Assurant, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; unaudited. Amounts are in U.S. dollars, millions except per-share data. Assurant provides insurance, protection products and related services across Global Housing, Global Lifestyle and Global Preneed, with Corporate and Other activities.
Financial performance and condition
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Total revenue | $2,435.6 | $1,638.6 |
| Income before taxes | $217.0 | $136.5 |
| Net income attributable to stockholders | $165.7 | $106.0 |
| Net income attributable to common stockholders | $161.0 | $106.0 |
| Diluted EPS | $2.52 | $1.96 |
| Net cash from operating activities | $246.7 | $(75.7) |
| Net cash used in investing activities | $(447.2) | $79.1 |
| Net cash from financing activities | $220.9 | $1,344.0 |
Q1 2019 total benefits, losses and expenses were $2,218.6 million; the filing does not present a single consolidated operating-margin measure. Cash and cash equivalents were $1,274.2 million at March 31, 2019. Total assets were $42,237.0 million and total equity was $5,471.7 million. Debt carrying value was $2,006.6 million. The $450 million revolving credit facility had $441 million available, with $9 million of letters of credit outstanding. Management stated it expected sufficient liquidity for the next 12 months, including debt interest and common and preferred dividends. Holding-company liquidity was approximately $354 million, $129 million above its targeted minimum.
Material changes versus the prior-year quarter
- Revenue rose about 49% and common-stockholder net income rose 52%. Management attributed earnings growth mainly to Global Lifestyle, including the TWG acquisition, organic Connected Living growth and higher net realized investment gains; lower after-tax TWG acquisition expenses also contributed.
- Global Lifestyle net income increased 80% to $100.6 million, with TWG a major contributor. Excluding TWG, management reported 26% segment net-income growth, led by Connected Living and favorable Global Automotive results.
- Global Housing net income increased 2% to $72.7 million. Lower revenue reflected the 2018 Mortgage Solutions sale and lower lender-placed insurance activity; Multifamily Housing and Specialty and Other grew, while additional catastrophe reinsurance costs and higher non-catastrophe losses weighed on results.
- Global Preneed net income increased 20% to $11.8 million, primarily from higher investment income and lower mortality.
- Operating cash flow improved from an outflow to an inflow, mainly because claim payments for reportable catastrophes were lower. Investing cash outflow increased, including purchases of leveraged loans by consolidated investment entities. Financing cash flow was much lower than in 2018, when debt and preferred stock proceeds supported the TWG acquisition.
- Net realized investment gains were $28.8 million versus $0.5 million, mostly reflecting fair-value gains on equity securities. Other comprehensive income was $258.8 million, including a substantial increase in unrealized securities gains; this is distinct from earnings.
Outlook, commentary and risks
- The filing provides no specific full-year 2019 earnings or revenue guidance. Management emphasized growth in Connected Living, Multifamily Housing and Global Automotive, alongside integration of TWG and management of declines in lender-placed insurance placement rates and U.S. credit insurance.
- TWG was acquired in May 2018 for total consideration of approximately $2.47 billion. Q1 included $298.4 million of TWG-related value-of-business-acquired amortization. Integration and restructuring costs continue; management may make further purchase-accounting adjustments within the acquisition measurement period.
- Q1 results included $4.6 million of foreign-exchange losses, primarily related to Argentina, which was treated as a highly inflationary market beginning July 2018. Global Housing had $2.9 million of net unfavorable reserve development, including adverse development associated with Hurricanes Michael, Florence and Maria; consolidated reserve development was favorable overall.
- Key stated risks include catastrophe and other claims experience, reserve adequacy, reinsurance availability and counterparty credit, investment-market and credit risks, customer or distribution-partner losses, competition and disruption, foreign exchange, cyber and technology risks, regulation and litigation, and successful integration of TWG.
- Assurant faces lender-placed insurance class actions and other legal and regulatory matters. It has accrued for certain matters but says any losses beyond accruals cannot be estimated; management does not currently expect pending matters to materially affect financial condition, though an individual period’s results or cash flows could be affected.
- The company reported no material changes to its previously disclosed risk factors or market-risk assumptions during the quarter. Management stated disclosure controls were effective as of March 31, 2019.
Important facts for investors to verify
- How much of Global Lifestyle growth and earnings is attributable to TWG versus ongoing organic performance, and whether integration costs and expected synergies track management’s plans.
- The expected pace and income-statement impact of TWG-related VOBA amortization, including the substantial remaining amortization schedule disclosed in the filing.
- Trends in lender-placed insurance placement rates, Multifamily Housing growth, catastrophe reinsurance costs and non-catastrophe loss experience.
- Whether favorable reserve development, investment gains and fair-value movements recur; review underlying reserve estimates and investment portfolio credit quality.
- Holding-company liquidity and access to subsidiary dividends, given insurance-subsidiary regulatory restrictions; also monitor debt maturities, interest costs and the 2021 mandatory conversion of preferred stock, which may dilute common shareholders.
- Developments in lender-placed insurance litigation and other contingencies, for which the filing provides no clear estimate of possible losses beyond recorded accruals.