Business Context and Reporting Period
Company: Assurant, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2008
Business Overview: Assurant is a holding company providing specialized insurance products and services, including creditor-placed homeowners insurance, debt protection, credit insurance, warranties, and health insurance. The company operates through five segments: Assurant Solutions, Assurant Specialty Property, Assurant Health, Assurant Employee Benefits, and Corporate & Other.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2008 | Nine Months Ended Sep 30, 2008 |
|---|---|---|
| Total Revenues | $1,954,535 | $6,380,620 |
| Net (Loss) Income | $(111,429) | $265,355 |
| Net Realized Losses on Investments | $(299,205) | $(376,922) |
| Net Investment Income | $192,314 | $591,299 |
| Total Assets | $25,354,315 | (N/A - Balance Sheet Item) |
| Total Liabilities | $21,622,504 | (N/A - Balance Sheet Item) |
| Stockholders' Equity | $3,731,811 | (N/A - Balance Sheet Item) |
| Debt | $971,933 | (N/A - Balance Sheet Item) |
| Cash and Cash Equivalents | $1,053,679 | (N/A - Balance Sheet Item) |
| Net Cash Provided by Operating Activities | (N/A - 9-month only) | $814,371 |
Note: All figures in thousands except per share data.
Material Changes vs. Prior Period
- Net Income Decline: The company reported a net loss of $111.4 million for the three months ended September 30, 2008, compared to net income of $187.2 million in the same period in 2007. For the nine months, net income decreased 50% to $265.4 million from $532.9 million.
- Investment Losses: The primary driver of the decline was net realized losses on investments of $299.2 million (Q3) and $376.9 million (9-month), largely due to other-than-temporary impairments (OTTI) of $229.1 million (Q3) and $300.1 million (9-month) driven by financial market volatility.
- Catastrophe Losses: The Assurant Specialty Property segment incurred losses of approximately $86.2 million (after-tax) related to Hurricanes Gustav and Ike in the third quarter, compared to no reportable hurricane costs in Q3 2007.
- Segment Performance:
- Assurant Solutions: Net income decreased 45% in Q3 due to less favorable domestic service contract results and international credit insurance losses.
- Assurant Specialty Property: Net income decreased 73% in Q3 primarily due to hurricane losses.
- Assurant Health: Net income decreased 23% in Q3 due to less favorable individual medical results and declining small employer group premiums.
- Corporate & Other: Reported a net loss of $214.4 million in Q3, driven by investment losses.
Guidance, Outlook, Risks, and Unusual Items
- Investment Portfolio Risk: The company faces significant risk from the global financial crisis. Gross unrealized losses on fixed maturity and equity securities totaled $778.6 million as of September 30, 2008. Management notes that continued economic downturns could result in additional impairments.
- SEC Investigation: The company and certain officers are under investigation by the SEC regarding finite reinsurance contracts. Five individuals received Wells notices in July 2007. The CEO was reinstated in January 2008, but two executives remain on administrative leave. The company cannot predict the outcome or potential penalties.
- Acquisitions and Dispositions:
- Acquired the Warranty Management Group business from GE for $140 million in cash (September 2008).
- Sold United Family Life Insurance Company for $32.7 million, recognizing a pre-tax gain of $3.2 million and a tax benefit of $24.6 million.
- Subsequent to the period end (October 1, 2008), acquired Signal Holdings LLC for $253.1 million.
- Liquidity: Management believes it has sufficient liquidity to meet needs for the next twelve months. The company has a $500 million commercial paper program and a $500 million revolving credit facility, neither of which was utilized in the nine months ended September 30, 2008.
- Rating Outlook: Rating agencies (A.M. Best, Moody's, S&P) have placed a negative outlook on the company's ratings due to the SEC investigation and economic conditions.
Key Facts for Investor Verification
- Investment Impairments: Verify the magnitude of other-than-temporary impairments ($300.1 million for the nine months) and the specific issuers involved (e.g., Fannie Mae, Freddie Mac, AIG, Lehman Brothers, Washington Mutual).
- SEC Investigation Status: Monitor developments regarding the SEC investigation into finite reinsurance contracts and potential financial statement restatements or penalties.
- Catastrophe Exposure: Assess the impact of Hurricanes Gustav and Ike on the Specialty Property segment's reserves and future profitability.
- Stock Repurchase Program: Note that the stock buyback program remains suspended, though the company purchased 1 million shares from Fortis Insurance N.V. in a private transaction in August 2008.
- Segment Growth vs. Runoff: Review the balance between growth in service contracts and preneed businesses versus the runoff of domestic credit insurance and small employer group health insurance.