Business Context and Reporting Period
Company: Assurant, Inc.
Filing Type: Form 8-K (Current Report)
Date: October 18, 2016
Subject: Preliminary Third Quarter 2016 Results of Operations and Financial Condition.
Key Financial Metrics
The filing provides preliminary ranges for Q3 2016 compared to actuals for Q3 2015.
| Metric ($ Millions) | Q3 2016 (Preliminary Range) | Q3 2015 (Actual) |
|---|---|---|
| GAAP Net Income | $127 – $157 | $(7) (Loss) |
| Net Operating Income | $54 – $66 | $104 |
| Assurant Solutions NOI | $41 – $45 | $52 |
| Assurant Specialty Property NOI | $42 – $46 | $87 |
| Corporate & Other NOI | $(20) – $(16) | $(26) |
| Interest Expense | $(9) | $(9) |
Liquidity and Capital: As of September 30, 2016, corporate capital was approximately $875 million. Excluding a $250 million risk buffer, deployable capital was approximately $625 million.
Cash Flow Activities (Q3 2016): The company repurchased $236 million of common stock and paid $30 million in dividends.
Material Changes vs. Prior Period
- Net Income Improvement: GAAP net income swung from a $7 million loss in Q3 2015 to a profit range of $127 million to $157 million in Q3 2016. This improvement is largely driven by non-operating items, specifically amortization of deferred gains and gains on disposal of businesses ($133M–$139M pre-tax in Q3 2016 vs. $3M in Q3 2015).
- Operating Income Decline: Net Operating Income (NOI) decreased significantly from $104 million in Q3 2015 to a range of $54 million to $66 million in Q3 2016.
- Catastrophe Losses: Q3 2016 included $32 million to $34 million in after-tax reportable catastrophe losses (net of reinsurance) due to flooding in Louisiana. Q3 2015 had no reportable catastrophe losses.
- Segment Performance:
- Assurant Solutions: NOI declined due to lower contributions from mobile, legacy extended service contracts, and credit insurance. Mobile results suffered from lower volumes and higher technology expenses.
- Assurant Specialty Property: NOI declined due to the normalization of lender-placed insurance business.
Guidance, Outlook, and Risks
Full-Year 2016 Outlook:
- Assurant Solutions: Net operating income expected to decline modestly from 2015. Growth in mobile programs will not offset declines in legacy contracts and the loss of the tablet program. Net earned premiums and fees expected to increase.
- Assurant Specialty Property: Net earned premiums and NOI expected to decrease from 2015 levels due to lender-placed insurance normalization. Results will reflect catastrophe losses, including claims from Hurricane Matthew (a Q4 2016 event).
- Corporate & Other: Full-year net operating loss expected to approximate $70 million.
Risks and Contingencies:
- Preliminary Nature: Results are preliminary; financial closing procedures were not complete as of the filing date. Actual results may differ materially from estimates.
- Catastrophe Exposure: Future results are subject to catastrophe losses, specifically Hurricane Matthew in Q4 2016.
- Market Conditions: Outlook is based on current market conditions which are subject to change.
Investor Verification Checklist
- Verify the final Q3 2016 results released on October 25, 2016, to confirm if actuals fall within the preliminary ranges provided.
- Assess the impact of Hurricane Matthew on Q4 2016 results, as this was explicitly noted as a future catastrophe event affecting the Specialty Property segment.
- Review the reconciliation of Non-GAAP Net Operating Income to GAAP Net Income to understand the magnitude of one-time gains (amortization of deferred gains) driving the GAAP profit.
- Monitor the "normalization" of lender-placed insurance business in the Specialty Property segment for continued revenue pressure.
- Confirm the status of mobile program volumes and technology expense management in the Assurant Solutions segment.