Welcome to Assurant's third quarter 2016 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 one on your touch-tone 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 Shepherd, Vice President of Investor Relations. You may begin.
Thank you, Carol, and good morning, everyone. We look forward to discussing our third quarter 2016 results with you today. Joining me for Assurant's conference call are Alan Colberg, our President and Chief Executive Officer, and Richard Dziadzio, our Chief Financial Officer and Treasurer. Yesterday, after the market closed, we issued a news release announcing our third quarter 2016 results. The release and corresponding financial supplement are available at assurant.com. Earlier this year, we revised the earnings release and financial supplement to focus on housing and lifestyle. Net operating income reflects contributions from our operating segments, Assurant Solutions, Specialty Property, and Corporate, as well as interest expense. Operating results exclude Assurant Health runoff operations, the amortization of deferred gains from dispositions, and other variable items. We believe these changes provide a more meaningful representation of our financials and better reflect our go-forward strategy.
On today's call, we will refer to other 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 the news release and financial supplement available on assurant.com. We will begin our call this morning with prepared remarks before moving to Q&A. Some of the statements made today may be forward-looking, and actual results may differ materially from those projected in these statements. Additional information on factors that could cause actual results to differ from those projected can be found in yesterday's news release, as well as in our SEC reports, including our 2015 Form 10-K and first quarter Form 10-Q. Now I will turn the call over to Alan.
Thanks, Suzanne. Good morning, everyone. Overall performance for the third quarter was disappointing and fell short of our expectations. As we announced last week, the year-over-year decline in earnings was driven by increased catastrophe losses, as well as lower than expected mobile results. However, we don't believe this quarter is reflective of the long-term potential of our housing and lifestyle offerings. Throughout this year, we've implemented the critical building blocks of our transformation. We've done so, first, by ensuring we're focused on the most attractive housing and lifestyle markets where we can achieve leadership positions and generate attractive returns. Second, by implementing a more integrated organizational framework that will enable us to become more efficient and effective. Starting with lifestyle, mobile and the broader Connected living market offer attractive opportunities for growth. So far in 2016, we've added new partnerships and expanded our fee-based offerings across distribution channels.
We're also taking steps to expand margins over time by ensuring we have the appropriate platforms and cost structures in place across our operations worldwide. Critical to this is a more robust technology infrastructure that maximizes our global capabilities. Together, these actions set a stronger foundation for future profitable growth. While we no longer expect Solutions net operating income to increase this year, we remain confident that we have the right strategy, business mix, and capabilities to deliver 10% average annual growth in net operating income over the long term. Turning to housing, we've invested in the transformation of our lender-placed platform to further strengthen our leadership position in this important market. Just this quarter, we added a total of 2.7 million loans from two new clients and the block of loans we announced last quarter.
We believe these wins demonstrate our clients' recognition of our strong platform, compliance processes, and superior customer service. The severe flooding in Louisiana and Hurricane Matthew are reminders of the importance of our products to homeowners across the country. Our commitment is brought to light by the rigor and dedication of our employees as they assess damages and pay claims as promptly as possible. To date, on behalf of Louisiana homeowners, we processed more than 2,000 claims with an over 95% completion rate. In addition, we also helped to administer claims for the National Flood Insurance Program as its second-largest administrator. Just this month, Hurricane Matthew inflicted severe flooding and wind damage, particularly in parts of Georgia, the Carolinas, and the Caribbean. Our claims field adjusters were again on site shortly after the hurricane passed through these regions to assess damage and begin processing claims.
While it's still very early, we estimate losses from Hurricane Matthew could total up to $70 million after tax. This estimate is still preliminary, and we will update the market as we have a more complete view of the impact. The wind down of Assurant Health is moving along as scheduled and represents another key aspect of our portfolio realignment. In the third quarter, we took an additional $189 million in dividends from Health. These dividends, along with capital releases from the sale of employee benefits, give us the added flexibility to return capital to shareholders and invest in housing and lifestyle markets where we can outperform long term. In 2016, we also took several steps to transform our organizational model worldwide, focusing on both functional areas and our lines of business.
