Assurant, Inc.

Welcome to Assurance First Quarter 2020 Earnings Conference Call and Webcast. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following management's prepared remarks. If you would like to ask a question at that time, please press star 1 on your touchtone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. We ask that you please pick up your handset to allow optimal sound quality. Lastly, if you should require operator assistance, please press star zero. It is now my pleasure to turn the floor over to Suzanne Shepard, Senior Vice President of Investor Relations. You may begin.

Thank you, Operator, and good morning, everyone. We look forward to discussing our first quarter 2020 results with you today. Joining me for assurance conference call are Alan Kohlberg, our President and Chief Executive Officer, and Richard Jajo, our Chief Financial Officer. Yesterday, after the market closed, we issued a news release announcing our results for the first quarter of 2020. The release and corresponding financial supplements are available on Assurant.com. We'll start today's call with brief remarks from Alan and Richard before moving into a Q&A session. Some of the statements made today 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 details on these measures, the most comparable gap 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. Before reviewing our results for the quarter, I wanted to share a few comments regarding the COVID-19 pandemic and our ongoing response. From the beginning, assurance leadership team acted swiftly and deliberately. led by our guiding principles to safeguard our employees and their families, to maintain operations and service level for our customers, and to support our local communities. Early in this crisis, we implemented a global ban on business travel and transitioned the vast majority of our workforce to work from home to help stem the spread of the virus in our communities and to protect our employees. For those employees who need to work from our offices or repair sites due to the essential nature of their roles, We've implemented strong safety and hygiene protocols. These measures include social distancing and the use of personal protective equipment, along with regular cleaning and disinfection of our locations based on the guidelines from the Centers for Disease Control. We are committed to doing what we can to protect our employees through this period of uncertainty, always treating them with respect and providing appropriate support given the challenges we're all dealing with at this time. To allay job security concerns as well as to continue to deliver for our customers, we've made commitments to our employees to not eliminate any roles due to COVID-19 in the short term. We've also offered financial support where it's most needed. As part of our Assurance CARES Employee Support, or ACES Fund, we've launched a special COVID-19 emergency relief program to support eligible employees who are experiencing severe financial hardship caused by the pandemic. We've already raised more than $1 million through the support of our foundation and personal donations from our management committee, the Assurant Board of Directors, and the generosity of hundreds of employees. Since its inception in late March, the Special Aces Fund has helped more than 800 families manage through these turbulent times. Furthermore, our Assurant Foundation is honoring all of its 2020 charitable commitments and has pledged an additional $250,000 to aid core charitable partners that are providing food and emergency support in the communities where we operate. I'm exceptionally proud of how our employees have supported not only each other and our communities, but also our customers. We've been able to maintain continuous service for our clients and provide essential support for our customers, like ensuring that their homes remain protected and helping them stay connected through their mobile devices at a time when we are all socially distancing. I want to thank our more than 14,000 employees for supporting each other, our customers, and our communities throughout this extraordinary time. You have truly made us Assurant Proud. Now let's move to our first quarter results, which were strong and largely unaffected by COVID-19. We benefited from continued growth in global lifestyle, as well as improved results in global housing. For Assurant overall, we reported net operating earnings per share excluding catastrophes of $2.84, an increase of 22% from the same period last year. Net operating income excluding catastrophes was up 18% to $176 million. In the quarter, we incurred about $2 million of incremental expenses directly related to COVID-19, which were reflected in net income. These expenses include, among other things, cost for the standardization of our facilities and the purchase of personal protective equipment and technology to enable work from home. Throughout this period, our balance sheet remained strong. At the end of March, we had $433 million of holding company liquidity after returning $95 million to shareholders through dividends and buybacks during the quarter. Provide us with an additional buffer during this crisis, we drew down $200 million from our revolving credit facility in late March solely as a precautionary measure. We do not expect to use these funds. We are pleased with our first quarter results, which reflects strong momentum across our business pre-crisis. However, we recognize that they may not be indicative of our performance in the coming quarters as the world continues to grapple with the impact of COVID-19. We have run multiple scenarios looking at the potential duration and severity of this crisis to better understand how our business might perform and to ensure we have the agility to react appropriately. Although we believe the long-term fundamentals and resiliency of our business remain strong, we are suspending our 2020 financial outlook until we gain additional clarity on COVID-19's duration and its impact on the broader economy and our business. We believe this is a prudent and sensible action given the current uncertainty. Relative to capital deployment, we want to retain maximum flexibility. Over the next few months, we will exercise caution in light of market volatility and as we enter hurricane season. This will include an ongoing evaluation of share buybacks with an expectation that we will slow down or pause until we have greater visibility. This applies to new M&A evaluations as well. We plan to provide an update on our 2020 view and our long-term targets once we have more clarity of the economic landscape we're facing. Over the long term, however, we still believe that we can continue to deliver shareholder value through above market growth and disciplined capital management. This confidence is grounded in the strength of our business portfolio. Our installed customer base across connected living, global automotive, multifamily housing, and pre-need, and our countercyclical lender place business position us well to weather a prolonged crisis. Near term, however, we expect a greater impact to our business as a result of the ongoing market volatility and containment measures and how those could further impact consumer behavior. As an example, in late March and throughout April, we saw a reduction in new sales across multifamily housing, auto, and pre-need. Within mobile, we experienced lower trading activity and slower sales growth. We are taking actions to mitigate potential impacts. For instance, we've deferred some discretionary spending and delayed staffing of certain open roles in our support areas. While we are deferring some investments as a precautionary measure, we have continued to make progress against key strategic initiatives to support our clients and their customers during this crisis and beyond. These have included, among other things, continued enhancement of our self-service capabilities and our dynamic claims fulfillment to facilitate faster claims resolution, as well as our ongoing IT transformation. Before turning to Richard, let me provide additional highlights from the quarter for each of our business segments. Within Global Lifestyle, we were pleased to see earnings increase by 20% year over year. Our growth has been driven by continued additions of new mobile subscribers, up 15% year over year. We believe that our ability to offer bundled value-added services to our installed base of more than 54 million subscribers provides a recurring revenue stream, even during an extended period of financial uncertainty. While we may add fewer new subscribers during this crisis, we still expect our count to grow. This should help mitigate impacts from expected lower trade-in volumes. Another driver of our success within Global Lifestyle has been our ability to expand partnerships with market leaders and new entrants. For example, this quarter, we enhanced our existing relationship with Rakuten Mobile by launching a new trade-in program in Japan. In addition to offering device protection for their mobile networks, the program provides a completely digital trading experience. Turning to Global Automotive, we believe the business is relatively well insulated from near-term economic shocks, given its significant level of embedded earnings. At the end of the first quarter, we had approximately $8.2 billion of unearned premium related to this business, which we'll earn over the next three to seven years. Furthermore, approximately 50% of our business comes from service contracts on used car sales. which tend to be less impacted as a result of economic downturns, as we saw during the last recession. As such, we remain positive on auto and have continued to look for select opportunities to further scale the business. Last week, we closed on the acquisition of our longtime partner, American Financial and Automotive Services, or AFAS, for $158 million. This represents an attractive valuation relative to recent transactions in the space, and complements our 2018 acquisition of the warranty group. AFAS is a provider of finance and insurance products and services, including vehicle service contracts and other ancillary offerings with nearly a 40-year history. AFAS products and services are sold directly through a network of nearly 600 franchise dealerships with a deep footprint in Texas and the Southwest. For 2020, we don't expect the acquisition to be a significant contributor to our results. However, in 2021 and beyond, we expect it to further enhance our market position and add scale with the expectation to deliver additional profitable growth over time. Moving to global housing, our LenderPlace franchise continues to be an integral part of our specialty risk offerings. During the quarter, we renewed another one of our largest LenderPlace clients for an additional four years. Since the beginning of last year, we've now renewed 17 clients representing more than 80% of our tract loans. Our superior customer platform has been a differentiator and will serve us well through economic cycles to support our clients and policyholders. In multifamily housing, we now support almost 2.3 million renters across all 50 states. While the business tends to be more resilient during economic downturns as consumers prefer to rent versus buy, Beginning in mid-March, we saw a decline in new policies as renters are delaying their moving plans due to the pandemic. During the last few weeks, we've seen some tentative signs of stabilization, especially in our affinity channel, as tenants may be regaining comfort with moving. We remain cautious, however, as we enter the summer when we typically see greater activity and sales growth. We will continue to monitor sales, persistency, and claim trends, We're also doing what we can to support current policyholders who are experiencing financial hardship during this challenging time. This includes deferring premium where appropriate. Moving to global pre-need results in the first quarter were largely in line with our expectations. This business benefits from lower mortality risk than traditional life insurance products and acts as more of a spread business. In light of the current low interest rate environment, we've worked with our partners to make changes to the product, as well as help our clients complete the sales process virtually. We will continue to evaluate other actions as appropriate. With regards to mortality, experience has been largely consistent with our experience last year. We attribute this to our policy footprint, including the fact that we do not write in New York. In summary, despite this uncertainty, we believe our business is resilient, and that Assurant will weather this period and emerge strong. I'll now turn the call over to Richard to review first quarter results and recent trends in detail.