Welcome to Assurant's Q3 2022 Conference C all 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 one on your touch-tone phone. If at any point your question has been answered, you may remove yourself from the queue by again pressing the star one. 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 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 Q3 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 Q3 2022. 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 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. I will now turn the call over to Keith.
Thanks, Suzanne, and good morning, everyone. As we previewed last week, our Q3 2022 results came in below our expectations. This reflected a more challenging macroeconomic environment and lower contributions from Global Lifestyle. Following a very strong first half of the year where we grew Lifestyle Adjusted EBITDA by 14% year-over-year, this quarter had more significant headwinds internationally, including unfavorable foreign exchange, a modest uptick in claims, and lower Connected Living program volumes. While disappointing, our results don't change our view of the inherent growth momentum in the Lifestyle business. We believe the actions we're taking to drive additional expense savings will also better mitigate potential further deterioration in macro conditions. Looking at Global Housing, the segment's performance was in line with our expectations for the quarter.
We're pleased with the progress we've made in not only increasing revenues through higher average insured values and rates, but also the transformation actions we've taken to simplify the business and drive future growth. Looking at the year-to-date performance through the first nine months of 2022, Assurant's reported Adjusted EPS of $10.05 is up 7% from last year, and Adjusted EBITDA of $832 million is down 4%, both excluding reportable catastrophes. As we evaluate our progress this year, we continue to believe we have a compelling strategy, strong fundamentals, and momentum with clients as we continue to align with leading global brands and maintain market-leading positions across our key lines of business. For example, we announced a further multi-year extension of our long-standing partnership with T-Mobile.
This important contract extension provides us with increased long-term visibility in our U.S. mobile business. At the same time, it gives us greater opportunity to increase repair volumes through our over 500 cell phone repair locations with the ability to leverage this capability with other U.S. clients. We've also made investments to support our product development around the Connected Home, and we continue to engage in encouraging dialogue with key clients, creating a long-term opportunity for growth. This also included supporting our largest U.S. retail client with the expanded relationship we announced earlier this year. While macroeconomic conditions in Europe are challenging, we continue to win new opportunities and recently expanded our global partnership with Samsung to launch Samsung Care+ smartphone protection in 6 major European markets. We now offer this solution across three continents.
This momentum, combined with our partnerships with well-positioned global market leaders, should help us outperform through an economic downturn. Turning to Global Housing, we've already begun a comprehensive transformational effort to position the business for long-term success, and we're pleased with our progress. Consistent with our practice of actively managing our portfolio of businesses and reviewing it for strategic fit, in addition to exiting commercial liability, we're eliminating our international housing catastrophe exposure. We don't see these businesses as core to our strategy or a path to leadership positions. As we execute these changes, we're designing a new organizational structure for Global Housing to better manage our risk businesses from our capital- light businesses as part of our transformational agenda and also to realize greater efficiencies. We're finalizing our plans for implementation in 2023.
As we reflect on Assurant's overall results to date and current market conditions. We now expect 2022 Adjusted EPS, excluding catastrophes, to grow high single-digit % from $12.28 last year, driven by share repurchases and Global Lifestyle growth. For the full year, we expect Adjusted EBITDA, excluding catastrophes, will be down modestly to flat with 2021. This will be driven by high single-digit % Adjusted EBITDA growth for lifestyle, even with additional macro headwinds. In fact, on a constant currency basis, we expect Global Lifestyle to finish 2022 aligned with our original lifestyle expectations of low double-digit % growth. In Global Automotive, we still expect to outperform our initial expectations, driven by tailwinds from investment income and underlying growth in the business as we expand share with clients and add to our 54 million protected vehicles.
For 2022, we continue to believe Global Housing will decrease by low- to mid-teens%, but we're pleased to see the initial improvements in our underlying results. From a capital perspective, we've remained good stewards. Year to date, we have returned a total of $667 million of capital to shareholders, including proceeds from the sale of Preneed. By year-end, we expect to close two small acquisitions for a total of approximately $80 million. These deals will strengthen our position in commercial equipment with attractively priced assets and minimal integration effort. Looking ahead, given macroeconomic volatility, we will exercise prudence in the near term relative to capital deployment so that we can maintain maximum flexibility to continue to support our organic growth.
This doesn't change our conviction of the strong cash flow generation of our businesses, nor our view of the attractiveness of our stock, but rather is a reflection of the uncertain macro environment. As the broader environment begins to stabilize and visibility improves, we'll evaluate capital deployment to maximize shareholder value. Looking to 2023, we are confident in the growth of our businesses. We expect both our Global Housing and Global Lifestyle Adjusted EBITDA ex-CATs to increase year-over-year. To that end, we're taking decisive actions to mitigate headwinds while we maintain our relentless focus on growth. The Global Housing business is poised to grow in 2023, and we started to see evidence of that in the Q3 as rate increases flowed through the book. In the long term, the business should provide downside protection if we see a further deterioration in the U.S. economy.
We believe Global Lifestyle is positioned to grow in 2023. This is based on expectations of continued strong underlying growth momentum, even while factoring in lower international business volumes and increasing claims costs. We have also started several initiatives across the enterprise to drive greater operational efficiencies and leverage our economies of scale. We're now pushing even harder to realize incremental expense savings given the increasingly volatile market. We expect to finalize plans in the months ahead so we can implement in 2023 and beyond. This includes optimizing our organizational structure and best aligning our talent, leveraging our global footprint to reduce labor costs where possible, continuing to review our real estate strategy, recognizing we have an increasingly more hybrid workforce, and accelerating our adoption of digital solutions.