We've now set the foundation for a global business unit structure under the leadership of Gene Mergelmeyer as our Chief Operating Officer. We're also realigning our technology, risk, strategy, and finance organizations and expect to have that work completed by year-end. As part of that effort, Richard and the finance team are also evaluating our financial reporting framework. We expect changes to be implemented early next year. Our work to transform Assurant and build a strong future is on track. As we look ahead to 2017, our focus will be on profitable growth. To accomplish this, we'll continue to offer innovative products and services to meet consumer needs, as well as completing the rollout of our new operating model to enhance efficiency across our global operations. We'll continue to prudently deploy capital to maximize returns.
Progress will be measured against three key financial metrics: net operating income, operating earnings per diluted share, and operating return on equity. All of these metrics exclude reportable catastrophe losses given the inherent volatility of weather. Through the nine months of 2016, net operating income decreased by 14% to $308 million, primarily due to the expected decline of lender-placed, the loss of the tablet program, and lower contributions from legacy businesses. Operating earnings per diluted share declined 6% to $4.89, driven by the factors I noted earlier. As we execute our transformation, we expect to grow net operating income and deploy capital prudently to support average annual operating EPS growth of 15% over time. Annualized operating ROE excluding AOCI was 11.3%. Expansion of our fee-based offerings will be an important driver to achieve our goal of 15% operating ROE by 2020.
Thanks, Alan, and good morning, everyone. Let's start with Solutions, which reported earnings of $43 million. As Alan said, this was below our expectations for the quarter. Excluding a $4.5 million tax benefit in the prior year period, earnings were down $5 million. The decrease was due to lower than expected contributions from mobile and the anticipated declines in legacy service contracts and domestic credit insurance. Specifically, core mobile results were down by nearly $6 million year-over-year, largely driven by $3 million of higher technology expenses to modernize certain systems. We also realized lower mobile repair and logistics volumes as customers upgraded or traded in significantly fewer phones this quarter. Declines in legacy businesses accounted for another $3 million. These factors were partially offset by $3 million of higher real estate joint venture income.
Thanks, Alan, and good morning, everyone. Let's start with Solutions, which reported earnings of $43 million. As Alan said, this was below our expectations for the quarter. Excluding a $4.5 million tax benefit in the prior year period, earnings were down $5 million. The decrease was due to lower than expected contributions from mobile and the anticipated declines in legacy service contracts and domestic credit insurance. Specifically, core mobile results were down by nearly $6 million year over year, largely driven by $3 million of higher technology expenses to modernize certain systems. We also realized lower mobile repair and logistics volumes as customers upgraded or traded in significantly fewer phones this quarter. Declines in legacy businesses accounted for another $3 million. These factors were partially offset by $3 million of higher real estate joint venture income.
Turning to revenue, Solutions' top line increased by 3% from the prior period, primarily reflecting fee income growth from new mobile subscribers. Premiums were also increased slightly year-over-year. Growth from vehicle service contracts was tempered by declines from certain North American retailers and our domestic credit business. Foreign exchange was also a factor given the depreciation of the British pound and the Argentine peso. For the full year 2016, we've revised our outlook and now expect Solutions earnings to decline modestly from 2015. While fundamentals in our mobile business are promising, in 2016, we no longer expect growth from new and existing programs to offset declines in legacy businesses, nor the loss of the tablet program. We are taking steps to help improve Solutions' performance in 2017, including more rigorous expense management to generate profitable growth. Let's now move to Specialty Property.
Earnings decreased $43 million to $45 million. This is primarily due to two factors. The quarter included $33 million of reportable catastrophe losses from flooding in Louisiana, and the remaining $10 million related to ongoing normalization of lender-placed. As a result of the catastrophe losses, the combined ratio for our risk-based businesses increased 12 points to 92%. Absent cats, the combined ratio was flat year-over-year as lower general expenses helped offset declining lender-placed premiums. Our fee-based, capital-light offerings that comprise multifamily housing and mortgage solutions generated a pre-tax margin of 9.7%. This was down 5.5 points from the prior year period. The decrease was mainly driven by higher expenses needed to support growth in our field services and valuation services businesses.
