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,
2021 and accompanying notes included in our Annual Report on Form 10-K for the
year ended December 31, 2021 (the "2021 Annual Report") filed with the U.S.
Securities and Exchange Commission (the "SEC") and the unaudited consolidated
financial statements for the three and six months ended June 30, 2022 and
accompanying notes (the "Consolidated Financial Statements") included elsewhere
in this Quarterly Report on Form 10-Q (this "Report"). The following discussion
and analysis covers the three and six months ended June 30, 2022 ("Second
Quarter 2022" and "Six Months 2022") and the three and six months ended June 30,
2021 ("Second Quarter 2021" and "Six Months 2021").
Some of the statements in this Report, including our business and financial
plans and any statements regarding our anticipated future financial performance,
business prospects, growth and operating strategies and similar matters, may
constitute 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 "outlook," "objective," "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 execute our strategy, including through the continuing service of key executives, senior leaders, highly-skilled personnel and a high-performing workforce;
(iv)the failure to find suitable acquisitions at attractive prices, integrate acquired businesses effectively or identify new areas for organic growth;
(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, 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)the impact of catastrophe and non-catastrophe losses, including as a result of the current inflationary environment and climate change;
(xii)negative publicity relating to our business or industry;
(xiii)the impact of general economic, financial market and political conditions and conditions in the markets in which we operate, including the current inflationary environment (that has increased the costs of paying claims, including for materials and labor, as well as our employee wages), any prolonged recessionary environment and the conflict inUkraine ;
(xiv)the impact of the COVID-19 pandemic and measures taken in response thereto;
(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;
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(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)an impairment in the value 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)limitations in the analytical models we use to assist in our decision-making;
(xxvii)the failure to effectively maintain and modernize our information technology systems and infrastructure, or the failure to integrate those of acquired businesses;
(xxviii)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 cyberattacks and as a result of working remotely; (xxix)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;
(xxx)the impact of litigation and regulatory actions;
(xxxi)reductions or deferrals in the insurance premiums we charge;
(xxxii)changes in insurance, tax and other regulations;
(xxxiii)volatility in our common stock price and trading volume; and
(xxxiv)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 2021 Annual Report, and "Item 1A-Risk Factors" below and in our 2021 Annual Report.
Reportable Segments
As ofJune 30, 2022 , we 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: includes mobile device solutions, extended service products and related services for consumer electronics and appliances, and credit and other insurance products (referred to as "Connected Living"); and vehicle protection and related services (referred to as "Global Automotive "); •Global Housing: includes 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 corporate employee-related expenses and activities of the holding company.
In conjunction with the transition of our new CEO and chief operating decision maker, we changed our segment measure of profitability for its reportable segments to an Adjusted EBITDA metric, as the primary measure used for purposes of making decisions about allocating resources to the segments and assessing performance, from segment net income from continuing operations, effectiveJanuary 1, 2022 . Prior period amounts have been revised to reflect the new segment measure of profitability. We define Adjusted EBITDA as net income from continuing operations, excluding net realized gains (losses) on investments and fair value changes to equity securities, COVID-19 direct and incremental expenses, loss on extinguishment of debt, non-core operations (defined below), net income (loss) attributable to non-controlling interests, interest expense, provision (benefit) for income taxes, depreciation expense, amortization of purchased intangible assets, restructuring costs related to strategic exit activities (outside of normal periodic restructuring and cost management activities), as well as other highly variable or unusual items. 36
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Executive Summary
Beginning with Second Quarter 2022, we changed the calculation of our segment measure of profitability, Adjusted EBITDA, to exclude certain businesses which we now expect to fully exit, including the long-tail commercial liability businesses inGlobal Housing (sharing economy and small commercial businesses), as well as certain legacy long-duration insurance policies within Global Lifestyle (collectively referred to as "non-core operations"). All prior period amounts have been revised, which impacts segment Adjusted EBITDA but does not impact consolidated net income. See Note 5 to the Consolidated Financial Statements included elsewhere in this Report for more information. We have also revised our prior period financial statements to reflect the correction of an error identified in Second Quarter 2022 related to reinsurance of claims and benefits payables within the Connected Living business unit in our Global Lifestyle segment occurring in late 2018 through first quarter 2022, as well as other immaterial errors which were previously recorded in the periods in which the Company identified them. See Notes 2 and 17 to the Consolidated Financial Statements included elsewhere in this Report for more information. Additionally, prior period disclosures have been revised to include Hurricane Eta, which should have been classified as a reportable catastrophe since fourth quarter 2020. This correction had an immaterial impact to prior periods.
