Assurant Inc (AIZ) — Q2 2019 Earnings Call Transcript

Thank you, Kristina, and good morning, everyone. We look forward to discussing our second quarter 2019 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. Yesterday after the market closed, we issued a news release announcing our results for the second quarter 2019. 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. Some of the statements made today may be forward-looking. Forward-looking statements are subject to risks, uncertainties, and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these factors can be found in yesterday's earnings release as well as in our SEC reports. During today's call, we will refer to non-GAAP financial measures, which we believe are important in evaluating the company's performance. For more details on these measures, the most comparable GAAP measures and a reconciliation of the two, please refer to yesterday's news release and financial supplement. I will now turn the call over to Alan.

Thanks, Suzanne. Good morning, everyone. Our second quarter results surpassed our expectations as mobile benefited from increasing customer demand for our differentiated offerings. Global Lifestyle's strong performance more than offset elevated non-catastrophe loss experienced in Global Housing and modestly higher corporate expenses. This quarter, we continued to leverage our market-leading positions and deep consumer insights to deliver value for customers along with double-digit earnings growth and strong cash flows. In Global Lifestyle, we were pleased to see earnings up 33% organically as connected living earnings nearly doubled in the quarter. New programs and client partnerships implemented over the last two years continue to ramp up, driving an 11% increase in covered mobile devices year-over-year. We now support over 48 million mobile customers globally. Overall, mobile has been a strong performer. Since the fourth quarter of 2017, we brought on eight new partners accounting for almost seven million covered mobile devices and have expanded several relationships through additional offerings. We have multiple new opportunities on the horizon which bode well for our continued growth, but will require increased investments, which Richard will discuss later. Also within connected living, we officially launched Metro by T-Mobile's premium handset protection on July 1. Starting in the third quarter, this will add several million subscribers to our mobile device count and once fully implemented will make us the exclusive provider of device protection to all T-Mobile customers. Turning to The Warranty Group. We're very pleased to have delivered on our operating synergy of $60 million pre-tax on a run rate basis for the acquisition. This milestone comes two quarters ahead of schedule as we have moved swiftly to integrate the business over the last year, optimizing our global operations while strengthening our client relationships. In Global Housing, we saw continued success in multi-family housing as we grew within both our affinity and P&C partners and benefited from higher penetration rates to our new point of lease billing and tracking platform. The implementation of our enhanced integrators-renters platform progressed with over 20 clients now active. We've also expanded existing relationships with several of the largest property management companies in the U.S. through our differentiated offerings. In the quarter, we further strengthened our leading lender-placed franchise by renewing several more partnerships including three of the top 10 mortgage servicers in the U.S. With our focus on operational excellence and the customer experience, we made good progress on the rollout of our dynamic claims fulfillment across all Global Housing lines of business. This expedites claims adjudication by reducing time to review and pay claims as well as simplifying the overall customer experience. The quarter was also characterized by higher non-catastrophe weather losses, a trend seen across the industry. In addition, these weather trends and overall elevated claims in our small commercial products lowered housing results. We believe these higher claims and small commercial could continue throughout 2019 and we've adjusted our outlook for housing accordingly. Our long-term view of the business remains unchanged, and we believe we will generate a 17% to 20% operating ROE, including an average expected cat load. Turning to Global Preneed, we produced strong earnings as we generated solid returns and cash flows. Base sales had another all-time high of $273 million, benefiting from the expansion of new distribution partners. This gives us confidence that we can sustain an above-market operating ROE of 13% in Global Preneed over the long term. Looking at overall Assurant results for the first half of 2019, we reported net operating earnings per share, excluding catastrophes, of $4.62, an increase of 9% from the first half of 2018. This was driven by strong earnings growth, partially offset by the impact of shares issued last year related to our TWG acquisition. Net operating income, also excluding catastrophes, was up 25% to $293 million, mainly from TWG contributions, including realized synergies as well as significant organic mobile growth. At the end of June, holding company liquidity totaled $386 million after returning $88 million to shareholders. For the full year 2019, we continue to expect double-digit earnings growth as well as operating earnings per share to increase 6% to 10%. This compares to the $8.65 we reported in 2018. Significant profitable growth in mobile continued earnings expansion in auto and multifamily housing, as well as disciplined capital deployment will be key drivers. Strong performance in Global Lifestyle, even after including the increased investments to support growth should help offset the higher non-cat claims in Global Housing. Overall, we believe we will deliver strong results in 2019 with an attractive business portfolio that should continue to produce more diversified higher-quality earnings. This will allow us to continue making investments to accelerate our innovation for the connected consumer, improve the customer experience and sustain our track record of returning excess capital to shareholders over the long term. I'll now turn the call over to Richard to review segment results and our 2019 outlook in greater detail.