Our digital-first strategies are yielding positive results in 2022, both in terms of delivering better customer experiences and meaningful savings. As part of our 2023 planning, we're taking steps to accelerate digital adoption and automate processes which will further reduce cost and improve the customer experience. We're also applying the same principles to drive greater automation and self-service throughout our functional areas. With this in mind, and considering how the overall business environment has changed, we are reevaluating our long-term financial objectives shared at Investor Day. In February, we expect to share our 2023 outlook, also factoring in the most recent business trends and macro environment. This in no way changes our view on our business advantages, leadership aspirations, or long-term growth potential. We continue to be well-positioned with industry-leading clients as we focus on key products and capabilities where we have market-leading advantages.
We believe we have a compelling portfolio of businesses poised to outperform as we deliver on our vision to be the leading global business services provider supporting the advancement of the connected world. I'll now turn the call over to Richard to review the Q3 results and our revised 2022 outlook in greater detail. Richard?
Thank you, Keith, and good morning, everyone. Adjusted EBITDA excluding catastrophes totaled $240 million, down 11% from the Q3 of 2021. Our performance reflected weaker results in both Global Housing and Global Lifestyle. For the quarter, we reported adjusted earnings per share excluding reportable catastrophes of $2.81, down 8% from the prior year period. Now let's move to segment results, starting with Global Lifestyle. The segment reported adjusted EBITDA of $166 million in the Q3, a year-over-year decrease of 6% driven primarily by Connected Living. Excluding an $11 million one-time client contract benefit in Connected Living, Lifestyle earnings decreased by $22 million. The Connected Living decline of $18 million was primarily from four factors.
First, $7 million of unfavorable foreign exchange, mainly from the weakening of the Japanese yen. Second, lower margins in our device trading business from lower volumes. However, this is expected to improve starting in the Q4, which we have already seen in October. Third, our extended service contracts business was impacted by higher claims costs from wage and materials, and we did make some additional investments in Connected Home. Lastly, softer international volumes for mobile, particularly in Japan and Europe. The decline was partially offset by continued mobile subscriber growth in North America device protection programs from carrier and cable operator clients. In Global Automotive, earnings decreased $4 million, or 6%, primarily from lower investment income and higher losses in Europe. Turning to revenue, year-over-year Lifestyle revenue was up by $29 million, or 1%, driven by continued growth in Global Automotive.
Global Automotive revenue increased 9%, reflecting strong prior period sales of vehicle service contracts. On a year-to-date basis, our net written premiums in auto were down 2%, demonstrating the resilience of the business relative to the broader U.S. auto market, which contracted at a faster pace. Within Connected Living, revenue was down 4% year-over-year due to lower revenue in mobile, mainly from premium declines from run-off programs and unfavorable foreign exchange. This was partially offset by growth in subscribers in North America. In the Q3, we serviced 7.1 million global mobile devices, supported by new phone introductions and carrier promotions from the growing adoption of 5G devices. For the full year 2022, we now expect Lifestyle adjusted EBITDA to grow high single digits compared to 2021, led by double-digit mobile expansion and Global Automotive growth.
Earnings in the Q4 should grow year-over-year, mainly from growth in Connected Living. Moving to Global Housing, the Adjusted EBITDA loss was $25 million, which included $124 million of reportable catastrophes. As a retention level event, Hurricane Ian was the primary driver of reportable catastrophes in the quarter, along with the associated reinstatement premiums. Excluding catastrophe losses, Adjusted EBITDA was $99 down 18 million or 15%. The decrease was driven primarily by approximately $38 million in higher non-CAT loss experience across all major products, including approximately $24 million of prior period reserve strengthening. Lender-placed earnings were flat as elevated loss experience and $13 million of higher catastrophe reinsurance costs were largely offset by higher average insured values and premium rates.
The placement rate increased nine basis points sequentially, mainly from client portfolio additions having a higher average placement rate. The increase is not a reflection of a deterioration in the U.S. mortgage landscape. In Multifamily Housing, increased non-CAT losses, including some reserve strengthening and an increase in expenses from ongoing investments to expand our capabilities and strengthen our customer experience resulted in lower profitability. Global Housing revenue increased 3% from growth within several specialty offerings, as well as higher average insured values and premium rates in lender-placed. This was partially offset by higher catastrophe reinsurance costs noted earlier from Hurricane Ian. For the full year, we expect Global Housing Adjusted EBITDA, excluding cats, to decline by low- to mid-teens% from 2021, with an increasing benefit in the Q4 from higher AIVs and rate.
We're also evaluating our catastrophe reinsurance program as we approach the January first purchase to ensure we optimize risk and return. This may include increasing our retention level, reflecting the growth of the book of business stemming from inflation. In the meantime, we believe the implemented rate adjustments will result in higher premiums that can help to mitigate the increase in CAT reinsurance costs. At Corporate, the Adjusted EBITDA loss was $25 million, up $2 million, driven by lower investment income. For the full year, we continue to expect Corporate Adjusted EBITDA loss to be approximately $105 million. Turning now to holding company liquidity. We ended the Q3 with $529 million, $304 million above our current minimum target level. In the Q3, dividends from our operating segments totaled $143 million.
