Assurant, Inc.
1. Nature of Operations
Assurant, Inc. (the “Company”) is a global provider of lifestyle and housing solutions that support, protect and connect major consumer purchases. The Company partners with leading brands to develop innovative products and services and to deliver enhanced customer experience. The Company operates in North America, Latin America, Europe and Asia Pacific through 32 operating segments: Global Lifestyle Global Housing and Global Preneed.Housing. Through its Global Lifestyle segment, the Company provides mobile device solutions 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”). Through its Global Housing segment, the Company 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”). Through itsThe businesses previously reported as the Global Preneed segment, through which the Company provides pre-funded funeral insurance, final need insurance and related services.services, as well as certain businesses previously disposed of through reinsurance, which were previously reported in the Corporate and Other segment, have been classified as held for sale. Refer to Note 4 for additional information on the pending sale.
The Company’s common stock is traded on the New York Stock Exchange under the symbol “AIZ”.
2. Basis of Presentation
The accompanying unaudited interim Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, these statements do not include all of the information and notes required by GAAP for complete financial statements.
3. Recent Accounting Pronouncements
discount rate must be evaluated at each reporting date and the impact of changes to the liability estimate as a result of updating the discount rate assumption is required to be recognized in other comprehensive income; the provision for adverse deviation is eliminated; and premium deficiency testing is eliminated. Other noteworthy changes include the following: differing models for amortizing deferred acquisition costs will become uniform for all long-duration contracts based on a constant rate over the expected term of the related in-force contracts; all market risk benefits associated with deposit contracts must be reported at fair value with changes reflected in income except for changes related to credit risk which will be recognized in other comprehensive income; and disclosures will be expanded to include disaggregated roll forwards of the liability for future policy benefits, policyholder account balances, market risk benefits, separate account liabilities, and deferred acquisition costs, as well as information about significant inputs, judgments, assumptions and methods used in measurement.
The relief is applicable only to legacy contracts if the amendments made to the agreements are solely for reference rate reform activities. The provisions must be applied consistently for all relevant transactions other than derivatives, which may be applied at a hedging relationship level. The guidance is effective upon issuance. The guidance on contract modifications is applied prospectively from any date beginning March 12, 2020. Unlike other topics, the provisions of this update are only available until December 31, 2022, when the reference rate replacement activity is expected to have been completed.
Reinsurance Recoverables10
As part of the Company’s overall risk and capacity management strategy, reinsurance is used to mitigate certain risks underwritten by various business segments. The Company is exposed to the credit risk of reinsurers, as the Company remains liable to insureds regardless of whether related reinsurance recoverables are collected. As of March 31, 2020 and December 31, 2019, reinsurance recoverables totaled $9.54 billion and $9.59 billion, respectively, the majority of which are protected from credit risk by various types of collateral or other risk mitigation mechanisms, such as trusts, letters of credit or by withholding the assets in a modified coinsurance or funds-withheld arrangement.
Methodology:
The Company uses a probability of default and loss given default methodology in estimating the allowance, whereby the credit ratings of reinsurers are used in determining the probability of default. The allowance is established for reinsurance recoverables on paid and unpaid future policy benefits and claims and benefits. Prior to applying default factors, the net exposure to credit risk is reduced for any collateral for which the right of offset exists, such as funds withheld, assets held in trust and letters of credit, which are part of the reinsurance arrangements, with adjustments to include consideration of credit exposure on the collateral. The methodology used by the Company incorporates historical default factors for each reinsurer based on their credit rating using comparably rated bonds as published by a major ratings service. The allowance is based upon the Company’s ongoing review of amounts outstanding, length of collection periods, changes in reinsurer credit standing and other relevant factors.
The Company utilizes external credit ratings published by S&P Global Ratings, a division of S&P Global Inc., at the balance sheet date when determining the allowance. Where rates are not available, the Company assigns default credit ratings
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Inin millions, except number of shares and per share amounts)
based on if the reinsurer is authorized or unauthorized. Of the total recoverables subject to the allowance, 71% were rated A- or better, 23% were rated BBB or BB, and 6% were not rated.
The following table presents the changesmajor classes of assets and liabilities held for sale included in the CECL allowance for reinsurance recoverables by portfolio segment for the three months ended March 31, 2020.consolidated balance sheets.
| | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
Assets | | | |
Investments: | | | |
Fixed maturity securities available for sale, at fair value | $ | 6,325.0 | | | $ | 6,633.5 | |
Equity securities at fair value | 111.0 | | | 113.9 | |
Commercial mortgage loans on real estate, at amortized cost | 606.1 | | | 616.0 | |
Short-term investments | 142.5 | | | 41.2 | |
Other investments | 15.1 | | | 52.0 | |
Total investments | 7,199.7 | | | 7,456.6 | |
Cash and cash equivalents | 20.3 | | | 21.0 | |
Premiums and accounts receivable | 7.3 | | | 7.5 | |
Reinsurance recoverables | 3,244.0 | | | 3,234.5 | |
Accrued investment income | 66.5 | | | 62.7 | |
Deferred acquisition costs | 651.0 | | | 185.5 | |
Property and equipment, net | 47.2 | | | 47.2 | |
Value of business acquired | 4.1 | | | 4.3 | |
Other assets | 21.3 | | | 22.6 | |
Assets held in separate accounts | 2,230.1 | | | 2,176.8 | |
Total assets held for sale | $ | 13,491.5 | | | $ | 13,218.7 | |
Liabilities | | | |
Future policy benefits and expenses | $ | 8,806.0 | | | $ | 8,703.5 | |
Unearned premiums | 102.1 | | | 14.9 | |
Claims and benefits payable | 1,019.0 | | | 1,049.2 | |
Commissions payable | 10.3 | | | 9.4 | |
Reinsurance balances payable | 3.5 | | | 3.1 | |
Accounts payable and other liabilities | 194.2 | | | 154.4 | |
Liabilities related to separate accounts | 2,230.1 | | | 2,176.8 | |
Total liabilities held for sale | $ | 12,365.2 | | | $ | 12,111.3 | |
|
| | | | | | | | | | | | | | | | | | | |
| Global Lifestyle | | Global Housing | | Global Preneed | | Corporate and Other | | Total |
Balance as of December 31, 2019 | $ | 2.5 |
| | $ | 0.3 |
| | $ | — |
| | $ | — |
| | $ | 2.8 |
|
Cumulative effect of adoption | 3.9 |
| | 0.7 |
| | 0.2 |
| | 17.7 |
| | 22.5 |
|
Incremental allowance | 1.1 |
| | — |
| | — |
| | 3.4 |
| | 4.5 |
|
Recoveries | (2.5 | ) | | — |
| | — |
| | — |
| | (2.5 | ) |
Balance as of March 31, 2020 | $ | 5.0 |
| | $ | 1.0 |
| | $ | 0.2 |
| | $ | 21.1 |
| | $ | 27.3 |
|
11
For the three months ended March 31, 2020, the increase in the allowance of $4.5 million was principally due to increased risk assessments following the recent economic downturn related to COVID-19. When determining the allowance at March 31, 2020, the Company did not increase default probabilities by reinsurer since there had been no credit rating downgrades or other negative credit indications of the Company’s reinsurers. The allowance may be increased and income reduced in future periods if there are future ratings downgrades or other measurable information supporting an increase in reinsurer default probabilities, including, but not limited to, collateral reductions.
Premium and Accounts Receivables
The Company is exposed to credit risk from premiums and other accounts receivables. For premiums receivable, the exposure to loss upon a default is often mitigated by the ability to terminate the policy on default and offset the corresponding unearned premium liability. The Company has other mitigating offsets from amounts payable on commissions and profit share arrangements when the counterparty to the receivable is a sponsor/agent of the Company’s insurance product.
Methodology:
For receivables due directly from the insured or consumer, the allowance is generally calculated by aging receivable balances and applying default factors based on the Company’s historical collection data. For receivables due from product sponsors or agents, receivable balances are generally segregated by the sponsor or agent and an appropriate default factor determined based on creditworthiness, billing terms and aging of balances. The financial exposure of a credit loss is determined net of offsets (such as related unearned premium reserves for consumer receivables and receivables net of commissions payable, profit share liabilities and captive reinsurance for balances due from sponsors/agents) prior to applying a default factor.
The following table presents the changes in the allowance for credit losses by portfolio segment for premium and account receivables for the three months ended March 31, 2020.
|
| | | | | | | | | | | | | | | | | | | |
| Global Lifestyle | | Global Housing | | Global Preneed | | Corporate and Other | | Total |
Balance as of December 31, 2019 | $ | 14.2 |
| | $ | 0.2 |
| | $ | 0.5 |
| | $ | 0.4 |
| | $ | 15.3 |
|
Cumulative effect of adoption | 1.3 |
| | 0.5 |
| | — |
| | — |
| | 1.8 |
|
Incremental allowance | 2.8 |
| | 0.5 |
| | — |
| | 0.1 |
| | 3.4 |
|
Foreign currency translation | (0.7 | ) | | — |
| | — |
| | — |
| | (0.7 | ) |
Balance as of March 31, 2020 | $ | 17.6 |
| | $ | 1.2 |
| | $ | 0.5 |
| | $ | 0.5 |
| | $ | 19.8 |
|
For the three months ended March 31, 2020, the increase in the allowance of $3.4 million relates to an increased risk assessment following the economic downturn related to COVID-19 to reflect the expectation that future defaults will exceed historical defaults. Since the Company is still evaluating the continued impact of the economic downturn on specific receivable balances, there is a risk that income will be reduced in future periods for specific write-offs.
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Inin millions, except number of shares and per share amounts)
Commercial Mortgage Loans
The Company has entered into commercial mortgage loans, collateralized by the underlying real estate, on properties located throughout the U.S. and Canada. As of March 31, 2020, approximately 40% of the outstanding principal balance of commercial mortgage loans was concentrated in the states of California, Utah and New York. Although the Company has a diversified loan portfolio, an economic downturn could have an adverse impact on the ability of its debtors to repay their loans. The outstanding balance of commercial mortgage loans range in size from $0.1 million to $12.2 million as of March 31, 2020 and from $0.1 million to $12.3 million as of December 31, 2019.
Methodology:
The Company records commercial mortgage loans at amortized cost, net of the allowance for credit losses. The allowance for the Company’s commercial mortgage loans is based on the present value of expected future cash flows discounted at the loan’s effective interest rate, utilizing a probability-of-default and loss methodology, which incorporates various probability weighted economic scenarios. The probability of default is estimated using macroeconomic factors as well as individual loan characteristics, including loan-to-value (“LTV”) and debt service coverage ratios (“DSC”), loan term, collateral type, geography and underlying credit. The loss given default is driven primarily by the type and value of underlying collateral, and to a lesser extent by expected liquidation costs and time to recovery. Each loan is analyzed individually based on loan-specific data elements to estimate the expected loss and then aggregated.
The Company places loans on nonaccrual status after 90 days of delinquent payments (unless the loans are secured and in the process of collection). A loan may be placed on nonaccrual status before this time if information is available that suggests collection is unlikely. The Company charges off loan and accrued interest balances that are deemed uncollectible. Charge offs are recorded to net income in the period deemed uncollectable.
Upon adoption of ASC 326 on January 1, 2020, the Company increased its allowance for credit losses from $0.6 million to $2.3 million with the after-tax impact of $1.3 million reflected in retained earnings. For the three months ended March 31, 2020, the CECL allowance was increased by an additional $1.4 million due to an increased risk assessment following the recent economic downturn related to COVID-19.
The following table presentssummarizes the amortized cost basiscomponents of commercial mortgage loans, excluding allowance for credit losses, by origination year for certain key credit quality indicators at March 31, 2020.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Origination Year | | |
| 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Total | | % of Total |
Loan to value ratios (1): | | | | | | | | | | | | | |
70% and less | $ | 109.9 |
| | $ | 189.2 |
| | $ | 147.7 |
| | $ | 92.1 |
| | $ | 237.9 |
| | $ | 776.8 |
| | 97.3 | % |
71% to 80% | 7.1 |
| | — |
| | — |
| | 7.0 |
| | 3.2 |
| | 17.3 |
| | 2.2 | % |
81% to 95% | — |
| | — |
| | — |
| | — |
| | 4.6 |
| | 4.6 |
| | 0.5 | % |
Total | $ | 117.0 |
| | $ | 189.2 |
| | $ | 147.7 |
| | $ | 99.1 |
| | $ | 245.7 |
| | $ | 798.7 |
| | 100.0 | % |
| | | | | | | | | | | | | |
| Origination Year | | |
| 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Total | | % of Total |
Debt service coverage ratios (2): | | | | | | | | | | | | | |
Greater than 2.0 | $ | 37.6 |
| | $ | 72.1 |
| | $ | 73.0 |
| | $ | 68.2 |
| | $ | 112.8 |
| | $ | 363.7 |
| | 45.5 | % |
1.5 to 2.0 | 41.7 |
| | 73.3 |
| | 48.1 |
| | 21.0 |
| | 60.8 |
| | 244.9 |
| | 30.7 | % |
1.0 to 1.5 | 37.7 |
| | 43.8 |
| | 26.6 |
| | 9.9 |
| | 67.7 |
| | 185.7 |
| | 23.3 | % |
Less than 1.0 | — |
| | — |
| | — |
| | — |
| | 4.4 |
| | 4.4 |
| | 0.5 | % |
Total | $ | 117.0 |
| | $ | 189.2 |
| | $ | 147.7 |
| | $ | 99.1 |
| | $ | 245.7 |
| | $ | 798.7 |
| | 100.0 | % |
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(In millions, except number of shares and per share amounts)
| |
(1) | LTV ratio derived from current loan balance divided by the fair value of the property. The fair value of the underlying commercial properties is updated at least annually. |
| |
(2) | DSC ratio calculated using most recent reported operating income results from property operators divided by annual debt service coverage. |
Available for Sale Securities
ASC 326 includes certain changes to the accounting and reporting for impairments involving available for sale securities, including presentation of credit-related impairments as an allowance rather than as a permanent impairment, eliminating duration of unrealized loss as a consideration when assessing recognition of an impairment, recognition of credit impairments upon purchase of securities as applicable, and requiring reversals of previously recognized credit-related impairments when applicable. Effective January 1, 2020, the Company’s updated accounting policy for available for sale securities is as follows:
For available for sale fixed maturity securities in an unrealized loss position for which the Company does not intend to sell or for which it is more likely than not that the Company would not be required to sell before an anticipated recovery in value, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost basis, changes to the credit rating of the security by a nationally recognized statistical ratings organization and any adverse conditions specifically related to the security, industry or geographic area, among other factors. If this assessment indicates a potential credit loss may exist, the present value of cash flows expected to be collected are compared to the security’s amortized cost basis. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit-related impairment exists, and a charge to income and an associated allowance for credit losses is recorded for the credit-related impairment. Any impairment not related to credit losses is recorded through other comprehensive income. The amount of the allowance for credit losses is limited to the amount by which fair value is less than the amortized cost basis. Upon recognizing a credit-related impairment, the cost basis of the security is not adjusted.
Subsequent changes in the allowance for credit losses are recorded as provision for, or reversal of, credit loss expense. For fixed maturities where the Company records a credit loss, a determination is made as to the cause of the impairment and whether the Company expects a recovery in the value. Write-offs are charged against the allowance when management concludes the financial asset is uncollectible. For fixed maturities where the Company expects a recovery in value, the effective yield method is utilized, and the investment is amortized to par.
For available for sale fixed maturity securities that the Company intends to sell, or for which it is more likely than not that the Company will be required to sell before recovery of its amortized cost basis, the entire impairment loss, or difference between the fair value and amortized cost basis of the security, is recognized in net realized gains (losses). The new cost basis of the security is the previous amortized cost basis less the impairment recognized and is not adjusted for any subsequent recoveries in fair value.
The Company reports receivables for accrued investment income separately from fixed maturities available for sale and elected not to measure allowances for credit losses for accrued investment income as uncollectible balances are written off in a timely manner.
5. Investment in Iké
In 2014, the Company made an approximately 40% investment in Iké Group, Iké Asistencia and certain of their affiliates (collectively, “Iké”), a services assistance business, for which the Company paid approximately $110.0 million. At the same time, the Company also entered into a shareholders’ agreement that provided the right to acquire the remainder of Iké from the majority shareholders and the majority shareholders the right to put their interests in Iké to the Company (together, the “put/call”) in mid-2019. During 2019, the Company entered into a cooperation agreement with the majority shareholders of Iké to extend the put/call to January 31, 2020 and explore strategic alternatives which led to the third quarter 2019 decision to pursue the sale of its interests in Iké. In January 2020, in lieu of exercising the put/call, the Company entered into a formal agreement to sell its interests in Iké with an expected close in the second quarter of 2020. The put/call will be terminated in connection with the closing of the transaction.
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(In millions, except number of shares and per share amounts)
The Company has determined that Iké is a variable interest entity (“VIE”); however, it does not have the controlling financial interest to direct the activities of the VIE that most significantly impact the VIE’s economic performance. Accordingly, the investment in Iké is recorded under the equity method of accounting and is included in other assets in the consolidated balance sheets. The Company’s income from its investment in Iké isdiscontinued operations included in fees and other income in the consolidated statements of operations. The estimated fair value of the put/call is remeasured each quarter and is included in accounts payable and other liabilities of the consolidated balance sheets and any gain or loss from changes in fair value is recorded in the consolidated statements of operations.operations:
Impairment of Investment and Charge on Put/Call | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2021 | | 2020 | | | | |
Revenues | | | | | | | |
Net earned premiums | $ | 17.7 | | | $ | 18.3 | | | | | |
Fees and other income | 37.5 | | | 37.5 | | | | | |
Net investment income | 72.0 | | | 72.4 | | | | | |
Net realized losses on investments | (1.1) | | | (11.3) | | | | | |
| | | | | | | |
Total revenues | 126.1 | | | 116.9 | | | | | |
Benefits, losses and expenses | | | | | | | |
Policyholder benefits | 74.0 | | | 72.0 | | | | | |
Amortization of deferred acquisition costs and value of business acquired | 19.2 | | | 18.9 | | | | | |
Underwriting, general and administrative expenses | 21.8 | | | 16.9 | | | | | |
| | | | | | | |
Total benefits, losses and expenses | 115.0 | | | 107.8 | | | | | |
Income from discontinued operations before income taxes | 11.1 | | | 9.1 | | | | | |
(Benefit) provision for income taxes | (3.2) | | | 1.9 | | | | | |
Net income from discontinued operations | $ | 14.3 | | | $ | 7.2 | | | | | |
The Company’s investment in Iké is assessed for possible impairment when events indicate that the fair value of the investment may be below the carrying value. Based on the Company’s plan to sell its interest in Iké and the expected sales price, the Company determined that carrying value exceeds fair value and such impairment is other than temporary. For the three months ended March 31, 2020, the Company recorded an impairment on its 40% equity method investment in Iké of $11.1 million due to the decline in value of the Mexican Peso during the quarter. In addition, the Company recorded a pre-tax loss of $11.2 million related to the change in value of the put/call for the three months ended March 31, 2020 due to changes in foreign exchange rates, compared to $0.2 million for the three months ended March 31, 2019.
