ASSURANT, INC.
(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,
2020 and accompanying notes included in our Annual Report on Form 10-K for the
year ended December 31, 2020 (the "2020 Annual Report") filed with the U.S.
Securities and Exchange Commission (the "SEC") and the unaudited consolidated
financial statements for the three and nine months ended September 30, 2021 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,
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:
(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;
(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;
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(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
2020 Annual Report, and "Item 1A-Risk Factors" below and in our 2020 Annual
Report.
General
Global Preneed Discontinued Operations
In August 2021 , we completed the sale of 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 "disposed Global
Preneed business") to subsidiaries of CUNA Mutual Group ("CUNA") for total cash
consideration of $1.25 billion , subject to certain purchase price adjustments at
closing. For additional information, refer to Note 4 to the Consolidated
Financial Statements included elsewhere in this Report.
Prior to the sale, we had determined that the disposed Global Preneed business
met the criteria to be classified as held for sale and that the sale represented
a strategic shift that will have a major impact on our operations and financial
results. Accordingly, the results of operations of the disposed Global Preneed
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 disposed Global Preneed business have been classified as
held for sale and segregated for all periods presented in the consolidated
balance sheets. Transactions between the disposed Global Preneed business and
businesses in our continuing operations are not eliminated to appropriately
reflect the continuing operations and the assets, liabilities and results of the
disposed Global Preneed business. Refer to "-Results of Operations-Discontinued
Operations" below and Note 4 to the Consolidated Financial Statements included
elsewhere in this Report.
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Reportable Segments
As of September 30, 2021 , the Company had three reportable segments 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
•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 run-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 and nine months ended September 30,
2021 ("Third Quarter 2021" and "Nine Months 2021") and the three and nine months
ended September 30, 2020 ("Third Quarter 2020" and "Nine Months 2020").
Executive Summary
Summary of Financial Results
Consolidated net income from continuing operations increased $65.6 million , or
75%, to $153.6 million for Third Quarter 2021 from $88.0 million for Third
Quarter 2020, primarily driven by higher net realized gains on investments,
including $58.9 million of after-tax unrealized gains from three equity
positions that went public in Third Quarter 2021 and $18.2 million of after-tax
unrealized gains from equity securities accounted for under the measurement
alternative, and favorable earnings contributions from Global Lifestyle. This
was partially offset by a $16.3 million loss on extinguishment of debt related
to the repayment of our 4.00% senior notes due March 2023 and a decrease in
earnings contributions from Global Housing mostly driven by anticipated higher
non-catastrophe losses.
Assurant incurred $78.0 million of after-tax reportable catastrophes in Third
Quarter 2021, compared to $87.0 million in Third Quarter 2020. Hurricane Ida
accounted for $87 million of total pre-tax losses, as the event reached the
Company's $80 million pre-tax per-event retention. This also includes associated
reinstatement premiums to restore the second layer of the Company's catastrophe
reinsurance program. The remainder of losses were primarily related to the
wildfires in California .
Global Lifestyle segment net income increased $17.4 million , or 16%, to $124.0
million for Third Quarter 2021 from $106.6 million for Third Quarter 2020,
primarily driven by growth across Global Automotive and Connected Living. Global
Automotive's performance was primarily driven by global growth across
distribution channels, including American Financial & Automotive Services, Inc.
("AFAS") contributions, and higher investment income. Higher earnings in
Connected Living were led by mobile, mainly from subscriber growth in North
America , higher contributions from Asia Pacific and an increase in trade-in
volumes, including HYLA, Inc. ("HYLA") contributions. Global Lifestyle segment
net income also included a modest one-time tax benefit in Third Quarter 2021.
Global Lifestyle net earned premiums, fees and other income increased $158.0
million , or 9%, to $1.96 billion for Third Quarter 2021 from $1.81 billion for
Third Quarter 2020, primarily due to fee income growth in Connected Living as a
result of higher trade-in volume from increasing carrier promotions. Net earned
premium growth from strong prior period sales in Global Automotive was also a
driver.
Global Housing segment net income decreased $9.9 million , or 76%, to $3.2
million for Third Quarter 2021 from $13.1 million for Third Quarter 2020.