In addition to our quarterly corporate interest expenses, we also had outflows from three main items, $80 million of share repurchases, $37 million of common stock dividends, and $6 million mainly related to Assurant venture investments. For the full year, in addition to the $365 million of Preneed proceeds, we expect incremental share repurchases to be on the lower end of our targeted range of $200 to 300 million. As always, segment dividends are subject to the growth of the businesses, investment portfolio performance, and rating agency and regulatory capital requirements.
Turning to future capital deployment, our objective continues to be to maintain our strong financial position while continuing to invest in our future organic growth. However, given the interest rate volatility and uncertain global macro environment, we plan to be prudent relative to capital deployment in the near future. In conclusion, while our Q3 results were disappointing, we are confident that our Q4 results will improve. With the additional actions we are taking to grow the top line and leverage our expense base, we are positioning ourselves for growth into 2023. With that, operator, please open the call for questions.
The floor is now open for questions. At this time, if you have a question or comment, please press star one on your touch tone phone. If at any point your question is answered, you may remove yourself from the queue by again pressing the star one. Again, we do ask that while you pose your question that you pick up your handset to provide optimal sound quality. Thank you. Your first question comes from a line of Michael Phillips from Morgan Stanley. Your line is open.
Morning, Mike.
Thank you.
Hey, Mike.
Hey, good morning, everybody. Good morning. Thanks. I guess I want to touch on the comments on 2023 that you mentioned, you know, you expect growth in both segments. As I compare that to, you know, your the stuff you gave in February, where you were pretty specific with the financial objectives of you know you gave certain numbers by segment of you know of EBITDA growth. Here you were I believe you said, you know, you want to reevaluate that. It sounds like you're also expecting Lifestyle continue to higher claim calls. Kind of want to kind of marry those and make sure we're not reading too much into your wording of reevaluating 2023 growth as compared to your objectives before.
Okay, yeah, maybe I can try to tackle that a couple of ways. If you think about the outlook for 2022, if we just start with that, obviously we're below what we expected originally from Investor Day, you know, largely driven by the decline in the housing business as it relates to inflation, which we talked a lot about last quarter. We had also expected Lifestyle to even outperform our original expectations when we think back to where we started the year and kind of what we signaled last quarter. Obviously, we saw a softer Q3 in Lifestyle. You know, we still expect Lifestyle to generate strong growth as we think about 2022. We talked about high single-digit growth in Lifestyle, but that's overcoming relatively significant foreign exchange rates.
If you think about constant currency basis, we expect to be in the low double digit range, which was underpinning our Lifestyle Investor Day commentary. I would say that because housing is behind and Lifestyle is sort of in line, but not outperforming as significantly as we had hoped last quarter, and we can talk about the Q3. We've said it's prudent for us to you know close the year, evaluate how we finish, look at the trends as we think about 2023 and 2024. There's a tremendous amount of turmoil in the global economy and the macro environment. Trying to make sure we take all of that into account, set our outlook for 2023 that will also be based on the expense actions which we're taking in the Q4. We do expect international softness to continue.
I think foreign exchange will be a pressure. Claims costs are rising. Not a huge part of the Lifestyle story, but still important. We're trying to take expense actions to offset that pressure. I think prudent for us to revisit and think about those longer term commitments to make sure that we're being as transparent as we can with the market.
Okay. Yep. Thank you. I think that makes sense. I guess when you looked at in this quarter, one of the segments in Lifestyle was the mobile margins, and you talk about how that's not going to continue and kind of revert, I guess you mean in Q4. Can you talk about why that is?
Yeah. There's a couple things. If I think about the Q3 for Lifestyle, we certainly expected results in the Q3 to be lower than what we saw in the first half. That wasn't surprising, but obviously they came in even lower than we were expecting. Maybe I'll unpack why we would have thought they would have been lower to start with and then what happened in the quarter. I would say, as we thought about Q3, we knew there'd be more losses in mobile from seasonality. We tend to see higher claims in the summer months, particularly for the clients where we're on risk. That certainly happened. We saw an elevated level of claims beyond what we were expecting in the Q3.
If you think about the first half of the year, we saw tremendous favorability around mobile losses. Frequency of claims is lower than historic levels. We've done a really good job managing severity, a lot of efficiency in our supply chain, but also leveraging walk-in repair as well to drive down severity of claims. We thought that positive trend line would continue in Q3. There's a little bit of a reversal, mainly around the cost of acquiring devices, when we had to do replacement devices and just the sort of the mix of in inventory that we had. We expect to see that normalize more into the Q4 and beyond.
When I think about mobile losses year to date, pretty in line with what we would have expected at the beginning of the year, very much in line with what we saw in 2021. Choppiness between really strong favorability in the first half and then some softness in the Q3. you know, we also saw accelerated investments around the Connected Home in Q3, which we knew would continue. We had some favorability in the first half with investment income in auto, which we knew wouldn't continue. We certainly expected Q3 to be down. In terms of the miss to our expectations, I would say 50% of that miss is broadly international, combination of FX and softer volumes in a softer economy, particularly in Europe and Japan.
About half of it was domestic trade and margins, which was probably more of a timing point in terms of devices being delayed to be received in our depots, and that will reverse itself in the Q4. I talked about the mobile losses being another driver, and then we saw a little bit of loss pressure on the ESC portfolio. Not a huge number, but certainly there's inflation in the system, and that's flowing through.
Okay, Keith. Thank you for all the color. Appreciate it.
You bet.
Your next question comes from the line of Tommy McJoynt from KBW. Your line is open.
Hey, good morning, guys.
Good morning, Tommy.
Yeah, good morning.
Just maybe stepping back a little bit and thinking from a high level, just thinking about the step-down, I guess, in this year's guidance from perhaps, I guess, 6 months ago back in May, we've seen kind of 2 sequential steps down. Can you just kinda frame how much of that step-down has come from its expected, you know, loss cost, the claims inflation side, versus perhaps just, you know, a lower demand for your products and services, I guess, over in Europe and then a little bit domestically? If you were just gonna bucket into those 2 categories, the step-down in guidance over the year, how would you do that?
Yeah. I think, you know, when we sat here at the end of the Q2, we certainly saw pressure in the housing business, no question. That was the driver of the step-down last quarter, offset by a really, really strong first half. We think about lifestyle, you know, record year in 2021, and then an incredibly robust first half. We projected that trend line would continue and that favorability would continue. I'd say, you know, the adjustment that we're talking about now is entirely sort of backing out that favorability for the full year from lifestyle. Lifestyle, like I said, it's gonna come in very much in line with our original expectations from Investor Day from the beginning of the year, and the real impact is FX.
If I think about Lifestyle overall, I would say domestic Connected Living will finish the year very much in line with what we had expected. A really strong year, really robust growth. Global Automotive will be ahead of what we originally expected, mainly driven by investment income, which we've talked about being a nice tailwind for the Automotive business. That favorability in Automotive, I would say, offset by softness in underlying international business results, mainly in Europe, a little bit of pressure in Japan. We've got FX layered on top of that. Again, ignoring FX, pretty much in line, and I'd say Automotive outperforming and offsetting softness internationally. Housing is very much in line with expectations. If we think about what we expected in the Q3, you know, housing came in very much in line.
We've made tremendous progress to transform housing. We've reacted with urgency. I'm really proud of the way the team has come together. We've simplified the focus. You saw the exit of sharing economy. We've signaled the exit of international housing-related CAT business. We're implementing a new org design to delineate between our housing risk and capital light to increase our focus, drive even more efficiency. Just a tremendous amount of work on offsetting inflation, not just with expense discipline and prudence, but the work with AIVs that, you know, has started to take hold a little bit this quarter. A lot of progress on rate. 31 approved rates with states that are implemented in 2022, several more for early 2023. Just a lot of progress there, and I'd say housing pretty much in line as we think about what we said last quarter.
Thanks. To follow up on that, what gives you guys confidence that some of the weaker pressures over in Europe and Japan might not spill over into the North American side?
Yeah. We've, you know, we certainly expect the pressure in Europe and in Japan to continue. I would say, you know, obviously they're both profitable markets for us. Japan has been an incredible success story, and I think even though there's some softness in the economy, we're very well positioned in the market and there's tremendous long-term opportunity for growth, and our team is doing an incredible job. I feel really good long term about our position there. Europe's even more challenged, obviously, with the economy and with FX in that marketplace. That we're seeing some softness. I think that persists and continues. We're taking actions to make sure we're simplifying our focus, rationalizing our expense base. Nothing that we're gonna do is gonna destroy long-term value, disrupt what we do with clients or customers.
In North America, we've actually seen really robust results. You know, our subscriber counts on mobile in North America, postpaid, are up sequentially. They're up year-over-year, obviously, with the T-Mobile acquisition of Sprint. Good momentum. Our clients are growing. If you think about our device protection clients in the U.S. on the postpaid side, they're gaining a lot of net adds. I think 70% of the net adds are coming through our client, the client partnerships that we have. That bodes well for device protection. Trade-in continues to be strong as there's a lot of competition in the broader market, particularly domestically.
Got it. Thanks. This last one for me. In Housing, you recorded the prior period development of $24 million, but the full year guidance for Housing didn't change. Was that prior period development already anticipated in the guidance?
I think we certainly expected higher claims cost in the quarter, and that came through in prior period development versus current accident quarter development, and maybe Richard can share some highlights on that. I would say that, you know, the offset to the prior period development was the significance that we saw both in terms of rate from AIVs a little bit, but mainly from all the rate adjustments that we've made over the course of last year. Then policy growth. You know, we've got 26,000 incremental LPI policies that came through in the quarter as well, which we can talk about. Maybe Richard, talk a little bit about the prior period.
Yeah, exactly. I think you nailed it. In terms of the prior period development, you know, obviously when we closed Q2, we put some prior period development in and, you know, the best number and our best estimate. On the other hand, when we were looking at our outlook, we said inflation is high, let's just assume inflation is gonna stay at a very high level. We kind of, I would say, hedged our bets in terms of where the total loss ratio could go at the end of this year, you know, call it not really prior period development, but just all-in loss cost. You know, that came through and we're, you know, a decent place there, and that was able to absorb some of the, you know, the prior period development.
You know, of the prior period development, I would say 14 was this year, so it's really just a movement within the calendar year, 10 for the prior years. Then as Keith said, our premiums were a little bit better. We are seeing the AIVs, we are seeing some new business come on, and so that helped offset, you know, any other variance by the prior period development that came in.
Got it. Thanks.
Your next question comes from the line of Mark Hughes from Truist. Your line is open.
Morning, Mark.
Yeah. Thank you. Good morning. The delay on the trade-in activity, I got some questions on that. What was the logistical cause of the delay?
Yeah. At a high level, relatively simple. We expected a client to send additional devices to us towards the end of the Q3, and that was delayed for a variety of reasons, still to be received in Q4. It's really just a shift between three and four. It wasn't so much the lack of volume from a margin perspective, it was the fact that we had staffed labor accordingly to be able to process and receive those devices. There's a bit of a mismatch between the labor that we had in place in anticipation of the volume and then the volume being delayed for some logistical reasons in terms of clients getting us those devices. Something that we expect to right the ship in the Q4.