Gain on Derivative Hedge
In connection with the first quarter 2020 entry into the sale agreement, the Company entered into a financial derivative that provides an economic hedge against declines in the Mexican Peso relative to the U.S. Dollar since the purchase price will be paid in Mexican Pesos. For the three months ended March 31, 2020, unrealized gains on the derivative of $20.9 million were recognized in income, which substantially offset the impairment and put/call losses.
In total, the Company recorded net pre-tax charges of $1.4 million and $0.2 million (presented as Iké net losses in the consolidated statements of operations). Total impairment and put/call losses of $22.3 million resulted in a tax benefit of $6.7 million; however, this was fully offset by a valuation allowance as the realizability of the tax losses in the related tax jurisdiction is unlikely. There was tax expense of $4.4 million on the income arising on the financial derivative, as such contract was originated in the U.S. tax jurisdiction. As such, after-tax charges of $5.8 million and $0.2 million were recorded for the three months ended March 31, 2020 and 2019, respectively, related to the Company’s interests in Iké.
6. Income Taxes
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted, implementing numerous changes to tax law including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain refundable employee retention credits.
During the three months ended March 31, 2020, the Company recorded a $79.3 million tax benefit related to the ability to carryback net operating losses to prior periods under the CARES Act, resulting in a decrease of our deferred tax asset of $107.1 million and increase to our current receivable of $186.4 million. Due to the recent enactment of this legislation, the Company continues to assess the potential tax impacts of this legislation on its financial position and results of operations.
7.5. Segment Information
As of March 31, 2020,2021, the Company had 43 reportable segments, excluding discontinued operations described above, which are defined based on the manner in which the Company’s chief operating decision maker, the Chief Executive Officer (“CEO”), reviews the business to assess performance and allocate resources, and which align to the nature of the products and services offered:
•Global Lifestyle: provides mobile device solutionsLifestyle;
•Global Housing; 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”);
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(In millions, except number of shares and per share amounts)
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 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, income (expenses) primarily related to the Company’s frozen benefit plans, amounts related to businesses previously disposed of through reinsurance and the runoffrun-off of the Assurant Health business. Corporate and Other also includes goodwill impairments, the foreign currency gains (losses) from remeasurement of monetary assets and liabilities, changes in the fair value of derivative instruments and other expenses related to merger and acquisition activities, as well as other highly variable or unusual items other than reportable catastrophes (reportable catastrophe losses, net of reinsurance and client profit sharing adjustments, and including reinstatement and other premiums).
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Inin millions, except number of shares and per share amounts)
The following tables summarize selected financial information by segment:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2021 |
| | | | | | | |
| Global Lifestyle | | Global Housing | | Corporate and Other | | Consolidated |
Revenues | | | | | | | |
Net earned premiums | $ | 1,648.7 | | | $ | 456.9 | | | $ | 0 | | | $ | 2,105.6 | |
Fees and other income | 213.6 | | | 36.1 | | | 0.2 | | | 249.9 | |
Net investment income | 50.8 | | | 19.4 | | | 6.1 | | | 76.3 | |
Net realized gains on investments | 0 | | | 0 | | | 0.8 | | | 0.8 | |
| | | | | | | |
Total revenues | 1,913.1 | | | 512.4 | | | 7.1 | | | 2,432.6 | |
Benefits, losses and expenses | | | | | | | |
Policyholder benefits | 327.4 | | | 201.3 | | | 0 | | | 528.7 | |
Amortization of deferred acquisition costs and value of business acquired | 889.2 | | | 57.5 | | | 0 | | | 946.7 | |
Underwriting, general and administrative expenses | 527.2 | | | 168.8 | | | 39.7 | | | 735.7 | |
| | | | | | | |
| | | | | | | |
Interest expense | 0 | | | 0 | | | 28.4 | | | 28.4 | |
| | | | | | | |
Total benefits, losses and expenses | 1,743.8 | | | 427.6 | | | 68.1 | | | 2,239.5 | |
Segment income (loss) from continuing operations before provision (benefit) for income tax | 169.3 | | | 84.8 | | | (61.0) | | | 193.1 | |
Provision (benefit) for income taxes | 40.2 | | | 17.4 | | | (13.0) | | | 44.6 | |
Segment net income (loss) from continuing operations | $ | 129.1 | | | $ | 67.4 | | | $ | (48.0) | | | 148.5 | |
Net income from discontinued operations | | | | | | | 14.3 | |
Net income | | | | | | | 162.8 | |
Less: Net loss attributable to non-controlling interests | | | | | | | 0.2 | |
Net income attributable to stockholders | | | | | | | 163.0 | |
Less: Preferred stock dividends | | | | | | | (4.7) | |
Net income attributable to common stockholders | | | | | | | $ | 158.3 | |
| As of March 31, 2021 |
Segment assets: | $ | 24,335.2 | | | $ | 3,892.2 | | | $ | 16,183.2 | | | $ | 44,410.6 | |
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2020 |
| | | | | | | | | |
| Global Lifestyle | | Global Housing | | Global Preneed | | Corporate and Other | | Consolidated |
Revenues | | | | | | | | | |
Net earned premiums | $ | 1,597.7 |
| | $ | 467.8 |
| | $ | 18.3 |
| | $ | — |
| | $ | 2,083.8 |
|
Fees and other income | 349.2 |
| | 32.6 |
| | 35.1 |
| | — |
| | 416.9 |
|
Net investment income | 54.7 |
| | 22.0 |
| | 70.1 |
| | 9.2 |
| | 156.0 |
|
Net realized losses on investments | — |
| | — |
| | — |
| | (95.3 | ) | | (95.3 | ) |
Amortization of deferred gains on disposal of businesses | — |
| | — |
| | — |
| | 4.2 |
| | 4.2 |
|
Total revenues | 2,001.6 |
| | 522.4 |
| | 123.5 |
| | (81.9 | ) | | 2,565.6 |
|
Benefits, losses and expenses | | | | | | | | | |
Policyholder benefits | 336.2 |
| | 198.7 |
| | 72.0 |
| | 0.3 |
| | 607.2 |
|
Amortization of deferred acquisition costs and value of business acquired | 838.4 |
| | 56.9 |
| | 18.9 |
| | — |
| | 914.2 |
|
Underwriting, general and administrative expenses | 667.9 |
| | 173.3 |
| | 17.0 |
| | 49.9 |
| | 908.1 |
|
Iké net losses | — |
| | — |
| | — |
| | 1.4 |
| | 1.4 |
|
Interest expense | — |
| | — |
| | — |
| | 25.5 |
| | 25.5 |
|
Total benefits, losses and expenses | 1,842.5 |
| | 428.9 |
| | 107.9 |
| | 77.1 |
| | 2,456.4 |
|
Segment income (loss) before provision (benefit) for income tax | 159.1 |
| | 93.5 |
| | 15.6 |
| | (159.0 | ) | | 109.2 |
|
Provision (benefit) for income taxes | 38.2 |
| | 19.3 |
| | 3.3 |
| | (107.4 | ) | | (46.6 | ) |
Segment income (loss) after taxes | 120.9 |
| | 74.2 |
| | 12.3 |
| | (51.6 | ) | | 155.8 |
|
Less: Net income attributable to non-controlling interests | — |
| | — |
| | — |
| | (1.1 | ) | | (1.1 | ) |
Net income (loss) attributable to stockholders | 120.9 |
| | 74.2 |
| | 12.3 |
| | (52.7 | ) | | 154.7 |
|
Less: Preferred stock dividends | — |
| | — |
| | — |
| | (4.7 | ) | | (4.7 | ) |
Net income (loss) attributable to common stockholders | $ | 120.9 |
| | $ | 74.2 |
| | $ | 12.3 |
| | $ | (57.4 | ) | | $ | 150.0 |
|
| As of March 31, 2020 |
Segment assets: | $ | 22,516.2 |
| | $ | 3,890.6 |
| | $ | 7,343.6 |
| | $ | 9,672.9 |
| | $ | 43,423.3 |
|
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Inin millions, except number of shares and per share amounts)
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2019 |
| | | | | | | | | |
| Global Lifestyle | | Global Housing | | Global Preneed | | Corporate and Other | | Consolidated |
Revenues | | | | | | | | | |
Net earned premiums | $ | 1,428.5 |
| | $ | 460.1 |
| | $ | 15.8 |
| | $ | — |
| | $ | 1,904.4 |
|
Fees and other income | 253.1 |
| | 39.9 |
| | 33.3 |
| | 2.0 |
| | 328.3 |
|
Net investment income | 58.9 |
| | 25.4 |
| | 69.1 |
| | 12.9 |
| | 166.3 |
|
Net realized gains on investments | — |
| | — |
| | — |
| | 28.8 |
| | 28.8 |
|
Amortization of deferred gains on disposal of businesses | — |
| | — |
| | — |
| | 7.8 |
| | 7.8 |
|
Total revenues | 1,740.5 |
| | 525.4 |
| | 118.2 |
| | 51.5 |
| | 2,435.6 |
|
Benefits, losses and expenses | | | | | | | | | |
Policyholder benefits | 347.2 |
| | 198.9 |
| | 68.6 |
| | — |
| | 614.7 |
|
Amortization of deferred acquisition costs and value of business acquired | 705.8 |
| | 53.9 |
| | 17.6 |
| | — |
| | 777.3 |
|
Underwriting, general and administrative expenses | 555.8 |
| | 180.7 |
| | 16.9 |
| | 46.5 |
| | 799.9 |
|
Iké net losses | — |
| | — |
| | — |
| | 0.2 |
| | 0.2 |
|
Interest expense | — |
| | — |
| | — |
| | 26.5 |
| | 26.5 |
|
Total benefits, losses and expenses | 1,608.8 |
| | 433.5 |
| | 103.1 |
| | 73.2 |
| | 2,218.6 |
|
Segment income (loss) before provision (benefit) for income tax | 131.7 |
| | 91.9 |
| | 15.1 |
| | (21.7 | ) | | 217.0 |
|
Provision (benefit) for income taxes | 31.1 |
| | 19.2 |
| | 3.3 |
| | (5.2 | ) | | 48.4 |
|
Segment income (loss) after taxes | 100.6 |
| | 72.7 |
| | 11.8 |
| | (16.5 | ) | | 168.6 |
|
Less: Net income attributable to non-controlling interest | — |
| | — |
| | — |
| | (2.9 | ) | | (2.9 | ) |
Net income (loss) attributable to stockholders | 100.6 |
| | 72.7 |
| | 11.8 |
| | (19.4 | ) | | 165.7 |
|
Less: Preferred stock dividends | — |
| | — |
| | — |
| | (4.7 | ) | | (4.7 | ) |
Net income (loss) attributable to common stockholders | $ | 100.6 |
| | $ | 72.7 |
| | $ | 11.8 |
| | $ | (24.1 | ) | | $ | 161.0 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2020 |
| | | | | | | |
| Global Lifestyle | | Global Housing | | Corporate and Other | | Consolidated |
Revenues | | | | | | | |
Net earned premiums | $ | 1,597.7 | | | $ | 467.8 | | | $ | 0 | | | $ | 2,065.5 | |
Fees and other income | 349.2 | | | 32.6 | | | 1.8 | | | 383.6 | |
Net investment income | 54.7 | | | 22.0 | | | 6.9 | | | 83.6 | |
Net realized losses on investments | 0 | | | 0 | | | (84.0) | | | (84.0) | |
| | | | | | | |
Total revenues | 2,001.6 | | | 522.4 | | | (75.3) | | | 2,448.7 | |
Benefits, losses and expenses | | | | | | | |
Policyholder benefits | 336.2 | | | 198.7 | | | 0.3 | | | 535.2 | |
Amortization of deferred acquisition costs and value of business acquired | 838.4 | | | 56.9 | | | 0 | | | 895.3 | |
Underwriting, general and administrative expenses | 667.9 | | | 173.3 | | | 51.4 | | | 892.6 | |
| | | | | | | |
Interest expense | 0 | | | 0 | | | 25.5 | | | 25.5 | |
| | | | | | | |
Total benefits, losses and expenses | 1,842.5 | | | 428.9 | | | 77.2 | | | 2,348.6 | |
Segment income (loss) from continuing operations before provision (benefit) for income taxes | 159.1 | | | 93.5 | | | (152.5) | | | 100.1 | |
Provision (benefit) for income taxes | 38.2 | | | 19.3 | | | (106.0) | | | (48.5) | |
Segment net income (loss) from continuing operations | $ | 120.9 | | | $ | 74.2 | | | $ | (46.5) | | | 148.6 |
Net income from discontinued operations | | | | | | | 7.2 | |
Net income | | | | | | | 155.8 | |
Less: Net income attributable to non-controlling interest | | | | | | | (1.1) | |
Net income attributable to stockholders | | | | | | | 154.7 | |
Less: Preferred stock dividends | | | | | | | (4.7) | |
Net income attributable to common stockholders | | | | | | | $ | 150.0 | |
8.6. Contract Revenues
The Company partners with clients to provide consumers a diverse range of protection products and services. The Company’s revenues from protection products are accounted for as insurance contracts and are recognized over the term of the insurance protection provided. Revenues from service contracts and sales of products are recognized as the contractual performance obligations are satisfied or the products are delivered. Revenue is measured as the amount of consideration the Company expects to be entitled to in exchange for performing the services or transferring products. If payments are received before the related revenue is recognized, the amount is recorded as unearned revenue or advance payment liabilities, until the performance obligations are satisfied or the products are transferred.
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(In millions, except number of shares and per share amounts)
The disaggregated revenues from service contracts included in fees and other income on the consolidated statementstatements of operations are $299.1$164.9 million and $207.6$299.1 million for Global Lifestyle and $22.1$24.5 million and $30.2$22.1 million for Global Housing for the three months ended March 31, 20202021 and 2019,2020, respectively.
Global Lifestyle
In the Company’s Global Lifestyle segment, revenues from service contracts and sales of products are primarily from the Company’s Connected Living business. Through partnerships with mobile carriers, the Company provides administrative services related to its mobile device protection products, including program design and marketing strategy, risk management, data analytics, customer support and claims handling, supply chain and service delivery, repair and logistics, and device disposition. Administrative fees are generally billed monthly based on the volume of services provided during the billing period (for example, based on the number of mobile subscribers) with payment due within a short-term period. Each service or bundle
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
of services, depending on the contract, is an individual performance obligation with a standalone selling price. The Company recognizes revenue as it invoices, which corresponds to the value transferred to the customer.
The Company also repairs, refurbishes and then sells repaired or refurbished mobile and other electronic devices. Revenue from products solddevices, on behalf of its clients, for a bundled per unit fee. The entire processing of the device is recognized when risk of ownership transfers to customers, generally upon shipment. Each product hasconsidered one performance obligation with a standalone selling price thatand thus, the per unit fee is determined through analysis of various factors including market data, historical costs and product lifecycle status.recognized when the products are sold. Payments are generally due prior to shipment or within a short-term period.
Global Housing
In the Company’s Global Housing segment, revenues from service contracts and sales of products are primarily from the Company’s Lender-placed Insurance business. Under the Company’s Lender-placed Insurance business, the Company provides loan and claim payment tracking services for lenders. The Company generally invoices its customers weekly or monthly based on the volume of services provided during the billing period with payment due within a short-term period. Each service is an individual performance obligation with a standalone selling price. The Company recognizes revenue as it invoices, which corresponds to the value transferred to the customer.
Contract Balances
The receivables and unearned revenue under these contracts were $188.1$219.9 million and $88.3$91.6 million, respectively, as of March 31, 2020,2021, and $185.0$257.9 million and $87.6$89.8 million, respectively, as of December 31, 2019.2020. These balances are included in premiums and accounts receivable and accounts payable and other liabilities, respectively, in the consolidated balance sheets. Revenue from service contracts and sales of products recognized during the three months ended March 31, 20202021 and 20192020 that was included in unearned revenue as of December 31, 2020 and 2019 and 2018 was $20.2$11.7 million and $15.6$20.2 million, respectively.
In certain circumstances, the Company defers upfront commissions and other costs in connection with client contracts in excess of one year where the Company can demonstrate future economic benefit. For these contracts, expense is recognized as revenues are earned. The Company periodically assesses recoverability based on the performance of the related contracts. As of March 31, 20202021 and December 31, 2019,2020, the Company hashad approximately $18.7$10.9 million and $25.8$13.8 million, respectively, of such intangible assets attributed to service contracts that will be expensed over the term of the client contracts.