Excluding reportable catastrophes, segment net income decreased $18.9 million ,
or 19%, primarily due to higher non-catastrophe loss experience from an
anticipated increase to more normalized levels, as well as an increase in
reserves in Specialty and Other and higher claims costs.
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Global Housing net earned premiums, fees and other income decreased $4.6
million , or 1%, to $486.7 million for Third Quarter 2021 from $491.3 million for
Third Quarter 2020, primarily due to modest declines in Specialty and Other and
Lender-placed Insurance , partially offset by growth in Multifamily Housing . In
Lender-placed Insurance , the catastrophe reinsurance reinstatement premium
recorded in Third Quarter 2021 related to Hurricane Ida offset premium growth
from higher average insured values and premium rates.
Corporate and Other segment net income was $26.4 million for Third Quarter 2021
compared to a segment net loss of $31.7 million for Third Quarter 2020. The
change in results was primarily due to higher net realized gains on investments,
as described above, partially offset by a $16.3 million loss on extinguishment
of debt related to the repayment of our 4.00% senior notes due March 2023 .
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 also
depend on our ability to profitably grow our businesses, in particular our
Connected Living, Multifamily Housing and Global Automotive businesses, and to
maintain our position in our Lender-placed Insurance business. Factors affecting
these items, including conditions in financial markets, the global economy and
the markets in which we operate, fluctuations in exchange rates, interest rates
and inflation, and competition, may have a material adverse effect on our
results of operations or financial condition. For more information on these and
other factors that could affect our results, see "Item 1A-Risk Factors" below
and in our 2020 Annual Report, and "Item 7-Management's Discussion and Analysis
of Financial Condition and Results of Operations-Critical Factors Affecting
Results" in our 2020 Annual 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 actions of our competitors and the threat of disruption. See
"Item 1A-Risk Factors-Business, Strategic and Operational Risks-Our 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 2020
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 stock.
For Nine Months 2021, net cash provided by operating activities from continuing
operations was $375.8 million ; net cash provided by investing activities from
continuing operations was $181.9 million ; and net cash used in financing
activities from continuing operations was $757.4 million . We had $2.03 billion
in cash and cash equivalents as of September 30, 2021 as compared to $2.21
billion as of December 31, 2020 . See "-Liquidity and Capital Resources," below
for further details.
Critical Accounting Policies and Estimates
Our 2020 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
2020 Annual Report were consistently applied to the unaudited interim
Consolidated Financial Statements for Third Quarter 2021.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Note 3 to the
Consolidated Financial Statements included elsewhere in this Report.
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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 For the Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Revenues:
Net earned premiums $ 2,140.1 $ 2,086.8 $ 6,396.3 $ 6,173.6
Fees and other income 309.6 209.4 858.0 829.4
Net investment income 76.0 63.3 235.2 212.3
Net realized gains (losses) on investments 112.1 17.2 123.2 (37.9)
Total revenues 2,637.8 2,376.7 7,612.7 7,177.4
Benefits, losses and expenses:
Policyholder benefits 614.2 638.5 1,681.2 1,697.3
Amortization of deferred acquisition costs and value of business acquired
965.6 927.3 2,903.7 2,689.6
Underwriting, general and administrative expenses 818.3 672.9 2,301.2 2,290.9
Interest expense 27.5 25.5 84.7 77.7
Loss on extinguishment of debt 20.7 - 20.7 -
Total benefits, losses and expenses 2,446.3 2,264.2 6,991.5 6,755.5
Income before provision for income taxes 191.5 112.5 621.2 421.9
Provision for income taxes 37.9 24.5 134.4 20.6
Net income from continuing operations 153.6 88.0 486.8 401.3
Net income (loss) from discontinued operations 728.8 (118.5) 762.0 (97.6)
