Assurant, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing; fourth-quarter figures are identified separately where disclosed. Assurant provides global lifestyle, housing and prepaid funeral insurance and related services through Global Lifestyle, Global Housing and Global Preneed.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Total revenue | $10.095 billion | $10.087 billion |
| Net income attributable to common stockholders | $423.1 million | $363.9 million |
| Diluted EPS | $6.99 | $5.84 |
| Net investment income | $574.9 million | $675.0 million |
| Operating cash flow | $1.342 billion | $1.413 billion |
| Debt at year-end | $2.253 billion | $2.007 billion |
- Fourth-quarter 2020 revenue was $2.555 billion and net income attributable to common stockholders was $134.5 million; diluted EPS was $2.23. Fourth-quarter 2019 revenue was $2.606 billion, common-stockholder net income was $122.9 million and diluted EPS was $1.98.
- Year-end assets were $44.650 billion, equity was $5.955 billion, and cash and cash equivalents were $2.229 billion. Cash plus investments totaled $17.908 billion. The company reported debt to total capital of 27.5%.
- Holding-company liquidity was $407.2 million, $182.2 million above its stated $225 million target minimum. The $450 million revolving credit facility had $445.5 million available at year-end.
- Share repurchases and common dividends returned $454.4 million to shareholders in 2020. The common dividend was raised 5% to $0.66 per quarter during 2020.
Segments and changes versus 2019
- Global Lifestyle: Segment net income rose 7% to $437.2 million; product revenue (net earned premiums, fees and other income) grew 3% to $7.338 billion. Growth in mobile subscribers, extended service contract experience and automotive business helped results. A mobile program contract change reduced reported revenue by $117 million; excluding that effect, management said product revenue grew 5%.
- Global Housing: Segment net income fell 10% to $233.8 million and product revenue declined 3% to $1.977 billion. Reportable catastrophe losses were $137.2 million in 2020 versus $40.9 million in 2019; excluding catastrophes, segment net income increased $71.4 million. Lower lender-placed policies and REO volumes weighed on revenue, partly offset by rate increases and growth in multifamily and specialty products.
- Global Preneed: Segment net income declined 8% to $48.0 million, while product revenue rose 4% to $209.4 million. COVID-19-related mortality, lower investment income and increased fourth-quarter Final Need cancellations contributed to the earnings decline.
- Consolidated net investment income declined 15%, reflecting lower yields, reduced cash and short-term investment income, lower real estate income and foreign exchange effects. Total revenue was nearly unchanged.
Outlook, commentary, risks and unusual items
- Management described COVID-19 as having a modest negative effect on 2020 net income, mainly through lower investment income, reduced REO volumes, foreign exchange fluctuations and higher Global Preneed mortality. Lower expenses and more favorable international and non-catastrophe claims partly offset these impacts. Management said liquidity remained strong and the business performed toward the high end of its internal stress scenarios.
- Assurant is exploring strategic alternatives for Global Preneed, including a possible sale; completion is not assured. The exploration triggered a $137.8 million impairment of the segment’s entire goodwill. Certain insurer ratings were placed under review or on credit watch with developing implications pending the strategic process.
- Reported common-stockholder earnings benefited from the CARES Act NOL carryback tax benefit: the financial statement note records a $79.3 million tax benefit, plus interest benefit. Earnings also benefited from substantially lower Iké-related losses than in 2019. These items were partly offset by the Preneed goodwill impairment, lower investment gains and $21.5 million of after-tax COVID-related incremental operating expenses.
- Management expects lender-placed insurance placement rates to decline in 2021 as housing markets improve. It also flagged continued low interest rates, catastrophe exposure, potential further pandemic effects, client and distribution concentration, competition, technology and cybersecurity risks, and extensive insurance regulation.
- Reinsurance recoverables were $9.840 billion. The filing highlights credit exposure, including $845.2 million of recoverables from ERAC without the described collateral protections, and possible renewed administrative obligations if certain reinsurers become insolvent. Legal and regulatory proceedings remain pending; management could not estimate possible losses beyond recorded accruals, but did not believe the matters were likely to materially affect financial condition.
- No specific consolidated earnings or revenue guidance is provided in the supplied filing text. Management stated it expected sufficient liquidity for the next 12 months. The $50 million floating-rate senior notes due March 2021 were redeemed in January 2021; the mandatory convertible preferred stock was scheduled to convert on March 15, 2021.
Important facts for investors to verify
- Whether the Global Preneed strategic review leads to a sale, and the impact on earnings, capital, and subsidiary ratings.
- How much of the earnings increase is sustainable after considering the CARES Act tax benefit, lower Iké losses, the goodwill impairment and investment-market effects.
- Future catastrophe claims, reinsurance costs and recoverability, including exposure to uncollateralized or lower-rated reinsurers.
- Global Housing placement-rate trends, client-related policy reductions, and the effect of regulatory rate filings and lender-placed insurance requirements.
- The effects of low interest rates and mortality experience on Preneed profitability, plus dilution and capital implications following the preferred-stock conversion.
- Reserve adequacy: the auditor identified claims and benefits payable reserves as a critical audit matter, and management’s reserve sensitivity analysis indicates a 1% change in loss frequency and severity would change 2020 Global Lifestyle and Global Housing ultimate claim costs by approximately $23.5 million.