Welcome to Assurant's Second Quarter 2022 Conference Call and Webcast. It is now my pleasure to turn the floor over to Suzanne Shepherd, Senior Vice President of Investor Relations and Sustainability. You may begin.

Thank you, operator, and good morning, everyone. We look forward to discussing our second quarter 2022 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 second quarter of 2022. The release and corresponding financial supplement are available on assurant.com. We will start today's call with remarks from Keith and Richard before moving into a Q&A session. Some of the statements made today are forward-looking. Forward-looking statements are based upon our historical performance and current expectations and subject to risks, uncertainties and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these factors can be found in yesterday's earnings release 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 that can be found on our website. We have revised all quarterly and annual results for full year 2020 through first quarter 2022 periods to reflect the change in the adjusted EBITDA calculation to exclude certain businesses that we now expect to exit fully, including our sharing economy and small commercial businesses and Global Housing as well as certain legacy long-duration insurance policies within Global Lifestyle. Results have been revised for the correction of any errors related to reinsurance of claims and benefits payable within the Global Lifestyle segment that occurred in late 2018 through first quarter 2022 as well as other immaterial corrections. The impact of these changes individually or in the aggregate, is not material to results for any prior period. A full reconciliation of certain reported and revised key measures of performance and metrics is provided in our second quarter financial supplement posted on assurant.com. I will now turn the call over to Keith.

Thanks, Suzanne, and good morning, everyone. As we outlined during our recent Investor Day in March, we aspire to be the leading global business services company supporting the advancement of the connected world. And so far in 2022, we've made solid progress delivering on that vision for the benefit of our clients and their customers, our employees and importantly, our shareholders. We delivered adjusted EPS of $7.22, up 13% in the first half of last year, and adjusted EBITDA was $592 million, both excluding reportable catastrophe losses. We're very pleased that Global Lifestyle had such a strong first half of the year with momentum expected to continue, led by both mobile and auto. Our capital-light and fee income based businesses represented 82% of our adjusted EBITDA excluding catastrophes so far this year and continue to add to the value of our franchise. While results in Global Housing were below expectations, largely driven by broader inflationary pressures seen across our industry, we have a clear path and several key actions underway to address near-term macro challenges. Longer term, we continue to believe that our combined housing and lifestyle portfolio of businesses is positioned to deliver attractive earnings growth and strong cash flow generation relative to the broader market, while also providing a compelling countercyclical hedge in what remains a volatile economic landscape. As we look at our Global Lifestyle segment, our business services-oriented offerings generated adjusted EBITDA growth of 12% year-over-year and 14% year-to-date. Our market-leading franchise helped us expand our partnership with several world-class brands in the lifestyle market. In the U.S., we recently signed a multiyear renewal with a large cable operator within our mobile business. This includes comprehensive device protection, trade-in and premium technical support. With the renewal, we'll be including new capabilities, demonstrating our ability to grow relationships with value-added services that ultimately lead to a better customer experience. We've now renewed two major U.S. cable operators in our mobile business within the last year, while also broadening our product offerings to support their growing mobile subscriber bases. We're pleased with the continued growth momentum in Global Lifestyle, which we expect will continue into the second half of 2022. As a result, we believe the segment will deliver mid- to high-teens growth in adjusted EBITDA, mainly from strong mobile results, including device protection and trade-in as well as from the continued strength of our auto business. Turning to Global Housing. Similar to others in the industry, we were impacted by significant inflationary pressure, which resulted in higher claim severities and reinsurance costs in the quarter, most notably in lender-placed. These higher costs are expected to be mitigated through rate adjustments over time. In addition to regular rate filings in key states, our lender-placed product includes an inflation guard feature designed to address changes in material and labor costs. We recently implemented a double-digit rate increase on policy renewals. This rate increase will be applied to all renewals over the next 12 months. As a result, there is a timing lag that is magnifying the higher non-catastrophic loss experience in the quarter and ultimately pressuring results through 2022. We believe this will normalize as incremental premiums earn over time. As we look at the housing portfolio, we're also taking other actions to improve profitability through ongoing expense efficiencies and driving even greater focus on the housing businesses where we see a path to market-leading positions that can deliver attractive financial returns. Most recently, we decided to exit the sharing economy business. The strategic and financial objectives for this business did not develop as we originally anticipated, and we want to focus on opportunities that more closely align to our long-term vision and where we have market advantages with a clear right to win. Stepping back and looking at Assurant overall, we believe we have an attractive portfolio of market-leading businesses, which are poised for long-term success. Given the current macro environment, we believe we can deliver adjusted EBITDA growth of 3% to 6%. This takes into account higher expected losses in housing, but also stronger results and momentum within Global Lifestyle. Adjusted earnings per share, excluding reportable catastrophes, is now expected to grow 14% to 18% for the full year, reflecting this view of adjusted EBITDA. EPS growth will, of course, also be supported by share repurchases, including the return of $900 million in pre-need sale proceeds, which was completed in the second quarter. As we've shown historically through various market cycles, we believe we are well positioned to deliver our strategic objectives over the long term. We expect this period of macroeconomic challenges to be no different. Over time, we believe the strength and resiliency of our business model will endure, enabling us to execute on the 2023 and 2024 objectives we outlined at Investor Day. Looking forward, we expect adjusted EBITDA acceleration starting next year. While the earnings path may not be linear, we remain confident that in the long term, our combined lifestyle and housing business portfolio will continue to deliver attractive growth, strong cash flow generation, and superior shareholder returns relative to the broader market. I'll now turn the call over to Richard to review the second quarter results and our revised 2022 outlook in greater detail.

Thank you, Keith, and good morning, everyone. Adjusted EBITDA, excluding catastrophes, totaled $277 million, down 8% from the second quarter of 2021. As Keith mentioned, performance reflected the strong growth across global lifestyle and weaker results in Global Housing. For the quarter, we reported adjusted earnings per share excluding reportable catastrophes, of $3.25, flat from the prior year period. The 2021 baseline for lifestyle and housing adjusted EBITDA has been updated to remove noncore operations and reflect the accounting correction, Suzanne noted, to our prior period results. Now let's move to segment results, starting in Global Lifestyle. The segment reported adjusted EBITDA of $207 million in the second quarter, a year-over-year increase of 12% driven by growth across both Connected Living and Global Automotive. Connected Living earnings increased by $12 million or 11% year-over-year. The increase was primarily driven by continued mobile expansion in North America device protection programs from cable operator and carrier clients, including subscriber growth and more favorable loss experience. This was partially offset by unfavorable foreign exchange. In Global Automotive, earnings increased $10 million or 15%, primarily from higher investment income, including higher real estate gains and yields; favorable loss experience and select ancillary products also contributed to the results. As we look at revenue, Lifestyle revenue was up by $48 million or 3%, driven by continued growth in Global Automotive. Global Automotive revenue increased 7%, reflecting strong prior period sales of vehicle service contracts. Despite the overall U.S. auto market showing signs of slowing, our net written premiums remained strong even against the record second quarter of 2021, as additional dealerships and strong attachment rates are offsetting the market headwinds. Within Connected Living, revenue was down slightly due to lower revenue in mobile, mainly from premium declines from runoff programs and unfavorable foreign exchange. This was partially offset by growth in subscribers in North America and higher mobile fee income driven by global mobile devices serviced. In the second quarter, the number of global mobile devices serviced increased by 1.1 million or approximately 18% to 7.2 million. This was due to higher trading volumes, supported by new phone introductions and carrier promotions from the growing adoption of 5G devices. In terms of mobile subscribers, growth in North America was partially offset by declines in runoff mobile programs previously mentioned, which also impacted mobile devices protected sequentially. For full year 2022, we now expect lifestyle adjusted EBITDA growth to be mid- to high teens compared to 2021 baseline of $702 million. Mobile is expected to be the key driver of adjusted EBITDA growth for global expansion in existing and new clients across device protection and trade-in and upgrade programs. This will be partially offset by unfavorable impacts from foreign exchange and strategic investments to support new business opportunities and client implementations. Auto adjusted EBITDA is expected to grow for the full year. But earnings in the second half are expected to be lower than the first half, mainly due to the absence of $14 million of real estate gains. Growth for the year will be partially offset by higher investment income and more favorable loss experience in select ancillary products. Moving to Global Housing. Adjusted EBITDA was $75 million, which included $20 million of reportable catastrophes for the second quarter. Excluding catastrophe losses, earnings decreased $40 million, primarily driven by $25 million in higher non-cat loss experience, largely in lender-placed and to a lesser extent, Multifamily Housing. This included $12 million in year-over-year reserve strengthening and higher fire losses in the quarter. The balance of the earnings reduction was driven mainly from $17 million in higher catastrophe reinsurance costs. The cost of our reinsurance program reflected both the higher exposures and increased pricing within the reinsurance market. And with the completion of our 2022 catastrophe reinsurance program in June, we believe we fared relatively well in the market given our strong relationships with our more than 40 reinsurance partners. We maintained an $80 million per event retention including second and third events. We also continued to benefit from the placement of multiyear coverage covering 45% of our program and a cascading feature that provides multi-event protection. In Multifamily Housing, growth in our P&C channels was offset by increased non-cat losses and expenses from ongoing investments to expand our capabilities and further strengthen our client experience. Global Housing revenue was flat year-over-year as higher catastrophe reinsurance costs were offset by higher average insured values and lender placed. For the full year, we now expect Global Housing adjusted EBITDA, excluding catastrophes, to decline by low to mid-teens from the 2021 baseline of $512 million. In addition to the higher claims costs, REO volumes have continued to be muted and placement rate trends we are seeing are softer than originally expected. At the same time, we continue to realize expense efficiencies from new system enhancements and strength in digital capabilities. While the duration and magnitude of inflationary trends remain fluid, rate filings and inflation guards are expected to start to flow through premiums as we exit the year. At corporate, adjusted EBITDA loss was $25 million, up $8 million compared to the unusually low second quarter of 2021. This was mainly driven by higher employee-related and technology expenses. For full year 2022, we expect the corporate adjusted EBITDA loss to be approximately $105 million. Turning to holding company liquidity. We ended the second quarter with $595 million, $370 million above our current minimum target level. In the second quarter, dividends from our operating segments totaled $189 million. In addition to our quarterly corporate and interest expenses, we also had outflows from three main items: $232 million of share repurchases; $75 million from the repayment of our 2023 notes; and $39 million in common stock dividends. For the full year, our outlook assumes $365 million of shares repurchased from the remaining premium sale proceeds plus an additional $200 million to $300 million. Through July, we've bought back $504 million worth of our stock. Given changes in investment portfolio values, reserve strengthening for noncore operations and accounting adjustments, we expect segment dividends to be moderately below our target of roughly 3/4 of segment adjusted EBITDA, including catastrophes. While lower, we still expect capital generation to be strong given our business model and product mix. As always, segment dividends are subject to the growth of the businesses, rating agency and regulatory capital requirements and investment portfolio performance. In conclusion, we believe Assurant is well-positioned for long-term growth and strong capital generation, underscored by the attractive portfolio of Global Lifestyle and Global Housing businesses.