Net income (loss) 882.4 (30.5) 1,248.8 303.7
Less: Net loss (income) attributable to non-controlling interest
- 0.3 - (1.1)
Net income (loss) attributable to stockholders 882.4 (30.2) 1,248.8 302.6
Less: Preferred stock dividends - (4.7) (4.7) (14.0)
Net income (loss) attributable to common stockholders
For the Three Months EndedSeptember 30, 2021 Compared to the Three Months EndedSeptember 30, 2020 Net Income from Continuing Operations Consolidated net income from continuing operations increased$65.6 million , or 75%, to$153.6 million for Third Quarter 2021 from$88.0 million for Third Quarter 2020, primarily due to higher net realized gains on investments that included$58.9 million of after-tax unrealized gains from three equity positions that went public in Third Quarter 2021 and$18.2 million of after-tax unrealized gains from equity securities accounted for under the measurement alternative. The increase was also due to favorable earnings contributions from Global Lifestyle driven by growth acrossGlobal Automotive and Connected Living. These increases were partially offset by a$16.3 million after-tax loss on extinguishment of debt related to the repayment of our 4.00% senior notes dueMarch 2023 and a decrease in earnings contributions fromGlobal Housing mostly driven by anticipated higher non-catastrophe losses. For the Nine Months EndedSeptember 30, 2021 Compared to the Nine Months EndedSeptember 30, 2020 Net Income from Continuing Operations Consolidated net income from continuing operations increased$85.5 million , or 21%, to$486.8 million for Nine Months 2021 from$401.3 million for Nine Months 2020, primarily due to higher net realized gains on investments that included$58.9 million of after-tax unrealized gains from three equity positions that went public in Third Quarter 2021 and the absence of$25.5 million of after-tax net unrealized losses on collateralized loan obligations from Nine Months 2020. The increase was 42 -------------------------------------------------------------------------------- also due to favorable earnings contributions from Global Lifestyle, mainly due to continued organic growth inGlobal Automotive . These increases were partially offset by the absence of an$84.4 million tax benefit that was recorded in Nine Months 2020 related to the utilization of net operating losses in connection with the 2020 Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). 43
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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 For the Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Revenues:
Net earned premiums $ 1,688.5 $ 1,633.2 $ 5,014.6 $ 4,799.0
Fees and other income 274.5 171.8 748.5 721.6
Net investment income 48.5 44.6 148.7 143.5
Total revenues 2,011.5 1,849.6 5,911.8 5,664.1
Benefits, losses and expenses:
Policyholder benefits 335.1 365.4 1,007.3 1,044.7
Amortization of deferred acquisition costs and value of business acquired
910.0 870.5 2,731.8 2,519.7
Underwriting, general and administrative expenses 614.6 480.8 1,690.0 1,649.4
Total benefits, losses and expenses 1,859.7 1,716.7 5,429.1 5,213.8
Segment income before provision for income taxes 151.8 132.9 482.7 450.3
Provision for income taxes 27.8 26.3 105.8 101.0
Segment net income $ 124.0
867.1 802.5 2,535.1 2,311.0
Global Financial Services and Other 99.4 93.0 295.2 295.2
Total $ 1,963.0 $ 1,805.0 $ 5,763.1 $ 5,520.6
Net earned premiums, fees and other income:
Domestic $ 1,502.1 $ 1,335.4 $ 4,347.4 $ 4,080.2
International 460.9 469.6 1,415.7 1,440.4
Total $ 1,963.0 $ 1,805.0 $ 5,763.1 $ 5,520.6
For the Three Months Ended September 30, 2021 Compared to the Three Months Ended
September 30, 2020
Net Income
Segment net income increased $17.4 million , or 16%, to $124.0 million for Third
Quarter 2021 from $106.6 million for Third Quarter 2020, primarily driven by
Global Automotive , mainly from global organic growth across distribution
channels, higher investment income and lower loss experience in select ancillary
products, and Connected Living, mainly due to mobile increases from subscriber
growth in North America , higher contributions from Asia Pacific and higher
trade-in volumes, including contributions from HYLA. Global Lifestyle also
included a modest one-time tax benefit in Third Quarter 2021.
