Assurant, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Amounts are U.S. dollars in millions, except per-share data. Assurant provides insurance, protection products and related services across housing, lifestyle and preneed markets. Results are not necessarily indicative of full-year performance.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $2,545.5 | $1,831.7 | $4,981.1 | $3,470.3 |
| Income before tax | $183.3 | $78.3 | $400.3 | $214.8 |
| Net income attributable to common stockholders | $139.5 | $62.2 | $300.5 | $168.2 |
| Diluted EPS | $2.21 | $1.09 | $4.73 | $3.02 |
- Reported revenue rose 39% in Q2 and 44% for the six-month period. Common-stockholder net income increased 124% and 79%, respectively. Growth primarily reflects TWG, acquired May 31, 2018, so the comparisons include only one month of TWG in Q2 2018 versus a full quarter in 2019.
- Approximate pretax margin was 7.2% in Q2 2019 versus 4.3% in Q2 2018; for the six-month periods, 8.0% versus 6.2%.
- Global Lifestyle drove much of the improvement: Q2 segment net income was $109.3, up 60%; Global Housing net income was $71.5, down 2%; Global Preneed net income was $16.9, up 15%. Lifestyle growth reflected TWG and organic mobile-business growth.
- Net investment income was $154.2 in Q2 and $320.5 for six months, up 14% and 21%, respectively. Net realized investment gains were $17.8 in Q2 and $46.6 for six months, compared with losses of $11.4 and $10.9 in 2018.
- Six-month operating cash flow was $725.7, versus $172.3 in 2018; investing cash use was $609.6 and financing cash inflow was $118.6. Cash and equivalents were $1,490.4 at June 30, up from $1,254.0 at year-end 2018.
- Total debt was $2,007.3, essentially unchanged from year-end. The $450 million revolving facility had $441 million available and $9 million of letters of credit outstanding. Holding-company liquidity was $386 million, $161 million above the stated minimum target of $225 million.
- Total assets were $43.14 billion and total equity was $5.76 billion at June 30, 2019. Fixed-maturity securities had $1.12 billion of net unrealized gains, versus $423.1 at year-end, largely reflecting lower Treasury yields and tighter credit spreads.
Material changes and unusual items
- TWG materially expanded Global Lifestyle revenue and expenses; the company also continued integration activity. Six-month TWG integration costs were $16.6; no significant TWG transaction costs were recorded in 2019.
- Q2 2018 included a $34.4 after-tax loss on Mortgage Solutions assets held for sale and higher TWG acquisition-related charges. Mortgage Solutions was sold on August 1, 2018, reducing year-over-year Global Housing fees and expenses.
- Q2 2019 included a $14.6 impairment of Green Tree-related intangible assets, following developments concerning a business partner that provides new and renewal business. The after-tax impact was reported as $11.4.
- Assurant repurchased 1.04 million common shares for $100.7 million in the first half and paid $75.7 million in common dividends and $9.3 million in preferred dividends. The quarterly common dividend was $0.60 per share; the board declared another $0.60 dividend payable in September.
Outlook, risks and contingencies
- The filing provides no specific earnings or revenue guidance. Management stated it expected sufficient liquidity for the next 12 months, including debt interest and common and preferred dividends.
- The 2019 catastrophe reinsurance program, finalized in July, provides $1.16 billion of U.S. per-event coverage above an $80 million retention, reduced from $120 million in 2018. Estimated premiums were approximately $165 million pre-tax; actual cost may vary with exposure and catastrophe-related reinstatements.
- Management identified risks including catastrophe and other claims, reserve-estimation uncertainty, client or distributor loss, competition and disruption, TWG integration, investment and credit-market volatility, foreign exchange, reinsurance availability and counterparty credit, regulatory changes, litigation, cyber and information-system risks, and declining placement rates in lender-placed insurance.
- Pending matters include class actions concerning lender-placed insurance. The company has accrued for certain proceedings but said losses beyond accruals cannot be estimated; management did not believe pending matters were likely to materially affect financial condition, while acknowledging potential material effects on an individual period’s results or cash flows.
- CECL was expected to be adopted January 1, 2020; the company anticipated higher credit-loss allowances, principally for reinsurance receivables and commercial mortgage loans, with the amount dependent on portfolio composition and economic conditions.
Key investor verification points
- Separate TWG’s acquisition-driven contribution from organic growth and assess continued integration costs and substantial acquired-business amortization.
- Track Global Housing small-commercial loss experience, lender-placed placement rates, and the cost and protection provided by catastrophe reinsurance.
- Review reserve development, reinsurance recoverables and reinsurer credit exposure, including the $777.2 million recoverable from ERAC, whose rating was withdrawn at its request.
- Assess how much earnings growth depends on investment gains and fair-value changes, and monitor the Green Tree partner-related impairment and associated business outlook.
- Monitor liquidity at the holding company, debt and preferred-dividend obligations, and legal and regulatory developments.