Assurant, Inc. — Q2 2020 Form 10-Q
Business context and reporting period. Assurant is a global provider of lifestyle and housing protection solutions, operating through Global Lifestyle, Global Housing, Global Preneed, and Corporate and Other. This unaudited filing covers the quarter and six months ended June 30, 2020, compared with the corresponding 2019 periods.
Financial results and condition
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $2,471.6 million | $2,545.5 million | $5,037.2 million | $4,981.1 million |
| Net income attributable to common stockholders | $173.5 million | $139.5 million | $323.5 million | $300.5 million |
| Diluted EPS | $2.81 | $2.21 | $5.24 | $4.73 |
| Net investment income | $137.2 million | $154.2 million | $293.2 million | $320.5 million |
| Operating cash flow | Not separately presented | Not separately presented | $292.2 million | $725.7 million |
- Q2 revenue declined about 3%, while common-stockholder income rose 24%. Six-month revenue increased about 1% and common-stockholder income increased about 8%; the six-month comparison benefited materially from a CARES Act tax benefit.
- Q2 segment net income was $121.8 million for Global Lifestyle, $85.4 million for Global Housing, and $13.7 million for Global Preneed. Corporate and Other reported a $47.4 million common-stockholder loss.
- At June 30, cash and cash equivalents were $2,137.5 million; total investments were $14,646.2 million; total assets were $44,233.2 million; and total equity was $5,984.5 million. Debt was $2,208.0 million, versus $2,006.9 million at year-end 2019.
- Holding-company liquidity was $357.4 million, $132.4 million above management’s $225 million target minimum. The $200 million precautionary revolver borrowing was repaid July 29, 2020; $241 million of the $450 million facility was available at June 30.
- Consolidated operating cash flow fell to $292.2 million from $725.7 million for the first half. Investing activities used $32.2 million, compared with $609.6 million used in 2019; financing activities provided $12.0 million, compared with $118.6 million.
- Fixed-maturity securities had a fair value of $12,639.6 million; 63.9% were rated Aaa/Aa/A and 31.4% Baa. The filing does not provide a single consolidated operating-margin figure.
Material changes, outlook, and risks
- COVID-19: Management estimated a modest negative Q2 net-income impact, including $15.2 million of after-tax direct and incremental costs, partly offset by lower claims frequency. For the first half, these costs were $17.6 million after tax. Management said business performance was at the high end of its modeled scenarios, but emphasized substantial uncertainty.
- Management reported that sales trends weakened in some businesses early in the pandemic and generally improved through July, though most remained below 2019. It expected claims activity in Connected Living and Global Automotive to normalize in the second half, while acknowledging potential renewed disruption, lower investment yields, and fluctuating sales. No numerical earnings guidance was provided.
- Global Housing Q2 income improved despite $10.1 million of catastrophe losses, as lower non-catastrophe claims helped results. Global Preneed income declined, reflecting lower yields and higher mortality, including COVID-19 effects. Housing-market conditions, foreclosure moratoria, and lender-placed policy volumes remain relevant risks.
- The CARES Act enabled a $198.4 million tax-refund claim; Assurant recorded an $84.4 million tax benefit for the first half and received the refund plus interest in July. Management noted that deferred tax payments would increase cash outlays in the second half of 2020 and in 2021–2022.
- Assurant acquired American Financial & Automotive Services on May 1 for total consideration of $176.9 million and completed the sale of its Iké interests in May. It sold its CLO asset-management platform in July for $20 million and expected to deconsolidate the CLOs in Q3.
- Credit-loss allowances rose amid the economic downturn; management cited possible further increases if credit conditions worsen. Other key exposures include investment-market volatility, reinsurer and counterparty credit risk, catastrophe losses, reserve estimation, client concentration, regulation, and litigation. Lender-placed insurance class actions remain pending; management could not estimate possible losses above recorded accruals.
- The 2020 U.S. catastrophe reinsurance program provides $930 million of protection above an $80 million per-event retention. Management stated it believed liquidity was sufficient for the next 12 months, subject to subsidiary dividend capacity, regulatory limits, and pandemic-related developments.
Important facts for investors to verify
- How much of first-half earnings growth reflects the CARES Act tax benefit, favorable claims experience, and other unusual items rather than recurring operating performance.
- Whether COVID-19-related sales, claims, mortality, employee costs, and investment-market effects develop in line with management’s expectations.
- Trends in investment income and credit quality, including the impact of lower yields and any further allowance increases.
- Global Housing exposure to lender-placed policy declines, foreclosure moratoria, catastrophe losses, and the financially insolvent client.
- Post-quarter liquidity and capital position following the tax refund, revolver repayment, acquisition, and CLO-platform sale; also monitor dividend and repurchase capacity.
- Developments in pending litigation and regulatory matters, and any changes to estimated liabilities or potential exposures.