Total Revenues
Total revenues increased $161.9 million , or 9%, to $2.01 billion for Third
Quarter 2021 from $1.85 billion for Third Quarter 2020. Fees and other income
increased $102.7 million , or 60%, mainly driven by higher mobile trade-in
volumes from HYLA contributions and increasing carrier promotions. Net earned
premiums increased $55.3 million , or 3%, primarily driven by continued growth
from strong sales in our Global Automotive business. This increase was partially
offset by a modest decline in Connected Living, due to the run-off of certain
global mobile programs; the Connected Living decline was partially offset by
organic growth in existing mobile programs and extended service contract
programs. Net investment income increased $3.9 million , or 9%, primarily due to
higher income from real estate related investments and other limited
partnerships.
Total Benefits, Losses and Expenses
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Total benefits, losses and expenses increased $143.0 million , or 8%, to $1.86
billion for Third Quarter 2021 from $1.72 billion for Third Quarter 2020. The
increase was primarily due to a $133.8 million , or 28%, increase in
underwriting, general and administrative expenses, mainly due to higher expenses
due to higher mobile trade-in volumes, including contributions from HYLA, and
continued growth in Global Automotive . Amortization of deferred acquisition
costs ("DAC") and value of business acquired ("VOBA") increased $39.5 million ,
or 5%, mainly due to an increase in amortization of DAC due to growth in our
Global Automotive business, partially offset by a decrease in amortization of
VOBA related to the acquisition of TWG Holdings Limited and its subsidiaries
("TWG"). The increase in total benefits, losses and expenses was partially
offset by a $30.3 million , or 8%, decrease in policyholder benefits, mainly due
to the run-off of certain global mobile programs, improved performance in Asia
Pacific and favorable claims experience in our Global Automotive business.
For the Nine Months Ended September 30, 2021 Compared to the Nine Months Ended
September 30, 2020
Net Income
Segment net income increased $27.6 million , or 8%, to $376.9 million for Nine
Months 2021 from $349.3 million for Nine Months 2020, primarily driven by Global
Automotive from organic growth, higher investment income and lower claims
activity in select ancillary products. Global Financial Services and Other also
contributed to the increase, mainly due to claims and sales recoveries as Nine
Months 2020 included unfavorable impacts related to COVID-19. Connected Living
results were relatively flat as declines in extended service contract programs,
which included a $6.7 million after-tax benefit for a client recoverable in Nine
Months 2020, were mostly offset by growth in mobile, including contributions
from HYLA and better performance in Asia Pacific .
Total Revenues
Total revenues increased $247.7 million , or 4%, to $5.91 billion for Nine Months
2021 from $5.66 billion for Nine Months 2020. Net earned premiums increased
$215.6 million , or 4%, primarily driven by continued growth from strong sales in
our Global Automotive business as well as a modest increase in Connected Living,
driven by organic growth in extended service contract programs and domestic
mobile subscriber growth within our cable operator distribution channel,
partially offset by the run-off of certain global mobile programs. Fees and
other income increased $26.9 million , or 4%, mainly from growth in Global
Automotive and Connected Living, driven by recent acquisitions and increasing
mobile carrier promotions, partially offset by the previously disclosed mobile
program contract change. Net investment income increased $5.2 million , or 4%,
primarily due to higher income from real estate related investments.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased $215.3 million , or 4%, to $5.43
billion for Nine Months 2021 from $5.21 billion for Nine Months 2020. The
increase was primarily due to a $212.1 million , or 8%, increase in amortization
of DAC and VOBA, mainly related to an increase in amortization of DAC due to
growth in our Global Automotive business, partially offset by a decrease in
amortization of VOBA related to the acquisition of TWG. Underwriting, general
and administrative expenses increased $40.6 million , or 2%, primarily due to
growth across the businesses, including higher mobile trade-in volumes from
HYLA, partially offset by the impact of a previously disclosed mobile contract
change. The increase in total benefits, losses and expenses was partially offset
by a $37.4 million , or 4%, decrease in policyholder benefits, primarily due to
improved claims experience in our Global Financial Services and Other and Global
Automotive businesses, as well as run-off of certain global mobile programs and
better performance in Asia Pacific . The decrease in policyholder benefits was
partially offset by growth in our Global Automotive and Connected Living
businesses and unfavorable foreign exchange.
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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 For the Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Revenues:
Net earned premiums $ 451.6 $ 453.6 $ 1,381.7 $ 1,374.6
Fees and other income 35.1 37.7 109.1 106.0
Net investment income 20.2 16.5 63.3 54.9
Total revenues 506.9 507.8 1,554.1 1,535.5
Benefits, losses and expenses:
Policyholder benefits 279.1 272.8 673.9 651.9
Amortization of deferred acquisition costs and value of business acquired
55.6 56.8 171.9 169.9
Underwriting, general and administrative expenses 169.5 162.2 501.3 496.6
Total benefits, losses and expenses 504.2 491.8 1,347.1 1,318.4
Segment income before (benefit) provision for income taxes
2.7 16.0 207.0 217.1
(Benefit) provision for income taxes (0.5) 2.9 42.7 44.4
Segment net income $ 3.2 $ 13.1 $ 164.3 $ 172.7
Net earned premiums, fees and other income:
Lender-placed Insurance $ 256.2 $ 258.2 $ 790.9 $ 787.5
Multifamily Housing 121.7 117.9 361.1 338.1
Specialty and Other 108.8 115.2 338.8 355.0
Total $ 486.7 $ 491.3 $ 1,490.8 $ 1,480.6
For the Three Months Ended September 30, 2021 Compared to the Three Months Ended
September 30, 2020
Net Income
Segment net income decreased $9.9 million , or 76%, to $3.2 million for Third
Quarter 2021 from $13.1 million for Third Quarter 2020. Segment net income for
Third Quarter 2021 included $78.0 million of reportable catastrophes, primarily
related to Hurricane Ida, compared to $87.0 million for Third Quarter 2020.
Excluding reportable catastrophes, segment net income decreased $18.9 million ,
or 19%, driven by higher non-catastrophe loss experience from an anticipated
increase to more normalized levels than experienced in Third Quarter 2020,
primarily in our Lender-placed Insurance business, an increase in reserves
within Specialty and Other products and higher claims costs.
Total Revenues
Total revenues decreased $0.9 million , or 0.2%, to $506.9 million for Third
Quarter 2021 from $507.8 million for Third Quarter 2020. Net earned premiums
decreased $2.0 million , or 0.4%, primarily due to higher reinsurance
reinstatement premiums related to Hurricane Ida, a modest decline in Specialty
and Other and lower REO volume within Lender-placed Insurance . This decrease was
partially offset by higher average insured value and premium rate increases in
our Lender-placed Insurance business and continued growth from renters insurance
in our Multifamily Housing business. Fees and other income decreased $2.6
million , or 7%, primarily due to a decrease in our Lender-placed Insurance
business from a loss of a client. Net investment income increased $3.7 million ,
or 22%, primarily due to higher income from real estate related investments.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased $12.4 million , or 3%, to $504.2
million for Third Quarter 2021 from $491.8 million for Third Quarter 2020. The
increase was primarily due to underwriting, general and administrative expenses,
which increased $7.3 million , or 5%, mainly due to higher information technology
expenses. Policyholder benefits increased $6.3 million , or 2%, primarily from
higher non-catastrophe loss experience, partially offset by lower reportable
catastrophe losses.
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For the Nine Months Ended September 30, 2021 Compared to the Nine Months Ended
September 30, 2020
Net Income
Segment net income decreased $8.4 million , or 5%, to $164.3 million for Nine
Months 2021 compared to $172.7 million for Nine Months 2020. Segment net income
for Nine Months 2021 included $112.9 million of reportable catastrophes,
primarily related to Hurricane Ida and the Texas winter storms, compared to
$109.9 million for Nine Months 2020. Excluding reportable catastrophes, segment
net income decreased $5.4 million , or 2%, driven by higher non-catastrophe loss
experience from an anticipated increase to more normalized levels than
experienced in Nine Months 2020, primarily in our Lender-placed Insurance
business, an increase in reserves within Specialty and Other products and
moderate impact from higher claims activity, as well as lower REO volumes
related to COVID-19 foreclosure moratoriums. These decreases were partially
offset by premium rate and average insured value increases in our Lender-placed
Insurance business and higher income from real estate related investments.
Total Revenues
Total revenues increased $18.6 million , or 1%, to $1.55 billion for Nine Months
2021 from $1.54 billion for Nine Months 2020. Net investment income increased
$8.4 million , or 15%, primarily due to higher income from real estate related
investments. Net earned premiums increased $7.1 million , or 1%, primarily due to
average insured value and premium rate increases in our Lender-placed Insurance
business and continued growth from renters insurance in our Multifamily Housing
business. This increase was partially offset by lower REO volume, a decline in
Specialty and Other and higher reinsurance reinstatement premium primarily
related to Hurricane Ida. Fees and other income increased $3.1 million , or 3%,
primarily due to growth in Multifamily Housing .
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased $28.7 million , or 2%, to $1.35
billion for Nine Months 2021 from $1.32 billion for Nine Months 2020. The
increase was primarily due to an increase in policyholder benefits of $22.0
million , or 3%, from higher non-catastrophe losses across various products, as
well as an increase in reserves within Specialty and Other products, partially
offset by a small decrease in reportable catastrophe losses. Underwriting,
general and administrative expenses increased $4.7 million , or 1%, primarily due
to higher information technology expenses.
47
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Corporate and Other
Overview
The tables below present information regarding the Corporate and Other's segment
results of operations for the periods indicated:
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Revenues:
Fees and other income $ - $ (0.1) $ 0.4 $ 1.8
Net investment income 7.3 2.2 23.2 13.9
Net realized gains (losses) on investments 112.1 17.2 123.2 (37.9)
Total revenues 119.4 19.3 146.8 (22.2)
Benefits, losses and expenses:
Policyholder benefits - 0.3 - 0.7
General and administrative expenses 34.2 29.9 109.9 144.9
Interest expense 27.5 25.5 84.7 77.7
Loss on extinguishment of debt 20.7 - 20.7 -
Total benefits, losses and expenses 82.4 55.7 215.3 223.3
Segment income (loss) before expense (benefit) for income taxes
37.0 (36.4) (68.5) (245.5)
Expense (benefit) for income taxes 10.6 (4.7) (14.1) (124.8)
Segment net income (loss) from continuing
operations $ 26.4 $
(31.7)
For the Three Months EndedSeptember 30, 2021 Compared to the Three Months EndedSeptember 30, 2020 Net Income (Loss) from Continuing Operations Segment net income from continuing operations was$26.4 million for Third Quarter 2021 compared to a segment net loss from continuing operations of$31.7 million for Third Quarter 2020. The change in results was primarily due to higher net realized gains on investments that included$58.9 million of after-tax unrealized gains from three equity positions that went public in Third Quarter 2021 and$18.2 million of after-tax unrealized gains from equity securities accounted for under the measurement alternative. The increase was partially offset by the$16.3 million after-tax loss on extinguishment of debt related to the repayment of our 4.00% senior notes dueMarch 2023 . Total Revenues Total revenues increased$100.1 million to$119.4 million for Third Quarter 2021 from$19.3 million for Third Quarter 2020, primarily due to higher net realized gains on investments that included$74.6 million of unrealized gains from three equity positions that went public in Third Quarter 2021 and$23.0 million of unrealized gains from equity securities accounted for under the measurement alternative. Total Benefits, Losses and Expenses Total benefits, losses and expenses increased$26.7 million , or 48%, to$82.4 million for Third Quarter 2021 from$55.7 million for Third Quarter 2020. The increase was primarily driven by$20.7 million loss on extinguishment of debt and the absence of the$11.5 million income from the sale of our CLO asset management platform in Third Quarter 2020, net of certain exit costs. The increase was partially offset by$6.6 million of lower general operating expenses, mostly driven by lower employee-related and third-party expenses as well as expense savings from real estate. For the Nine Months EndedSeptember 30, 2021 Compared to the Nine Months EndedSeptember 30, 2020 Net Loss from Continuing Operations Segment net loss from continuing operations decreased$66.3 million , or 55%, to$54.4 million for Nine Months 2021 from$120.7 million for Nine Months 2020. The decrease in net loss was primarily due to a$128.3 million after-tax increase in net realized gains on investments that included$58.9 million of after-tax