Assurant, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Assurant is a global provider of consumer protection products and services, operating through Global Lifestyle, Global Housing, and Corporate and Other. Amounts are in millions except per-share data.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $2,731.6 | $2,509.7 | $5,374.4 | $4,992.4 |
| Net earned premiums | $2,343.0 | $2,168.9 | $4,608.5 | $4,305.3 |
| Net investment income | $112.9 | $92.0 | $218.1 | $178.3 |
| Net realized investment losses and equity-security fair-value changes | $(20.0) | $(76.4) | $(30.6) | $(138.8) |
| Net income | $156.3 | $52.2 | $269.9 | $201.2 |
| Diluted EPS | $2.90 | $0.95 | $5.01 | $3.61 |
Q2 net income rose $104.1 million year over year, mainly on stronger Global Housing results and lower investment-related losses, partly offset by weaker Global Lifestyle earnings. Six-month net income increased 34%, reflecting lower investment-related losses and Homeowners growth, partly offset by lower Lifestyle earnings and increased catastrophe losses.
- Global Lifestyle: Q2 Adjusted EBITDA, Assurant’s segment measure, was $197.0, down 11%; six-month Adjusted EBITDA was $395.9 versus $447.7. Q2 performance reflected elevated auto claims costs, weaker Connected Living results in Asia Pacific and Europe, and the absence of a prior-year real estate joint-venture gain. Premiums, fees and other income grew 5% in Q2, driven mainly by Global Automotive.
- Global Housing: Q2 Adjusted EBITDA was $154.6 versus $61.0; six-month Adjusted EBITDA was $223.0 versus $165.4. Homeowners growth benefited from more lender-placed policies, higher insured values and premium rates, and improved non-catastrophe loss experience. Reportable catastrophe losses were $13.4 in Q2 versus $20.3; for the first half, they were $62.9 versus $26.5.
- Corporate and Other: Adjusted EBITDA was a loss of $28.5 in Q2 versus a loss of $24.9, primarily reflecting lower investment income.
Cash, balance sheet and capital
- At June 30, 2023, total assets were $33.1 billion, total liabilities $28.6 billion, stockholders’ equity $4.5 billion, and debt $2.13 billion. Cash and cash equivalents were $1.40 billion, down from $1.54 billion at year-end 2022.
- Six-month operating cash flow was $445.0, compared with cash used of $328.1 in 2022. Investing activities used $483.8 and financing activities used $100.4. The filing attributes the operating cash flow improvement largely to timing of mobile-business collections and lower vendor payments for mobile devices.
- Holding-company liquidity was approximately $495.0, $270.0 above the company’s $225.0 target minimum. Management said it expects sufficient liquidity for the next 12 months. Regulated U.S. insurance subsidiaries could pay approximately $344.7 in dividends without prior regulatory approval, subject to applicable restrictions.
- The $500 million revolving credit facility had no borrowings; $499.8 was available at quarter-end. The commercial paper program was unused.
- In February, Assurant issued $175.0 of 6.1% senior notes due 2026 and used proceeds, together with cash, to redeem $175.0 of 4.2% notes due September 2023. $50.0 of those 2023 notes remained outstanding at June 30. The filing identifies debt maturities in September 2023, February 2026 and March 2028.
- Six-month dividends were $76.7; share repurchases were $20.0 excluding commissions. The quarterly dividend was $0.70 per share. $254.5 remained under the share-repurchase authorization.
Material changes, outlook and risks
- Effective January 1, 2023, Assurant realigned certain businesses between Global Housing and Global Lifestyle to reflect its operating structure; the change did not affect consolidated results. It also adopted updated long-duration insurance accounting guidance, with no net income or equity impact for the fully reinsured long-term-care contracts described in the filing.
- Management cited ongoing inflation-related parts and labor costs and elevated claims in Global Automotive. Mobile results were affected by contract changes, program run-off, foreign exchange and the timing of carrier promotions. Homeowners results remain exposed to catastrophe and non-catastrophe losses.
- Sharing economy and small commercial non-core operations had $30.0 of unfavorable prior-period loss development in the first half, primarily from sharing economy claims. A retroactive reinsurance treaty covering specified small-commercial losses and adverse development has a $50.0 aggregate limit; Assurant recorded a $5.0 loss related to the treaty.
- Expected 2023 catastrophe reinsurance premiums were approximately $200.0 pre-tax, compared with approximately $189.0 in 2022. The U.S. program provides $1.28 billion of per-occurrence coverage above a $125.0 first-event retention, with lower retentions for subsequent events; actual costs may vary.
- Assurant initiated plans to sell its Miami property; $44.4 of assets met held-for-sale criteria at quarter-end. The company expects to complete its transformational and real-estate restructuring actions in 2023; estimated total costs were $64.2, with $6.2 of estimated remaining costs.
- Legal and regulatory proceedings are ongoing. Management said pending matters are not believed likely to materially affect financial condition, but possible losses beyond recorded accruals cannot be estimated and could materially affect an individual period’s results or cash flows.
- No specific earnings or financial guidance is provided in the supplied filing text. The filing highlights risks including client or distributor losses, competition, catastrophe exposure, reserve adequacy, inflation, investment and interest-rate changes, reinsurer credit or availability, regulation, cyber incidents and execution of strategy.
Investor verification points
- Assess how much reported earnings improvement reflects lower investment fair-value losses versus recurring segment performance.
- Monitor Global Automotive claim severity and costs, Connected Living program changes, and the trajectory of Homeowners catastrophe and non-catastrophe losses.
- Review reserve development in non-core operations and the scope, recoveries and remaining protection under the small-commercial reinsurance treaty.
- Evaluate investment-portfolio sensitivity: fixed maturities had a $593.0 net unrealized loss at June 30, and 37.0% of their fair value was rated Baa.
- Confirm liquidity available at the parent versus consolidated cash, regulatory limits on subsidiary dividends, and the repayment or refinancing of the remaining September 2023 notes.
- Track catastrophe reinsurance pricing and coverage, restructuring costs and completion, and developments in legal or regulatory matters.