Assurant, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Assurant provides consumer protection, insurance and related services through Global Lifestyle and Global Housing, with Corporate and Other reported separately.
Key financial results
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $2,642.8 million | $2,482.7 million | Up 6% |
| Net income | $113.6 million | $149.0 million | Down 24% |
| Diluted EPS | $2.12 | $2.65 | Down 20% |
| Net investment income | $105.2 million | $86.3 million | Up 22% |
| Net realized investment losses and equity-security fair-value changes | $(10.6) million | $(62.4) million | Losses narrowed |
| Operating cash flow | $259.6 million | $(501.1) million | Improved |
Net income margin was approximately 4.3% of revenue, versus 6.0% in the prior-year quarter. Total benefits, losses and expenses increased to $2,495.7 million from $2,307.5 million. The filing attributes lower earnings chiefly to weaker Global Housing and Global Lifestyle results and a higher effective tax rate; narrower investment losses partly offset the decline.
Segment performance
- Global Lifestyle: Adjusted EBITDA was $198.9 million, down 12%. Net earned premiums, fees and other income rose 3% to $2,040.3 million. Higher claims costs, weaker Asia-Pacific results and foreign-exchange effects weighed on earnings; higher investment income and Global Automotive growth provided offsets.
- Global Housing: Adjusted EBITDA was $68.4 million, down 34%. Net earned premiums, fees and other income rose 11% to $505.3 million. Reportable catastrophe impact was $49.5 million, versus $6.2 million; excluding catastrophes, Adjusted EBITDA increased 7%, while non-catastrophe claims costs and catastrophe reinsurance costs also rose.
- Corporate and Other: Adjusted EBITDA was $(24.4) million, versus $(22.2) million, primarily reflecting lower investment income.
Financial position, liquidity and capital
- At March 31, 2023, total assets were $32.9 billion, total liabilities $28.5 billion and stockholders’ equity $4.4 billion. Cash and cash equivalents were $1.53 billion.
- Debt carrying value was $2.13 billion, broadly unchanged from year-end. In February, Assurant issued $175 million of 6.1% senior notes due 2026; in March it used the proceeds and cash to redeem $175 million of 4.2% notes due 2023. $50 million of the 2023 notes remained outstanding.
- Holding-company liquidity was $382.7 million, $157.7 million above its $225 million target minimum. The $500 million revolving credit facility had $499.8 million available; there were no facility borrowings or commercial-paper balances at quarter-end.
- Operating, investing and financing cash flows were $259.6 million, $(229.4) million and $(43.0) million, respectively. The company paid $37.0 million in common dividends, or $0.70 per share, and made no share repurchases during the quarter.
- Management said it expects sufficient liquidity to meet needs over the next 12 months, including debt interest and dividends. Regulated U.S. insurance subsidiaries could pay approximately $344.7 million in dividends to the parent in 2023 without prior regulatory approval, subject to applicable requirements.
Management commentary, changes and risks
- Management cited inflation-related claims severity, elevated catastrophe losses, mobile program changes, customer and device trends, foreign exchange, investment-market movements, and the ability to price products and estimate reserves as important factors affecting results.
- Global Housing catastrophe losses reflected severe weather and tornado events. Winter Storm Elliott contributed to adverse reserve development; sharing-economy non-core operations also had unfavorable development.
- Assurant expects to complete its transformational cost and organizational plan and real-estate consolidation actions in 2023. Estimated total restructuring and impairment costs were $64.2 million, including $4.9 million of estimated remaining costs; substantially all charges are expected to be cash.
- The company adopted the long-duration insurance accounting standard in 2023. Management reported no impact on consolidated equity or net income for the fully reinsured long-term-care contracts.
- The filing provides no specific earnings or revenue guidance. It cautions that Q1 results are not necessarily indicative of full-year results and identifies risks including catastrophes, inflation, reserve adequacy, investment and credit-market exposure, reinsurance, regulation, litigation, cyber risk, competition and client or distributor concentration.
- Prior-period financial statements were revised for an error in Connected Living reinsurance accounting that had understated policyholder benefits and overstated net income. Q1 2022 net income was revised from $145.5 million to $149.0 million; the revision did not change reported operating cash flow.
- Management stated that pending legal and regulatory matters are not believed likely to materially affect financial condition, but possible losses beyond recorded accruals cannot be estimated clearly and could affect results or cash flows in an individual period.
Important facts for investors to verify
- Whether elevated claims and catastrophe costs, including inflation-driven severity, persist and how they affect segment profitability and reserve development.
- Whether Global Lifestyle growth and margins recover amid mobile contract changes, device trends, and higher service-contract and automotive claims.
- How catastrophe reinsurance costs, lender-placed policy trends and non-catastrophe losses affect Global Housing results.
- Investment portfolio credit quality and unrealized losses: fixed-maturity securities had $536.9 million of net unrealized losses at quarter-end; management attributed gross unrealized losses to non-credit factors and said it did not intend or need to sell before anticipated recovery.
- Debt maturities, access to subsidiary dividends and holding-company liquidity, including the remaining $50 million of 2023 notes and regulatory limits on subsidiary distributions.
- Effects of the prior-period reinsurance-accounting correction, reserve estimates and legal or regulatory contingencies on future reported results.