Assurant, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Assurant provides lifestyle and housing protection products and services through Global Lifestyle and Global Housing; Corporate and Other includes holding-company and investment activities. Global Preneed was sold in August 2021 and is reported as discontinued operations.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue from continuing operations | $2,637.8m | $2,376.7m | $7,612.7m | $7,177.4m |
| Income from continuing operations | $153.6m | $88.0m | $486.8m | $401.3m |
| Net income (loss), including discontinued operations | $882.4m | $(30.5)m | $1,248.8m | $303.7m |
| Diluted EPS, continuing operations | $2.58 | $1.38 | $8.00 | $6.32 |
| Diluted EPS, total | $14.83 | $(0.58) | $20.52 | $4.78 |
Continuing-operations revenue increased 11% in Q3 and 6% for the nine months. Continuing-operations income rose 75% and 21%, respectively. Net continuing-operations income was approximately 5.8% of revenue in Q3 (3.7% prior year) and 6.4% for the nine months (5.6% prior year); these are calculated ratios, not margins identified by the company. Total net income and EPS were substantially affected by the Global Preneed sale.
- Global Lifestyle: Q3 segment net income was $124.0m, up 16%; nine-month income was $376.9m, up 8%. Growth reflected Global Automotive and Connected Living, including higher mobile trade-in activity and HYLA contributions.
- Global Housing: Q3 segment net income was $3.2m, down from $13.1m; nine-month income was $164.3m, down from $172.7m. The company cited higher non-catastrophe claims and reserve increases, partly offset by pricing and investment income.
- Catastrophes: Global Housing incurred $78.0m after tax in Q3, versus $87.0m a year earlier. Hurricane Ida generated $87m of pre-tax losses and reached the company’s $80m per-event retention; remaining losses were primarily California wildfires. Nine-month catastrophe losses were $112.9m for Global Housing.
Cash flow, balance sheet and capital
- Nine-month cash from operating activities was $527.0m overall, including $375.8m from continuing operations, down from $901.6m and $707.9m, respectively, in 2020. Management cited payment timing, higher mobile-device program and commission payments, and the absence of a $204.9m CARES Act tax refund received in 2020.
- Cash from investing activities was $36.7m overall; continuing operations provided $181.9m. Financing activities used $757.4m, largely reflecting share repurchases, debt repayment and dividends. Cash and cash equivalents were $2.03bn at September 30, versus $2.21bn at year-end 2020.
- Total assets were $33.62bn, down from $44.65bn at year-end, primarily reflecting the removal of Global Preneed assets after its sale. Total debt was $2.20bn, versus $2.25bn at year-end.
- Holding-company liquidity was approximately $1.34bn, against a $225m target minimum. The $450m revolving credit facility had no borrowings and $445.5m available, net of letters of credit.
- The company repurchased 3.51m shares for $554.7m during the first nine months and paid $118.5m in common dividends. It stated an intention to return approximately 75% of the sale’s after-tax proceeds, or $900m, through repurchases within one year of closing.
Material changes, outlook and risks
- Assurant sold Global Preneed to CUNA Mutual Group on August 2 for $1.35bn cash at closing; net proceeds after selling costs were $1.31bn. The reported after-tax gain was $723.2m, including $606.0m of accumulated other comprehensive income reclassified into earnings. The post-closing purchase-price true-up remained pending.
- Q3 continuing results benefited from investment gains, including $74.6m of gains on three equity positions that went public, and stronger Global Lifestyle earnings. They were partly offset by a $20.7m pre-tax debt-extinguishment loss ($16.3m after tax) and weaker Global Housing results. Nine-month comparisons also reflect the absence of a prior-year $84.4m tax benefit related to the CARES Act.
- Debt activity included issuing $350m of 2.65% senior notes due 2032 and redeeming $350m of 4.00% notes due 2023. No formal earnings guidance is provided in the supplied filing text. Management said liquidity should be sufficient for the next 12 months, including debt interest and common dividends.
- The 2021 catastrophe reinsurance program was estimated to cost approximately $149m pre-tax, versus $139m in 2020. Coverage included $965m above an $80m retention for a first U.S. event, with lower retention for certain later events; actual premiums may vary with exposure and reinstatements.
- Key risks cited include client or distributor losses, competitive and mobile trade-in volatility, COVID-19 and economic conditions, catastrophe and other claims, reserve adequacy, investment and interest-rate changes, reinsurance credit or availability, regulatory limits on subsidiary dividends, cyber and technology risks, and litigation. Management said pending legal matters were not believed likely to materially affect financial condition, but outcomes could materially affect a reporting period’s results or cash flows; excess loss estimates were not quantifiable.
- Following the sale, management reported materially lower interest-rate, inflation and Canadian-dollar exposure. Interest-rate sensitivity fell approximately 68%, and Canadian foreign-exchange exposure fell approximately 80%.
Important facts for investors to verify
- How much of reported earnings growth is recurring continuing-operations performance versus the Global Preneed disposal gain and investment marks?
- What is the final post-closing sale-price adjustment, and how and when will the planned $900m shareholder return be completed?
- Do Global Housing claims, reserve additions and catastrophe costs normalize as management expects, and are catastrophe reinsurance protections adequate?
- How sustainable are Global Lifestyle growth and mobile trade-in volumes, given client, carrier-promotion and device-cycle risks?
- How do investment valuations, interest rates, capital requirements and regulated-subsidiary dividend capacity affect future earnings and holding-company liquidity?