ASSURANT, INC. quarterly report, Q3 FY2022

Assurant, Inc. — Q3 2022 Form 10-Q

Reporting period: Quarter and nine months ended September 30, 2022; unaudited. Assurant provides connected-device, vehicle-protection, housing and related insurance products and services through Global Lifestyle, Global Housing, and Corporate and Other. Amounts below are in millions of dollars unless stated otherwise.

Financial performance

Metric	Q3 2022	Q3 2021	Nine months 2022	Nine months 2021
Total revenue	$2,547.8	$2,637.8	$7,540.2	$7,612.7
Net income from continuing operations	$7.3	$151.0	$208.5	$478.9
Diluted EPS from continuing operations	$0.14	$2.54	$3.78	$7.87
Net investment income	$83.5	$76.0	$261.8	$235.2
Net realized investment losses and equity fair-value changes	$(27.4)	$112.1	$(166.2)	$123.2

Q3 2021 net income included $728.8 million from discontinued operations, largely associated with the Global Preneed sale; nine-month 2021 discontinued-operations income was $762.0 million. Thus, reported total net income comparisons are not a like-for-like measure of ongoing performance. In Q3 2022, continuing-operations income fell 95% year over year, mainly reflecting the absence of gains on equity positions that went public in 2021 and higher realized losses on fixed-maturity sales.

Segment Adjusted EBITDA, Q3 / nine months 2022: Global Lifestyle $165.9 / $587.3; Global Housing $(25.0) / $166.7; Corporate and Other $(24.9) / $(72.0). Global Lifestyle’s Q3 result included a one-time $11.2 million client-contract benefit. Global Housing was pressured by catastrophes and elevated non-catastrophe claims.
Revenue drivers: Q3 net earned premiums were $2,197.1 million, up from $2,140.1 million. Global Lifestyle product premiums, fees and other income rose to $1,990.3 million from $1,961.2 million, led by Global Automotive; Connected Living declined. Global Housing product premiums, fees and other income increased to $484.1 million from $471.1 million.
Cash flow, nine months: Continuing-operations operating cash flow was $319.8 million versus $375.8 million. Investing cash flow was a $134.9 million use versus $181.9 million provided in 2021. Financing cash flow used $767.2 million versus $757.4 million. Cash declined $625.0 million to $1,429.8 million.
Balance sheet at September 30, 2022: Total assets $33,245.7 million; total liabilities $29,146.8 million; equity $4,098.9 million. Debt was $2,129.3 million, down from $2,202.5 million at year-end 2021. Cash and cash equivalents were $1,429.8 million; total investments were $7,516.1 million.
Investment and equity effects: Fixed-maturity fair value was $6,137.9 million versus $7,215.3 million at December 31, 2021. The portfolio moved from $311.4 million of net unrealized gains to $725.7 million of net unrealized losses, primarily as Treasury yields rose. Nine-month other comprehensive loss was $934.9 million, contributing to equity’s decline.

Material changes and notable items

Global Housing Adjusted EBITDA fell to a Q3 loss of $25.0 million. Reportable catastrophe losses were $124.1 million, including $118.1 million from Hurricane Ian, and included $34.7 million of reinstatement premiums. Excluding catastrophes, the company cited a $17.8 million year-over-year EBITDA decline, driven principally by higher non-catastrophe losses and prior-period development.
Global Lifestyle Q3 Adjusted EBITDA declined 6% to $165.9 million. Management cited foreign-exchange headwinds, higher Connected Living claims costs, and lower mobile trade-in margins, partly offset by North American subscriber growth. Nine-month segment EBITDA increased 8% to $587.3 million.
In June 2022, Assurant redeemed $75 million principal amount of its 4.20% senior notes due 2023, recognizing a $0.9 million extinguishment loss. Remaining principal on those notes was $225 million. Total debt carrying value was $2,129.3 million.
Assurant repurchased 3.26 million shares for $554.6 million during the first nine months and paid $112.7 million in common dividends. The quarterly dividend was $0.68 per share. The company reported $287.5 million remaining under its repurchase authorization at quarter-end.
Management changed its segment profitability measure to Adjusted EBITDA in 2022 and excluded certain businesses expected to be exited as non-core operations. This changes segment presentation, not consolidated net income.
The company revised prior-period statements after identifying an error involving Connected Living reinsurance of claims and benefits payable, dating from late 2018 through Q1 2022, as well as other immaterial errors. The revision reduced 2021 nine-month continuing-operations net income by $7.9 million and revised December 2021 retained earnings downward by $25.6 million.

Liquidity, outlook, risks and contingencies

Management stated it expects sufficient liquidity to meet needs over the next 12 months, including debt interest and common dividends. Holding-company liquidity was $528.8 million, $303.8 million above its $225 million target minimum. The $500 million revolving credit facility had $495.5 million available; there were no facility borrowings or commercial paper outstanding at quarter-end.
Regulated U.S. insurance subsidiaries could pay up to approximately $475.3 million in dividends to the holding company during 2022 without prior regulatory approval, subject to applicable restrictions. Insurance-subsidiary dividends and ratings requirements affect parent-company liquidity and capital returns.
The 2022 property catastrophe reinsurance program was estimated to cost approximately $189 million pre-tax, versus approximately $149 million in 2021. The U.S. program provides $1.16 billion of per-occurrence coverage above an $80 million retention, subject to program terms and reinstatements.
Management provided no specific earnings or revenue guidance in the supplied filing text. It cited inflation-driven claim and wage costs, rising interest rates, foreign-exchange movements, recession risk, catastrophe severity, reserve uncertainty, investment-market volatility, reinsurance and counterparty risk, client concentration and renewal risk, competition, technology and cyber risks, regulation, and litigation as factors that could affect results.
Claims reserves showed $32.5 million of net unfavorable development for the first nine months of 2022, versus $30.6 million favorable development in 2021. Sharing economy and small commercial non-core businesses contributed $57.1 million of unfavorable development; Global Housing also experienced unfavorable development associated with Hurricane Eta and inflation-related claim severity.
The company said pending legal and regulatory matters were not believed likely to have a material adverse effect on financial condition, but possible losses beyond recorded accruals could not be estimated and an individual period’s results or cash flows could be materially affected. Letters of credit outstanding were $7.0 million.
On November 1, 2022, after quarter-end, Assurant acquired American Lease Insurance Agency Corporation and its captive subsidiary for a base cash price of $59.8 million.

Important facts for investors to verify

How much of the deterioration in current earnings reflects ongoing claims and operating trends versus investment fair-value changes, realized securities losses, and the Q3 one-time client benefit?
Whether Global Housing claims severity, catastrophe exposure and reinsurance costs stabilize, including the effect of Hurricane Ian and the adverse development in non-core businesses.
The remaining exposure and expected cost to exit sharing economy, small commercial and legacy long-duration operations.
The implications of the disclosed reinsurance accounting error, the related prior-period revisions, and the effectiveness of remediation and internal controls.
Whether holding-company liquidity, regulated subsidiary dividend capacity, debt maturities and ongoing dividends and repurchases remain sustainable under adverse conditions.
How market interest rates and credit conditions affect investment values, liquidity, investment income, and the company’s capital and ratings.