Summary of Financial Results
Consolidated net income from continuing operations decreased$134.9 million , or 72%, to$52.2 million for Second Quarter 2022 from$187.1 million for Second Quarter 2021. The decline was primarily due to a decrease in net unrealized gains from changes in fair value of equity securities, lower earnings contributions fromGlobal Housing , and a$29.4 million after-tax decrease in earnings from non-core operations, mostly driven by adverse prior year reserve development from sharing economy. Global Lifestyle Adjusted EBITDA increased$22.6 million , or 12%, to$206.8 million for Second Quarter 2022 from$184.2 million for Second Quarter 2021, from continued strong results across Connected Living andGlobal Automotive . Connected Living growth was primarily led by mobile from higher device protection contributions inNorth America , including subscriber growth and more favorable loss experience.Global Automotive increased primarily from higher investment income mainly from the sale of a real estate joint venture partnership and higher yields, as well as favorable loss experience in select ancillary products. Growth was partially offset by the unfavorable impact of foreign exchange. Global Lifestyle net earned premiums, fees and other income increased$47.6 million , or 2%, to$1.98 billion for Second Quarter 2022 from$1.94 billion for Second Quarter 2021, primarily led byGlobal Automotive premium growth from strong prior period sales. Connected Living decreased modestly, mainly from the impact of runoff mobile programs, partially offset by higher mobile fee income driven by an increase in global mobile devices serviced (defined below), as well as device protection growth inNorth America . Global Housing Adjusted EBITDA decreased$57.2 million , or 43%, to$75.2 million for Second Quarter 2022 from$132.4 million for Second Quarter 2021. Pre-tax reportable catastrophes (defined as individual catastrophic events that generate losses in excess of$5.0 million pre-tax, net of reinsurance and client profit sharing adjustments, and including reinstatement and other premiums) increased$17.2 million , primarily due to prior period development from Hurricane Eta and current period losses from Tropical Storm Alex. Excluding reportable catastrophes, Adjusted EBITDA decreased$40.0 million , or 30%, year-over-year. Approximately$25.0 million of the decrease was driven by higher non-catastrophe loss experience, largely withinLender-placed Insurance , from higher claims severity related to inflation. Higher loss experience included a$12.0 million year-over-year increase in reserves for prior and current year periods along with elevated severity in the current quarter, particularly from fire claims. The remainder of the decline was mainly from higher catastrophe reinsurance costs, largely driven by increased exposures.Global Housing net earned premiums, fees and other income was$495.7 million for Second Quarter 2022, compared to$496.8 million for Second Quarter 2021, as growth inLender-placed Insurance from higher average insured values and premium rates were offset by higher catastrophe reinsurance costs. Corporate and Other Adjusted EBITDA was$(24.9) million for Second Quarter 2022 compared to$(16.9) million for Second Quarter 2021, primarily driven by higher employee-related expenses and technology expenses.
Catastrophe Reinsurance Program
InJuly 2022 , we finalized our 2022 property catastrophe reinsurance program. TheU.S. per-event catastrophe coverage provides$1.16 billion of protection in excess of an$80.0 million retention per event. The coverage was placed with more than 40 reinsurers that are all rated A- or better byA.M. Best . See "Catastrophe Reinsurance Program" below. 37
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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, our investment income 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 andGlobal Automotive businesses, and to maintain our position in ourLender-placed Insurance business. Factors affecting these items, including conditions in financial markets, the global economy and the markets in which we operate, including interest rates and inflation, any prolonged recessionary environment, the conflict inUkraine , fluctuations in exchange rates and competition, may have a material adverse effect on our results of operations or financial condition. For example, the current inflationary environment has increased the costs of paying claims, including for materials and labor, as well as our employee wages, which has impacted the results of ourLender-placed Insurance business and other businesses withinGlobal Housing . For more information on these and other factors that could affect our results, see "Item 1A-Risk Factors" below and in our 2021 Annual Report, and "Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Factors Affecting Results" in our 2021 Annual Report. Our results may be impacted by our ability to continue to grow in the markets in which we operate, including in our Connected Living,Multifamily Housing andGlobal Automotive businesses, which may be impacted by our ability to provide a superior digital-first customer experience, including from our investments in technology and digital initiatives, to capitalize on the smart home opportunity, and to maintain relationships with significant clients, distributors and other parties or renew contracts with them on favorable terms. 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. OurLender-placed Insurance results will be impacted by changes in the housing market as well as inflation. In addition, across many of our businesses, we must respond to the actions of our competitors, the threat of disruption and the competition for talent. 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," "Significant competitive pressures, changes in customer preferences and disruption could adversely affect our results of operations" and "The success of our business depends on the execution of our strategy, including through the continuing service of key executives, senior leaders, highly-skilled personnel and a high-performing workforce" in our 2021 Annual Report.
Critical Accounting Policies and Estimates
Our 2021 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 2021 Annual Report were consistently applied to the unaudited interim Consolidated Financial Statements for Second Quarter 2022.
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
The table below presents information regarding our consolidated results of operations for the periods indicated:
For the Three Months Ended June For the Six Months Ended June
30, 30,
2022 2021 2022 2021
Revenues:
Net earned premiums$ 2,168.9 $ 2,150.6 $ 4,305.3 $ 4,256.2 Fees and other income 325.2 298.5 647.6 548.4 Net investment income 92.0 82.9 178.3 159.2
Net realized (losses) gains on investments and fair value changes to equity securities
(76.4) 10.3 (138.8) 11.1
Total revenues 2,509.7 2,542.3 4,992.4 4,974.9
Benefits, losses and expenses:
Policyholder benefits 600.0 535.2 1,090.0 1,066.8
Underwriting, selling, general and administrative
expenses 1,811.7 1,738.6 3,602.3 3,426.4
Interest expense 27.2 28.8 54.1 57.2
Loss on extinguishment of debt 0.9 - 0.9 -
Total benefits, losses and expenses 2,439.8 2,302.6 4,747.3 4,550.4
Income before provision for income taxes 69.9 239.7 245.1 424.5
Provision for income taxes 17.7 52.6 43.9 96.6
Net income from continuing operations 52.2 187.1 201.2 327.9
Net income from discontinued operations - 18.9 - 33.2
Net income 52.2 206.0 201.2 361.1
Less: Net loss attributable to non-controlling interest - (0.2) - -
Net income attributable to stockholders 52.2 205.8 201.2 361.1
Less: Preferred stock dividends - - - (4.7)
Net income attributable to common stockholders $ 52.2
For the Three Months Ended
Net income from continuing operations decreased$134.9 million , or 72%, to$52.2 million for Second Quarter 2022 from$187.1 million for Second Quarter 2021, primarily driven by a decrease in net unrealized gains from changes in fair value of equity securities, mostly related to four equity positions that went public in 2021 through SPAC mergers, and from preferred stocks due to an increase in interest rates. The decrease was also driven by a decrease in earnings fromGlobal Housing due to higher non-catastrophe loss experience and an increase in reportable catastrophe losses. Additionally, the decrease was due to a$29.4 million after-tax decrease in earnings from our non-core operations, mostly driven by adverse prior year reserve development from the sharing economy business. The decrease was partially offset by higher earnings from Global Lifestyle, driven by Connected Living andGlobal Automotive results.
