Assurant, Inc. — Q1 2021 Form 10-Q
Business context and reporting period. Assurant is a global provider of lifestyle and housing protection solutions, operating through Global Lifestyle and Global Housing, with Corporate and Other activities. This unaudited report covers the three months ended March 31, 2021, compared with Q1 2020. The former Global Preneed business and certain run-off businesses are reported as discontinued operations and held for sale.
Financial performance and position
- Revenue: Total revenue was $2.433 billion, down from $2.449 billion. Net earned premiums rose to $2.106 billion from $2.066 billion, while fees and other income fell to $249.9 million from $383.6 million. Net investment income was $76.3 million, down from $83.6 million.
- Profit and EPS: Continuing-operations net income was essentially flat at $148.5 million versus $148.6 million. Net income attributable to common stockholders was $158.3 million versus $150.0 million; diluted EPS was $2.64 versus $2.43. Q1 2021 included $14.3 million of discontinued-operations income, versus $7.2 million.
- Segments: Global Lifestyle net income increased 7% to $129.1 million; Global Housing net income decreased 9% to $67.4 million. Corporate and Other reported a $48.0 million continuing-operations net loss.
- Catastrophe losses: Continuing-operations income included $34.5 million of reportable catastrophe losses, primarily related to Texas winter storms, versus $12.9 million in Q1 2020. Excluding catastrophes, continuing-operations net income increased $21.5 million, or 13%, according to management.
- Cash flow and liquidity: Continuing-operations operating cash flow was negative $454.0 million, compared with negative $167.5 million. Continuing investing cash flow was positive $63.2 million; financing cash flow was negative $153.0 million. Cash and cash equivalents at March 31 were $1.651 billion for continuing operations ($1.672 billion including discontinued operations), down from $2.208 billion on the balance sheet at year-end. Management cited timing of mobile premiums and commission/vendor payments as operating cash-flow factors.
- Debt and capital: Debt carrying value was $2.204 billion, down from $2.253 billion, following repayment of $50 million of notes. No revolver borrowings were outstanding; $445.5 million was available under the $450 million credit facility. Holding-company liquidity was $332.0 million, $107.0 million above its $225.0 million target minimum.
- Equity and investments: Total equity was $5.826 billion, down from $5.955 billion; accumulated other comprehensive income fell to $504.5 million from $709.8 million, mainly reflecting lower unrealized investment gains. The fixed-maturity portfolio’s net unrealized gains declined by $200.6 million during the quarter, primarily due to higher Treasury yields.
- Margins: The filing does not provide a single consolidated operating-margin measure.
Material changes versus Q1 2020
- Global Lifestyle revenue was lower, primarily reflecting a previously disclosed mobile-program contract change and run-off of certain domestic mobile programs. Management said the contract change reduced revenue by $98 million; excluding that reduction, segment net earned premiums, fees and other income was flat year over year.
- Global Lifestyle net income increased on growth in Connected Living and Global Automotive, partly offset by mobile-program run-off. Q1 2021 included a $4.3 million one-time Global Automotive benefit; Q1 2020 included $11.7 million of one-time benefits in Connected Living and Global Automotive.
- Global Housing earnings were pressured by higher catastrophe losses, while management cited improved non-catastrophe experience and Multifamily Housing growth. Lower real-estate-owned volumes and fewer policies from a financially insolvent client weighed on lender-placed business.
- Q1 2020 included a $79.3 million tax benefit related to CARES Act net operating loss utilization and $67.2 million of after-tax net realized investment losses. These prior-year items significantly affect the comparison; reported continuing-operations net income was flat.
- The 6.50% mandatory convertible preferred shares converted into approximately 2.704 million common shares in March 2021. The company repurchased 308,000 common shares for $41.5 million during the quarter.
Outlook, commentary, risks and unusual items
- In March 2021, Assurant agreed to sell Global Preneed and certain other businesses to CUNA Mutual Group for $1.25 billion in cash, subject to purchase-price adjustments. Closing was expected by the end of Q3 2021, subject to regulatory approvals and customary conditions. The company classified the businesses as discontinued operations and held for sale.
- Assurant stated its intention to return 75% of expected net proceeds of approximately $1.2 billion to shareholders through share repurchases within one year after closing, subject to Board approval. The carrying value of the disposal business may change before closing.
- Management said it expected sufficient liquidity for the next 12 months, including debt interest and common dividends. It also expects to deploy capital to support growth, investments and shareholder returns, subject to Board approval and market conditions.
- Key risks identified include catastrophe and non-catastrophe claims, reserve estimation, investment-market and interest-rate movements, reinsurance and counterparty credit, COVID-19 effects, client and distributor retention, mobile-device trade-in volumes, competition, cyber and technology risks, regulation, and the pending sale’s closing and final economics.
- Legal and regulatory proceedings are ongoing. Management said it could not estimate possible losses beyond recorded accruals, but did not believe pending matters were likely to materially affect financial condition based on currently available information. The filing reported no material change in market-risk assumptions and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether the CUNA transaction closed on schedule, received required approvals, and produced proceeds consistent with the stated consideration and expected net proceeds.
- How the announced plan to return 75% of expected net proceeds through repurchases was implemented, and its effect on share count and capital.
- Whether mobile-program changes, subscriber and trade-in trends, and Global Automotive growth affected subsequent revenue and earnings.
- Whether catastrophe losses, favorable reserve development, and claims trends persisted; Q1 included favorable prior-year reserve development of $46.2 million.
- How operating cash flow, holding-company liquidity, subsidiary dividend capacity and available credit changed after quarter-end.
- Whether investment valuation changes, credit quality, and interest-rate movements materially affected investment income, equity and liquidity.