7. Investments
The following tables show the cost or amortized cost, allowance for credit losses, gross unrealized gains and losses, and fair value of the Company’s fixed maturity securities as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2021 |
| Cost or Amortized Cost | | Allowance for Credit Losses | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Fixed maturity securities: | | | | | | | | | |
U.S. government and government agencies and authorities | $ | 72.5 | | | $ | 0 | | | $ | 2.9 | | | $ | (0.4) | | | $ | 75.0 | |
States, municipalities and political subdivisions | 174.6 | | | 0 | | | 8.1 | | | (2.0) | | | 180.7 | |
Foreign governments | 422.0 | | | 0 | | | 13.6 | | | (1.1) | | | 434.5 | |
Asset-backed | 268.3 | | | 0 | | | 13.3 | | | (0.4) | | | 281.2 | |
Commercial mortgage-backed | 280.0 | | | 0 | | | 12.8 | | | (2.9) | | | 289.9 | |
Residential mortgage-backed | 629.4 | | | 0 | | | 37.6 | | | (0.6) | | | 666.4 | |
U.S. corporate | 3,273.8 | | | (1.2) | | | 271.3 | | | (26.4) | | | 3,517.5 | |
Foreign corporate | 1,086.2 | | | 0 | | | 56.5 | | | (12.0) | | | 1,130.7 | |
Total fixed maturity securities | $ | 6,206.8 | | | $ | (1.2) | | | $ | 416.1 | | | $ | (45.8) | | | $ | 6,575.9 | |
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Inin millions, except number of shares and per share amounts)
9. Investments
The following tables show the cost or amortized cost, gross unrealized gains and losses, fair value and impairment included within accumulated other comprehensive income (“AOCI”) of the Company’s fixed maturity securities as of the dates indicated:
|
| | | | | | | | | | | | | | | | | | | |
| March 31, 2020 |
| Cost or Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Impairment in AOCI (1) |
Fixed maturity securities: | | | | | | | | | |
U.S. government and government agencies and authorities | $ | 132.4 |
| | $ | 7.9 |
| | $ | — |
| | $ | 140.3 |
| | $ | — |
|
States, municipalities and political subdivisions | 201.3 |
| | 26.1 |
| | — |
| | 227.4 |
| | — |
|
Foreign governments | 836.7 |
| | 107.9 |
| | (0.5 | ) | | 944.1 |
| | — |
|
Asset-backed | 477.5 |
| | 0.2 |
| | (48.0 | ) | | 429.7 |
| | — |
|
Commercial mortgage-backed | 219.4 |
| | 7.8 |
| | (6.0 | ) | | 221.2 |
| | — |
|
Residential mortgage-backed | 1,159.1 |
| | 91.4 |
| | (1.0 | ) | | 1,249.5 |
| | 2.6 |
|
U.S. corporate | 5,842.0 |
| | 613.8 |
| | (145.7 | ) | | 6,310.1 |
| | 13.6 |
|
Foreign corporate | 2,005.9 |
| | 173.0 |
| | (30.6 | ) | | 2,148.3 |
| | — |
|
Total fixed maturity securities | $ | 10,874.3 |
| | $ | 1,028.1 |
| | $ | (231.8 | ) | | $ | 11,670.6 |
| | $ | 16.2 |
|
|
| December 31, 2019 |
| Cost or Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Impairment in AOCI (1) |
Fixed maturity securities: | | | | | | | | | |
U.S. government and government agencies and authorities | $ | 188.9 |
| | $ | 5.3 |
| | $ | (0.1 | ) | | $ | 194.1 |
| | $ | — |
|
States, municipalities and political subdivisions | 216.1 |
| | 26.4 |
| | — |
| | 242.5 |
| | — |
|
Foreign governments | 916.9 |
| | 94.3 |
| | (0.8 | ) | | 1,010.4 |
| | — |
|
Asset-backed | 502.4 |
| | 3.1 |
| | (2.3 | ) | | 503.2 |
| | — |
|
Commercial mortgage-backed | 212.7 |
| | 10.2 |
| | (0.8 | ) | | 222.1 |
| | — |
|
Residential mortgage-backed | 1,235.3 |
| | 52.4 |
| | (1.4 | ) | | 1,286.3 |
| | 3.1 |
|
U.S. corporate | 5,679.8 |
| | 818.9 |
| | (2.1 | ) | | 6,496.6 |
| | 16.5 |
|
Foreign corporate | 2,112.7 |
| | 255.4 |
| | (0.9 | ) | | 2,367.2 |
| | — |
|
Total fixed maturity securities | $ | 11,064.8 |
| | $ | 1,266.0 |
| | $ | (8.4 | ) | | $ | 12,322.4 |
| | $ | 19.6 |
|
| |
(1) | Represents the amount of non-credit related impairment recognized in AOCI. Amount includes unrealized gains and losses on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date prior to adoption of ASC 326. See Note 3 for further information. |
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(In millions, except number of shares and per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Cost or Amortized Cost | | Allowance for Credit Losses | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Fixed maturity securities: | | | | | | | | | |
U.S. government and government agencies and authorities | $ | 90.4 | | | $ | 0 | | | $ | 3.7 | | | $ | 0 | | | $ | 94.1 | |
States, municipalities and political subdivisions | 164.4 | | | 0 | | | 11.0 | | | (0.1) | | | 175.3 | |
Foreign governments | 442.4 | | | 0 | | | 27.4 | | | (0.1) | | | 469.7 | |
Asset-backed | 251.9 | | | 0 | | | 9.4 | | | (0.8) | | | 260.5 | |
Commercial mortgage-backed | 266.3 | | | 0 | | | 16.5 | | | (1.4) | | | 281.4 | |
Residential mortgage-backed | 685.8 | | | 0 | | | 49.0 | | | (0.2) | | | 734.6 | |
U.S. corporate | 3,315.6 | | | (1.2) | | | 380.6 | | | (4.4) | | | 3,690.6 | |
Foreign corporate | 1,029.0 | | | 0 | | | 80.6 | | | (0.3) | | | 1,109.3 | |
Total fixed maturity securities | $ | 6,245.8 | | | $ | (1.2) | | | $ | 578.2 | | | $ | (7.3) | | | $ | 6,815.5 | |
The Company’s state, municipality and political subdivision holdings are highly diversified across the U.S., with 0 individual state, municipality or political subdivision exposure (including both general obligation and revenue securities) exceeding 0.3%0.4% of the overall investment portfolio as of March 31, 20202021 and December 31, 2019.2020. As of March 31, 20202021 and December 31, 2019,2020, the securities included general obligation and revenue bonds issued by states, cities, counties, school districts and similar issuers, including $37.2$39.5 million and $51.9$39.6 million, respectively, of advance refunded or escrowed-to-maturity bonds (collectively referred to as “pre-refunded revenue bonds”), which are bonds for which an irrevocable trust has been established to fund the remaining payments of principal and interest. As of March 31, 20202021 and December 31, 2019,2020, revenue bonds accounted for 58%61% and 60% of the holdings, respectively. Excluding pre-refunded revenue bonds, the activities supporting the income streams of the Company’s revenue bonds are across a broad range of sectors, primarily water, airport and marina, specifically pledged tax revenues, leases, colleges and universities and other miscellaneous sources such as bond banks, finance authorities and appropriations.
The Company’s investments in foreign government fixed maturity securities are held mainly in countries and currencies where the Company has policyholder liabilities, to facilitate matching of assets to the related liabilities. As of March 31, 2020,2021, approximately 59%25%, 13%21% and 7%16% of the foreign government securities were held in Canadian government/provincials and the governments of Brazil and Mexico, respectively. As of December 31, 2019,2020, approximately 58%26%, 20%24% and 6%16% of the foreign government securities were held in Brazil, Canadian government/provincials and the governments of Brazil and Mexico, respectively. No other country represented more than 5%10% and 8% of the Company’s foreign government securities as of March 31, 20202021 and December 31, 2019.2020, respectively.
The Company had European investment exposure in its corporate fixed maturity securities of $759.4$617.2 million with a net unrealized gain of $56.4$21.6 million as of March 31, 20202021 and $802.3$589.5 million with a net unrealized gain of $82.4$41.8 million as of December 31, 2019.2020. Approximately 28%34% and 29% of the corporate fixed maturity European exposure was held in the financial industry as of March 31, 20202021 and December 31, 2019.2020, respectively. The Company’s largest European country exposure (the United Kingdom) represented approximately 4%6% of the fair value of the Company’s corporate fixed maturity securities as of March 31, 20202021 and December 31, 2019.2020. The Company’s international investments are managed as part of the overall portfolio with the same approach to risk management and focus on diversification.
The Company had exposure to the energy sector in its corporate fixed maturity securities of $596.2 million with a net unrealized loss of $74.3 million as of March 31, 2020 and $784.4$290.0 million with a net unrealized gain of $93.1$19.5 million as of March 31, 2021 and $319.4 million with a net unrealized gain of $23.0 million as of December 31, 2019.2020. Approximately 88%82% and 94%81% of the energy exposure is rated as investment grade as of March 31, 20202021 and December 31, 2019,2020, respectively. The unrealized losses in the sector were primarily caused by declines in global oil prices as the spread of COVID-19 weakened global demand, which was further exacerbated by the lack of coordination among oil producers to manage the supply.
The cost or amortized cost and fair value of fixed maturity securities as of March 31, 20202021 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.
|
| | | | | | | |
| Cost or Amortized Cost | | Fair Value |
Due in one year or less | $ | 437.5 |
| | $ | 440.5 |
|
Due after one year through five years | 2,350.7 |
| | 2,391.1 |
|
Due after five years through ten years | 2,441.0 |
| | 2,525.5 |
|
Due after ten years | 3,789.1 |
| | 4,413.1 |
|
Total | 9,018.3 |
| | 9,770.2 |
|
Asset-backed | 477.5 |
| | 429.7 |
|
Commercial mortgage-backed | 219.4 |
| | 221.2 |
|
Residential mortgage-backed | 1,159.1 |
| | 1,249.5 |
|
Total | $ | 10,874.3 |
| | $ | 11,670.6 |
|
16
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Inin millions, except number of shares and per share amounts)
| | | | | | | | | | | |
| Cost or Amortized Cost | | Fair Value |
Due in one year or less | $ | 359.0 | | | $ | 363.5 | |
Due after one year through five years | 2,047.5 | | | 2,170.5 | |
Due after five years through ten years | 1,730.5 | | | 1,848.2 | |
Due after ten years | 892.1 | | | 956.2 | |
Total | 5,029.1 | | | 5,338.4 | |
Asset-backed | 268.3 | | | 281.2 | |
Commercial mortgage-backed | 280.0 | | | 289.9 | |
Residential mortgage-backed | 629.4 | | | 666.4 | |
Total | $ | 6,206.8 | | | $ | 6,575.9 | |
The following table sets forth the net realized gains (losses), including impairment, recognized in the statementconsolidated statements of operations for the periods indicated:
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2021 | | 2020 | | | | |
Net realized gains (losses) related to sales and other: | | | | | | | |
Fixed maturity securities | $ | 3.0 | | | $ | 3.7 | | | | | |
Equity securities (1) | (1.7) | | | (34.9) | | | | | |
Commercial mortgage loans on real estate | 0.3 | | | (0.2) | | | | | |
Other investments | 0.2 | | | 0.9 | | | | | |
Consolidated investment entities (2) | 0 | | | (48.2) | | | | | |
Total net realized gains (losses) related to sales and other | 1.8 | | | (78.7) | | | | | |
Net realized losses related to impairments: | | | | | | | |
Fixed maturity securities | 0 | | | (1.1) | | | | | |
Other investments (1) | (1.0) | | | (4.2) | | | | | |
Total net realized losses related to impairments | (1.0) | | | (5.3) | | | | | |
Total net realized gains (losses) | $ | 0.8 | | | $ | (84.0) | | | | | |
|
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
Net realized gains (losses) related to sales and other: | | | |
Fixed maturity securities | $ | 7.0 |
| | $ | (0.3 | ) |
Equity securities (1) | (48.2 | ) | | 29.9 |
|
Commercial mortgage loans on real estate | (1.4 | ) | | — |
|
Other investments | 0.8 |
| | (0.1 | ) |
Consolidated investment entities (2) | (48.2 | ) | | (0.4 | ) |
Total net realized (losses) gains related to sales and other | (90.0 | ) | | 29.1 |
|
Net realized losses related to impairments: | | | |
Fixed maturity securities | (1.1 | ) | | (0.3 | ) |
Other investments (3) | (4.2 | ) | | — |
|
Total net realized losses related to impairments | (5.3 | ) | | (0.3 | ) |
Total net realized (losses) gains | $ | (95.3 | ) | | $ | 28.8 |
|
(1)Three months ended March 31, 2021 and 2020 includes $2.1 million and $2.2 million, respectively, of net gains on equity investment holdings accounted for under the measurement alternative. The carrying value of equity investments accounted for under the measurement alternative was $103.3 million and $96.0 million as of March 31, 2021 and 2020, respectively. These investments are included within other investments on the consolidated balance sheets. For the three months ended March 31, 2021 and 2020, there were impairments of $1.0 million and $4.2 million, respectively. For the three months ended March 31, 2021 and 2020, the cumulative carry value fair value increases were $37.1 million and $26.8 million, respectively. For the three months ended March 31, 2021 and 2020, the cumulative impairment losses were $19.6 million and $5.6 million, respectively.(2)Consists of net realized losses from the change in fair value of the Company’s direct investment in collateralized loan obligations (“CLOs”).
| |
(1) | Three months ended March 31, 2020 and 2019 includes $2.2 million and $10.4 million, respectively, of gains on equity investment holdings accounted for under the measurement alternative. |
| |
(2) | Consists of net realized losses from the change in fair value of the Company’s direct investment in collateralized loan obligations (“CLOs”). Refer to Note 10 for additional information. |
| |
(3) | Three months ended March 31, 2020 consists of impairment losses on equity investment holdings accounted for under the measurement alternative. |
The following table sets forth the portion of unrealized gains (losses) related to equity securities for the periods indicated:
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2021 | | 2020 | | | | |
Net losses recognized on equity securities | $ | (1.7) | | | $ | (34.9) | | | | | |
Less: Net realized gains related to sales of equity securities | 0.9 | | | 0 | | | | | |
Total net unrealized losses on equity securities held | $ | (2.6) | | | $ | (34.9) | | | | | |
|
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
Net (losses) gains recognized on equity securities | $ | (48.2 | ) | | $ | 29.9 |
|
Less: Net realized losses related to sales of equity securities | — |
| | (1.0 | ) |
Total net unrealized (losses) gains on equity securities held | $ | (48.2 | ) | | $ | 30.9 |
|
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
The investment category and duration of the Company’s gross unrealized losses on fixed maturity securities as of March 31, 20202021 and December 31, 20192020 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2020 |
| Less than 12 months | | 12 Months or More | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
Fixed maturity securities: | | | | | | | | | | | |
Foreign governments | 34.5 |
| | (0.5 | ) | | — |
| | — |
| | 34.5 |
| | (0.5 | ) |
Asset-backed | 344.5 |
| | (32.1 | ) | | 79.9 |
| | (15.9 | ) | | 424.4 |
| | (48.0 | ) |
Commercial mortgage-backed | 51.6 |
| | (5.6 | ) | | 3.9 |
| | (0.4 | ) | | 55.5 |
| | (6.0 | ) |
Residential mortgage-backed | 18.6 |
| | (0.9 | ) | | 1.1 |
| | (0.1 | ) | | 19.7 |
| | (1.0 | ) |
U.S. corporate | 1,349.2 |
| | (142.9 | ) | | 9.6 |
| | (2.8 | ) | | 1,358.8 |
| | (145.7 | ) |
Foreign corporate | 510.3 |
| | (30.6 | ) | | — |
| | — |
| | 510.3 |
| | (30.6 | ) |
Total fixed maturity securities | $ | 2,308.7 |
| | $ | (212.6 | ) | | $ | 94.5 |
| | $ | (19.2 | ) | | $ | 2,403.2 |
| | $ | (231.8 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2021 |
| Less than 12 months | | 12 Months or More | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
Fixed maturity securities: | | | | | | | | | | | |
U.S. government and government agencies and authorities | $ | 17.9 | | | $ | (0.4) | | | $ | 0 | | | $ | 0 | | | $ | 17.9 | | | $ | (0.4) | |
States, municipalities and political subdivisions | 72.3 | | | (2.0) | | | 0 | | | 0 | | | 72.3 | | | (2.0) | |
Foreign governments | 54.9 | | | (1.1) | | | 0 | | | 0 | | | 54.9 | | | (1.1) | |
Asset-backed | 80.1 | | | (0.2) | | | 33.4 | | | (0.2) | | | 113.5 | | | (0.4) | |
Commercial mortgage-backed | 72.1 | | | (2.3) | | | 2.9 | | | (0.6) | | | 75.0 | | | (2.9) | |
Residential mortgage-backed | 36.7 | | | (0.5) | | | 3.1 | | | (0.1) | | | 39.8 | | | (0.6) | |
U.S. corporate | 397.8 | | | (23.8) | | | 27.7 | | | (2.6) | | | 425.5 | | | (26.4) | |
Foreign corporate | 259.0 | | | (11.9) | | | 3.1 | | | (0.1) | | | 262.1 | | | (12.0) | |
Total fixed maturity securities | $ | 990.8 | | | $ | (42.2) | | | $ | 70.2 | | | $ | (3.6) | | | $ | 1,061.0 | | | $ | (45.8) | |
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(In millions, except number of shares and per share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| Less than 12 months | | 12 Months or More | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
Fixed maturity securities: | | | | | | | | | | | |
U.S. government and government agencies and authorities | $ | 21.9 |
| | $ | (0.1 | ) | | $ | — |
| | $ | — |
| | $ | 21.9 |
| | $ | (0.1 | ) |
Foreign governments | 115.7 |
| | (0.8 | ) | | — |
| | — |
| | 115.7 |
| | (0.8 | ) |
Asset-backed | 66.9 |
| | (0.2 | ) | | 105.1 |
| | (2.1 | ) | | 172.0 |
| | (2.3 | ) |
Commercial mortgage-backed | 20.0 |
| | (0.3 | ) | | 4.3 |
| | (0.5 | ) | | 24.3 |
| | (0.8 | ) |
Residential mortgage-backed | 82.5 |
| | (0.6 | ) | | 82.6 |
| | (0.8 | ) | | 165.1 |
| | (1.4 | ) |
U.S. corporate | 87.5 |
| | (1.4 | ) | | 14.4 |
| | (0.7 | ) | | 101.9 |
| | (2.1 | ) |
Foreign corporate | 45.8 |
| | (0.7 | ) | | 7.5 |
| | (0.2 | ) | | 53.3 |
| | (0.9 | ) |
Total fixed maturity securities | $ | 440.3 |
| | $ | (4.1 | ) | | $ | 213.9 |
| | $ | (4.3 | ) | | $ | 654.2 |
| | $ | (8.4 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Less than 12 months | | 12 Months or More | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
Fixed maturity securities: | | | | | | | | | | | |
| | | | | | | | | | | |
States, municipalities and political subdivisions | $ | 6.1 | | | $ | (0.1) | | | $ | 0 | | | $ | 0 | | | $ | 6.1 | | | $ | (0.1) | |
Foreign governments | 28.3 | | | (0.1) | | | 0 | | | 0 | | | 28.3 | | | (0.1) | |
Asset-backed | 54.5 | | | (0.2) | | | 37.4 | | | (0.6) | | | 91.9 | | | (0.8) | |
Commercial mortgage-backed | 28.2 | | | (0.7) | | | 3.3 | | | (0.7) | | | 31.5 | | | (1.4) | |
Residential mortgage-backed | 23.9 | | | (0.1) | | | 1.5 | | | (0.1) | | | 25.4 | | | (0.2) | |
U.S. corporate | 71.9 | | | (2.9) | | | 13.8 | | | (1.5) | | | 85.7 | | | (4.4) | |
Foreign corporate | 30.1 | | | (0.3) | | | 0 | | | 0 | | | 30.1 | | | (0.3) | |
Total fixed maturity securities | $ | 243.0 | | | $ | (4.4) | | | $ | 56.0 | | | $ | (2.9) | | | $ | 299.0 | | | $ | (7.3) | |
Total gross unrealized losses represented approximately 10%4% and 1%2% of the aggregate fair value of the related securities as of March 31, 20202021 and December 31, 2019,2020, respectively. Approximately 92% and 49%60% of these gross unrealized losses had been in a continuous loss position for less than twelve months as of March 31, 20202021 and December 31, 2019,2020, respectively. The total gross unrealized losses are comprised of 1,277619 and 330180 individual securities as of March 31, 20202021 and December 31, 2019,2020, respectively. In accordance with its policy, the Company concluded that for these securities, the gross unrealized losses as of March 31, 20202021 and December 31, 20192020 were related to non-credit factors and therefore, did not incurrecognize credit-related losses during the three months ended March 31, 2020 (and therefore, there was no valuation allowance as of March 31, 2020).2021. Additionally, the Company currently does not intend to and is not required to sell these investments prior to an anticipated recovery in value.
