Assurant, Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing is an annual report; selected fourth-quarter results are also disclosed. Assurant provides lifestyle, housing and preneed insurance and related services through Global Lifestyle, Global Housing and Global Preneed, with Corporate and Other reported separately.
Financial performance
| Metric | 2019 | 2018 |
|---|---|---|
| Total revenue | $10.09 billion | $8.06 billion |
| Net income attributable to common stockholders | $363.9 million | $236.8 million |
| Diluted EPS | $5.84 | $3.98 |
| Net cash from operating activities | $1.41 billion | $656.7 million |
| Cash and cash equivalents, year-end | $1.87 billion | $1.25 billion |
| Total debt, year-end | $2.01 billion | $2.01 billion |
| Total assets, year-end | $44.29 billion | $41.09 billion |
| Common dividends per share | $2.43 | $2.28 |
Revenue increased about 25% and common-stockholder net income about 54%. Net investment income rose to $675.0 million from $598.4 million; net realized investment gains were $66.3 million versus losses of $62.7 million. The filing does not present a single consolidated operating-margin measure.
Cash used in investing activities was $619.8 million, compared with $2.20 billion in 2018; cash used in financing activities was $179.2 million, versus cash provided of $1.84 billion. The prior-year cash flows included the TWG acquisition and related financing.
Segments and material changes
- Global Lifestyle: Segment net income rose 37% to $409.3 million. Net earned premiums, fees and other income increased to $7.09 billion from $5.18 billion, reflecting organic mobile growth and a full year of TWG contributions. TWG contributed approximately $130 million of segment net income in 2019.
- Global Housing: Segment net income rose 72% to $258.7 million, mainly because catastrophe losses were $128.8 million lower after tax. Excluding reportable catastrophes, segment net income fell 7%, reflecting lender-placed insurance pressures and higher non-catastrophe losses. Revenue declined to $2.03 billion from $2.09 billion, partly because Mortgage Solutions was sold in 2018.
- Global Preneed: Segment net income declined 10% to $52.2 million, despite revenue growth to $200.9 million. Results included a $9.9 million after-tax out-of-period charge related to deferred acquisition costs; excluding that adjustment, management said earnings increased.
- Corporate and Other: Includes a $163.0 million pre-tax loss related to Iké, debt-extinguishment costs, financing expense and other items.
Outlook, commentary and risks
- Management said it expected sufficient liquidity for the following 12 months, including debt interest and common and preferred dividends. The filing provides no quantified earnings or revenue guidance.
- Management targeted growth in Connected Living, Global Automotive and Multifamily Housing, while expecting lender-placed insurance placement rates to decline in 2020 as housing markets improve. It also anticipated continued decline in traditional North American credit insurance.
- In January 2020, Assurant agreed to sell its Iké interests, subject to customary conditions and regulatory approvals. The expected closing was in Q2 2020, with an expected net cash outflow of $54 million, potentially rising by up to $40 million if seller financing is provided, plus transaction costs.
- In 2019, Assurant issued $350 million of 3.70% senior notes due 2030 and used proceeds and cash on hand to redeem $250 million of floating-rate 2021 notes and tender for $100 million of 6.75% notes due 2034. It recognized a $31.4 million debt-extinguishment loss. Debt to total capital was 26.2%.
- Holding-company liquidity was $533.9 million; $441.0 million was available under the undrawn $450 million revolving credit facility. Regulatory limits restrict upstream dividends; the maximum ordinary dividends from regulated U.S. insurance subsidiaries without prior approval for 2020 was $423.7 million.
- Key exposures include catastrophe and weather losses, claims-reserve uncertainty, falling lender-placed placement rates and potential premium-rate restrictions, client concentration, investment and interest-rate risk, and substantial reinsurance recoverables. The company identified $845.2 million of recoverables from ERAC that lacked the collateral protections described for certain other major reinsurers.
- Assurant faces class actions and regulatory matters involving lender-placed insurance. Management said pending matters were not expected to materially affect financial condition, but stated that possible losses beyond accruals could not be estimated and outcomes could materially affect a reporting period.
- The company is undertaking a multi-year IT transformation and identified execution, cybersecurity, privacy, integration and vendor risks. Brexit-related access to European markets depended on obtaining approvals for Dutch insurance subsidiaries.
Most important facts for investors to verify
- Whether the Iké sale closed as expected, its final proceeds or cash outflow, and any seller financing or additional costs.
- Whether earnings growth persists after separating catastrophe-loss reductions, TWG’s contribution, investment gains and the Iké charge.
- Trends in lender-placed placement rates, tracked loans, premium pricing and Global Housing earnings excluding catastrophes.
- Claims-reserve development, catastrophe reinsurance costs and the adequacy and collectability of reinsurance recoverables, particularly the uncollateralized ERAC exposure.
- TWG integration benefits and the continuing amortization of acquired value of business acquired, including the expected 2020 charge.
- Regulatory, litigation and client-renewal developments that could affect lender-placed insurance and the company’s ability to distribute dividends from insurance subsidiaries.