Thank you, Alan, and good morning, everyone. Let's begin with Global Lifestyle. The segment reported record earnings of $109 million for the second quarter, up $41 million year-over-year. The increase reflects an additional $22 million of income from TWG, compared to only one month of earnings recorded in the prior-year period. Overall, TWG results for this quarter included $3 million of intangible amortization and $11 million of realized expense synergies, bringing the total realized synergies to $35 million after tax since the acquisition closed. Excluding TWG, Global Lifestyle results were up 33%, which was primarily driven by an impressive $25 million increase in Connected Living year-over-year. Mobile benefited from an increase in subscribers in both Asia Pacific and North America led by growth in our carrier OEM and cable operator distribution channels. In addition, operating performance in Europe was a driver with strong underwriting results. In Global Automotive, excluding TWG earnings were down modestly year-over-year due to increased investments to support growth and new offerings. Looking at total revenue for the segment, net earned premiums and fees were up $707 million mainly from the $481 million of additional revenue from TWG. Excluding TWG, revenue was up $226 million or 25%. This was a reflection of the many mobile programs launched during the past two years. Auto revenue, excluding TWG was up 17%, benefiting from strong prior period sales, international dealer and PPA distribution channels. Looking ahead, and as Alan noted, we expect additional mobile and auto investments in the third and fourth quarters associated with IT enhancements and program implementations to support our continued growth and new opportunities. In addition to typical seasonal patterns, mainly increased mobile loss ratios and the impact of new program launches, these additional investments are expected to result in modestly lower earnings for lifestyle in the second half of 2019 compared to the first half. Overall, for the full year, we still expect significant earnings growth and we'll have a stronger foundation to maintain our momentum into 2020. Moving to Global Housing: Net operating income for the quarter totaled $72 million down $1 million from the second quarter of 2018. Both periods benefited from the absence of meaningful reportable catastrophes. Excluding reportable catastrophes, earnings declined $3 million. Growth in multifamily housing was more than offset by less favorable non-catastrophe losses in small commercial products and expected higher reinsurance costs. The second quarter last year also included losses from the mortgage solution business prior to the sale in the third quarter. Looking specifically at small commercial, we had several large claims and an overall increase in frequency, which we believe could continue. We have made the decision to exit the business and have begun the process of exiting the portfolio. Global Housing revenue declined reflecting the sale of mortgage solutions. Excluding mortgage solutions, revenue grew 4% due to the growth in both our specialty portfolio and our multifamily housing business. The placement rate was unchanged from the first quarter this year as we on-boarded a new portfolio of loans with a higher placement rate. Without this small block, the placement rate would have declined more in line with our expectations or about two or three basis points. In addition, one of our lender-placed clients has decided to transfer their portfolio to another provider, reducing our loans tracked by approximately $2 million in the third quarter. These loans have a much lower-than-average placement rate and policies will transition off at renewal. The net effect of these two portfolio changes is expected to be neutral to our financial results over the next several quarters. As Alan noted, we now expect Global Housing net operating income for 2019 to be down modestly, excluding cat losses, due to the elevated small commercial claims. We continue to expect lender-placed to be stable excluding the higher cat costs. And we are pleased to see the sustained growth in multifamily housing, which should partially offset the decline. Now let's move to Global Preneed. The segment recorded another strong quarter $17 million in net operating income. The $2 million year-over-year increase was driven by higher net investment income as asset levels increase from continued growth in this business as well as the move toward a more profitable sales mix. Revenue in Preneed was up 6%, driven mainly by growth in the U.S. including sales of our Final Need product. Global Preneed's outlook for the year remains unchanged with earnings roughly flat with 2018, as we continue to manage expenses closely and look to grow long-term from new and existing clients and adjacent product offerings. At Corporate, the net operating loss was $24 million, a $7 million increase compared to the prior year period. This was attributable to reduced investment income, a result of lower investable assets in comparison to the second quarter of last year. Higher employee-related expenses and third-party professional fees to support growth also drove an increase in the quarterly loss. We continue to expect the corporate loss to approximate 2018 levels or roughly $85 million. Turning to capital, we ended March with $386 million in holding company liquidity or about $161 million above our current minimum target level of $225 million. Dividends in the quarter from our operating segments totaled $177 million. In addition to our quarterly Corporate, and interest expenses key outflows included $50 million in share repurchases $43 million in common and preferred dividends, and $8 million mainly in mobile technology capabilities as part of our venture capital program. In the third quarter through August 2, we repurchased an additional 168,000 shares for $19 million. For full year 2019, we expect dividends from our operating segments to approximate segment operating earnings. We brought up 66% of segment net operating earnings as dividends to the holding company through the first half of the year. This aligns with our historical pattern. Overall, the dividend should provide flexibility to invest in our businesses and return capital to shareholders subject to market conditions. In summary, we demonstrated strong first half performance and remain focused on delivering profitable growth and meeting our financial commitments for 2019. And with that operator, please open the call for questions.