For the Six Months Ended
Net income from continuing operations decreased$126.7 million , or 39%, to$201.2 million for Six Months 2022 from$327.9 million for Six Months 2021, primarily driven by a decrease in net unrealized gains from changes in fair value of equity securities mostly related to four equity positions that went public in 2021 through SPAC mergers and from preferred stocks due to an increase in interest rates. The decrease was also due to a$37.8 million after-tax decrease in earnings from our non-core operations, mostly driven by adverse prior year reserve development from the sharing economy business. Additionally, the decrease was driven by a decrease in earnings fromGlobal Housing due to higher non-catastrophe loss experience. The decrease was partially offset by higher earnings from Global Lifestyle, driven by Connected Living andGlobal Automotive results, as well as lower reportable catastrophe losses. 39
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Discontinued Operations
InAugust 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 ofCUNA Mutual Group for an aggregate purchase price at closing of$1.34 billion . For additional information, refer to Note 4 to the Consolidated Financial Statements included elsewhere in this Report. 40
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Global Lifestyle
The table below presents information regarding the Global Lifestyle segment's results of operations for the periods indicated:
For the Three Months Ended June For the Six Months Ended June
30, 30,
2022 2021 2022 2021
Revenues
Net earned premiums $ 1,694.0 $ 1,675.3 $ 3,366.3 $ 3,321.8
Fees and other income 289.3 260.4 576.9 474.0
Net investment income 64.7 48.8 121.1 99.0
Total revenues 2,048.0 1,984.5 4,064.3 3,894.8
Benefits, losses and expenses
Policyholder benefits 328.2 344.6 632.3 672.3
Underwriting, selling, general and administrative
expenses 1,513.0 1,455.7 3,010.6 2,852.8
Total benefits, losses and expenses 1,841.2 1,800.3 3,642.9 3,525.1
Global Lifestyle Adjusted EBITDA $ 206.8 Net earned premiums, fees and other income: Connected Living$ 1,064.4 $ 1,080.1 $ 2,135.2 $ 2,127.8 Global Automotive 918.9 855.6 1,808.0 1,668.0 Total$ 1,983.3 $ 1,935.7 $ 3,943.2 $ 3,795.8 Net earned premiums, fees and other income: Domestic$ 1,518.2 1,462.6$ 3,027.7 $ 2,841.0 International 465.1 473.1 915.5 954.8 Total$ 1,983.3 $ 1,935.7 $ 3,943.2 $ 3,795.8
For the Three Months Ended
Adjusted EBITDA increased$22.6 million , or 12%, to$206.8 million for Second Quarter 2022 from$184.2 million for Second Quarter 2021, due to strong results across Connected Living andGlobal Automotive . Connected Living growth was primarily led by mobile from higher device protection contributions inNorth America , including subscriber growth and more favorable loss experience.Global Automotive earnings increased primarily from higher net investment income, mainly from the sale of a real estate joint venture partnership and higher yields, as well as favorable loss experience in select ancillary products. The increase was partially offset by the unfavorable impact of foreign exchange. Total revenues increased$63.5 million , or 3%, to$2.05 billion for Second Quarter 2022 from$1.98 billion for Second Quarter 2021. Fees and other income increased$28.9 million , or 11%, mainly driven by an increase in global mobile devices serviced (which includes devices for which we provide value to our consumers and partners, through trade-ins and upgrades, technology, claims fulfillment, repair capabilities, logistics, and asset disposition). Net earned premiums increased$18.7 million , or 1%, primarily driven by continued organic growth from strong prior periodU.S. sales in ourGlobal Automotive business across all distribution channels and domestic mobile subscriber growth within our cable operator distribution channel. The increase in net earned premiums was partially offset by a decrease from the run-off of certain global mobile programs and unfavorable impacts of foreign exchange. Net investment income increased$15.9 million , or 33%, primarily due to higher real estate related income, higher fixed maturity asset levels and higher yields. Total benefits, losses and expenses increased$40.9 million , or 2%, to$1.84 billion for Second Quarter 2022 from$1.80 billion for Second Quarter 2021. Underwriting, selling, general and administrative expenses increased$57.3 million , or 4%, primarily due to higher cost of sales in Connected Living from our recently launched service and repair capabilities and higher operating costs associated with growth. Higher commission expenses also contributed to the increase, mainly from growth across ourGlobal Automotive business and domestic mobile subscriber growth within our cable operator distribution channel, which was partially offset by the run-off of certain global mobile programs. The increase was partially offset by a decrease in policyholder benefits of$16.4 million , or 5%, primarily due to the run-off of certain global mobile programs and favorable loss experience withinGlobal Automotive , from select domestic ancillary products and Connected Living, partially offset by growth across ourGlobal Automotive and Connected Living businesses. 41
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For the Six Months Ended