10. Variable Interest Entities
In the normal course of business, the Company is involved with various types of investment entities that may be considered VIEs. The Company evaluates its involvement with each entity to determine whether consolidation is required. The Company’s maximum risk of loss is limited to the carrying value and unfunded commitments of its investments in the VIEs.
Consolidated VIEs
One of the Company’s subsidiaries is registered with the U.S. Securities and Exchange Commission (the “SEC”) as an investment adviser. The subsidiary (or one of its affiliates) manages and invests in CLOs and real estate funds and may conduct other forms of investment activities. The Company has determined thatentered into commercial mortgage loans, collateralized by the CLOs andunderlying real estate, fund are VIEson properties located throughout the U.S. and consolidated each becauseCanada. As of March 31, 2021, approximately 53% of the outstanding principal balance of commercial mortgage loans was concentrated in the states of California, Texas and Oregon. Although the Company was deemedhas a diversified loan portfolio, an economic downturn could have an adverse impact on the ability of its debtors to berepay their loans. The outstanding balance of commercial mortgage loans range in size from $0.2 million to $9.9 million as of March 31, 2021 and from $0.1 million to $9.9 million as of December 31, 2020.
Credit quality indicators for commercial mortgage loans are loan-to-value and debt-service coverage ratios. The loan-to-value ratio compares the primary beneficiary of these entities due to (i) its role as collateral manager, which gives it the power to direct the activities that most significantly impact the economic performanceprincipal amount of the entities, and (ii) its economic interest in the entities, which exposes itloan to losses and the right to receive benefits that could potentially be significant to the entities.
In connection with the formation of CLO structures, the Company forms special purpose entities capitalized by contributions from the Company’s wholly owned subsidiaries. Subsequent to capitalization, the special purpose entities purchase senior secured leveraged loans funded by contributions from the Company and a short-term warehousing credit facility. Borrowings from the warehousing credit facility are non-recourse to the Company and are fully repaid once the CLO closes. Additionally, the amounts contributed by the Company to fund the initial capitalization are returned after the CLO closes. The Company may elect to use the return of capital to purchase a direct investment in the CLO.
Collateralized Loan Obligations: The CLO entities are collateralized financing entities. Under the elected measurement alternative for collateralized financing entities, the carrying value of the CLO debt equals the fair value of the CLO assets (senior secured leveraged loans) asunderlying property collateralizing the assets have more observable fair values. The CLO liabilities are reduced by the fairloan, and is
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Inin millions, except number of shares and per share amounts)
value of the beneficial interests the Company retainscommonly expressed as a percentage. The debt-service coverage ratio compares a property’s net operating income to its debt-service payments and is commonly expressed as a ratio. The loan-to-value and debt-service coverage ratios are generally updated annually in the CLO and the carrying value of any beneficial interests that represent compensation for services. CLO earnings attributable to the Company’s shareholders are measured by the change in the fair value of the Company’s CLO investments, net investment income earned and investment management and contingent performance fees earned. Investment management fees are reported as a reduction to investment expenses in the consolidated statements of operations. The assets of the CLOs are legally isolated from the Company’s creditors and can only be used to settle obligations of the CLOs. The liabilities of the CLOs are non-recourse to the Company and the Company has no obligation to satisfy the liabilities of the CLOs.fourth quarter.
As of March 31, 2020, the Company and its subsidiaries held a range of 43.8% to 100.0% of the most subordinated debt tranches of four CLO entities and 5.0% of senior debt tranches in one CLO entity, which represents a range of 6.0% to 8.8% overall ownership in each of the CLO entities. As of March 31, 2020, the Company’s investment in a fifth CLO structure had previously (before December 31, 2019) been funded by $124.9 million of contributions from the Company’s wholly owned subsidiaries. The carrying value of the Company’s investment in the CLOs that have closed was $41.6 million and $77.4 million in subordinated debt tranches and $19.1 million and $21.1 million in senior debt tranches as of March 31, 2020 and December 31, 2019, respectively. The carrying value of the Company’s investment in the fifth CLO structure was $112.7 million and $124.9 million as of March 31, 2020 and December 31, 2019, respectively.
The Company’s retained beneficial interests in subordinated tranches are measured at fair value using the market or income valuation techniques using significant unobservable inputs and assumptions, including prepayment, default rate, recovery lag, reinvestment, collateral liquidation price, discount rate and call date assumptions.
Real Estate Fund:The Company’s real estate fund investment is a closed ended fund that includes contributions from third party investors, which are recorded as non-controlling interests. Real estate fund earnings attributable to the Company’s shareholders are measured by the net investment income of the real estate fund, which includes the change in fair value of the Company’s investments in the real estate fund and investment management fees earned. The Company has a majority investment in the real estate fund in the form of an equity interest. The carrying value of the Company’s investment in the real estate fund was $45.6 million and $88.3 million as of March 31, 2020 and December 31, 2019, respectively. The Company’s unfunded commitment in the real estate fund was $1.5 million as of March 31, 2020.
For all consolidated investment entities, intercompany transactions are eliminated upon consolidation.
Fair Value of VIE Assets and Liabilities
The Company categorizes its fair value measurements according to a three-level hierarchy. See Note 11 for the definition of the three levels of the fair value hierarchy. The following table presents the Company’s fair value hierarchyamortized cost basis of commercial mortgage loans, excluding the allowance for financial assetscredit losses, by origination year for certain key credit quality indicators at March 31, 2021 and liabilities held by consolidated investment entities measured at fair value on a recurring basis as of the dates indicated:December 31, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2021 |
| Origination Year |
| 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total | | % of Total |
Loan to value ratios (1): | | | | | | | | | | | | | | | |
70% and less | $ | 5.5 | | | $ | 2.9 | | | $ | 0 | | | $ | 0 | | | $ | 4.1 | | | $ | 115.4 | | | 127.9 | | | 85.8 | % |
71% to 80% | $ | 4.6 | | | $ | 2.6 | | | $ | 0 | | | $ | 4.8 | | | $ | 0 | | | $ | 0 | | | 12.0 | | | 8.0 | % |
81% to 95% | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 2.1 | | | 2.1 | | | 1.4 | % |
Greater than 95% | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 5.9 | | | $ | 1.2 | | | 7.1 | | | 4.8 | % |
Total | $ | 10.1 | | | $ | 5.5 | | | $ | 0 | | | $ | 4.8 | | | $ | 10.0 | | | $ | 118.7 | | | 149.1 | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2021 |
| Origination Year |
| 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total | | % of Total |
Debt service coverage ratios (2): | | | | | | | | | | | | | | | |
Greater than 2.0 | $ | 5.8 | | | $ | 5.5 | | | $ | 0 | | | $ | 0 | | | $ | 4.1 | | | $ | 81.8 | | | $ | 97.2 | | | 65.3 | % |
1.5 to 2.0 | 2.9 | | | 0 | | | 0 | | | 4.8 | | | 0 | | | 17.7 | | | 25.4 | | | 17.0 | % |
1.0 to 1.5 | 1.4 | | | 0 | | | 0 | | | 0 | | | 0 | | | 14.6 | | | 16.0 | | | 10.7 | % |
Less than 1.0 | 0 | | | 0 | | | 0 | | | 0 | | | 5.9 | | | 4.6 | | | 10.5 | | | 7.0 | % |
Total | $ | 10.1 | | | $ | 5.5 | | | $ | 0 | | | $ | 4.8 | | | $ | 10.0 | | | $ | 118.7 | | | $ | 149.1 | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Origination Year |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Total | | % of Total |
Loan to value ratios (1): | | | | | | | | | | | | | | | |
70% and less | $ | 2.9 | | | $ | 0 | | | $ | 0 | | | $ | 4.1 | | | $ | 29.0 | | | $ | 87.1 | | | $ | 123.1 | | | 88.0 | % |
71% to 80% | 2.6 | | | 0 | | | 4.8 | | | 0 | | | 0 | | | 0 | | | 7.4 | | | 5.3 | % |
81% to 95% | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 2.2 | | | 2.2 | | | 1.6 | % |
Greater than 95% | 0 | | | 0 | | | 0 | | | 6.0 | | | 0 | | | 1.2 | | | 7.2 | | | 5.1 | % |
Total | $ | 5.5 | | | $ | 0 | | | $ | 4.8 | | | $ | 10.1 | | | $ | 29.0 | | | $ | 90.5 | | | $ | 139.9 | | | 100.0 | % |
|
| | | | | | | | | | | | | | | |
| March 31, 2020 |
| Total | | Level 1 | | Level 2 | | Level 3 |
Financial Assets | | | | | | | |
Investments: | | | | | | | |
Cash and cash equivalents | $ | 35.1 |
| | $ | 35.1 |
| (1) | $ | — |
| | $ | — |
|
Corporate debt securities | 1,783.3 |
| | — |
| | 1,783.3 |
| | — |
|
Real estate fund | 54.4 |
| | — |
| | — |
| | 54.4 |
|
Total financial assets | $ | 1,872.8 |
| | $ | 35.1 |
| | $ | 1,783.3 |
| | $ | 54.4 |
|
| | | | | | | |
Financial Liabilities | | | | | | | |
Collateralized loan obligation notes | $ | 1,613.9 |
| | $ | — |
| | $ | 1,613.9 |
| | $ | — |
|
Total financial liabilities | $ | 1,613.9 |
| | $ | — |
| | $ | 1,613.9 |
| | $ | — |
|
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Inin millions, except number of shares and per share amounts)
|
| | | | | | | | | | | | | | | |
| December 31, 2019 |
| Total | | Level 1 | | Level 2 | | Level 3 |
Financial Assets | | | | | | | |
Investments: | | | | | | | |
Cash and cash equivalents | $ | 32.9 |
| | $ | 32.9 |
| (1) | $ | — |
| | $ | — |
|
Corporate debt securities | 1,850.7 |
| | — |
| | 1,850.7 |
| | — |
|
Real estate fund | 107.2 |
| | — |
| | — |
| | 107.2 |
|
Total financial assets | $ | 1,990.8 |
| | $ | 32.9 |
| | $ | 1,850.7 |
| | $ | 107.2 |
|
| | | | | | | |
Financial Liabilities | | | | | | | |
Collateralized loan obligation notes | $ | 1,603.1 |
| | $ | — |
| | $ | 1,603.1 |
| | $ | — |
|
Total financial liabilities | $ | 1,603.1 |
| | $ | — |
| | $ | 1,603.1 |
| | $ | — |
|
| |
(1) | Amounts consist of money market funds. |
Level 2 Securities
Corporate debt securities: These assets are comprised of senior secured leveraged loans. The Company values these securities using estimates of fair value from a pricing service which utilizes the market valuation technique. The primary observable market inputs used by the pricing service are prices of reported trades from dealers. The fair value is calculated using a simple average of the prices received.
Collateralized
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Origination Year |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Total | | % of Total |
Debt service coverage ratios (2): | | | | | | | | | | | | | | | |
Greater than 2.0 | $ | 5.5 | | | $ | 0 | | | $ | 0 | | | $ | 4.1 | | | $ | 26.4 | | | $ | 53.3 | | | $ | 89.3 | | | 63.9 | % |
1.5 to 2.0 | 0 | | | 0 | | | 4.8 | | | 0 | | | 2.6 | | | 17.5 | | | 24.9 | | | 17.8 | % |
1.0 to 1.5 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 15.0 | | | 15.0 | | | 10.7 | % |
Less than 1.0 | 0 | | | 0 | | | 0 | | | 6.0 | | | 0 | | | 4.7 | | | 10.7 | | | 7.6 | % |
Total | $ | 5.5 | | | $ | 0 | | | $ | 4.8 | | | $ | 10.1 | | | $ | 29.0 | | | $ | 90.5 | | | $ | 139.9 | | | 100.0 | % |
(1)Loan-to-value ratio derived from current loan obligation notes: As the Company elected the measurement alternative, the carrying value of the CLO debt is equal tobalance divided by the fair value of the CLO assets.property. The CLO notes are classified within Level 2 of the fair value hierarchy, consistent with the classification of the majority of the CLO financial assets.
Level 3 Securities
Real estate fund: These assets are comprised of investments in limited partnerships whose underlying investments are real estate properties. Management estimates the fair value of these real estate assetsthe underlying commercial properties is updated at least annually.
(2)Debt-service coverage ratio calculated using the market, income or cost approach valuation techniques, using significant unobservable inputs and assumptions, including capitalization rates, discount rates, market comparable prices, leasing assumptions and replacement costs.most recent reported operating results from property operators divided by annual debt service coverage.
The following table summarizes the change in balance sheet carrying value associated with Level 3 assets held by consolidated investment entities measured at fair value during the three months ended March 31, 2020 and 2019:
|
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
Balance, beginning of period | $ | 107.2 |
| | $ | 112.0 |
|
Sales | (61.0 | ) | | — |
|
Total income included in earnings | 8.2 |
| | 9.4 |
|
Balance, end of period | $ | 54.4 |
| | $ | 121.4 |
|
11.8. Fair Value Disclosures
Fair Values, Inputs and Valuation Techniques for Financial Assets and Liabilities Disclosures
The fair value measurements and disclosures guidance defines fair value and establishes a framework for measuring fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In accordance with this guidance, theThe Company has
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(In millions, except number of shares and per share amounts)
categorized its recurring fair value basis financial assets and liabilities into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique.
The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and takes into account factors specific to the asset or liability.
The levels of the fair value hierarchy are described below:
•Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company can access.
•Level 2 inputs utilize other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs other than quoted prices that are observable in the marketplace for the asset or liability. The observable inputs are used in valuation models to calculate the fair value for the asset or liability.
•Level 3 inputs are unobservable but are significant to the fair value measurement for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.
The Company reviews fair value hierarchy classifications on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.
