter when you make the adjustment at 38%. But that's just normal seasonality, nothing we would really point to there, Mark.

If I can squeeze in one more, the fee income in Lifestyle was up substantially, much more so than the devices service. What was going on there?

That's mainly the higher trade-in volumes that we have seen in the fourth quarter. So, in the fourth quarter, we also saw the addition of two new programs. So, one with one of the major OEMs and then also a program that cuts across several of our other clients. Then that's also tempered a little bit by some of the promotional activity. But, overall, we felt really good about the trade-in performance in the quarter.

Our next question is coming from John Barnidge with Piper Sandler.

My first question, I know there was an expense reduction program in December 2022 with full savings emerging in 2024. Are you able to talk about geography of those savings that's supposed to emerge in 2024 and how you view the run rate Global Housing expense ratio?

It's a blend of both employee actions, as well as some of our facilities that we've been able to gain some efficiencies on as well. But I think in terms of the expense efficiencies for housing, we had a really, really strong year. And it's really been the story of the last couple of years, especially a lot of our technology investments and the work that we've done through our digital programs, and really driving an even better customer experience. When you look at our expense ratio year-over-year, we're down 6 points from 46 to about 40. And so, that really has been the story of a lot of our technology investments that we've been making. And I think that's what's enabling us to – if you think, into 2024, we should be able to take a lot more expense leverage with the growth we had in housing, but not increasing our expenses in a corresponding way. So really proud of the work that our teams have done there to not just lower the cost, but also create advantages in the market. And I think when you think about the customer experience that we've been delivering, I think that's a great example of why a client like Bank of America would want to do business with Assurant. So I think those investments are paying off in multiple ways.

On auto input costs, can you maybe talk about the ability to recoup the elevated auto input costs through contracted actions for 2024? I think you talked about improvement expected this year?

Maybe I'll take that. And I think what I would say is, there's a handful of clients and deal structures where we're feeling the pressure on the underwriting results, which we've talked about. We've made significant rate adjustments over the last 18 months or so, with all five of these clients and feel really good about how we're positioned. The relationships are incredibly strong. To your point, our contracts are built with transparency. We've got very much aligned interests in terms of financial performance. So we put a lot of rate in, we'll continue to look at performance, obviously monitor claims activity. I would say that we saw things level off in the fourth quarter, which is a good sign. We've stabilized severity in the business. And then, based on the nature of these service contracts, it takes a little longer for it to earn through than when you think about what happened within the housing, business. Those are annual policies. These are three, four or five, six year policies. So it's a little bit different from that perspective. But I would say we feel really well positioned and certainly see improvement in 2024, and that should continuing to flow through in 2025 and beyond.

Our next question is coming from Tommy McJoyntt with KBW.

Sounds like there's a couple moving pieces related to the mobile side. So you called out some upcoming investments in that space. And you also have the onboarding of Telstra in Australia. Are you able to quantify some of the figures around that, in terms of the investment costs, the onboarding costs, and then what the run rate, either revenue or earnings contribution, from Telstra could be? We're just trying to think about after the next 12 months, sort of what the earnings power of that connected living mobile device business might look like?

I'll probably offer a couple of thoughts. Obviously, it's a pretty exciting development. We're super proud of the team in Australia. And it's a great example of leveraging our capabilities and our global reach. It's going to roll out in phases. We expect to launch in the first quarter, and then there's a number of different phases to the rollout. So it'll be, I would say, probably modestly EBITDA negative this year in terms of the investment to get that wrapped up. Obviously, I would expect it to be significantly improved certainly in 2025 – sorry, in 2025 over 2024. In terms of the size and scale of investments, so one thing I would say, Tommy, there's quite a bit of investment going on with Assurant. Certainly, we talked about BofA, but even just on the lifestyle and connected living side, Telstra is one example. Obviously, we're talking about it publicly. But there are also a lot of other investments that we're making, building out capabilities. And we're in many, many discussions with different clients, different prospects, about rolling out new product, new services. So I would say we probably have more investment going on, even beyond Telstra, within connected living this year than we would in a normal average year. When we talk about mid-single-digit growth for lifestyle, you could probably think about the investment, putting pressure on that by a few points. So it would be more in the high single-digit range, if we weren't making some of these – what for us are significant investments in the future.

