The following tables disclose the carrying value, fair value and hierarchy level of the financial instruments that are not recognized or are not carried at fair value in the consolidated balance sheets as of the dates indicated:
|
| | | | | | | | | | | | | | | | | | | |
| September 30, 2019 |
| | | Fair Value |
| Carrying Value | | Total | | Level 1 | | Level 2 | | Level 3 |
Financial Assets | | | | | | | | | |
Commercial mortgage loans on real estate | $ | 804.6 |
| | $ | 838.4 |
| | $ | — |
| | $ | — |
| | $ | 838.4 |
|
Other investments | 138.8 |
| | 138.8 |
| | 31.2 |
| | — |
| | 107.6 |
|
Other assets | 35.5 |
| | 35.5 |
| | — |
| | — |
| | 35.5 |
|
Total financial assets | $ | 978.9 |
| | $ | 1,012.7 |
| | $ | 31.2 |
| | $ | — |
| | $ | 981.5 |
|
Financial Liabilities | | | | | | | | | |
Policy reserves under investment products (Individual and group annuities, subject to discretionary withdrawal) (1) | $ | 556.4 |
| | $ | 574.8 |
| | $ | — |
| | $ | — |
| | $ | 574.8 |
|
Funds withheld under reinsurance | 287.9 |
| | 287.9 |
| | 287.9 |
| | — |
| | — |
|
Debt | 2,006.3 |
| | 2,189.2 |
| | — |
| | 2,189.2 |
| | — |
|
Total financial liabilities | $ | 2,850.6 |
| | $ | 3,051.9 |
| | $ | 287.9 |
| | $ | 2,189.2 |
| | $ | 574.8 |
|
|
| December 31, 2018 |
| | | Fair Value |
| Carrying Value | | Total | | Level 1 | | Level 2 | | Level 3 |
Financial Assets | | | | | | | | | |
Commercial mortgage loans on real estate | $ | 759.6 |
| | $ | 735.1 |
| | $ | — |
| | $ | — |
| | $ | 735.1 |
|
Other investments | 124.9 |
| | 124.9 |
| | 33.9 |
| | — |
| | 91.0 |
|
Other assets | 43.0 |
| | 43.0 |
| | — |
| | — |
| | 43.0 |
|
Total financial assets | $ | 927.5 |
| | $ | 903.0 |
| | $ | 33.9 |
| | $ | — |
| | $ | 869.1 |
|
Financial Liabilities | | | | | | | | | |
Policy reserves under investment products (Individual and group annuities, subject to discretionary withdrawal) (1) | $ | 570.6 |
| | $ | 556.8 |
| | $ | — |
| | $ | — |
| | $ | 556.8 |
|
Funds withheld under reinsurance | 272.0 |
| | 272.0 |
| | 272.0 |
| | — |
| | — |
|
Debt | 2,006.0 |
| | 2,058.7 |
| | — |
| | 2,058.7 |
| | — |
|
Total financial liabilities | $ | 2,848.6 |
| | $ | 2,887.5 |
| | $ | 272.0 |
| | $ | 2,058.7 |
| | $ | 556.8 |
|
32
| |
(1) | Only the fair value of the Company’s policy reserves for investment-type contracts (those without significant mortality or morbidity risk) are reflected in the table above. |
Reinsurance Recoverables Credit Disclosures
A key credit quality indicator for reinsurance is the A.M. Best Company (“A.M. Best”) financial strength rating of the reinsurer. The A.M. Best ratings are an independent opinion of a reinsurer’s ability to meet ongoing obligations to policyholders. The A.M. Best ratings for new reinsurance agreements where there is material credit exposure are reviewed at the time of execution. The A.M. Best ratings for existing reinsurance agreements are reviewed on a quarterly basis, or sooner based on developments. The A.M. Best ratings for the Company’s four largest reinsurers associated with previously disposed businesses (consisting of Sun Life Assurance Company of Canada, John Hancock Life Insurance Company, Talcott Resolution Life and Annuity Insurance Company and Employers Reassurance Corporation (“ERAC”)) have not changed significantly since December 31, 2018, except for ERAC which was affirmed as B+ with a stable outlook and subsequently withdrawn at the
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Inin millions, except number of shares and per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 |
| | | Fair Value |
| Carrying Value | | Total | | Level 1 | | Level 2 | | Level 3 |
Financial Assets | | | | | | | | | |
Commercial mortgage loans on real estate | $ | 771.1 | | | $ | 827.0 | | | $ | 0 | | | $ | 0 | | | $ | 827.0 | |
Other investments | 165.4 | | | 165.4 | | | 30.3 | | | 0 | | | 135.1 | |
Other assets | 24.8 | | | 24.8 | | | 0 | | | 0 | | | 24.8 | |
Total financial assets | $ | 961.3 | | | $ | 1,017.2 | | | $ | 30.3 | | | $ | — | | | $ | 986.9 | |
Financial Liabilities | | | | | | | | | |
Policy reserves under investment products (Individual and group annuities, subject to discretionary withdrawal) (1) | $ | 527.1 | | | $ | 585.3 | | | $ | 0 | | | $ | 0 | | | $ | 585.3 | |
Funds withheld under reinsurance | 361.2 | | | 361.2 | | | 361.2 | | | 0 | | | 0 | |
Debt | 2,008.6 | | | 2,204.3 | | | 0 | | | 2,204.3 | | | 0 | |
Total financial liabilities | $ | 2,896.9 | | | $ | 3,150.8 | | | $ | 361.2 | | | $ | 2,204.3 | | | $ | 585.3 | |
|
| December 31, 2019 |
| | | Fair Value |
| Carrying Value | | Total | | Level 1 | | Level 2 | | Level 3 |
Financial Assets | | | | | | | | | |
Commercial mortgage loans on real estate | $ | 815.0 | | | $ | 843.8 | | | $ | 0 | | | $ | 0 | | | $ | 843.8 | |
Other investments | 140.0 | | | 140.0 | | | 30.7 | | | 0 | | | 109.3 | |
Other assets | 28.9 | | | 28.9 | | | 0 | | | 0 | | | 28.9 | |
Total financial assets | $ | 983.9 | | | $ | 1,012.7 | | | $ | 30.7 | | | $ | 0 | | | $ | 982.0 | |
Financial Liabilities | | | | | | | | | |
Policy reserves under investment products (Individual and group annuities, subject to discretionary withdrawal) (1) | $ | 551.6 | | | $ | 588.4 | | | $ | 0 | | | $ | 0 | | | $ | 588.4 | |
Funds withheld under reinsurance | 319.4 | | | 319.4 | | | 319.4 | | | 0 | | | 0 | |
Debt | 2,006.9 | | | 2,190.6 | | | 0 | | | 2,190.6 | | | 0 | |
Total financial liabilities | $ | 2,877.9 | | | $ | 3,098.4 | | | $ | 319.4 | | | $ | 2,190.6 | | | $ | 588.4 | |
request
(1)Only the fair value of ERACthe Company’s policy reserves for investment-type contracts (those without significant mortality or morbidity risk) are reflected in March 2019. As of September 30, 2019 and December 31, 2018, the Company had $776.3 million and $775.9 million, respectively, of reinsurance recoverables from ERAC.table above.
An allowance for doubtful accounts for reinsurance recoverables is recorded on the basis of periodic evaluations of balances due from reinsurers (net of collateral), reinsurer solvency, management’s experience and current economic conditions. The Company carried an allowance for doubtful accounts for reinsurance recoverables of $0.3 million as of September 30, 2019 and December 31, 2018, respectively.
11.14. Reserves
Reserve Roll Forward
The following table provides a roll forward of the Company’s beginning and ending claims and benefits payable balances. Claims and benefits payable is the liability for unpaid loss and loss adjustment expenses and is comprised of case and incurred but not reported (“IBNR”) reserves.
Since unpaid loss and loss adjustment expenses are estimates, the Company’s actual losses incurred may be more or less than the Company’s previously developed estimates, which is referred to as either unfavorable or favorable development, respectively.
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
The best estimate of ultimate loss and loss adjustment expense is generally selected from a blend of methods that are applied consistently each period. There have been no significant changes in the methodologies and assumptions utilized in estimating the liability for unpaid loss and loss adjustment expenses for any of the periods presented.
|
| | | | | | | |
| For the Nine Months Ended September 30, |
| 2019 | | 2018 |
Claims and benefits payable, at beginning of period | $ | 2,813.7 |
| | $ | 3,782.2 |
|
Less: Reinsurance ceded and other | (2,053.7 | ) | | (3,193.3 | ) |
Net claims and benefits payable, at beginning of period | 760.0 |
| | 588.9 |
|
Acquired reserves as of Acquisition Date (1) | — |
| | 140.7 |
|
Incurred losses and loss adjustment expenses related to: | | | |
Current year | 2,034.2 |
| | 1,602.8 |
|
Prior years | (27.3 | ) | | (12.1 | ) |
Total incurred losses and loss adjustment expenses | 2,006.9 |
| | 1,590.7 |
|
Paid losses and loss adjustment expenses related to: | | | |
Current year | 1,468.4 |
| | 1,168.8 |
|
Prior years | 470.4 |
| | 398.6 |
|
Total paid losses and loss adjustment expenses | 1,938.8 |
| | 1,567.4 |
|
Net claims and benefits payable, at end of period | 828.1 |
| | 752.9 |
|
Plus: Reinsurance ceded and other (2) | 2,043.0 |
| | 3,011.8 |
|
Claims and benefits payable, at end of period (2) (3) | $ | 2,871.1 |
| | $ | 3,764.7 |
|
| |
(1) | Acquired reserves from TWG on the Acquisition Date include $419.9 million of gross claims and benefits payable, and $279.2 million of ceded claims and benefits payable. The reserve roll forward includes the activity of TWG for the relevant periods since the Acquisition Date. |
| |
(2) | Includes reinsurance recoverables and claims and benefits payable of $191.7 million and $265.9 million as of September 30, 2019 and 2018, respectively, which was ceded to the U.S. government. The Company acts as an administrator for the U.S. government under the voluntary National Flood Insurance Program. |
| |
(3) | Claims and benefits payable and related reinsurance ceded were reduced by $730.0 million in December 2018 as result of the sale of Time Insurance Company, a legal entity associated with the previously exited Assurant Health business. |
Assurant, Inc. | | | | | | | | | | | |
| For the Nine Months Ended September 30, |
| 2020 | | 2019 |
Claims and benefits payable, at beginning of period | $ | 2,687.7 | | | $ | 2,813.7 | |
Less: Reinsurance ceded and other | (1,900.0) | | | (2,053.7) | |
Net claims and benefits payable, at beginning of period | 787.7 | | | 760.0 | |
Incurred losses and loss adjustment expenses related to: | | | |
Current year | 1,951.4 | | | 2,034.2 | |
Prior years | (43.0) | | | (27.3) | |
Total incurred losses and loss adjustment expenses | 1,908.4 | | | 2,006.9 | |
Paid losses and loss adjustment expenses related to: | | | |
Current year | 1,368.4 | | | 1,468.4 | |
Prior years | 463.0 | | | 470.4 | |
Total paid losses and loss adjustment expenses | 1,831.4 | | | 1,938.8 | |
Net claims and benefits payable, at end of period | 864.7 | | | 828.1 | |
Plus: Reinsurance ceded and other (1) | 1,893.5 | | | 2,043.0 | |
Claims and benefits payable, at end of period (1) | $ | 2,758.2 | | | $ | 2,871.1 | |
Notes(1)Includes reinsurance recoverables and claims and benefits payable of $118.4 million and $191.7 million as of September 30, 2020 and 2019, respectively, which was ceded to Consolidated Financial Statements (unaudited)
(In millions, except number of shares and per share amounts)
the U.S. government. The Company acts as an administrator for the U.S. government under the voluntary National Flood Insurance Program.
The Company experienced favorable development in both nine month periods presented in the roll forward table above. Global Lifestyle contributed $28.5$34.0 million and $15.9$28.5 million to the net favorable development forduring the nine months ended September 30, 20192020 and 2018,2019, respectively. The net favorable development in 2019both years was primarily attributable to mobile device protection products andnearly all lines of business acquired from TWG, where losses fromacross most of the Company’s regions with a concentration on more recent accident years were favorable to expectations. The net favorable development in 2018 was primarily attributable to lower than expected losses from extended service contracts and mobile device protection products.based on emerging evaluations regarding loss experience each period. Many of these contracts and products contain retrospective commission (profit sharing) provisions that would result in offsetting increases or decreases in expense dependent on if the development was favorable or unfavorable. Global Housing contributed $7.5$2.9 million of net favorable development and $11.4$7.5 million of net unfavorable development for the nine months ended September 30, 2020 and 2019, respectively. The net favorable development in 2020 was primarily attributable to Lender-placed Insurance products from accident year 2019 due to lower than expected claim frequency for water damage and 2018, respectively.other claims. The net unfavorable development in 2019 was primarily attributable to $4.5 million in net unfavorable development from prior catastrophes, due to rising severity trends from Hurricane Maria and Michael, partially offset by increased subrogation recoveries associated with the 2017 and 2018 California wildfires. The net unfavorable development in 2018 was attributable to prior catastrophes of $13.3 million driven by Hurricane Maria. Global Preneed Assurant Health and other contributed $6.3$6.1 million and $7.6$6.3 million in net favorable development for the nine months ended September 30, 20192020 and 2018,2019, respectively.
12.
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
15. Debt
The following table shows the principal amount and carrying value of the Company’s outstanding debt, less unamortized
discount and issuance costs as applicable, as of September 30, 20192020 and December 31, 2018:2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
| Principal Amount | | Carrying Value | | Principal Amount | | Carrying Value |
Floating Rate Senior Notes due March 2021 (1) | $ | 50.0 | | | $ | 50.0 | | | $ | 50.0 | | | $ | 49.9 | |
4.00% Senior Notes due March 2023 | 350.0 | | | 348.8 | | | 350.0 | | | 348.5 | |
4.20% Senior Notes due September 2023 | 300.0 | | | 298.2 | | | 300.0 | | | 297.8 | |
4.90% Senior Notes due March 2028 | 300.0 | | | 297.1 | | | 300.0 | | | 296.8 | |
3.70% Senior Notes due February 2030 | 350.0 | | | 347.0 | | | 350.0 | | | 346.8 | |
6.75% Senior Notes due February 2034 | 275.0 | | | 272.2 | | | 275.0 | | | 272.1 | |
7.00% Fixed-to-Floating Rate Subordinated Notes due March 2048 (2) | 400.0 | | | 395.3 | | | 400.0 | | | 395.0 | |
| | | | | | | |
| | | | | | | |
Total Debt | | | $ | 2,008.6 | | | | | $ | 2,006.9 | |
|
| | | | | | | | | | | | | | | |
| September 30, 2019 | | December 31, 2018 |
| Principal Amount | | Carrying Value | | Principal Amount | | Carrying Value |
Floating Rate Senior Notes due March 2021 (1) | $ | 50.0 |
| | $ | 49.8 |
| | $ | 300.0 |
| | $ | 298.1 |
|
4.00% Senior Notes due March 2023 | 350.0 |
| | 348.4 |
| | 350.0 |
| | 348.1 |
|
4.20% Senior Notes due September 2023 | 300.0 |
| | 297.7 |
| | 300.0 |
| | 296.8 |
|
4.90% Senior Notes due March 2028 | 300.0 |
| | 296.8 |
| | 300.0 |
| | 297.6 |
|
3.70% Senior Notes due February 2030 | 350.0 |
| | 346.7 |
| | — |
| | — |
|
6.75% Senior Notes due February 2034 | 275.0 |
| | 272.1 |
| | 375.0 |
| | 370.9 |
|
7.00% Fixed-to-Floating Rate Subordinated Notes due March 2048 (2) | 400.0 |
| | 394.8 |
| | 400.0 |
| | 394.5 |
|
Total debt | | | $ | 2,006.3 |
| | | | $ | 2,006.0 |
|
| |
(1) | (1)Bears floating interest at a rate equal to three-month LIBOR plus 1.25%. |
| |
(2) | Bears a 7.00% annual interest rate from March 2018 to March 2028 and annual interest rate equal to three-month LIBOR plus 4.135% thereafter. |
2030 Senior Notes: In August 2019, the Company issued senior notes with an aggregate principal amount of $350.0 million which bear interest at a rate of 3.70% per year, mature in February 2030 and were issued at a 0.035% discount to the public (the “2030 Senior Notes”). Interest is payable semi-annually in arrears beginning in February 2020. Prior to November 2029, the Company may redeem the 2030 Senior Notes at any time in whole or from time to time in part at a make-whole premium plus accrued and unpaid interest. On or after that date, the Company may redeem the 2030 Senior Notes at any time in whole or from time to time in part at a redemption price equal to 100% of the principal amount being redeemedthree-month LIBOR plus accrued and unpaid interest.1.25% per annum.
The(2)Bears a 7.00% annual interest rate payable on the 2030 Senior Notes will be subject to adjustment from time to time, if either Moody’s Investor Service, Inc. (“Moody’s”) or S&P Global Ratings, a division of S&P Global Inc. (“S&P”) downgrades the credit rating assigned to such series of senior notes to Ba1 or below or to BB+ or below, respectively, or subsequently upgrades the credit ratings once the senior notes are at or below such levels. The following table details the increase inMarch 2028 and an annual interest rate over the issuance rate by rating with the impact equal to the sum of the number of basis points next to such rating for a maximum increase of 200 basis points over the issuance rate:three-month LIBOR plus 4.135% thereafter.
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(In millions, except number of shares and per share amounts)
|
| | | | | | |
| | Rating Agencies | | |
Rating Levels | | Moody’s (1) | | S&P (1) | | Interest Rate Increase (2) |
1 | | Ba1 | | BB+ | | 25 basis points |
2 | | Ba2 | | BB | | 50 basis points |
3 | | Ba3 | | BB- | | 75 basis points |
4 | | B1 or below | | B+ or below | | 100 basis points |
| |
(1) | Including the equivalent ratings of any substitute rating agency. |
| |
(2) | Applies to each rating agency individually. |
The Company used the net proceeds from the offering, together with cash on hand, to purchase $100.0 million of its 6.75% senior notes due 2034 in a cash tender offer, to redeem $250.0 million of its floating rate senior notes due 2021 (the “2021 Senior Notes”) and to pay related premiums, fees and expenses. In connection with the tender offer, the Company recognized a loss on extinguishment of debt of $31.4 million, primarily related to incremental consideration required to be paid to debtholders as a result of the interest rate differential over the remaining term as compared to current rates. Additionally, the Company recognized a $2.6 million loss from the settlement of the three-year interest rate swap that hedged interest rate exposure on the portion of the 2021 Senior Notes that were redeemed in September 2019. The $2.6 million loss was reclassified out of accumulated other comprehensive income and recorded through interest expense.
In connection with the issuance of the 2030 Senior Notes, the Company recognized $3.0 million of interest expense related to premiums paid for a series of derivative transactions that were entered into in July 2019 to hedge the related interest rate risk.
Credit Facility
The Company has a senior unsecured $450.0 million revolving credit agreement (the “Credit Facility”) with a syndicate of banks arranged by JPMorgan Chase Bank, N.A. and Wells Fargo Bank, National Association.Association (the “Lenders”). The Credit Facility provides for revolving loans and the issuance of multi-bank, syndicated letters of credit and letters of credit from a sole issuing bank in an aggregate amount of $450.0 million, which may be increased up to $575.0 million. The Credit Facility is available until December 2022, provided the Company is in compliance with all covenants. The Credit Facility has a sub-limit for letters of credit issued thereunder of $50.0 million. The proceeds from these loans may be used for ourthe Company’s commercial paper program or for general corporate purposes.
On March 27, 2020, the Company drew down $200.0 million from its Credit Facility as a precautionary measure to strengthen its liquidity position and capital flexibility due to the uncertainty caused by the COVID-19 pandemic. The initial interest period for the loan ended on June 26, 2020 and bore a floating interest rate equal to three-month LIBOR plus 1.50% per annum. Upon the expiration of the initial interest period, the Company continued the $200.0 million loan for an additional month bearing a floating interest rate equal to one-month LIBOR plus 1.50% per annum. The Company repaid the full $200.0 million loan on July 29, 2020. As of September 30, 2019,2020, 0 borrowings have been madewere outstanding under the Credit facility, $441.0Facility, and $445.5 million was available under the Credit Facility, and $9.0due to $4.5 million of letters of credit were outstanding. Total interest expense on the $200.0 million draw for the nine months ended September 30, 2020 was $1.7 million.
Interest Rate Derivatives
In March 2018, the Company exercised a series of derivative transactions it had entered into in 2017 to hedge the interest rate risk related to expected borrowing to finance the acquisition of TWG acquisition.Holdings Limited and its subsidiaries. The Company determined that the derivatives qualified for hedge accounting as effective cash flow hedges and recognized a deferred gain of $26.7 million upon settlement that was reported through other comprehensive income. The deferred gain is being recognized as a reduction in interest expense related to the 4.20% senior notes due 2023, the 4.90% senior notes due 2028 and the 7.00% fixed-to-floating rate subordinated notes on an effective yield basis. The amortization of the deferred gain for the three months ended September 30, 2020 and 2019 was $0.7 million and $0.6 million, respectively, and the amortization of deferred gain for nine months ended September 30, 2020 and 2019 was $0.6$2.2 million and $2.1 million, respectively. The amortization of the deferred gain for the three and nine months ended September 30, 2018 was $0.7 million and $1.6 million. The remaining deferred gain as of September 30, 20192020 was $22.4$19.3 million. Additionally, the Company expensed $8.6 million
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of the premium paid for the derivatives as a component of interest expense for the nine months ended September 30, 2018.shares and per share amounts)
13.16. Accumulated Other Comprehensive Income
Certain amounts included in the consolidated statements of comprehensive income are net of reclassification adjustments. The following tables summarize those reclassification adjustments (net of taxes) for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2020 |
| Foreign currency translation adjustment | | Net unrealized gains on investments | | Net unrealized gains on derivative transactions | | Credit related impairment | | Non-credit related impairment | | Unamortized net losses on Pension Plans | | Accumulated other comprehensive income |
Balance at June 30, 2020 | $ | (379.0) | | | $ | 989.1 | | | $ | 15.9 | | | $ | 0 | | | $ | 14.3 | | | $ | (71.4) | | | $ | 568.9 | |
Change in accumulated other comprehensive income (loss) before reclassifications | 35.3 | | | 53.8 | | | 0 | | | 1.2 | | | 1.5 | | | (0.5) | | | 91.3 | |
Amounts reclassified from accumulated other comprehensive income (loss) | 0 | | | 0.3 | | | (0.6) | | | 0 | | | 0 | | | (1.7) | | | (2.0) | |
Net current-period other comprehensive income (loss) | 35.3 | | | 54.1 | | | (0.6) | | | 1.2 | | | 1.5 | | | (2.2) | | | 89.3 | |
Balance at September 30, 2020 | $ | (343.7) | | | $ | 1,043.2 | | | $ | 15.3 | | | $ | 1.2 | | | $ | 15.8 | | | $ | (73.6) | | | $ | 658.2 | |
| | | | | | | | | | | | | |
| Three Months Ended September 30, 2019 |
| Foreign currency translation adjustment | | Net unrealized gains on investments | | Net unrealized gains on derivative transactions | | Credit related impairment | | Non-credit related impairment | | Unamortized net (losses) gains on Pension Plans | | Accumulated other comprehensive income |
Balance at June 30, 2019 | $ | (366.6) | | | $ | 778.4 | | | $ | 15.2 | | | $ | 0 | | | $ | 15.6 | | | $ | (113.9) | | | $ | 328.7 | |
Change in accumulated other comprehensive (loss) income before reclassifications | (23.6) | | | 101.0 | | | 0.5 | | | 0 | | | 0.2 | | | 0.1 | | | 78.2 | |
Amounts reclassified from accumulated other comprehensive (loss) income | 0 | | | (3.6) | | | 2.2 | | | 0 | | | 0 | | | (0.3) | | | (1.7) | |
Net current-period other comprehensive (loss) income | (23.6) | | | 97.4 | | | 2.7 | | | 0 | | | 0.2 | | | (0.2) | | | 76.5 | |
Balance at September 30, 2019 | $ | (390.2) | | | $ | 875.8 | | | $ | 17.9 | | | $ | 0 | | | $ | 15.8 | | | $ | (114.1) | | | $ | 405.2 | |
| | | | | | | | | | | | | |
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Inin millions, except number of shares and per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2020 |
| Foreign currency translation adjustment | | Net unrealized gains on securities | | Net unrealized gains on derivative transactions | | Credit related impairment | | Non-credit related impairment | | Unamortized net (losses) on Pension Plans (1) | | Accumulated other comprehensive income |
Balance at December 31, 2019 | $ | (358.9) | | | $ | 856.5 | | | $ | 17.1 | | | $ | 0 | | | $ | 15.5 | | | $ | (118.7) | | | $ | 411.5 | |
Change in accumulated other comprehensive (loss) income before reclassifications | (4.5) | | | 189.1 | | | 0 | | | 1.2 | | | 0.3 | | | 48.4 | | | 234.5 | |
Amounts reclassified from accumulated other comprehensive income (loss) | 19.7 | | | (2.4) | | | (1.8) | | | 0 | | | 0 | | | (3.3) | | | 12.2 | |
Net current-period other comprehensive income (loss) | 15.2 | | | 186.7 | | | (1.8) | | | 1.2 | | | 0.3 | | | 45.1 | | | 246.7 | |
Balance at September 30, 2020 | $ | (343.7) | | | $ | 1,043.2 | | | $ | 15.3 | | | $ | 1.2 | | | $ | 15.8 | | | $ | (73.6) | | | $ | 658.2 | |
| | | | | | | | | | | | | |
| Nine Months Ended September 30, 2019 |
| Foreign currency translation adjustment | | Net unrealized gains on securities | | Net unrealized gains on derivative transactions | | Credit related impairment | | Non-credit related impairment | | Unamortized net (losses) on Pension Plans | | Accumulated other comprehensive income |
Balance at December 31, 2018 | $ | (375.6) | | | $ | 301.0 | | | $ | 18.4 | | | $ | 0 | | | $ | 15.1 | | | $ | (114.3) | | | $ | (155.4) | |
Change in accumulated other comprehensive (loss) income before reclassifications | (14.6) | | | 581.4 | | | (1.5) | | | 0 | | | 0.7 | | | 0.1 | | | 566.1 | |
Amounts reclassified from accumulated other comprehensive (loss) income | 0 | | | (6.6) | | | 1.0 | | | 0 | | | 0 | | | 0.1 | | | (5.5) | |
Net current-period other comprehensive (loss) income | (14.6) | | | 574.8 | | | (0.5) | | | 0 | | | 0.7 | | | 0.2 | | | 560.6 | |
Balance at September 30, 2019 | $ | (390.2) | | | $ | 875.8 | | | $ | 17.9 | | | $ | 0 | | | $ | 15.8 | | | $ | (114.1) | | | $ | 405.2 | |
(1)The Retirement Health Benefits plan was amended in February 2020, which resulted in a prior service credit recognized in other comprehensive income that will be recognized in income over the remaining period of the plan. Refer to Note 20 for additional information.