Adjusted EBITDA increased$51.7 million , or 14%, to$421.4 million for Six Months 2022 from$369.7 million for Six Months 2021, primarily driven by strong results across Connected Living andGlobal Automotive . In Connected Living, mobile increased primarily from device protection contributions inNorth America , including subscriber growth and favorable loss experience.Global Automotive increased primarily from higher net investment income, mainly from the sale of real estate joint venture partnership and higher yields, as well as favorable loss experience in select ancillary products and expansion across distribution channels. The increase was partially offset by unfavorable impacts of foreign exchange and higher operating costs associated with growth. Total revenues increased$169.5 million , or 4%, to$4.06 billion for Six Months 2022 from$3.89 billion for Six Months 2021. Fees and other income increased$102.9 million , or 22%, mainly driven by an increase in global mobile devices serviced. Net earned premiums increased$44.5 million , or 1%, primarily driven by continued organic growth from strong prior periodU.S. sales in ourGlobal Automotive business across all distribution channels and domestic mobile subscriber growth within our cable operator distribution channel. The increase in net earned premiums was partially offset by the run-off of certain global mobile programs. Net investment income increased$22.1 million , or 22%, primarily due to higher real estate related income, higher fixed maturity asset levels and higher yields. Total benefits, losses and expenses increased$117.8 million , or 3%, to$3.64 billion for Six Months 2022 from$3.53 billion for Six Months 2021. Underwriting, selling, general and administrative expenses increased$157.8 million , or 6%, to$3.01 billion for Six Months 2022 from$2.85 billion for Six Months 2021 due to higher cost of sales in Connected Living from our recently launched service and repair capabilities and higher operating costs associated with growth. Higher commission expenses also contributed to the increase, mainly from growth across ourGlobal Automotive business and domestic mobile subscriber growth within our cable operator distribution channel, which was partially offset by the run-off of certain global mobile programs. This increase was partially offset by a decrease in policyholder benefits of$40.0 million , or 6%, to$632.3 million for Six Months 2022 from$672.3 million for Six Months 2021, primarily due to the run-off of certain global mobile programs and favorable loss experience withinGlobal Automotive from select domestic ancillary products, partially offset by growth across ourGlobal Automotive and Connected Living businesses. 42
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The table below presents information regarding the
For the Three Months Ended For the Six Months Ended June
June 30, 30,
2022 2021 2022 2021
Revenues
Net earned premiums $ 460.0 $ 458.9 $ 911.6 $ 902.5
Fees and other income 35.7 37.9 70.1 74.0
Net investment income 19.0 22.9 38.9 41.6
Total revenues 514.7 519.7 1,020.6 1,018.1
Benefits, losses and expenses
Policyholder benefits 218.5 175.9 388.3 371.5
Underwriting, selling, general and administrative
expenses 221.0 211.4 440.6 426.6
Total benefits, losses and expenses 439.5 387.3 828.9 798.1
Global Housing Adjusted EBITDA $ 75.2 Impact of reportable catastrophes$ 20.3
Net earned premiums, fees and other income Lender-placed Insurance$ 272.9 $ 274.3 $ 539.7 $ 534.7 Multifamily Housing 122.2 122.1 242.1 239.5 Specialty and Other 100.6 100.4 199.9 202.3 Total$ 495.7 $ 496.8 $ 981.7 $ 976.5
For the Three Months Ended
Adjusted EBITDA decreased$57.2 million , or 43%, to$75.2 million for Second Quarter 2022 from$132.4 million for Second Quarter 2021. Pre-tax reportable catastrophes for Second Quarter 2022 increased$17.2 million to$20.3 million , compared to$3.1 million for Second Quarter 2021, primarily due to prior period development from Hurricane Eta and current period losses from Tropical Storm Alex. Excluding reportable catastrophes, Adjusted EBITDA decreased$40.0 million , or 30%, year-over-year. Approximately$25.0 million of the decrease was driven by higher non-catastrophe loss experience, largely withinLender-placed Insurance , from higher claims severity related to inflation. Higher loss experience included a$12.0 million year-over-year increase in reserves for prior and current year periods along with elevated severity in the current quarter, particularly from fire claims. The remainder of the decline was mainly from higher catastrophe reinsurance costs, largely driven by increased exposures. Total revenues decreased$5.0 million , or 1%, to$514.7 million for Second Quarter 2022 from$519.7 million for Second Quarter 2021. The decrease was primarily due to a decrease in net investment income of$3.9 million , or 17%, primarily due to lower income from real estate-related investments. The decrease was partially offset by an increase in net earned premiums of$1.1 million , or 0.2%, as growth inLender-placed Insurance from higher average insured values and premium rates was partially offset by higher catastrophe reinsurance costs. Total benefits, losses and expenses increased$52.2 million , or 13%, to$439.5 million for Second Quarter 2022 from$387.3 million for Second Quarter 2021. Policyholder benefits increased$42.6 million , or 24%, due to higher non-catastrophe loss experience as described above. Underwriting, selling, general and administrative expenses increased$9.6 million , or 5%, mainly due to higher expenses to support operations.