Appreciate you quantifying some of those numbers. You also separately reported some pretty high net investment yields across the various business lines this quarter and even for the full year. Is there any upside to the net investment income from here? And what's the sensitivity of those various portfolios to potential rate cuts?

Tommy, I think, one, in terms of our expectations for next year, we see investment income being relatively flat to slightly up. You mentioned the higher results for this quarter. We had our real estate joint venture sale. So, that contributed. We don't think we'll have as high of real estate sales into next year. But we do think it should be relatively positive going into next year. Right now, our portfolio book yield is at 4.99%, so just under 5%. New money rates will be a little bit higher than that. And so, we do expect as the year goes on, of course, the Feds expected to reduce rates through the year. So depending on the timing of some of those rate changes, those will be kind of offsetting the increase that you saw this year. So, overall, we think we're in a pretty good place from an investment income standpoint, but probably slightly up for next year.

Tommy, just to add a little bit more color on how I'm thinking about that. When you look at the overall guide for the year, we're overcoming $54 million of PYD in housing. And then, we don't have material tailwinds on investment income. It might be modestly positive, but not like what we saw this year. So, obviously, being able to deliver strong growth on top of those two factors, we feel really good about, along with the investments that I mentioned earlier.

Our next question is coming from Brian Meredith with UBS.

A couple of them here. First one, I'm just curious. Keith, you mentioned that Japan was going to be relatively flat this year. I'm just curious kind of how we should think about that with respect to the contract kind of changes that are going on. Is that kind of ending in 2024? There's still pressures there and you expect some growth? And then, also on that, kind of maybe you can tell us what your kind of baseline macro assumption is in your kind of outlook for 2024?

Starting with Japan, we mentioned the four-year customer contracts that were running off, and then the new contracts were evergreen, that's still going to be a bit of a pressure for us, not as much as 2023, but they'll still be a pressure for us in 2024. I think that is offset a little bit by some new structures and new programs that we have launched in Japan. So that's where that you'll see that moderating. And I think longer term, I feel even better about Japan where, a few years ago, we only had a couple of relationships with the mobile carriers. Now you fast forward to today, we've got active business that we do with all of the four top mobile operators. And so, in our business, it's not easy to win big clients, but when you can be an existing partner already, and then be able to grow that relationship from there, I think that puts us in a very good position and why we have a lot of optimism for the future of Japan. But with some of those new programs coming up, I think that's what's allowed us to feel like we've gotten past some of those headwinds from before.

We certainly stabilized Japan here, if we look at the last couple of quarters, Q3 and Q4 in terms of the overall financial performance. So we feel good about that. And I would say as we look forward to 2024, expect to see some modest improvement over time. And then, to Keith's point, longer term, still an exciting market for us.

In terms of the macroeconomic conditions, Brian, I don't think we're expecting anything significant. Obviously, we talked about interest rates and things like that. But beyond that, there's nothing that's contemplated that's that significant.

One other just quick one here. On the BofA deal, I'm assuming your kind of guidance for cat load for this year includes the BofA deal?

Yes, it does.

Our final question is coming from Grace Carter with Bank of America. It does appear we did lose Grace. One moment please. It does appear that Grace has dropped off the call, gentlemen.

No problem. All right. And that was the last question. Am I correct?

That is correct, sir.

Wonderful. Okay. We will call it a wrap for today and we'll look forward to speaking to everybody again in May. And then, obviously, in the meantime, please feel free to reach out to our IR team who'll be happy to answer any questions that anybody has. But thanks very much, and we'll talk soon.

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