unrealized gains from three equity positions that went public in Third Quarter 2021,$18.2 million of after-tax unrealized gains from equity securities accounted for under the 48 -------------------------------------------------------------------------------- measurement alternative and the absence of$25.5 million of after-tax net unrealized losses on collateralized loan obligations from Nine Months 2020. The decrease was also driven by a$13.3 million after-tax decrease in general operating expenses mostly due to a reduction in employee related incentive compensation, lower third-party fees for general corporate services and expense savings on real estate. The decrease in net loss was also driven by an$11.2 million decrease in after-tax direct and incremental operating expenses incurred in connection with the COVID-19 pandemic and the absence of a$9.3 million after-tax loss from the sale of Iké from Nine Months 2020. These items were partially offset by the absence of an$84.4 million tax benefit related to the utilization of net operating losses in connection with the CARES Act from Nine Months 2020 and the$16.3 million after-tax loss on extinguishment of debt. Total Revenues Total revenues increased$169.0 million to$146.8 million for Nine Months 2021 from$(22.2) million for Nine Months 2020, primarily due to higher net realized gains on investments that included$74.6 million of net unrealized gains from three equity positions that went public in Third Quarter 2021, a$23.0 million increase in unrealized gains from equity securities accounted for under the measurement alternative and the absence of$32.3 million of net unrealized losses on collateralized loan obligations from Nine Months 2020. The increase is also due to higher net investment income mostly driven by higher income from limited partnerships and a gain from the sale of a real estate joint venture property. Total Benefits, Losses and Expenses Total benefits, losses and expenses decreased$8.0 million , or 4% to$215.3 million for Nine Months 2021 from$223.3 million for Nine Months 2020. The decrease was primarily driven by$16.8 million of lower general operating expenses mostly due to a reduction in employee related incentive compensation, lower third-party fees for general corporate services and expense savings on real estate, and$14.3 million of lower direct and incremental operating expenses incurred in connection with the COVID-19 pandemic. These items were partially offset by the$20.7 million loss on extinguishment and the absence of the$10.1 million income from the sale of our CLO asset management platform, net of certain exit costs. 49 -------------------------------------------------------------------------------- Discontinued Operations Overview The table below presents information regarding the results of the discontinued operations for the periods indicated: For the Three Months Ended For the Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Revenues: Net earned premiums$ 6.1 $ 16.0 $ 42.6 $ 49.4 Fees and other income 13.6 38.6 91.0 113.6 Net investment income 23.7 71.8 168.4 216.0 Net realized gains (losses) on investments 0.5 (0.6) 4.2 (16.7) Gain on disposal of businesses 926.4 - 920.1 - Total revenues 970.3 125.8 1,226.3 362.3 Benefits, losses and expenses: Policyholder benefits 24.6 71.1 172.7 211.6
Amortization of deferred acquisition costs and value of business acquired
7.1 18.9 46.2 56.1
Underwriting, general and administrative expenses 5.7 14.6 39.0 46.8
Goodwill impairment - 137.8 - 137.8
Total benefits, losses and expenses 37.4 242.4 257.9 452.3
Income (loss) before provision for income taxes 932.9 (116.6) 968.4 (90.0)
Provision for income taxes 204.1 1.9 206.4 7.6
Net income (loss) from discontinued operations
For the Three Months EndedSeptember 30, 2021 Compared to the Three Months EndedSeptember 30, 2020 Net Income (Loss) from Discontinued Operations Net income from discontinued operations was$728.8 million for Third Quarter 2021 compared to a net loss from discontinued operations of$118.5 million for Third Quarter 2020. The change in results was primarily due to a$723.2 million after-tax gain from the sale of our Global Preneed business. The gain is inclusive of$606.0 million in after-tax accumulated other comprehensive income ("AOCI"), primarily net unrealized gains on investments, that was recognized in earnings upon sale. The increase was also due to the absence of a$137.8 million goodwill impairment on Global Preneed from Third Quarter 2020 that was partially offset by lower operating results from the Global Preneed business since Third