Assurant, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019; amounts in U.S. dollars, millions unless noted. Assurant provides insurance and related services across housing, lifestyle and preneed markets. The filing reports four segments: Global Housing, Global Lifestyle, Global Preneed, and Corporate and Other.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $2,499.3 | $2,270.3 | $7,480.4 | $5,740.6 |
| Net income (loss) attributable to stockholders | $(54.8) | $53.0 | $255.0 | $226.0 |
| Net income (loss) attributable to common stockholders | $(59.5) | $48.3 | $241.0 | $216.5 |
| Basic EPS | $(0.96) | $0.76 | $3.88 | $3.73 |
| Net investment income | $169.5 | $151.8 | $490.0 | $417.6 |
- Quarterly change: Revenue rose about 10%, but Assurant recorded a common-stockholder loss, versus income a year earlier. The main drivers were the $124.8 after-tax Iké charge and debt-related charges; lower catastrophe losses and Lifestyle growth partly offset them.
- Nine-month change: Revenue increased about 30% and common-stockholder income about 11%. Lifestyle growth, including TWG acquisition contributions, and higher realized investment gains supported results. Comparability is affected by TWG, acquired May 31, 2018.
- Segment net income, Q3 / nine months: Global Housing $41.6 / $185.8 (prior-year periods $19.4 / $163.2); Global Lifestyle $102.1 / $312.0 ($75.9 / $199.8); Global Preneed $7.4 / $36.1 ($16.8 / $41.3). Corporate and Other reported common-stockholder losses of $210.6 / $292.9.
- Global Housing’s quarterly improvement primarily reflected lower catastrophe losses: after-tax reportable catastrophe losses were $35.7 versus $66.6. Lifestyle benefited from mobile protection growth, including new and existing programs; Preneed was reduced by a prior-period adjustment.
- The filing does not present a single operating-margin measure. Q3 net margin attributable to common stockholders was approximately -2.4%, versus 2.1% a year earlier; nine-month margin was approximately 3.2%, versus 3.8%.
Cash flow, balance sheet and capital
- Cash flows, nine months: Operating cash provided was $1,167.9, investing cash used was $613.6, and financing cash used was $50.1. Cash and cash equivalents ended at $1,749.3, up from $1,254.0 at December 31, 2018. Higher operating cash flow included insurance-reserve timing effects.
- Balance sheet, September 30: Total assets were $43,751.5; total liabilities $38,061.1; total equity $5,690.4. Total investments were $14,552.0. Unrealized gains on fixed maturities increased as Treasury yields fell and credit spreads tightened.
- Debt and liquidity: Debt carrying value was $2,006.3, broadly unchanged from year-end. Assurant issued $350 of 3.70% notes due 2030, redeemed $250 of floating-rate notes due 2021, and tendered for $100 of 6.75% notes due 2034; the transactions produced a $31.4 pre-tax extinguishment loss. The $450 revolving facility had $441 available and $9 of letters of credit outstanding. Holding-company liquidity was approximately $385, versus a targeted minimum of $225.
- Nine-month common dividends were $113.0 and share repurchases were $166.1. The company reported $595.1 remaining under its repurchase authorization. The 6.50% mandatory convertible preferred stock is scheduled to convert in March 2021.
Material items, outlook and risks
- Iké: Assurant decided to pursue a sale of its 40% interest. Q3 included a $66.8 impairment, a $54.3 increase in the put/call liability and tax valuation allowances, totaling $124.8 after tax. The put/call rights were extended to January 31, 2020. A sale, price, or timing is not assured, and a different sale price could affect future results.
- Prior-period adjustment: A $14.2 pre-tax ($9.9 after-tax) adjustment reduced earnings for over-capitalized deferred acquisition costs, primarily at a Global Preneed international subsidiary. Management said it was not material to current or prior periods, individually or in aggregate.
- Catastrophe protection: The 2019 U.S. program provides $1.16 billion of per-event coverage above an $80 retention; estimated premiums were approximately $165 pre-tax. Actual premiums may vary with exposures and reinstatements.
- Outlook: The filing gives no specific earnings or revenue guidance. Management said it expects sufficient liquidity for the next 12 months, including debt interest and common and preferred dividends. It cited growth opportunities in Connected Living, Multifamily Housing and Global Automotive, alongside pressure from declining lender-placed insurance placement rates.
- Risks and contingencies: Key exposures include catastrophe severity, claims-reserve estimates, competition and client concentration, TWG integration, mobile-device resale values and trade-in volumes, investment and reinsurer credit risk, foreign exchange and Brexit execution. ERAC’s rating was withdrawn at its request; Assurant disclosed $776.3 of recoverables from ERAC. Lender-placed insurance class actions and other legal/regulatory matters remain; management could not estimate losses beyond accrued amounts, and said pending matters were not expected to materially affect financial condition based on currently available information.
- Management reported effective disclosure controls as of September 30, 2019. The company was continuing TWG integration into its internal-control environment.
Important facts for investors to verify
- Whether Iké is sold, the proceeds and timing, and any resulting change to the recorded impairment or put/call valuation.
- Underlying segment trends excluding catastrophe effects, TWG acquisition contributions, and the Preneed adjustment—especially lender-placed placement rates and mobile-program growth.
- Claims development, catastrophe losses and reinsurance recoverability, including the status and credit quality of major reinsurers.
- Debt refinancing costs, rating-sensitive interest terms, preferred-stock conversion and dividend obligations, and holding-company liquidity versus subsidiary dividend restrictions.
- Potential effects of Brexit, mobile-device values, and unresolved litigation or regulatory proceedings; the filing does not provide a clear estimate of possible legal losses beyond accrued amounts.