While we believe we've grown revenues well in excess of the market, we do need to drive greater operating efficiencies across our mortgage solutions platform to deliver our margin target of 15%-20% by 2020 for all of the property fee-based capital-light offerings. Turning to revenue, net earned premiums and fees, especially property, decreased 3%, primarily due to lower placement and premium rates in lender-placed. While multifamily housing and mortgage solutions increased by 16%. Diving deeper, multifamily housing revenue increased 10% from the prior year period. This reflects a higher volume of renters' policies sold through our affinity channels and increased penetration rates across our property management network. For mortgage solutions, fee income was up 22%, including the July acquisition of American Title. Organic growth in the quarter totaled 7% due to greater production from valuation services. Our 2016 outlook for Specialty Property is unchanged.
We continue to expect lower revenue and profits, primarily reflecting the normalization of our lender-placed business. As Alan noted earlier, catastrophe losses from Hurricane Matthew will impact our fourth quarter results. Looking ahead to 2017, we anticipate a continued decline of lender-placed revenue and earnings as we move closer to a normalized steady state. The 2.7 million loans onboarded this quarter are expected to produce modest premiums next year, though not enough to offset the overall declining lender-placed market. We also expect ongoing expansion from our fee-based capital-light offerings to account for a larger proportion of Specialty Property results. Turning now to Health runoff operations. Results were slightly better than anticipated. The $2 million loss in the quarter reflects a slight reduction in estimated recoveries from the 2015 risk mitigation programs, which were offset by favorable claims development.
Results also included some severance-related costs, as well as other indirect expenses not included in the premium deficiency reserve. Year to date, we received $378 million in reinsurance and risk adjustment payments related to the 2015 Affordable Care Act policies. As of September 30th, around $99 million of net receivables remained on our balance sheet. We expect CMS to remit the payments for these outstanding balances in 2017. So far this year, we've brought up $338 million to the holding company in dividends from Health. We continue to expect to receive approximately a total of $475 million. Of course, the timing will depend on regulatory approval. Moving to Corporate. The loss for the quarter decreased $9 million to $17 million. This was primarily due to lower taxes and employee benefit costs. For the full year, we still expect the Corporate loss to approximate $70 million.
Throughout the year, we've taken steps to increase efficiencies in corporate, such as freezing our pension plan. We also recognize the need for some additional investments to support our transformation, some of which are expected to flow through corporate in 2017. We will provide more details on our 2017 outlook for all of our operating segments on the fourth quarter earnings call in February. Moving on to capital. We ended the third quarter with $625 million in deployable capital at the holding company. We received $418 million in total dividends in the third quarter. $339 million of dividends from capital previously supporting the employee benefits business and Assurant Health runoff operations, $79 million from Assurant Solutions and Assurant Specialty Property. Our strong cash flow generation during the quarter allowed us to do two things.
We returned $266 million to shareholders through share repurchases and dividends, we invested $11 million in emerging technologies in the mobile and rental value chains. In the first three weeks of October, we bought back an additional 742,000 shares, bringing the total number of shares repurchased year to date to just over nine million. To summarize, while the results were disappointing, we remain committed to executing our transformation strategy to realize our potential to ensure long-term profitable growth in housing and lifestyle. Finally, I do want to thank those of you who I've had a chance to meet over the last couple of months at Assurant. I appreciate all your input and support. It's made my onboarding into the company both smooth and productive. With that, operator, please open the call for questions.
The floor is now opened 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 pressing the pound key. 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 Michael Kovac from Goldman Sachs. Please go ahead.
Great. Thanks for taking the question. Good morning. I was hoping you could provide some more granular insight into what's going on or what happened in mobile in the quarter. It sounded like there were a couple of moving pieces in terms of, in part elevated expenses and in part some mix shift between either warranty upgrades or repair and logistics revenue. I'm wondering if you could sort of give us more detail in terms of if that is in fact the case, and then a sense of how the revenues for each of those different businesses make up sort of the overall pie of what is considered mobile in your reporting.