Quarter 2021 only included one month of results since the sale closed onAugust 2, 2021 . Total Revenues Total revenues increased$844.5 million to$970.3 million for Third Quarter 2021 from$125.8 million for Third Quarter 2020, primarily due to the gain on the sale of our Global Preneed business. The gain is inclusive of$774.2 million of pre-tax AOCI, primarily net unrealized gains on investments, that was recognized in earnings upon sale. The increase in total revenues was partially offset by a$48.1 million , or 67%, decrease in net investment income, a$25.0 million , or 65%, decrease in fees and other income and a$9.9 million , or 62%, decrease in net earned premiums, primarily because Third Quarter 2021 only included one month of revenue. Total Benefits, Losses and Expenses Total benefits, losses and expenses decreased$205.0 million , or 85%, to$37.4 million for Third Quarter 2021 from$242.4 million for Third Quarter 2020, primarily driven by the absence of the goodwill impairment which was recorded in Third Quarter 2020. The decrease in total benefits, losses and expenses was also due to a$46.5 million , or 65%, decrease in policyholder benefits, an$11.8 million , or 62%, decrease in amortization of DAC and VOBA and an$8.9 million , or 61%, decrease in underwriting, general and administrative expenses, primarily because Third Quarter 2021 only included one month of benefits, losses and expenses. 50 -------------------------------------------------------------------------------- For the Nine Months EndedSeptember 30, 2021 Compared to the Nine Months EndedSeptember 30, 2020 Net Income (Loss) from Discontinued Operations Net income from discontinued operations was$762.0 million for Nine Months 2021 compared to a net loss from discontinued operations of$97.6 million for Nine Months 2020. The change in results was primarily due to the aforementioned gain on the sale of the disposed Global Preneed business in Nine Months 2021 and the goodwill impairment in Nine Months 2020, as well as a reduction in net realized losses on investments. These items were partially offset by lower operating results for the Global Preneed business as Nine Months 2021 only included seven months of results since the sale closed onAugust 2, 2021 . Total Revenues Total revenues increased$864.0 million to$1.23 billion for Nine Months 2021 from$362.3 million for Nine Months 2020, primarily due to the gain on the sale of the disposed Global Preneed business and a reduction in net realized losses on investments mostly due to the absence of net unrealized losses on collateralized loan obligations and equity securities from Nine Months 2020. The increase in total revenues was partially offset by a$47.6 million , or 22%, decrease in net investment income, a$22.6 million , or 20%, decrease in fees and other income and a$6.8 million , or 14%, decrease in net earned premiums, primarily because Nine Months 2021 only included seven months of revenues. Total Benefits, Losses and Expenses Total benefits, losses and expenses decreased$194.4 million , or 43%, to$257.9 million for Nine Months 2021 from$452.3 million for Nine Months 2020, primarily driven by the absence of the goodwill impairment which was recorded in Nine Months 2020. The decrease in total benefits, losses and expenses was also due to a$38.9 million , or 18%, decrease in policyholder benefits, a$9.9 million , or 18%, decrease in amortization of DAC and VOBA and a$7.8 million , or 17%, decrease in underwriting, general and administrative expenses, primarily because Nine Months 2021 only included seven months of benefits, losses and expenses. 51
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Investments
We had total investments of$9.20 billion and$8.22 billion as ofSeptember 30, 2021 andDecember 31, 2020 , respectively. Net unrealized gains on our fixed maturity securities portfolio decreased by$191.9 million during Nine Months 2021, from$570.9 million as ofDecember 31, 2020 to$379.0 million as ofSeptember 30, 2021 , primarily due to an increase inTreasury yields. The following table shows the credit quality of our fixed maturity securities portfolio as of the dates indicated: Fair value as of Fixed Maturity Securities by Credit Quality September 30, 2021 December 31, 2020 Aaa / Aa / A$ 4,394.0 57.4 %$ 4,051.3 59.5 % Baa 2,769.5 36.2 % 2,288.1 33.6 % Ba 341.7 4.5 % 384.4 5.6 % B and lower 145.1 1.9 % 91.7 1.3 % Total$ 7,650.3 100.0 %$ 6,815.5 100.0 %
The following table shows the major categories of net investment income for the periods indicated:
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