On the reinsurance, I think you had mentioned that you were looking at taking up your retention. Could you refresh me on the timing of your renewals? I think it renewals or renews at a couple different times through the year. How you anticipate what your early thoughts are about the cost of that program for 2023 versus 2022. I guess I already asked on the timing. Just timing, cost, retention, if you could address those.
Sure. Maybe Richard, you can start in terms of the timing, and then I can add some color at the end.
Great. Thank you. Good morning, Mark. When we think about our reinsurance program, full year this year will probably be about $190 million in total cost in it. How are we looking at the reinsurance program? Really, we need to look at it in terms of total housing prices. You know, start with the total housing prices, and housing prices have gone up. Inflation has been boosting them, you know, other factors have been boosting them. If you think about the insurance that we put on the properties, we're putting more insurance on. That obviously results in us needing to purchase more insurance.
Really by, you know, kind of just a function of the overall book of business growing, we'll be placing more reinsurance on, the premium will grow. If you think about it, having a bigger book of business and more premiums means we do have more exposure at the lower levels and a higher probability that those lower levels will be touched. So as we look at it's more of a proportional position that we would take and say, okay, well, what's the right new level for our retention? That's why we wanted to signal that lower layer will probably go up. It's just, you know, kind of a logical conclusion in terms of what's been happening in the market.
I would say, you know, as we said a number of times, we are getting rate increases, we are getting increases in average insured values, so we are getting premium increases. The rise in the reinsurance costs and we are expecting some increase in reinsurance costs given, you know, the state of the reinsurance market, that would be an offset to some of the premium increases that we are getting. You know, I would say sort of logical in that sense. In terms of timing, you know, we typically purchase about two-thirds of our reinsurance at the beginning of the year and then, you know, the rest of it at mid-year. You know, we always look at that. That proportion could change as we get into the market and see the dynamics of it.
Yeah. Maybe just one other comment. I think at the highest level, we certainly expect the reinsurance cost increase to be more than offset by additional rate, both from the rate increases but also from Inflation Guard, the average insured value increases. Even with a harder reinsurance market, you know, we've got really strong relationships across a wide range of reinsurers. We partner with over 40 different reinsurers, a strong performing business long term. We continue to simplify the portfolio, which I think helps us as we move forward. Definitely rising costs, but we anticipate that, you know, our rate will be more than sufficient to offset that.
It sounds like, what you're seeing on rate, in your judgment at this point, will more than offset both the underlying inflation and the higher reinsurance costs. Is that right?
That's correct. Yeah, if I think about, you know, housing, even if we just look at the Q3, you know, revenues are up 3% year-over-year. If you back out the reinstatement premium from the premium line, we'd be up 8% year-over-year. We had $35 million in reinstatement premium this year and $8 million in Q3 last year. That's pretty meaningful, up 8%. I would say that's half from rate. Very little of that is from this year's AIV. We put the AIV increase in July. We talked about double-digit rate as a result of AIV. That's had 3 months to have an effect, right? It's really a 24-month cycle. We renew policies over 12 months, and they take 12 months to earn. We're 3 months into that 24-month cycle.
Very little of the improvement is from AIV. Most of it's from all of the rate action we've taken at the individual state level and then from the policy growth that we saw in the Q3. That will just continue to build and accelerate as the full effect of AIV rate comes through the program.
Your SG&A in lifestyle was up a point sequentially. That number has been a little bit volatile. Any change in the economics of the agreements that you've got with the auto dealers or your carrier partners? I know you just renewed with T-Mobile. Is there maybe a little more sharing you're having to do with those partners these days?
No. You know, in terms of T-Mobile, you're correct. We did do a multiyear contract extension on top of the multiyear extension that we got a year ago. The deal structure has changed as we pivoted from the in-store repair to leveraging our 500 CPR stores. In terms of the broad economics, I would say quite simply, we protected the financial integrity of the original deal that we had. We restructured the way it operates, but no impact to our EBITDA expectations for that business. We further extended the agreement to protect that relationship over time, which is really significant in terms of giving us long-term visibility into the U.S. mobile market. Nothing there that would create any economic change to us.
In terms of the balance of clients, I'd say, you know, tremendous momentum still commercially with our clients. Lots of focus on driving growth, driving innovation, but no fundamental changes in deal structures and services provided. If you think about the softness in the Q3 in lifestyle, you know, other than pointing to the broader economy and some of the impacts that I discussed earlier, nothing related to client deal related changes.
Richard, I don't know anything on the 6-point expense.
Yeah. Thanks, Keith. Yeah, exactly. No changes to client contracts, but I would say the increase in the overall SG&A is reflecting, you know, some increases in the business growth in the business, you know, particularly in the auto business. Obviously, there's distribution costs with regard to that, and we have been, you know, growing the business over the last year. So there's some commissions in there. Also, in our prepared remarks, you heard us talk about some additional investments in our home solutions and, you know, a chunk of that obviously is expensed in the quarter. So those would be the two main drivers, Mark.
Thank you very much.
Your next question comes from the line of Gary Ransom from Dowling & Partners. Your line is open.
Morning, Gary.
Good morning.
Morning, Gary.
I was wondering if you could add a little color on the exit from international housing. How long will that take, and what is the magnitude of what's being reduced? It's not clear to me whether that includes the Caribbean exposure as well.
Yeah.
Could you talk about that a little bit?
Sure. It does include the Caribbean exposure and, you know, and really anything that we write internationally that is CAT-exposed homeowners-related business. We've made the decision strategically to exit. I would say we'll be done writing policies. Most of it will be done this year. There's a little bit that we'll finish at the end of the Q1, but we won't be writing new policies as of Q2 2023. Then depending on how some of the final discussions unwind, you know, maximum, we'd have a 12-month run off on those policies, in some cases shorter. That's to be finalized and determined. In terms of the scale of it, I'd think about, you know, maybe $50 million in net earned premium, in a year as being kind of typical.
It probably takes 10% of our tower. If you think about the tower that Richard talked about, our reinsurance tower, 10% of that goes to protect the international exposures. You know, strategically, it's been a challenging market, hard to get rate. There's been rising costs, as we know, of claims. We expect rising costs of reinsurance. Adds a lot of complexity to not only manage the business, but negotiate the reinsurance that backs it. Ultimately, with modeled AALs, you know, fairly limited effect to all-in EBITDA, certainly EBITDA ex-CAT, but all-in EBITDA with CAT, not hitting our target levels of return risk-adjusted. We're making the decision to further simplify, and focus in places where we think we have clear competitive advantages and where we're differentiated. We're not just a risk-taker. We're providing deeply integrated, more differentiated services.
That wasn't the case with this business, and we weren't able to get the returns we wanted.
Is some of this business coming through the LPI business as well?
No.
No. Okay. It's all just separate.
Yeah.
Separate homeowners business, basically.
Yeah, separate homeowners. Some of it we're a reinsurer, some of it we're a direct writer, but none of it connects to what we do in LPI. You know, LPI is really unique. It's an incredibly advantaged business in terms of how we operate, how we're integrated, and we create much more value than just being a risk-taker. We're able to get rate, and we're able to drive the right level of profitability over time in that business. It's quite a different business to manage versus what we've been working with in the international property side.
Great. Thank you very much. I also wanted to ask about the two acquisitions. I know you had the EPG acquisition, maybe
Yep.
A couple, maybe it's a couple years ago now. Do those all fit together? I mean, i s there some consolidation potential? Just I wondered if, you know, is that a market size that will be additive to the growth you're thinking about over the long run?
Yeah, I think that's exactly right. You know, if we think about the EPG acquisition and then the acquisition that we're talking about now, it's really to build on the strength that we've got in that market around commercial equipment, leased and financed equipment. You know, we've had good results and strong growth, and we operate this business both in our housing side and the lifestyle side, so we're gonna evaluate how to drive more synergies through the organization as we move forward. Absolutely, it's capital light, fee income. We're talking about you know, small tuck-in acquisitions of existing clients that are high performing. We're already underwriting the business, and it's really just buying the administrative capability and the scale to drive that forward.
We definitely see growth in this line of business, and we think it can accelerate as we make somewhat small acquisitions but can add a lot of value to our franchise.
Yeah. You said that some of it's in housing and some of it is in lifestyle. I guess I sort of thought of it as sort of similar to the auto business, but maybe I was wrong on that.
Very much. I think we write two different product lines when we think about heavy equipment and commercial equipment. Some of it is service contracts, some of it is physical damage. Operates very consistently, really predictable, strong profitability. That's been the legacy of how we've been set up as an organization. One of the things that we're focused on now is, as I talked about some of the housing realignment between risk-based homeowners business and fee income capital light, just thinking about how do we create maximum efficiency and effectiveness organizationally. How do we create clarity in terms of where we wanna focus to drive growth? What is the mindset that we need leading various different products? Then make sure that we've got the least amount of friction in how we're organized as possible.
More changes to come as we think about our go-to-market strategy longer term.
Okay. Thank you very much. Well, actually just one more, maybe a bigger picture question. When you're thinking about all these macro impacts, inflation, foreign exchange, and then putting that in the context of how you were thinking about 2023 and 2024 before, I'm not even really asking what you think about hitting 2024 or not, but just how your thinking might have changed. You know, we've had these couple of disappointments in the second and Q3. What did that do for your thinking about the outlook as we go into 2024 and maybe even longer?
Yeah, I think it probably, you know, we step back and reflect on just how uncertain and complicated the environment is. That's true for Assurant, it's true for most companies today, right? There's a lot of market volatility, market uncertainty. Interest rates are moving quickly. The economy obviously is gonna shift over the course of the coming quarters, and we'll see how that lands. There's just a recognition of the complexity. Like I talked about earlier, we knew housing was gonna be weaker this year. We thought the outperformance in lifestyle would make up that gap as we thought about 2024. We certainly expect to continue to see the housing growth. It's no doubt gonna grow as we think forward over the next couple of years.
The question mark is around can lifestyle outperform at the level that we would've needed to in order to offset that housing softness? Housing is probably more of a delay than a pivot in terms of what our expectations are. It's really just that we're a year behind where we thought we would be, but we are seeing evidence of significant improvement.
I think right now, given the uncertainty, particularly in the international markets, just taking a step back, like I said, finish the Q4. deliver on a really strong plan in terms of what we expect to accomplish in 2023 relative to expenses as well as driving the right outcomes with our clients, and then stepping back and revisiting what's possible as we think about the longer term, and then providing some color, you know, on a more informed basis in February.
Terrific. Thank you very much.
You're welcome.
