Assurant Inc (AIZ) — Q4 2021 Earnings Call Transcript

Thank you, operator. And good morning, everyone. We look forward to discussing our fourth quarter and full year 2021 results with you today. Joining me for Assurant’s conference call are Keith Demmings, our President and Chief Executive Officer; and Richard Dziadzio, our Chief Financial Officer. Yesterday after the market closed, we issued a news release announcing our results for the fourth quarter and full year 2021. The release and corresponding financial supplement are available on assurant.com. We'll start today's call with remarks from Keith and Richard before moving into a Q&A session. Some of the statements made today are forward-looking. Forward-looking statements are based upon our historical performance and current expectations and 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 Keith.

Thank you, Suzanne, and good morning everyone. As I begin my tenure as CEO, I'm extremely proud of the opportunity to lead our nearly 16,000 employees across the world, as we support consumers' ever-connected lifestyles. As I reflect on Assurant’s transformation over the past several years, not only have we evolved our business model, but also significantly expanded the breadth of our offerings and our customer base. Today, Assurant represents a cohesive group of higher growth service-oriented businesses serving more than 300 million consumers globally. Collectively, our connected consumer and specialty P&C businesses have generated and are expected to drive continued profitable growth and strong returns. As we position Assurant for 2022 and beyond, we see compelling opportunities to sustain growth, particularly with the convergence of the connected consumer in the global markets and geographies in which we operate. Continued success will require us to deliver on our vision for the future to empower leading brands to connect, protect and support their customer's connected lifestyles. Ongoing investments in our people and capabilities will enable us to meet our customers how, where and when they want to be met, differentiating our offerings through a superior customer experience. Continuously adapting to the changing needs of the connected consumer will be critical to achieving our long-term growth. To continue to capture new opportunities, I believe success will require more than ever our focus on five priorities. First, attracting, retaining and developing the best talent to unlock future potential; Second, delivering a superior digital-first customer experience; Third, deepening our strong partnerships with major clients and prospects worldwide, while also developing offerings and capabilities that continue to differentiate Assurant; Fourth, accelerating the pace of innovation and prioritizing the necessary investments across our operations and technology; And finally, continuing to further embed and support sustainability and inclusivity for the benefit of all stakeholders and the communities in which we operate. And already this year, we've made progress in our continued objective to build a more sustainable Assurant. I'm proud of our recognition by CDP on our environmental impact and commitment and our continued inclusion in the Corporate Equality and Bloomberg Gender Equality Indices. I want to take a moment to highlight our lifestyle and housing businesses and how we successfully executed our strategy throughout 2021. Within Connected Living, our mobile device lifecycle management solution has enhanced our ability to introduce value-added services and capabilities to monthly device protection plans and trade-in and upgrade programs. This has helped expand our market share and further differentiate our offerings. We now cover almost 63 million mobile devices, a figure that's doubled since 2015 and increased 18% in 2021 alone. At year-end, we launched a partnership with Deutsche Telekom in Germany to provide an innovative mobile phone device protection program and trade-in program. Assurant has already been recognized by Deutsche Telekom for our commitment to sustainability with a hashtag Green Magenta label highlighting how our products and services make a positive climate contribution and reflect a responsible use of resources. This is another example of further integrating ESG into Assurant’s business operations and offerings worldwide to drive more value for our partners and for our consumers. Throughout the year critical investments continued to drive growth and differentiate the customer experience. Our trade-in and upgrade business now inclusive of HYLA Mobile drove exceptional performance, processing over 25 million devices supported by the rollout of 5G as well as our repair asset disposition and technology capabilities. We recently expanded our long-standing partnership with Telefonica to provide a comprehensive device trade-in program across several key countries in Europe, in Latin America where Telefonica is a market leader. The program will enable Telefonica to access our leading trade-in technology. We also continue to integrate mobile service delivery options into our offerings through CPR's local same-day capability and the come-to-you repair capability through our acquisition of Fixed. Demonstrating our commitment to improving the customer experience CPR by Assurant ranked first in the 2022 Entrepreneurial Franchise 500 for electronics repair. This is a testament to the success of our CPR franchisees and our commitment to provide customers with exceptional experiences, services, and support. And we successfully executed on the major rollout of the in-store repair capability to nearly 500 T-Mobile store locations nationwide, showcasing our ability to adapt to rapidly changing consumer preferences. Over a period of five months, we recruited, trained, and deployed nearly 2,000 technicians to deliver a seamless experience to T-Mobile customers in-store, while also converting approximately 10 million Sprint subscribers to Assurant. The in-store repair rollout will continue in 2022 as we further enhance the overall experience for T-Mobile customers. Turning to our global