The following tables present the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis as of March 31, 20202021 and December 31, 2019.2020. The amounts presented below for short-term investments, other investments, cash equivalents, other assets, assets held in and liabilities related to separate accounts and other liabilities differ from the amounts presented in the consolidated balance sheets because only certain investments or certain assets and liabilities within these line items are measured at estimated fair value. Other investments are comprised of investments in the Assurant Investment Plan (“AIP”), the American Security Insurance Company Investment Plan, the Assurant Deferred Compensation
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
Plan, a modified coinsurance arrangement and other derivatives. Other liabilities are comprised of investments in the AIP, contingent considerations related to business combinations and other derivatives, including the put/call for Iké.derivatives. The fair value amount and the majority of the associated levels presented for other investments and assets and liabilities held in separate accounts are received directly from third parties.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2021 | |
| Total | | Level 1 | | Level 2 | | Level 3 | |
Financial Assets | | | | | | | | |
Fixed maturity securities: | | | | | | | | |
U.S. government and government agencies and authorities | $ | 75.0 | | | $ | 0 | | | $ | 75.0 | | | $ | 0 | | |
States, municipalities and political subdivisions | 180.7 | | | 0 | | | 180.7 | | | 0 | | |
Foreign governments | 434.5 | | | 0.5 | | | 433.6 | | | 0.4 | | |
Asset-backed | 281.2 | | | 0 | | | 279.7 | | | 1.5 | | |
Commercial mortgage-backed | 289.9 | | | 0 | | | 281.6 | | | 8.3 | | |
Residential mortgage-backed | 666.4 | | | 0 | | | 666.4 | | | 0 | | |
U.S. corporate | 3,517.5 | | | 0 | | | 3,506.3 | | | 11.2 | | |
Foreign corporate | 1,130.7 | | | 0 | | | 1,126.9 | | | 3.8 | | |
Equity securities: | | | | | | | | |
Mutual funds | 42.1 | | | 42.1 | | | 0 | | | 0 | | |
Common stocks | 15.8 | | | 13.8 | | | 0.6 | | | 1.4 | | |
Non-redeemable preferred stocks | 235.3 | | | 0 | | | 234.2 | | | 1.1 | | |
Short-term investments | 116.0 | | | 87.8 | | (2) | 28.2 | | | 0 | | |
Other investments | 231.4 | | | 73.0 | | (1) | 158.3 | | (3) | 0.1 | | |
Cash equivalents | 872.5 | | | 831.5 | | (2) | 41.0 | | (3) | 0 | | |
| | | | | | | | |
Other assets | 0.1 | | | 0 | | | 0.1 | | (4) | 0 | | |
Assets held in separate accounts | 11.2 | | | 6.6 | | (1) | 4.6 | | (3) | 0 | | |
Total financial assets | $ | 8,100.3 | | | $ | 1,055.3 | | | $ | 7,017.2 | | | $ | 27.8 | | |
| | | | | | | | |
Financial Liabilities | | | | | | | | |
Other liabilities | $ | 75.8 | | | $ | 73.0 | | (1) | $ | 0 | | | $ | 2.8 | | (5) |
Liabilities related to separate accounts | 11.2 | | | 6.6 | | (1) | 4.6 | | (3) | 0 | | |
Total financial liabilities | $ | 87.0 | | | $ | 79.6 | | | $ | 4.6 | | | $ | 2.8 | | |
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Inin millions, except number of shares and per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | |
| Total | | Level 1 | | Level 2 | | Level 3 | |
Financial Assets | | | | | | | | |
Fixed maturity securities: | | | | | | | | |
U.S. government and government agencies and authorities | $ | 94.1 | | | $ | 0 | | | $ | 94.1 | | | $ | 0 | | |
States, municipalities and political subdivisions | 175.3 | | | 0 | | | 175.3 | | | 0 | | |
Foreign governments | 469.7 | | | 0.5 | | | 468.8 | | | 0.4 | | |
Asset-backed | 260.5 | | | 0 | | | 260.5 | | | 0 | | |
Commercial mortgage-backed | 281.4 | | | 0 | | | 272.7 | | | 8.7 | | |
Residential mortgage-backed | 734.6 | | | 0 | | | 734.6 | | | 0 | | |
U.S. corporate | 3,690.6 | | | 0 | | | 3,678.6 | | | 12.0 | | |
Foreign corporate | 1,109.3 | | | 0 | | | 1,105.4 | | | 3.9 | | |
Equity securities: | | | | | | | | |
Mutual funds | 42.3 | | | 42.3 | | | 0 | | | 0 | | |
Common stocks | 15.2 | | | 13.3 | | | 0.7 | | | 1.2 | | |
Non-redeemable preferred stocks | 232.7 | | | 0 | | | 231.6 | | | 1.1 | | |
Short-term investments | 253.5 | | | 202.0 | | (2) | 51.5 | | | 0 | | |
Other investments | 241.3 | | | 72.9 | | (1) | 168.3 | | (3) | 0.1 | | |
Cash equivalents | 1,558.6 | | | 1,536.6 | | (2) | 22.0 | | (3) | 0 | | |
| | | | | | | | |
| | | | | | | | |
Assets held in separate accounts | 11.4 | | | 6.7 | | (1) | 4.7 | | (3) | 0 | | |
Total financial assets | $ | 9,170.5 | | | $ | 1,874.3 | | | $ | 7,268.8 | | | $ | 27.4 | | |
| | | | | | | | |
Financial Liabilities | | | | | | | | |
Other liabilities | $ | 76.1 | | | $ | 72.9 | | (1) | $ | 0.5 | | (4) | $ | 2.7 | | (5) |
Liabilities related to separate accounts | 11.4 | | | 6.7 | | (1) | 4.7 | | (3) | 0 | | |
Total financial liabilities | $ | 87.5 | | | $ | 79.6 | | | $ | 5.2 | | | $ | 2.7 | | |
(1)Primarily includes mutual funds and related obligations.
(2)Primarily includes money market funds.
(3)Primarily includes fixed maturity securities and related obligations.
(4)Primarily includes derivatives.
(5)Includes contingent consideration liabilities and other derivatives.
|
| | | | | | | | | | | | | | | | |
| March 31, 2020 | |
| Total | | Level 1 | | Level 2 | | Level 3 | |
Financial Assets | | | | | | | | |
Fixed maturity securities: | | | | | | | | |
U.S. government and government agencies and authorities | $ | 140.3 |
| | $ | — |
| | $ | 140.3 |
| | $ | — |
| |
States, municipalities and political subdivisions | 227.4 |
| | — |
| | 227.4 |
| | — |
| |
Foreign governments | 944.1 |
| | 0.3 |
| | 943.8 |
| | — |
| |
Asset-backed | 429.7 |
| | — |
| | 429.7 |
| | — |
| |
Commercial mortgage-backed | 221.2 |
| | — |
| | 198.0 |
| | 23.2 |
| |
Residential mortgage-backed | 1,249.5 |
| | — |
| | 1,249.5 |
| | — |
| |
U.S. corporate | 6,310.1 |
| | — |
| | 6,284.7 |
| | 25.4 |
| |
Foreign corporate | 2,148.3 |
| | — |
| | 2,111.2 |
| | 37.1 |
| |
Equity securities: | | | | | | | | |
Mutual funds | 46.3 |
| | 46.3 |
| | — |
| | — |
| |
Common stocks | 17.9 |
| | 16.1 |
| | 0.7 |
| | 1.1 |
| |
Non-redeemable preferred stocks | 285.1 |
| | — |
| | 283.0 |
| | 2.1 |
| |
Short-term investments | 186.8 |
| | 163.2 |
| (2) | 23.6 |
| | — |
| |
Other investments | 220.1 |
| | 62.5 |
| (1) | 156.0 |
| (3) | 1.6 |
| (4) |
Cash equivalents | 1,450.2 |
| | 1,407.1 |
| (2) | 43.1 |
| (3) | — |
| |
Other assets | 26.3 |
| | — |
| | 3.0 |
| (5) | 23.3 |
| (5) |
Assets held in separate accounts | 1,487.4 |
| | 1,335.1 |
| (1) | 152.3 |
| (3) | — |
| |
Total financial assets | $ | 15,390.7 |
| | $ | 3,030.6 |
| | $ | 12,246.3 |
| | $ | 113.8 |
| |
| | | | | | | | |
Financial Liabilities | | | | | | | | |
Other liabilities | $ | 175.3 |
| | $ | 62.5 |
| (1) | $ | 112.8 |
| (6) | $ | — |
| |
Liabilities related to separate accounts | 1,487.4 |
| | 1,335.1 |
| (1) | 152.3 |
| (3) | — |
| |
Total financial liabilities | $ | 1,662.7 |
| | $ | 1,397.6 |
| | $ | 265.1 |
| | $ | — |
| |
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Inin millions, except number of shares and per share amounts)
|
| | | | | | | | | | | | | | | | |
| December 31, 2019 | |
| Total | | Level 1 | | Level 2 | | Level 3 | |
Financial Assets | | | | | | | | |
Fixed maturity securities: | | | | | | | | |
U.S. government and government agencies and authorities | $ | 194.1 |
| | $ | — |
| | $ | 194.1 |
| | $ | — |
| |
States, municipalities and political subdivisions | 242.5 |
| | — |
| | 242.5 |
| | — |
| |
Foreign governments | 1,010.4 |
| | 0.3 |
| | 1,010.1 |
| | — |
| |
Asset-backed | 503.2 |
| | — |
| | 503.2 |
| | — |
| |
Commercial mortgage-backed | 222.1 |
| | — |
| | 198.6 |
| | 23.5 |
| |
Residential mortgage-backed | 1,286.3 |
| | — |
| | 1,286.3 |
| | — |
| |
U.S. corporate | 6,496.6 |
| | — |
| | 6,494.8 |
| | 1.8 |
| |
Foreign corporate | 2,367.2 |
| | — |
| | 2,331.5 |
| | 35.7 |
| |
Equity securities: | | | | | | | | |
Mutual funds | 45.5 |
| | 45.5 |
| | — |
| | — |
| |
Common stocks | 23.5 |
| | 22.8 |
| | 0.7 |
| | — |
| |
Non-redeemable preferred stocks | 319.5 |
| | — |
| | 317.3 |
| | 2.2 |
| |
Short-term investments | 367.5 |
| | 271.4 |
| (2) | 96.1 |
| | — |
| |
Other investments | 234.6 |
| | 70.3 |
| (1) | 164.3 |
| (3) | — |
| |
Cash equivalents | 1,287.5 |
| | 1,277.8 |
| (2) | 9.7 |
| (3) | — |
| |
Assets held in separate accounts | 1,806.3 |
| | 1,623.7 |
| (1) | 182.6 |
| (3) | — |
| |
Total financial assets | $ | 16,406.8 |
| | $ | 3,311.8 |
| | $ | 13,031.8 |
| | $ | 63.2 |
| |
| | | | | | | | |
Financial Liabilities | | | | | | | | |
Other liabilities | $ | 172.0 |
| | $ | 70.3 |
| (1) | $ | 101.5 |
| (6) | $ | 0.2 |
| |
Liabilities related to separate accounts | 1,806.3 |
| | 1,623.7 |
| (1) | 182.6 |
| (3) | — |
| |
Total financial liabilities | $ | 1,978.3 |
| | $ | 1,694.0 |
| | $ | 284.1 |
| | $ | 0.2 |
| |
| |
(1) | Primarily includes mutual funds and related obligations. |
| |
(2) | Primarily includes money market funds. |
| |
(3) | Primarily includes fixed maturity securities and related obligations. |
| |
(4) | Primarily includes fixed maturity securities and other derivatives. |
| |
(5) | Primarily includes derivative assets. |
| |
(6) | Includes the put/call related to the investment in Iké. See Note 5 for more information. |
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(In millions, except number of shares and per share amounts)
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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2021 |
| | | Fair Value |
| Carrying Value | | Total | | Level 1 | | Level 2 | | Level 3 |
Financial Assets | | | | | | | | | |
Commercial mortgage loans on real estate | $ | 147.9 | | | $ | 160.7 | | | $ | 0 | | | $ | 0 | | | $ | 160.7 | |
Other investments | 50.4 | | | 50.4 | | | 14.3 | | | 0 | | | 36.1 | |
Other assets | 21.9 | | | 21.9 | | | 0 | | | 0 | | | 21.9 | |
Total financial assets | $ | 220.2 | | | $ | 233.0 | | | $ | 14.3 | | | $ | 0 | | | $ | 218.7 | |
Financial Liabilities | | | | | | | | | |
Policy reserves under investment products (Individual and group annuities, subject to discretionary withdrawal) (1) | $ | 69.6 | | | $ | 81.5 | | | $ | 0 | | | $ | 0 | | | $ | 81.5 | |
Funds withheld under reinsurance | 359.8 | | | 359.8 | | | 359.8 | | | 0 | | | 0 | |
Debt | 2,203.7 | | | 2,455.0 | | | 0 | | | 2,455.0 | | | 0 | |
Total financial liabilities | $ | 2,633.1 | | | $ | 2,896.3 | | | $ | 359.8 | | | $ | 2,455.0 | | | $ | 81.5 | |
|
| December 31, 2020 |
| | | Fair Value |
| Carrying Value | | Total | | Level 1 | | Level 2 | | Level 3 |
Financial Assets | | | | | | | | | |
Commercial mortgage loans on real estate | $ | 138.3 | | | $ | 198.3 | | | $ | 0 | | | $ | 0 | | | $ | 198.3 | |
Other investments | 52.1 | | | 52.1 | | | 14.4 | | | 0 | | | 37.7 | |
Other assets | 23.3 | | | 23.3 | | | 0 | | | 0 | | | 23.3 | |
Total financial assets | $ | 213.7 | | | $ | 273.7 | | | $ | 14.4 | | | $ | 0 | | | $ | 259.3 | |
Financial Liabilities | | | | | | | | | |
Policy reserves under investment products (Individual and group annuities, subject to discretionary withdrawal) (1) | $ | 70.6 | | | $ | 85.4 | | | $ | 0 | | | $ | 0 | | | $ | 85.4 | |
Funds withheld under reinsurance | 358.6 | | | 358.6 | | | 358.6 | | | 0 | | | 0 | |
Debt | 2,252.9 | | | 2,540.0 | | | 0 | | | 2,540.0 | | | 0 | |
Total financial liabilities | $ | 2,682.1 | | | $ | 2,984.0 | | | $ | 358.6 | | | $ | 2,540.0 | | | $ | 85.4 | |
|
| | | | | | | | | | | | | | | | | | | |
| March 31, 2020 |
| | | Fair Value |
| Carrying Value | | Total | | Level 1 | | Level 2 | | Level 3 |
Financial Assets | | | | | | | | | |
Commercial mortgage loans on real estate | $ | 795.1 |
| | $ | 854.2 |
| | $ | — |
| | $ | — |
| | $ | 854.2 |
|
Other investments | 137.5 |
| | 137.5 |
| | 30.6 |
| | — |
| | 106.9 |
|
Other assets | 31.9 |
| | 31.9 |
| | — |
| | — |
| | 31.9 |
|
Total financial assets | $ | 964.5 |
| | $ | 1,023.6 |
| | $ | 30.6 |
| | $ | — |
| | $ | 993.0 |
|
Financial Liabilities | | | | | | | | | |
Policy reserves under investment products (Individual and group annuities, subject to discretionary withdrawal) (1) | $ | 527.0 |
| | $ | 552.8 |
| | $ | — |
| | $ | — |
| | $ | 552.8 |
|
Funds withheld under reinsurance | 352.6 |
| | 352.6 |
| | 352.6 |
| | — |
| | — |
|
Debt | 2,207.5 |
| | 2,320.2 |
| | — |
| | 2,320.2 |
| | — |
|
Total financial liabilities | $ | 3,087.1 |
| | $ | 3,225.6 |
| | $ | 352.6 |
| | $ | 2,320.2 |
| | $ | 552.8 |
|
|
| 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 |
| | $ | — |
| | $ | — |
| | $ | 843.8 |
|
Other investments | 140.0 |
| | 140.0 |
| | 30.7 |
| | — |
| | 109.3 |
|
Other assets | 28.9 |
| | 28.9 |
| | — |
| | — |
| | 28.9 |
|
Total financial assets | $ | 983.9 |
| | $ | 1,012.7 |
| | $ | 30.7 |
| | $ | — |
| | $ | 982.0 |
|
Financial Liabilities | | | | | | | | | |
Policy reserves under investment products (Individual and group annuities, subject to discretionary withdrawal) (1) | $ | 551.6 |
| | $ | 588.4 |
| | $ | — |
| | $ | — |
| | $ | 588.4 |
|
Funds withheld under reinsurance | 319.4 |
| | 319.4 |
| | 319.4 |
| | — |
| | — |
|
Debt | 2,006.9 |
| | 2,190.6 |
| | — |
| | 2,190.6 |
| | — |
|
Total financial liabilities | $ | 2,877.9 |
| | $ | 3,098.4 |
| | $ | 319.4 |
| | $ | 2,190.6 |
| | $ | 588.4 |
|
(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. | |
(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. |
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(In millions, except number of shares and per share amounts)
12.9. 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 Three Months Ended March 31, |
| 2021 | | 2020 |
Claims and benefits payable, at beginning of period | $ | 1,610.3 | | | $ | 1,613.1 | |
Less: Reinsurance ceded and other | (849.4) | | | (855.1) | |
Net claims and benefits payable, at beginning of period | 760.9 | | | 758.0 | |
Incurred losses and loss adjustment expenses related to: | | | |
Current year | 574.9 | | | 580.2 | |
Prior years | (46.2) | | | (45.0) | |
Total incurred losses and loss adjustment expenses | 528.7 | | | 535.2 | |
Paid losses and loss adjustment expenses related to: | | | |
Current year | 235.8 | | | 277.8 | |
Prior years | 268.3 | | | 268.9 | |
Total paid losses and loss adjustment expenses | 504.1 | | | 546.7 | |
Net claims and benefits payable, at end of period | 785.5 | | | 746.5 | |
Plus: Reinsurance ceded and other (1) | 792.5 | | | 857.8 | |
Claims and benefits payable, at end of period (1) | $ | 1,578.0 | | | $ | 1,604.3 | |
|
| | | | | | | |
| For the Three Months Ended March 31, |
| 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 | 652.3 |
| | 645.3 |
|
Prior years | (45.3 | ) | | (30.4 | ) |
Total incurred losses and loss adjustment expenses | 607.0 |
| | 614.9 |
|
Paid losses and loss adjustment expenses related to: | | | |
Current year | 322.2 |
| | 311.7 |
|
Prior years | 296.3 |
| | 300.0 |
|
Total paid losses and loss adjustment expenses | 618.5 |
| | 611.7 |
|
Net claims and benefits payable, at end of period | 776.2 |
| | 763.2 |
|
Plus: Reinsurance ceded and other (1) | 1,893.1 |
| | 1,987.4 |
|
Claims and benefits payable, at end of period (1) | $ | 2,669.3 |
| | $ | 2,750.6 |
|
(1)Includes reinsurance recoverables and claims and benefits payable of $66.1 million and $72.8 million as of March 31, 2021 and 2020, 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. | |
(1) | Includes reinsurance recoverables and claims and benefits payable of $72.8 million and $85.7 million as of March 31, 2020 and 2019, 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. |
The Company experienced favorable development in both periods presented in the roll forward table above. Global Lifestyle contributed $29.7$30.6 million and $31.2$29.7 million to the net favorable development during the three months ended March 31, 20202021 and 2019,2020, respectively. The net favorable development in both years is attributedwas attributable to nearly all lines of business across most of the Company’s regions with a concentration on more recent accident years and is 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 $12.6 million and $9.9 million of net favorable development for the three months ended March 31, 2021 and 2020, and contributed $2.9 million of net unfavorable development for the three months ended March 31, 2019.respectively. The net favorable development in 2020both years was primarily attributable to lender-placedLender-placed Insurance products from the most recent accident years due to lower than expected non-catastrophe claim frequency for water damage and other claims. The net unfavorable development in 2019 was driven by $3.6 million in unfavorable development from Hurricanes Michael, Florence and Maria. Global Preneed and otherfrequency. All others contributed $5.7$3.0 million and $2.1$5.4 million inon net favorable development for the three months ended March 31, 20202021 and 2019,2020, respectively.