Your next question comes from the line of John Barnidge from Piper Sandler. Your line is open.
Morning, John.
Good morning. Thank you very much. You've had expanded partnerships in the lifestyle business announced this year. Had a couple questions on that. In light of inflationary pressures, one, can you talk about how you manage that inflationary volatility? Then can you contrast that with, could that pressure actually lead to more partners looking to outsource more of their service management and refurbishment of mobile devices?
Yeah, it's interesting. If I start with the second point first just on outsourcing and this ebbs and flows over time, but you know, I think as we think about a more challenging economy going forward, if we think about a recessionary environment, oftentimes we'll see clients focusing on core. The same for us, right? How do we focus on the things where we can generate the greatest amount of return? How do we prioritize you know, what's critically important to the company? I think clients do the same thing. As clients reprioritize their focus, there may be opportunities for them to say, "Hey, is there someone else in the market that's better equipped to help me with something because it's just not the burning priority of the moment." We'll see how that evolves.
That sort of happens over time, but it's certainly reasonable to expect as we continue to build scale and as we have better and better capabilities that are efficiently operated, you know, we can provide, you know, a great source of value to our partners over time. I think that, hopefully, that trend continues. In terms of the volatility in lifestyle from a macro environment, you know, I think if you step back and look at the totality of the year, you know, we've signaled some puts and takes around kind of the inflationary environment. You know, in lifestyle we see, you know, it's strong investment income certainly flowing through the auto business, which is the biggest source of our portfolio. That's a positive.
We've seen mobile losses, as I talked about earlier, performing quite well, not because of inflation, but because frequency of claims is reduced a little bit, and then how we're doing with controlling severity through walk and repair, et cetera. We've had favorability in GAP losses on the auto side, which we've talked about. Two-thirds of the time, we're not on the risk, and we're sharing that risk back with our partners. That leaves us with a third of the deals where we're more, let's call it, more exposed to those pressures. We are seeing losses on the risk side escalating. It's not a huge part of the portfolio. It's not a big part of our narrative this quarter, but certainly on the ESC side, cost of parts and labor a little bit on the auto side as well.
There's labor inflation, and we try to offset labor inflation with, you know, with digital, you know, digital initiatives and investments in optimizing our operational transformation efforts. Those would be the big highlights on balance. You know, it's not a huge driver for the year, but certainly FX and softness internationally, which is, you know, we're feeling more of that is a pressure we expect as we go forward. I do think continued elevation of claims, and then our job will be to, you know, make sure that we've got the right pricing in place with clients, that we're restructuring deals, and we're trying to drive more stability over time.
Thank you. That's helpful. Then following up on that, wanted to go back to, you know, the pre-announcement. You talked about simplifying the business portfolio. You talked about exiting commercial liability and international housing catastrophe. Have you completed that simplification of the business portfolio, or could there be additional niche lines you look to exit in the near to intermediate term?
Yeah, great question. I would say, you know, I think we've had a very successful track record of managing the portfolio, and you've seen us do that consistently over many years. You know, there's certainly more things that we'll evaluate in terms of smaller product lines and making sure that we're investing in places where we have clear competitive advantages. I think about, you know, we need a strong right to win, and the size of the prize needs to be meaningful. There are probably other pockets where we could continue to refine the portfolio over time. I think that will continue permanently, right?
That's always gonna be a part of our DNA, is to look to optimize and create more focus on things that can more significantly move the needle and try to limit the distraction for the company. Focusing energy on products that are small or don't contribute significantly to the profitability of the company, if that effort can be better placed elsewhere to drive more meaningful growth, those are the choices and trade-offs that our management team is making on a regular basis.
Thank you very much. My last question. You talked about $12 million in buybacks in October. Does that seem like a reasonable run rate for the Q4 given the M&A transactions?
Yeah, maybe I'll offer a couple thoughts, and then certainly Richard can jump in. I think when we step back and think about capital management at the highest level, we've talked about, you know, our focus on continuing to be very disciplined in terms of how we think about our capital. We've indicated an interest in being balanced between share buybacks and M&A. If you think about where we sit year to date, we've done $567 million in share repurchases and then $80 million we've signaled in M&A. Repurchases has been a big part of the story this year, nearly 90% of the capital that we've deployed in that respect. I think we feel good about meeting our commitment on the Preneed return.
We feel good about meeting our commitment to, in a normal year, do $200 to 300 million of share repurchases. But we also recognize the market is really challenging. There's a lot of interest rate volatility, and we wanna be more prudent in terms of capital management. It's really just about maintaining flexibility, protecting our financial strength, and then looking for the market to stabilize and for visibility to improve. Then as we look toward the future, we see our stock price is extremely attractive, right? As we think about future M&A, we'll have to have a very high hurdle rate in terms of the M&A relative to what a share buyback looks like today. Richard, is there anything else you would add?
Yeah, I guess to just add on to what you said, I mean, we in terms of share repurchases this year, we're, you know, already through October at, you know, a little over $550 million. In addition to that, $113 million in dividends. That brings us to about, say, $670 million. We had targets at the beginning of the year. We wanted to make sure we hit them for the year, and I would say we have hit them, which is why we signaled, you know, we would be at the lower end of that $200 to 300 we had talked about earlier in terms of, you know, repurchases outside of the preneed proceeds that we repurchased.