Well, let me start, then I'll ask Richard to provide a little more detail. Clearly it was a disappointing third quarter for us in mobile. It's not reflective, we think, of the long-term potential. If you look at the quarter at a high level, the positive was continued growth in subscribers, so people signing up for our programs and the handset programs. The real negative in the quarter, other than the IT, which Richard will talk about, was we just had lower trade-in volumes, where people didn't trade in as many phones for either an upgrade or a claim or whatever it might be. That really varies a bit quarter to quarter, depending on our client programs, what's going on with competition, timing of new phone introductions, availability. Disappointing, but I think forward progress.
You want to go a little deeper on the quarter, Richard?
Sure. Good morning, Michael. Yeah, to peel it back a little bit and really to go over what I just mentioned in my remarks. If we look year to year, Q3 to Q3, we're down about $9 million. If you take off the previous year tax, that leaves us to about $6 million. Within that, as Alan said, we were down about 3, let's say, for repair and logistics. Again, we were just touching fewer phones, fewer trade-ins of those phones. In addition to that, as I mentioned, there were some higher IT expenses. I mean, we are investing in capabilities. We are becoming more agile. We're looking longer term with the business, and trying to become more variable, have more variable expenses. That was one part of it.
There was also increased expenses from our legacy business, or continued expenses, I guess I should say, from our legacy business, which was offset a little bit from some real estate JV income.
Okay. That's helpful. Sort of following up on the expense item there, it sounded like in the prepared remarks, there's sort of a focus in two parts. One, on improving the expense efficiencies and two, maybe some upfront costs in terms of improving the actual underlying technology. Can you give us a sense of your expectation for where you are in that process? Is this an event that's already begun? Should we expect elevated expenses in 2017 relative to 2016? Also a sense of where the geography of those may fall. It sounded like somewhere in corporate, relative to either Assurant Solutions or Assurant Specialty Property.
Michael, I mean, I think there's several questions in there, so let me try to hit them, and if I miss anything, please follow up with me. I mean, first of all, if I step back and look at Assurant overall, we're in the middle, as we've talked about, of a multi-year transformation to really reposition this company, addressing the lender-placed normalization and putting us very focused on growth markets and growth opportunities in housing and lifestyle. If you look at 2016, I think a lot of forward progress on that. We've largely completed the repositioning of the portfolio with benefits closed and most of those proceeds now up to the holding company, the Assurant Health wind down more now complete than not.
The other critical thing we did this year was to realign our organization, which will create the opportunity to really take out effectiveness or improve effectiveness and improve our cost structure over time. If you think about mobile specifically, one of the ways we've been gaining share, and we've been gaining share now for multiple years. If you look at this business, it is dramatically bigger and stronger today than it was three years ago. The way we've gained that share is investing in capabilities, so that's kind of ongoing. This quarter, we had a little bit more than we expected. We made some decisions to continue to invest in technology around things like automating some of our processes, trying to better align our cost structure with some of those variabilities in volumes.
Again, on 2017, we'll provide an outlook for 2017 in February, as we always do with our fourth quarter earnings. At a high level, that's how I think about what's going on.
Great. Thanks.
Thank you.
Your next question comes from John Nadel from Credit Suisse. Please go ahead.
Hey, good morning, John, and welcome back.
Good morning, everybody. I think the commentary around the year-over-year impact from mobile, I think is helpful, but I'm really more interested, and I think most of the folks who I've spoken with since your pre-announcement are more interested in what the driver is of the shortfall in 3Q results relative to your own expectations for the third quarter. Why your guide for the full year seems to anticipate that the pressure in the third quarter persists into the fourth quarter. I guess if there's anything you can do to sort of focus more on that, because just last quarter or maybe a quarter before that, you had really had an outlook for pretty robust second half of the year, and that changed pretty significantly. As opposed to the year-over-year, just more what's happened versus your expectations.
Yeah, really a few things. Let me start with just a comment broadly. As we think about our business and build it over the long term, we do have some quarter-to-quarter variability just naturally with the size of our client programs and some of the businesses we operate in. Really three things were a little bit different than we had expected as we went into the back half of the year in the third quarter. We got good growth out of the new programs that we've announced over the last year or so, but a little bit less than we expected. That was a shift that began to develop and played out in the third quarter. The IT expenses, really choices we made.
As we looked at our spending, we made some decisions to invest more in certain areas because we saw opportunities to deepen and expand capabilities we think positions us for the long term. That was a choice we made in the quarter. We were a little bit surprised as the whole industry was on the decline in trade-in activity in the third quarter. That could be just a function of people waiting for the new phones to come out, some of the noise in the market around some of the introductions that happened in August and September. Fundamentally, if we take a long-term view on this business, if you think about it, I'm going to talk about Solutions now. We put out in 2013 a goal that we could grow net operating income on average 10% per year in that business, not linear.
We reaffirmed that in 2015. Certainly, since 2013, we've more than achieved that goal. Obviously in 2016, we're disappointed with what we are, but it doesn't change our longer-term outlook that we have had great momentum in this business. We continue to invest, and we feel very well positioned for continued growth in Solutions and in mobile.
Do you think, Alan, do you think, for example the foregone trade-in activity, in the quarter that maybe was part of the reason for the shortfall? Do you think that's just a delay, and it's something we ought to think about getting back and sort of then some? Or do we think about that 10% average annual growth off of this new sort of lower baseline of earnings?
We put out that 10% originally in 2013, we reaffirmed it in 2015. I think as you think about the long term for this company out to 2020, think of it off of 2015.
Okay.
You can't think of it as annual guidance. It's not linear.
No, I understand.
Yeah. As we add programs, that will cause step function changes in our performance. But again, quarter to quarter, you get some variability.
Okay. That's helpful. Then just on the Lender-Placed side, a couple of quick ones there. The placement rate, I believe you said that the placement rate on the newly acquired 2 million loans this quarter is lower than your overall block. Is it enough so to alter your view of the steady-state expected range of, I think it's 1.8%-2.1%? Should we think of it as just maybe pushing you down a little bit further within that range?
No. Hi, John, it's Richard.
Hi, Richard.
as we said, it is a small block relative to the total block. Even though the penetration rate will be lower on this new piece, we still are looking at the longer term between .
Yeah. John, just in Lender-Placed, the normalization, as we've been saying, we expect to continue through 2017.
Yep.
Getting more towards the long-term run rate in 2018. The positive of adding these loans is it's just another market validation of how our clients view our compliance, our customer service, the quality of our operating model. It doesn't change our view on the normalization. We've got another year or so to work through in 2017.
The follow-up question on Lender-Placed that I had was just to talk about premium rates. As we think out to 2017, you talk about a continued decline in revenue for LPI, and some of that's obviously got to be a continued downward move on the placement rate. Is there still more to come on the actual premium rate? If so, about how much would you expect looking out?
As we think about it, I've said this in prior quarters, we now think the rate filings are normal course. We've worked through that process with all of our states. We're on a regular basis. We refile in many states annually. I think it's just normal course based on experience, based on market factors in those states.
Okay.
Really, the bigger driver of the normalization is the reset of the placement rate gradually to the long-term average.
Got it. Very helpful. Thank you.
Thank you, John, welcome back.
Thank you. It's good to be back.
Our next question comes from Seth Weiss from Bank of America. Please go ahead.
Hey, good morning, Seth.
Hey, good morning. Thanks for taking the call. Just wanted to ask, I guess first a question on health and think about the excess capital position as I work through the math there. I know you had $475 million you expect to upstream, of which I believe you've done about $340 million. So there's, call it $135 million, $140 million left there. If we think about the $99 million of net reimbursements from CMS that sits on your balance sheet, should that be additive to that $140 that I just calculated?
No, Seth, it should not. We anticipate that as we think about the capital we're going to be able to take out of that business.
Okay, great. Thanks for that. Had just one follow-up on Solutions and just trying to, I suppose, parse your language here, and I understand the quarterly variability of the business, and I know we've seen that in quarters past, specifically the end of 2015, and then had some strong bounce back quarters in the first half of this year. Alan, in response to the last question, you talked about the three things that came in a little bit lower than expected, which seemed mostly to be aspects that looked more unique to the quarter. What I guess I'm a little bit confused about is that the updated guidance suggests a lower run rate for the fourth quarter than maybe the guidance prior to did for the fourth quarter. It sounds like your expectations on a go-forward basis have been moved down as well.
I'm just curious if I'm reading that right or if I'm perhaps interpreting the guidance wrong here.
The way to think about this is the things that happened in the third quarter, some of those persist into the fourth quarter, like the new programs still ramping, but they were behind where we thought they were going to be. Although they're improving, they're still behind where we thought they were going to be. We continue to make investments. It doesn't change our longer-term view. As we thought about this year, that's why we've revised the outlook for this year.
Okay. Thanks a lot.
Once again, if you do have a question, you may press star one on your touch-tone phone. Our next question comes from Jimmy Bhullar from J.P. Morgan. Please go ahead.
Hey, good morning. I had a few questions. First, on just your expectations for buybacks in 2017 and 2016. It seems like in the past you've slowed buybacks in the third quarter. This year, that didn't happen. Should we assume that you speeded up the buybacks because you get the cash to the holding company faster? Are you actually assuming that you could do more in buybacks than you might have thought maybe a few quarters ago?
The way we've thought about this, and I'll start, and then Richard, you certainly should chime in. We want to be in the market consistently, particularly this year where we've had the capital position we've had. If you go back a few years when we didn't have as much excess capital at the holding company, we would slow buybacks in the third quarter. We saw no reason to do that. We have remained in the market consistently, and as I said in my remarks, we're about a little more than halfway through now returning that $1.5 billion we committed during 2016 and 2017 to shareholders. Richard.
That hasn't changed, the $1.5 billion?
No, that has not changed.
Okay. If I think about what you did in October, it seems like the average price was around $89. A majority of the buybacks were done prior to your pre-announcement. Why did you decide to do that? Why not just wait till you knew it was going to be a bad quarter, just wait till after the announcement came out and then buy after?
Yeah. Hi, Jimmy. It's Richard Dziadzio. Yeah, thanks for the question. Really the reason is when we look at the stock price, we're actually looking more at the intrinsic value of the company, not the daily stock price. Also when we are out in the market buying, we are using our Rule 10b5-1. We're out in the market.
quite a bit, at least in the last quarter consistently.
Yeah, Jimmy, the important point there is we continue to believe our stock is attractively priced. As Richard said, the way we buy back our stock generally is through 10b5-1 programs we file in advance, and they run, and we can't really amend those easily.
Okay
Once they're running.
Just lastly on the mortgage solutions business, that was actually a big positive this quarter. Obviously you've added acquisitions there that have helped. Just thinking about the runway for growth in that business, should we expect growth to slow down as the comps get tougher in some of these businesses that you bought circle through a whole year? Or do you think the business can grow at a double-digit pace over the next year to two years?
On Mortgage Solutions, what we're encouraged by is our thesis is playing out. Our thesis was that we had unique advantage to opportunities leveraging our partnerships with mortgage companies, and that's played out well. You've seen the very strong organic growth we've had so far. We see no reason why that can't continue. Our market shares are still very modest. We're focused on really now translating that growth in the top line, which we think is going to continue to bottom line. We've said we think we can get to 15%-20% pre-tax margins long term over not only Mortgage Solutions, but all the capital fee light, capital light fee income businesses in property. We're encouraged by the growth in that business. Just as an aside, we just hired a leader to come in and integrate those businesses together.
We've now acquired four different companies and really allow us to continue the momentum there.
Okay. Just to clarify, since you're buying using 10b5-1 plans, should we assume that they're running blackout periods, or do you tend to buy throughout the quarter?
Just to clarify, we put in the 10b5-1 when we're not in a blackout.
Okay
They just run.
Got it. Thank you.
Our next question comes from Mark Hughes from SunTrust. Please go ahead.
