Analysis AIZ
Assurant's catastrophe costs rose. Why did its outlook improve?
Device services are growing, and our reserve comparison finds stronger Housing profit. The higher forecast also includes a benefit August did not assume.
Assurant raised its annual adjusted profit outlook after device services grew and its housing business earned more with less help from reserve releases. The improvement held up even as third-quarter catastrophe costs increased from a year earlier.
The company now expects annual adjusted EBITDA growth of approximately 10%, excluding reportable catastrophes, up from August's mid-single-digit expectation. This earnings measure removes interest, taxes, depreciation, purchased-intangible amortization and selected other items. Its Global Lifestyle business is expected to grow in the mid-to-high teens, versus the earlier low-double-digit forecast.
Device services supply the momentum
Connected Living, which includes mobile protection and services such as trade-ins and repairs, increased quarterly adjusted EBITDA by 23% to $157.5 million. That supplied almost all of Lifestyle's $30.1 million profit increase.
Assurant serviced 7.6 million mobile devices during the quarter, versus 4.8 million a year earlier. Those services span trade-ins, upgrades, repairs, logistics and claims fulfillment. Protected devices, a separate measure of contracts in force, rose more modestly.
The company attributed earnings growth to mobile supply-chain and device-protection programs, alongside financial services. Its automotive business was only slightly above the prior year, which included a one-time benefit.
Housing growth needs less reserve help
Housing's quarterly adjusted EBITDA rose to $268.3 million from $256.3 million. That was after $19.7 million of reportable catastrophe costs, versus $2.9 million a year earlier, and smaller benefits from revising estimates for earlier claim periods.
Research by Ticker Byline shows that removing both catastrophe costs and favorable reserve revisions consistently leaves Housing's adjusted profit about 16% higher: $267.4 million against $230.7 million.
This comparison still includes the benefit of lower catastrophe-reinsurance premiums. Assurant also cited fewer ordinary claims.
The annual forecast has another relevant change. August assumed no prior-year reserve development in the second half. The third quarter subsequently delivered an $18.8 million benefit, which November's forecast includes.
Catastrophe comparisons also helped the nine-month results: consolidated costs were $56.3 million against $188.8 million.
Quarterly GAAP net income rose 4% to $275.2 million, slower than adjusted EBITDA growth. Higher corporate expenses and investment losses restrained the increase. The Assurant company profile follows the earnings mix, reserve assumptions and parent-company funds available for shareholder returns.