Assurant, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Amounts are in millions of dollars unless otherwise stated. Assurant provides lifestyle and housing protection products and services, plus preneed insurance, through Global Lifestyle, Global Housing, Global Preneed, and Corporate and Other.
Financial results and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $2,502.5 | $2,499.3 | $7,539.7 | $7,480.4 |
| Net income (loss) attributable to common stockholders | $(34.9) | $(59.5) | $288.6 | $241.0 |
| Basic EPS | $(0.58) | $(0.96) | $4.78 | $3.88 |
| Net investment income | $135.1 | $169.5 | $428.3 | $490.0 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $901.6 | $1,167.9 |
Q3 total revenue was nearly flat year over year. Nine-month common-stockholder income rose 20%, although the comparison includes significant prior-year charges and a 2020 tax benefit. The filing does not present a single consolidated operating-margin measure.
- Balance sheet at September 30, 2020: Total assets were $43.58 billion, total liabilities $37.64 billion, and total equity $5.94 billion. Cash and cash equivalents were $2.20 billion; total investments were $15.21 billion.
- Debt and liquidity: Carrying value of debt was $2.01 billion. No borrowings were outstanding on the $450 million revolving credit facility; $445.5 million was available after letters of credit. Holding-company liquidity was $460.3 million, $235.3 million above the stated $225 million target minimum.
- Cash flows, nine months: Investing activities used $275.2 million and financing activities used $296.8 million. Cash increased $335.9 million from year-end 2019.
- Investment portfolio: Fixed-maturity securities had a fair value of $13.09 billion; 62.5% were rated Aaa/Aa/A and 32.6% Baa. Net investment income fell 20% in Q3 and 13% for the nine-month period.
Changes versus prior comparable periods
- Q3 common-stockholder loss improved by $24.6 million, to $34.9 million. The comparison benefited from the absence of 2019 Iké valuation losses, debt-refinancing charges, and a Global Preneed deferred-acquisition-cost adjustment. These benefits were partly offset by a $135.6 million after-tax Global Preneed goodwill impairment and $51.3 million of higher after-tax Global Housing catastrophe losses.
- For the first nine months, common-stockholder income increased $47.6 million. Excluding catastrophe losses, management reported a $116.1 million increase, citing the absence of prior-year Iké and debt charges, a CARES Act tax benefit, and improved segment results; the goodwill impairment and weaker investment marks partly offset these factors.
- Global Lifestyle Q3 segment net income increased 4% to $106.6 million, supported by mobile subscriber growth and extended-service-contract profitability, partly offset by lower investment income, foreign exchange, and weaker Global Financial Services and Other results.
- Global Housing Q3 segment net income fell 69% to $13.1 million, including $87.0 million of catastrophe losses versus $35.7 million a year earlier. Excluding catastrophes, segment income increased $22.8 million, according to management.
- Global Preneed Q3 segment net income rose to $13.2 million from $7.4 million, primarily because the prior-year quarter included a deferred-acquisition-cost adjustment. Management said underlying results were pressured by lower investment income.
Outlook, management commentary, risks, and unusual items
- COVID-19 and outlook: Management described the pandemic’s Q3 effect on net income as modestly negative, mainly due to lower investment income. New-sales and mobile trade-in trends that weakened earlier in the year generally improved by quarter-end. Management expects low interest rates to continue pressuring investment income and preneed economics, and expected Connected Living and Global Automotive claims activity to normalize in Q4. No quantitative earnings guidance was provided.
- Global Preneed: Assurant recorded a $137.8 million pre-tax impairment, writing off all goodwill for the segment. Lower long-term interest-rate assumptions were a key factor. The company was exploring strategic alternatives, including a possible sale; it gave no definitive timetable and said there was no assurance of a transaction.
- Acquisitions and dispositions: Assurant acquired American Financial & Automotive Services in May for $176.9 million. It sold its CLO asset-management platform in July, recording an $18.3 million gain before related exit expenses, and completed its sale of Iké in May. In October, it announced a proposed $325 million HYLA Mobile acquisition, expected to be funded with holding-company cash and new debt, subject to approvals.
- Taxes and credit: The CARES Act carryback generated a reported $79.3 million tax benefit and a $204.9 million cash refund including interest. Adoption of the expected-credit-loss standard reduced opening retained earnings by $20.4 million after tax; the company reported $53.0 million of total credit-loss allowances at September 30.
- Catastrophe and other exposures: Nine-month reportable catastrophe losses were $109.9 million, primarily related to Hurricane Laura. The 2020 U.S. property catastrophe program provided $930 million of coverage in excess of an $80 million per-event retention. Management highlighted pandemic uncertainty, interest-rate and investment-market risk, reinsurer and client credit risk, catastrophe exposure, foreign exchange, competition, and regulatory and legal risks.
- Contingencies: Assurant is defending lender-placed insurance class actions. It accrued for certain matters but said possible losses beyond accruals could not be estimated; management did not believe pending matters were likely to materially affect financial condition based on information available.
Important facts for investors to verify
- Whether the Global Preneed strategic review results in a transaction, and how lower interest rates affect its future earnings and goodwill.
- How catastrophe losses, especially in Global Housing, develop relative to pricing, reinsurance coverage, and reserve estimates.
- Whether lower yields continue to reduce investment income, and how investment valuations and credit allowances evolve.
- Whether the HYLA acquisition closes on expected terms and what its debt funding means for leverage and liquidity.
- How much of reported nine-month earnings reflects recurring operations versus the CARES Act tax benefit, catastrophe experience, investment marks, and other unusual items.
- Potential outcomes and costs of lender-placed insurance litigation, and any changes to subsidiary dividend capacity or holding-company liquidity.