For the Six Months Ended
Adjusted EBITDA decreased$28.3 million , or 13%, to$191.7 million for Six Months 2022 from$220.0 million for Six Months 2021. Pre-tax reportable catastrophes decreased$22.6 million , or 46%, to$26.5 million for Six Months 2022 compared to$49.1 million for Six Months 2021. Excluding reportable catastrophes, Adjusted EBITDA decreased$50.9 million , or 19%, mainly driven by higher non-catastrophe loss experience, primarily inLender-placed Insurance due to higher claims severity 43
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from inflation, particularly from elevated fire losses, as well as higher
catastrophe reinsurance premiums mainly from increased exposures. The decrease
was partially offset by higher average insured values and premium rates in
Total revenues increased$2.5 million , or 0.2%, to$1.02 billion for Six Months 2022 from$1.02 billion for Six Months 2021. Net earned premiums increased$9.1 million , or 1%, primarily due to higher average insured values and premium rates in ourLender-placed Insurance business, and continued growth from renters insurance in ourMultifamily Housing business, partially offset by higher catastrophe reinsurance premiums and a decline in Specialty and Other from client run-off. The increase was partially offset by a decrease in fees and other income of$3.9 million , or 5%, primarily due to declines in ourMultifamily Housing business and ourLender-placed Insurance business, and a decrease in net investment income of$2.7 million , or 6%, primarily due to lower income from real estate-related investments. Total benefits, losses and expenses increased$30.8 million , or 4%, to$828.9 million for Six Months 2022 from$798.1 million for Six Months 2021. Policyholder benefits increased$16.8 million , or 5%, due to higher non-catastrophe loss experience as described above, partially offset by lower reportable catastrophe losses. Underwriting, selling, general and administrative expenses increased$14.0 million , or 3%, mainly due to higher expenses to support operations. 44
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Corporate and Other
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 Six Months Ended June
June 30, 30,
2022 2021 2022 2021
Revenues
Net earned premiums $ - $ - $ - $ -
Fees and other income 0.1 0.1 0.4 0.2
Net investment income 6.8 9.7 15.3 15.8
Total revenues 6.9 9.8 15.7 16.0
Benefits, losses and expenses
Policyholder benefits 0.4 - 0.4 -
General and administrative expenses 31.4 26.7 62.4 60.8
Total benefits, losses and expenses 31.8 26.7 62.8 60.8
Corporate and Other Adjusted EBITDA $ (24.9) $
(16.9)
For the Three Months Ended
Adjusted EBITDA was$(24.9) million for Second Quarter 2022 compared to$(16.9) million for Second Quarter 2021. The change in results was primarily due to higher employee-related and technology expenses and a decrease in net investment income. Total revenues decreased$2.9 million , or 30%, to$6.9 million for Second Quarter 2022 from$9.8 million for Second Quarter 2021, primarily driven by a decrease in net investment income of$2.9 million , or 30%, mostly due to a reduction in income from limited partnerships that was partially offset by increased income from higher invested assets balances, primarily reflecting the remaining proceeds from the sale of Global Preneed.
Total benefits, losses and expenses increased
For the Six Months Ended
Adjusted EBITDA was
Total revenues decreased$0.3 million , or 2%, to$15.7 million for Six Months 2022 from$16.0 million for Six Months 2021 primarily driven by a decrease in net investment income of$0.5 million , or 3%, mostly due a reduction in income from limited partnerships that was partially offset by increased income from higher invested assets balances, primarily reflecting the remaining proceeds from the sale of Global Preneed. Total benefits, losses and expenses increased$2.0 million , or 3%, to$62.8 million for Six Months 2022 from$60.8 million for Six Months 2021. General and administrative expenses increased$1.6 million , or 3%, to$62.4 million for Six Months 2022 from$60.8 million for Six Months 2021, primarily due to higher employee-related and technology expenses. 45
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Investments
We had total investments of$7.61 billion and$8.67 billion as ofJune 30, 2022 andDecember 31, 2021 , respectively. Net unrealized gains on our fixed maturity securities portfolio decreased by$778.9 million during Six Months 2022, from$311.4 million as ofDecember 31, 2021 to a net unrealized loss of$467.5 million as ofJune 30, 2022 , 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 June 30, 2022 December 31, 2021
Aaa / Aa / A $ 3,552.0 56.3 % $ 4,066.5 56.4 %
Baa 2,372.7 37.6 % 2,719.0 37.7 %
Ba 307.5 4.9 % 333.7 4.6 %
B and lower 76.6 1.2 % 96.1 1.3 %
Total $ 6,308.8 100.0 % $ 7,215.3 100.0 %
The following table shows the major categories of net investment income for the periods indicated:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Fixed maturity securities $ 66.0 $ 57.5 $ 128.3 $ 114.9
Equity securities 3.8 3.7 7.5 7.3
Commercial mortgage loans on real estate 3.4 2.1 7.3 3.4
Short-term investments 0.8 0.4 1.3 1.2
Other investments 17.8 20.7 35.0 35.4
Cash and cash equivalents 3.8 2.1 6.1 3.7
Total investment income 95.6 86.5 185.5 165.9
Investment expenses (3.6) (3.6) (7.2) (6.7)
Net investment income $ 92.0 $ 82.9 $ 178.3 $ 159.2
Net investment income increased $9.1 million , or 11%, to $92.0 million for
Second Quarter 2022 from $82.9 million for Second Quarter 2021, primarily driven
by increased income from fixed maturity securities related to higher invested
assets and higher yields, partially offset by lower income from other
investments mostly due to a reduction in income from limited partnerships.
Net realized losses on investments and fair value changes to equity securities
were $76.4 million for Second Quarter 2022 compared to net gains of $10.3
million for Second Quarter 2021. The change in Second Quarter 2022 was mostly
due to $62.5 million of net unrealized losses from changes in fair value of
equity securities that were driven by a $47.8 million decrease in net unrealized
gains from four equity positions that went public in 2021 through SPAC mergers.