Hey, good morning. A couple of questions. Your Global Housing expense ratio really dropped year-over-year. Could you talk about the drivers on that? I know you've had some expense initiatives that you've been working on. Is that mix? Will that decline continue?

Yes, good morning, Mark, it's Richard. Yes, I think a couple of things are going on to improve the expense ratio. I mean, I think the first thing is last year obviously as mentioned in our comments we had mortgage solutions that was weighing down a little bit that ratio. I think secondly, there are some good expense initiatives going on in the housing area, that are bringing that down. And third, we have multifamily housing that's continuing to grow as well. So a couple of things there that are all helping expense ratio to be at that level.

When considering the Global Lifestyle growth of 25%, it is clearly robust, and this growth rate has doubled since last quarter. As we evaluate the factors at play, the new business coming online may be offsetting some of the new business from last year. Is there any reason to expect that growth in the third quarter should be significantly slower or faster? I am contemplating how the onboarding of new customers might affect the growth outlook for the second half of the year.

Yes Mark. First of all, I want to express our pride in the Global Lifestyle team and the impressive results they are achieving. To clarify, we should separate revenue from NOI. In terms of revenue, we are continuing to expand the programs launched over the last 18 months, which is expected to increase our subscriber base. These programs will keep growing, and we anticipate that growth will continue into Q3 and beyond. However, when we look at NOI for the second half of the year, we typically see a seasonal trend where the second half underperforms the first half in mobile, despite the growth. This seasonality is influenced by a couple of factors. Firstly, new phone launches in recent years have occurred later in the cycle, with availability often not until early the following year, which has shifted some growth to Q1. Secondly, when we introduce new clients and programs, they usually launch in Q3 or early Q4 around the NPI, requiring us to invest in technology, training, and integration. Additionally, we generally witness some seasonality in underwriting results during Q3, as people are outdoors more and may accidentally damage their phones or get them wet. Overall, we expect ongoing strong growth in lifestyle, which should be reflected in revenue for Q3, although we anticipate that NOI will see a slight decline in the second half compared to the first half.

And then just a longer-term question, your growth has been so strong in the Connected Living. When we think about returns in the lifestyle segment, I think most of the capital as I understand it is there to support the auto business. If you continue to get growth in Connected Living, how much sensitivity is there in terms of returns? Should we see those returns improve as the mix becomes less capital intensive? And is there any way to throw any sort of numbers or relative guidance at that idea?

Sure, it's Richard again. That's a great question. I think there are a couple of points to address. First, referring back to Investor Day regarding lifestyle, our focus is more on growth, particularly net income growth in that area, rather than on returns. We've had a fantastic first half of the year, which highlights this. Regarding capital, you're spot on. The auto segment has required slightly more capital compared to Connected Living, although I see auto as somewhat capital light considering our existing arrangements and structures. Overall, as we consider Assurant as a whole, we're moving towards a less capital-intensive environment over time. Consequently, we expect Assurant's returns to improve. We mentioned anticipating our overall return on equity to increase by a couple of hundred basis points over the next few years.

I will get back in queue. Thank you.

Thanks, Mark.

Operator, our next question comes from John Nadel from UBS. Please go ahead.

Hey. Good morning, Alan. Good morning, Richard. To begin with housing, can you provide a quantification? I believe you've indicated that the small commercial business comprises about 15% of the specialty and other premiums, fees, and other income. Is that correct?

Yes. That's a good range, yes.

Given the potential revenue run rate of around $75 million, what was the operating loss generated by that specific business, whether you want to refer to the second quarter or even the first half of the year?

Yes, we discussed the small commercial product, which includes both property and liability aspects. As mentioned in our previous statements, this segment has incurred some losses, and we are in the process of exiting the business. We believe we have taken strong management actions to address the situation. For the quantification, I would estimate that the losses were around $6 million each quarter in Q1 and Q2, impacting our bottom line.

Yes. And John...

Got it. So after tax loss in each quarter was roughly similar and about $12 million on a year-to-date basis?

That's right, John.

Okay. Perfect.

Yes. In terms of housing, let me just make one other comment. If we set aside the small commercial segment, which was an experiment in growth that we quickly discontinued when it did not perform as expected, we feel very positive about the rest of the housing market. Multifamily is continuing to grow. We are still in the early stages of rolling out our point of lease, but it looks very promising for driving penetration. Lender-placed is performing as expected. Overall, we feel generally encouraged about housing, aside from the challenges we faced with small commercial and elevated non-cat losses.

Yes, I understand your point about moving away from the small commercial business, and I agree with the decision to exit that area. It appears that the housing segment is doing well. If I could shift focus to Global Lifestyle, I'm trying to grasp the pace and pattern of earnings. Your revenue growth has exceeded expectations, at least for me. However, if earnings are projected to decrease slightly in the second half compared to the first half, it makes sense that margins would be affected. Given the rapid revenue growth, should we anticipate a decline in earnings, or is it more accurate to say that only margins will be affected?

Yes. I think there are a couple of important points to consider. We need to be cautious when analyzing the margin of the lifestyle business due to some nuances in the accounting. For instance, in the second quarter, there was a contract change with one client that didn't really affect the bottom line, but it did result in increased top-line revenues. This can create some misleading signals in the revenue figures that might distort margin-related issues. As mentioned earlier, we anticipate that earnings will be lower in the second half of the year, considering the underwriting results we discussed and the investments and launches that carried over into the first quarter. All these factors together really lead us to concentrate on net income and its growth, which we had a strong performance in during the first half.

Yeah. And John, the other thing to think about...

And Yeah...

We've talked often about the new clients in the pipeline. Our pipeline is actually even stronger than we had anticipated. And it's really a tribute to the ...

Got you.

...situation we have in the market. We are investing as we go into Q3, to make sure we can capture as many of those as possible, because they will create substantial long-term value.

I wanted to shift the conversation to the longer-term outlook. If we look back a few months to your Investor Day, it appears that we have seen a higher baseline for both revenues and earnings in lifestyle than initially expected this year. I'm curious about how this might affect the anticipated growth for the business, particularly in terms of earnings growth as we look ahead to 2020 and 2021. Should we anticipate any significant changes in that outlook, or is it simply a continuation of the growth trend from a higher earnings base?

So, couple of thoughts on that, John. First of all, I think we feel even better positioned today than we did at Investor Day in lifestyle. The momentum is strong. And so that's very encouraging. As a reminder ...

Yeah.

The targets at Investor Day are multiyear. And so what we normally ...

Yeah.

do as part of our Q4 earnings call, we'll give you granular detail on what to expect in 2020 with our Q4 earnings call. But I would just leave it as momentum is strong and we feel even better positioned, than we were back at Investor Day.

Okay. Fair enough. And then two more real quick ones, one is, do you expect small commercial will be an earnings impact on 2020, or do you think it'll be gone, exited by the end of this year?

As I said, we are exiting the business. I mean, so really, we're thinking that it'll be substantially over. Can I say zero for next year? No, probably not. But we're not expecting anything material.

Okay.

And then last one is just the pace of buybacks. I guess I pushed on this a little bit in the last couple of quarters. But your momentum is so strong I guess I'm just trying to understand. I know you've been a consistent returner of capital ...

No. John, it's fair. We obviously feel very good about where our business is and how it's performing. We did make a commitment in Investor Day to return $1.35 billion over the next three years. We're making progress against that. As a reminder, though, we do buy back under 10b5-1s we can't just change them on the fly. So, you've seen what we're doing. You should expect we will continue to be buyback. We'll buyback through cat season this year as we've done the last few years. But we're on track to meet our expectation over that multiyear period.

Okay. Thanks I’ll get back in a queue. Thanks.

Thanks, John.

Hey, good morning, Alan.

Yeah, good morning.

Good morning, Chris.

Hey, great. I wanted to start with the small commercial segment of Global Housing. I noticed you had $12 million in year-to-date losses, which suggests a combined ratio of about 138%. With rates increasing in your commercial property and liability lines, what led you to decide to exit instead of pursuing rate increases on the existing book?

I believe that in all our business sectors, we offer something unique and provide significant value through innovation. We are experiencing growth in lifestyle and our efforts in lender-placed multifamily housing. We're implementing new systems, and even within special property, we're consistently launching new initiatives to create something distinctive. However, we have concluded that in this particular area, we cannot achieve that in the short term, which has led us to make the strategic decision to exit.

Yeah. And Chris, I'd add a couple of thoughts to that, one is the book developed. We didn't like the geographic exposure. It was more coastal than we wanted and we really didn't want to build that part of the book. And then, when we look at across our portfolio and deploying our resources and capital, we have substantially better opportunities elsewhere. And so that led us to very quickly make the decision, that we're better off to move on and put that investment elsewhere.

Okay. Got it, that makes sense. Switching to lifestyle, I was looking at the mobile device growth which only grew like 10.6% which is I think the lowest growth rate you've had since 3Q, 2017. So how should we think about the mobile device growth like going forward? And then what's your current U.S. market share and where do you think you can get to over time?

There were several questions in your comments, Chris, so please remind me if I miss any. Regarding mobile devices, we view them as a long-term source of value for our shareholders and plan to continue adding new devices. As we've mentioned, new programs typically take about three to four years to reach full maturity, and we have many new programs just starting. We expect significant growth in this area, regardless of market fluctuations. Additionally, we are expanding our services. If you recall from Investor Day, we shared a chart showing how we're stacking more services, many of which contribute fee income, onto our growth. Therefore, I wouldn't focus too heavily on quarterly growth; it's more important to consider the year-on-year momentum we're building in the business. In terms of market share, we hold a leading position with one key client, and we have opportunities with several others where our presence is minimal. This indicates substantial growth potential in the U.S. market going forward.

Okay. Great. I noticed that growth in Global Auto also slowed down to about 3% or 4%. Can you provide some insights on what is happening in the auto sector related to lifestyle?

Yes. No, I think when we look at Auto, we're really pleased. I mean as Alan talked about TWG integration I think the synergies and the growth that we're getting behind the scenes. We've talked in previous calls about our ability to retain the clients that came over in the TWG acquisition. So when we look at it we're on a good growth pattern. And we look probably less quarter-to-quarter as over a longer period of time. We are investing here so you'll see the earnings are not as strong as they otherwise could have been, but we're investing to continue to grow in the future.

Yes. And auto has an interesting dynamic in that it's really about share gain. So unlike mobile where the partnerships tend to be more exclusive these are businesses where there are many competitors. So we are really focused on differentiating our service, our product, our offerings to allow us to gain share over time leveraging our position.

Okay. And then what are the nature of the investments that you guys are going to accelerate in the second half of the year?

In lifestyle, our efforts can be categorized into a couple of key areas. First, for each product, we are focused on adding services that provide value beyond the core insurance or service contracts. We have established roadmaps and are actively implementing them in mobile and now in the auto sector, exemplified by our Pocket Drive initiative. The second area of investment centers around enhancing the consumer experience. We are currently working on significantly improving our digital capabilities across all our products. Lastly, we are continuing to onboard new clients and expand our programs, which involves substantial investment to scale these initiatives in the latter half of the year.

Okay. Great. And then just one last one you all asked a Preneed question. So I think you had mentioned in the script additional Preneed distribution opportunities. So what are those?

So in Preneed as you know we've had a long-term historic partnership with the industry leader. In recent years, we've been looking for additional growth that can really help us strengthen our position. So we've been both adding distribution and then also looking for ancillary products similar to what we've done elsewhere. I mentioned on previous earnings calls we've started to experiment with things like an executor product really ways to add more value beyond the Preneed product. So we're encouraged by the momentum in that business as well.

Okay. And would organic growth or inorganic growth make sense in that segment? Will there be anybody worth acquiring?

Yes. I think we feel well positioned with our business today and I think we're just going to continue to execute against our plan.

Okay, great. Thanks for all the answers.

Thank you.

Thank you. Good morning, everyone. I want to start with the housing sector. Your combined ratio has performed well and is at the lower end of the long-term target of 86 to 90. It's been at that level for a while. How do you view the impact this has on your housing strategy, particularly in terms of growth goals? Since you're at the lower end of the margin, how does this influence your growth strategy for that business?

So maybe I'll start and Richard you can add to it. The way we think about housing is we have a really strong growth engine in multifamily and rental and we've been continuing to gain share there. You can see the policy counts for example in our supplement and we're continuing to invest to differentiate what we do there. We're driving digital throughout that entire business. We're working hard on the point of lease. That's really the growth driver. For the more traditional risk businesses like lender-placed, we've really been focused on ensuring we are well positioned to be participating in any kind of upside that comes. And to have those businesses which generate a lot of cash flow for us continue to drive a lot of cash flow. So we've done things like lower the attach point in the reinsurance tower so that there's less volatility in the earnings coming out of those traditional risk businesses. We've been investing in what we call single-source platform SSP, which is really to differentiate the user experience and allow us to scale the economics over time. So I would think about growth really in multifamily and the balance of it keep it stable and throw off cash with upside if we get into any kind of housing slowdown.

And I would you add the last thing is we talked about. If something is not working, we take action. So I mean it's a great business.

Okay. Thank you. I guess on the TWG, the synergies you're well ahead of plan there. I guess anything else we can expect going forwards to supplement the $60 million? And then also in the same kind of note you've talked about some revenue synergies there and any developments on revenue synergy that you saw since last quarter?

Yes. I think we feel very good about where we are. We're now a year plus into the integration. Our client relationships are stronger across the board than they were at the time of the merger. We are investing to leverage the joint capabilities. So we'll continue to push for incremental expense synergies, but that's largely complete at this point. Our focus now is much more on growth and how do we leverage both sides and that will continue.

Okay. Great. Thanks. I guess maybe one or two more. From the specialty, P&C business that you got out of, is there any benefit in 2020 from reinsurance because of that?

Yes. So in terms of overall exposure, it will come down. So the absolute reinsurance cost would come down with that.

Okay. Great. Just one last question. Could you provide an update on the new developments and the initiatives you're introducing on the technology platforms, particularly regarding the rollout of Pocket Drive since last quarter? What impact has that had, and do you have any early insights on its performance?

Yes. So Mike, it's still early stages for Pocket Drive. Our aim is to utilize our capabilities developed through Pocket Geek, which is now well established in mobile. The focus is on enhancing the user experience to improve ownership for consumers. We applied those capabilities to Pocket Drive with a similar objective of enhancing the experience of owning a car. We're currently conducting pilots, and if they go well, we plan to launch it more broadly. This initiative differentiates our market position and strengthens our potential to gain market share over time.

Great. Thank you, guys. Appreciate it.

Thank you.

Thank you.

Hey, good morning, Gary.

Good morning. You mentioned earlier that a client left in lender-placed. Could you explain the reasons behind that? Also, reflecting on the past, what are the factors that lead mortgage servicers to make such changes?

Probably not appropriate to speculate on what caused any given client to do something. I think what we'd say there is we've had a strong track record of gaining share in that business to the position we now have. We're aligned with effectively all the major market leaders now in that business. And with the movement that we saw in the second quarter and what we've talked about in the prepared remarks it has no effect, it's not material to our overall earnings. So again, I think we're well positioned. We are investing heavily to differentiate that business as well. So again, I think we feel good where we are with lender-placed.

I also wanted to ask a bit about the commercial aspect in a broader sense. I assume you approached it as an experiment, but in thinking about your overall strategy, I see it as having a servicing value chain that is integrated within a consumer purchase value chain. What was it about the commercial business that aligned with that strategy, or am I potentially misunderstanding something?

No Gary, I think about our businesses having two real sources of differentiation. One you mentioned is we partner and we're embedded in the value chain. That really is lifestyle, that's mobile, that's really where multifamily is actually headed. In our housing risk businesses, we do better than market because we find kind of unique capabilities, unique distribution. We were experimenting to see if we can find another one like that and it just didn't work out so that's why we took a decision quickly. But we like risk businesses where we can have some sort of unique advantage and we had a thesis that just didn't work out on that one.

Are there any of the other 'experiments' that you're working on in that area that are starting to take off or show more promise?

In the multi-family rental sector, we have been exploring various aspects of the sharing economy, and some initiatives have proven successful. As we expand, these initiatives differ from traditional risk businesses, but we are optimistic about these experiments. If they yield positive results, we plan to scale them.

One more question about capital intensity is considering how sometimes it's a fee business and sometimes it's insurance. When it's insurance, it goes through an insurance entity that has regulatory capital requirements. Making it capital light could involve pursuing more contracts that are not insurance-based or not structured as insurance. Is this something within your control, or is it primarily dependent on the client's decision-making process?

I think there are a few points to address. First, when I take a step back and consider the enterprise as a whole, it's clear that lifestyle is less capital intensive than housing. You're absolutely right. One of the key strengths that Assurant offers to clients is our ability to provide not only insurance services but also various additional value-added services that aren't strictly insurance-related. These include premium tech support, administrative support, marketing, training, and other services for which we charge a fee but that are not insurance-based. We actively engage with our clients to understand their needs, allowing us to customize our offerings for them. As lifestyle services and mobile solutions expand, this naturally reduces capital intensity. Moreover, as we acquire new clients, the services we provide are likely to be less capital intensive thanks to the additional offerings we implement for them.

So is it fair to say based on what you just said that the trend toward the client desires is toward a slightly lower capital-intensive approach?

I believe that in many of our business areas, for instance, the auto sector, there's a level of insurance involved. In many cases, our clients share a significant portion of the risk, which makes this approach less capital intensive. Therefore, I see a trend toward being more capital light. Additionally, as we observe our fee-based businesses growing faster than our capital-intensive ones, it ultimately leads to an overall reduction in capital intensity for the business moving forward. Moreover, the changes we've implemented in the housing sector, particularly in reducing retention, also support this direction.

Right. All right. That's helpful. Thank you very much.

Okay. Thank you.

Thank you.

Hey, good morning, Mark.