The following tables summarize the reclassifications out of AOCI for the periods indicated:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2019 |
| Foreign currency translation adjustment | | Net unrealized gains on securities | | Net unrealized gains on derivative transactions | | OTTI | | Unamortized net (losses) on Pension Plans | | Accumulated other comprehensive income |
Balance at June 30, 2019 | $ | (366.6 | ) | | $ | 778.4 |
| | $ | 15.2 |
| | $ | 15.6 |
| | $ | (113.9 | ) | | $ | 328.7 |
|
Change in accumulated other comprehensive (loss) income before reclassifications | (23.6 | ) | | 101.0 |
| | 0.5 |
| | 0.2 |
| | 0.1 |
| | 78.2 |
|
Amounts reclassified from accumulated other comprehensive (loss) income | — |
| | (3.6 | ) | | 2.2 |
| | — |
| | (0.3 | ) | | (1.7 | ) |
Net current-period other comprehensive (loss) income | (23.6 | ) | | 97.4 |
| | 2.7 |
| | 0.2 |
| | (0.2 | ) | | 76.5 |
|
Balance at September 30, 2019 (1) | $ | (390.2 | ) | | $ | 875.8 |
| | $ | 17.9 |
| | $ | 15.8 |
| | $ | (114.1 | ) | | $ | 405.2 |
|
| | | | | | | | | | | |
| Three Months Ended September 30, 2018 |
| Foreign currency translation adjustment | | Net unrealized gains on securities | | Net unrealized gains on derivative transactions | | OTTI | | Unamortized net (losses) on Pension Plans | | Accumulated other comprehensive income |
Balance at June 30, 2018 | $ | (355.4 | ) | | $ | 266.2 |
| | $ | 20.9 |
| | $ | 13.0 |
| | $ | (82.6 | ) | | $ | (137.9 | ) |
Change in accumulated other comprehensive (loss) income before reclassifications | 4.8 |
| | (51.0 | ) | | 0.5 |
| | (0.5 | ) | | — |
| | (46.2 | ) |
Amounts reclassified from accumulated other comprehensive (loss) income | — |
| | 4.0 |
| | (0.4 | ) | | — |
| | 0.8 |
| | 4.4 |
|
Net current-period other comprehensive (loss) income | 4.8 |
| | (47.0 | ) | | 0.1 |
| | (0.5 | ) | | 0.8 |
| | (41.8 | ) |
Cumulative effect of change in accounting principles | $ | 0.1 |
| | $ | 96.0 |
| | $ | — |
| | $ | 3.9 |
| | $ | (18.0 | ) | | $ | 82.0 |
|
Balance at September 30, 2018 | $ | (350.5 | ) | | $ | 315.2 |
| | $ | 21.0 |
| | $ | 16.4 |
| | $ | (99.8 | ) | | $ | (97.7 | ) |
| | | | | | | | | | | |
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Inin millions, except number of shares and per share amounts)
| | | | | | | | | | | | | | | | | | | | |
Details about accumulated other comprehensive income components | | Amount reclassified from accumulated other comprehensive income | | Affected line item in the statement where net income is presented |
| | Three Months Ended September 30, | | |
| | 2020 | | 2019 | | |
| | | | | | |
| | | | | | |
| | | | | | |
Net unrealized losses (gains) on investments | | $ | 0.3 | | | $ | (4.5) | | | Net realized gains (losses) on investments |
| | 0 | | | 0.9 | | | Provision for income taxes |
| | $ | 0.3 | | | $ | (3.6) | | | Net of tax |
Net unrealized (gains) losses on derivative transactions | | $ | (0.7) | | | $ | 2.0 | | | Interest expense |
| | 0.1 | | | 0.2 | | | Provision for income taxes |
| | $ | (0.6) | | | $ | 2.2 | | | Net of tax |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Amortization of pension and postretirement unrecognized net periodic benefit cost: | | | | | | |
Amortization of net loss (gain) | | $ | 1.3 | | | $ | (0.4) | | | (1) |
Amortization of prior service credit | | (3.4) | | | 0 | | | (1) |
| | | | | | |
| | (2.1) | | | (0.4) | | | |
| | 0.4 | | | 0.1 | | | Provision for income taxes |
| | $ | (1.7) | | | $ | (0.3) | | | Net of tax |
Total reclassifications for the period | | $ | (2.0) | | | $ | (1.7) | | | Net of tax |
| | | | | | |
Details about accumulated other comprehensive income components | | Amount reclassified from accumulated other comprehensive income | | Affected line item in the statement where net income is presented |
| | Nine Months Ended September 30, | | |
| | 2020 | | 2019 | | |
Foreign currency translation adjustment | | $ | 19.7 | | | $ | 0 | | | Iké net losses (see Note 5) |
| | 0 | | | 0 | | | Provision for income taxes |
| | $ | 19.7 | | | $ | 0 | | | Net of tax |
Net unrealized gains on investments | | $ | (3.1) | | | $ | (8.3) | | | Net realized gains (losses) on investments |
| | 0.7 | | | 1.7 | | | Provision for income taxes |
| | $ | (2.4) | | | $ | (6.6) | | | Net of tax |
Net unrealized (gains) losses on derivative transactions | | $ | (2.2) | | | $ | 0.5 | | | Interest expense |
| | 0.4 | | | 0.5 | | | Provision for income taxes |
| | $ | (1.8) | | | $ | 1.0 | | | Net of tax |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Amortization of pension and postretirement unrecognized net periodic benefit cost: | | | | | | |
Amortization of net loss | | $ | 3.8 | | | $ | 0.2 | | | (1) |
Amortization of prior service credit | | (7.9) | | | 0 | | | (1) |
| | | | | | |
| | (4.1) | | | 0.2 | | | |
| | 0.8 | | | (0.1) | | | Provision for income taxes |
| | $ | (3.3) | | | $ | 0.1 | | | Net of tax |
Total reclassifications for the period | | $ | 12.2 | | | $ | (5.5) | | | Net of tax |
(1)These AOCI components are included in the computation of net periodic pension cost. See Note 20 for additional information.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2019 |
| Foreign currency translation adjustment | | Net unrealized gains on securities | | Net unrealized gains on derivative transactions | | OTTI | | Unamortized net (losses) on Pension Plans | | Accumulated other comprehensive income |
Balance at December 31, 2018 | $ | (375.6 | ) | | $ | 301.0 |
| | $ | 18.4 |
| | $ | 15.1 |
| | $ | (114.3 | ) | | $ | (155.4 | ) |
Change in accumulated other comprehensive (loss) income before reclassifications | (14.6 | ) | | 581.4 |
| | (1.5 | ) | | 0.7 |
| | 0.1 |
| | 566.1 |
|
Amounts reclassified from accumulated other comprehensive (loss) income | — |
| | (6.6 | ) | | 1.0 |
| | — |
| | 0.1 |
| | (5.5 | ) |
Net current-period other comprehensive (loss) income | (14.6 | ) | | 574.8 |
| | (0.5 | ) | | 0.7 |
| | 0.2 |
| | 560.6 |
|
Balance at September 30, 2019 (1) | $ | (390.2 | ) | | $ | 875.8 |
| | $ | 17.9 |
| | $ | 15.8 |
| | $ | (114.1 | ) | | $ | 405.2 |
|
| | | | | | | | | | | |
| Nine Months Ended September 30, 2018 |
| Foreign currency translation adjustment | | Net unrealized gains on securities | | Net unrealized gains on derivative transactions | | OTTI | | Unamortized net (losses) on Pension Plans | | Accumulated other comprehensive income |
Balance at December 31, 2017 | $ | (281.5 | ) | | $ | 581.2 |
| | $ | — |
| | $ | 17.9 |
| | $ | (83.6 | ) | | $ | 234.0 |
|
Change in accumulated other comprehensive (loss) income before reclassifications | (69.1 | ) | | (339.5 | ) | | 22.1 |
| | (5.4 | ) | | — |
| | (391.9 | ) |
Amounts reclassified from accumulated other comprehensive (loss) income | — |
| | 11.4 |
| | (1.1 | ) | | — |
| | 1.8 |
| | 12.1 |
|
Net current-period other comprehensive (loss) income | (69.1 | ) | | (328.1 | ) | | 21.0 |
| | (5.4 | ) | | 1.8 |
| | (379.8 | ) |
Cumulative effect of change in accounting principles | 0.1 |
| | 62.1 |
| | — |
| | 3.9 |
| | (18.0 | ) | | 48.1 |
|
Balance at September 30, 2018 | $ | (350.5 | ) | | $ | 315.2 |
| | $ | 21.0 |
| | $ | 16.4 |
| | $ | (99.8 | ) | | $ | (97.7 | ) |
38
| |
(1) | Amount includes the $41.0 million of cumulative foreign currency translation losses associated with the investment in Iké. The amount was required to be included as part of the carrying amount of the Iké investment when evaluating that investment for impairment as of September 30, 2019. Such amount, as adjusted for experience, will be credited upon actual sale or acquisition of the equity interests in a future period. |
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Inin millions, except number of shares and per share amounts)
The following tables summarize the reclassifications out of accumulated other comprehensive income for the three and nine months ended September 30, 2019 and 2018: |
| | | | | | | | | | |
Details about accumulated other comprehensive income components | | Amount reclassified from accumulated other comprehensive income | | Affected line item in the statement where net income is presented |
| | Three Months Ended September 30, | | |
| | 2019 | | 2018 | | |
Net unrealized (gains) losses on securities | | $ | (4.5 | ) | | $ | 5.1 |
| | Net realized gains on investments, excluding other-than-temporary impairment losses |
| | 0.9 |
| | (1.1 | ) | | Provision for income taxes |
| | $ | (3.6 | ) | | $ | 4.0 |
| | Net of tax |
Net unrealized losses (gains) on derivative transactions | | $ | 2.0 |
| | $ | (0.5 | ) | | Interest expense |
| | 0.2 |
| | 0.1 |
| | Provision for income taxes |
| | $ | 2.2 |
| | $ | (0.4 | ) | | Net of tax |
Amortization of pension and postretirement unrecognized net periodic benefit cost: | | | | | | |
Amortization of net (gain) loss | | $ | (0.4 | ) | | $ | 0.7 |
| | (1) |
Settlement loss | | — |
| | 0.4 |
| | (1) |
| | (0.4 | ) | | 1.1 |
| | |
| | 0.1 |
| | (0.3 | ) | | Provision for income taxes |
| | $ | (0.3 | ) | | $ | 0.8 |
| | Net of tax |
Total reclassifications for the period | | $ | (1.7 | ) | | $ | 4.4 |
| | Net of tax |
| | | | | | |
Details about accumulated other comprehensive income components | | Amount reclassified from accumulated other comprehensive income | | Affected line item in the statement where net income is presented |
| | Nine Months Ended September 30, | | |
| | 2019 | | 2018 | | |
Net unrealized (gains) losses on securities | | $ | (8.3 | ) | | $ | 14.5 |
| | Net realized gains on investments, excluding other-than-temporary impairment losses |
| | 1.7 |
| | (3.1 | ) | | Provision for income taxes |
| | $ | (6.6 | ) | | $ | 11.4 |
| | Net of tax |
Net unrealized losses (gains) on derivative transactions | | $ | 0.5 |
| | $ | (1.4 | ) | | Interest expense |
| | 0.5 |
| | 0.3 |
| | Provision for income taxes |
| | $ | 1.0 |
| | $ | (1.1 | ) | | Net of tax |
Amortization of pension and postretirement unrecognized net periodic benefit cost: | | | | | | |
Amortization of net loss | | $ | 0.2 |
| | $ | 1.9 |
| | (1) |
Settlement loss | | — |
| | 0.4 |
| | (1) |
| | 0.2 |
| | 2.3 |
| | |
| | (0.1 | ) | | (0.5 | ) | | Provision for income taxes |
| | $ | 0.1 |
| | $ | 1.8 |
| | Net of tax |
Total reclassifications for the period | | $ | (5.5 | ) | | $ | 12.1 |
| | Net of tax |
| |
(1) | These accumulated other comprehensive income components are included in the computation of net periodic pension cost. See Note 17 for additional information. |
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(In millions, except number of shares and per share amounts)
14.17. Stock Based Compensation
Under the Assurant, Inc. 2017 Long-Term Equity Incentive Plan (“ALTEIP”), as amended in May 2019, the Company is authorized to issue up to 1,588,797 new shares of the Company’s common stock to employees, officers and non-employee directors. Under the ALTEIP, the Company may grant awards based on shares of its common stock, including stock options, stock appreciation rights, (“SARs”), restricted stock (including performance shares), unrestricted stock, restricted stock units (“RSUs”), performance share units (“PSUs”) and dividend equivalents. All share-based grants are awarded under the ALTEIP.
Restricted Stock Units
The following table shows a summary of RSU activity during the three and nine months ended September 30, 20192020 and 2018:2019:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
RSU compensation expense | $ | 7.9 |
| | $ | 10.9 |
| | $ | 22.3 |
| | $ | 24.7 |
|
Income tax benefit | (1.4 | ) | | (1.9 | ) | | (4.1 | ) | | (4.2 | ) |
RSU compensation expense, net of tax | $ | 6.5 |
| | $ | 9.0 |
| | $ | 18.2 |
| | $ | 20.5 |
|
RSUs granted | 29,195 |
| | 91,579 |
| | 254,591 |
| | 513,408 |
|
Weighted average grant date fair value per unit | $ | 108.99 |
| | $ | 103.41 |
| | $ | 98.86 |
| | $ | 92.92 |
|
Total fair value of vested RSUs | $ | 6.4 |
| | $ | 3.5 |
| | $ | 33.2 |
| | $ | 22.3 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
RSU compensation expense | $ | 7.2 | | | $ | 7.9 | | | $ | 20.8 | | | $ | 22.3 | |
Income tax benefit | (1.4) | | | (1.4) | | | (3.8) | | | (4.1) | |
RSU compensation expense, net of tax | $ | 5.8 | | | $ | 6.5 | | | $ | 17.0 | | | $ | 18.2 | |
RSUs granted | 32,844 | | | 29,195 | | | 294,794 | | | 254,591 | |
Weighted average grant date fair value per unit | $ | 101.81 | | | $ | 108.99 | | | $ | 92.2 | | | $ | 98.86 | |
Total fair value of vested RSUs | $ | 4.8 | | | $ | 6.4 | | | $ | 29.2 | | | $ | 33.2 | |
As of September 30, 2019,2020, there was $25.6$24.4 million of unrecognized compensation cost related to outstanding RSUs. That cost is expected to be recognized over a weighted-average period of 1.21.1 years.
Performance Share Units
The following table shows a summary of PSU activity during the three and nine months ended September 30, 20192020 and 2018:2019:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
PSU compensation expense | $ | 6.7 |
| | $ | 6.1 |
| | $ | 17.5 |
| | $ | 13.4 |
|
Income tax benefit | (1.0 | ) | | (0.8 | ) | | (2.5 | ) | | (2.1 | ) |
PSU compensation expense, net of tax | $ | 5.7 |
| | $ | 5.3 |
| | $ | 15.0 |
| | $ | 11.3 |
|
PSUs granted | — |
| | 164,957 |
| | 246,219 |
| | 164,957 |
|
Weighted average grant date fair value per unit | $ | — |
| | $ | 123.51 |
| | $ | 105.23 |
| | $ | 123.51 |
|
Total fair value of vested PSUs | $ | 1.9 |
| | $ | 1.9 |
| | $ | 19.6 |
| | $ | 27.5 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
PSU compensation expense | $ | 7.6 | | | $ | 6.7 | | | $ | 19.7 | | | $ | 17.5 | |
Income tax benefit | (0.8) | | | (1.0) | | | (2.1) | | | (2.5) | |
PSU compensation expense, net of tax | $ | 6.8 | | | $ | 5.7 | | | $ | 17.6 | | | $ | 15.0 | |
PSUs granted | 0 | | | 0 | | | 302,274 | | | 246,219 | |
Weighted average grant date fair value per unit | $ | 0 | | | $ | 0 | | | $ | 87.36 | | | $ | 105.23 | |
Total fair value of vested PSUs | $ | 0.3 | | | $ | 1.9 | | | $ | 24.7 | | | $ | 19.6 | |
As of September 30, 2019,2020, there was $32.4$27.8 million of unrecognized compensation cost related to outstanding PSUs. That cost is expected to be recognized over a weighted-average period of 1.1 years.
The fair value of PSUs with market conditions was estimated as of the date of grant using a Monte Carlo simulation model, which utilizes multiple variables that determine the probability of satisfying the market condition stipulated in the award. Expected volatilities for awards issued during the nine months ended September 30, 20192020 and 20182019 were based on the historical stock prices of the Company’s stock and peer group. The expected term for grants issued during the nine months ended September 30, 20192020 and 20182019 was assumed to equal the average of the vesting period of the PSUs. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of grant.
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Inin millions, except number of shares and per share amounts)
15.18. Equity Transactions
Stock Repurchase
During the nine months ended September 30, 20192020 and 2018,2019, the Company repurchased 1,582,4481,312,443 and 783,6101,582,448 shares of the Company’s outstanding common stock at a cost of $166.1$153.2 million and $83.2$166.1 million, exclusive of commissions, respectively, leaving $595.1$333.1 million remaining under the total repurchase authorization as of September 30, 2019.2020.
The timing and the amount of future repurchases will depend on market conditions, the Company’s financial condition, results of operations and liquidity and other factors.
Issuance of Mandatory Convertible Preferred Stock (“MCPS”)
In March 2018, the Company issued 2,875,000 shares of the MCPS at a public offering price of $100.00 per share. The net proceeds from the sale of the MCPS was $276.4 million after deducting the underwriting discounts and offering expenses.
Each outstanding share of MCPS will convert automatically on March 15, 2021 into between 0.93690.9391 (the “minimum conversion rate”) and 1.12421.1269 shares of common stock, subject to customary anti-dilution adjustments. At any time prior to March 2021, holders may elect to convert each share of MCPS into shares of common stock at the minimum conversion rate or in the event of a fundamental change at the specified rates as defined in the Certificate of Designations of the MCPS.
Dividends on ourthe MCPS will be payable on a cumulative basis when, as and if declared, at an annual rate of 6.50% of the liquidation preference of $100.00 per share. The Company may pay declared dividends in cash or, subject to certain limitations, in shares of the Company’s common stock, or in any combination of cash and shares of the Company’s common stock quarterly, commencing in June 2018 and ending in March 2021. No dividend or distribution may be declared or paid on common stock or any other class or series of junior stock, and no common stock or any other class or series of junior stock or parity stock may be purchased, redeemed or otherwise acquired for consideration unless all accumulated and unpaid dividends on the MCPS for all preceding dividend periods have been declared and paid in full, subject to certain limited exceptions. The Company paid preferred stock dividends of $4.7 million and $14.0 million for the three and nine months ended September 30, 2019, respectively.2020 and 2019. The Company paid preferred stock dividends of $4.7 million and $9.5$14.0 million for the three and nine months ended September 30, 2018, respectively.2020 and 2019.
16.19. Earnings Per Common Share
The following table presents net income, the weighted average common shares used in calculating basic earnings per common share (“EPS”)EPS and those used in calculating diluted EPS for each period presented below. Diluted EPS reflects the incremental common shares from: (1) common shares issuable upon vesting of PSUs and ESPPthe purchase of shares under the Employee Stock Purchase Plan (the “ESPP”) using the treasury stock method; and (2) common shares issuable upon conversion of the MCPS using the if-converted method. Refer to Notes 17 and 18 for further information regarding potential common stock issuances. The outstanding RSUs have non-forfeitable rights to dividend equivalents and are therefore included in calculating basic and diluted EPS under the two-class method.
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Inin millions, except number of shares and per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Numerator | | | | | | | |
Net (loss) income attributable to stockholders | $ | (30.2) | | | $ | (54.8) | | | $ | 302.6 | | | $ | 255.0 | |
Less: Preferred stock dividends | (4.7) | | | (4.7) | | | (14.0) | | | (14.0) | |
Net (loss) income attributable to common stockholders | (34.9) | | | (59.5) | | | 288.6 | | | 241.0 | |
Less: Common stock dividends paid | (37.5) | | | (37.3) | | | (115.1) | | | (113.0) | |
Undistributed earnings | $ | (72.4) | | | $ | (96.8) | | | $ | 173.5 | | | $ | 128.0 | |
Denominator | | | | | | | |
Weighted average common shares outstanding used in basic earnings per common share calculations | 60,190,103 | | | 61,804,492 | | | 60,384,817 | | | 62,204,242 | |
Incremental common shares from: | | | | | | | |
PSUs | 0 | | | 0 | | | 253,982 | | | 256,003 | |
ESPP | 0 | | | 0 | | | 2,146 | | | 0 | |
MCPS | 0 | | | 0 | | | 0 | | | 0 | |
Weighted average common shares used in diluted earnings per common share calculations | 60,190,103 | | | 61,804,492 | | | 60,640,945 | | | 62,460,245 | |
Earnings per common share - Basic | | | | | | | |
Distributed earnings | $ | 0.62 | | | $ | 0.60 | | | $ | 1.91 | | | $ | 1.82 | |
Undistributed (losses) earnings | (1.20) | | | (1.56) | | | 2.87 | | | 2.06 | |
Net (loss) income attributable to common stockholders | $ | (0.58) | | | $ | (0.96) | | | $ | 4.78 | | | $ | 3.88 | |
Earnings per common share - Diluted (1) | | | | | | | |
Distributed earnings | $ | 0.62 | | | $ | 0.60 | | | $ | 1.90 | | | $ | 1.81 | |
Undistributed (losses) earnings | (1.20) | | | (1.56) | | | 2.86 | | | 2.05 | |
Net (loss) income attributable to common stockholders | $ | (0.58) | | | $ | (0.96) | | | $ | 4.76 | | | $ | 3.86 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Numerator | | | | | | | |
Net (loss) income attributable to stockholders | $ | (54.8 | ) | | $ | 53.0 |
| | $ | 255.0 |
| | $ | 226.0 |
|
Less: Preferred stock dividends | (4.7 | ) | | (4.7 | ) | | (14.0 | ) | | (9.5 | ) |
Net (loss) income attributable to common stockholders | (59.5 | ) | | 48.3 |
| | 241.0 |
| | 216.5 |
|
Less: Common stock dividends paid | (37.3 | ) | | (35.5 | ) | | (113.0 | ) | | (96.1 | ) |
Undistributed earnings or losses | $ | (96.8 | ) | | $ | 12.8 |
| | $ | 128.0 |
| | $ | 120.4 |
|
Denominator | | | | | | | |
Weighted average common shares outstanding used in basic earnings per common share calculations | 61,804,492 |
| | 63,621,184 |
| | 62,204,242 |
| | 57,988,570 |
|
Incremental common shares from: | | | | | | | |
PSUs | — |
| | 179,163 |
| | 256,003 |
| | 205,370 |
|
ESPP | — |
| | — |
| | — |
| | — |
|
MCPS | — |
| | — |
| | — |
| | — |
|
Weighted average common shares used in diluted earnings per common share calculations | 61,804,492 |
| | 63,800,347 |
| | 62,460,245 |
| | 58,193,940 |
|
Earnings per common share - Basic | | | | | | | |
Distributed earnings | $ | 0.60 |
| | $ | 0.56 |
| | $ | 1.82 |
| | $ | 1.66 |
|
Undistributed earnings or losses | (1.56 | ) | | 0.20 |
| | 2.06 |
| | 2.07 |
|
Net (loss) income attributable to common stockholders | $ | (0.96 | ) | | $ | 0.76 |
| | $ | 3.88 |
| | $ | 3.73 |
|
Earnings per common share - Diluted (1) | | | | | | | |
Distributed earnings | $ | 0.60 |
| | $ | 0.56 |
| | $ | 1.81 |
| | $ | 1.65 |
|
Undistributed earnings or losses | (1.56 | ) | | 0.20 |
| | 2.05 |
| | 2.07 |
|
Net (loss) income attributable to common stockholders | $ | (0.96 | ) | | $ | 0.76 |
| | $ | 3.86 |
| | $ | 3.72 |
|
| |
(1) | In accordance with earnings per share guidance, diluted per share amounts are computed in the same manner as basic per share amounts when a loss from operations exists. |
(1)In accordance with earnings per share guidance, diluted per share amounts are computed in the same manner as basic per share amounts when a loss from operations exists.
Average PSUs totaling 261,332 and 69,624233,039 for the three months ended September 30, 20192020 were anti-dilutive and 2018, respectively, and 118 and 31,363thus not included in the computation of diluted EPS under the treasury stock method. There were 0 anti-dilutive average PSUs for the nine months ended September 30, 20192020. Average PSUs totaling 261,332 and 2018,118 for the three and nine months ended September 30, 2019, respectively, were anti-dilutive and thus not included in the computation of diluted EPS under the treasury stock method. AverageIncremental common shares from ESPP totaling 2,580 and 2,631 for the three months ended September 30, 2020 and 2019, respectively, were anti-dilutive and thus not included in the computation of diluted EPS under the treasury stock method. Average MCPS totaling 2,693,588 and 2,715,4382,699,913 for the three months ended September 30, 2019 and 2018, respectively, and 2,739,875 and 2,161,123 for the nine months ended September 30, 20192020 and 2018,2,693,588 and 2,739,875 for the three and nine months ended September 30, 2019, respectively, were anti-dilutive and thus not included in the computation of diluted EPS under the if-converted method.
17.20. Retirement and Other Employee Benefits
The Company and its subsidiaries participate in a non-contributory, qualified defined benefit pension plan (“Assurant Pension Plan”) covering substantially all employees. The Company also has various non-contributory, non-qualified supplemental plans covering certain employees including the Assurant Executive Pension Plan and the Assurant Supplemental Executive Retirement Plan. The qualified and non-qualified plans are referred to as “Pension Benefits” unless otherwise noted. In addition, the Company provides certain life and health care benefits (“Retirement Health Benefits”) for retired employees and their dependents. The Pension Benefits and Retirement Health Benefits (together, the “Plans”) were frozen on March 1, 2016.
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Inin millions, except number of shares and per share amounts)
In February 2020, the Company amended the Retirement Health Benefits to terminate effective December 31, 2024 (the “Termination Date”). Benefits will be paid up to the Termination Date. The Retirement Health Benefits obligations were re-measured using a discount rate of 1.55%, selected based on a cash flow analysis using a bond yield curve as of February 29, 2020, and the fair market value of the Retirement Health Benefits assets as of February 29, 2020. The remeasurement resulted in a reduction to the Retirement Health Benefits obligations of $65.6 million and a corresponding prior service credit in AOCI, which will be reclassified from AOCI as it is amortized in the net periodic benefit cost over the remaining period until the Termination Date.
The following tables present the components of net periodic benefit cost for the Plans for the three and nine months ended September 30, 20192020 and 2018:2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Qualified Pension Benefits | | Unfunded Non-qualified Pension Benefits | | Retirement Health Benefits |
| For the Three Months Ended September 30, | | For the Three Months Ended September 30, | | For the Three Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
Interest cost | $ | 5.1 | | | $ | 6.2 | | | $ | 0.5 | | | $ | 0.8 | | | $ | 0.1 | | | $ | 0.6 | |
Expected return on plan assets | (7.7) | | | (8.7) | | | 0 | | | 0 | | | (0.8) | | | (0.5) | |
Amortization of prior service credit | 0 | | | 0 | | | 0 | | | 0 | | | (3.4) | | | 0 | |
Amortization of net loss | 0.7 | | | 0 | | | 0.6 | | | 0.2 | | | 0 | | | (0.6) | |
| | | | | | | | | | | |
Net periodic benefit cost | $ | (1.9) | | | $ | (2.5) | | | $ | 1.1 | | | $ | 1.0 | | | $ | (4.1) | | | $ | (0.5) | |
| | | | | | | | | | | |
| Qualified Pension Benefits | | Unfunded Nonqualified Pension Benefits | | Retirement Health Benefits |
| For the Nine Months Ended September 30, | | For the Nine Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
Interest cost | $ | 15.3 | | | $ | 19.3 | | | $ | 1.5 | | | $ | 2.2 | | | $ | 0.6 | | | $ | 2.4 | |
Expected return on plan assets | (23.1) | | | (26.7) | | | 0 | | | 0 | | | (1.3) | | | (1.4) | |
Amortization of prior service credit | 0 | | | 0 | | | 0 | | | 0 | | | (7.9) | | | 0 | |
Amortization of net loss (gain) | 2.1 | | | 0 | | | 1.7 | | | 0.8 | | | 0 | | | (0.6) | |
| | | | | | | | | | | |
Net periodic benefit cost | $ | (5.7) | | | $ | (7.4) | | | $ | 3.2 | | | $ | 3.0 | | | $ | (8.6) | | | $ | 0.4 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Qualified Pension Benefits | | Unfunded Non-qualified Pension Benefits | | Retirement Health Benefits |
| For the Three Months Ended September 30, | | For the Three Months Ended September 30, | | For the Three Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
Interest cost | $ | 6.2 |
| | $ | 5.9 |
| | $ | 0.8 |
| | $ | 0.7 |
| | $ | 0.6 |
| | $ | 0.8 |
|
Expected return on plan assets | (8.7 | ) | | (9.0 | ) | | — |
| | — |
| | (0.5 | ) | | (0.5 | ) |
Amortization of net loss (gain) | — |
| | 0.3 |
| | 0.2 |
| | 0.4 |
| | (0.6 | ) | | — |
|
Settlement loss | — |
| | — |
| | — |
| | 0.4 |
| | — |
| | — |
|
Net periodic benefit cost | $ | (2.5 | ) | | $ | (2.8 | ) | | $ | 1.0 |
| | $ | 1.5 |
| | $ | (0.5 | ) | | $ | 0.3 |
|
| | | | | | | | | | | |
| Qualified Pension Benefits | | Unfunded Nonqualified Pension Benefits | | Retirement Health Benefits |
| For the Nine Months Ended September 30, | | For the Nine Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
Interest cost | $ | 19.3 |
| | $ | 17.5 |
| | $ | 2.2 |
| | $ | 2.1 |
| | $ | 2.4 |
| | $ | 2.5 |
|
Expected return on plan assets | (26.7 | ) | | (27.2 | ) | | — |
| | — |
| | (1.4 | ) | | (1.6 | ) |
Amortization of net loss (gain) | — |
| | 0.7 |
| | 0.8 |
| | 1.2 |
| | (0.6 | ) | | — |
|
Settlement loss | — |
| | — |
| | — |
| | 0.4 |
| | — |
| | — |
|
Net periodic benefit cost | $ | (7.4 | ) | | $ | (9.0 | ) | | $ | 3.0 |
| | $ | 3.7 |
| | $ | 0.4 |
| | $ | 0.9 |
|
The Assurant Pension Plan funded status was $70.3$54.1 million at September 30, 20192020 and $65.1$66.4 million at December 31, 20182019 (based on the fair value of the assets compared to the accumulated benefit obligation). This equates to a 109%107% and 110%109% funded status at September 30, 20192020 and December 31, 2018,2019, respectively. During the first nine months of 2019,ended September 30, 2020, 0 cash was contributed to the Assurant Pension Plan. Due to the Assurant Pension Plan’s current funded status, 0 additional cash is expected to be contributed to the Assurant Pension Plan over the remainder of 2019.2020.