Yeah. Thank you. Good morning.
Morning.
To approach the mobile question from another vantage point. The new business that you brought online, did you have good visibility in terms of the historical behavior of these subscribers? Could it just be that this subscriber base or these new clients just don't have as much underlying activity as you might have expected, and so therefore you should adjust your expectations accordingly? Do you have good information on the historical behavior, and so you can confidently say this is just normal variability?
The answer is some of everything you said. Some of the new programs are truly new to the market. We work with the partner to try to estimate what we think the penetration rates will be, the take-up rates. When they're new to the market, everybody's trying to make their best estimate. Some of them are new programs with existing customers. That's easier for us and them to predict. If you looked at the last year and a half, we've announced several new programs with new customers. Those are the ones where it's hardest for them and for us to predict what's going to happen.
In those cases, seeing the volume that you do, are you able to adjust your expense structure if in fact the take rate is lower than you might have originally forecasted?
Something we're working on. I mentioned briefly earlier that as we think about business, for example, like repair and logistics, which can have big swings in volume up and down in a quarter, we are working to better align our cost structure with that. A lot of the automation we've been doing and investing in is to create a better alignment there.
Any thoughts on how those programs have been performing here early in the fourth quarter?
No, it's too early for us to provide any outlook on the fourth quarter other than what we said for the full year of 2016.
In the capital light property businesses, the margin there, you've talked about making investments that's put pressure on the margin. Is that something that is short term in nature, or is this kind of structurally you're at nine or 10% and it'll move up over time? Is there a step function out there somewhere in the near to medium term that should bounce back more meaningfully?
Mark, the way I think about this, we're early in those businesses. We've now been in them for two to three years. If you compare to a quarter a year ago, we were at about 15%, I think is what we had at that quarter, maybe even a little more. As we build this business out, we're getting some fluctuation, but it doesn't change our long-term view, 15%-20% pre-tax margin.
Okay, thank you.
Our last question comes from Gary Ransom from Dowling & Partners. Please go ahead.
Hey, good morning, Gary.
Good morning. I had a question on flood insurance. I know you have the lender-placed business. You have the NFIP administration, but you also have a small startup voluntary flood business. I just wondered if you could go over how that fits in and what your overall strategy for flood generally is over the next few years.
First of all, that voluntary flood business is very small. We think of it as a pilot. Really what we're trying to do there is thinking about a couple things. We have a very strong position in flood, right? We're the number 2 administrator in the NFIP program. For our clients in mortgage, we do a lot of lender-placed flood, and we've been experimenting with gaps in the coverage of the NFIP program, a potential evolution of the NFIP program. Think of it as just a pilot for us to learn more about how the flood market might evolve, how consumers might react. We view flood, though, as an important business for us, and we just want to make sure we remain one of the market leaders as it evolves. It's very small, that voluntary flood business right now.
Do you use the data that you collect from all the NFIP business? Does that help you or inform you on how to underwrite the flood business as you go forward on the voluntary side?
We have lots of information from various sources, from our lender-placed business, from the flood maps that are out there. We work with multiple third-party providers on flood and flood risk. All of that goes into our thinking. Then we have a history, a long history of our own data to use.
Okay, just one other question on the mobile side. All the Samsung issues, did that have some direct or indirect impact on what you saw in the quarter?
Hi, Mark. Gary, it's Richard Dziadzio. Not really. Not really.
Okay.
I mean, it was a new program under warranty, so no. It was a recall, so no.
Right.
Yeah, it's under manufacturer warranty, just to be clear, right? That's why the risk there was of the partner, not us.
Well, that's why I was thinking maybe indirect, because they're not coming anywhere other than the manufacturer. That's fine if you don't think it had an impact.
No. No material impact.
Thank you very much, then.
All right. Thank you, Gary. Well, everyone, thank you for participating in today's call. We look forward to updating you in February on our progress. As always, you can reach out to Suzanne Shepherd with any follow-up questions. Thanks, everyone.
Thank you.
This does conclude today's teleconference. Please disconnect your lines at this time, and have a wonderful day.