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    Assurant Inc (AIZ)

    Q2 2024 Summary

    Published Jan 10, 2025, 5:10 PM UTC
    Initial Price$187.25April 1, 2024
    Final Price$166.89July 1, 2024
    Price Change$-20.36
    % Change-10.87%

    What went well

    • Assurant's financial services business is showing strong growth, highlighted by the Chase win, indicating good momentum and future prospects.
    • The company has a strong track record of performance, with 10% EBITDA growth on average since 2019 and more than doubling earnings per share with a 16% CAGR over the same 5-year period.
    • Assurant expects to be at the high end of their $200 million to $300 million share repurchase range for the year, demonstrating a strong capital position and commitment to returning value to shareholders.

    What went wrong

    • The renters business is exhibiting weaker than expected growth, with revenue up only 2% year-to-date , despite policies in force increasing by 4%. This suggests potential weakness or competitive pressure in the segment.
    • The auto segment is under pressure due to ongoing inflation impacts on motor vehicle repair costs and elevated losses in the Guaranteed Asset Protection (GAP) product. Challenges are intensified by declines in used car prices, higher interest rates, and an increase in total loss vehicles. The company has implemented 14 rate increases with 5 clients over the past two years to address these issues , indicating operational difficulties that may affect future profitability.
    • Core weakness in the auto segment is being offset by higher investment income, which may not be sustainable if interest rates decline. This reliance on investment income poses a risk to future earnings if rate increases do not earn in before potential interest rate decreases.

    Q&A Summary

    1. Global Auto Inflation Impact
      Q: When will the inflation impact on Global Auto lessen?
      A: The first half of the year showed differing trends; the first quarter was driven by inflation in vehicle service contracts, while the second quarter issues stemmed from GAP due to declining used car values and higher interest rates. We expect rates to stabilize and improve modestly in the back half of the year. Additionally, we've been reducing GAP risk and anticipate improvement in less than two years. The challenges now may create a tailwind for us over the next few years.

    2. Card Benefits Growth with Chase
      Q: What is the opportunity in the card benefits business with Chase?
      A: We're expanding our relationship with Chase, converting all active Chase cardholders in the fourth quarter. This will be EBITDA positive as we enter 2025 and will drive growth in our Connected Living business. We're investing in this launch as part of our strategic growth initiatives.

    3. Auto Segment Profitability and Rate Increases
      Q: How are loss cost trends and rate increases affecting Auto?
      A: Loss cost trends are moderating; the CPI index for auto repairs went down modestly to about 9% year-over-year. We've implemented 14 rate increases over 5 clients in the last couple of years. This momentum will build over time, improving our position sequentially.

    4. Global Housing Combined Ratio Outlook
      Q: How do you view the long-term combined ratio for Global Housing?
      A: We target a mid-80s combined ratio, with a non-cat loss ratio around 40%, adding about 7 points for cat losses, and expenses in the high 30s. We've demonstrated discipline in expense management, driving efficiency through technology and scale.

    5. Renters Business Performance
      Q: What's causing weakness in the renters business, and are rates improving?
      A: Year-to-date revenue is up 2%, policies are up 4%, and gross written premium is up 8%, a leading indicator of future revenue. The property management company segment is up 20% year-to-date. We expect momentum to continue, supported by our investments in products and platforms.

    6. Higher Investment Income in Auto
      Q: Is higher investment income offsetting weaknesses in Auto?
      A: We're in a good position with investment income; our portfolio duration is about 5 years, and book yield is up 12 basis points over the last quarter to 5.16%. New money yields are slightly higher, and some client arrangements provide a natural offset if interest rates decline.

    7. Share Repurchase Plans Amid Hurricane Season
      Q: Why increase repurchase plans despite an active hurricane forecast?
      A: Confidence comes from our strong capital position and strengthened reinsurance program. We've completed $100 million of buybacks and are on pace to deliver at the higher end of the $200 million to $300 million range. Our businesses generate strong cash flow, allowing us to operate from a position of strength.

    8. Fee Income in Global Housing
      Q: Were there any unusual factors in elevated fee income in Housing?
      A: The increase is due to a business change—a reclassification between fee income and expense lines. There's no bottom-line P&L impact; it's simply a shift in accounting.

    9. Client Transition in Housing
      Q: How will client transitions affect Housing in the second half?
      A: There's ongoing activity in the lender-placed business with portfolios rolling off and on as clients make acquisitions. We expect some movement over the back half of the year but anticipate policy counts to remain relatively stable.

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