18.21. Commitments and Contingencies
Letters of Credit
In the normal course of business, letters of credit are issued primarily to support reinsurance arrangements in which the Company is the reinsurer. These letters of credit are supported by commitments under which the Company is required to indemnify the financial institution issuing the letter of credit if the letter of credit is drawn. The Company had $12.1$7.6 million and $13.2$12.1 million of letters of credit outstanding as of September 30, 20192020 and December 31, 2018,2019, respectively.
Legal and Regulatory Matters
The Company is involved in a variety of litigation and legal and regulatory proceedings relating to its current and past business operations and, from time to time, it may become involved in other such actions. In particular, the Company is a
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
defendant in class actions in a number of jurisdictions regarding its Lender-placed Insurance programs. These cases assert a variety of claims under a number of legal theories. The plaintiffs typically seek premium refunds and other relief. The Company continues to defend itself vigorously in these class actions. The Company has participated and may participate in settlements on terms that the Company considers reasonable.
The Company has established an accrued liability for certain legal and regulatory proceedings. The possible loss or range of loss resulting from such litigation and regulatory proceedings, if any, in excess of the amounts accrued is inherently unpredictable and uncertain. Consequently, no estimate can be made of any possible loss or range of loss in excess of the
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(In millions, except number of shares and per share amounts)
accrual. Although the Company cannot predict the outcome of any pending legal or regulatory proceeding, or the potential losses, fines, penalties or equitable relief, if any, that may result, it is possible that such outcome could have a material adverse effect on the Company’s consolidated results of operations or cash flows for an individual reporting period. However, on the basis of currently available information, management does not believe that the pending matters are likely to have a material adverse effect, individually or in the aggregate, on the Company’s financial condition.
Risks and Uncertainties
The Company is actively monitoring developments related to the COVID-19 pandemic to assess the ongoing impact on its business, results of operations and financial condition. While continuing to evolve, the COVID-19 pandemic has caused significant global economic and financial market disruption, resulting in increased financial market volatility, business and operational challenges such as the temporary closures of businesses, and overall diminished expectations for the economy and the financial markets. At this time, it is not possible to estimate how long it will take to halt the spread of the virus or the long-term effects that the COVID-19 pandemic could have on the economy or the Company’s business. The extent to which the COVID-19 pandemic impacts the Company’s business, results of operations or financial condition, including demand for the Company’s products and services and the value of the Company’s investment portfolio and other tangible or intangible assets, among other impacts, will depend on future developments which are highly uncertain and difficult to predict. These include the severity and duration of the pandemic and the actions taken by government authorities and other third parties to contain or address its impact. Even after the COVID-19 outbreak has subsided, the Company may experience materially adverse impacts to its business, results of operations and financial condition as a result of the pandemic’s global economic impact.
22. Subsequent Event
Acquisition of HYLA Mobile
In October 2020, the Company announced the signing of a definitive agreement to acquire HYLA Mobile, a provider of smartphone software and trade-in and upgrade services, for $325.0 million. The acquisition is expected to close by the end of 2020, subject to regulatory and other customary approvals, and to be funded through a combination of existing cash at the holding company and new debt to be issued before closing.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except number of shares and per share amounts)
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and the annual audited consolidated financial statements for the year ended December 31, 20182019 and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 20182019 (the “2018“2019 Annual Report”) filed with the U.S. Securities and Exchange Commission (the “SEC”) and the unaudited consolidated financial statements for the three and nine months ended September 30, 20192020 and accompanying notes (the “Consolidated Financial Statements”) included elsewhere in this Quarterly Report on Form 10-Q (this “Report”).
Some of the statements included in this MD&A and elsewhere in this Report, particularly those with respect to the proposed HYLA Mobile acquisition and process to explore strategic alternatives for our Global Preneed segment, including our financial plans and any statements regarding our anticipating future financial performance, business prospects, growth and operating strategies and similar matters, as well as estimated reportable catastrophe losses, are forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. We do not have a definitive timetable to complete our review of strategic alternatives for our Global Preneed segment and there can be no assurance that any such process will result in a transaction. You can identify these statements by the use of words such as “will,” “may,” “can,” “anticipates,” “expects,” “estimates,” “projects,” “intends,” “plans,” “believes,” “targets,” “forecasts,” “potential,” “approximately,” and the negative version of those words and other words and terms with a similar meaning. Any forward-looking statements contained in this Report are based upon our historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that our future plans, estimates or expectations will be achieved. Our actual results might differ materially from those projected in the forward-looking statements. We undertake no obligation to update or review any forward-looking statement, whether as a result of new information, future events or other developments. The following factors could cause our actual results to differ materially from those currently estimated by management:
| |
(i) | the loss of significant clients, distributors or other parties with whom we do business or those parties facing financial, reputational or regulatory issues; |
| |
(ii) | significant competitive pressures, changes in customer preferences and disruption; |
| |
(iii) | the failure to find suitable acquisitions, integrate completed acquisitions or grow organically, and risks associated with joint ventures and franchise ownership and operations; |
| |
(iv) | the impact of general economic, financial market and political conditions, including unfavorable conditions in the capital and credit markets, and conditions in the markets in which we operate; |
| |
(v) | risks related to our international operations, including the United Kingdom’s withdrawal from the European Union, or fluctuations in exchange rates; |
| |
(vi) | the impact of catastrophic and non-catastrophe losses; |
| |
(vii) | our inability to recover should we experience a business continuity event; |
| |
(viii) | our inability to develop and maintain distribution sources or attract and retain sales representatives; |
| |
(ix) | the failure to manage vendors and other third parties on whom we rely to conduct business and provide services to our clients; |
| |
(x) | declines in the value of mobile devices or export compliance risk in our mobile business; |
| |
(xi) | negative publicity relating to our products and services or the markets in which we operate; |
| |
(xii) | the failure to implement our strategy and to attract and retain key personnel, including senior management; |
| |
(xiii) | employee misconduct; |
| |
(xiv) | the adequacy of reserves established for claims and our inability to accurately predict and price for claims; |
| |
(xv) | a decline in financial strength ratings or corporate senior debt ratings; |
| |
(xvi) | an impairment of goodwill or other intangible assets; |
| |
(xvii) | the failure to maintain effective internal control over financial reporting; |
| |
(xviii) | a decrease in the value of our investment portfolio including due to market, credit and liquidity risks; |
(i)the impact of the COVID-19 pandemic, including the scope and duration of the outbreak, government actions and restrictive measures taken in response, and its effect on the global economic and financial markets;
| |
(xix) | the impact of U.S. tax reform legislation and impairment of deferred tax assets; |
| |
(xx) | the unavailability or inadequacy of reinsurance coverage and the credit risk of reinsurers, including those to whom we have sold business through reinsurance; |
| |
(xxi) | the credit risk of some of our agents; |
| |
(xxii) | the inability of our subsidiaries to pay sufficient dividends to the holding company and limitations on our ability to declare and pay dividends; |
| |
(xxiii) | changes in the method for determining LIBOR or the replacement of LIBOR; |
| |
(xxiv) | the failure to effectively maintain and modernize our information technology systems and infrastructure, or the failure to integrate those of acquired businesses; |
| |
(xxv) | breaches of our information systems or those of third parties with whom we do business, or the failure to protect data in such systems, including due to cyber-attacks; |
| |
(xxvi) | the costs of complying with, or the failure to comply with, extensive laws and regulations to which we are subject, including those related to privacy, data security and data protection; |
| |
(xxvii) | the impact from litigation and regulatory actions; |
| |
(xxviii) | reductions in the insurance premiums we charge; and |
| |
(xxix) | changes in insurance and other regulation. |
(ii)the loss of significant clients, distributors or other parties with whom we do business, or if we are unable to renew contracts with them on favorable terms, or those parties facing financial, reputational or regulatory issues;
(iii)significant competitive pressures, changes in customer preferences and disruption;
(iv)the failure to find suitable acquisitions, integrate completed acquisitions or grow organically, and risks associated with joint ventures and franchise ownership and operations;
(v)the impact of general economic, financial market and political conditions, including unfavorable conditions in the capital and credit markets and in the markets in which we operate, including as a result of COVID-19;
(vi)risks related to our international operations, including the United Kingdom’s withdrawal from the European Union, or fluctuations in exchange rates;
(vii)the impact of catastrophic and non-catastrophe losses, including as a result of climate change;
(viii)our inability to recover should we experience a business continuity event, including as a result of COVID-19;
(ix)our inability to develop and maintain distribution sources or attract and retain sales representatives and executives with key client relationships;
(x)the failure to manage vendors and other third parties on whom we rely to conduct business and provide services to our clients;
(xi)declines in the value of mobile devices, the risk of guaranteed buybacks or export compliance risk in our mobile business;
(xii)negative publicity relating to our products and services or the markets in which we operate;
(xiii)the failure to implement our strategy and to attract and retain key personnel, including senior management;
(xiv)employee misconduct;
(xv)the adequacy of reserves established for claims and our inability to accurately predict and price for claims;
(xvi)a decline in financial strength ratings or corporate senior debt ratings;
(xvii)an impairment of goodwill or other intangible assets;
(xviii)the failure to maintain effective internal control over financial reporting;
(xix)a decrease in the value of our investment portfolio, including due to market, credit and liquidity risks, changes in interest rates and COVID-19;
(xx)the impact of U.S. tax reform legislation and impairment of deferred tax assets;
(xxi)the unavailability or inadequacy of reinsurance coverage and the credit risk of reinsurers, including those to whom we have sold business through reinsurance;
(xxii)the credit risk of some of our agents, third-party administrators and clients;
(xxiii)the inability of our subsidiaries to pay sufficient dividends to the holding company and limitations on our ability to declare and pay dividends, including as a result of COVID-19;
(xxiv)changes in the method for determining LIBOR or the replacement of LIBOR;
(xxv)the failure to effectively maintain and modernize our information technology systems and infrastructure, or the failure to integrate those of acquired businesses;
(xxvi)breaches of our information systems or those of third parties with whom we do business, or the failure to protect data in such systems, including due to cyber-attacks and as a result of working remotely during the COVID-19 pandemic;
(xxvii)the costs of complying with, or the failure to comply with, extensive laws and regulations to which we are subject, including those related to privacy, data security and data protection;
(xxviii)the impact from litigation and regulatory actions, including those arising from COVID-19;
(xxix)reductions or deferrals in the insurance premiums we charge, including as a result of COVID-19; and
(xxx)changes in insurance and other regulation, including to mitigate the impact of COVID-19.
For additional information on factors that could affect our actual results, please refer to “Critical Factors Affecting Results” below and in Item 7 of our 20182019 Annual Report, and “Item 1A—Risk Factors” below and in our 20182019 Annual Report.
General
As of September 30, 2019,2020, the Company hashad four reportable segments, which are defined based on the nature of the products and services offered:
Global Housing: provides lender-placed homeowners insurance (referred to as “Lender-placed Insurance”); renters insurance and related products (referred to as “Multifamily Housing”); and manufactured housing and flood insurance and other specialty products (referred to as “Specialty and Other”);
•Global Lifestyle: provides mobile device protection products and related servicessolutions and extended service products and related services for consumer electronics and appliances (referred to as “Connected Living”); vehicle protection and related services (referred to as “Global Automotive”); and credit and other insurance products (referred to as “Global Financial Services and Other”);
•Global Housing: provides lender-placed homeowners insurance, lender-placed manufactured housing insurance and lender-placed flood insurance (referred to as “Lender-placed Insurance”); renters insurance and related products (referred to as “Multifamily Housing”); and voluntary manufactured housing insurance, voluntary homeowners insurance and other specialty products (referred to as “Specialty and Other”);
•Global Preneed: provides pre-funded funeral insurance, final need insurance and annuity products;related services; and
•Corporate and Other: includes activities of the holding company, financing and interest expenses, net realized gains (losses) on investments (which includes unrealized gains (losses) on equity securities and changes in fair value of direct investments in collateralized loan obligations), interest income earned from short-term investments held, and income (expenses) primarily related to the Company’s frozen benefit plans.plans, amounts related to businesses previously disposed of through reinsurance and the run-off of the Assurant Health business. Corporate and Other also includes the amortization of deferred gains associated with the sales of businesses through reinsurance agreements, expenses related to the acquisition of TWG Holdings Limited and its subsidiaries (as subsequently reorganized, “TWG”), foreign currency gains (losses) from remeasurement of monetary assets and liabilities, changes in the gain or loss on the salefair value of businesses, gains or losses associated with the valuation of our investment in Ikéderivative instruments and other unusual or infrequent items. Additionally, the Corporate and Other segment includes amountsexpenses related to businesses previously disposedmerger and acquisition activities, as well as other highly variable or unusual items other than reportable catastrophes (reportable catastrophe losses, net of through reinsurance and the runoff of the Assurant Health business.client profit sharing adjustments, and including reinstatement and other premiums).
The following discussion covers the three and nine months ended September 30, 2020 (“Third Quarter 2020” and “Nine Months 2020”) and the three and nine months ended September 30, 2019 (“Third Quarter 2019” and “Nine Months 2019”) and the three and nine months ended September 30, 2018 (“Third Quarter 2018” and “Nine Months 2018”).
Executive Summary
COVID-19
While continuing to evolve, the COVID-19 pandemic has caused significant global economic and financial market disruption, resulting in increased financial market volatility, business and operational challenges such as the temporary closures of businesses, and overall diminished expectations for the economy and the financial markets.
Toward the end of the first quarter of 2020 and into the second quarter of 2020, the pandemic impacted each of our operating segments and may continue to impact our businesses if similar conditions continue to persist or worsen. Overall, in Third Quarter 2020, we believe COVID-19 had a modest negative impact on our net income, mainly due to lower investment income from lower yields. Our investment portfolio will continue to be impacted by COVID-19 and related financial market volatility. Though we generally believe our portfolio remains well diversified and high-quality, with the majority comprised of investment grade fixed maturity assets, interest rates are expected to remain relatively low for the foreseeable future. Refer to “—Investments” below and Note 11 to the Consolidated Financial Statements included elsewhere in this Report.
Our Response to COVID-19
As a global organization, we actively monitor the developments of the continuously evolving situation resulting from COVID-19. Throughout this period of uncertainty, we have acted swiftly and deliberately to safeguard our employees, to maintain business operations and service levels for customers, and to support our local communities. Since implementing restrictions on non-essential business travel and transitioning the vast majority of our workforce to work-from-home, we have approved a limited return to office within certain Asian and European locations, as well as limited, essential business travel. For those employees who need to work in our offices or global facilities, we’ve maintained safety and hygiene protocols, such as social distancing, mandatory use of personal protection equipment and regular cleaning and disinfecting of our locations. To support our employees, we have implemented additional floating holidays, a one-time COVID-19 relief payment for eligible work-from-home employees and incentive bonuses for eligible on-site employees, as well as increased well-being and mental health support services. We offered financial support through a special COVID-19 Emergency Relief Program to eligible employees who experienced severe financial hardship caused by the pandemic. We also have been active in maintaining our support within our local communities through charitable contributions.
Evaluation of Business Trends, Capital and Liquidity
We have run multiple scenarios based on the potential duration and severity of this crisis to better understand how our business might perform and stress-tested our capital, cash flows and liquidity. Our business has performed on the high-end of the scenarios, demonstrating its overall resilience.
Although in late March and through April, our businesses experienced a reduction in new sales across our Multifamily Housing and Global Automotive lines of business, as well as Global Preneed, these trends have generally reversed through the end of Third Quarter 2020. Our mobile business experienced lower trade-in activity and slower sales growth, which also improved through the end of Third Quarter 2020. We believe we have benefitted from our installed customer base across Connected Living, Global Automotive, Multifamily Housing and Global Preneed.
Third Quarter 2020 Global Lifestyle results were modestly impacted by COVID-19-related factors, including more favorable international claims activity in Connected Living and Global Automotive and lower expenses, offset by lower investment income and foreign exchange impacts. We expect that claims activity in Connected Living and Global Automotive will continue to normalize in the fourth quarter of 2020. We also expect investment income to be impacted from lower investment yields coming from new business. Throughout Global Lifestyle, we may also continue to see adverse fluctuations in foreign exchange.
Third Quarter 2020 Global Housing results were modestly impacted by COVID-19-related factors, including lower real estate owned (“REO”) volumes in Lender-placed Insurance and lower investment income, partially offset by lower expenses. For Lender-placed Insurance, we will continue to monitor the state of the overall housing market and the potential impact of the current mortgage moratorium, including REO volumes. Should the housing market deteriorate for a prolonged period, we would expect a longer-term increase in our placement rates. We also expect investment income to be impacted from lower investment yields.
For Global Preneed, sales have generally rebounded from April levels but remain below 2019 levels. We are also monitoring mortality trends, which have fluctuated during the pandemic, but were not a material driver of overall Global Preneed results in the quarter. We expect longer term results to be impacted from lower yields on new sales due to the current interest rate environment, given the average duration of our investment portfolio.
We continue to take actions to mitigate potential impacts, including deferring certain discretionary expenses and delaying the fulfillment of open positions in support functions, though we expect to see increased spending in these items in the fourth quarter of 2020, as well as in investments that had been deferred.
Throughout this period, we believe our liquidity has remained strong. As of September 30, 2020, we had $460.3 million of holding company liquidity.
For a discussion of the material risks relating to COVID-19 on our business, results of operations and financial condition, refer to the risk factor disclosed in Item 8.01 of our Current Report on Form 8-K filed on May 5, 2020 and “Item 1A—Risk Factors—The value of our deferred tax assets could become impaired, which could materially and adversely affect our results of operations and financial condition” in our 2019 Annual Report.
Global Preneed Goodwill Impairment and Review of Strategic Alternatives
OnDuring Third Quarter 2020, we identified impairment indicators impacting the fair value of Global Preneed in connection with exploring strategic alternatives for the Global Preneed business, including the possible sale of the business, to focus on opportunities within the broader Global Lifestyle and Global Housing portfolio. Such impairment indicators included the evaluation of the long-term economic performance of the segment in light of further expected decline in interest rates from the resurgence of COVID-19 cases. As interest rates are critical to the performance of the business, the anticipated declines in interest rates are expected to have adverse impacts on existing business and cause significant challenges to profitability from new business. The overall expected adverse impact to the business in the segment was an important indicator that triggered the requirement for an interim goodwill impairment analysis in the Third Quarter 2020. The fair value calculated in Third Quarter 2020 was lower than the carrying value of the reporting unit, resulting in the impairment of the entire goodwill of $137.8 million related to the Global Preneed reporting unit. For additional information on the impairment test, refer to Note 6 to the Consolidated Financial Statements included elsewhere in this Report.
Iké
In May 31, 2018,2020, we acquired TWGsold our minority interests in Iké Grupo, Iké Asistencia and certain of their affiliates (collectively, “Iké”), terminated our obligations to purchase the remaining shares of Iké, and settled a financial derivative that provided an economic hedge against declines in the Mexican Peso relative to the U.S. Dollar. These transactions resulted in net cash outflows of $85.3 million, which included financing of $34.0 million, the proceeds from the settlement of the derivative and transaction expenses. For additional information on this transaction, see “—Liquidity and Capital Resources” below and Note 5 to the Consolidated Financial Statements included elsewhere in this Report.
American Financial & Automotive Services
In May 2020, we completed our acquisition of American Financial & Automotive Services, Inc. (“AFAS”), a provider of finance and insurance products and services including vehicle service contracts, guaranteed asset protection insurance and other ancillary products sold directly through a network of nearly 600 franchised dealership clients across 40 states, for total consideration of $2.47 billion. For more information regarding the acquisition, see$176.9 million. See Note 4 to the Consolidated Financial Statements included elsewhere in this Report. On August 1, 2018, we sold our valuation and field services business (referred to as “Mortgage Solutions”) to Xome, an indirectly wholly owned subsidiary of WMIH Corp.
Catastrophe Reinsurance Program
In July 2019,June 2020, we finalized our 20192020 property catastrophe reinsurance program. The U.S. per-event catastrophe coverage provides $1.16 billion$930.0 million of protection in excess of $80.0 million of retention which was reduced from $120.0 million in the 2018 program.per event. The coverage was placed with more than 4540 reinsurers that are all rated A- or better by A.M. Best. See “Catastrophe Reinsurance Program” below.
In August 2019, we issued $350.0 millionAcquisition of 3.70% senior notes due 2030, and used the net proceeds, along with cash on hand, to complete a cash tender offer to purchase $100.0 million of the $375.0 million outstanding aggregate principal amount of our 6.75% senior notes due 2034 and to redeem $250.0 million of the $300.0 million outstanding aggregate principal amount of our floating rate senior notes due 2021. A loss on extinguishment of debt of $31.4 million, primarily related to incremental consideration required to be paid to debtholders as a result of the interest rate differential over the remaining term as compared to current rates, was reported in Third Quarter 2019 as a result of the cash tender offer. See “—Liquidity and Capital Resources,” below for further details.HYLA Mobile
In Third Quarter 2019, we recorded a $124.8 million after-tax loss related to a decrease in the estimated fair value of Iké Group, Iké Asistencia and certain of their subsidiaries (collectively, “Iké”). The loss included a $54.3 million increase in the liability related to our right to acquire the remainder of Iké from the majority shareholders (together with the majority shareholders’ right to put their interests in Iké to us, the “put/call”), a $66.8 million other-than-temporary impairment loss on our 40% ownership interest in Iké that includes consideration of cumulative foreign currency losses of $41.0 million recorded in other comprehensive income, and a $3.7 million valuation allowance against previously established deferred tax assets. In April 2019, we entered into a cooperation agreement with the majority shareholders of Iké to explore strategic alternatives. We also agreed to delay the call and put rights to January 31, 2020. Based on the review of strategic alternatives as of September 30, 2019, we have decided to pursue the sale of our interests in Iké. There can be no assurance that our efforts to sell our interests in Iké will be successful. In addition, there can be no assurance that the final sales price will approximate the expected sales price, which would result in an adjustment to the loss in a future period.
In October 2019,2020, we acquiredannounced the remaining 60% interest in MMI-CPR, LLC (dba Cell Phone Repair),signing of a global franchisordefinitive agreement to acquire HYLA Mobile, a provider of electronic device repair stores focusing on mobile device repair.smartphone software and trade-in and upgrade services, for $325.0 million. The acquisition is expected to close by the end of 2020, subject to regulatory and other customary approvals, and to be funded through a combination of existing cash at the holding company and new debt to be issued before closing.
Summary of Financial Results:Results
Consolidated net loss attributable to common stockholders wasdecreased $24.6 million, or 41%, to $34.9 million for Third Quarter 2020 from $59.5 million for Third Quarter 2019 compared with2019. The decrease was largely driven by the absence of the $124.8 million reduction in fair value of Iké, as well as improved results from our Global Housing segment, excluding reportable catastrophes, partially offset by the $135.6 million after-tax impairment on the Global Preneed goodwill and $51.3 million of higher after-tax reportable catastrophes for Global Housing.
Global Lifestyle segment net income attributableincreased $4.5 million, or 4%, to common stockholders of $48.3$106.6 million for Third Quarter 2018,2020 from $102.1 million for Third Quarter 2019, primarily driven by the changeConnected Living, mainly due to mobile from continued subscriber growth in fair value of the Company’sNorth America and Asia Pacific, as well as improved profitability from extended service contracts. Results were partially offset by lower investment income and unfavorable foreign exchange, as well as lower volumes and unfavorable loss experience in IkéGlobal Financial Services and Other, including impacts from COVID-19.
Global Lifestyle net earned premiums, fees and other income increased $55.7 million, or 3%, based on the Company’s strategic review process and the intent to now sell the business. In addition, a loss was recorded related mainly$1.81 billion for Third Quarter 2020 from $1.75 billion for Third Quarter 2019, primarily due to the August 2019 tender offer for a portion of the Company’s senior notes maturingprior period sales in 2034.Global Automotive, as well as continued mobile subscriber growth. The decreaseincrease was partially offset by $30.9lower mobile trade-in results, including a $39.0 million of lower reportable catastrophes (reportable catastrophe losses, net of reinsuranceimpact resulting from a previously disclosed mobile program change, and client profit sharing adjustments, and including reinstatement and other premiums) in Global Housing, and profitable growth within mobile in Global Lifestyle.unfavorable foreign exchange.
Global Housing segment net income increased $22.2decreased $28.5 million, or 114%69%, to $13.1 million for Third Quarter 2020 from $41.6 million for Third Quarter 2019 compared with $19.4 million for Third Quarter 2018, primarily due to lower reportable catastrophes.2019. Segment net income for Third Quarter 20192020 included $35.7$87.0 million of after-tax reportable catastrophes, primarily from Hurricane Dorian in the Bahamas,Laura, compared to $66.6$35.7 million inof reportable catastrophes infor Third Quarter 2018.2019. Excluding reportable catastrophes, segment net income decreasedincreased $22.8 million, primarily due to lower placement rates and lessmore favorable non-catastrophe loss experience withinacross our Specialty and Other products and Lender-placed Insurance business, as well as the cost of additional catastrophe reinsurance protection; partially offsetdriven by higher premium rates in our Lender-placed Insurancelower claims frequency, reserve releases related to run-off business and the absence of losses relatedpreviously implemented underwriting initiatives. Growth in Multifamily Housing and Specialty and Other products also contributed to the Mortgage Solutions business in Third Quarter 2018.increase.
Global Housing net earned premiums, fees and other income decreased $11.3$19.0 million, or 2%4%, to $491.3 million for Third Quarter 2020 from $510.3 million for Third Quarter 2019, from $521.6 million for Third Quarter 2018, mainly reflecting the sale of Mortgage Solutions. Excluding Mortgage Solutions, net earned premiums, fees and other income increased 1% primarily due to growth in our ride sharingexpected run-off of small commercial products and continued growthdeclines in our Multifamily Housing business, partially offset byLender-placed Insurance policies in-force from the cost of additional catastrophe reinsurance protection.
Global Lifestyle segment net income increased $26.2 million, or 35%, to $102.1 million for Third Quarter 2019 from $75.9 million for Third Quarter 2018.previously disclosed financially insolvent client. The increase was primarily due to strong organic growth in Connected Living, mainly from new and existing mobile clients in North America and Asia Pacific, as well as improved operating performance in our
European mobile business. Organic growth in Global Automotive also contributed to earnings. Thisdecrease was partially offset by continued investments to support growth in mobile.
Global Lifestyle net earned premiums, feesMultifamily Housing and other income increased $207.8 million, or 13%, to $1.75 billion for Third Quarter 2019 from $1.54 billion for Third Quarter 2018. The increase was mostly due to contributions from Connected Living, driven by continued mobile subscriber growth from protection programs added over the last two years,Specialty and higher trade-in volumes compared to the prior year period.Other products.
Global Preneed segment net income decreased $9.4increased $5.8 million, or 56%78%, to $13.2 million for Third Quarter 2020 from $7.4 million for Third Quarter 2019 from $16.8 million in2019. Third Quarter 2018, primarily due2019 included a $9.9 million after-tax expense related to an out of period adjustment of $9.9 million related to a netfor over-capitalization of deferred acquisition costs occurring over a ten-year period. Excluding this adjustment, underlying results increased modestlydecreased primarily due to higherlower investment income from lower yields and real estate joint venture partnerships and increased assets.compared to the prior year period.
Global Preneed net earned premiums, fees and other income increased $2.7$1.1 million, or 6%2%, to $51.9 million for Third Quarter 2020 from $50.8 million for Third Quarter 2019, from $48.1 million for Third Quarter 2018, primarily driven by growth in pre-funded funeral policies in the U.S. and the prior period sales of the pay for life (“Final Need”)Need product.
Critical Factors Affecting Results
Our results depend on, among other things, the appropriateness of our product pricing, underwriting, the accuracy of our reserving methodology for future policyholder benefits and claims, the frequency and severity of reportable and non-reportable catastrophes, returns on and values of invested assets, and our ability to manage our expenses and achieve expense savings. Our results will also depend on our ability to profitably grow our businesses, in particular our Connected Living, Multifamily Housing and Global Automotive businesses, and manage the pace of declines in placement ratesmaintaining our position in our Lender-placed Insurance business and the U.S.North American credit insurance business in Global Financial Services and Other. In addition, our results will be impacted by our ability to integrate TWG and achieve benefits and synergies from the acquisition. Factors affecting these items, including but not limited to,the impact of the COVID-19 pandemic and measures taken in response thereto, conditions in financial markets, the global economy and the markets in which we operate, fluctuations in exchange rates, interest rates and inflation, may have a material adverse effect on our results of operations or financial condition. For more information on these and other factors that could affect our results, see “Item 1A—Risk Factors”, below and in our 20182019 Annual Report, and “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Factors Affecting Results” in our 20182019 Annual Report.Report and “—Executive Summary—COVID-19” and “—Executive Summary—Our Response to COVID-19,” above.
Our results may be impacted by our ability to continue to grow in the markets in which we operate, including in our Connected Living, Multifamily Housing and Global Automotive businesses, and to manage our Lender-placed Insurance business, including the expected reduction in loans tracked from a financially insolvent client.businesses. Our mobile business is subject to volatility in mobile device trade-in volumes based on the actual and anticipated timing of the release of new devices and carrier promotional programs, as well as to changes in the mobile device market dynamics.consumer preferences. Our Lender-placed Insurance revenues will also be impacted by changes in the housing market. In addition, across many of our businesses, we must respond to the threat of disruption. See “Item 1A—Risk Factors—Business and Competitive Risks—Significant competitive pressures, changes in customer preferences and disruption could adversely affect our results of operations” in our 20182019 Annual Report.