The net realized losses were also driven by $22.6 million of net realized losses
on sales of fixed maturity securities, partially offset by $8.4 million of net
realized gains on sales of equity securities.
Net investment income increased $19.1 million , or 12%, to $178.3 million for Six
Months 2022 from $159.2 million for Six Months 2021, primarily driven by
increased income from fixed maturity securities related to higher invested
assets and higher yields, higher rates on short-term investments and cash and
cash equivalents, and higher income on commercial mortgage loans on real estate
due to higher asset levels and prepayment fees.
Net realized losses on investments and fair value changes to equity securities
were $138.8 million for Six Months 2022 compared to net gains of $11.1 million
for Six Months 2021. The change in Six Months 2022 was mostly due to $117.4
million of net unrealized losses from changes in fair value of equity securities
that included a $93.7 million decrease in net unrealized gains from four equity
positions that went public in 2021 through SPAC mergers. The net realized losses
were also driven by $41.1 million of net realized losses on sales of fixed
maturity securities, partially offset by $20.2 million of net realized gains on
sales of equity securities.
As of
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For more information on our investments, see Notes 7 and 8 to the Consolidated Financial Statements included elsewhere in this Report.
Catastrophe Reinsurance Program
InJuly 2022 , we finalized our 2022 property catastrophe reinsurance program. 2022 reinsurance premiums for this program are estimated to be approximately$189.0 million pre-tax compared to approximately$149.0 million pre-tax for 2021, predominantly reflecting increased lender-placed exposure as a result of higher average insured values compared to 2021. Coverage was placed with more than 40 reinsurers that are all rated A- or better byA.M. Best . Actual reinsurance premiums will vary if exposure changes significantly from estimates or if reinstatement premiums are required due to catastrophe events. TheU.S. per-occurrence catastrophe coverage includes a main reinsurance program providing$1.16 billion of coverage in excess of an$80.0 million retention per event. In addition, it includes multiyear reinsurance contracts covering approximately 45% of theU.S. program, reducing volatility in future reinsurance costs. All layers of the program allow for one automatic reinstatement, except the first layer, which has two reinstatements. The 2022 U.S. program also maintains a cascading feature that provides multi-event protection in which higher coverage layers (Layers 3 through 6) drop down to$110.0 million as the lower layers and reinstatement limit are exhausted. Layer 7 does not cascade, with a retention of$955.0 million and a limit of$290.0 million . When combined with theFlorida Hurricane Catastrophe Fund , theU.S. program is covered for grossFlorida losses of up to approximately$1.37 billion .
The 2022 catastrophe reinsurance program also includes
Liquidity and Capital Resources
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.
Regulatory Requirements
Assurant, Inc. is a holding company and, as such, has limited direct operations of its own. Our assets consist primarily of the capital stock of our subsidiaries. Accordingly, our future cash flows depend upon the availability of dividends and other statutorily permissible payments from our subsidiaries, such as payments under our tax allocation agreement and under management agreements with our subsidiaries. Our subsidiaries' ability to pay such dividends and make such other payments is regulated by the states and territories in which our subsidiaries are domiciled. These dividend regulations vary from jurisdiction to jurisdiction and by type of insurance provided by the applicable subsidiary, but generally require our insurance subsidiaries to maintain minimum solvency requirements and limit the amount of dividends these subsidiaries can pay to the holding company. See "Item 1-Business-Regulation-U.S. Insurance Regulation" and "Item 1A-Risk Factors-Legal and Regulatory Risks-Changes in insurance regulation may reduce our profitability and limit our growth" in our 2021 Annual Report. Along with solvency regulations, the primary driver in determining the amount of capital used for dividends from insurance subsidiaries is the level of capital needed to maintain desired financial strength ratings fromA.M. Best Company ("A.M. Best"). For the year endingDecember 31, 2022 , the maximum amount of dividends our regulatedU.S. domiciled insurance subsidiaries could pay us, under applicable laws and regulations currently in effect and without prior regulatory approval, is approximately$475.3 million . In addition, our international and non-insurance subsidiaries provide additional sources of dividends.
Regulators or rating agencies could become more conservative in their methodology and criteria, increasing capital requirements for our insurance subsidiaries or the enterprise.
InJuly 2022 , Moody's upgraded the senior debt rating ofAssurant, Inc. to Baa2 from Baa3 with a stable outlook and upgraded the insurance financial strength ratings on our insurance operating subsidiaries to A2 from A3 with a stable outlook. For further information on our ratings and the risks of ratings downgrades, see "Item 1-Business-Ratings" and "Item 1A-Risk Factors-Financial Risks-A decline in the financial strength ratings of our insurance subsidiaries could adversely affect our results of operations and financial condition" in our 2021 Annual Report. Holding Company As ofJune 30, 2022 , we had approximately$595.4 million in holding company liquidity, which was$370.4 million above our targeted minimum level of$225.0 million . The target minimum level of holding company liquidity, which can be used for unforeseen capital needs at our subsidiaries or liquidity needs at the holding company, is calibrated based on approximately one year of corporate operating and interest expenses. We use the term "holding company liquidity" to represent the portion of cash and other liquid marketable securities held atAssurant, Inc. , out of a total of$679.8 million of holding company investment 47
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securities and cash, which we are not otherwise holding for a specific purpose as of the balance sheet date. We can use such assets for stock repurchases, stockholder dividends, acquisitions and other corporate purposes.