automotive business, where we also have a strong track record of growth and innovation. We've continued to capture market share and see significant opportunities ahead. In 2021, we grew global protected vehicles by 10% to nearly $54 million, and increased net operating income by 21%. The auto business is critical to the long-term success of Assurant and we should continue to benefit in the future from increased scale through our alignment with industry leaders and our ability to support customers through digital channels. Turning to renters, the business grew policies and revenue by 7% in 2021, a testament to strong affinity and property management company relationships. We also secured multi-year renewals with two top 10 property management companies. Technology and innovation are critical components to our success in this business. And we'll continue to invest in our technology over the next several years to further enhance the customer experience for our 2.6 million policyholders. Investments in 2021 included the continued rollout of Cover360, launching new customer-facing sales portals and expanding self-service capabilities that leverage machine learning to enable automation of claim payments. Ultimately, our investments should increase policy attachment rates which have not yet hit mature levels throughout the industry. Additionally, in our attractive P&C offerings, including lender placed insurance, we have maintained our market-leading position with large US services and banks tracking over 30 million loans. Last year alone, we renewed 10 clients and partnered with two new clients. As we look to 2022, we'll continue investments in operations, such as our customer-centric single-source processing platform, differentiating our tracking capabilities and improving efficiency. Overall, I'm pleased that our businesses have delivered on our commitments for 2021 as we delivered value for our clients and customers. We also further demonstrated the resiliency of our unique business model as we navigated the pandemic and managed inflationary pressures. Excluding reportable catastrophes, we generated 14% earnings per share growth, on the high end of our expectations. Net operating income also excluding catastrophes grew by 11% to $672 million, making 2021 our fifth consecutive year of profitable growth. Our balance sheet remains strong. Combined, our businesses contributed a total of $729 million in dividends to the holding company, representing approximately 100% of segment earnings. This allowed us to return a total of $1 billion in share repurchases and common stock dividends and complete our three-year $1.35 billion capital return objective. In addition, we completed 60% of the $900 million we committed to return through share repurchases as part of the sale of our Preneed business. We anticipate returning the remainder by the end of the second quarter. Next, I'd like to review some initial thoughts for 2022. As we look ahead to sharing our long-term vision, strategy, and financial objectives at Investor Day in March, we can make an even more compelling case for the future. Given our ongoing shift to more service-oriented fee-based businesses, we believe adjusted EBITDA rather than net operating income is a better representation of how to evaluate our operating performance for the enterprise and segments. In 2021 adjusted EBITDA excluding catastrophes increased 9% to $1.1 billion, driven by strong results in Global Lifestyle, particularly in Global Automotive and Connected Living, as well as a lower corporate loss. In 2022, we expect growth in adjusted EBITDA excluding catastrophes of 8% to 10%, a reflection of the strength of our business portfolio. Within Global Lifestyle, we expect adjusted EBITDA to increase by low double digits, but likely not exceed the 12% growth we achieved in 2021. Segment growth will be driven by Connected Living, particularly mobile, even as we make strategic investments to support new business, including continued investments in our in-store mobile repair capabilities. Within Global Housing, adjusted EBITDA excluding catastrophes is expected to grow mid to high single digits, driven primarily by lender placed from higher average insured values, operating efficiencies, and improved results in specialty offerings. Our corporate segment is expected to generate a loss of approximately $105 million of adjusted EBITDA, which is in line with our historical levels. Cash flow generation is also expected to remain strong and is a core component of Assurant’s financial profile, allowing us to continue to invest in and transform this company. As we look at our capital management priorities going forward, we will continue to be strong stewards of capital. Our goal is to continue to maximize long-term value creation through disciplined capital deployment, while also maintaining our investment grade and financial strength ratings. Given the attractive business opportunities we see ahead, we expect a more balanced capital deployment mix, targeting compelling investments to drive long-term growth, whether organic or through M&A, as well as ongoing return of capital to shareholders. We believe this combination will enable us to sustain above-market profitable growth and generate significant value for our shareholders. We recognize that for periods of time this may result in higher than average levels of holding company liquidity to ensure we have the flexibility to make investments that generate compelling returns, while also returning capital mainly through buybacks, given the attractiveness of our stock. Lastly, I wanted to acknowledge and thank all who have supported my transition to CEO over the last several quarters. Your feedback and ongoing dialogue has been incredibly valuable as we collectively look to build upon the success of Assurant for the future. And I want to thank our employees around the world for their extraordinary efforts in 2021, a year in which we again outperformed despite the challenges of the pandemic. I will turn the call over to Richard to review the fourth quarter results, our 2022 outlook and business trends.

Thank you, Keith and good morning everyone. As Keith noted, we are pleased with our performance in 2021 which continues to reinforce the strength of earnings and cash flow generation of our businesses. For the fourth quarter, we reported net operating income per share excluding reportable catastrophes of $2.49, up 21% from the prior year period. Excluding catastrophes, net operating income for the quarter totaled $144 million and adjusted EBITDA amounted to $245 million, a year-over-year increase of 16% and 8%, respectively. Now let's move to segment results, starting with Global Lifestyle. The segment reported net operating income of $108 million in the fourth quarter, a year-over-year increase of 20%. Growth was driven by strong performance in Global Automotive and Connected Living. In Global Automotive, earnings increased $12 million or 29% from fourth quarter 2020. The increase is based on three main items, including, first, continued organic growth across distribution channels, mainly in the US and including AFAS contributions. Second, there were losses experienced from selected ancillary products. And third, higher investment income. Connected Living’s earnings increased by $9 million or 21% year-over-year, more than offsetting the implementation costs associated with the initial deployment of in-store device repair services with T-Mobile. These costs are primarily related to technician hiring and parts sourcing and will further impact Connected Living’s earnings in 2022 as we continue investing in our in-store capabilities. The fourth quarter increase in Connected Living was primarily driven by three items. Higher trading volumes, including a full quarter of contributions from HYLA and carrier promotions; higher international earnings, including improved performance in Europe and Asia Pacific; and continued mobile subscriber growth in North America, including growth from our cable operator partners. This quarter Connected Living and Global Automotive results also included a modest tax benefit that improved earnings. For the quarter, Lifestyle's adjusted EBITDA increased 16% to $159 million. Adjusted EBITDA eliminates the segment's increased IT depreciation from higher investments, as well as amortization resulting from higher deal-related intangibles from the more recent transactions in T-Mobile and Global Automotive. As we look at revenues, Lifestyle revenues increased by $168 million or 9%. This was driven mainly by continued growth in global automotive and Connected Living. In Global Automotive, revenue increased 12% reflecting strong prior period sales of vehicle service contracts across all distribution channels. In the US, we saw continued expansion from our national dealer network and third-party administrators, while we benefited internationally from higher volumes with OEMs. As expected, our net written premiums, a key sales metric, continue to normalize compared to the third quarter, but remain elevated. We expect continued normalization into 2022. Within Connected Living, revenue increased 7%, primarily due to mobile fee income that was driven by strong trading volumes, including contributions from HYLA. Trading volumes continue to be elevated in the fourth quarter, supported by new phone introductions and carrier promotions from the introduction of 5G devices. Higher revenue growth in domestic mobile subscribers was offset by declines in run-off mobile programs previously mentioned. For the year, mobile subscribers grew 18% to nearly 63 million, driven by growth in North America, including the transition of legacy Sprint subscribers. Excluding the Sprint transition, our North American device count continued to grow at a healthy pace and was up 8% offsetting declines in other regions. Looking ahead to 2022, we expect Global Lifestyle adjusted EBITDA to increase by low double digits. Growth will be mainly driven by Connected Living, particularly mobile, from continued global expansion in existing and new clients and across device protection in trade-in and upgrade programs. Given the strategic investments we're making across Lifestyle to support new business opportunities, including in-store service and repair capabilities, we do not anticipate growth to exceed the 12% growth rate we achieved in 2021. In Global Automotive, we expect adjusted EBITDA to be stable in 2022 compared to 2021 as we overcome headwinds in investment income and the absence of $10 million of non-recurring gains we recorded in the first half of 2021. Moving to Global Housing, net operating income was $80 million for the fourth quarter compared to $61 million in the fourth quarter of 2020, driven by lower reportable catastrophes. Excluding catastrophe losses, earnings decreased $7 million, mainly due to higher non-cat losses in our Specialty P&C offerings. Non-cat losses included an $8.2 million increase, primarily related to reserve strengthening for run-off claims within our small commercial book. As a reminder, this book stopped getting policies in 2019, but we continue to manage open claims. Absent this reserve increase, earnings were relatively flat as growth in lender placed was offset modestly by higher non-cat losses. Recall, certain factors in 2020 and the first quarter of 2021 temporarily depressed non-cat loss levels. We do not consider those periods to be representative of historical and future trends. Earnings growth in lender placed insurance was driven by the higher average insured value of in-force policies and claims processing efficiencies, which were partially offset by the impact of the continued foreclosure moratoriums. In January, we replaced our existing reinsurance coverage, representing two-thirds of our 2022 catastrophe reinsurance program placement. We were able to continue placing reinsurance covering multiple years to mitigate changes in the pricing of catastrophe reinsurance in any one year. And similar to prior years, the remainder of our reinsurance will be placed around mid-year. We will continue to evaluate the risks and rewards of purchasing additional reinsurance, as well as alternatives that could more meaningfully reduce our risk. In Multifamily Housing, underlying growth in our affinity and P&C channels was offset by increased expenses, primarily investments to further strengthen our customer experience, including our digital capabilities. Global Housing revenue increased 2% year-over-year, mainly from higher average insured values and premium rates in lender placed and growth in Multifamily Housing. This was partially offset by lower specialty revenues from client run-off. For 2022, we expect Global Housing's adjusted EBITDA excluding catastrophes to grow by mid to high single digits compared to 2021. This is expected to be driven by three factors. First, growth in lender placed insurance from continued higher average insured values and gradually higher REO volumes due to easing foreclosure moratoriums throughout the year. Growth is expected to be partially offset by the impact of higher labor and material costs. Second, expense savings initiatives, including our Digital-first efforts focused on automation will have a positive impact, albeit partially offset by continued investment initiatives, particularly in multifamily housing. And third, improved loss experience in our specialty offerings related to small commercial. At corporate, the net operating loss was $24 million, an improvement of $3 million compared to the fourth quarter of 2020. This was mainly driven by higher investment income in the quarter from higher asset balances, including proceeds from the sale of Global Preneed. For 2022, we expect the corporate adjusted EBITDA loss to approximate $105 million, more in line with historical levels. Turning to holding company liquidity. We ended the year with slightly over $1 billion, primarily due to the proceeds from the sale of our Preneed business. In the fourth quarter, dividends from our operating segments totaled $176 million. In addition to our quarterly corporate and interest expenses, we had outflows from three main items: $290 million of share repurchases, $39 million in common stock dividends, and $5 million related to Assurant Ventures Investments. For 2022, we expect our businesses to continue to generate strong cash flow and at a similar rate to prior years. With the transition to adjusted EBITDA, we expect segment dividends to be roughly 75% of segment adjusted EBITDA, including catastrophes. This translates to approximately 100% of segment net operating income. As always, segment dividends are subject to the growth of the businesses, rating agency and regulatory capital requirements, and investment portfolio performance. As Keith mentioned, we expect to provide additional color for 2022, including our outlook on a per-share basis that aligns with adjusted EBITDA, along with further detail regarding our long-term view of financial metrics that support Assurant’s strategic direction at Investor Day next month. As a result of the expected level of share repurchases, we wanted to note that we expect our growth on a per-share basis will significantly exceed our adjusted EBITDA growth. In closing, we are really excited to have met our objectives for 2021 despite the difficult operating conditions brought on by the pandemic. And we're excited to be entering 2022 with the positive business momentum we highlighted today. And with that, operator, please open the call for questions.

Hey, good morning guys. Thanks for taking my question. So could you guys start off and just talk about the impact of inflation on your device repair and upgrade business. Obviously, there's different factors with replacement parts and higher labor and wages. So if you could just kind of touch on how you're managing those risks?

Good morning. I'll begin by discussing mobile, and then Richard can address inflation more broadly. Regarding the mobile business, it has had a relatively neutral effect on our financials. As we’ve mentioned before, the business is mainly reinsured and profit is shared with our clients. While there is a slight impact on loss ratios when we're at risk, it has been fairly minor over the past several months. We also focus on providing service to the end consumer and ensuring we have adequate inventory levels, which is crucial for our delivery. We've done a great job stocking inventory and ensuring good lead times for parts delivery. Occasionally, we experience delays in claim fulfillment, which may result in repairs taking longer or necessitating device replacements. However, customer service has been outstanding, and the NPS scores reflect very positive feedback from our customers. In terms of the labor market, it remains challenging across all businesses globally. I’m very proud of how our teams have handled not only the labor situation but also the overall pandemic and the shift to remote work. By prioritizing health and safety in our decision-making, we have cultivated a strong company culture, and we haven’t encountered much of the so-called "great resignation." We’ve successfully protected our employee base and even hired 2,000 employees to staff 500 T-Mobile stores for repairs, including leadership roles, which we accomplished exceptionally well in a tough market. I’m really proud of how we’ve managed labor, and one of our strengths is our talented workforce. Now, Richard, could you elaborate a bit more on macro inflation as it relates to the housing business?

Thank you, Keith. Good morning, Tommy. Regarding the housing business overall, we have observed some increases in claim costs, which pose a bit of a challenge. However, as we mentioned in our remarks, there has been an increase in average insured value, which somewhat offsets that pressure. Additionally, while we do feel some short-term pressure, we have incorporated this into our comments regarding the impact of inflation on our business outlook for 2022. On a positive note, rising interest rates will contribute to investment income. Higher rates will be beneficial in both the short and long term for the cash we currently have and for new premiums as we invest. Overall, we don't anticipate a significant impact in the short term or as we look further ahead. Thank you.

Thanks. Appreciate the feedback. And then just switching gears a little bit to the outlook and into the guidance on EBITDA. So if I look over the past couple of years, the EBITDA margin has kind of been in the 10% to 11% range. When you kind of think of long-term where EBITDA should go, do you think you should build in some margin expansion on EBITDA or do you think that 10% to 11% is kind of a good long-term rate?

Yeah. I guess a couple of comments. We will be obviously coming out at Investor Day on March 24 with a longer-term outlook. So we will be coming to the market with three-year longer-term financial projections. So that'll be a great time for us to lay out our vision for the future. And certainly if you look at our outlook for ’22, strong EBITDA growth, we've signaled 8% to 10% and we saw 9% in 2021. So continued strong momentum in terms of driving EBITDA growth. And I would also say we're investing more as well organically to try and set up the future. And we'll talk a lot more about some of those investments and how we think about long-term growth trajectory emerging as we get back together in a few weeks.

Thanks. I look forward to speaking on. Thanks.

Thank you. Good morning. You briefly mentioned it, but could you elaborate more on the guidance for EBITDA? I am interested in understanding how much overall investment we should expect this year compared to last year, considering the 8% to 10% guidance for EBITDA.

Yeah. I would say we expect to make more investments overall across the company in 2022 than in 2021. We obviously had some material investments when you look at standing up, taking a repair with T-Mobile, there was a significant lift to do that, obviously, converting the Sprint business. So there certainly were investments in ’21. I would signal a little bit more investment to drive organic growth. And I would probably highlight a couple of areas. Certainly, we're going to continue to invest in service and repair capabilities, really building out the platform, the technology and the integrations. We talked about investments in digital first in the prepared remarks, that's a really important priority for the organization. Obviously, it drives efficiency longer term, but it radically improves the customer experience, so that's a big priority. We've got several new client launches that are planned that obviously take a significant amount of energy to get right and make sure we execute and deliver. And then investment in longer term growth, new capabilities around the connected home, around innovation to drive new product bundles, and new cross-selling opportunities, and I would say further scaling capability in Europe and Japan. So there's a lot of areas that we're trying to focus on. There is a significant amount of long-term growth potential across all of our product lines. So I would say, a pretty balanced set of opportunities.

Okay, thanks. That's all, but I’m sure we will get a lot more details in a few weeks. You mentioned this in the opening comments as well, maybe a little more detail here. Is the expenses that you've incurred from the T-Mobile rollout that was kind of pushed into 4Q and some now, end of this year. Is that going to be more of a 1Q issue or that continue at that same level as we get past 1Q 2022?

I would expect a moderation from what we experienced in the fourth quarter. We accomplished a lot in a short time frame, staffing 500 stores over approximately four to five months and training all our leadership and technicians, which was a considerable effort. This highlights our capability to adapt to shifting consumer preferences while maintaining a strong focus on execution as a company. We also managed the launch of our unit repair services while transitioning all the Sprint business and expanding our staff to handle that as well. We saw a significant lift in the fourth quarter, which aligned broadly with our expectations. However, I anticipate a moderation as we move into 2022, particularly in the first and second quarters, where we will be making more investments, and then we expect that to taper off as the year progresses.

Okay. Thanks, Keith. One last one and a more high level question if I could. You continue to outpace the market and growth in renters' policies pretty significantly. Maybe you can talk about that. And is that something that you think you can continue to do over the long term? It's pretty significant growth there versus the ramp in market in general. So –and you've done it for quite a while. But I guess should we expect that to continue for the foreseeable future.

We have been very pleased with our performance this year, and over time, we have achieved strong and consistent growth while also increasing our market share. Looking back over the years, we will discuss this more at Investor Day. We have made significant share gains in the market and have observed several positive trends. Our product attachment rates have increased, which has certainly contributed to our success. We have strengthened our relationships with property management companies, and I expect us to continue driving policy and revenue growth moving forward. We are heavily investing in evolving our service delivery, including advancements in technology, enhancing customer experience, digital integration with our partners, and adding relevant services for renters. I am genuinely excited about the long-term potential of this business and anticipate continuing momentum as we advance.

Thank you. I appreciate it.

Great, thank you.

Hi, good morning. Congrats on the strong quarter. So, very strong growth in Global Automotive in the past, you've spoken about the increase in attachment rates from the high '30s to the high '40s, given the increase in prices and technology. Given the chip shortage, there has been a number of reports of buyers paying over sticker for new cars, and we've got used car prices up as much as 40%. So, do you believe this is having an effect on attachment rates? And maybe you could just give some general thoughts on whether the pie is getting bigger? Whether Assurant is getting a bigger piece of the pie, or both?

I think Assurant is definitely getting a bigger piece of the pie. I would say that attachment rates have probably drifted up more because of the mix of business that we've seen a shift between new and used and we tend to see slightly higher attach rates on used vehicles. So if you think historically, we've had a 50:50 mix roughly between new and used cars. Today, it's probably 55% used, 45% new. So that would create a little bit higher overall blended attach rate. I wouldn't say that it's significantly changed otherwise, we've seen good strong consistent performance. And as always, it's a focus for our clients. We've gained market share, no doubt, in the market that we've seen a lot of consolidation in the industry. We're partnered with a lot of large publics, a lot of large dealer groups and they're gaining share through acquisition. I think we've seen more acquisitions in 2021 in terms of the big publics. And then also our franchise dealers have been investing heavily in digital and also sourcing a lot more used car inventory directly from consumers. So a pretty significant improvement in terms of the performance of our clients. And then I'd say we've also won new clients as well in the market, and it's a very fragmented market today. So there's still a lot of opportunity for share gain over time.

Okay, great. Maybe moving to mobile. There has been a lot of moving pieces in 5G after what seems like a delayed rollout. There is an uptick in 5G promotions and activity around that potential catalyst, but then we recently had the delay in 5G implementation due to the FAA. So maybe you could frame for us how to think about the potential benefit from 5G? Whether it's total covered mobile device count or trade-in volumes? How should we think about the cadence of the benefit to 2022 earnings and the years that follow?

Yeah, we had a significant success in 21 certainly with trade-in volumes at all-time highs. And that's partly due to the acquisition of HYLA and then due to a number of other factors. You point out the promotional activity from clients, obviously, the migration to 5G, we've seen clients put more focus and energy on trade in. Obviously, it's got sustainability benefits, which is really important. It also provides digital access to consumers at more affordable rates. So there's a lot of reasons why I would say trade-in is generally growing as a category. We're seeing a lot more interest around the world with different partners. So from that perspective, I feel really good about that trend continuing. And then in terms of 5G specifically I'd say we're still fairly early in the cycle. You've got maybe 20% to 30% of postpaid customers in the key markets that we operate that have migrated to 5G networks. So there's still a lot more opportunity as consumers continue to upgrade devices and adopt 5G. So we will see continued promotional activity and we'll see a lot of trade-in volume as we move through 2022 that certainly underpins some of our thinking with our Connected Living growth. And then I think we'll see more globally as this continues to get focused.

Great. Thank you for your answers.

Thank you.

Good morning, Mark. Yeah. Thank you. Good morning. You had mentioned that you're looking to evaluate perhaps alternative risk strategies in Global Housing, maybe lay off a material portion of your catastrophe exposure. As I understood you to say, I had thought that had kind of been put to bed. But it sounds like you're still working on it, still evaluating it. Could you talk about what your thinking is there? How serious that initiative might be?

Sure. I'll begin by emphasizing the uniqueness and strong performance of our business. The cash flows generated from our housing operations and our critical role in the mortgage value chain are significant. We take pride in the business and the results it has achieved. When discussing housing overall, we aim for a return on equity of 17% to 20% after accounting for a normal catastrophe load. In 2021, we experienced $114 million in catastrophe losses, exceeding our normal expectations, yet we still delivered a 16.5% return on equity. Overall, the business is robust, offering impressive returns and generating substantial cash flow, which we appreciate for many reasons. Regarding our catastrophe exposure, we continually seek ways to optimize it. Our track record shows a strong commitment to reducing risk over the years. As we've expanded various parts of the company, particularly in housing and Lifestyle sectors, which have minimal catastrophe exposure, we’ve also significantly cut our per-event exposure from $240 million to $80 million. We've made many strategic decisions, such as adopting multi-year coverage and exiting non-strategic catastrophe-prone markets. This disciplined approach will continue as we look for additional optimization opportunities. We will explore risk-reward trade-offs with our reinsurance partners to further mitigate risks and volatility while striving for the most efficient outcomes. We're always considering this, but there's nothing immediate on the horizon; this is part of our routine focus on reinsurance and catastrophic risk management.

And then you had made, I think, a point of saying that you were looking for a balanced mix of investments in share buyback. If I did the simple person and said, if you look at free cash flow for 2022 is it half share buyback, half retained for investments or M&A.

Yeah. We will spend more time on capital management, certainly at Investor Day. I would say a couple of things. We're not trying to signal a dramatic shift in our philosophy, that's point number one. We continue to be extremely disciplined as we think about capital management. So that's not going to change. And ultimately, we're trying to maximize returns. I think what we're more trying to signal is an interest in maintaining greater flexibility. There are lots of attractive opportunities in the market to drive growth and we want to have a little more flexibility to try and evaluate the best alternatives, but obviously being extremely disciplined with how we think about long-term value creation. So we'll talk a little bit more about our expectations for capital deployment in a few weeks, but that would probably be the bigger takeaway from me.

Yeah. And then just one if I may. You talked about expanding the Connected Home, does that suggest an appetite or maybe a broader home warranty exposure?

I think our focus in the Connected Home area is primarily on connected technology and appliances rather than home warranty, which is a competitive market with strong players. However, we see an opportunity for us to create bundled subscription services that offer broader protection for consumers' connected technology and other products in their homes. This seems like a suitable direction for Assurant. We will provide more details on this at Investor Day, but we notice promising trends and strong consumer interest. We work with various distribution partners, allowing us to develop compelling bundled services for the connected consumer of the future.

Great. Thank you.

Thank you.

Good morning, Brian.

Good morning. A couple of questions here. Firstly, I’m just curious on the repair centers in T-Mobile stores. Is that an exclusive deal? Or could you roll that out to other customers? And what is kind of in the inquiries you perceived on doing that? I think that a lot of the other customers would be really interested in that type of program.

You're right, and we've definitely made investments in this area over the past few years. We acquired a company called CPR and also purchased Fixed, which enables us to operate repair facilities through Assurant. We have technicians who can go to customers and we are now collaborating with T-Mobile to provide services within their stores. I believe we'll see increasing interest from clients globally as they consider their repair and claims fulfillment strategies tailored to their brands. It's really about understanding each client's needs and the vision they want to establish for consumer service, but I foresee growing demand over time.

Great. And then I'm just curious, one quick one on the catastrophe reinsurance program renewal. It sounds like fairly similar structure to the program. What about the cost of it? What was the additional costs associated with it?

Yeah. And I would say we're really pleased with the renewal that we got. And Richard I know works closely on it, maybe share a couple of thoughts, Richard.