Management believes that we will have sufficient liquidity to satisfy our needs over the next twelve months, including the ability to pay interest on our debt and dividends on our common and preferred stock.
For the nine months ended September 30, 2019,Nine Months 2020, net cash provided by operating activities was $1.17 billion;$901.6 million; net cash used in investing activities was $613.6 million$275.2 million; and net cash used in financing activities was $50.1$296.8 million. We had $1.75$2.20 billion in cash and cash equivalents as of September 30, 20192020 as compared to $1.25$1.87 billion as of December 31, 2018.2019. See “—Liquidity and Capital Resources,” below for further details.
Critical Accounting Policies and Estimates
Our 20182019 Annual Report describes the accounting policies and estimates that are critical to the understanding of our results of operations, financial condition and liquidity. The accounting policies and estimation process described in the 20182019 Annual Report were consistently applied to the unaudited interim Consolidated Financial Statements for Third Quarter 2019.2020.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Note 3 to the Consolidated Financial Statements included elsewhere in this Report.
Regulatory Matters
We are subject to extensive federal, state and international regulation and supervision in the jurisdictions in which we do business, including insurance holding company laws in the jurisdictions in which our insurance companies are domiciled. For example, under applicable insurance holding company regulations, no person may acquire a controlling interest in the Company or any of our insurance company subsidiaries, unless such person has obtained prior regulatory approval for such acquisition. Under these laws, “control” is presumed when any person acquires or holds, directly or indirectly, 10% or more of our common stock or of the voting securities of any of our insurance company subsidiaries. To obtain approval, the proposed acquiror must file an application with the relevant regulator, including the regulator for the insurance subsidiaries we have established in the Netherlands for continued access to the European markets after the transition period for the U.K.’s withdrawal from the European Union. As previously disclosed, our insurance subsidiaries in the Netherlands have received the necessary regulatory approvals for the Company to continue conducting business in Europe following the end of the transition period. For additional information, see “Item 1—Business—Regulation” in our 2019 Annual Report.
Results of Operations
Assurant Consolidated
Overview
The table below presents information regarding our consolidated results of operations for the periods indicated:
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Revenues: | | | | | | | |
Net earned premiums | $ | 2,015.4 |
| | $ | 1,853.6 |
| | $ | 5,952.5 |
| | $ | 4,316.8 |
|
Fees and other income | 295.1 |
| | 257.9 |
| | 959.5 |
| | 976.6 |
|
Net investment income | 169.5 |
| | 151.8 |
| | 490.0 |
| | 417.6 |
|
Net realized gains (losses) on investments | 14.9 |
| | (5.7 | ) | | 61.5 |
| | (16.6 | ) |
Amortization of deferred gains on disposal of businesses | 4.4 |
| | 12.7 |
| | 16.9 |
| | 46.2 |
|
Total revenues | 2,499.3 |
| | 2,270.3 |
| | 7,480.4 |
| | 5,740.6 |
|
Benefits, losses and expenses: | | | | | | | |
Policyholder benefits | 705.2 |
| | 680.9 |
| | 2,006.9 |
| | 1,586.1 |
|
Amortization of deferred acquisition costs and value of business acquired | 869.5 |
| | 750.6 |
| | 2,462.6 |
| | 1,560.2 |
|
Underwriting, general and administrative expenses | 764.5 |
| | 736.5 |
| | 2,388.1 |
| | 2,229.7 |
|
Iké net losses | 121.1 |
| | — |
| | 130.5 |
| | — |
|
Interest expense | 32.2 |
| | 26.5 |
| | 85.2 |
| | 74.0 |
|
Loss on extinguishment of debt | 31.4 |
| | — |
| | 31.4 |
| | — |
|
Total benefits, losses and expenses | 2,523.9 |
| | 2,194.5 |
| | 7,104.7 |
| | 5,450.0 |
|
(Loss) income before provision for income taxes | (24.6 | ) | | 75.8 |
| | 375.7 |
| | 290.6 |
|
Provision for income taxes | 28.6 |
| | 22.8 |
| | 117.7 |
| | 64.6 |
|
Net (loss) income | (53.2 | ) | | 53.0 |
| | 258.0 |
| | 226.0 |
|
Less: Net income attributable to non-controlling interest | (1.6 | ) | | — |
| | (3.0 | ) | | — |
|
Net (loss) income attributable to stockholders | (54.8 | ) | | 53.0 |
| | 255.0 |
| | 226.0 |
|
Less: Preferred stock dividends | (4.7 | ) | | (4.7 | ) | | (14.0 | ) | | (9.5 | ) |
Net (loss) income attributable to common stockholders | $ | (59.5 | ) | | $ | 48.3 |
| | $ | 241.0 |
| | $ | 216.5 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Revenues: | | | | | | | |
Net earned premiums | $ | 2,102.8 | | | $ | 2,015.4 | | | $ | 6,223.0 | | | $ | 5,952.5 | |
Fees and other income | 245.9 | | | 295.1 | | | 934.3 | | | 959.5 | |
Net investment income | 135.1 | | | 169.5 | | | 428.3 | | | 490.0 | |
Net realized gains (losses) on investments | 16.6 | | | 14.9 | | | (54.6) | | | 61.5 | |
Amortization of deferred gains on disposal of businesses | 2.1 | | | 4.4 | | | 8.7 | | | 16.9 | |
Total revenues | 2,502.5 | | | 2,499.3 | | | 7,539.7 | | | 7,480.4 | |
Benefits, losses and expenses: | | | | | | | |
Policyholder benefits | 709.6 | | | 705.2 | | | 1,908.9 | | | 2,006.9 | |
Amortization of deferred acquisition costs and value of business acquired | 946.2 | | | 869.5 | | | 2,745.7 | | | 2,462.6 | |
Underwriting, general and administrative expenses | 687.5 | | | 764.5 | | | 2,331.8 | | | 2,388.1 | |
Goodwill impairment | 137.8 | | | — | | | 137.8 | | | — | |
Iké net losses | — | | | 121.1 | | | 5.9 | | | 130.5 | |
Interest expense | 25.5 | | | 32.2 | | | 77.7 | | | 85.2 | |
Loss on extinguishment of debt | — | | | 31.4 | | | — | | | 31.4 | |
Total benefits, losses and expenses | 2,506.6 | | | 2,523.9 | | | 7,207.8 | | | 7,104.7 | |
(Loss) income before provision for income taxes | (4.1) | | | (24.6) | | | 331.9 | | | 375.7 | |
Provision for income taxes | 26.4 | | | 28.6 | | | 28.2 | | | 117.7 | |
Net (loss) income | (30.5) | | | (53.2) | | | 303.7 | | | 258.0 | |
Less: Net loss (income) attributable to non-controlling interest | 0.3 | | | (1.6) | | | (1.1) | | | (3.0) | |
Net (loss) income attributable to stockholders | (30.2) | | | (54.8) | | | 302.6 | | | 255.0 | |
Less: Preferred stock dividends | (4.7) | | | (4.7) | | | (14.0) | | | (14.0) | |
Net (loss) income attributable to common stockholders | $ | (34.9) | | | $ | (59.5) | | | $ | 288.6 | | | $ | 241.0 | |
For the Three Months Ended September 30, 20192020 Compared to the Three Months Ended September 30, 20182019
Net (Loss) IncomeLoss Attributable to Common Stockholders
Consolidated net loss attributable to common stockholders was $59.5decreased $24.6 million, or 41%, to $34.9 million for Third Quarter 2019 compared with net income attributable to common stockholders of $48.32020 from $59.5 million loss for Third Quarter 2018.2019. The decrease in net loss was primarily due to the absence of certain events that occurred in Third Quarter 2019, was impacted bymainly a $124.8 million after-tax loss related to a decrease in the estimated fair value of Iké. The loss included a $54.3 million increase in the liability related to the put/call, a $66.8 million other-than-temporary impairment loss on our 40% ownership interest in Iké that includes consideration of cumulative foreign currency losses of $41.0 million previously recorded in other comprehensive income, and a $3.7 million valuation allowance for previously established deferred tax assets. The deferred tax benefits on the losses recorded in Third Quarter 2019 were fully reduced by valuation allowances. Third Quarter 2019 was also impacted by, $29.6 million of after-tax debt related charges that includedassociated with refinancing debt at a $24.8lower interest rate and a $9.9 million after-tax expense related to an out of period adjustment in our Global Preneed segment for over-capitalization of deferred acquisition costs occurring over a ten-year period. Additionally, the decrease in net loss was due to improved results from our Global Housing segment, excluding reportable catastrophes, due to more favorable non-catastrophe loss experience across our Specialty and Other products and Lender-placed Insurance driven by lower claims frequency, previously implemented underwriting initiatives and reserve releases related to run-off business, and a $9.7 million of income, net of certain exit costs, from the sale of our CLO asset management platform. The decrease in net loss was partially offset by the $135.6 million after-tax impairment on the extinguishment of debt from the $100.0 million cash tender offer of our 6.75% senior notes due 2034Global Preneed goodwill and $4.5$51.3 million of additional interest expense from debt related derivative instruments. Excluding these items, net income increased $46.6 million primarily due to a $31.4 million reduction inhigher after-tax reportable catastrophes and an increase in net income from thefor Global Lifestyle segment mostly driven by our Connected Living business due to growth in mobile device protection products and related services.Housing.
For the Nine Months Ended September 30, 20192020 Compared to the Nine Months Ended September 30, 20182019
Net Income Attributable to Common Stockholders
Consolidated net income attributable to common stockholders increased $24.5$47.6 million, or 11%20%, to $288.6 million for Nine Months 2020 from $241.0 million for Nine Months 2019 from $216.5 million2019. Net income for Nine Months 2018. The increase was2020 included $109.9 million of reportable catastrophes, primarily driven by growthrelated to Hurricane Laura, compared to $41.4 million in our Global Lifestyle segment, benefiting from contributions from the TWG acquisition and continued organic growth in Connected Living, as well as an increase inNine Months 2019. Excluding reportable catastrophes, net realized gains on investments mostlyincome increased $116.1 million, or 41%, due to an increase in the fair valueabsence of equity securities and sales of fixed maturity securities. The increase was also due to a $42.7 million reduction in lower net charges associated with the TWG acquisition and a $32.7 million reduction in reportable catastrophes. These increases were partially offset by $131.4 million after-tax loss related to a decrease in the estimated fair value of Iké, the $29.6 million of debt related charges, as well as additional after-tax interest expense and preferred dividends from acquisition-related financing and lower after-tax amortization of deferred gains associated with the sale of Assurant Employee Benefits.
Global Housing
Overview
The table below presents information regarding the Global Housing segment’s results of operations for the periods indicated:
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Revenues: | | | | | | | |
Net earned premiums | $ | 475.2 |
| | $ | 463.0 |
| | $ | 1,407.1 |
| | $ | 1,349.1 |
|
Fees and other income | 35.1 |
| | 58.6 |
| | 113.3 |
| | 238.1 |
|
Net investment income | 22.4 |
| | 17.1 |
| | 66.6 |
| | 53.2 |
|
Total revenues | 532.7 |
| | 538.7 |
| | 1,587.0 |
| | 1,640.4 |
|
Benefits, losses and expenses: | | | | | | | |
Policyholder benefits | 245.8 |
| | 264.8 |
| | 652.5 |
| | 621.1 |
|
Amortization of deferred acquisition costs and value of business acquired | 47.3 |
| | 51.2 |
| | 158.7 |
| | 151.2 |
|
Underwriting, general and administrative expenses | 187.6 |
| | 198.7 |
| | 541.6 |
| | 662.9 |
|
Total benefits, losses and expenses | 480.7 |
| | 514.7 |
| | 1,352.8 |
| | 1,435.2 |
|
Segment income before provision for income taxes | 52.0 |
| | 24.0 |
| | 234.2 |
| | 205.2 |
|
Provision for income taxes | 10.4 |
| | 4.6 |
| | 48.4 |
| | 42.0 |
|
Segment net income | $ | 41.6 |
| | $ | 19.4 |
| | $ | 185.8 |
| | $ | 163.2 |
|
Net earned premiums, fees and other income: | | | | | | | |
Lender-placed Insurance | $ | 275.6 |
| | $ | 288.9 |
| | $ | 831.6 |
| | $ | 867.1 |
|
Multifamily Housing | 108.7 |
| | 103.4 |
| | 319.3 |
| | 300.9 |
|
Mortgage Solutions | — |
| | 17.3 |
| | — |
| | 116.1 |
|
Specialty and Other | 126.0 |
| | 112.0 |
| | 369.5 |
| | 303.1 |
|
Total | $ | 510.3 |
| | $ | 521.6 |
| | $ | 1,520.4 |
| | $ | 1,587.2 |
|
For the Three Months Ended September 30, 2019 Compared to the Three Months Ended September 30, 2018
Net Income
Segment net income increased $22.2 million, or 114%, to $41.6 million for Third Quarter 2019 from $19.4 million for Third Quarter 2018, primarily due to after-tax reportable catastrophes of $35.7 million in Third Quarter 2019 compared to $66.6 million in Third Quarter 2018. Excluding reportable catastrophes, segment net income decreased $8.7 million, or 10%, primarily due to a decline in placement rates and in-force policies in our Lender-placed Insurance business, higher non-catastrophe loss experience, mainly from our small commercial product and Lender-placed Insurance, and the cost of additional catastrophe reinsurance protection secured as part of the 2019 program. The decrease that was partially offset by premium rate increases in Lender-placed Insurance and the sale of our Mortgage Solutions business in Third Quarter 2018.
Total Revenues
Total revenues decreased $6.0 million, or 1%, to $532.7 million for Third Quarter 2019 from $538.7 million for Third Quarter 2018. The decrease was mainly due to a decrease in fees and other income of $23.5 million, or 40%, primarily due to the sale of our Mortgage Solutions business. Net earned premiums increased $12.2 million, or 3%, primarily due to the growth of our Specialty and Other business, mostly driven by our ride sharing, international property and small commercial products, increased premium rates in Lender-placed Insurance and the continued growth from renters insurance in Multifamily Housing. The increase in net earned premiums was partially offset by a decline in placement rates and in-force policies in Lender-placed Insurance, higher reinsurance reinstatement premiums related to Hurricane Dorian in Third Quarter 2019 and the cost of additional catastrophe reinsurance protection. Net investment income increased $5.3 million, or 31%, primarily due to higher income from real estate related investments.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses decreased $34.0 million, or 7%, to $480.7 million for Third Quarter 2019 from $514.7 million for Third Quarter 2018. Total policyholder benefits decreased $19.0 million, or 7%, primarily due to a $42.0 million decrease in reportable catastrophe losses, partially offset by higher non-catastrophe losses related to reserve strengthening for our small commercial product, higher frequency and severity of water related claims and modest increases across various other products. Underwriting, general and administrative expenses decreased $11.1 million, or 6%, primarily due to the sale of our Mortgage Solutions business, partially offset by higher expenses to support growth in Specialty and Other and Multifamily Housing.
For the Nine Months Ended September 30, 2019 Compared to the Nine Months Ended September 30, 2018
Net Income
Segment net income increased $22.6 million, or 14%, to $185.8 million for Nine Months 2019 compared to $163.2 million for Nine Months 2018, primarily due to after-tax reportable catastrophes of $41.8 millionrecorded in Nine Months 2019, comparedan $84.4 million tax benefit related to $74.3the utilization of net operating losses in connection with the CARES Act, an improvement in our results from Global Housing and Global Lifestyle as well as the absence of $29.6 million inof after-tax debt related charges from Nine Months 2018. Excluding reportable catastrophes, segment net income decreased $9.9 million, or 4%, primarily driven by a decline in placement rates in Lender-placed Insurance, the cost of additional catastrophe reinsurance protection secured as part of the 2019 program and higher non-catastrophe loss experience from an increase in the frequency and severity of losses from our small commercial product. The decrease was2019. These increases were partially offset by premium rate increasesthe $135.6 million after-tax impairment on the Global Preneed goodwill and a $67.7 million after-tax decrease in Lender-placed Insurance, the salenet unrealized gains from changes in fair value of our Mortgage Solutions business in Nine Months 2018equity securities and growth from Multifamily Housing.
Total Revenues
Total revenues decreased $53.4collateralized loan obligations that included $34.4 million or 3%, to $1.59 billionof after-tax net unrealized losses for Nine Months 2019 from $1.64 billion2020 compared to $33.3 million of after-tax net unrealized gains for Nine Months 2018. The decrease was mainly due to a decrease in fees and other income of $124.8 million, or 52%, primarily due to the sale of our Mortgage Solutions business. Net earned premiums increased $58.0 million, or 4%, primarily due to growth from our Specialty and Other business, mainly small commercial and ride sharing products, premium rate increases in Lender-placed Insurance and continued growth from renters insurance in our Multifamily Housing business, partially offset by a decline in placement rates in Lender-placed Insurance and the cost of additional catastrophe reinsurance protection. Net investment income increased $13.4 million, or 25%, primarily due to higher income from real estate related investments and an increase in invested assets.2019.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses decreased $82.4 million, or 6%, to $1.35 billion for Nine Months 2019 from $1.44 billion for Nine Months 2018. The decrease was primarily due to a decrease in underwriting, general and administrative expenses of $121.3 million, or 18%, primarily due to the sale of our Mortgage Solutions business. The decrease was partially offset by an increase in total policyholder benefits of $31.4 million, or 5%, primarily due to unfavorable non-catastrophe loss experience mainly from our small commercial product. The increase in non-catastrophe losses was partially offset by a $43.3 million decrease in reportable catastrophe losses. Amortization of deferred acquisition costs increased $7.5 million, or 5%, primarily related to growth in our small commercial product.
Global Lifestyle
Overview
The table below presents information regarding the Global Lifestyle segment’s results of operations for the periods indicated:
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 | | 2020 | | 2019 | | 2020 | | 2019 |
Revenues: | | | | | | | | Revenues: | | | | | | | |
Net earned premiums | $ | 1,525.1 |
| | $ | 1,376.0 |
| | $ | 4,499.1 |
| | $ | 2,923.9 |
| Net earned premiums | $ | 1,633.2 | | | $ | 1,525.1 | | | $ | 4,799.0 | | | $ | 4,499.1 | |
Fees and other income | 224.2 |
| | 165.5 |
| | 740.9 |
| | 638.3 |
| Fees and other income | 171.8 | | | 224.2 | | | 721.6 | | | 740.9 | |
Net investment income | 62.1 |
| | 54.7 |
| | 177.5 |
| | 123.4 |
| Net investment income | 44.6 | | | 62.1 | | | 143.5 | | | 177.5 | |
Total revenues | 1,811.4 |
| | 1,596.2 |
| | 5,417.5 |
| | 3,685.6 |
| Total revenues | 1,849.6 | | | 1,811.4 | | | 5,664.1 | | | 5,417.5 | |
Benefits, losses and expenses: | | | | | | | | Benefits, losses and expenses: | | | | | | | |
Policyholder benefits | 392.1 |
| | 352.2 |
| | 1,152.2 |
| | 773.1 |
| Policyholder benefits | 365.4 | | | 392.1 | | | 1,044.7 | | | 1,152.2 | |
Amortization of deferred acquisition costs and value of business acquired | 791.9 |
| | 681.5 |
| | 2,238.4 |
| | 1,357.4 |
| Amortization of deferred acquisition costs and value of business acquired | 870.5 | | | 791.9 | | | 2,519.7 | | | 2,238.4 | |
Underwriting, general and administrative expenses | 496.6 |
| | 463.0 |
| | 1,622.6 |
| | 1,298.4 |
| Underwriting, general and administrative expenses | 480.8 | | | 496.6 | | | 1,649.4 | | | 1,622.6 | |
Total benefits, losses and expenses | 1,680.6 |
| | 1,496.7 |
| | 5,013.2 |
| | 3,428.9 |
| Total benefits, losses and expenses | 1,716.7 | | | 1,680.6 | | | 5,213.8 | | | 5,013.2 | |
Segment income before provision for income taxes | 130.8 |
| | 99.5 |
| | 404.3 |
| | 256.7 |
| Segment income before provision for income taxes | 132.9 | | | 130.8 | | | 450.3 | | | 404.3 | |
Provision for income taxes | 28.7 |
| | 23.6 |
| | 92.3 |
| | 56.9 |
| Provision for income taxes | 26.3 | | | 28.7 | | | 101.0 | | | 92.3 | |
Segment net income | $ | 102.1 |
| | $ | 75.9 |
| | $ | 312.0 |
| | $ | 199.8 |
| Segment net income | $ | 106.6 | | | $ | 102.1 | | | $ | 349.3 | | | $ | 312.0 | |
Net earned premiums, fees and other income: | | | | | | | | Net earned premiums, fees and other income: | | | | | | | |
Connected Living (mobile and service contracts) | $ | 931.9 |
| | $ | 735.3 |
| | $ | 2,764.6 |
| | $ | 1,966.7 |
| Connected Living (mobile and service contracts) | $ | 909.5 | | | $ | 931.9 | | | $ | 2,914.4 | | | $ | 2,764.6 | |
Global Automotive | 706.9 |
| | 679.6 |
| | 2,131.9 |
| | 1,243.3 |
| Global Automotive | 802.5 | | | 706.9 | | | 2,311.0 | | | 2,131.9 | |
Global Financial Services and Other | 110.5 |
| | 126.6 |
| | 343.5 |
| | 352.2 |
| Global Financial Services and Other | 93.0 | | | 110.5 | | | 295.2 | | | 343.5 | |
Total | $ | 1,749.3 |
| | $ | 1,541.5 |
| | $ | 5,240.0 |
| | $ | 3,562.2 |
| Total | $ | 1,805.0 | | | $ | 1,749.3 | | | $ | 5,520.6 | | | $ | 5,240.0 | |
Net earned premiums, fees and other income: | | | | | | | | Net earned premiums, fees and other income: | | | | | | | |
Domestic | $ | 1,237.6 |
| | $ | 1,098.8 |
| | $ | 3,680.0 |
| | $ | 2,414.5 |
| Domestic | $ | 1,335.4 | | | $ | 1,237.6 | | | $ | 4,080.2 | | | $ | 3,680.0 | |
International | 511.7 |
| | 442.7 |
| | 1,560.0 |
| | 1,147.7 |
| International | 469.6 | | | 511.7 | | | 1,440.4 | | | 1,560.0 | |
Total | $ | 1,749.3 |
| | $ | 1,541.5 |
| | $ | 5,240.0 |
| | $ | 3,562.2 |
| Total | $ | 1,805.0 | | | $ | 1,749.3 | | | $ | 5,520.6 | | | $ | 5,240.0 | |
For the Three Months Ended September 30, 20192020 Compared to the Three Months Ended September 30, 20182019
Net Income
Segment net income increased $26.2$4.5 million, or 35%4%, to $106.6 million for Third Quarter 2020 from $102.1 million for Third Quarter 2019 from $75.9 million for Third Quarter 2018.2019. The increase was primarily driven by organic growth in our Connected Living business, mainly from new and existing mobile protection programs in Asia Pacific and North America, higher operating performance in the European mobile business and higher domestic trade-in volumes from our mobile repair and logistics business. Favorable loss experience and organic growth in Global Automotive also contributed to segment net income. The increase was partially offset by an increase in expenses related to the continued investments in our Connected Living business and a decline in Global Financial Services and Other, mainly related to the continued runoff of our domestic credit business and unfavorable foreign exchange.
Total Revenues
Total revenues increased $215.2 million, or 13%, to $1.81 billion for Third Quarter 2019 from $1.60 billion for Third Quarter 2018. Net earned premiums increased $149.1 million, or 11%, mostly driven by our Connected Living business, mainly due to mobile due to subscriber growth in North America and Asia Pacific, as well as improved profitability from extended service contracts. This was partially offset by a reduction in investment income and unfavorable foreign exchange. The increase was further offset by lower income in our Global Financial Services and Other business, mainly due to lower volumes, including anticipated declines from business in run-off, and higher loss experience.
Total Revenues
Total revenues increased $38.2 million, or 2%, to $1.85 billion for Third Quarter 2020 from $1.81 billion for Third Quarter 2019. Net earned premiums increased $108.1 million, or 7%, primarily due to continued growth from prior period production in our Global Automotive business and growth in our Connected Living business, mainly due to growth in extended service contract programs and continued subscriber growth from mobile protection programs,programs. These increases in net earned premiums were partially offset by unfavorable foreign exchange and growth from extended service products anda decrease in our Global AutomotiveFinancial Services and Other business, mainly due to strong prior period sales of warranty contracts.domestic business in run-off. Fees and other income increased $58.7declined $52.4 million, or 35%23%, primarily due to higher domestic trade-in volumesdeclines in our Connected Living business, mainly driven by lower mobile repairtrade-in results from our repairs and logistics business, and growthincluding a $39.0 million impact resulting from recently launcheda previously disclosed mobile programs.program contract change. Net investment income increased $7.4declined $17.5 million, or 14%28%, primarily due to higherlower cash yields, lower income from real estate related investments.and lower yielding new money bond purchases.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased $183.9$36.1 million, or 12%2%, to $1.72 billion for Third Quarter 2020 from $1.68 billion for Third Quarter 2019 from $1.50 billion for Third Quarter 2018. Policyholder benefits increased $39.92019. The increase was primarily due to a $78.6 million, or 11%10%, primarily driven by growthincrease in our Connected Living business and domestic automotive businesses. Amortizationamortization of deferred acquisition costs and value of business acquired, increased $110.4 million, or 16%, primarily duemainly related to prior period growth infrom our Connected Living and Global Automotive businesses. Underwriting, general and administrative expenses increased $33.6business. The increase was partially offset by a decrease in policyholder benefits of $26.7 million, or 7%, primarily due to growth from newlower global losses in our Global Automotive business, driven in part by COVID-19. This increase was also partially offset by a decrease in underwriting, general and existingadministrative expenses of $15.8 million, or 3%, primarily due to a mobile business, including higherprogram contract change and lower trade-in volumes fromin our domestic mobile repairrepairs and logistics business and continued investmentsfavorable foreign exchange, partially offset by growth in our mobile protection and extended service contract programs within our Connected Living business and growth in our Global Automotive business.
For the Nine Months Ended September 30, 20192020 Compared to the Nine Months Ended September 30, 20182019
Net Income
Segment net income increased $112.2$37.3 million, or 56%12%, to $349.3 million for Nine Months 2020 from $312.0 million for Nine Months 2019, from $199.8and included a $6.7 million after-tax benefit for Nine Months 2018,a client recoverable in our Connected Living business. Excluding this item, the increase in net income was mostly driven by our Connected Living business, primarily due to the TWG acquisition. Excluding TWG, segment netcontinued mobile subscriber growth in North America and Asia Pacific and improved profitability from extended service contracts. The increase was also due to higher income increased $52.2 million, or 33%, primarily driven byand organic growth in our Connected LivingGlobal Automotive business, as well as $9.2 million of client benefits. These increases were partially offset by lower income in our Global Financial Services and Other business mainly due to lower volumes, higher loss experience, and anticipated declines from new and existing mobile protection programsdomestic business in Asia Pacific and North America, higher operating performance in the European mobile business and higher domestic trade-in volumes and margins from our mobile repair and logistics business.run-off. The increase was partiallyfurther offset by an increasea reduction in expenses relatednet investment income due to the continued investments in our Connected Living business, the continued runoff of our domestic credit businesslower cash yields, lower income from real estate and lower yielding new money bond purchases and unfavorable foreign exchange.exchange volatility.
Total Revenues
Total revenues increased $1.73$246.6 million, or 5%, to $5.66 billion or 47%, tofor Nine Months 2020 from $5.42 billion for Nine Months 2019 from $3.69 billion for Nine Months 2018, primarily attributable to TWG. Excluding the impact of TWG, net2019. Net earned premiums increased $425.1$299.9 million, or 20%7%, mostlyprimarily driven by organiccontinued growth from prior period production in our Global Automotive business and growth in our Connected Living business, mainly due to growth in extended service contract programs and continued subscriber growth from mobile protection programs, and our Global Automotive business, due to strong prior period sales of warranty contracts. The increase wasprograms. These increases in net earned premiums were partially offset by unfavorable foreign exchange. Excluding the impact of TWG, feesexchange and a decrease in our Global Financial Services and Other business, mainly due to domestic business in run-off. Fees and other income increased $79.9decreased $19.3 million, or 13%3%, primarily due to higherlower mobile trade-in volumesresults, including a $39 million impact resulting from a previously disclosed mobile program contract change, partially offset by an $11.1 million benefit for a client recoverable in our mobile repair and logistics business and growth from recently launched mobile programs. Excluding the impact of TWG, net investmentConnected Living business. Investment income increased $13.6decreased $34.0 million, or 15%19%, primarily due to higherlower cash yields, lower income from real estate, related investments.lower yielding new money bond purchases and unfavorable foreign exchange volatility.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased $1.58$200.6 million, or 4%, to $5.21 billion or 46%, tofor Nine Months 2020 from $5.01 billion for Nine Months 2019, from $3.43 billion for Nine Months 2018, primarily attributable to TWG. Excluding the impact of TWG, policyholder benefits increased $92.2 million, or 16%, primarily driven by growth from our Connected Living and Global Automotive businesses, partially offset by more favorable loss experience in the European mobile business and favorable foreign exchange. Excluding the impact of TWG, amortization of deferred acquisition costs and value of business acquired, which increased $107.7$281.3 million, or 12%13%, primarily due to growth from our Global Automotive and Connected Living businesses. Underwriting, general and administrative expenses increased $26.8 million, or 2%, primarily due to growth in our mobile protection and extended service contract programs within our Connected Living business and growth in our Global Automotive business, partially offset by a mobile program contract change in our domestic repairs and logistics business and favorable foreign exchange. These increases were partially offset by a decrease in policyholder benefits of $107.5 million, or 9%, mostly due to a favorable mix of mobile business, lower loss experience within our Connected Living businesses.and Global Automotive businesses, in part due to COVID-19, and favorable foreign exchange, partially offset by an increase from growth in our Connected Living business.
Global Housing
Overview
The table below presents information regarding the Global Housing segment’s results of operations for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Revenues: | | | | | | | |
Net earned premiums | $ | 453.6 | | | $ | 475.2 | | | $ | 1,374.6 | | | $ | 1,407.1 | |
Fees and other income | 37.7 | | | 35.1 | | | 106.0 | | | 113.3 | |
Net investment income | 16.5 | | | 22.4 | | | 54.9 | | | 66.6 | |
Total revenues | 507.8 | | | 532.7 | | | 1,535.5 | | | 1,587.0 | |
Benefits, losses and expenses: | | | | | | | |
Policyholder benefits | 272.8 | | | 245.8 | | | 651.9 | | | 652.5 | |
Amortization of deferred acquisition costs and value of business acquired | 56.8 | | | 47.3 | | | 169.9 | | | 158.7 | |
Underwriting, general and administrative expenses | 162.2 | | | 187.6 | | | 496.6 | | | 541.6 | |
Total benefits, losses and expenses | 491.8 | | | 480.7 | | | 1,318.4 | | | 1,352.8 | |
Segment income before provision for income taxes | 16.0 | | | 52.0 | | | 217.1 | | | 234.2 | |
Provision for income taxes | 2.9 | | | 10.4 | | | 44.4 | | | 48.4 | |
Segment net income | $ | 13.1 | | | $ | 41.6 | | | $ | 172.7 | | | $ | 185.8 | |
Net earned premiums, fees and other income: | | | | | | | |
Lender-placed Insurance | $ | 258.2 | | | $ | 275.6 | | | $ | 787.5 | | | $ | 831.6 | |
Multifamily Housing | 117.9 | | | 108.7 | | | 338.1 | | | 319.3 | |
Specialty and Other | 115.2 | | | 126.0 | | | 355.0 | | | 369.5 | |
Total | $ | 491.3 | | | $ | 510.3 | | | $ | 1,480.6 | | | $ | 1,520.4 | |
For the Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019
Net Income
Segment net income decreased $28.5 million, or 69%, to $13.1 million for Third Quarter 2020 from $41.6 million for Third Quarter 2019. Segment net income for Third Quarter 2020 included $87.0 million of reportable catastrophes, primarily related to Hurricane Laura, compared to $35.7 million for Third Quarter 2019. Excluding reportable catastrophes, segment net income increased $22.8 million, or 29%, primarily due to more favorable non-catastrophe loss experience across Specialty and Other products and Lender-placed Insurance, driven by lower claims frequency, reserve releases related to run-off business and previously implemented underwriting initiatives. Higher premium rates in our Lender-placed Insurance business, continued growth in Multifamily Housing and our Specialty and Other products also contributed to the impactincrease. The increase was partially offset by declines in our Lender-placed Insurance policies in-force from a financially insolvent client, as well as lower REO volumes as less homes are moving to default or foreclosure due to moratoriums enacted in connection with COVID-19.
Total Revenues
Total revenues decreased $24.9 million, or 5%, to $507.8 million for Third Quarter 2020 from $532.7 million for Third Quarter 2019. Net earned premiums decreased $21.6 million, or 5%, primarily due to the run-off of TWG,our small commercial product and declines in our Lender-placed Insurance business, mainly from the reduction of policies in-force for a financially insolvent client and lower REO volume, partially offset by continued growth from renters insurance in our Multifamily Housing business and premium rate increases in our Lender-placed Insurance business. Net investment income decreased $5.9 million, or 26%, primarily due to lower income from real estate related investments and lower cash yields. These decreases were partially offset by an increase in fees and other income of $2.6 million, or 7%, primarily due to an increase in installment fees for renters insurance in our Multifamily Housing business.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased $11.1 million, or 2%, to $491.8 million for Third Quarter 2020 from $480.7 million for Third Quarter 2019. The increase was primarily due to an increase in total policyholder benefits of $27.0 million, or 11%, from higher reportable catastrophe losses related to hurricanes and wildfires across the U.S. in Third Quarter 2020, partially offset by a decrease in non-catastrophe losses, as explained above. This increase was partially offset by a decrease of $15.9 million, or 7%, in amortization of deferred acquisition costs and underwriting, general and administrative expenses, increased $251.0primarily due to lower employment related expenses in our Lender-placed Insurance business.
For the Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019
Net Income
Segment net income decreased $13.1 million, or 21%7%, to $172.7 million for Nine Months 2020 from $185.8 million for Nine Months 2019. Segment income for Nine Months 2020 included $109.9 million of reportable catastrophes, primarily related to Hurricane Laura, compared to $41.8 million in Nine Months 2019. Excluding reportable catastrophes, segment net income increased $55.0 million, or 24%, primarily driven by favorable non-catastrophe losses across all major products, higher premium rates in our Lender-placed Insurance business, the absence of losses from our small commercial product and lower operating expenses in our Lender-placed Insurance business. The increase was partially offset by a reduction in policies in-force from a financially insolvent client and lower REO volume and fee income in our Lender-placed Insurance business.
Total Revenues
Total revenues decreased $51.5 million, or 3%, to $1.54 billion for Nine Months 2020 from $1.59 billion for Nine Months 2019. Net earned premiums decreased $32.5 million, or 2%, primarily due to growthdeclines in our global mobile programs, including higher trade-in volumesLender-placed Insurance business, mainly from our domestic mobile repairthe reduction in policies in-force for a financially insolvent client and logistics business, and continued investmentslower REO volume, as well as declines in our Connected Living business,small commercial business. This decrease was partially offset by favorable foreign exchange.premium rate increases in our Lender-placed Insurance business, continued growth from renters insurance in Multifamily Housing business, and growth from our Specialty and Other business, mainly sharing economy products. Fees and other income decreased $7.3 million, or 6%, primarily due to a decline in Lender-placed Insurance, mostly due to lower loss draft volume. Net investment income decreased $11.7 million, or 18%, primarily due to lower income from real estate related investments, lower cash yields, and a decrease in invested assets.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses decreased $34.4 million, or 3%, to $1.32 billion for Nine Months 2020 from $1.35 billion for Nine Months 2019. The decrease was primarily due to a decrease of $33.8 million, or 5%, in amortization of deferred acquisition costs and underwriting, general and administrative expenses, primarily due to lower employment related expenses in our Lender-placed Insurance business. Policyholder benefits decreased $0.6 million mainly from lower non-catastrophe losses across all major products and the absence of losses from our small commercial product, partially offset by higher reportable catastrophe losses.
Catastrophe Reinsurance Program
In June 2020, we finalized our 2020 property catastrophe reinsurance program. The U.S. per-event catastrophe coverage provides $930.0 million of protection in excess of $80.0 million of retention per event. The coverage was placed with more than 40 reinsurers that are all rated A- or better by A.M. Best.
Acquisition of HYLA Mobile
In October 2020, we announced the signing of a definitive agreement to acquire HYLA Mobile, a provider of smartphone software and trade-in and upgrade services, for $325.0 million. The acquisition is expected to close by the end of 2020, subject to regulatory and other customary approvals, and to be funded through a combination of existing cash at the holding company and new debt to be issued before closing.
Summary of Financial Results
Consolidated net loss attributable to common stockholders decreased $24.6 million, or 41%, to $34.9 million for Third Quarter 2020 from $59.5 million for Third Quarter 2019. The decrease was largely driven by the absence of the $124.8 million reduction in fair value of Iké, as well as improved results from our Global Preneed
Overview
The table below presents information regardingHousing segment, excluding reportable catastrophes, partially offset by the $135.6 million after-tax impairment on the Global Preneed segment’sgoodwill and $51.3 million of higher after-tax reportable catastrophes for Global Housing.
Global Lifestyle segment net income increased $4.5 million, or 4%, to $106.6 million for Third Quarter 2020 from $102.1 million for Third Quarter 2019, primarily driven by Connected Living, mainly due to mobile from continued subscriber growth in North America and Asia Pacific, as well as improved profitability from extended service contracts. Results were partially offset by lower investment income and unfavorable foreign exchange, as well as lower volumes and unfavorable loss experience in Global Financial Services and Other, including impacts from COVID-19.
Global Lifestyle net earned premiums, fees and other income increased $55.7 million, or 3%, to $1.81 billion for Third Quarter 2020 from $1.75 billion for Third Quarter 2019, primarily due to prior period sales in Global Automotive, as well as continued mobile subscriber growth. The increase was partially offset by lower mobile trade-in results, of operationsincluding a $39.0 million impact resulting from a previously disclosed mobile program change, and unfavorable foreign exchange.
Global Housing segment net income decreased $28.5 million, or 69%, to $13.1 million for the periods indicated:
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Revenues: | | | | | | | |
Net earned premiums | $ | 15.1 |
| | $ | 14.6 |
| | $ | 46.3 |
| | $ | 43.4 |
|
Fees and other income | 35.7 |
| | 33.5 |
| | 103.2 |
| | 97.8 |
|
Net investment income | 73.0 |
| | 70.1 |
| | 212.7 |
| | 203.8 |
|
Total revenues | 123.8 |
| | 118.2 |
| | 362.2 |
| | 345.0 |
|
Benefits, losses and expenses: | | | | | | | |
Policyholder benefits | 67.3 |
| | 64.5 |
| | 202.1 |
| | 196.2 |
|
Amortization of deferred acquisition costs and value of business acquired | 30.3 |
| | 17.9 |
| | 65.5 |
| | 51.6 |
|
Underwriting, general and administrative expenses | 18.2 |
| | 14.4 |
| | 49.8 |
| | 44.4 |
|
Total benefits, losses and expenses | 115.8 |
| | 96.8 |
| | 317.4 |
| | 292.2 |
|
Segment income before provision for income taxes | 8.0 |
| | 21.4 |
| | 44.8 |
| | 52.8 |
|
Provision for income taxes | 0.6 |
| | 4.6 |
| | 8.7 |
| | 11.5 |
|
Segment net income | $ | 7.4 |
| | $ | 16.8 |
| | $ | 36.1 |
| | $ | 41.3 |
|
For the Three Months Ended September 30, 2019 Compared to the Three Months Ended September 30, 2018
Net Income
Third Quarter 2020 from $41.6 million for Third Quarter 2019. Segment net income for Third Quarter 2020 included $87.0 million of reportable catastrophes, primarily from Hurricane Laura, compared to $35.7 million of reportable catastrophes for Third Quarter 2019. Excluding reportable catastrophes, segment net income increased $22.8 million, primarily due to more favorable non-catastrophe loss experience across our Specialty and Other products and Lender-placed Insurance driven by lower claims frequency, reserve releases related to run-off business and previously implemented underwriting initiatives. Growth in Multifamily Housing and Specialty and Other products also contributed to the increase.
Global Housing net earned premiums, fees and other income decreased $9.4$19.0 million, or 56%4%, to $7.4$491.3 million infor Third Quarter 2020 from $510.3 million for Third Quarter 2019, primarily due to expected run-off of small commercial products and declines in Lender-placed Insurance policies in-force from $16.8the previously disclosed financially insolvent client. The decrease was partially offset by continued growth in Multifamily Housing and Specialty and Other products.
Global Preneed segment net income increased $5.8 million, inor 78%, to $13.2 million for Third Quarter 2018, primarily due to2020 from $7.4 million for Third Quarter 2019. Third Quarter 2019 included a $9.9 million after-tax expense related to an out of period adjustment for over-capitalization of deferred acquisition costs occurring over a ten-year period. See Note 2Excluding this adjustment, underlying results decreased primarily due to lower investment income from lower yields and real estate joint venture partnerships compared to the prior year period.
Global Preneed net earned premiums, fees and other income increased $1.1 million, or 2%, to $51.9 million for Third Quarter 2020 from $50.8 million for Third Quarter 2019, primarily driven by prior period sales of the Final Need product.
Critical Factors Affecting Results
Our results depend on, among other things, the appropriateness of our product pricing, underwriting, the accuracy of our reserving methodology for future policyholder benefits and claims, the frequency and severity of reportable and non-reportable catastrophes, returns on and values of invested assets, and our ability to manage our expenses and achieve expense savings. Our results will also depend on our ability to profitably grow our businesses, in particular our Connected Living, Multifamily Housing and Global Automotive businesses, and maintaining our position in our Lender-placed Insurance business and the North American credit insurance business in Global Financial Services and Other. Factors affecting these items, including the impact of the COVID-19 pandemic and measures taken in response thereto, conditions in financial markets, the global economy and the markets in which we operate, fluctuations in exchange rates, interest rates and inflation, may have a material adverse effect on our results of operations or financial condition. For more information on these and other factors that could affect our results, see “Item 1A—Risk Factors”, below and in our 2019 Annual Report, “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Factors Affecting Results” in our 2019 Annual Report and “—Executive Summary—COVID-19” and “—Executive Summary—Our Response to COVID-19,” above.
Our results may be impacted by our ability to continue to grow in the accompanying Notesmarkets in which we operate, including in our Connected Living, Multifamily Housing and Global Automotive businesses. Our mobile business is subject to volatility in mobile device trade-in volumes based on the actual and anticipated timing of the release of new devices and carrier promotional programs, as well as to changes in consumer preferences. Our Lender-placed Insurance revenues will also be impacted by changes in the housing market. In addition, across many of our businesses, we must respond to the threat of disruption. See “Item 1A—Risk Factors—Business and Competitive Risks—Significant competitive pressures, changes in customer preferences and disruption could adversely affect our results of operations” in our 2019 Annual Report.
Management believes that we will have sufficient liquidity to satisfy our needs over the next twelve months, including the ability to pay interest on our debt and dividends on our common and preferred stock.
For Nine Months 2020, net cash provided by operating activities was $901.6 million; net cash used in investing activities was $275.2 million; and net cash used in financing activities was $296.8 million. We had $2.20 billion in cash and cash equivalents as of September 30, 2020 as compared to $1.87 billion as of December 31, 2019. See “—Liquidity and Capital Resources,” below for further details.
Critical Accounting Policies and Estimates
Our 2019 Annual Report describes the accounting policies and estimates that are critical to the understanding of our results of operations, financial condition and liquidity. The accounting policies and estimation process described in the 2019 Annual Report were consistently applied to the unaudited interim Consolidated Financial Statements for Third Quarter 2020.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Note 3 to the Consolidated Financial Statements included elsewhere in this Report.
Regulatory Matters
We are subject to extensive federal, state and international regulation and supervision in the jurisdictions in which we do business, including insurance holding company laws in the jurisdictions in which our insurance companies are domiciled. For example, under applicable insurance holding company regulations, no person may acquire a controlling interest in the Company or any of our insurance company subsidiaries, unless such person has obtained prior regulatory approval for such acquisition. Under these laws, “control” is presumed when any person acquires or holds, directly or indirectly, 10% or more of our common stock or of the voting securities of any of our insurance company subsidiaries. To obtain approval, the proposed acquiror must file an application with the relevant regulator, including the regulator for the insurance subsidiaries we have established in the Netherlands for continued access to the European markets after the transition period for the U.K.’s withdrawal from the European Union. As previously disclosed, our insurance subsidiaries in the Netherlands have received the necessary regulatory approvals for the Company to continue conducting business in Europe following the end of the transition period.
For additional information, see “Item 1—Business—Regulation” in our 2019 Annual Report.
Results of Operations
Assurant Consolidated
Overview
The table below presents information regarding our consolidated results of operations for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Revenues: | | | | | | | |
Net earned premiums | $ | 2,102.8 | | | $ | 2,015.4 | | | $ | 6,223.0 | | | $ | 5,952.5 | |
Fees and other income | 245.9 | | | 295.1 | | | 934.3 | | | 959.5 | |
Net investment income | 135.1 | | | 169.5 | | | 428.3 | | | 490.0 | |
Net realized gains (losses) on investments | 16.6 | | | 14.9 | | | (54.6) | | | 61.5 | |
Amortization of deferred gains on disposal of businesses | 2.1 | | | 4.4 | | | 8.7 | | | 16.9 | |
Total revenues | 2,502.5 | | | 2,499.3 | | | 7,539.7 | | | 7,480.4 | |
Benefits, losses and expenses: | | | | | | | |
Policyholder benefits | 709.6 | | | 705.2 | | | 1,908.9 | | | 2,006.9 | |
Amortization of deferred acquisition costs and value of business acquired | 946.2 | | | 869.5 | | | 2,745.7 | | | 2,462.6 | |
Underwriting, general and administrative expenses | 687.5 | | | 764.5 | | | 2,331.8 | | | 2,388.1 | |
Goodwill impairment | 137.8 | | | — | | | 137.8 | | | — | |
Iké net losses | — | | | 121.1 | | | 5.9 | | | 130.5 | |
Interest expense | 25.5 | | | 32.2 | | | 77.7 | | | 85.2 | |
Loss on extinguishment of debt | — | | | 31.4 | | | — | | | 31.4 | |
Total benefits, losses and expenses | 2,506.6 | | | 2,523.9 | | | 7,207.8 | | | 7,104.7 | |
(Loss) income before provision for income taxes | (4.1) | | | (24.6) | | | 331.9 | | | 375.7 | |
Provision for income taxes | 26.4 | | | 28.6 | | | 28.2 | | | 117.7 | |
Net (loss) income | (30.5) | | | (53.2) | | | 303.7 | | | 258.0 | |
Less: Net loss (income) attributable to non-controlling interest | 0.3 | | | (1.6) | | | (1.1) | | | (3.0) | |
Net (loss) income attributable to stockholders | (30.2) | | | (54.8) | | | 302.6 | | | 255.0 | |
Less: Preferred stock dividends | (4.7) | | | (4.7) | | | (14.0) | | | (14.0) | |
Net (loss) income attributable to common stockholders | $ | (34.9) | | | $ | (59.5) | | | $ | 288.6 | | | $ | 241.0 | |
For the Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019
Net Loss Attributable to Common Stockholders
Consolidated net loss attributable to common stockholders decreased $24.6 million, or 41%, to $34.9 million for Third Quarter 2020 from $59.5 million loss for Third Quarter 2019. The decrease in net loss was primarily due to the absence of certain events that occurred in Third Quarter 2019, mainly a $124.8 million after-tax loss related to a decrease in the estimated fair value of Iké, $29.6 million of after-tax debt related charges associated with refinancing debt at a lower interest rate and a $9.9 million after-tax expense related to an out of period adjustment in our Global Preneed segment for over-capitalization of deferred acquisition costs occurring over a ten-year period. Additionally, the decrease in net loss was due to improved results from our Global Housing segment, excluding reportable catastrophes, due to more favorable non-catastrophe loss experience across our Specialty and Other products and Lender-placed Insurance driven by lower claims frequency, previously implemented underwriting initiatives and reserve releases related to run-off business, and a $9.7 million of income, net of certain exit costs, from the sale of our CLO asset management platform. The decrease in net loss was partially offset by the $135.6 million after-tax impairment on the Global Preneed goodwill and $51.3 million of higher after-tax reportable catastrophes for Global Housing.
For the Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019
Net Income Attributable to Common Stockholders
Consolidated net income attributable to common stockholders increased $47.6 million, or 20%, to $288.6 million for Nine Months 2020 from real estate$241.0 million for Nine Months 2019. Net income for Nine Months 2020 included $109.9 million of reportable catastrophes, primarily related investments.to Hurricane Laura, compared to $41.4 million in Nine Months 2019. Excluding reportable catastrophes, net income increased $116.1 million, or 41%, due to the absence of a $131.4 million after-tax loss related to a decrease in the estimated fair value of Iké that was recorded in Nine Months 2019, an $84.4 million tax benefit related to the utilization of net operating losses in connection with the CARES Act, an improvement in our results from Global Housing and Global Lifestyle as well as the absence of $29.6 million of after-tax debt related charges from Nine Months 2019. These increases were partially offset by the $135.6 million after-tax impairment on the Global Preneed goodwill and a $67.7 million after-tax decrease in net unrealized gains from changes in fair value of our equity securities and collateralized loan obligations that included $34.4 million of after-tax net unrealized losses for Nine Months 2020 compared to $33.3 million of after-tax net unrealized gains for Nine Months 2019.
Global Lifestyle
Overview
The table below presents information regarding the Global Lifestyle segment’s results of operations for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Revenues: | | | | | | | |
Net earned premiums | $ | 1,633.2 | | | $ | 1,525.1 | | | $ | 4,799.0 | | | $ | 4,499.1 | |
Fees and other income | 171.8 | | | 224.2 | | | 721.6 | | | 740.9 | |
Net investment income | 44.6 | | | 62.1 | | | 143.5 | | | 177.5 | |
Total revenues | 1,849.6 | | | 1,811.4 | | | 5,664.1 | | | 5,417.5 | |
Benefits, losses and expenses: | | | | | | | |
Policyholder benefits | 365.4 | | | 392.1 | | | 1,044.7 | | | 1,152.2 | |
Amortization of deferred acquisition costs and value of business acquired | 870.5 | | | 791.9 | | | 2,519.7 | | | 2,238.4 | |
Underwriting, general and administrative expenses | 480.8 | | | 496.6 | | | 1,649.4 | | | 1,622.6 | |
Total benefits, losses and expenses | 1,716.7 | | | 1,680.6 | | | 5,213.8 | | | 5,013.2 | |
Segment income before provision for income taxes | 132.9 | | | 130.8 | | | 450.3 | | | 404.3 | |
Provision for income taxes | 26.3 | | | 28.7 | | | 101.0 | | | 92.3 | |
Segment net income | $ | 106.6 | | | $ | 102.1 | | | $ | 349.3 | | | $ | 312.0 | |
Net earned premiums, fees and other income: | | | | | | | |
Connected Living (mobile and service contracts) | $ | 909.5 | | | $ | 931.9 | | | $ | 2,914.4 | | | $ | 2,764.6 | |
Global Automotive | 802.5 | | | 706.9 | | | 2,311.0 | | | 2,131.9 | |
Global Financial Services and Other | 93.0 | | | 110.5 | | | 295.2 | | | 343.5 | |
Total | $ | 1,805.0 | | | $ | 1,749.3 | | | $ | 5,520.6 | | | $ | 5,240.0 | |
Net earned premiums, fees and other income: | | | | | | | |
Domestic | $ | 1,335.4 | | | $ | 1,237.6 | | | $ | 4,080.2 | | | $ | 3,680.0 | |
International | 469.6 | | | 511.7 | | | 1,440.4 | | | 1,560.0 | |
Total | $ | 1,805.0 | | | $ | 1,749.3 | | | $ | 5,520.6 | | | $ | 5,240.0 | |
For the Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019
Net Income
Segment net income increased $4.5 million, or 4%, to $106.6 million for Third Quarter 2020 from $102.1 million for Third Quarter 2019. The increase was primarily driven by our Connected Living business, mainly due to mobile due to subscriber growth in North America and Asia Pacific, as well as improved profitability from extended service contracts. This was partially offset by a reduction in investment income and unfavorable foreign exchange. The increase was further offset by lower income in our Global Financial Services and Other business, mainly due to lower volumes, including anticipated declines from business in run-off, and higher loss experience.
Total Revenues
Total revenues increased $5.6$38.2 million, or 5%2%, to $123.8 million$1.85 billion for Third Quarter 20192020 from $118.2 million$1.81 billion for Third Quarter 2018. Fees and other income2019. Net earned premiums increased $2.2$108.1 million, or 7%, primarily due to continued growth from prior period production in our Global Automotive business and growth in our Connected Living business, mainly due to growth in extended service contract programs and continued subscriber growth from mobile protection programs. These increases in net earned premiums were partially offset by unfavorable foreign exchange and a decrease in our Global Financial Services and Other business, mainly due to domestic business in run-off. Fees and other income declined $52.4 million, or 23%, primarily due to declines in our Connected Living business, mainly driven by lower mobile trade-in results from our repairs and logistics business, including a $39.0 million impact resulting from a previously disclosed mobile program contract change. Net investment income declined $17.5 million, or 28%, primarily due to lower cash yields, lower income from real estate and lower yielding new money bond purchases.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased $36.1 million, or 2%, to $1.72 billion for Third Quarter 2020 from $1.68 billion for Third Quarter 2019. The increase was primarily due to a $78.6 million, or 10%, increase in amortization of deferred acquisition costs and value of business acquired, mainly related to prior period growth from our Global Automotive business. The increase was partially offset by a decrease in policyholder benefits of $26.7 million, or 7%, primarily due to lower global losses in our Global Automotive business, driven in part by COVID-19. This increase was also partially offset by a decrease in underwriting, general and administrative expenses of $15.8 million, or 3%, primarily due to a mobile program contract change and lower trade-in volumes in our domestic repairs and logistics business and favorable foreign exchange, partially offset by growth in our mobile protection and extended service contract programs within our Connected Living business and growth in our Global Automotive business.
For the U.S.Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019
Net Income
Segment net income increased $37.3 million, or 12%, to $349.3 million for Nine Months 2020 from $312.0 million for Nine Months 2019, and included a $6.7 million after-tax benefit for a client recoverable in our Connected Living business. Excluding this item, the increase in net income was mostly driven by our Connected Living business, primarily due to continued mobile subscriber growth in North America and Asia Pacific and improved profitability from extended service contracts. The increase was also due to higher income and organic growth in our Global Automotive business, as well as $9.2 million of client benefits. These increases were partially offset by lower income in our Global Financial Services and Other business mainly due to lower volumes, higher loss experience, and anticipated declines from domestic business in run-off. The increase was further offset by a reduction in net investment income due to lower cash yields, lower income from real estate and lower yielding new money bond purchases and unfavorable foreign exchange volatility.
Total Revenues
Total revenues increased $246.6 million, or 5%, to $5.66 billion for Nine Months 2020 from $5.42 billion for Nine Months 2019. Net earned premiums increased $299.9 million, or 7%, primarily driven by continued growth from prior period production in our Global Automotive business and growth in our Connected Living business, mainly due to growth in extended service contract programs and continued subscriber growth from mobile protection programs. These increases in net earned premiums were partially offset by unfavorable foreign exchange and a decrease in our Global Financial Services and Other business, mainly due to domestic business in run-off. Fees and other income decreased $19.3 million, or 3%, primarily due to lower mobile trade-in results, including a $39 million impact resulting from a previously disclosed mobile program contract change, partially offset by an $11.1 million benefit for a client recoverable in our Connected Living business. Investment income decreased $34.0 million, or 19%, primarily due to lower cash yields, lower income from real estate, lower yielding new money bond purchases and unfavorable foreign exchange volatility.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased $200.6 million, or 4%, to $5.21 billion for Nine Months 2020 from $5.01 billion for Nine Months 2019, primarily driven by amortization of deferred acquisition costs and value of business acquired, which increased $281.3 million, or 13%, primarily due to growth from our Global Automotive and Connected Living businesses. Underwriting, general and administrative expenses increased $26.8 million, or 2%, primarily due to growth in our mobile protection and extended service contract programs within our Connected Living business and growth in our Global Automotive business, partially offset by a mobile program contract change in our domestic repairs and logistics business and favorable foreign exchange. These increases were partially offset by a decrease in policyholder benefits of $107.5 million, or 9%, mostly due to a favorable mix of mobile business, lower loss experience within our Connected Living and Global Automotive businesses, in part due to COVID-19, and favorable foreign exchange, partially offset by an increase from growth in our Connected Living business.
Global Housing
Overview
The table below presents information regarding the Global Housing segment’s results of operations for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Revenues: | | | | | | | |
Net earned premiums | $ | 453.6 | | | $ | 475.2 | | | $ | 1,374.6 | | | $ | 1,407.1 | |
Fees and other income | 37.7 | | | 35.1 | | | 106.0 | | | 113.3 | |
Net investment income | 16.5 | | | 22.4 | | | 54.9 | | | 66.6 | |
Total revenues | 507.8 | | | 532.7 | | | 1,535.5 | | | 1,587.0 | |
Benefits, losses and expenses: | | | | | | | |
Policyholder benefits | 272.8 | | | 245.8 | | | 651.9 | | | 652.5 | |
Amortization of deferred acquisition costs and value of business acquired | 56.8 | | | 47.3 | | | 169.9 | | | 158.7 | |
Underwriting, general and administrative expenses | 162.2 | | | 187.6 | | | 496.6 | | | 541.6 | |
Total benefits, losses and expenses | 491.8 | | | 480.7 | | | 1,318.4 | | | 1,352.8 | |
Segment income before provision for income taxes | 16.0 | | | 52.0 | | | 217.1 | | | 234.2 | |
Provision for income taxes | 2.9 | | | 10.4 | | | 44.4 | | | 48.4 | |
Segment net income | $ | 13.1 | | | $ | 41.6 | | | $ | 172.7 | | | $ | 185.8 | |
Net earned premiums, fees and other income: | | | | | | | |
Lender-placed Insurance | $ | 258.2 | | | $ | 275.6 | | | $ | 787.5 | | | $ | 831.6 | |
Multifamily Housing | 117.9 | | | 108.7 | | | 338.1 | | | 319.3 | |
Specialty and Other | 115.2 | | | 126.0 | | | 355.0 | | | 369.5 | |
Total | $ | 491.3 | | | $ | 510.3 | | | $ | 1,480.6 | | | $ | 1,520.4 | |
For the Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019
Net Income
Segment net income decreased $28.5 million, or 69%, to $13.1 million for Third Quarter 2020 from $41.6 million for Third Quarter 2019. Segment net income for Third Quarter 2020 included $87.0 million of reportable catastrophes, primarily related to Hurricane Laura, compared to $35.7 million for Third Quarter 2019. Excluding reportable catastrophes, segment net income increased $22.8 million, or 29%, primarily due to more favorable non-catastrophe loss experience across Specialty and Other products and Lender-placed Insurance, driven by lower claims frequency, reserve releases related to run-off business and previously implemented underwriting initiatives. Higher premium rates in our Lender-placed Insurance business, continued growth in Multifamily Housing and our Specialty and Other products also contributed to the increase. The increase was partially offset by declines in our Lender-placed Insurance policies in-force from a financially insolvent client, as well as lower REO volumes as less homes are moving to default or foreclosure due to moratoriums enacted in connection with COVID-19.