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Inin millions, except number of shares and per share amounts)
13.10. 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 March 31, 20202021 and December 31, 2019:2020:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
| Principal Amount | | Carrying Value | | Principal Amount | | Carrying Value |
Floating Rate Senior Notes due March 2021 (1) | $ | 0 | | | $ | 0 | | | $ | 50.0 | | | $ | 50.0 | |
4.00% Senior Notes due March 2023 | 350.0 | | | 349.0 | | | 350.0 | | | 348.9 | |
4.20% Senior Notes due September 2023 | 300.0 | | | 298.5 | | | 300.0 | | | 298.4 | |
4.90% Senior Notes due March 2028 | 300.0 | | | 297.2 | | | 300.0 | | | 297.2 | |
3.70% Senior Notes due February 2030 | 350.0 | | | 347.1 | | | 350.0 | | | 347.0 | |
6.75% Senior Notes due February 2034 | 275.0 | | | 272.3 | | | 275.0 | | | 272.3 | |
7.00% Fixed-to-Floating Rate Subordinated Notes due March 2048 (2) | 400.0 | | | 395.6 | | | 400.0 | | | 395.4 | |
5.25% Subordinated Notes due January 2061 | 250.0 | | | 244.0 | | | 250.0 | | | 243.7 | |
Total Debt | | | $ | 2,203.7 | | | | | $ | 2,252.9 | |
|
| | | | | | | | | | | | | | | |
| March 31, 2020 | | December 31, 2019 |
| Principal Amount | | Carrying Value | | Principal Amount | | Carrying Value |
Floating Rate Senior Notes due March 2021 (1) | $ | 50.0 |
| | $ | 49.9 |
| | $ | 50.0 |
| | $ | 49.9 |
|
4.00% Senior Notes due March 2023 | 350.0 |
| | 348.6 |
| | 350.0 |
| | 348.5 |
|
4.20% Senior Notes due September 2023 | 300.0 |
| | 298.0 |
| | 300.0 |
| | 297.8 |
|
4.90% Senior Notes due March 2028 | 300.0 |
| | 296.9 |
| | 300.0 |
| | 296.8 |
|
3.70% Senior Notes due February 2030 | 350.0 |
| | 346.8 |
| | 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 |
| | 395.1 |
| | 400.0 |
| | 395.0 |
|
Total Senior and Subordinated Notes | | | 2,007.5 |
| | | | 2,006.9 |
|
Revolving Credit Facility (3) | 200.0 |
| | 200.0 |
| | — |
| | — |
|
Total Debt | | | $ | 2,207.5 |
| | | | $ | 2,006.9 |
|
(1)The outstanding aggregate principal amount was repaid in January 2021. Prior to repayment, these senior notes bore floating interest at a rate equal to three-month LIBOR plus 1.25% per annum. | |
(1) | Bears floating interest at a rate equal to three-month LIBOR plus 1.25%. |
| |
(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. |
| |
(3) | Interest rates are periodically reset. The current interest period ends in June 2020 and bears floating interest at a rate equal to three-month LIBOR plus 1.50%. |
(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.
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 (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 during this period of uncertainty. The current interest period for the loan ends on June 26, 2020 and bears interest at a rate of three-month LIBOR plus 1.50% at current ratings levels. The loan can be extended for additional interest periods through the expiration date of the Credit Facility provided no event of default under the agreement has occurred, with interest rates reset based on the Company’s election of interest period term and loan type. The loan can be repaid at any time in whole or from time to time in part. The Company may need to reimburse the Lenders for any expenses or liabilities they incur as a result of any early payment prior to June 26, 2020. As of March 31, 2020, $241.0 million out of2021, 0 borrowings were outstanding under the $450.0Credit Facility, and $445.5 million was available under the Credit Facility due to $200.0$4.5 million of borrowings outstanding under the Credit Facility and $9.0 million of outstanding letters of credit.credit outstanding.
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 due 2048, in each case on
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(In millions, except number of shares and per share amounts)
an effective yield basis. The amortization of the deferred gain for the three months ended March 31, 20202021 and 20192020 was $0.7 million. The remaining deferred gain as of March 31, 20202021 was $20.8$17.9 million.
14.
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
11. 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:
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| Three Months Ended March 31, 2020 |
| Foreign currency translation adjustment | | Net unrealized gains on investments | | Net unrealized gains on derivative transactions | | 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 |
| | $ | 15.5 |
| | $ | (118.7 | ) | | $ | 411.5 |
|
Change in accumulated other comprehensive income (loss) before reclassifications | (66.7 | ) | | (297.3 | ) | | — |
| | (2.7 | ) | | 48.9 |
| | (317.8 | ) |
Amounts reclassified from accumulated other comprehensive income (loss) | — |
| | (4.8 | ) | | (0.6 | ) | | — |
| | 0.1 |
| | (5.3 | ) |
Net current-period other comprehensive income (loss) | (66.7 | ) | | (302.1 | ) | | (0.6 | ) | | (2.7 | ) | | 49.0 |
| | (323.1 | ) |
Balance at March 31, 2020 | $ | (425.6 | ) | | $ | 554.4 |
| | $ | 16.5 |
| | $ | 12.8 |
| | $ | (69.7 | ) | | $ | 88.4 |
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| Three Months Ended March 31, 2019 |
| Foreign currency translation adjustment | | Net unrealized gains on investments | | Net unrealized gains on derivative transactions | | 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 |
| | $ | 15.1 |
| | $ | (114.3 | ) | | $ | (155.4 | ) |
Change in accumulated other comprehensive (loss) income before reclassifications | 10.2 |
| | 247.3 |
| | 0.3 |
| | (0.2 | ) | | — |
| | 257.6 |
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Amounts reclassified from accumulated other comprehensive (loss) income | — |
| | 1.6 |
| | (0.6 | ) | | — |
| | 0.2 |
| | 1.2 |
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Net current-period other comprehensive (loss) income | 10.2 |
| | 248.9 |
| | (0.3 | ) | | (0.2 | ) | | 0.2 |
| | 258.8 |
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Balance at March 31, 2019 | $ | (365.4 | ) | | $ | 549.9 |
| | $ | 18.1 |
| | $ | 14.9 |
| | $ | (114.1 | ) | | $ | 103.4 |
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| Three Months Ended March 31, 2021 |
| 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 December 31, 2020 | $ | (295.6) | | | $ | 1,080.3 | | | $ | 14.7 | | | $ | 1.2 | | | $ | 16.1 | | | $ | (106.9) | | | $ | 709.8 | |
Change in accumulated other comprehensive income (loss) before reclassifications | 7.2 | | | (207.1) | | | 0 | | | 0 | | | (0.8) | | | (0.3) | | | (201.0) | |
Amounts reclassified from accumulated other comprehensive income (loss) | 0 | | | (2.4) | | | (0.6) | | | 0 | | | 0 | | | (1.3) | | | (4.3) | |
Net current-period other comprehensive income (loss) | 7.2 | | | (209.5) | | | (0.6) | | | 0 | | | (0.8) | | | (1.6) | | | (205.3) | |
Balance at March 31, 2021 | $ | (288.4) | | | $ | 870.8 | | | $ | 14.1 | | | $ | 1.2 | | | $ | 15.3 | | | $ | (108.5) | | | $ | 504.5 | |
| | | | | | | | | | | | | |
| Three Months Ended March 31, 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) gains 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 income (loss) before reclassifications | (66.7) | | | (297.3) | | | 0 | | | 0 | | | (2.7) | | | 48.9 | | | (317.8) | |
Amounts reclassified from accumulated other comprehensive income (loss) | 0 | | | (4.8) | | | (0.6) | | | 0 | | | 0 | | | 0.1 | | | (5.3) | |
Net current-period other comprehensive income (loss) | (66.7) | | | (302.1) | | | (0.6) | | | 0 | | | (2.7) | | | 49.0 | | | (323.1) | |
Balance at March 31, 2020 | $ | (425.6) | | | $ | 554.4 | | | $ | 16.5 | | | $ | 0 | | | $ | 12.8 | | | $ | (69.7) | | | $ | 88.4 | |
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(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 1815 for additional information.
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 AOCIaccumulated other comprehensive income (“AOCI”) for the periods indicated:
| | | | | | | | | | | | | | | | | | | | |
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 March 31, | | |
| | 2021 | | 2020 | | |
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Net unrealized (gains) losses on investments | | $ | (3.1) | | | $ | (6.1) | | | Net realized gains (losses) on investments |
| | 0.7 | | | 1.3 | | | Provision for income taxes |
| | $ | (2.4) | | | $ | (4.8) | | | Net of tax |
Net unrealized gains on derivative transactions | | $ | (0.7) | | | $ | (0.7) | | | Interest expense |
| | 0.1 | | | 0.1 | | | Provision for income taxes |
| | $ | (0.6) | | | $ | (0.6) | | | Net of tax |
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Amortization of pension and postretirement unrecognized net periodic benefit cost: | | | | | | |
Amortization of net loss | | $ | 1.8 | | | $ | 1.3 | | | (1) |
Amortization of prior service credit | | (3.4) | | | (1.1) | | | (1) |
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| | (1.6) | | | 0.2 | | | |
| | 0.3 | | | (0.1) | | | Provision for income taxes |
| | $ | (1.3) | | | $ | 0.1 | | | Net of tax |
Total reclassifications for the period | | $ | (4.3) | | | $ | (5.3) | | | Net of tax |
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(1)These AOCI components are included in the computation of net periodic pension cost. See Note 15 for additional information.
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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 March 31, | | |
| | 2020 | | 2019 | | |
Net unrealized (gains) losses on investments | | $ | (6.1 | ) | | $ | 2.1 |
| | Net realized (losses) gains on investments |
| | 1.3 |
| | (0.5 | ) | | Provision for income taxes |
| | $ | (4.8 | ) | | $ | 1.6 |
| | Net of tax |
Net unrealized gains on derivative transactions | | $ | (0.7 | ) | | $ | (0.7 | ) | | Interest expense |
| | 0.1 |
| | 0.1 |
| | Provision for income taxes |
| | $ | (0.6 | ) | | $ | (0.6 | ) | | Net of tax |
Amortization of pension and postretirement unrecognized net periodic benefit cost: | | | | | | |
Amortization of net loss | | $ | 1.3 |
| | $ | 0.3 |
| | (1) |
Amortization of prior service credit | | (1.1 | ) | | — |
| | (1) |
| | 0.2 |
| | 0.3 |
| | |
| | (0.1 | ) | | (0.1 | ) | | Provision for income taxes |
| | $ | 0.1 |
| | $ | 0.2 |
| | Net of tax |
Total reclassifications for the period | | $ | (5.3 | ) | | $ | 1.2 |
| | Net of tax |
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(1) | These AOCI components are included in the computation of net periodic pension cost. See Note 18 for additional information. |
15.12. Stock Based Compensation
Under the Assurant, Inc. 2017 Long-Term Equity Incentive Plan (“ALTEIP”(the “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 months ended March 31, 20202021 and 2019:2020:
|
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
RSU compensation expense | $ | 6.3 |
| | $ | 7.0 |
|
Income tax benefit | (1.1 | ) | | (1.3 | ) |
RSU compensation expense, net of tax | $ | 5.2 |
| | $ | 5.7 |
|
RSUs granted | 228,412 |
| | 193,842 |
|
Weighted average grant date fair value per unit | $ | 89.58 |
| | $ | 97.78 |
|
Total fair value of vested RSUs | $ | 8.9 |
| | $ | 21.8 |
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| Three Months Ended March 31, | | |
| 2021 | | 2020 | | | | |
RSU compensation expense | $ | 6.6 | | | $ | 6.3 | | | | | |
Income tax benefit | (1.2) | | | (1.1) | | | | | |
RSU compensation expense, net of tax | $ | 5.4 | | | $ | 5.2 | | | | | |
RSUs granted | 168,595 | | | 228,412 | | | | | |
Weighted average grant date fair value per unit | $ | 137.18 | | | $ | 89.58 | | | | | |
Total fair value of vested RSUs | $ | 30.0 | | | $ | 8.9 | | | | | |
As of March 31, 2020,2021, there was $34.6$37.0 million of unrecognized compensation cost related to outstanding RSUs. That cost is expected to be recognized over a weighted-average period of 1.4 years.
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Inin millions, except number of shares and per share amounts)
Performance Share Units
The following table shows a summary of PSU activity during the three months ended March 31, 20202021 and 2019:2020:
|
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| Three Months Ended March 31, |
| 2020 | | 2019 |
PSU compensation expense | $ | 4.8 |
| | $ | 4.2 |
|
Income tax benefit | (0.5 | ) | | (0.6 | ) |
PSU compensation expense, net of tax | $ | 4.3 |
| | $ | 3.6 |
|
PSUs granted | 302,274 |
| | 246,219 |
|
Weighted average grant date fair value per unit | $ | 87.36 |
| | $ | 105.23 |
|
Total fair value of vested PSUs | $ | 24.4 |
| | $ | 17.7 |
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| Three Months Ended March 31, | | |
| 2021 | | 2020 | | | | |
PSU compensation expense | $ | 6.2 | | | $ | 4.8 | | | | | |
Income tax benefit | (0.6) | | | (0.5) | | | | | |
PSU compensation expense, net of tax | $ | 5.6 | | | $ | 4.3 | | | | | |
PSUs granted | 201,462 | | | 302,274 | | | | | |
Weighted average grant date fair value per unit | $ | 147.32 | | | $ | 87.36 | | | | | |
Total fair value of vested PSUs | $ | 22.5 | | | $ | 24.4 | | | | | |
As of March 31, 2020,2021, there was $43.9$42.3 million of unrecognized compensation cost related to outstanding PSUs. That cost is expected to be recognized over a weighted-average period of 1.51.2 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 three months ended March 31, 20202021 and 20192020 were based on the historical stock prices of the Company’s stock and peer group. The expected term for grants issued during the three months ended March 31, 20202021 and 20192020 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.
16.13. Equity Transactions
Stock Repurchase
During the three months ended March 31, 20202021 and 2019,2020, the Company repurchased 480,967308,000 and 525,679480,967 shares of the Company’s outstanding common stock at a cost of $57.3$41.5 million and $50.6$57.3 million, exclusive of commissions, respectively, leaving $429.0$745.0 million aggregate cost at purchase remaining unused under the totalexisting repurchase authorizationauthorizations as of March 31, 2020.2021.
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, with a par value of $1.00 per share, 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 onconverted in March 15, 2021 into between 0.9378 (the “minimum conversion rate”) and 1.1254 shares0.9405 of common shares, or 2,703,911 common shares in total plus an immaterial amount of cash in lieu of fractional shares. The Company used a portion of its treasury stock subjectfor the common shares, using the average cost method to customary anti-dilution adjustments. At any time prior to March 2021, holders may elect to convert each shareaccount for the reissuance 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.such shares.
Dividends on ourthe MCPS will bewere 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 forin each of the three months ended March 31, 20202021 and 2019.2020.
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(In millions, except number of shares and per share amounts)
17.14. 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 the conversion of the MCPS using the if-converted method. Refer to Notes 1512 and 1613 for further information regarding potential common stock issuances. The
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
outstanding RSUs have non-forfeitable rights to dividend equivalents and are therefore included in calculating basic and diluted EPS under the two-class method.
|
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| Three Months Ended March 31, |
| 2020 | | 2019 |
Numerator | | | |
Net income attributable to stockholders | $ | 154.7 |
| | $ | 165.7 |
|
Less: Preferred stock dividends | (4.7 | ) | | (4.7 | ) |
Net income attributable to common stockholders | 150.0 |
| | 161.0 |
|
Less: Common stock dividends paid | (38.0 | ) | | (37.4 | ) |
Undistributed earnings | $ | 112.0 |
| | $ | 123.6 |
|
Denominator | | | |
Weighted average common shares outstanding used in basic earnings per common share calculations | 60,602,911 |
| | 62,594,828 |
|
Incremental common shares from: | | | |
PSUs | 322,692 |
| | 211,477 |
|
ESPP | 5,148 |
| | 1,765 |
|
MCPS | 2,696,175 |
| | 2,969,875 |
|
Weighted average common shares used in diluted earnings per common share calculations | 63,626,926 |
| | 65,777,945 |
|
Earnings per common share - Basic | | | |
Distributed earnings | $ | 0.63 |
| | $ | 0.60 |
|
Undistributed earnings | 1.85 |
| | 1.97 |
|
Net income attributable to common stockholders | $ | 2.48 |
| | $ | 2.57 |
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Earnings per common share - Diluted | | | |
Distributed earnings | $ | 0.60 |
| | $ | 0.57 |
|
Undistributed earnings | 1.83 |
| | 1.95 |
|
Net income attributable to common stockholders | $ | 2.43 |
| | $ | 2.52 |
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| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2021 | | 2020 | | | | |
Numerator | | | | | | | |
Net income from continuing operations | $ | 148.5 | | | $ | 148.6 | | | | | |
Less: Net loss (income) attributable to non-controlling interest | 0.2 | | | (1.1) | | | | | |
Net income from continuing operations attributable to stockholders | 148.7 | | | 147.5 | | | | | |
Less: Preferred stock dividends | (4.7) | | | (4.7) | | | | | |
Net income from continuing operations attributable to common stockholders | 144.0 | | | 142.8 | | | | | |
Less: Common stock dividends paid | (38.2) | | | (38.0) | | | | | |
Undistributed earnings | $ | 105.8 | | | $ | 104.8 | | | | | |
| | | | | | | |
Net income from continuing operations attributable to common stockholders | $ | 144.0 | | | $ | 142.8 | | | | | |
Add: Net income from discontinued operations | 14.3 | | | 7.2 | | | | | |
Net income attributable to common stockholders | $ | 158.3 | | | $ | 150.0 | | | | | |
| | | | | | | |
Denominator | | | | | | | |
Weighted average common shares outstanding used in basic per common share calculations | 59,192,880 | | | 60,602,911 | | | | | |
Incremental common shares from: | | | | | | | |
PSUs | 367,274 | | | 322,692 | | | | | |
ESPP | 0 | | | 5,148 | | | | | |
MCPS | 2,223,238 | | | 2,696,175 | | | | | |
Weighted average common shares outstanding used in diluted per common share calculations | 61,783,392 | | | 63,626,926 | | | | | |
Earnings per common share - Basic | | | | | | | |
Distributed earnings | $ | 0.64 | | | $ | 0.63 | | | | | |
Undistributed earnings | 1.79 | | | 1.73 | | | | | |
Net income from continuing operations | 2.43 | | | 2.36 | | | | | |
Net income from discontinued operations | 0.24 | | | 0.12 | | | | | |
Net income attributable to common stockholders | $ | 2.67 | | | $ | 2.48 | | | | | |
Earnings per common share - Diluted | | | | | | | |
Distributed earnings | $ | 0.62 | | | $ | 0.60 | | | | | |
Undistributed earnings | 1.79 | | | 1.72 | | | | | |
Net income from continuing operations | 2.41 | | | 2.32 | | | | | |
Net income from discontinued operations | 0.23 | | | 0.11 | | | | | |
Net income attributable to common stockholders | $ | 2.64 | | | $ | 2.43 | | | | | |
There were 0 anti-dilutiveAverage PSUs totaling 18,373 for the three months ended March 31, 2020. Average PSUs totaling 102,594 for the three months ended March 31, 20192021 were anti-dilutive and thus not included in the computation of diluted EPS under the treasury stock method. There were 0 anti-dilutive PSUs for the three months ended March 31, 2020.