Yeah, I think as we've said before on renewals in the beginning, we have to invest. And then as we go along we make profits over time. And it's gone really well so far. To date, our partners can deliver better solutions for our customers with what we're doing. So it's not just in service repair. I would say today we've covered most of it through the end of the year, we're probably about two-thirds of the coverage being placed. And we'll place the rest of it in the year as you know. And we had success in the pricing of it. We have a pretty stable reinsurers and if we look out in the market we had some reinsurers that had some insurance who have trouble placing. We placed 100%, we placed it at the low end of the market as well. It ranges from anywhere from 5% to 30% on reinsurance. So we've done a really good job.

Got you, got you. So towards the low end of the market. Great.

Yeah, single – I’d put it in the kind of the mid to single digits overall. So in a really good place.

Terrific. Good outcome. And then I guess this is my last and maybe you’ll be touching this in Investor Day. When I think about your 8% to 10% EBITDA ex-cat guidance for 2022, should I think about that as more margin driven or revenue driven?

We are certainly both growing revenues as a company and expanding margins. Our profitability has typically increased at a faster rate than our revenue due to how revenue is accounted for in the P&L. I expect to see margin expansion as we enhance the range of services we provide to clients over time. So, we are definitely growing revenue, but our margins are increasing at a quicker pace than revenues, which has usually been the case.

Great. Thank you.

Thank you.

Good morning, Grace.

Hi, good morning. Looking at the guidance for amortization of intangibles next year. I was wondering if we could clarify any assumptions regarding bolt-on M&A that are included in that estimate? And just given recent market volatility, if we could talk about just the outlook for bolt-on M&A opportunities in the Lifestyle business? And if valuations are any more attractive now than they were a few months ago?

Maybe Keith, you want to take the first part in terms of the next year?

Perfect. Yeah. And in terms of M&A, obviously we're always looking in the market for attractive opportunities and valuations certainly move around. We've seen really high expectations at times and more tempered than others, but I would say, we're definitely interested in acquiring strategic capabilities. You've seen us do, I think, some really good strong foundational acquisitions. If I think back to The Warranty Group, which was a big scale play, gave us a great overlap with our current geographies and really a global leading position around auto. The acquisition of HYLA, that really scaled us as the global leader in trade-in. Right on the front edge of the 5G super cycle, you saw the acquisition of AFAS, which gave us real strength in the US auto market to complement the acquisition of The Warranty Group. And then some of the mobile acquisitions I talked about, CPR and Fixed really just important capabilities and set the foundation for what we're doing today with T-Mobile. So I think we're going to continue to look for those types of acquisitions. And we always try to find multiple ways to win. How do we get access to new clients or new distribution channels, and new capabilities that can wrap around the services that we already provide and then clearly looking for low risk in terms of integration, execution, and financial performance. So we're always looking for those types of deals. That's why we want to maintain flexibility. But as you've seen, we will continue to be disciplined and we will try to find really strategic opportunities to drive that growth.

Thank you. And just another one. Looking at the housing adjusted EBITDA guidance for next year. It sounds like the combined ratio might drift a little below that historical guidance of 86% to 90%. I was just wondering how sustainable maybe a combined ratio below that could be? And just how we should think about that going forward, just given ongoing changes in the mix of business with Multifamily Housing kind of outgrowing lender placed?

And Richard, do you want to talk a minute on that?

I believe the historical guidance we provided of 86% to 90% is a long-term estimate. That said, it hinges on the mix within our business. You're correct that as multifamily housing grows, it affects the overall metrics. More importantly, we need to consider two aspects: the combined operating ratio, which remains at 86% to 90%, and the premiums. As market conditions evolve, with forbearance moratoriums ending and inflation impacting average insured values, I anticipate an increase in premiums. In terms of profitability, when we discuss lender-placed insurance, we expect improved performance next year. This improvement will be driven by higher average insured values and a stable non-catastrophe loss ratio, which will enhance overall profitability. Furthermore, we are continuously managing our expenses, and the operational efficiencies we've implemented are positively impacting the bottom line as well.

Thank you.

Great. Thanks, Grace. And thank you everyone for participating in today's call. We're very pleased with our performance in 2021 and excited for another year of profitable growth in 2022. We're also looking forward to our upcoming virtual Investor Day on March 24, where we'll have the opportunity to share the Assurant vision, our strategy, and multi-year financial objectives. So stay tuned for registration details coming out soon. And in the meantime, please reach out to Suzanne Shepherd and Sean Moshier with any follow-up questions. And thank you very much. Have a great day.