Total Revenues
Total revenues decreased $24.9 million, or 5%, to $507.8 million for Third Quarter 2020 from $532.7 million for Third Quarter 2019. Net earned premiums decreased $21.6 million, or 5%, primarily due to the run-off of our small commercial product and declines in our Lender-placed Insurance business, mainly from the reduction of policies in-force for a financially insolvent client and lower REO volume, partially offset by continued growth from renters insurance in our Multifamily Housing business and premium rate increases in our Lender-placed Insurance business. Net investment income increased $2.9decreased $5.9 million, or 4%26%, primarily due to higherlower income from real estate related investments and lower cash yields. These decreases were partially offset by an increase in fees and other income of $2.6 million, or 7%, primarily due to an increase in installment fees for renters insurance in our Multifamily Housing business.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased $11.1 million, or 2%, to $491.8 million for Third Quarter 2020 from $480.7 million for Third Quarter 2019. The increase was primarily due to an increase in total policyholder benefits of $27.0 million, or 11%, from higher reportable catastrophe losses related to hurricanes and wildfires across the U.S. in Third Quarter 2020, partially offset by a decrease in non-catastrophe losses, as explained above. This increase was partially offset by a decrease of $15.9 million, or 7%, in amortization of deferred acquisition costs and underwriting, general and administrative expenses, primarily due to lower employment related expenses in our Lender-placed Insurance business.
For the Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019
Net Income
Segment net income decreased $13.1 million, or 7%, to $172.7 million for Nine Months 2020 from $185.8 million for Nine Months 2019. Segment income for Nine Months 2020 included $109.9 million of reportable catastrophes, primarily related to Hurricane Laura, compared to $41.8 million in Nine Months 2019. Excluding reportable catastrophes, segment net income increased $55.0 million, or 24%, primarily driven by favorable non-catastrophe losses across all major products, higher premium rates in our Lender-placed Insurance business, the absence of losses from our small commercial product and lower operating expenses in our Lender-placed Insurance business. The increase was partially offset by a reduction in policies in-force from a financially insolvent client and lower REO volume and fee income in our Lender-placed Insurance business.
Total Revenues
Total revenues decreased $51.5 million, or 3%, to $1.54 billion for Nine Months 2020 from $1.59 billion for Nine Months 2019. Net earned premiums decreased $32.5 million, or 2%, primarily due to declines in our Lender-placed Insurance business, mainly from the reduction in policies in-force for a financially insolvent client and lower REO volume, as well as declines in our small commercial business. This decrease was partially offset by premium rate increases in our Lender-placed Insurance business, continued growth from renters insurance in Multifamily Housing business, and growth from our Specialty and Other business, mainly sharing economy products. Fees and other income decreased $7.3 million, or 6%, primarily due to a decline in Lender-placed Insurance, mostly due to lower loss draft volume. Net investment income decreased $11.7 million, or 18%, primarily due to lower income from real estate related investments, lower cash yields, and a decrease in invested assets.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased $19.0decreased $34.4 million, or 20%3%, to $115.8 million for Third Quarter 2019 from $96.8 million for Third Quarter 2018, primarily due to a $14.2 million out of period adjustment related to an over-capitalization of deferred acquisition costs occurring over a ten-year period.
For the Nine Months Ended September 30, 2019 Compared to the Nine Months Ended September 30, 2018
Net Income
Segment net income decreased $5.2 million, or 13%, to $36.1 million in Nine Months 2019 from $41.3 million in Nine Months 2018, primarily due to a $9.9 million after-tax expense related to an out of period adjustment for the net over-capitalization of deferred acquisition costs occurring over a ten-year period, as well as increased general expenses. The decrease was partially offset by higher income from real estate related investments and an increase in invested assets consistent with the growth of the domestic preneed business, increased sales of Preneed policies and lower mortality.
Total Revenues
Total revenues increased $17.2 million, or 5%, to $362.2 million$1.32 billion for Nine Months 20192020 from $345.0 million$1.35 billion for Nine Months 2018. Fees and other income increased $5.4 million, or 6%, primarily due to growth in the U.S. business, partially offset by unfavorable foreign exchange. Net investment income increased $8.9 million, or 4%, primarily due to higher income from real estate related investments and an increase in invested assets in line with the growth of the domestic preneed business, partially offset by unfavorable foreign exchange.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased $25.2 million, or 9%, to $317.4 million for Nine Months 2019 from $292.2 million for Nine Months 2018, primarily due to a $14.2 million out of period adjustment related to the net over-capitalization of deferred acquisition costs occurring over a ten-year period, increased information technology expense and growth in the domestic preneed business, partially offset by favorable foreign exchange.
Corporate and Other
Overview
2019. The tables below present information regarding the Corporate and Other’s segment results of operations for the periods indicated:
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Revenues: | | | | | | | |
Net earned premiums | $ | — |
| | $ | — |
| | $ | — |
| | $ | 0.4 |
|
Fees and other income | 0.1 |
| | 0.3 |
| | 2.1 |
| | 2.4 |
|
Net investment income | 12.0 |
| | 9.9 |
| | 33.2 |
| | 37.2 |
|
Net realized gains (losses) on investments | 14.9 |
| | (5.7 | ) | | 61.5 |
| | (16.6 | ) |
Amortization of deferred gains on disposal of businesses | 4.4 |
| | 12.7 |
| | 16.9 |
| | 46.2 |
|
Total revenues | 31.4 |
| | 17.2 |
| | 113.7 |
| | 69.6 |
|
Benefits, losses and expenses: | | | | | | | |
Policyholder benefits | — |
| | (0.6 | ) | | 0.1 |
| | (4.3 | ) |
General and administrative expenses | 62.1 |
| | 60.4 |
| | 174.1 |
| | 224.0 |
|
Iké net losses | 121.1 |
| | — |
| | 130.5 |
| | — |
|
Interest expense | 32.2 |
| | 26.5 |
| | 85.2 |
| | 74.0 |
|
Loss on extinguishment of debt | 31.4 |
| | — |
| | 31.4 |
| | — |
|
Total benefits, losses and expenses | 246.8 |
| | 86.3 |
| | 421.3 |
| | 293.7 |
|
Segment loss before benefit for income taxes | (215.4 | ) | | (69.1 | ) | | (307.6 | ) | | (224.1 | ) |
Benefit for income taxes | (11.1 | ) | | (10.0 | ) | | (31.7 | ) | | (45.8 | ) |
Segment net loss | (204.3 | ) | | (59.1 | ) | | (275.9 | ) | | (178.3 | ) |
Less: Net income attributable to non-controlling interest | (1.6 | ) | | — |
| | (3.0 | ) | | — |
|
Net loss attributable to stockholders | (205.9 | ) | | (59.1 | ) | | (278.9 | ) | | (178.3 | ) |
Less: Preferred stock dividends | (4.7 | ) | | (4.7 | ) | | (14.0 | ) | | (9.5 | ) |
Net loss attributable to common stockholders | $ | (210.6 | ) | | $ | (63.8 | ) | | $ | (292.9 | ) | | $ | (187.8 | ) |
For the Three Months Ended September 30, 2019 Compared to the Three Months Ended September 30, 2018
Net Loss Attributable to Common Stockholders
Segment net loss attributable to common stockholders increased $146.8 million, or 230%, to a net loss of $210.6 million for Third Quarter 2019 from a net loss of $63.8 million for Third Quarter 2018. Third Quarter 2019 included a $124.8 million of after-tax loss related to a decrease in the estimated fair value of Iké and $29.6 million of debt related charges (each as described above in this MD&A). Excluding these items, the segment net loss attributable to common stockholders decreased $7.6 million, or 12%, primarily due to an increase in net realized gains on investments due to sales of fixed maturity securities and an increase in the fair value of equity securities.
Total Revenues
Total revenues increased $14.2 million, or 83%, to $31.4 million for Third Quarter 2019 from $17.2 million for Third Quarter 2018, primarily due to an increase in net realized gains on investments due to net realized gains from sales of fixed maturity securities and an increase in the fair value of equity securities, partially offset by lower amortization of deferred gains associated with the sale of Assurant Employee Benefits.
Total Expenses
Total benefits, losses and expenses increased $160.5 million, or 186%, to $246.8 million for Third Quarter 2019 from $86.3 million for Third Quarter 2018. The increase in expenses was primarily due to a $121.1decrease of $33.8 million, loss related to a decrease
or 5%, in estimated fair valueamortization of Iké consisting of a $54.3 million increase in the liability related to the put/call to acquire the remaining 60% interest in Ikédeferred acquisition costs and a $66.8 million other-than-temporary impairment loss on our 40% ownership interest in Iké that includes consideration of cumulative foreign currency losses of $41.0 million previously recorded in other comprehensive income. The increase inunderwriting, general and administrative expenses, was further driven by $37.4 million of debt related charges that included a $31.4 million loss on extinguishment of debt and $5.6 million of additional interest expense from derivative instruments. The increase was alsoprimarily due to a $9.6lower employment related expenses in our Lender-placed Insurance business. Policyholder benefits decreased $0.6 million incremental loss from the sale our Mortgage Solutions business due to a reduction in the earn-out receivable established at the time of sale resultingmainly from lower than expected retentionnon-catastrophe losses across all major products and achievementthe absence of new business targets and unfavorable development on certain claims. These increases werelosses from our small commercial product, partially offset by lower remeasurement related foreign exchange losses from our operations in Argentina.
For the Nine Months Ended September 30, 2019 Compared to the Nine Months Ended September 30, 2018
Net Loss Attributable to Common Stockholders
Segment net loss attributable to common stockholders increased $105.1 million, or 56%, to a net loss of $292.9 million for Nine Months 2019 from a net loss of $187.8 million for Nine Months 2018. Nine Months 2019 included a $131.4 million of after-tax loss related to a decrease in the estimated fair value of Iké and $29.6 million of after-tax debt related charges reported in Third Quarter 2019. Excluding these items, segment net loss attributable to common stockholders decreased $55.9 million, or 30%, primarily due to an increase in net realized gains on investments that was driven by an increase in the fair value of equity securities and sales of fixed maturity securities, a $42.7 million after-tax reduction in net charges associated with the TWG acquisition and a $24.9 million after-tax decrease in the loss on the sale of our Mortgage Solutions business. The decrease was partially offset by additional interest expense and preferred dividends from acquisition related financing, lower amortization of deferred gains associated with the sale of Assurant Employee Benefits and a $12.2 million after-tax impairment of certain intangible assets from our acquisition of Green Tree.
Total Revenues
Total revenues increased $44.1 million, or 63%, to $113.7 million for Nine Months 2019 from $69.6 million for Nine Months 2018, primarily due to an increase in net realized gains on investments mostly due an increase in the fair value of equity securities and sales of fixed maturity securities, partially offset by lower amortization of deferred gains associated with the sale of Assurant Employee Benefits.
Total Expenses
Total benefits, losses and expenses increased $127.6 million, or 43%, to $421.3 million for Nine Months 2019 from $293.7 million for Nine Months 2018. The increase in expenses for Nine Months 2019 was primarily due to a $130.5 million loss related to a decrease in estimated fair value of Iké, $37.4 million of debt related charges associated with debt transactions from Third Quarter 2019, an increase in financing costs related to TWG acquisition financing and a $15.6 million impairment of certain intangible assets from our acquisition of Green Tree. The increases were partially offset by a $52.6 million decrease in net charges associated with the TWG acquisition and a $31.4 million reduction in loss on the sale of our Mortgage Solutions business.
Investments
We had total investments of $14.55 billion and $13.40 billion as of September 30, 2019 and December 31, 2018, respectively. Net unrealized gains on our fixed maturity securities portfolio increased $893.2 million during Nine Months 2019, from $423.1 million as of December 31, 2018 to $1.32 billion as of September 30, 2019. This increase was mainly due to a decrease in U.S. Treasury yields and tightening credit spreads.
The following table shows the credit quality of our fixed maturity securities portfolio as of the dates indicated:
|
| | | | | | | | | | | | | |
| Fair value as of |
Fixed Maturity Securities by Credit Quality | September 30, 2019 | | December 31, 2018 |
Aaa / Aa / A | $ | 8,084.0 |
| | 65.1 | % | | $ | 7,329.8 |
| | 65.1 | % |
Baa | 3,750.9 |
| | 30.2 | % | | 3,322.7 |
| | 29.5 | % |
Ba | 459.0 |
| | 3.7 | % | | 447.9 |
| | 4.0 | % |
B and lower | 126.9 |
| | 1.0 | % | | 156.7 |
| | 1.4 | % |
Total | $ | 12,420.8 |
| | 100.0 | % | | $ | 11,257.1 |
| | 100.0 | % |
higher reportable catastrophe losses.The following table shows the major categories of net investment income for the periods indicated:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Fixed maturity securities | $ | 125.2 |
| | $ | 121.6 |
| | $ | 370.3 |
| | $ | 334.0 |
|
Equity securities | 5.2 |
| | 5.5 |
| | 16.7 |
| | 15.6 |
|
Commercial mortgage loans on real estate | 8.6 |
| | 8.7 |
| | 26.3 |
| | 24.8 |
|
Short-term investments | 5.0 |
| | 6.7 |
| | 16.4 |
| | 12.8 |
|
Other investments | 10.7 |
| | 5.0 |
| | 23.0 |
| | 14.9 |
|
Cash and cash equivalents | 7.5 |
| | 6.4 |
| | 21.0 |
| | 20.8 |
|
Revenue from consolidated investment entities (1) | 25.6 |
| | 24.4 |
| | 90.2 |
| | 55.3 |
|
Total investment income | 187.8 |
| | 178.3 |
| | 563.9 |
| | 478.2 |
|
Investment expenses | (6.3 | ) | | (8.0 | ) | | (18.3 | ) | | (16.9 | ) |
Expenses from consolidated investment entities (1) | (12.0 | ) | | (18.5 | ) | | $ | (55.6 | ) | | $ | (43.7 | ) |
Net investment income | $ | 169.5 |
| | $ | 151.8 |
| | $ | 490.0 |
| | $ | 417.6 |
|
| |
(1) | The following table shows the net of revenues and expenses from consolidated investment entities for the periods indicated. Refer to Note 9 to the Consolidated Financial Statements included elsewhere in this Report for further detail. |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Investment income (loss) from direct investments in: | | | | | | | |
Real estate funds (1) | $ | 6.5 |
| | $ | (0.4 | ) | | $ | 17.3 |
| | $ | 1.2 |
|
CLO entities | 5.3 |
| | 4.5 |
| | 12.1 |
| | 6.4 |
|
Investment management fees | 1.8 |
| | 1.8 |
| | 5.2 |
| | 4.0 |
|
Net investment income from consolidated investment entities | $ | 13.6 |
| | $ | 5.9 |
| | $ | 34.6 |
| | $ | 11.6 |
|
| |
(1) | The investment income from the real estate funds includes income (loss) attributable to non-controlling interest of $1.2 million and $2.4 million for the three and nine months ended September 30, 2019. There was no income attributable to non-controlling interest for the three and nine months ended September 30, 2018. |
Net investment income increased $17.7 million, or 12%, to $169.5 million for Third Quarter 2019 from $151.8 million for Third Quarter 2018. The increase was primarily driven by higher income from consolidated investment entities (“CIEs”) and an increase in income from other investments, which was primarily driven by proceeds from the sale of a direct real estate joint venture property and an increase in fair market value of certain other properties. The higher income from CIEs was primarily related to our investment in the real estate funds due to an increase in the fair market value of certain real estate
properties and additional Assurant-issued collateralized loan obligation (“CLO”) structures launched after Third Quarter 2018. The remainder of the increase is primarily related to income from higher overall invested assets.
Net investment income increased $72.4 million, or 17%, to $490.0 million for Nine Months 2019 from $417.6 million for Nine Months 2018 benefiting from the investments acquired from the TWG acquisition. Excluding TWG, net investment income increased $31.9 million, or 8%, primarily driven by an increase in income from CIEs. The higher income from CIEs was primarily related to our investment in our real estate funds resulting from an increase in the fair market value of certain real estate properties and income from our direct investment in Assurant-issued CLO structures that were launched after Third Quarter 2018. The increase in net investment income was due to an increase in income from other investments, which was primarily driven by proceeds from the sale of direct real estate joint venture properties and an increase in fair market value of certain other properties as well as increased income from higher overall invested assets consistent with the underlying growth of our business. The increase was partially offset by a decrease of $2.9 million in interest income related to the recovery of losses on certain mortgage-backed securities and $2.4 million of interest income from the reinvestment of debt proceeds in anticipation of the TWG acquisition that were recorded for the Nine Months 2018.
As of September 30, 2019, we owned $72.2 million of securities guaranteed by financial guarantee insurance companies. Included in this amount was $59.7 million of municipal securities, whose credit rating was A+ with the guarantee, but would have had a rating of A- without the guarantee.
For more information on our investments, see Notes 8 and 10 to the Consolidated Financial Statements included elsewhere in this Report.
Catastrophe Reinsurance Program
In July 2019,June 2020, we finalized our 20192020 property catastrophe reinsurance program. 2019 reinsurance premiums for this program are estimated to be approximately $165.0The U.S. per-event catastrophe coverage provides $930.0 million pre-tax reflecting the significant decreaseof protection in catastrophe per-event retention from $120.0 million toexcess of $80.0 million and modest growth in exposure. Coverageof retention per event. The coverage was placed with more than 4540 reinsurers that are all rated A- or better by A.M. Best. Actual reinsurance premiums will vary if exposure changes significantly
Acquisition of HYLA Mobile
In October 2020, we announced the signing of a definitive agreement to acquire HYLA Mobile, a provider of smartphone software and trade-in and upgrade services, for $325.0 million. The acquisition is expected to close by the end of 2020, subject to regulatory and other customary approvals, and to be funded through a combination of existing cash at the holding company and new debt to be issued before closing.
Summary of Financial Results
Consolidated net loss attributable to common stockholders decreased $24.6 million, or 41%, to $34.9 million for Third Quarter 2020 from estimates or if reinstatement premiums are required due to catastrophe events.
$59.5 million for Third Quarter 2019. The U.S. per-occurrence catastrophe coverage includes a main reinsurance program providing $1.16 billion of coverage in excess of $80.0 million retention. In addition, it includes multi-year reinsurance contracts covering approximately 35%decrease was largely driven by the absence of the reinsurance layers. All layers$124.8 million reduction in fair value of Iké, as well as improved results from our Global Housing segment, excluding reportable catastrophes, partially offset by the program allow for one automatic reinstatement, except$135.6 million after-tax impairment on the first layer (which covers the first $40.0Global Preneed goodwill and $51.3 million of losses in excess of the $80.0higher after-tax reportable catastrophes for Global Housing.
Global Lifestyle segment net income increased $4.5 million, retention) which has two reinstatements, and include a cascading feature that provides multi-event protection in which higher coverage layers drop downor 4%, to $120.0$106.6 million as the lower layers and reinstatement limit are exhausted. When combined with the Florida Hurricane Catastrophe Fund, the program is covered for gross Florida losses of up to $1.40 billion.
The 2019 catastrophe reinsurance program also includes Caribbean protection of up to $177.5Third Quarter 2020 from $102.1 million of protection in excess of a $17.5 million retention. Infor Third Quarter 2019, primarily driven by Connected Living, mainly due to mobile from continued subscriber growth in North America and Asia Pacific, as well as improved profitability from extended service contracts. Results were partially offset by lower investment income and unfavorable foreign exchange, as well as lower volumes and unfavorable loss experience in Global Financial Services and Other, including impacts from COVID-19.
Global Lifestyle net earned premiums, fees and other income increased $55.7 million, or 3%, to $1.81 billion for Third Quarter 2020 from $1.75 billion for Third Quarter 2019, primarily due to prior period sales in Global Automotive, as well as continued mobile subscriber growth. The increase was partially offset by lower mobile trade-in results, including a $39.0 million impact resulting from a previously disclosed mobile program change, and unfavorable foreign exchange.
Global Housing segment net income decreased $28.5 million, or 69%, to $13.1 million for Third Quarter 2020 from $41.6 million for Third Quarter 2019. Segment net income for Third Quarter 2020 included $87.0 million of reportable catastrophes, primarily from Hurricane Laura, compared to $35.7 million of reportable catastrophes for Third Quarter 2019. Excluding reportable catastrophes, segment net income increased $22.8 million, primarily due to more favorable non-catastrophe loss experience across our Specialty and Other products and Lender-placed Insurance driven by lower claims frequency, reserve releases related to run-off business and previously implemented underwriting initiatives. Growth in Multifamily Housing and Specialty and Other products also contributed to the increase.
Global Housing net earned premiums, fees and other income decreased $19.0 million, or 4%, to $491.3 million for Third Quarter 2020 from $510.3 million for Third Quarter 2019, primarily due to expected run-off of small commercial products and declines in Lender-placed Insurance policies in-force from the previously disclosed financially insolvent client. The decrease was partially offset by continued growth in Multifamily Housing and Specialty and Other products.
Global Preneed segment net income increased $5.8 million, or 78%, to $13.2 million for Third Quarter 2020 from $7.4 million for Third Quarter 2019. Third Quarter 2019 included a $9.9 million after-tax expense related to an out of period adjustment for over-capitalization of deferred acquisition costs occurring over a ten-year period. Excluding this adjustment, underlying results decreased primarily due to lower investment income from lower yields and real estate joint venture partnerships compared to the prior year period.
Global Preneed net earned premiums, fees and other income increased $1.1 million, or 2%, to $51.9 million for Third Quarter 2020 from $50.8 million for Third Quarter 2019, primarily driven by prior period sales of the Final Need product.
Critical Factors Affecting Results
Our results depend on, among other things, the appropriateness of our product pricing, underwriting, the accuracy of our reserving methodology for future policyholder benefits and claims, the frequency and severity of reportable and non-reportable catastrophes, returns on and values of invested assets, and our ability to manage our expenses and achieve expense savings. Our results will also depend on our ability to profitably grow our businesses, in particular our Connected Living, Multifamily Housing and Global Automotive businesses, and maintaining our position in our Lender-placed Insurance business and the North American credit insurance business in Global Financial Services and Other. Factors affecting these items, including the impact of the COVID-19 pandemic and measures taken in response thereto, conditions in financial markets, the global economy and the markets in which we placedoperate, fluctuations in exchange rates, interest rates and inflation, may have a material adverse effect on our results of operations or financial condition. For more information on these and other factors that could affect our results, see “Item 1A—Risk Factors”, below and in our 2019 Annual Report, “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Factors Affecting Results” in our 2019 Annual Report and “—Executive Summary—COVID-19” and “—Executive Summary—Our Response to COVID-19,” above.
Our results may be impacted by our ability to continue to grow in the markets in which we operate, including in our Connected Living, Multifamily Housing and Global Automotive businesses. Our mobile business is subject to volatility in mobile device trade-in volumes based on the actual and anticipated timing of the release of new devices and carrier promotional programs, as well as to changes in consumer preferences. Our Lender-placed Insurance revenues will also be impacted by changes in the housing market. In addition, across many of our businesses, we must respond to the threat of disruption. See “Item 1A—Risk Factors—Business and Competitive Risks—Significant competitive pressures, changes in customer preferences and disruption could adversely affect our results of operations” in our 2019 Annual Report.
Management believes that we will have sufficient liquidity to satisfy our needs over the next twelve months, including the ability to pay interest on our debt and dividends on our common and preferred stock.
For Nine Months 2020, net cash provided by operating activities was $901.6 million; net cash used in investing activities was $275.2 million; and net cash used in financing activities was $296.8 million. We had $2.20 billion in cash and cash equivalents as of September 30, 2020 as compared to $1.87 billion as of December 31, 2019. See “—Liquidity and Capital Resources,” below for further details.
Critical Accounting Policies and Estimates
Our 2019 Annual Report describes the accounting policies and estimates that are critical to the understanding of our results of operations, financial condition and liquidity. The accounting policies and estimation process described in the 2019 Annual Report were consistently applied to the unaudited interim Consolidated Financial Statements for Third Quarter 2020.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Note 3 to the Consolidated Financial Statements included elsewhere in this Report.
Regulatory Matters
We are subject to extensive federal, state and international regulation and supervision in the jurisdictions in which we do business, including insurance holding company laws in the jurisdictions in which our insurance companies are domiciled. For example, under applicable insurance holding company regulations, no person may acquire a controlling interest in the Company or any of our insurance company subsidiaries, unless such person has obtained prior regulatory approval for such acquisition. Under these laws, “control” is presumed when any person acquires or holds, directly or indirectly, 10% or more of our common stock or of the voting securities of any of our insurance company subsidiaries. To obtain approval, the proposed acquiror must file an application with the relevant regulator, including the regulator for the insurance subsidiaries we have established in the Netherlands for continued access to the European markets after the transition period for the U.K.’s withdrawal from the European Union. As previously disclosed, our insurance subsidiaries in the Netherlands have received the necessary regulatory approvals for the Company to continue conducting business in Europe following the end of the transition period.
For additional coverageinformation, see “Item 1—Business—Regulation” in our 2019 Annual Report.
Results of Operations
Assurant Consolidated
Overview
The table below presents information regarding our consolidated results of operations for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Revenues: | | | | | | | |
Net earned premiums | $ | 2,102.8 | | | $ | 2,015.4 | | | $ | 6,223.0 | | | $ | 5,952.5 | |
Fees and other income | 245.9 | | | 295.1 | | | 934.3 | | | 959.5 | |
Net investment income | 135.1 | | | 169.5 | | | 428.3 | | | 490.0 | |
Net realized gains (losses) on investments | 16.6 | | | 14.9 | | | (54.6) | | | 61.5 | |
Amortization of deferred gains on disposal of businesses | 2.1 | | | 4.4 | | | 8.7 | | | 16.9 | |
Total revenues | 2,502.5 | | | 2,499.3 | | | 7,539.7 | | | 7,480.4 | |
Benefits, losses and expenses: | | | | | | | |
Policyholder benefits | 709.6 | | | 705.2 | | | 1,908.9 | | | 2,006.9 | |
Amortization of deferred acquisition costs and value of business acquired | 946.2 | | | 869.5 | | | 2,745.7 | | | 2,462.6 | |
Underwriting, general and administrative expenses | 687.5 | | | 764.5 | | | 2,331.8 | | | 2,388.1 | |
Goodwill impairment | 137.8 | | | — | | | 137.8 | | | — | |
Iké net losses | — | | | 121.1 | | | 5.9 | | | 130.5 | |
Interest expense | 25.5 | | | 32.2 | | | 77.7 | | | 85.2 | |
Loss on extinguishment of debt | — | | | 31.4 | | | — | | | 31.4 | |
Total benefits, losses and expenses | 2,506.6 | | | 2,523.9 | | | 7,207.8 | | | 7,104.7 | |
(Loss) income before provision for income taxes | (4.1) | | | (24.6) | | | 331.9 | | | 375.7 | |
Provision for income taxes | 26.4 | | | 28.6 | | | 28.2 | | | 117.7 | |
Net (loss) income | (30.5) | | | (53.2) | | | 303.7 | | | 258.0 | |
Less: Net loss (income) attributable to non-controlling interest | 0.3 | | | (1.6) | | | (1.1) | | | (3.0) | |
Net (loss) income attributable to stockholders | (30.2) | | | (54.8) | | | 302.6 | | | 255.0 | |
Less: Preferred stock dividends | (4.7) | | | (4.7) | | | (14.0) | | | (14.0) | |
Net (loss) income attributable to common stockholders | $ | (34.9) | | | $ | (59.5) | | | $ | 288.6 | | | $ | 241.0 | |
For the Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019
Net Loss Attributable to Common Stockholders
Consolidated net loss attributable to common stockholders decreased $24.6 million, or 41%, to $34.9 million for Third Quarter 2020 from $59.5 million loss for Third Quarter 2019. The decrease in net loss was primarily due to the absence of certain events that occurred in Third Quarter 2019, mainly a $124.8 million after-tax loss related to a decrease in the estimated fair value of Iké, $29.6 million of after-tax debt related charges associated with refinancing debt at a lower interest rate and a $9.9 million after-tax expense related to an out of period adjustment in our Global Preneed segment for over-capitalization of deferred acquisition costs occurring over a ten-year period. Additionally, the decrease in net loss was due to improved results from our Global Housing segment, excluding reportable catastrophes, due to more favorable non-catastrophe loss experience across our Specialty and Other products and Lender-placed Insurance driven by lower claims frequency, previously implemented underwriting initiatives and reserve releases related to run-off business, and a $9.7 million of income, net of certain exit costs, from the sale of our CLO asset management platform. The decrease in net loss was partially offset by the $135.6 million after-tax impairment on the Global Preneed goodwill and $51.3 million of higher after-tax reportable catastrophes for Global Housing.
For the Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019
Net Income Attributable to Common Stockholders
Consolidated net income attributable to common stockholders increased $47.6 million, or 20%, to $288.6 million for Nine Months 2020 from $241.0 million for Nine Months 2019. Net income for Nine Months 2020 included $109.9 million of reportable catastrophes, primarily related to Hurricane Laura, compared to $41.4 million in Nine Months 2019. Excluding reportable catastrophes, net income increased $116.1 million, or 41%, due to the absence of a $131.4 million after-tax loss related to a decrease in the estimated fair value of Iké that was recorded in Nine Months 2019, an $84.4 million tax benefit related to the utilization of net operating losses in connection with the CARES Act, an improvement in our results from Global Housing and Global Lifestyle as well as the absence of $29.6 million of after-tax debt related charges from Nine Months 2019. These increases were partially offset by the $135.6 million after-tax impairment on the Global Preneed goodwill and a $67.7 million after-tax decrease in net unrealized gains from changes in fair value of our equity securities and collateralized loan obligations that included $34.4 million of after-tax net unrealized losses for Nine Months 2020 compared to $33.3 million of after-tax net unrealized gains for Nine Months 2019.
Global Lifestyle
Overview
The table below presents information regarding the Global Lifestyle segment’s results of operations for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Revenues: | | | | | | | |
Net earned premiums | $ | 1,633.2 | | | $ | 1,525.1 | | | $ | 4,799.0 | | | $ | 4,499.1 | |
Fees and other income | 171.8 | | | 224.2 | | | 721.6 | | | 740.9 | |
Net investment income | 44.6 | | | 62.1 | | | 143.5 | | | 177.5 | |
Total revenues | 1,849.6 | | | 1,811.4 | | | 5,664.1 | | | 5,417.5 | |
Benefits, losses and expenses: | | | | | | | |
Policyholder benefits | 365.4 | | | 392.1 | | | 1,044.7 | | | 1,152.2 | |
Amortization of deferred acquisition costs and value of business acquired | 870.5 | | | 791.9 | | | 2,519.7 | | | 2,238.4 | |
Underwriting, general and administrative expenses | 480.8 | | | 496.6 | | | 1,649.4 | | | 1,622.6 | |
Total benefits, losses and expenses | 1,716.7 | | | 1,680.6 | | | 5,213.8 | | | 5,013.2 | |
Segment income before provision for income taxes | 132.9 | | | 130.8 | | | 450.3 | | | 404.3 | |
Provision for income taxes | 26.3 | | | 28.7 | | | 101.0 | | | 92.3 | |
Segment net income | $ | 106.6 | | | $ | 102.1 | | | $ | 349.3 | | | $ | 312.0 | |
Net earned premiums, fees and other income: | | | | | | | |
Connected Living (mobile and service contracts) | $ | 909.5 | | | $ | 931.9 | | | $ | 2,914.4 | | | $ | 2,764.6 | |
Global Automotive | 802.5 | | | 706.9 | | | 2,311.0 | | | 2,131.9 | |
Global Financial Services and Other | 93.0 | | | 110.5 | | | 295.2 | | | 343.5 | |
Total | $ | 1,805.0 | | | $ | 1,749.3 | | | $ | 5,520.6 | | | $ | 5,240.0 | |
Net earned premiums, fees and other income: | | | | | | | |
Domestic | $ | 1,335.4 | | | $ | 1,237.6 | | | $ | 4,080.2 | | | $ | 3,680.0 | |
International | 469.6 | | | 511.7 | | | 1,440.4 | | | 1,560.0 | |
Total | $ | 1,805.0 | | | $ | 1,749.3 | | | $ | 5,520.6 | | | $ | 5,240.0 | |
For the Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019
Net Income
Segment net income increased $4.5 million, or 4%, to $106.6 million for Third Quarter 2020 from $102.1 million for Third Quarter 2019. The increase was primarily driven by our Connected Living business, mainly due to mobile due to subscriber growth in North America and Asia Pacific, as well as improved profitability from extended service contracts. This was partially offset by a reduction in investment income and unfavorable foreign exchange. The increase was further offset by lower income in our Global Financial Services and Other business, mainly due to lower volumes, including anticipated declines from business in run-off, and higher loss experience.
Total Revenues
Total revenues increased $38.2 million, or 2%, to $1.85 billion for Third Quarter 2020 from $1.81 billion for Third Quarter 2019. Net earned premiums increased $108.1 million, or 7%, primarily due to continued growth from prior period production in our Global Automotive business and growth in our Connected Living business, mainly due to growth in extended service contract programs and continued subscriber growth from mobile protection programs. These increases in net earned premiums were partially offset by unfavorable foreign exchange and a decrease in our Global Financial Services and Other business, mainly due to domestic business in run-off. Fees and other income declined $52.4 million, or 23%, primarily due to declines in our Connected Living business, mainly driven by lower mobile trade-in results from our repairs and logistics business, including a $39.0 million impact resulting from a previously disclosed mobile program contract change. Net investment income declined $17.5 million, or 28%, primarily due to lower cash yields, lower income from real estate and lower yielding new money bond purchases.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased $36.1 million, or 2%, to $1.72 billion for Third Quarter 2020 from $1.68 billion for Third Quarter 2019. The increase was primarily due to a $78.6 million, or 10%, increase in amortization of deferred acquisition costs and value of business acquired, mainly related to prior period growth from our Global Automotive business. The increase was partially offset by a decrease in policyholder benefits of $26.7 million, or 7%, primarily due to lower global losses in our Global Automotive business, driven in part by COVID-19. This increase was also partially offset by a decrease in underwriting, general and administrative expenses of $15.8 million, or 3%, primarily due to a mobile program contract change and lower trade-in volumes in our domestic repairs and logistics business and favorable foreign exchange, partially offset by growth in our mobile protection and extended service contract programs within our Connected Living business and growth in our Global Automotive business.
For the Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019
Net Income
Segment net income increased $37.3 million, or 12%, to $349.3 million for Nine Months 2020 from $312.0 million for Nine Months 2019, and included a $6.7 million after-tax benefit for a third eventclient recoverable in our Connected Living business. Excluding this item, the increase in net income was mostly driven by our Connected Living business, primarily due to continued mobile subscriber growth in North America and Asia Pacific and improved profitability from extended service contracts. The increase was also due to higher income and organic growth in our Global Automotive business, as well as $9.2 million of client benefits. These increases were partially offset by lower income in our Global Financial Services and Other business mainly due to lower volumes, higher loss experience, and anticipated declines from domestic business in run-off. The increase was further offset by a reduction in net investment income due to lower cash yields, lower income from real estate and lower yielding new money bond purchases and unfavorable foreign exchange volatility.
Total Revenues
Total revenues increased $246.6 million, or 5%, to $5.66 billion for Nine Months 2020 from $5.42 billion for Nine Months 2019. Net earned premiums increased $299.9 million, or 7%, primarily driven by continued growth from prior period production in our Global Automotive business and growth in our Connected Living business, mainly due to growth in extended service contract programs and continued subscriber growth from mobile protection programs. These increases in net earned premiums were partially offset by unfavorable foreign exchange and a decrease in our Global Financial Services and Other business, mainly due to domestic business in run-off. Fees and other income decreased $19.3 million, or 3%, primarily due to lower mobile trade-in results, including a $39 million impact resulting from a previously disclosed mobile program contract change, partially offset by an $11.1 million benefit for a client recoverable in our Connected Living business. Investment income decreased $34.0 million, or 19%, primarily due to lower cash yields, lower income from real estate, lower yielding new money bond purchases and unfavorable foreign exchange volatility.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased $200.6 million, or 4%, to $5.21 billion for Nine Months 2020 from $5.01 billion for Nine Months 2019, primarily driven by amortization of deferred acquisition costs and value of business acquired, which increased $281.3 million, or 13%, primarily due to growth from our Global Automotive and Connected Living businesses. Underwriting, general and administrative expenses increased $26.8 million, or 2%, primarily due to growth in our mobile protection and extended service contract programs within our Connected Living business and growth in our Global Automotive business, partially offset by a mobile program contract change in our domestic repairs and logistics business and favorable foreign exchange. These increases were partially offset by a decrease in policyholder benefits of $107.5 million, or 9%, mostly due to a favorable mix of mobile business, lower loss experience within our Connected Living and Global Automotive businesses, in part due to COVID-19, and favorable foreign exchange, partially offset by an increase from growth in our Connected Living business.
Global Housing
Overview
The table below presents information regarding the Global Housing segment’s results of operations for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Revenues: | | | | | | | |
Net earned premiums | $ | 453.6 | | | $ | 475.2 | | | $ | 1,374.6 | | | $ | 1,407.1 | |
Fees and other income | 37.7 | | | 35.1 | | | 106.0 | | | 113.3 | |
Net investment income | 16.5 | | | 22.4 | | | 54.9 | | | 66.6 | |
Total revenues | 507.8 | | | 532.7 | | | 1,535.5 | | | 1,587.0 | |
Benefits, losses and expenses: | | | | | | | |
Policyholder benefits | 272.8 | | | 245.8 | | | 651.9 | | | 652.5 | |
Amortization of deferred acquisition costs and value of business acquired | 56.8 | | | 47.3 | | | 169.9 | | | 158.7 | |
Underwriting, general and administrative expenses | 162.2 | | | 187.6 | | | 496.6 | | | 541.6 | |
Total benefits, losses and expenses | 491.8 | | | 480.7 | | | 1,318.4 | | | 1,352.8 | |
Segment income before provision for income taxes | 16.0 | | | 52.0 | | | 217.1 | | | 234.2 | |
Provision for income taxes | 2.9 | | | 10.4 | | | 44.4 | | | 48.4 | |
Segment net income | $ | 13.1 | | | $ | 41.6 | | | $ | 172.7 | | | $ | 185.8 | |
Net earned premiums, fees and other income: | | | | | | | |
Lender-placed Insurance | $ | 258.2 | | | $ | 275.6 | | | $ | 787.5 | | | $ | 831.6 | |
Multifamily Housing | 117.9 | | | 108.7 | | | 338.1 | | | 319.3 | |
Specialty and Other | 115.2 | | | 126.0 | | | 355.0 | | | 369.5 | |
Total | $ | 491.3 | | | $ | 510.3 | | | $ | 1,480.6 | | | $ | 1,520.4 | |
For the Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019
Net Income
Segment net income decreased $28.5 million, or 69%, to $13.1 million for Third Quarter 2020 from $41.6 million for Third Quarter 2019. Segment net income for Third Quarter 2020 included $87.0 million of reportable catastrophes, primarily related to Hurricane Laura, compared to $35.7 million for Third Quarter 2019. Excluding reportable catastrophes, segment net income increased $22.8 million, or 29%, primarily due to more favorable non-catastrophe loss experience across Specialty and Other products and Lender-placed Insurance, driven by lower claims frequency, reserve releases related to run-off business and previously implemented underwriting initiatives. Higher premium rates in our Lender-placed Insurance business, continued growth in Multifamily Housing and our Specialty and Other products also contributed to the increase. The increase was partially offset by declines in our Lender-placed Insurance policies in-force from a financially insolvent client, as well as lower REO volumes as less homes are moving to default or foreclosure due to moratoriums enacted in connection with COVID-19.
Total Revenues
Total revenues decreased $24.9 million, or 5%, to $507.8 million for Third Quarter 2020 from $532.7 million for Third Quarter 2019. Net earned premiums decreased $21.6 million, or 5%, primarily due to the run-off of our small commercial product and declines in our Lender-placed Insurance business, mainly from the reduction of policies in-force for a financially insolvent client and lower REO volume, partially offset by continued growth from renters insurance in our Multifamily Housing business and premium rate increases in our Lender-placed Insurance business. Net investment income decreased $5.9 million, or 26%, primarily due to lower income from real estate related investments and lower cash yields. These decreases were partially offset by an increase in fees and other income of $2.6 million, or 7%, primarily due to an increase in installment fees for renters insurance in our Multifamily Housing business.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased $11.1 million, or 2%, to $491.8 million for Third Quarter 2020 from $480.7 million for Third Quarter 2019. The increase was primarily due to an increase in total policyholder benefits of $27.0 million, or 11%, from higher reportable catastrophe losses related to hurricanes and wildfires across the U.S. in Third Quarter 2020, partially offset by a decrease in non-catastrophe losses, as explained above. This increase was partially offset by a decrease of $15.9 million, or 7%, in amortization of deferred acquisition costs and underwriting, general and administrative expenses, primarily due to lower employment related expenses in our Lender-placed Insurance business.
For the Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019
Net Income
Segment net income decreased $13.1 million, or 7%, to $172.7 million for Nine Months 2020 from $185.8 million for Nine Months 2019. Segment income for Nine Months 2020 included $109.9 million of reportable catastrophes, primarily related to Hurricane Laura, compared to $41.8 million in Nine Months 2019. Excluding reportable catastrophes, segment net income increased $55.0 million, or 24%, primarily driven by favorable non-catastrophe losses across all major products, higher premium rates in our Lender-placed Insurance business, the absence of losses from our small commercial product and lower operating expenses in our Lender-placed Insurance business. The increase was partially offset by a reduction in policies in-force from a financially insolvent client and lower REO volume and fee income in our Lender-placed Insurance business.
Total Revenues
Total revenues decreased $51.5 million, or 3%, to $1.54 billion for Nine Months 2020 from $1.59 billion for Nine Months 2019. Net earned premiums decreased $32.5 million, or 2%, primarily due to declines in our Lender-placed Insurance business, mainly from the reduction in policies in-force for a financially insolvent client and lower REO volume, as well as declines in our small commercial business. This decrease was partially offset by premium rate increases in our Lender-placed Insurance business, continued growth from renters insurance in Multifamily Housing business, and growth from our Specialty and Other business, mainly sharing economy products. Fees and other income decreased $7.3 million, or 6%, primarily due to a decline in Lender-placed Insurance, mostly due to lower loss draft volume. Net investment income decreased $11.7 million, or 18%, primarily due to lower income from real estate related investments, lower cash yields, and a decrease in invested assets.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses decreased $34.4 million, or 3%, to $1.32 billion for Nine Months 2020 from $1.35 billion for Nine Months 2019. The decrease was primarily due to a decrease of $33.8 million, or 5%, in amortization of deferred acquisition costs and underwriting, general and administrative expenses, primarily due to lower employment related expenses in our Lender-placed Insurance business. Policyholder benefits decreased $0.6 million mainly from lower non-catastrophe losses across all major products and the absence of losses from our small commercial product, partially offset by higher reportable catastrophe losses.
Global Preneed
Overview
The table below presents information regarding the Global Preneed segment’s results of operations for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Revenues: | | | | | | | |
Net earned premiums | $ | 16.0 | | | $ | 15.1 | | | $ | 49.4 | | | $ | 46.3 | |
Fees and other income | 35.9 | | | 35.7 | | | 106.2 | | | 103.2 | |
Net investment income | 70.1 | | | 73.0 | | | 210.3 | | | 212.7 | |
Total revenues | 122.0 | | | 123.8 | | | 365.9 | | | 362.2 | |
Benefits, losses and expenses: | | | | | | | |
Policyholder benefits | 71.1 | | | 67.3 | | | 211.6 | | | 202.1 | |
Amortization of deferred acquisition costs and value of business acquired | 18.9 | | | 30.3 | | | 56.1 | | | 65.5 | |
Underwriting, general and administrative expenses | 15.3 | | | 18.2 | | | 48.4 | | | 49.8 | |
Total benefits, losses and expenses | 105.3 | | | 115.8 | | | 316.1 | | | 317.4 | |
Segment income before provision for income taxes | 16.7 | | | 8.0 | | | 49.8 | | | 44.8 | |
Provision for income taxes | 3.5 | | | 0.6 | | | 10.6 | | | 8.7 | |
Segment net income | $ | 13.2 | | | $ | 7.4 | | | $ | 39.2 | | | $ | 36.1 | |
For the Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019
Net Income
Segment net income increased $5.8 million, or 78%, to $13.2 million for Third Quarter 2020 from $7.4 million for Third Quarter 2019, primarily due to absence of a $9.9 million after-tax expense related to an out of period adjustment for over-capitalization of deferred acquisition costs occurring over a ten-year period recorded in Third Quarter 2019. This was partially offset by a decrease in investment income.
Total Revenues
Total revenues were relatively flat at $122.0 million for Third Quarter 2020 compared to $123.8 million for Third Quarter 2019 mostly due to decreased investment income primarily driven by lower income from real estate.This was partially offset by increased sales of the Final Need product.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses decreased $10.5 million, or 9%, to $105.3 million for Third Quarter 2020 from $115.8 million for Third Quarter 2019. Amortization of deferred acquisition costs and value of business acquired decreased $11.4 million, or 38%, primarily due to the absence of a $14.2 million expense related to an out of period adjustment for over-capitalization of deferred acquisition costs occurring over a ten-year period in Third Quarter 2019. Underwriting, general and administrative expenses decreased $2.9 million, or 16%, due to a decrease in general expenses. This was partially offset by an increase in policyholder benefits of $3.8 million, or 6%, driven by growth in the Caribbean, with protection of updomestic preneed business.
For the Nine Months Ended September 30, 2020 Compared to $27.5the Nine Months Ended September 30, 2019
Net Income
Segment net income increased $3.1 million, in excessor 9%, to $39.2 million for Nine Months 2020 from $36.1 million for Nine Months 2019, primarily due to the absence of a $17.5$9.9 million retention,after-tax expense related to an out of period adjustment for over-capitalization of deferred acquisition costs occurring over a ten-year period recorded in Nine Months 2019. This was partially offset by a decrease in investment income and Latin America protectionan increase in policyholder benefits driven by growth in the domestic preneed business.
Total Revenues
Total revenues increased $3.7 million, or 1%, to $365.9 million for Nine Months 2020 from $362.2 million for Nine Months 2019, primarily due to growth in pre-funded funeral policies in the U.S. and sales of upthe Final Need product. This was offset by lower investment income driven by an increase in investment expenses related to $423.0our strategic decision to outsource the management of our investment portfolio, lower income from real estate and lower yielding new money bond purchases, partially offset by an increase in invested assets.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses decreased $1.3 million to $316.1 million for Nine Months 2020 from $317.4 million for Nine Months 2019. Amortization of deferred acquisition costs and value of business acquired decreased $9.4 million, or 14%, primarily due to the absence of a $14.2 million expense related to an out of period adjustment for over-capitalization of deferred acquisition costs occurring over a ten-year period in Nine Months 2019. Underwriting, general and administrative expenses decreased $1.4 million, or 3%, due to decrease in general expenses. This was partially offset by an increase in policyholder benefits of $9.5 million, or 5%, driven by the growth in the domestic preneed business.
Corporate and Other
Overview
The tables below present information regarding the Corporate and Other’s segment results of operations for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Revenues: | | | | | | | |
Net earned premiums | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Fees and other income | 0.5 | | | 0.1 | | | 0.5 | | | 2.1 | |
Net investment income | 3.9 | | | 12.0 | | | 19.6 | | | 33.2 | |
Net realized gains (losses) on investments | 16.6 | | | 14.9 | | | (54.6) | | | 61.5 | |
Amortization of deferred gains on disposal of businesses | 2.1 | | | 4.4 | | | 8.7 | | | 16.9 | |
Total revenues | 23.1 | | | 31.4 | | | (25.8) | | | 113.7 | |
Benefits, losses and expenses: | | | | | | | |
Policyholder benefits | 0.3 | | | — | | | 0.7 | | | 0.1 | |
General and administrative expenses | 29.2 | | | 62.1 | | | 137.4 | | | 174.1 | |
Goodwill impairment | 137.8 | | | — | | | 137.8 | | | — | |
Iké net losses | — | | | 121.1 | | | 5.9 | | | 130.5 | |
Interest expense | 25.5 | | | 32.2 | | | 77.7 | | | 85.2 | |
Loss on extinguishment of debt | — | | | 31.4 | | | — | | | 31.4 | |
Total benefits, losses and expenses | 192.8 | | | 246.8 | | | 359.5 | | | 421.3 | |
Segment loss before benefit for income taxes | (169.7) | | | (215.4) | | | (385.3) | | | (307.6) | |
Benefit for income taxes | (6.3) | | | (11.1) | | | (127.8) | | | (31.7) | |
Segment net loss | (163.4) | | | (204.3) | | | (257.5) | | | (275.9) | |
Less: Net loss (income) attributable to non-controlling interest | 0.3 | | | (1.6) | | | (1.1) | | | (3.0) | |
Net loss attributable to stockholders | (163.1) | | | (205.9) | | | (258.6) | | | (278.9) | |
Less: Preferred stock dividends | (4.7) | | | (4.7) | | | (14.0) | | | (14.0) | |
Net loss attributable to common stockholders | $ | (167.8) | | | $ | (210.6) | | | $ | (272.6) | | | $ | (292.9) | |
For the Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019
Net Loss Attributable to Common Stockholders
Segment net loss attributable to common stockholders decreased $42.8 million, or 20%, to $167.8 million for Third Quarter 2020 from $210.6 million for Third Quarter 2019. The decrease in net loss was primarily due to the absence of a $124.8 million after-tax loss related to a decrease in the estimated fair value of Iké and $29.6 million of protectionafter-tax debt related charges associated with refinancing debt at a lower interest rate that were both recorded in excessThird Quarter 2019. The decrease in net loss was also due $10.0 million of lower net losses from foreign exchange related to the remeasurement of net monetary assets in Argentina, a highly inflationary currency, and a $9.7 million of income, net of certain exit costs, from the sale of our CLO asset management platform. The decrease in net loss was partially offset by the $135.6 million after-tax impairment on the Global Preneed goodwill.
Total Revenues
Total revenues decreased $8.3 million, or 26%, to $23.1 million for Third Quarter 2020 from $31.4 million for Third Quarter 2019, primarily due to an $8.1 million decrease in net investment income driven by lower income from a higher concentration of lower yielding liquid investments for Third Quarter 2020 compared to Third Quarter 2019 and lower income from real estate.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses decreased $54.0 million, or 22%, to $192.8 million for Third Quarter 2020 from $246.8 million for Third Quarter 2019, mostly due to the absence of the $121.1 million loss related to a decrease in the estimated fair value of Iké and $37.4 million of debt-related charges associated with refinancing debt at a lower interest rate that were both recorded in Third Quarter 2019. The decrease was also due to a $12.2 million income, net of certain exit costs, from the sale of our CLO asset management platform, $10.0 million of lower net losses from foreign change related to the remeasurement of net monetary assets in Argentina and a $9.6 million loss on sale of Mortgage Solutions. The decrease was partially offset by the $137.8 million impairment on the Global Preneed goodwill.
For the Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019
Net Loss Attributable to Common Stockholders
Segment net loss attributable to common stockholders decreased $20.3 million, or 7%, to $272.6 million for Nine Months 2020 from $292.9 million for Nine Months 2019 due to the absence of a $4.5$131.4 million retention.of after-tax loss related to a decrease in the estimated fair value of Iké that was recorded in Nine Months 2019, an $84.4 million tax benefit related to the utilization of net operating losses in connection with the CARES Act and the absence of $29.6 million of after-tax debt related charges associated with refinancing debt at a lower interest rate from Nine Months 2019. These increases were partially offset by the $135.6 million after-tax impairment on the Global Preneed goodwill and a $67.7 million after-tax decrease in net unrealized gains from changes in fair value of our equity securities and collateralized loan obligations that included $34.4 million of after-tax net unrealized losses for Nine Months 2020 compared to $33.3 million of after-tax net unrealized gains for Nine Months 2019, as well as $17.3 million of after-tax direct and incremental operating expenses incurred in connection with the COVID-19 pandemic.
Total revenues decreased $139.5 million to $(25.8) million for Nine Months 2020 from $113.7 million for Nine Months 2019, primarily due to an increase in unrealized losses on investments mostly related to a net decrease in the fair value of our equity securities and collateralized loan obligations. The decrease was also due to lower net investment income, driven by lower income from a higher concentration of lower yielding liquid investments for Third Quarter 2020 compared to Third Quarter 2019 and lower income from real estate, as well as lower amortization of deferred gains associated with the sale of Assurant Employee Benefits.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses decreased $61.8 million, or 15%, to $359.5 million for Nine Months 2020 from $421.3 million for Nine Months 2019, primarily due to the absence of certain events that occurred in Nine Months 2019, mainly $124.6 million of lower losses associated with Iké, $37.4 million of debt related charges associated with refinancing debt at a lower interest rates and a $15.6 million impairment of certain intangible assets from our acquisition of Green Tree Insurance Agency. The decrease was also due to an $11.5 million decrease in integration expenses associated with the TWG acquisition, $11.3 million of lower net losses from foreign exchange related to the remeasurement of net monetary assets in Argentina and $10.8 million of income, net of certain exit costs, from the sale of our CLO asset management platform. These decrease were partially offset by the $137.8 million impairment on the Global Preneed goodwill and $21.9 million of direct and incremental operating expenses incurred in connection with the COVID-19 pandemic.
Investments
We had total investments of $15.21 billion and $14.57 billion as of September 30, 2020 and December 31, 2019, respectively. Net unrealized gains on our fixed maturity securities portfolio increased by $459.1 million during Nine Months 2020, from $1.26 billion as of December 31, 2019 to $1.72 billion as of September 30, 2020, primarily due to spread compression, partially offset by decreases in foreign exchange rates in several countries.
The following table shows the credit quality of our fixed maturity securities portfolio as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair value as of |
Fixed Maturity Securities by Credit Quality | September 30, 2020 | | December 31, 2019 |
Aaa / Aa / A | $ | 8,185.0 | | | 62.5 | % | | $ | 8,014.7 | | | 65.1 | % |
Baa | 4,274.8 | | | 32.6 | % | | 3,734.7 | | | 30.3 | % |
Ba | 534.3 | | | 4.1 | % | | 480.7 | | | 3.9 | % |
B and lower | 100.4 | | | 0.8 | % | | 92.3 | | | 0.7 | % |
Total | $ | 13,094.5 | | | 100.0 | % | | $ | 12,322.4 | | | 100.0 | % |
The following table shows the major categories of net investment income for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Fixed maturity securities | $ | 120.6 | | | $ | 125.2 | | | $ | 359.5 | | | $ | 370.3 | |
Equity securities | 5.1 | | | 5.2 | | | 15.5 | | | 16.7 | |
Commercial mortgage loans on real estate | 8.8 | | | 8.6 | | | 27.1 | | | 26.3 | |
Short-term investments | 1.1 | | | 5.0 | | | 5.4 | | | 16.4 | |
Other investments | 2.9 | | | 10.7 | | | 11.2 | | | 23.0 | |
Cash and cash equivalents | 1.5 | | | 7.5 | | | 10.8 | | | 21.0 | |
Revenue from consolidated investment entities (1) | 3.9 | | | 25.6 | | | 56.3 | | | 90.2 | |
Total investment income | 143.9 | | | 187.8 | | | 485.8 | | | 563.9 | |
Investment expenses | (4.9) | | | (6.3) | | | (20.6) | | | (18.3) | |
Expenses from consolidated investment entities (1) | (3.9) | | | (12.0) | | | $ | (36.9) | | | $ | (55.6) | |
Net investment income | $ | 135.1 | | | $ | 169.5 | | | $ | 428.3 | | | $ | 490.0 | |
(1)The following table shows the net of revenues and expenses from consolidated investment entities for the periods indicated. Refer to Note 5 and 12 to the Consolidated Financial Statements included elsewhere in this Report for further detail.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Investment income from direct investments in: | | | | | | | |
Real estate fund (1) | $ | — | | | $ | 6.5 | | | $ | 8.3 | | | $ | 17.3 | |
CLO entities | — | | | 5.3 | | | 8.0 | | | 12.1 | |
Investment management fees | — | | | 1.8 | | | 3.1 | | | 5.2 | |
Net investment income from consolidated investment entities | $ | — | | | $ | 13.6 | | | $ | 19.4 | | | $ | 34.6 | |
(1)The investment income from the real estate funds includes (loss) income attributable to non-controlling interest of $1.2 million for the three months ended September 30, 2019 and $1.1 million and $2.4 million for the nine months ended September 30, 2020 and 2019, respectively.
Net investment income decreased $34.4 million, or 20%, to $135.1 million for Third Quarter 2020 from $169.5 million for Third Quarter 2019. The decrease was primarily driven by a decrease in income from real estate, lower income from short term investments and cash and cash equivalents driven by lower cash yields, and a reduction in income from fixed maturity securities due to lower yielding new money bond purchases.