18.15. 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.employees prior to closing to new hires on January 1, 2014. The Company also has various non-contributory, non-qualified supplemental plans covering certain employees, including the Assurant Executive
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
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
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(In millions, except number of shares and per share amounts)
and their dependents. The Pension Benefits and Retirement Health Benefits (together, the “Plans”) were frozen on March 1, 2016.
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 months ended March 31, 20202021 and 2019:2020:
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| Qualified Pension Benefits | | Unfunded Non-qualified Pension Benefits | | Retirement Health Benefits |
| For the Three Months Ended March 31, | | For the Three Months Ended March 31, | | For the Three Months Ended March 31, |
| 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
Interest cost | $ | 3.5 | | | $ | 5.1 | | | $ | 0.3 | | | $ | 0.5 | | | $ | 0 | | | $ | 0.4 | |
Expected return on plan assets | (6.9) | | | (7.7) | | | 0 | | | 0 | | | (0.4) | | | (0.4) | |
Amortization of prior service credit | 0 | | | 0 | | | 0 | | | 0 | | | (3.4) | | | (1.1) | |
Amortization of net loss (gain) | 1.2 | | | 0.7 | | | 0.8 | | | 0.6 | | | (0.1) | | | 0 | |
| | | | | | | | | | | |
Net periodic benefit cost | $ | (2.2) | | | $ | (1.9) | | | $ | 1.1 | | | $ | 1.1 | | | $ | (3.9) | | | $ | (1.1) | |
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| Qualified Pension Benefits | | Unfunded Non-qualified Pension Benefits | | Retirement Health Benefits |
| For the Three Months Ended March 31, | | For the Three Months Ended March 31, | | For the Three Months Ended March 31, |
| 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
Interest cost | $ | 5.1 |
| | $ | 6.5 |
| | $ | 0.5 |
| | $ | 0.7 |
| | $ | 0.4 |
| | $ | 0.9 |
|
Expected return on plan assets | (7.7 | ) | | (9.0 | ) | | — |
| | — |
| | (0.4 | ) | | (0.4 | ) |
Amortization of prior service credit | — |
| | — |
| | — |
| | — |
| | (1.1 | ) | | — |
|
Amortization of net loss | 0.7 |
| | — |
| | 0.6 |
| | 0.3 |
| | — |
| | — |
|
Net periodic benefit cost | $ | (1.9 | ) | | $ | (2.5 | ) | | $ | 1.1 |
| | $ | 1.0 |
| | $ | (1.1 | ) | | $ | 0.5 |
|
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The Assurant Pension Plan funded status was $64.7$45.8 million at March 31, 20202021 and $66.4$43.2 million at December 31, 20192020 (based on the fair value of the assets compared to the accumulated benefit obligation). This equates to a 109%106% and 105% funded status at March 31, 20202021 and December 31, 2019.2020, respectively. During the three months ended March 31, 2020,2021, 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 2020.2021.
19.16. 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$7.2 million and $7.6 million of letters of credit outstanding as of March 31, 20202021 and December 31, 2019.2020, 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 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.proceedings. 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 accrual. Although the Company cannot predict the outcome of any pending legal or regulatory proceeding, or the potential
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(In millions, except number of shares and per share amounts)
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
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
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 closely monitoring developments related to the COVID-19 pandemic to assess the impact on its business, results of operations and financial condition. While still evolving, 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 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 longer 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 or continue to experience materially adverse impacts to its business as a result of the pandemic’s global economic impact.
20. Subsequent Event
On May 1, 2020, the Company completed its acquisition of American Financial & Automotive Services (“AFAS”), a provider of finance and insurance products and services including vehicle service contracts and other ancillary products sold directly through a network of nearly 600 franchised dealership clients across 40 states, for $157.5 million.
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, 20192020 and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 20192020 (the “2019“2020 Annual Report”) filed with the U.S. Securities and Exchange Commission (the “SEC”) and the unaudited consolidated financial statements for the three months ended March 31, 20202021 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 anticipatingwith respect to the closing of the Global Preneed transaction, including our financial plans and any statements regarding our anticipated future financial performance, business prospects, growth and operating strategies and similar matters, are forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. 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:
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(i) | 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; |
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(ii) | significant competitive pressures, changes in customer preferences and disruption; |
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(iii) | the failure to find suitable acquisitions, integrate completed acquisitions or grow organically, and risks associated with joint ventures and franchise ownership and operations; |
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(iv) | 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; |
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(v) | 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; |
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(vi) | risks related to our international operations, including the United Kingdom’s withdrawal from the European Union, or fluctuations in exchange rates; |
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(vii) | the impact of catastrophic and non-catastrophe losses, including as a result of climate change; |
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(viii) | our inability to recover should we experience a business continuity event, including as a result of COVID-19; |
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(ix) | our inability to develop and maintain distribution sources or attract and retain sales representatives and executives with key client relationships; |
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(x) | the failure to manage vendors and other third parties on whom we rely to conduct business and provide services to our clients; |
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(xi) | declines in the value of mobile devices, the risk of guaranteed buybacks or export compliance risk in our mobile business; |
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(xii) | negative publicity relating to our products and services or the markets in which we operate; |
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(xiii) | the failure to implement our strategy and to attract and retain key personnel, including senior management; |
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(xiv) | employee misconduct; |
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(xv) | the adequacy of reserves established for claims and our inability to accurately predict and price for claims; |
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(xvi) | a decline in financial strength ratings or corporate senior debt ratings; |
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(xvii) | an impairment of goodwill or other intangible assets; |
(i)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 if those parties face financial, reputational or regulatory issues;
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(xviii) | the failure to maintain effective internal control over financial reporting; |
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(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; |
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(xx) | the impact of U.S. tax reform legislation and impairment of deferred tax assets; |
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(xxi) | the unavailability or inadequacy of reinsurance coverage and the credit risk of reinsurers, including those to whom we have sold business through reinsurance; |
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(xxii) | the credit risk of some of our agents, third-party administrators and clients; |
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(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; |
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(xxiv) | changes in the method for determining LIBOR or the replacement of LIBOR; |
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(xxv) | the failure to effectively maintain and modernize our information technology systems and infrastructure, or the failure to integrate those of acquired businesses; |
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(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; |
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(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; |
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(xxviii) | the impact from litigation and regulatory actions, including those arising from COVID-19; |
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(xxix) | reductions or deferrals in the insurance premiums we charge, including as a result of COVID-19; and |
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(xxx) | changes in insurance and other regulation, including to mitigate the impact of COVID-19. |
(ii) significant competitive pressures, changes in customer preferences and disruption;
(iii) the failure to implement our strategy and to attract and retain key personnel, including key executives and senior management;
(iv) the failure to find suitable acquisitions at attractive prices, integrate acquired businesses effectively or grow organically;
(v) our inability to recover should we experience a business continuity event;
(vi) the failure to manage vendors and other third parties on whom we rely to conduct business and provide services to our clients;
(vii) risks related to our international operations;
(viii) declines in the value of mobile devices, the risk of guaranteed buybacks, or export compliance or other risks in our mobile business;
(ix) our inability to develop and maintain distribution sources or attract and retain sales representatives and executives with key client relationships;
(x) risks associated with joint ventures, franchises and investments in which we share ownership and management with third parties;
(xi) negative publicity relating to our business or industry;
(xii) the impact of general economic, financial market and political conditions and conditions in the markets in which we operate;
(xiii) the impact of the COVID-19 pandemic and measures taken in response thereto;
(xiv) the impact of catastrophic and non-catastrophe losses, including as a result of climate change;
(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 of our insurance subsidiaries or in our corporate senior debt ratings;
(xvii) fluctuations in exchange rates;
(xviii) an impairment of goodwill or other intangible assets;
(xix) the failure to maintain effective internal control over financial reporting;
(xx) unfavorable conditions in the capital and credit markets;
(xxi) a decrease in the value of our investment portfolio, including due to market, credit and liquidity risks, and changes in interest rates;
(xxii) impairment of our deferred tax assets;
(xxiii) the unavailability or inadequacy of reinsurance coverage and the credit risk of reinsurers, including those to whom we have sold business through reinsurance;
(xxiv) the credit risk of some of our agents, third-party administrators and clients;
(xxv) the inability of our subsidiaries to pay sufficient dividends to the holding company and limitations on our ability to declare and pay dividends or repurchase shares;
(xxvi) the failure to effectively maintain and modernize our information technology systems and infrastructure, or the failure to integrate those of acquired businesses;
(xxvii) breaches of our information systems or those of third parties with whom we do business, or the failure to protect the security of data in such systems, including due to cyber-attacks and as a result of working remotely;
(xxviii) 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, data protection or tax;
(xxix) the impact of litigation and regulatory actions;
(xxx) reductions or deferrals in the insurance premiums we charge;
(xxxi) changes in insurance, tax and other regulation;
(xxxii) volatility in our common stock price and trading volume; and
(xxxiii) employee misconduct.
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 20192020 Annual Report, and “Item 1A—Risk Factors” below and in our 20192020 Annual Report.
General
Global Preneed Discontinued Operations
In March 2021, we entered into a definitive agreement to sell the legal entities which comprise the businesses previously reported as the Global Preneed segment and certain businesses previously disposed of through reinsurance, which were previously reported in the Corporate and Other segment (collectively, the “disposal business”) to CUNA Mutual Group (“CUNA”) for total cash consideration of $1.25 billion, subject to certain purchase price adjustments at closing. The transaction is expected to close by the end of the third quarter of 2021, subject to regulatory approvals and other customary closing conditions.
The estimated carrying value of the disposal business is subject to adjustment in future quarters until closing, and may be influenced by various factors including the following:
•The performance of the disposal business, including the impact of discount, interest, mortality and reinsurance rates; and
•Changes in the terms of the agreement with CUNA, including as a result of any subsequent negotiations, any necessary changes to obtain regulatory approval or any changes due to unanticipated developments.
We have determined that the disposal business meets the criteria to be classified as held for sale and that the sale represents a strategic shift that will have a major impact on our operations and financial results. Accordingly, the results of operations of the disposal business are presented as net income from discontinued operations in the consolidated statements of
operations and segregated in the consolidated statement of cash flows for all periods presented and the assets and liabilities for the disposal business have been classified as held for sale and segregated for all periods presented in the consolidated balance sheets. Transactions between the disposal business and businesses in our continuing operations are not eliminated to appropriately reflect the continuing operations and the assets, liabilities and results of the disposal business. Refer to “—Results of Operations—Discontinued Operations” below and Note 4 to the Consolidated Financial Statements included elsewhere in this Report.
Reportable Segments
As of March 31, 2020,2021, the Company had fourthree reportable segments, excluding discontinued operations described above, which are defined based on the manner in which the Company’s chief operating decision maker, our Chief Executive Officer (“CEO”), reviews the business to assess performance and allocate resources, and which align to the nature of the products and services offered:
•Global Lifestyle: provides mobile device solutions 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”); and
Global Preneed: provides pre-funded funeral insurance, final need insurance and 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, income (expenses) primarily related to the Company’s frozen benefit plans, amounts related to businesses previously disposed of through reinsurance and the runoffrun-off of the Assurant Health business. Corporate and Other also includes goodwill impairments, the foreign currency gains (losses) from remeasurement of monetary assets and liabilities, changes in the fair value of derivative instruments and other expenses related to merger and acquisition activities, as well as other highly variable or unusual items other than reportable catastrophes (reportable catastrophe losses, net of reinsurance and client profit sharing adjustments, and including reinstatement and other premiums).
The following discussion covers the three months ended March 31, 20202021 (“First Quarter 2020”2021”) and the three months ended March 31, 20192020 (“First Quarter 2019”2020”).
Executive Summary
COVID-19
In March 2020, the World Health Organization recognized the novel strain of coronavirus, COVID-19, as a pandemic. While still evolving, 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 temporary closures of businesses, and diminished expectations for the economy and the financial markets.
Toward the end of First Quarter 2020 and into the second quarter of 2020, the pandemic began to impact each of our operating segments and may continue to impact our businesses if similar conditions persist or worsen. The COVID-19 impact on net income for First Quarter 2020 included $76.1 million of after-tax net unrealized investment losses related to a decrease in the fair value of our equity securities and collateralized loan obligations and $7.3 million after-tax increase in our allowances for expected credit losses largely related to increased credit risk for premiums receivable and reinsurance recoverables. These losses were mostly offset by a $79.3 million tax benefit related to the March 2020 enactment of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which allows the carryback of net operating losses to years taxed at higher rates. 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 9 to the Consolidated Financial Statements included elsewhere in this Report.
Our Response to COVID-19
As a global organization, we have been actively monitoring the developments of the rapidly 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 our customers, and to support our local communities. We implemented a global ban on business travel and transitioned the vast majority of our workforce to work-from-home. For those employees who need to work in our global facilities due to the essential nature of their roles, we’ve continued to implement safety and hygiene protocols, such as social distancing, use of personal protection equipment and regular cleaning and disinfecting of our locations, based on the guidelines of the Centers for Disease Control. To support our employees during this period of uncertainty, we have offered financial support through a special COVID-19 Emergency Relief Program to eligible employees who are experiencing 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 recognize that our first quarter results may not be an indicator of performance in the coming quarters, as the COVID-19 pandemic continues to evolve. 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. We expect a greater impact to our business as a result of the ongoing financial market volatility, prolonged government containment measures and their impact on consumer behavior. 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. Our mobile business experienced lower trade-in activity and slower sales growth. This may be partially offset by our installed customer base across Connected Living, Global Automotive, Multifamily Housing and Global Preneed and our counter-cyclical Lender-placed Insurance business, as well as multiple channels we have in place for consumers. We have also extended options such as extended grace periods for premium payments and waiving of late payment fees for policyholders experiencing financial hardship as a result of COVID-19 and are monitoring results across our product lines.
For Global Lifestyle, in mobile, we expect new subscriber growth to be more muted in the event of a prolonged crisis and lower trade-in volumes, reflecting store closures and lower demand for new devices. While uncertain, we expect volumes to rebound when stores re-open and carriers resume in-store promotional activity. In Global Automotive, we believe a reduction in sales would impact the business longer term, while unearned premium continues to contribute in the shorter term. Furthermore, approximately half of our business within Global Automotive comes from service contracts on used car sales, which have been less impacted as a result of prior economic downturns. We would 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.
For Global Housing, we expect some level of continued decline in new policies as renters delay moving, which may be offset if tenants regain comfort with moving and as we enter the summer when we typically experience increased activity. For Lender-placed Insurance, we will continue to monitor the state of the overall housing market, including the potential impact of the current mortgage moratorium which would delay placement of new policies. Should the economy deteriorate for a
prolonged period, we would expect a longer term increase in our placement rates which would be beyond 2020. Lastly, our small commercial business continues to run-off and we continue to monitor regulatory actions regarding business interruption coverage, though our policies generally include virus exclusions.
For Global Preneed, we are working with our clients on product changes and increasing our virtual presence. We are also monitoring mortality trends, which are currently largely consistent with 2019 given our policy footprint which is concentrated in California, Texas, South Carolina and Tennessee. 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 are taking actions to mitigate potential impacts, including deferring certain discretionary expenses and delaying the fulfillment of open positions in support functions. While we are deferring some investments as a precautionary measure, we have continued to make progress against key strategic initiatives to support our clients and their customers. These have included continuing to enhance our self-service capabilities and our dynamic claims fulfillment to facilitate faster claims resolution, as well as our ongoing IT transformation.
Throughout this period, we believe our liquidity has remained strong. At the end of March, we had $433.4 million of holding company liquidity and, to strengthen our liquidity position and capital flexibility during this period of uncertainty, we drew $200.0 million under our revolving credit facility in March.
The COVID-19 situation remains fluid and we are actively managing our response in collaboration with our clients, our employees, our vendors and other third parties with whom we work, and assessing potential impacts to our business, results of operations and financial condition.
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.
Iké
In 2019, we undertook a strategic review of our investment in Iké Grupo, Iké Asistencia and certain of their affiliates (collectively, “Iké”). In the third quarter of 2019, we decided to pursue the sale of our interests in Iké and on January 29, 2020, we entered into agreements to sell our interests in Iké to the management shareholders of Iké. We expect closing to occur in the second quarter of 2020 resulting in an expected net cash outflow of $54 million, plus seller financing in an amount of up to $40 million as well as transaction costs. In connection with this agreement, we recorded an incremental after-tax loss of $5.8 million in First Quarter 2020, primarily due to changes in foreign currency, as partially offset by gains from an economic hedge that we established. The sale is subject to customary closing conditions. 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
On May 1, 2020, we completed our acquisition of American Financial & Automotive Services (“AFAS”), a provider of finance and insurance products and services including vehicle service contracts and other ancillary products sold directly through a network of nearly 600 franchised dealership clients across 40 states, for $157.5 million.
Summary of Financial Results:
Consolidated net income attributable to common stockholders decreased $11.0from continuing operations was relatively flat at $148.5 million or 7%, to $150.0for First Quarter 2021 from $148.6 million for First Quarter 2020, compared with net income attributable to common stockholdersas the absence of $161.0a $79.3 million forone-time tax benefit in First Quarter 2019, primarily driven2020 was offset by an increase in unrealized losseshigher net realized gains on investments mostly related to a net decrease in the fair value of equity securities and direct investments in collateralized loan obligations compared to net unrealized gains from equity securitiesrealized losses in First Quarter 2019, partially offset by a $79.3 million tax benefit related to the CARES Act.2020.
Global Lifestyle segment net income increased $20.3$8.2 million, or 20%7%, to $129.1 million for First Quarter 2021 from $120.9 million for First Quarter 2020, primarily driven by strong results in Global Automotive, including a $4.3 million one-time benefit, as well as higher investment income and underlying global growth. Connected Living results also increased from $100.6 million for First Quarter 2019.mobile subscriber growth in Asia Pacific and North America, higher trade-in volumes and contributions from recent acquisitions. First Quarter 2020 included a $6.7$11.7 million client recoverable inof one-time benefits within Connected Living. Excluding this item, segment net income growth was driven primarily by an increase in mobile subscribers from newLiving and existing programs, as well as higher income from Global Automotive, including some one-time benefits. The increase was partially offset by lower margins from our mobile trade-in programs, in part due to the impact of COVID-19, and unfavorable foreign exchange.Automotive.
