Business context and reporting period
Assurant, Inc. is a global provider of lifestyle and housing solutions, operating through Global Lifestyle, Global Housing, Global Preneed, and Corporate and Other. This unaudited Form 10-Q covers the three months ended March 31, 2020, compared with the three months ended March 31, 2019. Amounts are in U.S. dollars and millions, except per-share data.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 or comparison |
|---|---|---|
| Total revenue | $2,565.6 | $2,435.6; up 5% |
| Net income attributable to common stockholders | $150.0 | $161.0; down 7% |
| Diluted EPS | $2.43 | $2.52 |
| Net investment income | $156.0 | $166.3; down 6% |
| Net realized investment losses | $(95.3) | $28.8 gains |
| Operating cash flow | $(123.7) | $246.7 |
| Cash and cash equivalents at period-end | $2,000 | $1,867 at December 31, 2019 |
| Total debt at period-end | $2,207.5 | $2,006.9 at December 31, 2019 |
Common-stockholder net income was approximately 5.8% of revenue, versus 6.6% a year earlier. The $79.3 tax benefit under the CARES Act materially supported earnings, reflecting the ability to carry back net operating losses. Management reported $433.4 of holding-company liquidity, $208.4 above its $225.0 target minimum. This excludes the $200.0 revolving-credit draw held for risk-management purposes; $241.0 remained available under the $450.0 facility at quarter-end.
Total assets were $43,423.3 and total equity was $5,386.2 at March 31, 2020. Fixed-maturity securities were $11,670.6 at fair value; their net unrealized gains declined by $461.3 during the quarter, mainly as COVID-related volatility widened credit spreads. Approximately 66% of fixed maturities were rated A or better and 95% were investment grade. The filing attributes the negative operating cash flow chiefly to timing of vendor and commission payments and other business cash flows.
Material changes versus the prior comparable period
- Revenue growth was driven largely by Global Lifestyle, where net earned premiums, fees, and other income increased 16% to $1,946.9. Segment net income rose 20% to $120.9, including a $6.7 client-recoverable benefit and some one-time Global Automotive benefits.
- Global Housing net income increased 2% to $74.2; revenue was nearly flat. Higher catastrophe losses, mainly Puerto Rico earthquakes, partly offset favorable non-catastrophe claims experience and higher lender-placed rates.
- Global Preneed net income increased 4% to $12.3, supported by growth in U.S. preneed policies and prior-period final-need sales.
- Corporate and Other recorded a $57.4 common-stockholder loss, versus a $24.1 loss, primarily reflecting investment losses and lower investment income, partly offset by the CARES Act tax benefit.
- Q1 2020 included $76.1 of after-tax unrealized investment losses, versus $24.4 of after-tax unrealized gains on equity securities in Q1 2019. Net investment income also declined, while acquisition-cost amortization and underwriting, general and administrative expenses increased.
- The company adopted the expected-credit-loss standard (CECL) on January 1, 2020, reducing retained earnings by $20.4 after tax. Credit-loss allowances increased further during Q1 amid COVID-related economic concerns.
Outlook, commentary, risks, and unusual items
- Management said Q1 results may not indicate performance in later quarters and that the pandemic’s duration and effects could not be reliably estimated. It expected greater business impact if financial-market volatility and government containment measures persisted.
- Management reported lower new sales in late March and April in Multifamily Housing, Global Automotive, and Preneed; slower mobile trade-in activity and sales growth; and possible pressure from reduced device demand, delayed renter moves, mortgage moratoria, lower investment yields, and foreign-exchange movements. Installed customer bases and lender-placed insurance were described as potential offsets.
- The company offered certain premium grace periods and fee waivers, deferred discretionary costs, and said it was exercising additional caution on acquisitions and share repurchases. Management stated liquidity was strong and expected available resources to meet needs over the next 12 months, including debt interest and dividends.
- COVID-19 could affect demand, investment values, credit losses, catastrophe exposure, operations, and subsidiary dividends. Other risks include reinsurer and counterparty credit, reserve adequacy, regulatory constraints, ratings changes, competition, cyber and technology risks, and litigation. The company could not estimate potential legal losses above recorded accruals; it said pending matters were not currently expected to materially affect financial condition.
- Assurant recorded a $1.4 pre-tax net loss related to Iké after impairment and put/call losses were substantially offset by a foreign-exchange hedge. The planned sale was expected to close in Q2 2020, with an estimated $54 net cash outflow, seller financing of up to $40, and transaction costs.
- After quarter-end, Assurant completed its $157.5 acquisition of American Financial & Automotive Services on May 1, 2020.
- The company drew $200.0 on its revolving facility on March 27 as a precaution. It repurchased $57.3 of common stock in Q1 and paid $38.0 of common dividends and $4.7 of preferred dividends. The mandatory convertible preferred stock is scheduled to convert in March 2021.
Important facts for investors to verify
- How COVID-19 affected subsequent-quarter sales, claims, investment marks, and credit-loss allowances, including whether the Q1 trends persisted.
- The sustainability of reported earnings excluding the $79.3 CARES Act tax benefit, investment-market losses, and identified client or one-time benefits.
- Whether operating cash flow recovered and how holding-company liquidity, subsidiary dividend capacity, and revolving-credit availability evolved.
- The final economics and completion of the Iké sale, and the financial contribution and integration of the AFAS acquisition.
- Changes in the investment portfolio’s unrealized losses, energy-sector exposure, reinsurer credit quality, and commercial mortgage loan performance.