Dividends or returns of capital paid by our subsidiaries, net of infusions and excluding amounts used for acquisitions or received for dispositions, were$317.9 million for Six Months 2022. In 2021, dividends, net of infusions and excluding amounts used for acquisitions or received for dispositions, were$728.6 million (including approximately$12.0 million of dividends from subsidiaries, net of infusions, included in the disposed Global Preneed business). We use these cash inflows primarily to pay holding company operating expenses, to make interest payments on indebtedness, to make dividend payments to our common stockholders, to fund investments and acquisitions, and to repurchase our common stock. From time to time, we may also seek to purchase outstanding debt in open market repurchases or privately negotiated transactions.
Dividends and Repurchases
During Six Months 2022, we made common stock repurchases and paid common stock
dividends of
We paid dividends of$0.68 per common share onJune 20, 2022 to stockholders of record as ofMay 31, 2022 . Any determination to pay future dividends on our outstanding common stock will be at the discretion of the Board and will be dependent upon various factors, including: our subsidiaries' payments of dividends and other statutorily permissible payments to us; our results of operations and cash flows; our financial condition and capital requirements; general business conditions and growth prospects; any legal, tax, regulatory and contractual restrictions on the payment of dividends; and any other factors the Board deems relevant. The Credit Facility also contains limitations on our ability to pay dividends to our stockholders and repurchase capital stock if we are in default, or such dividend payments or repurchases would cause us to be in default, of our obligations thereunder. In addition, if we elect to defer the payment of interest on our 7.00% Fixed-to-Floating Rate Subordinated Notes dueMarch 2048 or our 5.25% Subordinated Notes dueJanuary 2061 (refer to "-Senior and Subordinated Notes" below), we generally may not make payments on or repurchase any shares of our capital stock. During Six Months 2022, we repurchased 2,765,056 shares of our outstanding common stock at a cost of$474.2 million , exclusive of commissions. InMay 2021 , the Board authorized a share repurchase program for up to$900.0 million , respectively, of our outstanding common stock. As ofJune 30, 2022 ,$367.9 million aggregate cost at purchase remained unused under the repurchase authorization. The timing and the amount of future repurchases will depend on various factors, including those listed above. We expect to deploy capital primarily to support business growth by funding investments, mergers and acquisitions and returning capital to shareholders in the form of share repurchases and dividends, subject to Board approval and market conditions. As previously announced, we returned$900.0 million of the Global Preneed net proceeds through share repurchases within one year of closing, completing the return in Second Quarter 2022. For additional information, refer to Note 4 to the Consolidated Financial Statements included elsewhere in this Report. Assurant Subsidiaries The primary sources of funds for our subsidiaries consist of premiums and fees collected, proceeds from the sales and maturity of investments and net investment income. Cash is primarily used to pay insurance claims, agent commissions, operating expenses and taxes. We generally invest our subsidiaries' excess funds in order to generate investment income. We conduct periodic asset liability studies to measure the duration of our insurance liabilities, to develop optimal asset portfolio maturity structures for our significant lines of business and ultimately to assess that cash flows are sufficient to meet the timing of cash needs. These studies are conducted in accordance with formal company-wide Asset Liability Management guidelines. To complete a study for a particular line of business, models are developed to project asset and liability cash flows and balance sheet items under a large, varied set of plausible economic scenarios. These models consider many factors including the current investment portfolio, the required capital for the related assets and liabilities, our tax position and projected cash flows from both existing and projected new business. For risks related to modeling, see "Item 1A - Risk Factors - Financial Risks -Actual results may differ materially from the analytical models we use to assist in our decision-making in key areas such as pricing, catastrophe risks, reserving and capital management." in our 2021 Annual Report. Alternative asset portfolio structures are analyzed for significant lines of business. An investment portfolio maturity structure is then selected from these profiles given our return hurdle and risk appetite. Scenario testing of significant liability assumptions and new business projections is also performed.
Our liabilities generally have limited policyholder optionality, which means that the timing of payments is generally insensitive to the interest rate environment. In addition, our investment portfolio is largely comprised of highly liquid fixed-
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maturity securities with a sufficient component of such securities invested that are near maturity which may be sold with minimal risk of loss to meet cash needs.
Generally, our subsidiaries' premiums, fees and investment income, along with planned asset sales and maturities, provide sufficient cash to pay claims and expenses. However, there may be instances when unexpected cash needs arise in excess of that available from usual operating sources. In such instances, we have several options to raise needed funds, including selling assets from the subsidiaries' investment portfolios, using holding company cash (if available), issuing commercial paper, or drawing funds from the Credit Facility (as defined below).
Senior and Subordinated Notes
The following table shows the principal amount and carrying value of our
outstanding debt, less unamortized discount and issuance costs as applicable, as
of
June 30, 2022 December 31, 2021
Principal
Amount Carrying Value Principal Amount Carrying Value
4.20% Senior Notes due
224.5 $ 300.0 $ 299.0
4.90% Senior Notes due
300.0 297.7 300.0 297.5
3.70% Senior Notes due February 2030 350.0 347.4 350.0 347.3
2.65% Senior Notes due January 2032 350.0 346.5 350.0 346.4
6.75% Senior Notes due February 2034 275.0 272.5 275.0 272.4
7.00% Fixed-to-Floating Rate Subordinated
Notes due March 2048 400.0 396.2 400.0 395.9
5.25% Subordinated Notes due January 2061 250.0 244.1 250.0 244.0
Total Debt $ 2,128.9 $ 2,202.5
In June 2022 , we redeemed $75.0 million of the $300.0 million then outstanding
aggregate principal amount of our 4.20% Senior Notes due September 2023 (the
"2023 Senior Notes") at a make-whole premium plus accrued and unpaid interest to
the redemption date. In connection with the redemption, we recognized a loss on
extinguishment of debt of $0.9 million , which included a $1.0 million make-whole
premium and $0.2 million in debt issuance costs that were written off, partially
offset by $0.3 million in unamortized hedging gains recognized upon
extinguishment. The gain was reclassified out of accumulated other comprehensive
income and recorded through interest expense. In the next five years, we have
one upcoming debt maturity in September 2023 when the 2023 Senior Notes will
become due and payable.