Net investment income decreased $61.7 million, or 13%, to $428.3 million for Nine Months 2020 from $490.0 million for Nine Months 2019. The decrease was primarily driven by lower income from short term investments and cash and cash equivalents, mainly due to lower cash yields and unfavorable foreign exchange, and a decrease in income from real estate. The decrease was also due to a reduction in income from fixed maturity securities due to lower yielding new money bond purchases.
As of September 30, 2020, we owned $68.0 million of securities guaranteed by financial guarantee insurance companies. Included in this amount was $58.6 million of municipal securities, whose credit rating was AA- with the guarantee, but would have had a rating of A without the guarantee.
For more information on our investments, see Notes 11 and 13 to the Consolidated Financial Statements included elsewhere in this Report.
Liquidity and Capital Resources
COVID-19 did not materially impact our liquidity and capital resources during Third Quarter 2020. Throughout this period, we believe our liquidity remained strong. As of September 30, 2020, we had $460.3 million of holding company liquidity. Refer to the risk factor disclosed in Item 8.01 of our Current Report on Form 8-K filed on May 5, 2020 for a discussion of COVID-19 related factors that could impact our liquidity and capital resources in the future.
The CARES Act, which was enacted on March 27, 2020, includes measures to assist companies in response to the COVID-19 pandemic. These measures include the ability to carry back net operating losses to prior years taxed at higher rates and defer the due dates of certain tax payments. Pursuant to the CARES Act, we carried back net operating losses to 2013 and 2014, resulting in a refund claim of $198.4 million. We also deferred our first quarter 2020 and second quarter 2020 federal estimated tax payments and payments related to the employer’s portion of social security tax in 2020. This will have the effect of increasing cash outlays for these taxes during the second half of 2020, 2021 and 2022. In July 2020, we received the full amount of the refund plus interest related to the net operating losses we carried back under the CARES Act, a portion of which was included in Third Quarter 2020 holding company liquidity. We continue to monitor and assess the potential tax impact of this and other COVID-19-related legislation on our liquidity, financial position and results of operations.
Regulatory Requirements
Assurant, Inc. is a holding company and, as such, has limited direct operations of its own. Our assets consist primarily of the capital stock of our subsidiaries. Accordingly, our future cash flows depend upon the availability of dividends and other statutorily permissible payments from our subsidiaries, such as payments under our tax allocation agreement and under management agreements with our subsidiaries. Our insurance subsidiaries’ ability to pay such dividends and to make such other payments will be limited by applicable laws and regulations of the jurisdictions in which our subsidiaries are domiciled, which subject our subsidiaries to significant regulatory restrictions. The dividend requirements and regulations vary from jurisdiction to jurisdiction and by type of insurance provided by the applicable subsidiary. These laws and regulations require, among other things, our insurance subsidiaries to maintain minimum solvency requirements and limit the amount of dividends they can pay to the holding company. Regulatory actions in response to COVID-19 could further restrict our insurance subsidiaries’ ability to pay us dividends. See “Item 1—Business—Regulation—U.S. Insurance Regulation” and “Item 1A—Risk Factors—Legal and Regulatory Risks—Changes in insurance regulation may reduce our profitability and limit our growth”growth” in our 20182019 Annual Report.Report and the risk factor disclosed in Item 8.01 of our Current Report on Form 8-K filed on May 5, 2020. Along with solvency regulations, the primary driver in determining the amount of capital used for dividends is the level of capital needed to maintain desired financial strength ratings from A.M. Best Company (“A.M. Best”).
Regulators or rating agencies could become more conservative in their methodology and criteria, increasing capital requirements for our insurance subsidiaries.subsidiaries and may base these changes using different factors including industry studies, management actions or market conditions. The rating agencies’ assessment of the Company may consider the results of internally developed stress testing models and potential impacts to our earnings and capital, including from COVID-19 and the associated economic environment. For further information on our ratings and the risks of ratings downgrades, see “Item 1—Business—Ratings” and “Item 1A—Risk Factors—Financial Risks—A decline in the financial strength ratings of our insurance company subsidiaries could adversely affect our results of operations and financial condition” in our 20182019 Annual Report.
For 2019,the year ending December 31, 2020, the maximum amount of dividends our regulated U.S. domiciled insurance subsidiaries could pay us, under applicable laws and regulations currently in effect and without prior regulatory approval, is approximately $353.3$423.7 million. In addition, our international and non-insurance subsidiaries provide additional sources of dividends.
Holding Company
As of September 30, 2019,2020, we had approximately $385.0$460.3 million in holding company liquidity, $160.0which was $235.3 million above our targeted minimum level of $225.0 million. The target minimum level of holding company liquidity, which can be used for unforeseen capital needs at our subsidiaries or liquidity needs at the holding company, is calibrated based on approximately one year of corporate operating and interest expenses and Mandatory Convertible Preferred Stock (“MCPS”)
dividends. We use the term “holding company liquidity” to represent the portion of cash and other liquid marketable securities held at Assurant, Inc., out of a total of $544.2$576.1 million of holding company investment securities and cash, which we are not otherwise holding for a specific purpose as of the balance sheet date. We can use suchthe assets that comprise holding company liquidity for stock repurchases, stockholder dividends, acquisitions and other corporate purposes.
Dividends or returns of capital paid by our subsidiaries, net of infusions and excluding amounts used for acquisitions or received for dispositions, were approximately $472.0$529.0 million for Nine Months 2019.2020. In 2018,2019, dividends, net of infusions and excluding amounts used for acquisitions or received for dispositions, made to the holding company were $739.0 million, which included approximately $727.0 million from subsidiaries in our Global Housing, Global Lifestyle and Global Preneed operating segments and approximately $12.0 million from Assurant Health and capital formerly backing Assurant Employee Benefits.$748.0 million.
In addition to paying expenses, making interest payments on indebtedness and making dividend payments on our preferred stock, our capital management strategy provides for several uses of the cash generated by our subsidiaries, including without limitation, returning capital to common stockholders through share repurchases and dividends, investing in our business to support growth in targeted areas and making prudent and opportunistic acquisitions. From time to time, we may also seek to purchase outstanding debt in open market repurchases or privately negotiated transactions. During Nine Months 20192020 and the year ended December 31, 2018,2019, we made common stock repurchases and paid dividends to our common stockholders of $279.1$268.3 million and $266.1$426.3 million, respectively. We expect to deploy capital primarily to support business growth, fund other investments and return capital to shareholders, subject to approval by the Company’s Board of Directors (the “Board”) approval and market conditions.
In 2014,May 2020, we made an approximately 40% investment in Iké, a services assistance business, for which we paid approximately $110.0 million. We also entered into a shareholders agreement with the majority shareholders that provided us with the right to acquire the remainder of Iké from the majority shareholders, and the majority shareholders the right to put theirsold our minority interests in Iké and terminated our obligations to us, in mid-2019.purchase the remaining shares of Iké (collectively, the “Sale”). In April 2019, we entered into a cooperation agreementconnection with the majority shareholdersSale, we provided financing to Iké Grupo in an aggregate principal amount of $34.0 million (the “Iké Loan”). The Iké Loan matures in May 2025, bears floating interest at a rate equal to explore strategic alternatives. We also agreed to delaythree-month LIBOR plus 4.25% per annum payable quarterly and provides for quarterly principal amortization payments through the call and put rights to January 31, 2020. Based onmaturity date. The outstanding balance of the review of strategic alternativesIké Loan as of September 30, 2019, we have decided to pursue the sale of our interests in Iké. In Third Quarter 2019, we recorded a $124.8 million after-tax loss2020 was $33.2 million.
For Nine Months 2020, net cash outflows related to the Sale were $85.3 million, including net proceeds paid of $73.3 million and the Iké Loan of $34.0 million, less cash inflows of $22.0 million upon settling a decreasefinancial derivative we had entered into in the estimated fair value of Iké. There can be no assurance thatconnection with our effortsagreement to sell our interests in Iké will be successful. In addition, there can be no assurance that. The financial derivative had provided an economic hedge against declines in the final sales price will approximate the expected sales price, which would result in an adjustmentMexican Peso relative to the lossU.S. Dollar since the purchase price was to be paid in a future period.Mexican Pesos. See Note 5 in the accompanying Notes to Consolidated Financial Statements elsewhere in this Report.
On May 1, 2020, we completed our acquisition of AFAS, a provider of finance and insurance products and services including vehicle service contracts, guaranteed asset protection insurance and other ancillary products sold directly through a network of nearly 600 franchised dealership clients across 40 states, for total consideration of $176.9 million. See Note 4 in the accompanying Notes to Consolidated Financial Statements elsewhere in this Report.
In October 2020, we announced the signing of a definitive agreement to acquire HYLA Mobile, a provider of smartphone software and trade-in and upgrade services, for $325.0 million. The acquisition is expected to close by the end of 2020, subject to regulatory and other customary approvals, and to be funded through a combination of existing cash at the holding company and new debt to be issued before closing. In parallel, we are exploring a range of strategic alternatives for Global Preneed, including the possible sale of the business, to focus on opportunities within the broader lifestyle and housing portfolio.
In management’s opinion, dividends from our subsidiaries and other expected cash inflows together with our income and gains from our investment portfolio and cash and liquid assets on hand will provide sufficient liquidity to meet our needs in the ordinary course of business.
Assurant Subsidiaries
The primary sources of funds for our subsidiaries consist of premiums and fees collected, proceeds from the sales and maturity of investments and net investment income. Cash is primarily used to pay insurance claims, agent commissions, operating expenses and taxes. We generally invest our subsidiaries’ excess funds in order to generate investment income.
We conduct periodic asset liability studies to measure the duration of our insurance liabilities, to develop optimal asset portfolio maturity structures for our significant lines of business and ultimately to assess that cash flows are sufficient to meet the timing of cash needs. These studies are conducted in accordance with formal company-wide Asset Liability Management guidelines.
To complete a study for a particular line of business, models are developed to project asset and liability cash flows and balance sheet items under a large, varied set of plausible economic scenarios. These models consider many factors including the current investment portfolio, the required capital for the related assets and liabilities, our tax position and projected cash flows from both existing and projected new business.
Alternative asset portfolio structures are analyzed for significant lines of business. An investment portfolio maturity structure is then selected from these profiles given our return hurdle and risk preference. SensitivityScenario testing of significant liability assumptions and new business projections is also performed. Specific to COVID-19, several scenarios around impact on near term asset and liability projections, including new business, were modeled and evaluated.
Our liabilities generally have limited policyholder optionality, which means that the timing of payments is relatively insensitive to the interest rate environment. In addition, our investment portfolio is largely comprised of highly liquid fixed maturity securities with a sufficient component of such securities invested that are near maturity which may be sold with minimal risk of loss to meet cash needs. Therefore, we believe we have limited exposure to disintermediation risk.
Generally, our subsidiaries’ premiums, fees and investment income, along with planned asset sales and maturities, provide sufficient cash to pay claims and expenses. However, there may be instances when unexpected cash needs arise in excess of that available from usual operating sources. In such instances, we have several options to raise needed funds, including selling assets from the subsidiaries’ investment portfolios, using holding company cash (if available), issuing commercial paper, or drawing funds from the five-year senior unsecured $450.0 million revolving credit agreement (the “Credit Facility”) with a syndicate of banks arranged by JPMorgan Chase Bank, N.A. and Wells Fargo Bank, National Association (of which $445.5 million was available as of September 30, 2020). In addition, in January 2018, we filed an automatically effective shelf registration statement on Form S-3 with the SEC. This registration statement allows us to issue equity, debt or other types of securities through one or more methods of distribution. The terms of any offering would be established at the time of the offering, subject to market conditions. If we decide to make an offering of securities, we will consider the nature of the cash requirement as well as the cost of capital in determining what type of securities we may offer.
Dividends and Repurchases
We paid dividends of $0.60$0.63 per common share on September 16, 201922, 2020 to stockholders of record as of August 26, 2019,31, 2020 and dividends of $1.6250 per share of MCPS on September 16, 201915, 2020 to stockholders of record as of September 1, 2019.2020. Any determination to pay future dividends will be at the discretion of the Board and will be dependent upon various factors, including: our subsidiaries’ payments of dividends and other statutorily permissible payments to us; our results of operations and cash flows; our financial condition and capital requirements; general business conditions and growth prospects; legal, tax, regulatory and contractual restrictions on the payment of dividends; and other factors the Board deems relevant.relevant, including the impact of COVID-19 on our business. Payments of dividends on shares of common stock are subject to the preferential rights of the MCPS. The Credit Facility contains limitations on our ability to pay dividends to our stockholders if we are in default, or such dividend payments would cause us to be in default, of our obligations thereunder. In addition, if we defer the payment of interest on our Subordinated Notes (as defined below), we generally may not make payments on our capital stock.
During Nine Months 2019,2020, the Company repurchased 1,582,4481,312,443 shares of our outstanding common stock at a cost of $166.1$153.2 million, exclusive of commissions. As of September 30, 2019, $595.12020, $333.1 million remained under the Board repurchase authorization. The timing and the amount of future repurchases will depend on market conditions, our financial condition, results of operations, liquidity and other factors.factors, including the impact of COVID-19 on our business.
Management believes that we will have sufficient liquidity to satisfy our needs over the next twelve months, including the ability to pay interest on our debt and dividends on our common and preferred stock.
Mandatory Convertible Preferred Stock
In March 2018, we issued 2,875,000 shares of our 6.50% MCPS, with a par value of $1.00 per share. Each outstanding share of MCPS will convert automatically on March 15, 2021 into between 0.93690.9391 (the “minimum conversion rate”) and 1.12421.1269 shares of common stock, subject to customary anti-dilution adjustments. At any time prior to March 2021, holders may elect to convert each share of MCPS into shares of common stock at the minimum conversion rate or in the event of a fundamental change at the specified rates defined in the Certificate of Designations of the MCPS.
Dividends on the MCPS will be payable on a cumulative basis when, as and if declared, at an annual rate of 6.50% of the liquidation preference of $100.00 per share. We may pay declared dividends in cash or, subject to certain limitations, in shares of our common stock, or in any combination of cash and shares of our common stock quarterly, commencing in June 2018 and ending in March 2021. No dividend or distribution may be declared or paid on common stock or any other class or series of junior stock, and no common stock or any other class or series of junior stock or parity stock may be purchased, redeemed or otherwise acquired for consideration unless all accumulated and unpaid dividends on the MCPS for all preceding dividend periods have been declared and paid in full, subject to certain limited exceptions. We paid preferred stock dividends of $4.7 million for each of Third Quarter 2020 and Third Quarter 2019, and $14.0 million for Third Quarter 2019each of Nine Months 2020 and Nine Months 2019, respectively.2019. For additional information regarding the MCPS, see Note 1518 in the Consolidated Financial Statements included elsewhere in this Report.
We have a Credit Facility with a syndicate of banks arranged by JPMorgan Chase Bank, N.A. and Wells Fargo Bank, National Association. The Credit Facility provides for revolving loans and the issuance of multi-bank, syndicated letters of credit and letters of credit from a sole issuing bank in an aggregate amount of $450.0 million, which may be increased up to $575.0 million. The Credit Facility is available until December 2022, provided we are in compliance with all covenants. The Credit Facility has a sub-limit for letters of credit issued thereunder of $50.0 million. The proceeds from these loans may be used for our commercial paper program or for general corporate purposes. As of September 30, 2019, $441.0 million was available under the Credit Facility and $9.0 million letters of credit were outstanding.
Senior and Subordinated NotesOutstanding Debt
The following table shows the principal amount and carrying value of our outstanding debt, less unamortized discount and issuance costs as applicable, as of September 30, 20192020 and December 31, 2018:2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
| Principal Amount | | Carrying Value | | Principal Amount | | Carrying Value |
Floating Rate Senior Notes due March 2021 (1) | $ | 50.0 | | | $ | 50.0 | | | $ | 50.0 | | | $ | 49.9 | |
4.00% Senior Notes due March 2023 | 350.0 | | | 348.8 | | | 350.0 | | | 348.5 | |
4.20% Senior Notes due September 2023 | 300.0 | | | 298.2 | | | 300.0 | | | 297.8 | |
4.90% Senior Notes due March 2028 | 300.0 | | | 297.1 | | | 300.0 | | | 296.8 | |
3.70% Senior Notes due February 2030 | 350.0 | | | 347.0 | | | 350.0 | | | 346.8 | |
6.75% Senior Notes due February 2034 | 275.0 | | | 272.2 | | | 275.0 | | | 272.1 | |
7.00% Fixed-to-Floating Rate Subordinated Notes due March 2048 (2) | 400.0 | | | 395.3 | | | 400.0 | | | 395.0 | |
| | | | | | | |
| | | | | | | |
Total Debt | | | $ | 2,008.6 | | | | | $ | 2,006.9 | |
(1)Bears floating interest at a rate equal to three-month LIBOR plus 1.25% per annum. |
| | | | | | | | | | | | | | | |
| September 30, 2019 | | December 31, 2018 |
| Principal Amount | | Carrying Value | | Principal Amount | | Carrying Value |
Floating Rate Senior Notes due March 2021 (1) | $ | 50.0 |
| | $ | 49.8 |
| | $ | 300.0 |
| | $ | 298.1 |
|
4.00% Senior Notes due March 2023 | 350.0 |
| | 348.4 |
| | 350.0 |
| | 348.1 |
|
4.20% Senior Notes due September 2023 | 300.0 |
| | 297.7 |
| | 300.0 |
| | 296.8 |
|
4.90% Senior Notes due March 2028 | 300.0 |
| | 296.8 |
| | 300.0 |
| | 297.6 |
|
3.70% Senior Notes due February 2030 | 350.0 |
| | 346.7 |
| | — |
| | — |
|
6.75% Senior Notes due February 2034 | 275.0 |
| | 272.1 |
| | 375.0 |
| | 370.9 |
|
7.00% Fixed-to-Floating Rate Subordinated Notes due March 2048 (2) | 400.0 |
| | 394.8 |
| | 400.0 |
| | 394.5 |
|
Total debt | | | $ | 2,006.3 |
| | | | $ | 2,006.0 |
|
(2)Bears a 7.00% annual interest rate to March 2028 and an annual interest rate equal to three-month LIBOR plus 4.135% thereafter. | |
(1) | Bears floating interest at a rate equal to three-month LIBOR plus 1.25%. |
| |
(2) | Bears a 7.00% annual interest rate from March 2018 to March 2028 and annual interest rate equal to three-month LIBOR plus 4.135% thereafter. |
Senior and Subordinated Notes
2030 Senior Notes: In August 2019, we issued senior notes with an aggregate principal amount of $350.0 million which bear interest at a rate of 3.70% per year, mature in February 2030 and were issued at a 0.035% discount to the public (the “2030 Senior Notes”). Interest is payable semi-annually in arrears beginning in February 2020. Prior to November 2029, we may redeem the 2030 Senior Notes at any time in whole or from time to time in part at a make-whole premium plus accrued and unpaid interest. On or after that date, we may redeem the 2030 Senior Notes at any time in whole or from time to time in part at a redemption price equal to 100% of the principal amount being redeemed plus accrued and unpaid interest.
We used the net proceeds from the offering, together with cash on hand, to purchase $100.0 million of our 6.75% senior notes due 2034 in a cash tender offer, to redeem $250.0 million of our floating rate senior notes due 2021 and to pay related premiums, fees and expenses.
2021, 2023 and 2028 Senior Notes
In March 2018, we issued the following three series of senior notes with an aggregate principal amount of $900.0 million:
| |
• | 2021 Senior Notes: The first series of senior notes is $300.0 million in principal amount, bears floating interest rate equal to three-month LIBOR plus 1.25% (3.36% as of September 30, 2019)•2021 Senior Notes: The first series of senior notes is $300.0 million in principal amount, bears floating interest at a rate equal to three-month LIBOR plus 1.25% (3.36% as of September 30, 2020) per year and matures in March 2021 (the “2021 Senior Notes”). Interest on the 2021 Senior Notes is payable quarterly. Commencing on or after March 2019, we may redeem the 2021 Senior Notes at any time in whole or from time to time in part at a redemption price equal to 100% of the principal amount being redeemed plus accrued and unpaid interest. In August 2019, we redeemed $250.0 million of the $300.0 million outstanding aggregate principal amount of the 2021 Senior Notes. •2023 Senior Notes: The second series of senior notes is $300.0 million in principal amount, bears interest at 4.20% per year, matures in September 2023 and was issued at a 0.233% discount to the public (the “2023 Senior Notes”). Interest on the 2023 Senior Notes is payable semi-annually. Prior to August 2023, we may redeem the 2023 Senior Notes at any time in whole or from time to time in part at a make-whole premium plus accrued and unpaid interest. On or after that date, we may redeem the 2023 Senior Notes at any time in whole or from time to time in part at a redemption price equal to 100% of the principal amount being redeemed plus accrued and unpaid interest. •2028 Senior Notes: The third series of senior notes is $300.0 million in principal amount, bears interest at 4.90% per year, matures in March 2028 and was issued at a 0.383% discount to the public (the “2028 Senior Notes”). Interest on the 2028 Senior Notes is payable semi-annually. Prior to December 2027, we may redeem the 2028 Senior Notes at any time in whole or from time to time in part of a make-whole premium plus accrued and unpaid interest. On or after that date, we may redeem the 2028 Senior Notes at any time in whole or from time to time in part at a redemption price equal to 100% of the principal amount being redeemed plus accrued and unpaid interest.
|
| |
• | 2023 Senior Notes: The second series of senior notes is $300.0 million in principal amount, bears interest at 4.20% per year, matures in September 2023 and was issued at a 0.233% discount to the public (the “2023 Senior Notes”). Interest on the 2023 Senior Notes is payable semi-annually. Prior to August 2023, we may redeem the 2023 Senior Notes at any time in whole or from time to time in part at a make-whole premium plus accrued and unpaid interest. On or after that date, we may redeem the 2023 Senior Notes at any time in whole or from time to time in part at a redemption price equal to 100% of the principal amount being redeemed plus accrued and unpaid interest.
|
| |
• | 2028 Senior Notes: The third series of senior notes is $300.0 million in principal amount, bears interest at 4.90% per year, matures in March 2028 and was issued at a 0.383% discount to the public (the “2028 Senior Notes”). Interest on the 2028 Senior Notes is payable semi-annually. Prior to December 2027, we may redeem the 2028 Senior Notes at any time in whole or from time to time in part of a make-whole premium plus accrued and unpaid interest. On or after that date, we may redeem the 2028 Senior Notes at any time in whole or from time to time in part at a redemption price equal to 100% of the principal amount being redeemed plus accrued and unpaid interest.
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The interest rate payable on each of the 2021 Senior Notes, the 2023 Senior Notes, the 2028 Senior Notes and the 2030 Senior Notes will be subject to adjustment from time to time, if either Moody’s Investor Service, Inc. (“Moody’s”) or S&P Global Ratings, a division of S&P Global Inc. (“S&P”) downgrades the credit rating assigned to such series of senior notes to Ba1 or below or to BB+ or below, respectively, or subsequently upgrades the credit ratings once the senior notes are at or below such levels. The following table details the increase in interest rate over the issuance rate by rating with the impact equal to the sum of the number of basis points next to such rating for a maximum increase of 200 basis points over the issuance rate:
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| | | | | | | | | | | | | | | | | | | |
| | Rating Agencies | | |
Rating Levels | | Moody’s (1) | | S&P (1) | | Interest Rate Increase (2) |
1 | | Ba1 | | BB+ | | 25 basis points |
2 | | Ba2 | | BB | | 50 basis points |
3 | | Ba3 | | BB- | | 75 basis points |
4 | | B1 or below | | B+ or below | | 100 basis points |
| |
(1) | Including the equivalent ratings of any substitute rating agency. |
| |
(2) | Applies to each rating agency individually. |
(1)Including the equivalent ratings of any substitute rating agency.
(2)Applies to each rating agency individually.
Subordinated Notes
In March 2018, we issued fixed-to-floating rate subordinated notes due March 2048 with a principal amount of $400.0 million (the “Subordinated Notes”), which bear interest from March 2018 to March 2028 at an annual rate of 7.00%, payable semi-annually. The Subordinated Notes will bear interest at an annual rate equal to three-month LIBOR plus 4.135%, payable quarterly, beginning in June 2028. On or after March 2028, we may redeem the Subordinated Notes in whole at any time or in part from time to time, at a redemption price equal to their principal amount plus accrued and unpaid interest provided that if they are not redeemed in whole, a minimum amount must remain outstanding. At any time prior to March 2028, we may redeem the Subordinated Notes in whole but not in part after the occurrence of a tax event, rating agency event or regulatory capital event as defined in the global note representing the Subordinated Notes, at a redemption price equal to (i) with respect to a rating agency event 102% of their principal amount and (ii) with respect to a tax event or regulatory capital event, their principal amount plus accrued and unpaid interest.
In addition, so long as no event of default with respect to the Subordinated Notes has occurred and is continuing, we have the right, on one or more occasions, to defer the payment of interest on the Subordinated Notes for one or more consecutive interest periods for up to five years as described in the global note representing the Subordinated Notes. During a deferral period, interest will continue to accrue on the Subordinated Notes at the then-applicable interest rate. At any time when we have given notice of our election to defer interest payments on the Subordinated Notes, we generally may not make payments on or redeem or purchase any shares of our capital stock or any of our debt securities or guarantees that rank upon our liquidation on a parity with or junior to the Subordinated Notes, subject to certain limited exceptions.
Other Notes
In March 2013, we issued two series of senior notes with an aggregate principal amount of $700.0 million. The first series was $350.0 million in principal amount, bore interest at 2.50% per year and was repaid at maturity in March 2018. The second series is $350.0 million in principal amount and was issued at a 0.365% discount to the public. This series bears interest at 4.00% per year and matures in March 2023. Interest is payable semi-annually. We may redeem the outstanding series of senior notes in whole or in part at any time and from time to time before maturity at the redemption price set forth in the global note representing the outstanding series of senior notes.
In February 2004, we issued senior notes with an aggregate principal amount of $475.0 million at a 0.61% discount to the public, which bear interest at 6.75% per year and matures in February 2034. Interest is payable semi-annually. These senior notes are not redeemable prior to maturity. In December 2016 and August 2019, we completed cash tender offers of $100.0 million each in aggregate principal amount of such senior notes. A loss on extinguishment of debt of $31.4 million was reported in Third Quarter 2019the third quarter of 2019.
Credit Facility and Commercial Paper Program
We have a Credit Facility that provides for revolving loans and the outstandingissuance of multi-bank, syndicated letters of credit and letters of credit from a sole issuing bank in an aggregate principal amount of $450.0 million, which may be increased up to $575.0 million. The Credit Facility is available until December 2022, provided we are in compliance with all covenants. The Credit Facility has a sub-limit for letters of credit issued thereunder of $50.0 million. The proceeds from these loans may be used for our commercial paper program or for general corporate purposes.
On March 27, 2020, we drew down $200.0 million from our Credit Facility. We repaid the seniorloan on July 29, 2020, at the end of the then-current interest period, during which the loan bore interest at a floating rate equal to one-month LIBOR plus 1.50% per annum.
Our commercial paper program requires us to maintain liquidity facilities either in an available amount equal to any outstanding notes from the program or in an amount sufficient to maintain the ratings assigned to the notes issued from the program. Our commercial paper is rated AMB-1 by A.M. Best, P-3 by Moody’s and A-2 by S&P. Our subsidiaries do not maintain commercial paper or other borrowing facilities. This program is currently backed up by the Credit Facility, of which $445.5 million out of the $450.0 million was $275.0 millionavailable as of September 30, 2019.2020, due to $4.5 million of letters of credit outstanding.
Retirement and Other Employee Benefits
For information on our retirement and other employee benefits, see Note 1720 to the Consolidated Financial Statements, included elsewhere in this Report.
Cash Flows
We monitor cash flows at the consolidated, holding company and subsidiary levels. Cash flow forecasts at the consolidated and subsidiary levels are provided on a monthly basis, and we use trend and variance analyses to project future cash needs, making adjustments to the forecasts when needed.
The table below shows our net cash flows for the periods indicated:
| | | | | | | | | | | |
| For the Nine Months Ended September 30, |
Net cash provided by (used in): | 2020 | | 2019 |
Operating activities | $ | 901.6 | | | $ | 1,167.9 | |
Investing activities | (275.2) | | | (613.6) | |
Financing activities | (296.8) | | | (50.1) | |
Effect of exchange rate changes on cash and cash equivalents | 6.3 | | | (8.9) | |
Net change in cash | $ | 335.9 | | | $ | 495.3 | |
|
| | | | | | | |
| For the Nine Months Ended September 30, |
Net cash provided by (used in): | 2019 | | 2018 |
Operating activities | $ | 1,167.9 |
| | $ | 454.6 |
|
Investing activities | (613.6 | ) | | (1,904.4 | ) |
Financing activities | (50.1 | ) | | 1,790.4 |
|
Effect of exchange rate changes on cash and cash equivalents | (8.9 | ) | | (30.8 | ) |
Net change in cash | $ | 495.3 |
| | $ | 309.8 |
|
We typically generate operating cash inflows from premiums collected from our insurance products, fees received for services and income received from our investments while outflows consist of policy acquisition costs, benefits paid and operating expenses. These net cash flows are then invested to support the obligations of our insurance products and required capital supporting these products. Our cash flows from operating activities are affected by the timing of premiums, fees, and investment income received and expenses paid.
The table below shows our cash outflows for interest and dividends for the periods indicated: