Assurant, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Assurant is a global provider of mobile device and vehicle protection, service contracts, renters insurance, lender-placed insurance and other specialty products. Amounts below are in millions except per-share data.
Financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $2,509.7 | $2,542.3 | $4,992.4 | $4,974.9 |
| Net income from continuing operations | $52.2 | $187.1 | $201.2 | $327.9 |
| Diluted continuing-operations EPS | $0.95 | $3.05 | $3.61 | $5.33 |
| Net investment income | $92.0 | $82.9 | $178.3 | $159.2 |
| Net realized investment losses and equity-security fair-value changes | $(76.4) | $10.3 | $(138.8) | $11.1 |
- Continuing-operations income fell 72% in Q2 and 39% in the first half. Approximate continuing-operations net margins were 2.1% and 7.4% in Q2 2022 and 2021, respectively, and 4.0% and 6.6% for the first halves.
- Q2 revenue was nearly flat year over year; first-half revenue increased about 0.4%. Higher fees and investment income were offset by investment losses and other movements.
- Segment Adjusted EBITDA, Assurant’s reported segment performance measure: Global Lifestyle was $206.8 in Q2, up 12%, and $421.4 for six months, up 14%. Global Housing was $75.2 in Q2, down 43%, and $191.7 for six months, down 13%. Corporate and Other was $(24.9) in Q2 and $(47.1) for six months. Adjusted EBITDA excludes specified items and was revised in 2022 to exclude certain non-core operations.
- Global Housing’s Q2 deterioration reflected $20.3 of reportable catastrophe losses, inflation-related claims severity and higher catastrophe reinsurance costs. Global Lifestyle growth was driven by mobile device protection and automotive results.
Cash flow, balance sheet and capital
- Cash from continuing operating activities was $(328.1) for the first half, versus $409.9 provided in the prior-year period. Management attributed the decline mainly to lower collections of receivables and increased mobile-device purchases for claims and resale.
- Cash and cash equivalents were $1,182.0 at June 30, down from $2,040.8 at year-end. Total assets were $31,728.7 and equity was $4,459.7. Debt carrying value was $2,128.8.
- Holding-company liquidity was $595.4, $370.4 above its stated $225.0 target minimum. The $500 revolving credit facility had $495.5 available; no borrowings or commercial paper were outstanding. Management said it expects sufficient liquidity for the next 12 months.
- First-half financing cash use was $624.9, including $466.6 of common-stock repurchases and $76.0 of dividends paid. The company repurchased 2.77 million shares for $474.2, excluding commissions, and had $367.9 remaining under its authorization at quarter-end.
- Assurant redeemed $75.0 principal of its 4.20% notes due 2023, recognizing a $0.9 extinguishment loss. Total debt was $2,128.9 principal; $225.0 principal remained on those 2023 notes.
- Higher Treasury yields contributed to a $778.9 decrease in net unrealized gains on fixed maturities during the first half; the portfolio ended with a $467.5 net unrealized loss. Accumulated other comprehensive loss widened to $822.2 from $150.0 at year-end.
Material changes, outlook and risks
- The company revised prior-period financial statements for a reinsurance error involving Connected Living claims and benefits payables, arising from late 2018 through Q1 2022. Management said the error was not material to any individual prior period, but booking the cumulative correction in Q2 2022 would have been material; affected prior periods were revised. The filing also notes other unrelated immaterial corrections.
- Beginning in Q2, the company excluded sharing-economy and small-commercial businesses and certain legacy long-duration policies from segment Adjusted EBITDA as non-core operations it expects to exit. These operations generated $(36.7) of Adjusted EBITDA in Q2 and $(42.2) in the first half of 2022.
- First-half prior-year reserve development was unfavorable by $19.7, versus favorable development of $39.4 in 2021. Sharing economy and small commercial contributed $49.3 of unfavorable development, attributed to adverse claim trends, revised reserve assumptions, social inflation and court reopening. Global Housing also recorded unfavorable development, including Hurricane Eta and inflation-related severity.
- In July 2022, Assurant finalized its catastrophe reinsurance program. Estimated 2022 U.S. property catastrophe reinsurance premiums were approximately $189, compared with $149 in 2021. U.S. per-event coverage provides $1.16 billion above an $80 retention; the program uses more than 40 reinsurers rated A- or better by A.M. Best. Actual premiums may vary with exposure and reinstatements.
- No specific earnings guidance is provided in the supplied filing text. Management expects to deploy capital toward business growth and shareholder returns, subject to board approval and market conditions. Moody’s upgraded the company’s senior debt and insurance financial strength ratings in July 2022, each with a stable outlook.
- Key risks include inflation and claims severity, catastrophe losses, reserve-estimation uncertainty, investment-market and interest-rate changes, reinsurance availability and counterparty risk, client concentration and renewals, competition, cyber and technology risks, regulation, and economic conditions. Management said pending legal and regulatory matters were not believed likely to materially affect financial condition, but individual-period results or cash flows could be materially affected; excess loss beyond accruals could not be estimated.
Most important facts for investors to verify
- How the reinsurance error was identified, corrected across periods and addressed through controls; management reported effective disclosure controls at June 30, 2022.
- Whether sharing-economy and small-commercial exits reduce further adverse reserve development, and how reserve assumptions perform against actual claims.
- Whether inflation, catastrophe experience and higher reinsurance costs continue to pressure Global Housing earnings.
- Whether investment losses and unrealized fixed-maturity declines recover or affect capital, liquidity or investment income.
- Whether operating cash flow improves as mobile-device purchases, receivable collections and business growth evolve.
- How repurchases and dividends are balanced against holding-company liquidity, debt maturities and insurance-subsidiary dividend restrictions.