Global Lifestyle net earned premiums, fees and other income increased $265.3decreased $84.6 million, or 16%4%, to $1.86 billion for First Quarter 2021 from $1.95 billion for First Quarter 2020, reflecting the impact from $1.68 billion for First Quarter 2019, primarily due to higherthe previously disclosed mobile trade-in volumesprogram contract change. Excluding this $98.0 million reduction, net earned premiums, fees and continued
subscriber growth from recently added protection programs. Growth in extended service contracts and Global Automotive also contributed to the increase. other income was flat year-over-year.
Global Housing segment net income increased $1.5decreased $6.8 million, or 2%9%, to $67.4 million for First Quarter 2021 from $74.2 million for First Quarter 2020, compared with $72.7 million for First Quarter 2019. Results included $4.0driven by $21.7 million of higher reportable catastrophes mainly related to earthquakesprimarily from the severe winter storms in Puerto Rico, compared to First Quarter 2019.Texas. Excluding reportable catastrophes, segment net income increased $14.9 million, primarily due to favorable non-catastrophe loss experience, the absence of losses within the small commercial business, which is nowmainly in run-off,Specialty and Other products driven by underwriting improvements and lower overall claims frequency, as well as growth in Multifamily Housing. Lender-placed Insurance also benefited from higher premium rates, in our Lender-placed Insurance business. The increase was partiallythough lower real estate owned (“REO”) volumes, due to foreclosure moratoriums, offset by a reduction of policies in-force, including from the previously disclosed financially insolvent client.results.
Global Housing net earned premiums, fees and other income were flat year-over-year, as continued growth from sharing economy products and Multifamily Housing was offset by declines in Lender-placed Insurance, primarily related to the financially insolvent client and the expected run-off of small commercial products as referenced above.
Global Preneed segment net income increased $0.5decreased $7.4 million, or 4%1%, to $12.3$493.0 million for First Quarter 2021 from $500.4 million for First Quarter 2020, from $11.8 million in First Quarter 2019, primarily due to continued growthdeclines in Specialty and Other products, including
the U.S.expected run-off from prefunded funeral policiesour small commercial product, as well as prior period sales of final need insurance.
Global Preneed net earned premiums, fees and other income increased $4.3 million, or 9%, to $53.4 million for First Quarter 2020 from $49.1 million for First Quarter 2019, primarily drivena modest decline in Lender-placed Insurance. The decrease was partially offset by the factors listed above.growth in Multifamily Housing.
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 all of our businesses, in particular our Connected Living, Multifamily Housing and Global Automotive businesses, and manage the pace of declines in placement ratesmaintain our position in our Lender-placed Insurance business and the North American credit insurance business in Global Financial Services and Other.business. 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, including COVID-19 and measures taken in response thereto, see “Item 1A—Risk Factors”, below and in our 20192020 Annual Report, and “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Factors Affecting Results” in our 20192020 Annual Report and “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Summary—COVID-19,” above.Report.
Our results may be impacted by our ability to continue to grow in the markets in which we operate and to maintain relationships with significant clients, distributors and other parties or renew contracts with them on favorable terms, 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, Strategic and CompetitiveOperational Risks—SignificantOur revenues and profits may decline if we are unable to maintain relationships with significant clients, distributors and other parties, or renew contracts with them on favorable terms, or if those parties face financial, reputational or regulatory issues” and “Significant competitive pressures, changes in customer preferences and disruption could adversely affect our results of operations” in our 20192020 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 three months ended March 31, 2020,First Quarter 2021, net cash used in operating activities from continuing operations was $123.7$454.0 million; net cash provided by investing activities from continuing operations was $181.9 million$63.2 million; and net cash provided byused in financing activities from continuing operations was $91.4$153.0 million. We had $2.00$1.67 billion in cash and cash equivalents as of March 31, 20202021 as compared to $1.87$2.21 billion as of December 31, 2019.2020. See “—Liquidity and Capital Resources,” below for further details.
Critical Accounting Policies and Estimates
Our 20192020 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 20192020 Annual Report were consistently applied to the unaudited interim Consolidated Financial Statements for First Quarter 2020.2021.
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.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 March 31, |
| 2020 | | 2019 |
Revenues: | | | |
Net earned premiums | $ | 2,083.8 |
| | $ | 1,904.4 |
|
Fees and other income | 416.9 |
| | 328.3 |
|
Net investment income | 156.0 |
| | 166.3 |
|
Net realized (losses) gains on investments | (95.3 | ) | | 28.8 |
|
Amortization of deferred gains on disposal of businesses | 4.2 |
| | 7.8 |
|
Total revenues | 2,565.6 |
| | 2,435.6 |
|
Benefits, losses and expenses: | | | |
Policyholder benefits | 607.2 |
| | 614.7 |
|
Amortization of deferred acquisition costs and value of business acquired | 914.2 |
| | 777.3 |
|
Underwriting, general and administrative expenses | 908.1 |
| | 799.9 |
|
Iké net losses | 1.4 |
| | 0.2 |
|
Interest expense | 25.5 |
| | 26.5 |
|
Total benefits, losses and expenses | 2,456.4 |
| | 2,218.6 |
|
Income before (benefit) provision for income taxes | 109.2 |
| | 217.0 |
|
(Benefit) provision for income taxes | (46.6 | ) | | 48.4 |
|
Net income | 155.8 |
| | 168.6 |
|
Less: Net income attributable to non-controlling interest | (1.1 | ) | | (2.9 | ) |
Net income attributable to stockholders | 154.7 |
| | 165.7 |
|
Less: Preferred stock dividends | (4.7 | ) | | (4.7 | ) |
Net income attributable to common stockholders | $ | 150.0 |
| | $ | 161.0 |
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended March 31, | | |
| 2021 | | 2020 | | | | |
Revenues: | | | | | | | |
Net earned premiums | $ | 2,105.6 | | | $ | 2,065.5 | | | | | |
Fees and other income | 249.9 | | | 383.6 | | | | | |
Net investment income | 76.3 | | | 83.6 | | | | | |
Net realized gains (losses) on investments | 0.8 | | | (84.0) | | | | | |
| | | | | | | |
Total revenues | 2,432.6 | | | 2,448.7 | | | | | |
Benefits, losses and expenses: | | | | | | | |
Policyholder benefits | 528.7 | | | 535.2 | | | | | |
Amortization of deferred acquisition costs and value of business acquired | 946.7 | | | 895.3 | | | | | |
Underwriting, general and administrative expenses | 735.7 | | | 892.6 | | | | | |
| | | | | | | |
| | | | | | | |
Interest expense | 28.4 | | | 25.5 | | | | | |
| | | | | | | |
Total benefits, losses and expenses | 2,239.5 | | | 2,348.6 | | | | | |
Income before provision for income taxes | 193.1 | | | 100.1 | | | | | |
Provision (benefit) for income taxes | 44.6 | | | (48.5) | | | | | |
Net income from continuing operations | 148.5 | | | 148.6 | | | | | |
Net income from discontinued operations | 14.3 | | | 7.2 | | | | | |
Net income | 162.8 | | | 155.8 | | | | | |
Less: Net loss (income) attributable to non-controlling interest | 0.2 | | | (1.1) | | | | | |
Net income attributable to stockholders | 163.0 | | | 154.7 | | | | | |
Less: Preferred stock dividends | (4.7) | | | (4.7) | | | | | |
Net income attributable to common stockholders | $ | 158.3 | | | $ | 150.0 | | | | | |
For the Three Months Ended March 31, 20202021 Compared to the Three Months Ended March 31, 20192020
Net Income Attributable to Common Stockholdersfrom Continuing Operations
Consolidated net income attributable to common stockholders decreased $11.0 million, or 7%, to $150.0from continuing operations was flat at $148.5 million for First Quarter 20202021 compared with $161.0to $148.6 million for First Quarter 2019. The decrease was mostly2020. Net income from continuing operations for First Quarter 2021 included $34.5 million of reportable catastrophes, primarily related to the Texas winter storms, compared to $12.9 million in First Quarter 2020. Excluding reportable catastrophes, net income from continuing operations increased $21.5 million, or 13% primarily due to an increase in net realized losses on investments driven by $76.1the absence of $67.2 million of after-tax net unrealizedrealized losses, mainly from a decrease in the fair value of our equity securities and collateralized loan obligations in First Quarter 2020, comparedfavorable earnings contributions from Global Housing, that were primarily driven by favorable non-catastrophe loss experience and growth in Multifamily Housing, as well as an increase from Global Lifestyle, primarily due to $24.4 million of after-tax unrealized gains on equity securitiesthe continued expansion in First Quarter 2019. This decrease wasGlobal Automotive and Connected Living. These increases were partially offset by the absence of a $79.3 million tax benefit that was recorded in First Quarter 2020 related to the utilization of net operating losses in connection with the CARES2020 Coronavirus Aid, Relief, and Economic Security Act and favorable earnings contributions from Global Lifestyle.(the “CARES Act”).
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 March 31, | | | For the Three Months Ended March 31, |
| 2020 | | 2019 | | | 2021 | | 2020 |
Revenues: | | | | Revenues: | | | | |
Net earned premiums | $ | 1,597.7 |
| | $ | 1,428.5 |
| Net earned premiums | | $ | 1,648.7 | | | $ | 1,597.7 | |
Fees and other income | 349.2 |
| | 253.1 |
| Fees and other income | | 213.6 | | | 349.2 | |
Net investment income | 54.7 |
| | 58.9 |
| Net investment income | | 50.8 | | | 54.7 | |
Total revenues | 2,001.6 |
| | 1,740.5 |
| Total revenues | | 1,913.1 | | | 2,001.6 | |
Benefits, losses and expenses: | | | | Benefits, losses and expenses: | | | | |
Policyholder benefits | 336.2 |
| | 347.2 |
| Policyholder benefits | | 327.4 | | | 336.2 | |
Amortization of deferred acquisition costs and value of business acquired | 838.4 |
| | 705.8 |
| Amortization of deferred acquisition costs and value of business acquired | | 889.2 | | | 838.4 | |
Underwriting, general and administrative expenses | 667.9 |
| | 555.8 |
| Underwriting, general and administrative expenses | | 527.2 | | | 667.9 | |
Total benefits, losses and expenses | 1,842.5 |
| | 1,608.8 |
| Total benefits, losses and expenses | | 1,743.8 | | | 1,842.5 | |
Segment income before provision for income taxes | 159.1 |
| | 131.7 |
| Segment income before provision for income taxes | | 169.3 | | | 159.1 | |
Provision for income taxes | 38.2 |
| | 31.1 |
| Provision for income taxes | | 40.2 | | | 38.2 | |
Segment net income | $ | 120.9 |
| | $ | 100.6 |
| Segment net income | | $ | 129.1 | | | $ | 120.9 | |
Net earned premiums, fees and other income: | | | | Net earned premiums, fees and other income: | | | | |
Connected Living (mobile and service contracts) | $ | 1,088.3 |
| | $ | 871.0 |
| Connected Living (mobile and service contracts) | | $ | 952.4 | | | $ | 1,088.3 | |
Global Automotive | 753.1 |
| | 693.6 |
| Global Automotive | | 812.4 | | | 753.1 | |
Global Financial Services and Other | 105.5 |
| | 117.0 |
| Global Financial Services and Other | | 97.5 | | | 105.5 | |
Total | $ | 1,946.9 |
| | $ | 1,681.6 |
| Total | | $ | 1,862.3 | | | $ | 1,946.9 | |
Net earned premiums, fees and other income: | | | | Net earned premiums, fees and other income: | | | | |
Domestic | $ | 1,434.5 |
| | $ | 1,191.3 |
| Domestic | | $ | 1,380.6 | | | $ | 1,434.5 | |
International | 512.4 |
| | 490.3 |
| International | | 481.7 | | | 512.4 | |
Total | $ | 1,946.9 |
| | $ | 1,681.6 |
| Total | | $ | 1,862.3 | | | $ | 1,946.9 | |
For the Three Months Ended March 31, 20202021 Compared to the Three Months Ended March 31, 20192020
Net Income
Segment net income increased $20.3$8.2 million, or 20%7%, to $129.1 million for First Quarter 2021 from $120.9 million for First Quarter 2020 from $100.6 million for2020. First Quarter 2019, and2021 included a $6.7$4.3 million after-tax benefit for a client recoverableof one-time income in ourGlobal Automotive, compared to $11.7 million of benefits within Connected Living business.and Global Automotive in First Quarter 2020. Excluding this item,these items, segment net income increased $15.6 million, or 14%, primarily due to an increasedriven by Connected Living from mobile subscriber growth in mobile subscribersAsia Pacific and North America, and higher trade-in results, including contributions from new and existing programs,recent acquisitions, as well as higher income in ourimproved profitability within extended service contracts. Global Automotive business, including some one-time benefits. Thealso contributed to the increase, wasmainly due to organic global growth, higher investment income and lower claims activity. These increases were partially offset by lower trade-in margins from ourthe run-off of certain domestic mobile repairs and logistics business, partially due to the impact of COVID-19, and unfavorable foreign exchange.programs.
Total Revenues
Total revenues increased $261.1decreased $88.5 million, or 15%4%, to $1.91 billion for First Quarter 2021 from $2.00 billion for First Quarter 20202020. Fees and other income decreased $135.6 million, or 39%, mainly driven by a previously disclosed mobile program contract change, the run-off of certain domestic mobile programs, partially offset by growth from $1.74 billion for First Quarter 2019.recent mobile acquisitions. Net investment income decreased $3.9 million, or 7%, primarily due to lower cash yields and lower income from real estate, partially offset by higher income from an increase in fair value of investments in limited partnerships. These decreases in total revenues were partially offset by an increase in net earned premiums increased $169.2of $51.0 million, or 12%3%, mostlyprimarily driven by organic growth in our Connected Living business, mainly due to a new extended service contract program and continued subscriber growth from recently added mobile protection programs, and continued growthprior period sales in our Global Automotive business, partially offset by unfavorable foreign exchange. Fees and other income increased $96.1 million, or 38%, primarily due to higher trade-in volumes from ourthe run-off of certain domestic mobile repairs and logistics business and an $11.1 million benefit for a client recoverable in our Connected Living business. Net investment income decreased $4.2 million, or 7%, primarily due to unfavorable foreign exchange and an increase in investment expenses related to our strategic decision to outsource the management of our investment portfolio.programs.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased $233.7decreased $98.7 million, or 15%5%, to $1.74 billion for First Quarter 2021 from $1.84 billion for First Quarter 2020 from $1.61 billion for First Quarter 2019.2020. The decrease was primarily due to a decrease in underwriting, general and administrative expenses of $140.7 million, or 21%, primarily due to the run-off of certain domestic mobile programs and a previously disclosed mobile program contract change, partially offset by an increase in growth in our Global Automotive and Connected Living businesses, including new mobile acquisitions. Policyholder benefits decreased $11.0$8.8 million, or 3%, primarily driven by lower loss experience due to a favorable mix of mobile businessfrom Global Automotive. The decrease in total benefits, losses and favorable foreign exchange,expenses was partially offset by ana $50.8 million, or 6%, increase from growth in Connected Living business. Amortizationamortization of deferred acquisition costs and value of business acquired, increased $132.6 million, or 19%, primarily duemainly related to growth in our Global Automotive and Connected Living businesses. Underwriting, general and administrative expenses increased $112.1 million, or 20%, primarily due to growth in our Connected Living business, including higher trade-in volumes from our domestic repairs and logistics business and growth in our mobile protection and extended service contract programs, as well as growth in our Global Automotive 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 March 31, | | For the Three Months Ended March 31, | |
| 2020 | | 2019 | | 2021 | | 2020 | |
Revenues: | | | | Revenues: | | | | |
Net earned premiums | $ | 467.8 |
| | $ | 460.1 |
| Net earned premiums | $ | 456.9 | | | $ | 467.8 | | |
Fees and other income | 32.6 |
| | 39.9 |
| Fees and other income | 36.1 | | | 32.6 | | |
Net investment income | 22.0 |
| | 25.4 |
| Net investment income | 19.4 | | | 22.0 | | |
Total revenues | 522.4 |
| | 525.4 |
| Total revenues | 512.4 | | | 522.4 | | |
Benefits, losses and expenses: | | | | Benefits, losses and expenses: | | | | |
Policyholder benefits | 198.7 |
| | 198.9 |
| Policyholder benefits | 201.3 | | | 198.7 | | |
Amortization of deferred acquisition costs and value of business acquired | 56.9 |
| | 53.9 |
| Amortization of deferred acquisition costs and value of business acquired | 57.5 | | | 56.9 | | |
Underwriting, general and administrative expenses | 173.3 |
| | 180.7 |
| Underwriting, general and administrative expenses | 168.8 | | | 173.3 | | |
Total benefits, losses and expenses | 428.9 |
| | 433.5 |
| Total benefits, losses and expenses | 427.6 | | | 428.9 | | |
Segment income before provision for income taxes | 93.5 |
| | 91.9 |
| Segment income before provision for income taxes | 84.8 | | | 93.5 | | |
Provision for income taxes | 19.3 |
| | 19.2 |
| Provision for income taxes | 17.4 | | | 19.3 | | |
Segment net income | $ | 74.2 |
| | $ | 72.7 |
| Segment net income | $ | 67.4 | | | $ | 74.2 | | |
Net earned premiums, fees and other income: | | | | Net earned premiums, fees and other income: | | | | |
Lender-placed Insurance | $ | 264.3 |
| | $ | 274.2 |
| Lender-placed Insurance | $ | 260.4 | | | $ | 264.3 | | |
Multifamily Housing | 109.0 |
| | 104.0 |
| Multifamily Housing | 117.3 | | | 109.0 | | |
Specialty and Other | 127.1 |
| | 121.8 |
| Specialty and Other | 115.3 | | | 127.1 | | |
Total | $ | 500.4 |
| | $ | 500.0 |
| Total | $ | 493.0 | | | $ | 500.4 | | |
The following table shows the credit quality of our fixed maturity securities portfolio as of the dates indicated: