Assurant Inc (AIZ) — Q2 2021 Earnings Call Transcript

Thank you, operator, and good morning, everyone. We look forward to discussing our second quarter 2021 results with you today. Joining me for Assurant's conference call are Alan Colberg, our Chief Executive Officer; Keith Demmings, our President; and Richard Dziadzio, our Chief Financial Officer. Yesterday, after the market closed, we issued a news release announcing our results for the second quarter of 2021. The release and corresponding financial supplement are available on assurant.com. We'll start today's call with remarks from Alan, Keith, and Richard before moving into a Q&A session. Some of the statements made today are forward-looking. Forward-looking statements are subject to risks, uncertainties, and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these factors can be found in yesterday's earnings release as well as in our SEC reports. During today's call, we will refer to non-GAAP financial measures, which we believe are important in evaluating the company's performance. For more information on these measures, the most comparable GAAP measures, and a reconciliation of the two, please refer to yesterday's news release and financial supplement. I will now turn the call over to Alan.

Thanks, Suzanne. Good morning, everyone. We are very pleased with our second quarter results. Our performance so far this year across our Global Lifestyle and Global Housing businesses demonstrates the power of our strategy to support consumers' connected lifestyle and continues to give us strong confidence in the future growth prospects for Assurant. Prior to reviewing our progress against our 2021 financial objectives, I wanted to take a moment to express my deep gratitude to our employees around the world, specifically for their continued dedication and support for all of Assurant's stakeholders during my tenure as CEO and especially over the last 18 months of the pandemic. Our talent is a great enabler of our company's growth and progress, and Keith Demmings' appointment as my successor is evidence of that. With a 25-year-long career with the company, Keith has a clear track record of success and personifies the values and integrity that are emblematic of Assurant's culture, and he's a natural choice as our next CEO. His deep operational experience and strong engagement with clients has been instrumental in guiding Assurant's growth across the enterprise. As CEO, Keith will drive innovation through our connected world and Specialty P&C businesses. The completion of the sale of Global Preneed to CUNA Mutual Group marks another important milestone for Assurant as it enables our organization to further deepen our focus on our market-leading lifestyle and housing businesses. I would like to thank all of our former Preneed employees who have transitioned to CUNA Mutual Group for their tremendous support to Assurant and our clients and policyholders. As we look to the convergence of the connected mobile device, car, and home, we believe our Connected Living, Global Automotive, and Multifamily Housing businesses will continue their compelling history of strong growth into the future. Not only do our Connected World businesses have a history of profitable growth, more than tripling earnings over the last 5 years, we're also characterized by partnerships with leading global brands, broad multichannel distribution that provides consumers with choice, value, and exceptional service, and a track record of innovative offerings that have become industry standards. ESG is core to our strategy and sure we'll build a more sustainable Assurant for all of our stakeholders focusing on talent, products, and climate. During the quarter, we continued to advance our ESG efforts as we work to create an even more diverse, equitable, and inclusive culture that promotes innovation, enhances sustainability, and minimizes our carbon footprint. We recently completed our 2021 CDP climate survey, our sixth annual submission, expanding this year to include Scope 3 greenhouse gas emissions across several categories. The CDP survey is an important climate change assessment that many of our key stakeholders rely on each year. Our efforts have led to recognition that we're proud of. During the quarter, Assurant was recognized as a 2021 honoree of the Civic 50 by Points of Light, distinguishing Assurant as one of the 50 most community-minded companies in the U.S. We are proud of our progress and believe the future of Assurant is bright. Together, lifestyle and housing should continue to drive above-market growth and superior cash flow generation, with the ability to outperform in a wide spectrum of economic scenarios and ultimately, continue to create greater shareholder value over time. Year-to-date, excluding reportable catastrophes, net operating income per share was $6.02, up 14% from the first half of last year, and net operating income was $366 million, an increase of 13%. Adjusted EBITDA increased 12% to $600 million. These results support our full-year outlook of 10% to 14% growth in net operating income per share, excluding affordable catastrophes. While we expect earnings growth in the second half on a year-over-year basis, our outlook for the full year assumes a decline in earnings from the first half, reflecting increased investments to support long-term growth in our Connected World businesses, lower investment income, and increased corporate and other expenses due to timing of spending. Turning to capital. From 2019 through June of this year, we've returned to shareholders over 88% or almost $1.2 billion of our 3-year $1.35 billion objective. In July, we repurchased an additional 737,000 shares for $115 million and declared our quarterly common stock dividend for the third quarter, essentially completing our objective when paid. In addition to completing this objective, we expect to return $900 million in net proceeds from the sale of Global Preneed within the next 12 months, and therefore, expect buybacks to continue at a higher-than-usual level throughout the remainder of the year and into 2022. I'll now turn the call over to Keith to review our key Connected World highlights for the quarter.

Thank you, Alan, and good morning, everyone. I wanted to begin by expressing my thanks to Alan for his steadfast leadership and the successful transformation of Assurant since becoming CEO at the beginning of 2015. Through his strategic vision and intense focus on the evolving needs of our clients and end consumers, Alan and our team have solidified market-leading positions in our Connected World and Specialty P&C businesses, helped Assurant establish a strong growth, capital-light service-oriented business model where our Connected World offerings now comprise approximately two-thirds of our segment earnings and ultimately, work together to unlock the power of our Fortune 300 organization, prioritizing resources against initiatives with the highest growth potential and standing up key enterprise capabilities and functions, which we can now leverage across our growing client and customer base. As a result, Assurant is on track to deliver our fifth consecutive year of strong profitable growth. As I continue to work closely with Alan over the coming months, I'm also engaging with many of our key stakeholders, including shareholders and analysts, who have shared valuable perspectives as we define our multiyear plan. As I identify key focus areas, I will prioritize developing and recruiting top talent, investing strategically to sustain and accelerate growth through product innovation and new distribution models, and differentiating us further from our competition through continuous improvement in our customer service delivery, and supporting the investment community in better understanding our portfolio as we look to drive further value creation. Our long-term goal will continue to be to deliver sustained growth and value to all of our stakeholders. Our ability to deliver on these ambitions will require additional innovation and investments to ultimately provide a superior customer experience and deepen our client relationships. Innovation will continue to be a key differentiator for Assurant, especially as we evolve with the convergence of the connected consumer. As part of our ongoing commitment to delivering a superior customer experience with a range of service delivery options, we'll be further building out our same-day service and repair capabilities for which there is growing demand. This requires upfront investments, which we expect to accelerate in the second half of this year as we look to provide additional choice and convenience for the end consumer. These investments are critical to sustain our competitive advantage in markets like the U.S. As we look to continue our culture of innovation, you may have seen we recently announced two key leadership changes to support those efforts. Manny Becerra, a 31-year veteran of Assurant, who is instrumental in driving the growth of our mobile business, was appointed to the newly created role of Chief Innovation Officer. Given his many contributions to our success, including the development of our mobile protection and trade-in and upgrade business, he will bring dedicated resources to accelerate innovation across the enterprise to capitalize on the rapid convergence across our home, automotive, and mobile products. Biju Nair will now lead our Connected Living business as its President. His strong track record of delivering profitable growth and client service excellence, combined with his depth of experience, particularly as the former CEO of Hyla Mobile, makes him the perfect choice. A prime example of how innovation has allowed us to deepen and expand client relationships as well as create new revenue streams is our long-standing partnership with T-Mobile. Over the past 8 years, we have worked together to offer their customers innovative device protection, trade-in and upgrade programs while further developing our supply chain services to support their mobile ecosystem. We are happy to announce that T-Mobile has extended our partnership as their device protection provider. While we are currently finalizing contract terms, we are excited about the multiyear extension of our relationship and our ability to continue to expand our services to deliver a superior customer experience. In addition to our innovation efforts, our investments over the past several years have supported our growth through the success of new and strengthened client relationships. After an initial investment in 2017, this quarter, we purchased the remainder of Olivar, a provider of mobile device lifecycle management and asset disposition services in South Korea. While small in size, this acquisition enhances our global asset disposition capabilities and deepens our footprint in the Asia-Pacific region while complementing the recent acquisitions of Alegre in Australia and Hyla Mobile. These investments have enhanced our technology, operational capabilities, and partnerships in the trade-in and upgrade market, positioning us to capitalize on the 5G upgrade cycle over the next several years. While later this year, the growing availability of 5G smartphones, combined with trade-in promotions, demonstrate increasing momentum for the upgrade cycle. For carriers, retailers, OEMs, and cable operators, 5G offers an opportunity to drive additional revenue and gain market share. Strong trade-in and upgrade promotions have also led to higher trade-in volumes for Assurant as well as higher Net Promoter Scores and net subscriber growth within our client base. Our focus on our client relationships, combined with our willingness to innovate to enhance the end consumer experience, continues to create momentum for our businesses. Over the last few months, we have delivered several new partnerships and renewals throughout the enterprise, including the renewal of two key European mobile clients, representing 700,000 subscribers; the renewal of 8 global automotive partnerships, representing over 10 million policies across our distribution channels; the renewal of 3 Multifamily Housing property management companies, including 2 of the largest in the U.S., as we continue to grow the rollout of our Cover360 product; and the renewal of 3 clients and 2 new partnerships in lender-placed as we provide critical support for the U.S. mortgage market. In summary, I am very excited to lead our 14,000 employees into the future and build on the tremendous momentum created under Alan's leadership. I'll now turn the call over to Richard to review the second quarter results and our 2021 outlook.

Thank you, Keith, and good morning, everyone. We're pleased with our second-quarter performance, especially when compared to our strong results last year. For the quarter, we reported net operating income per share, excluding reportable catastrophes, of $2.99, up 12% from the prior year period. Excluding GAAP's net operating income for the quarter, totaled $184 million. And adjusted EBITDA amounted to $298 million, a year-over-year increase of 12% and 10% respectively. Our performance across Lifestyle and Housing remains strong, and we also benefited from a lower corporate loss and higher investment income, primarily related to the sale of a real estate joint venture partnership. Now let's move to segment results, starting with Global Lifestyle. The segment reported net operating income of $124 million in the second quarter, a year-over-year increase of 2%. This was driven by growth in Global Automotive and more favorable experience in Global Financial Services. Earnings increased $7 million or 16% from continued strong year-over-year growth related to our U.S. clients across various distribution channels. Results within auto also included a $4 million increase from the sale of a real estate joint venture partnership. Absent this gain, investment income in auto was down. Connected Living earnings decreased by $9 million compared to a strong prior year period. The decline was primarily driven by less favorable loss experience in our extended service contract business. Mobile earnings were modestly lower. The less favorable loss experience in service contracts in mobile was primarily related to our European and Latin American businesses. These regions benefited from lower claims activity in the prior year period due to the pandemic. Our underlying mobile business continued to grow in North America and Asia Pacific from enrollment increases at mobile carriers and cable operators, with an increase of over 1 million covered devices in the last year. In addition, contributions from acquisitions such as Hyla Mobile benefited results. For the quarter, Lifestyle's adjusted EBITDA increased 6% to $186 million. This reflects the segment's increased amortization related to higher deal-related intangibles for more recent transactions in mobile and Global Automotive. IT depreciation expense also increased, stemming from higher investments. As we look at revenues, Lifestyle increased by $169 million or 10%. This was driven mainly by continued growth in Global Automotive and Connected Living. Within Global Automotive, revenue increased 13%, reflecting strong prior period sales of vehicle service contracts. Industry auto sales continued to increase during the quarter, with April seeing record levels in the U.S. This was reflected in our net written premiums of roughly $1.3 billion in the quarter, the highest quarter ever recorded. Connected Living revenues increased 7% for the quarter. In addition to growth in service contracts, mobile fee income was driven by strong trading volumes, including contributions from Hyla. For the full year, Lifestyle revenues are expected to increase modestly compared to last year's Auto and Connected Living growth. We continue to expect covered mobile devices to grow mid-single digits in 2021 as we increase subscribers in key geographies like the U.S. and Japan. This also reflects a reduction of 750,000 mobile subscribers related to a European banking program that moved to another provider in the second quarter. As we previously outlined, this is not expected to significantly impact our profitability. For 2021, we still expect Global Lifestyle's net operating income to grow in the high single digits compared to the $437 million reported in 2020. While we expect earnings growth year-over-year for the second half, earnings in the second half of the year are expected to be lower compared to the strong first half performance, primarily due to two items: First, investments were increased across Connected Living in the second half of the year, including our same base service and repair capabilities. While these investments will meet earnings growth in the short term, they are expected to generate growth over the long term. And second, that investment income will be lower as we are not expecting gains from real estate joint venture partnerships that benefited the second quarter in auto. Adjusted EBITDA for the segment is still expected to grow double digits year-over-year at a faster pace than segment net operating income. Moving now to Global Housing. Net operating income for the quarter totaled $94 million compared to $85 million in the second quarter of 2020 due to $10 million of lower reportable catastrophes. Excluding catastrophe losses, earnings were relatively flat as growth within lender-placed and higher investment income was offset by the expected increase in non-cat loss experience across all lines of business. Investment income included a $4 million increase from the sale of a real estate joint venture referenced earlier. Regarding the non-cat loss ratio, the second quarter of 2020 benefited from unusually low non-cat losses, including impacts from the pandemic. As anticipated, we saw an increase in the frequency and severity of claims in the second quarter. We also increased reserves related to the cost of settling runoff claims within our small commercial book. In Multifamily Housing, underlying growth was offset by increased investments to further strengthen our customer experience, including our digital-first capabilities. Within lender-placed, higher revenues and investment income were partially offset by unfavorable non-cat loss experience and declining REO volumes from ongoing foreclosure moratoriums. Looking at loans track, the sequential loan decline of 1.5 million was mainly attributable to a client portfolio that rolled off in the second quarter. However, this decline in loans track should be partially offset by two new client partnerships in the quarter, which should enable us to onboard approximately 700,000 loans by year-end. We also continued to reduce risk within housing. At the end of June, we completed our 2021 catastrophe reinsurance program. To mitigate multi-event risk, we added a flexible limit that can be used to reduce our retention from $80 million to $55 million in certain second and third events or increase the top of the tower of $50 million in excess of $950 million in the rare case of a 1 in 174-year event. We also increased our multiyear coverage to over 50% of our U.S. tower. In terms of revenue, Global Housing's revenue increased 5%, primarily due to double-digit growth in Multifamily Housing as well as higher revenue in lender-placed, including higher premium rates and average insured values. As a result of the strong first half, we now expect Global Housing net operating income, excluding catastrophes, to be flat compared to the $371 million in 2020. This is above our initial expectations that earnings would be down this year. Earnings in the second half are expected to be lower than the first half of the year, primarily related to three items: First, lower net investment income, particularly considering the real estate joint venture gain in the second quarter; second, lower results in our specialty P&C offerings after a strong first half; and third, continued investments in the business, particularly in Multifamily Housing to sustain and enhance our competitive position. We also continue to monitor the REO foreclosure moratoriums and any additional extensions that may be announced. At corporate, the net operating loss was $12 million compared to $29 million in the second quarter of 2020. This was driven by two items: First, lower employee-related expenses and third-party fees, which we expect to increase in the second half of the year; and second, we had $6 million of favorable one-time items including a tax benefit and income from the sale of a real estate joint venture partnership. We also anticipate higher spending in the second half of the year compared to the first half, due to an increase in recruiting and moderate travel and related expenses. As we expect to begin a phase two reentry of our workforce, third-party expenses are expected to increase due to acceleration and timing of investments. For the full year 2021, we now expect the corporate net operating loss to be approximately $85 million, which compares to our previous estimate of $90 million. Turning to holding company liquidity, we ended the second quarter with $353 million, which is $128 million above our current minimum target level. This excludes both the $1.2 billion in net proceeds from the sale of Preneed and the net proceeds from the second quarter debt offering, which were used for the July redemption of senior notes due in 2023. In the second quarter, dividends from our operating segments totaled $243 million. In addition to our quarterly corporate and interest expenses, we also had outflows from three main items: $191 million of share repurchases, $42 million in common stock dividends, and $17 million mainly related to mobile acquisitions, including Olivar and Assurant Venture investments. For the overall year, we continue to expect dividends to approximate segment earnings, subject to the growth of the businesses, rating agency and regulatory capital requirements, investment portfolio performance, and any impact from a potential change in corporate U.S. tax rates. In summary, our strong performance for the first half of the year positions us nicely to meet our full-year financial commitments while continuing to invest in our long-term growth. And with that, operator, please open the call for questions.

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

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

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

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

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

Thank you for the question, Brian. Firstly, as mentioned earlier, we are pleased to have met our $1.35 billion commitment, and with the upcoming third-quarter dividend, we will achieve this objective ahead of schedule. We are also happy to report that we closed on Preneed and received the proceeds this week. As previously stated, we plan to buy back our shares over the next 12 months, and this process will be initiated very soon. We are considering all options, and we believe that share repurchases are the best approach.

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

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

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

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

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

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

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

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

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

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

Sure, it's Keith. Overall, we've experienced healthy double-digit growth rates in car volumes compared to pre-pandemic levels. You're right, there was a significant recovery in the second quarter compared to the same quarter last year, which was quite low. This year saw an impressive rebound, with net written premium up 68% from last year's same quarter. However, much of that reflects last year's downturn and this year's strong quarter. When we compare it to 2019, which represents a pre-pandemic norm, there's a 36% increase this year, indicating substantial growth. We're also seeing strong attachment rates in the business. There has been a slight shift between new and used cars, with our mix typically around 50-50, though it's closer to 53% used right now, which tends to have slightly higher attachment rates and quicker earnings. Our clients are gaining market share through consolidation and expanding their used car operations while launching strong digital brands. Overall, there's a lot of growth within our core client base, and we've also added new clients. We're seeing strong car sales among larger clients gaining market share and winning new deals in the market.

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

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

Can you discuss the impact of the end of the foreclosure moratorium on your lender-placed insurance placement rates? How significant is that trigger for your placement rate? I understand it affects your real estate owned properties, but are there other factors influenced by government actions that are limiting your placement rates?

Yes. Over the past year, our placement rate has remained relatively stable, showing no significant upward or downward trend. The positive aspect is that due to the actions we've taken over the years, our business is in a robust position. We are providing excellent experiences for both customers and clients. If the market weakens, we will benefit and grow in the long run. Regarding moratoriums, if and when they are lifted, we will experience the effects with a delay. Even if they were lifted today, which involves a lot of complexities and potential changes, we don't anticipate any fluctuations in our placement rate this year. The potential impact might be felt in 2022 and later. Importantly, regarding lender-placed insurance, we remain a prominent market leader dedicated to enhancing customer and client experiences. We will partners with leading banks when the housing market softens.

First question regarding the investments you mentioned and their impact in the second half of the year. Specifically, when can we expect to see the benefits of those investments? Are we looking at more top-line growth, margin improvements, or both? Additionally, when you refer to the long-term effects, can you provide a timeframe? Should we anticipate seeing benefits next year, or will it take longer?

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

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

Richard, do you want to take that?

Yes, I can address that. The overall cost is expected to increase this year compared to last, but not significantly. Essentially, we have acquired what we refer to as a second and third cover. This means that if we encounter an event that exceeds our retention, we can lower our retention from $80 million to $55 million. If we don't utilize that feature and face a major event, it will also assist us at the higher levels. This will lead to a slight increase in our overall placement. We're pleased to see that we have a reliable group of reinsurers, approximately 40 carriers rated A- or better, who consistently support us. We can place our reinsurance on a comparable basis without this new feature, at slightly lower rates than the market. We are proud of the progress we've made in managing our catastrophe exposure. Additionally, our current catastrophe exposure is lower than in previous years due to our ongoing efforts and the growth in other areas like Multifamily Housing, Global Auto, and Connected Living. For instance, in a 1 in 50-year event, we would have retained 40% of our earnings back in 2017. Now, we retain 70% of those earnings in the same scenario, indicating significant improvement in how we manage our catastrophe exposure and the growth of our business in other sectors.

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

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

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

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

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

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

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

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

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

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

Many of my questions have been addressed. However, I would like to ask a broader question regarding the economy's reopening and recovery. You provided some insights about the auto market, but are there other aspects of your business that are expected to experience more growth or will be significantly affected if the economy continues to strengthen and reopen this year?

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

I would like to highlight that in the Lifestyle segment, especially within Connected Living, we are experiencing significant positive effects from 5G. We often discuss our trade-in business, which is a critical aspect of our value proposition. Our carrier partners rely heavily on this to drive market promotions that help consumers access funds to upgrade to the latest 5G technology. We have witnessed particularly aggressive promotions in this area, and we are supporting our clients by scaling our operations effectively. Our acquisitions, such as Hyla and Alegre, have enhanced our trade-in capabilities significantly. We hold a leading position in the global market, and this aspect of our business is increasingly important. We’ve observed considerable growth in trade-ins related to both volume and promotional activities, with higher attach rates at the point of sale and increased consumer awareness and readiness regarding trade-ins. We expect this positive trend to continue as the year progresses. While it's challenging to forecast the impacts of COVID, there are strong trends emerging in the mobile sector.

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