Please open the call for questions.

So I guess I want to talk about the inflationary pressures you're seeing on the lender-placed, but can we switch that over to the lifestyle side? And anything that you're seeing there on either Auto or Mobile, maybe you can talk about how much risk you retain on that side. It's clearly not 100%. But anything that you're seeing there that might cause pressure from inflationary pressures there? And if so, kind of your ability to combat that?

The Lifestyle business has performed very well this year, and we have raised our outlook for the full year, indicating our confidence in its momentum. In terms of resiliency, we have faced inflationary pressures and supply chain constraints, especially regarding parts in both Connected Living and Auto over the past couple of years due to the pandemic. The nature of our deal structures is favorable; often we are not holding the risk associated with the services we provide and the programs we manage. This has been beneficial for us. We aim for a stronger focus on fee income, even in deals where we retain some risk, as we're targeting fees. We also have allowable loss ratios and the capability to reprice. While there may be timing issues where losses could be slightly higher, we can often recover that over time with client deal structures. This has not been a concern in recent quarters. Overall, we feel optimistic about our situation; while we are not completely insulated, our operating model is significantly different. Regarding inflation in housing, we have implemented rate filings, inflation guards, and other measures to address this. Thus, the lifestyle segment has shown considerable resilience in this regard.

Okay. You mentioned, Keith, in your opening comments about the lender-placed side, the inflation guard, and you also talked about double-digit increases on renewals. Was that the same double-digit figure? Was that related to the inflation guard, or is it in addition to the inflation guard?

If you consider the inflation guard, we implemented a double-digit rate increase in July. This will impact the portfolio as renewals occur. Additionally, we have been expediting rate filings with states due to increased severities and losses. This year, we have received approval for 30 state rate filings, although not all have been fully implemented yet. All approvals will be in place by the end of this year. Ongoing discussions with states are also underway. This additional rate adjustment is on top of the previously mentioned double-digit increase related to the inflation guard.

Is there any difference in here? Can you maybe just talk about the difference that you have in those other rate filings by state that you're alluding to, different than a traditional, say, homeowners insurance company where the clients are individuals like me and you, your clients knowing your place are a little different. So does that give any differences in the ability, the speed at which you can take higher rates and the speed that you can take them than maybe a traditional insurance company?

Yes, I think there are a couple of factors to consider. First, these are short-term policies that are renewed annually, so any rate adjustments we implement take effect over a 12-month period. Additionally, our products include an inflation guard that does not require further approval; we simply apply an inflationary factor each year. This mechanism increases average insured values and aligns with rate increases, which I consider to be standard practice. Given the current elevated inflation levels, industry data indicates that a higher inflation factor is leading to increased average insured values. Regarding rate adjustments, we work closely with states and rely on historical data to support the increases we seek. Our approach is consistent with industry standards, but we have been more proactive than some competitors due to the significant severity levels we are experiencing in the market. This presents a solid opportunity for rate adjustments. We aim to achieve fair returns on our business, and I would note that this does not significantly impact our volume. We have strong relationships with our clients, and since these are lender-placed policies, we anticipate stable policy counts even amid a higher inflationary environment with increased rates being implemented.

What is your view on where the placement rate in the lender-placed business could go next year if we move into a recession, whether we're in one now or not, let's say, sort of a deeper recession if interest rates continue to move up, could that move above 2% pretty quickly? Or where do you think that could go?

Yes. I think it depends on a range of factors. I would say that as you see the placement rates are relatively stable and have been so for several quarters, and that's just the strength of the housing market, the fact that there's so much positive equity. And I also think about placement rate really tracking closely to delinquency and you've got a prevalence of servicers working on loan modifications, a lot of loss mitigation efforts that's really limiting delinquency and limiting foreclosure activity. Obviously, if that starts to shift and that starts to change and delinquency rates rise at any level significantly, that would have a corresponding impact on our placement rate. Obviously, if there are more foreclosures, that would drive up our REO volumes, which are really probably a third of the pre-pandemic level. So there's certainly upside over time in placement rate. The real question is when does that emerge in the economy just because of the strength of the housing market. You've also got rising interest rate pressure, certainly a hardening voluntary insurance market, higher inflationary pressure. So I think we need to see how the economy responds and how consumers respond to get a better feel. We're not counting on a big increase in placement rates as we think about our longer-term expectations. And obviously, if that does happen, that's where we talk about it being a countercyclical hedge from a housing perspective.

Yes, it's a great question. It is slightly up over the last quarter to 46%. So you're right, it's a bit higher than we prefer. We have previously discussed our investments in digitalization projects aimed at creating more efficiencies, as Keith mentioned in his opening remarks. We expect to see the benefits of these efforts over time. Additionally, regarding placement rates, as business volumes increase, the systems we have in place in our operations are highly scalable. This should also lower the expense ratio in the long run.

So what are the expectations for the non-core operations loss contribution going forward? Is that meant to be more of a breakeven? I know it's excluded from the guidance. And what's the general time horizon for that wind down?

Sure. Maybe I can start, and then Richard can add on. So we made the decision this quarter, as we talked about, to exit all of our long-tail liability business driven by the decision around sharing economy. So as we talked about, just wasn't strategically aligned with the direction that we're headed as a company. And it was a highly specialized niche business with inherent risk and volatility. We didn't see a path to leadership. We didn't think we could generate the financial returns. But it wasn't strategically aligned with the direction of the company. So as part of that, all of the clients have already been notified. All of the contracts will be non-renewed. I would say, by the first quarter of '23, the net earned premium will be immaterial. And by this time next year, it will be gone completely, really just at that point, managing the runoff. As you saw, we put up a reserve. So as we exited, we did a very comprehensive top-to-bottom review of the performance of the business, I did a lot of scenario analysis to try to think about how this could emerge over time, put up a full reserve to adequately cover the runoff, which we think is appropriate and look to put this behind us.

The multifamily business is kind of flat in terms of top line this quarter. What's happening there?

Yes. So a couple of things. First of all, I would say we feel like we're really well-positioned in the multifamily business. We've got 2.6 million customers. So it's giving us a great opportunity in terms of market leadership and scale. We've been investing in the customer experience, deepening our expertise. So we do expect long-term growth. It's a very attractive part of the market. I would say in terms of the results being flat, we do have strength in growth within the property management company channel. So that continues to grow exceptionally well. We're gaining share. We're driving attach rates, and we're having a lot of success with our Cover360 product, really just more integrated into the byflow. We've talked about better digital tools, collecting the insurance as part of the rent and just leveraging our full capability. So that's going extremely well. We have an affinity portion of our business, which the growth has slowed where we partner with insurance companies. I think as insurance companies have been focusing on getting rate and dealing with inflationary pressures, there has been a little less marketing generally with some of our partners. So I think that normalizes over time as the economy finds more stability in the future. But we are seeing growth, and we do think long-term growth will emerge as we continue to focus on this part of our business.

Yes, sure, Mark. First of all, I would say that rising interest rates overall are good for the business, and we've been seeing that in this quarter as well. We've had some real estate gains, as we mentioned in our remarks, but we also have fixed income and yields on fixed income raising. We have a 5-year duration. So think about 20% of the portfolio rolling over every year. So we won't have any quantum step in terms of long-term rates and long-term yields. But it will gradually increase over time, which is a good thing. I think you probably saw the yield for this quarter over 3.5%, which is quite good. What's interesting too about it is if we look at our book of business, if we go back a year from now, the assets that were coming to maturity or the fixed income coming to maturity, we're rolling over at lower levels than they were maturing at. Now they're rolling over for the most part at higher levels. So that bodes well for the future. And short-term rates, yes, we have some of our money in cash, obviously. And we're getting an immediate impact on that. Obviously, smaller dollars given a smaller level of cash that we have relative to the fixed income portfolio.

A couple here. First, Keith, could you remind us what the potential impact here is from a consumer-led recession on mobile subs as well as just growth as well as like average revenue per subscriber. Will you see that decline if you've got a kind of consumer-led recession?