As Keith said, you know, it's uncertain market conditions, and we wanna make sure we continue to invest in ourselves, and we continue to, you know, do the right things and remain disciplined with capital. No change. The balance sheet very strong. As Keith said, and we've always said, we always look at deployment of capital between share repurchases and M&A. In these markets, with the share price where it is, you know, the share price obviously from our perspective is extremely attractive today, so that creates a higher bar for M&A.
Thank you very much for your answers.
Great. Thank you.
Your next question comes from the line of Jeff Schmitt from William Blair. Your line is open.
Hi, Jeff.
Good morning, everyone. Good morning.
Morning, Jeff.
In Global Lifestyle, I understand the inflation impact being low on the claim side just because you don't retain a ton of the risk. What about for SG&A? How much of that is employee comp? You know, what level of wage inflation are you seeing there kinda relative to last year?
I think we're generally doing a pretty good job offsetting wage inflation with automation and our digital efforts. Certainly paying our employees more is important in the war on talent to make sure that we're staying competitive. I think we're doing a really good job offsetting that with our efforts on driving automation through our operations.
Okay. In Global Housing, I'm just trying to understand the numbers. You know, when I adjust for or add back that reinstatement premium, you know, it brings that attritional loss ratio down to, I think, 38%. If you back out the unfavorable development, it brings it down quite a bit more, 33%-34%. I'm trying to understand, you know, you're talking about the pressures that you're seeing there. I think you're pushing for double-digit rate increases. I guess where is that pressure being felt? Or I guess why is that the sort of loss pick-up as low as it is?
Yeah. I think we don't see it at that level, but maybe Richard, just talk about our view on kind of the normalized loss ratio in the quarter.
You know, I would start. It's a great question, Jeff. I think, you know, I'd first start by, you know, when we go in for rate increases, you know, we are looking at it kind of bottom line. You have to take in, you know. You're looking at the non-CAT loss ratio. I think you have to look at all-in. If you look at our combined ratio for the quarter with Hurricane Ian, you know, it's over 100% obviously. That will be taken into account when we go into and go for rate increases. You know, essentially what we end up doing with our non-CAT loss ratio, there are a couple of different moving parts.
If you think about it from, you know, a net earned premium part, we have CATs that, the reinstatement premium, we have to add that back. Also from the incurred claims we have to take out the prior year development. When we add back the CATs and get to kind of like from a 68% that you'll see in the supplement to about a 45%, and then we take out the $24 million of prior year development, we get to about 40%. You know, you're a little bit lighter, so there's maybe a numerator and denominator thing. I think the point, your point is a good one.
You'd say 40%, that looks low, but it's really the all-in cost, including CAT, including the expenses, the tracking, et cetera, that are taken into account when we go for rates. You know, it's a bigger number on an all-in basis.
Right. Got it. Okay. Thank you.
Thank you.
Your final question comes from the line of Grace Carter from Bank of America. Your line is open.
Morning, Grace.
Morning, everyone.
I was wondering, in the Lifestyle book, just given how much of that risk that y'all don't retain, I mean, it seems like inflationary pressures have been a bit more persistent than maybe a lot of people originally hoped. I know that y'all have mentioned in the past that you hadn't really been seeing too much pushback from your clients regarding your profit sharing and reinsurance arrangement. I was just wondering if, given the persistency of inflationary pressures and that actually started to show a little bit in the results in the quarter, if those conversations had evolved any in the past few months.
No, I would say, you know, the clients that are currently in profit share and reinsurance structures, that's the preferred approach for those clients. Those programs are typically quite large, very sophisticated. The clients understand the program economics, and there's a tremendous amount of transparency in those deals. And there's, you know, sufficient profitability in those structures that can absorb the inflationary pressure. From a client perspective, you know, no interest in moving away from those structures. Then clients where we're more on the risk, you know, over time, we'll certainly see discussions evolve and emerge as clients become more sophisticated and interested in taking on more of the risk. That may evolve over time. Ge nerally speaking, it's been pretty steady, and I wouldn't say it's a huge source of discussion with our teams.
Perfect. Thank you. I guess just kind of thinking of how the lifestyle book has evolved over time, moving from sort of more of the protection in towards more fee-based services. I mean, has the recent emphasis on growing fee-based services like trade-ins, upgrades, whatnot, changed the level of macro sensitivity today versus maybe what we've seen in downturns in the past, or do you consider it to be pretty even?
I think it's pretty stable. I would say, you know, when you think about fee-based services, even what we do for clients that are reinsured, that doesn't show up in fee income. If you think about administrative fees and underwriting fees, where we're not sitting on the risk, it still flows through, outside of the fee income line, but it behaves a lot more like fee income, right? We get stated fees for providing insurance and related services. That's still a significant driver of our overall economics, and that doesn't show up in the fee income line. I think the thing we're excited about is the balance that we have today. We do a lot more work with partners across the value chain.
Trade-in related services are important to our clients, increasingly important, and it gives us another way to add value for our customers. It's more defensible competitively, and then we can create other unique ways to drive value longer term because we're playing in a broader set of services across the ecosystem. From that perspective, I think it's really favorable, and it does create more balance. The bulk of the economics on the parts where we don't take the risk are also quite predictable and that's evolved over time as well.
Thank you.
Wonderful. Well, thanks, everybody. Just a couple of closing comments from me. You know, we believe we've performed well in what is a really challenging macroeconomic environment, and remain differentiated in terms of our business model with compelling long-term earnings growth potential and cash flow generation capability. We look forward to closing the year strong, and we'll talk to everybody on our Q4 call in February. In the meantime, as usual, please reach out to Suzanne or Sean 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.