Richard Dziadzio
Executive Vice President and Chief Financial Officer at Assurant
Thank you, Keith, and good morning, everyone. For the first quarter of 2023, adjusted EBITDA, excluding reportable catastrophes, totaled $293 million, down $22 million or 7% year-over-year and 5% on a constant currency basis. While the results were lower than the prior year, they came in above our expectations, driven by stronger Global Housing performance. Adjusted earnings per share, excluding reportable catastrophes, totaled $3 million and $0.49 for the quarter, down 12% year-over-year, primarily from lower segment earnings, a higher effective tax rate compared to favorability in the prior period and a higher depreciation expense.
Now let's move to segment results, starting with Global Lifestyle. The segment reported adjusted EBITDA of $199 million in the first quarter, a 12% decline year-over-year or a 10% decline on a constant currency basis. The decrease came from lower results in both Connected Living and Global Automotive, partially offset by higher investment income. Connected Living earnings were down 15% or 11% on a constant currency basis from decreases in extended service contracts and weaker international results.
Extended service contract results were lower due to an increase in claims costs and in particular, relative to the prior year quarter, which included favorable claims experience.
We expect a modest level of higher cost to persist during the remainder of the year. The level of which will depend on the broader inflation trends in the market. However, we have recently implemented rate increases with several clients, which should begin to flow through during the course of the year, mitigating the increase.
In mobile, earnings were down as expected from softer international results, mainly in Asia Pacific and unfavorable foreign exchange, both of which are expected to continue. U.S. mobile earnings were flat year-over-year as modest mobile subscriber growth in North America device protection programs from carrier and cable operator clients was offset by lower mobile trade-in results.
Trade-in margins were impacted by device mix from carrier promotions and slightly lower volumes, mainly due to the discontinuation of in-store service and repair. Sequentially, however, we are seeing improved mobile performance including in the U.S. and Europe, as results benefit from expense management and more favorable loss experience compared to trends that emerged in the second half of 2022, while declines in Japan have started to stabilize.
Turning to Global Automotive. Earnings decreased $8 million or 9% and $5 million, excluding real estate joint venture gains from the first quarter. Similar to others in the industry, the auto business was impacted by a rise in severity from higher parts and labor costs that contributed to elevated claims. We expect to recover a portion of the higher claims cost over time through client contract structures though we expect elevated claims experience to persist throughout this year.
The auto earnings decrease was partially offset by growth in the U.S. across distribution channels. And although higher claims costs across auto and extended service contracts are being driven by inflation, these businesses are also benefiting from higher investment income due to higher yields.
Turning to net earned premiums, fees and other income. Lifestyle was up by $52 million or 3%. This growth was primarily driven by Global Automotive, reflecting strong prior period sales of vehicle service contracts. Connected Living's net earned premiums fees and other income decreased 5%. This reflects an approximately $65 million impact from the previously disclosed new contract structures as well as premium declines related to mobile runoff programs. Excluding these contract changes in foreign currency, Connected Living's revenues grew by 4%. The quarter benefited from growth in mobile subscribers in North America and higher contributions from extended service contracts.
For full year 2023, we expect modest growth for Global Lifestyle, supported by the ongoing expansion of new and existing partnerships, particularly in Connected Living and accelerating expense savings throughout the year. We also expect increasing contributions from investment income and the positive impact from the actions mentioned to address rising claims cost.
In terms of net earned premiums fees and other income for 2023, Lifestyle is still expected to grow modestly as growth in Global Automotive is partially offset by ongoing foreign exchange headwinds.
Moving to Global Housing. Adjusted EBITDA was $68 million which included a $43 million increase in reportable catastrophes from severe weather and tornado events. Excluding reportable catastrophes, adjusted EBITDA was $118 million, up $7 million or 7%. The stronger-than-expected results were driven by Homeowners' top line performance, mainly from lender-placed policy growth as well as higher average insured values and premium rates. Policy growth was mainly from expanded loan portfolios of new and existing clients, although we do expect the client portfolio to run off our books as the year progresses.
While non-CAT loss experienced across all major products increased by $32 million, our performance in the quarter demonstrates our ability to more than offset the inflation impacts. Catastrophe reinsurance costs also increased in line with our expectations.
In Renters and Other, earnings decreased from expected higher non-CAT losses, which should continue throughout the year. For full year 2023, we continue to expect Global Housing adjusted EBITDA, excluding reportable CATs, to grow due to improved performance in Homeowners, driven by top line expansion from higher rates and policy growth in lender-placed and by ongoing expense actions to be realized over the course of the year. We are monitoring potential changes in the reinsurance market as we place the remaining third of our reinsurance program in the coming months. Currently, we anticipate the cost to increase year-over-year, in line with our previous expectations.
Lastly, we are not anticipating a significant improvement in lender-placed non-catastrophe losses until later in the year and continue to monitor the impact of inflation closely. Please also keep in mind that the second quarter tends to be a seasonally elevated period for non-CAT losses.
Moving to Corporate. The first quarter adjusted EBITDA loss was $24 million, up $2 million driven by lower investment income. For the full year 2023, we continue to expect corporate adjusted EBITDA loss to be approximately $105 million. Given the market volatility over the last quarter, I also want to take a moment to discuss our investment portfolio.
Investments cash and cash equivalents had a value of $9.3 billion at the end of Q1. The portfolio is high quality and diversified, reflecting our conservative investment philosophy. Fixed maturity investments in cash and cash equivalents represented 86% of our total portfolio. An estimated 94% of our fixed income securities are investment-grade rated. And overall, our U.S. regional bank exposure is modest.
We also have commercial real estate investments across a number of investment vehicles with the overall portfolio performing well. Our assets are diversified across geographic regions and property type with low average security size and have attractive loan-to-value and debt coverage servicing ratios. For example, our commercial mortgage loan portfolio represents approximately 3% of our investment portfolio with approximately 130 loans with an average loan amount of about $2.3 million.
The loan portfolio is highly diversified across the U.S., including a variety of property classes and with office buildings representing 11% or approximately $34 million of the loan portfolio and our real estate equity portfolio represents only 2% of our investment portfolio. It is also a diverse portfolio with only four office assets with a $26 million book value.
We also have CMBS and REIT positions with 98% of those investments being investment-grade rated. While certainly not risk-free, we believe our investment portfolio is relatively low risk as it relates to current macroeconomic headwinds.
Turning to Holding Company liquidity. We ended the quarter with $383 million. In the first quarter, dividends from our operating segments totaled $112 million. During the quarter, we issued $175 million in 2026 senior notes and redeemed a portion of the $225 million of senior notes due in 2023. We intend to redeem the balance of the notes on or prior to maturity in September.
In addition to the $136 million of cash used for corporate and interest expenses, first quarter cash flows included $37 million of common stock dividends. For the year, we expect our businesses to continue to generate meaningful cash flow, approximating 65% of segment adjusted EBITDA, including reportable catastrophes. Cash flow expectations assume a continuation of the current macroeconomic environment and are subject to the growth of the businesses, investment portfolio performance, and rating agency and regulatory requirements.
As Keith mentioned, given our performance in the first quarter and our current expectations for cash generation, we plan to resume modest buybacks as we exit the second quarter. We will continue to monitor the macroeconomic environment and adjust accordingly.
In summary, our performance in the first quarter provides us with the confidence in our full year outlook. And while macroeconomic uncertainty will likely continue throughout the year, we believe the strength and momentum of our businesses and strong cash flow generation are powerful differentiators for Assurant.
And with that, operator, please open the call for questions.