Yes. I think from a mobile perspective, I would say that, first of all, there still seems to be very strong demand for high-end smartphones in key markets, even as we see pressure in the economy. The high-end smartphone market is up year-over-year, and it's up in our core markets. So that's a really good thing. We see clients continuing to push for growth today to take advantage of their investments in 5G; and the relevance of the mobile device today, it's increasingly important for consumers. So that's helpful backdrop. I would say that the majority of our total economics in mobile are driven by our device protection subscribers. We've got 63.5 million global subscribers. Whether a customer buys a new device or retains their old device, it doesn't significantly move that number. Obviously, if our clients are growing or shrinking in terms of net adds, that can have an impact over time, but fairly moderated and based on the nature of the subscription service. Where I would see more pressure would be potentially less trade-in activity if there were fewer mobile phone sales, which we certainly haven't seen. Mobile phone sales are strong; trade-ins are very strong, but that would be the leading indicator if trade-ins start to slow down. That's not a big driver of total economics. The counterpoint would be used devices will become more valuable, more attractive, and there may be other ways for us to monetize it. So I think mobile is relatively protected from any kind of short-term shocks from a recessionary environment.

I'm also curious if there has been a slowdown in selling additional services per subscriber, or if someone opted out of products like AppleCare.

No, I don't think so. I think we've seen really steady attach, really steady churn. I think consumers are inclined to protect high-end devices generally. And certainly, if there are more strapped for cash, having protection in place is probably a good thing. But we haven't seen through economic cycles, really material changes in terms of the attach or the churn over time. So we don't expect that would be a big driver.

I have a clarification question regarding the original adjusted EBITDA growth targets for 2023 and 2024, which are set at an average of 10%. Considering the lower base expected for 2022, should we anticipate that the adjusted EBITDA levels for 2024 will likely be lower than initially expected? Alternatively, what are the chances that EBITDA growth in the coming years could accelerate enough to return to the original targets?

Yes, it's a great question. My commitment and our goal for financial performance is to deliver the original Investor Day outlook for 2024. This means we need to accelerate growth beyond the original 10% in 2023 and 2024 to make up for the shortfall in 2022, which is exactly your point. We're definitely considering this, though there are many variables and uncertainties regarding the economy and inflation. The good news is that the shortfall we see for 2022 is mostly due to the housing loss ratio caused by inflation, particularly from severity. Because of the features within the product and our ability to adjust rates, this issue should resolve itself over time without reducing volume. Assuming everything unfolds as we expect and hope, and if inflation calms down, we currently believe inflation will remain high through the end of the year and then gradually ease throughout 2023 before normalizing in 2024. If that occurs, we feel confident about our long-term commitment for 2024. Part of this confidence comes from the strength of Global Lifestyle, especially the robust investment income in Auto. The business has experienced significant growth, and Connected Living and Mobile have been performing very well over the past few years.

I just wanted to confirm that the target combined ratio range Doug mentioned earlier, which is 84% to 89% in the housing book, still holds even with the exit of certain businesses. How should we consider our ability to remain within that range over the next few quarters, especially with the pressure from inflation and while awaiting the effects of the rate increases?

Yes. I would say that we're going to finish the year at least if we think about our forecast today and what's implied in that forecast when you unpack Housing. It may be a little above our range on a combined ratio basis, probably at the low end in terms of ROE. So pretty strong financial performance still overall based on those metrics. But let's say, a little bit worse than the range. We definitely think that 84% to 89% range over time is the right target for this business. And the exit of sharing economy, I'd say it wasn't a huge business, not a big driver, and it doesn't significantly change the way we think about combined targets. Well, thank you very much, everybody. Appreciate all the questions and the interest in the company. We had a solid first half of the year, led by the strength of the Global Lifestyle segment. We believe our business model remains well-positioned, as we've talked about, even in a challenging macro environment. In the meantime, please reach out to Suzanne Shepherd and Sean Moshier with any follow-up questions. Thanks, everybody. Have a great day.

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