Hope you might touch on the investment income. It's been a little bit up and down last few quarters definitely down sequentially in the second quarter. Is this a reasonable run rate, or is it just going to continue to be volatile?

Well, in the first quarter we really had a mark-to-market of a real estate portfolio that we have, and so that gave us some nice earnings as we reported out. So from time-to-time we will get those real estate gains that we report out. We have them in the supplement and so forth. So the choppiness that comes is typically good news I would say over a kind of a run rate. We manage the portfolio more on an income basis, so we don't see big volatility within the underlying portfolio from period to period. Most of the portfolios in high-grade fixed income, so the volatility, if anything it's a good thing for us. So I look at it Mark more over a longer period of time and you'll get a nice run rate there.

And just so I'm clear with that mark-to-market on the real estate portfolio was that Q4 better than Q1?

No, it was Q1. We had some gains in Q4 as well. So yes there were gains there and there were gains in Q1 as well.

Okay. Thank you.

Thank you.

Hey, good morning, again John.

Hey, good morning, again. Thanks for taking the follow-up. Just a couple of real quick ones. One, is there any update you can provide publicly as it relates to how things are moving along around Iké Asistencia?

I think the update is we're still on the path that we had set out last quarter. We're looking at our strategic options. We're I would say looking out in the market at those options. It's very – it's still early days obviously as we kind of gear up to look out and so forth. So no other update other than that and we'll be back every quarter if something material happens.

Okay. I mean, but do you feel like there's actually any progress or is it just quiet?

Oh, no, no. We've set the path for ourselves and to go out into the market get our strategic options. Can't say where that's going to go its early days. But no, we're progressing well.

Okay. And then, I guess, last one is just this. Alan, I think in your prepared remarks you talked a little bit about T-Mobile. I don't recall exactly what you said. I might have joined just a little bit too late. But maybe you could just sort of reiterate what's happening there. And then relatedly, whether they gain approval to merge with Sprint, what do you think it would take for Assurant to win Sprint's business or somebody's business like that? And is that part of the investment spending that you are characterizing as sort of already part of your plans, or would that be something that you would expect would be incremental if you felt like that opportunity was right in front of you?

Yes. So John, let me start with T-Mobile, since that was what I mentioned in the prepared remarks. What I was referring to there is that we are in the process now of implementing the move of Metro by T-Mobile over to Assurant. And as we complete that we're proud now to be the device protection partner for all of T-Mobile's businesses. So that's a great position.

Got you.

It's really a result of the years of working side-by-side with them really helping differentiate their business as they revolutionize the industry. So we feel well positioned with T-Mobile, no matter what happens in the market with mergers. And in terms of what's happening in the market, we couldn't speculate on what might or might not happen. But in Investor Day, when we gave our long-term outlook, we didn't contemplate any major new client coming our way. So if we did get one that would be incremental to what we've been talking about.

Okay. There is an increase on both sides of the income statement, with additional revenue growth and upfront costs associated with acquiring new clients.

Yes. We built our plan with the line of sight we had with the clients that we have partnerships with. We didn't contemplate in the long-term outlook new clients.

Got you. And if I can sneak one more in. Can you just give us an update on how things are going with respect to Apple as well as the modest but new arrangement you've got with Verizon?

Without going into a lot of specifics on how individual clients are performing I think we feel good with our evolving partnership with Apple. And we're now working with them in multiple geographies and we're expanding our reach in their value chain over time so I think we feel good with that. And with Verizon and the other major prospects both in the U.S. and outside of the world we're working hard to differentiate and show that we can bring innovation and we'll see where those go over time, but we do believe we're a disruptive player and that we can help really these clients win over time.

Thanks so much. Really good quarter. Keep up the momentum.

All right. We appreciate it. Thank you for everyone. So thanks for participating in today's call. We're pleased with our first half performance and believe we're well positioned to deliver our financial objectives for the year. We look forward to updating you on our progress in our third quarter earnings call in November. In the meantime, please reach out to either Suzanne Shepherd or Sean Moshier with any follow-up questions. Thanks everyone.