Credit Facility and Commercial Paper Program
We have a$500.0 million five-year senior unsecured revolving credit facility (the "Credit Facility") with a syndicate of banks arranged byJPMorgan Chase Bank, N.A . andWells Fargo Bank, National Association . The Credit Facility provides for revolving loans and the issuance of multi-bank, syndicated letters of credit and letters of credit from a sole issuing bank in an aggregate amount of$500.0 million , which may be increased up to$700.0 million . The Credit Facility is available untilDecember 2026 , provided we are in compliance with all covenants. The Credit Facility has a sublimit for letters of credit issued thereunder of$50.0 million . The proceeds from these loans may be used for our commercial paper program or for general corporate purposes.
We made no borrowings using the Credit Facility during Six Months 2022 and no
loans were outstanding as of
Our commercial paper program requires us to maintain liquidity facilities either in an available amount equal to any outstanding notes from the program or in an amount sufficient to maintain the ratings assigned to the notes issued from the program. Our commercial paper is rated AMB-1 byA.M. Best , P-2 by Moody's and A-2 by S&P. Our subsidiaries do not maintain commercial paper or other borrowing facilities. This program is currently backed up by the Credit Facility, of which$495.5 million out of the$500.0 million was available as ofJune 30, 2022 , due to$4.5 million of letters of credit outstanding. We did not use the commercial paper program during Six Months 2022 and there were no amounts relating to the commercial paper program outstanding as ofJune 30, 2022 . 49
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Cash Flows
We monitor cash flows at the consolidated, holding company and subsidiary levels. Cash flow forecasts at the consolidated and subsidiary levels are provided on a monthly basis, and we use trend and variance analyses to project future cash needs making adjustments to the forecasts when needed.
The table below shows our net cash flows for the periods indicated:
For the Six Months Ended June 30,
Net cash provided by (used in): 2022 2021
Operating activities - continuing operations $ (328.1) $ 409.9
Operating activities - discontinued operations - 119.1
Operating activities (328.1) 529.0
Investing activities - continuing operations 107.0 148.1
Investing activities - discontinued operations - (114.8)
Investing activities 107.0 33.3
Financing activities - continuing operations (624.9) (20.8)
Financing activities - discontinued operations - -
Financing activities (624.9) (20.8)
Effect of exchange rate changes on cash and cash equivalents - continuing operations
(26.8) 1.2
Effect of exchange rate changes on cash and cash equivalents - discontinued operations
- 0.5
Effect of exchange rate changes on cash and cash equivalents (26.8) 1.7
Net change in cash $ (872.8) $ 543.2
We typically generate operating cash inflows from premiums collected from our
insurance products, fees received for services and income received from our
investments, while outflows consist of policy acquisition costs, benefits paid
and operating expenses. These net cash flows are then invested to support the
obligations of our insurance products and required capital supporting these
products. Our cash flows from operating activities are affected by the timing of
premiums, fees, and investment income received and expenses paid.
Net cash used in operating activities from continuing operations was $328.1
million for Six Months 2022 compared to net cash provided by operating
activities from continuing operations of $409.9 million for Six Months 2021. The
decrease in net operating cash flows was primarily driven by a reduction in
premium and fees collected during the period due to lower collections of
receivables as well as an increase in payments to vendors for the acquisition of
mobile devices used to meet insurance claims or generate profits through sales
to third parties. The increase in cash used in operations was impacted by the
growth in our mobile business from expanded relationships and our recently
launched service and repair capabilities.
Net cash provided by investing activities from continuing operations was $107.0
million for Six Months 2022 compared to net cash provided by investing
activities from continuing operations of $148.1 million for Six Months 2021. The
decrease in cash flows provided by investing activities was primarily driven by
the ongoing management of our investment portfolio. Additionally, net cash
provided by investing activities for Six Months 2021 included a $60.1 million
net cash outflow for transfers from the disposed Global Preneed business to
continuing operations related to investments that were not included in the sale.
Net cash used in financing activities from continuing operations was $624.9
million for Six Months 2022 compared to net cash used in financing activities
from continuing operations of $20.8 million for Six Months 2021. The increase in
net cash used in financing activities was primarily due to the absence of $347.2
million of net proceeds from the issuance of our 2032 Senior Notes during Six
Months 2021, as well as $243.5 million increase in share repurchases during Six
Months 2022, mainly funded using the remaining net proceeds from the Global
Preneed sale.
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The table below shows our cash outflows for interest and dividends for the
periods indicated:
For the Six Months Ended June 30,
2022 2021
Interest paid on debt $ 55.4 $ 55.8
Common stock dividends 76.0 80.0
Preferred stock dividends -
4.7
Total $ 131.4 $ 140.5
Letters of Credit
In the normal course of business, letters of credit are issued primarily to
support reinsurance arrangements in which we are the reinsurer. These letters of
credit are supported by commitments under which we are required to indemnify the
financial institution issuing the letter of credit if the letter of credit is
drawn. We had $7.1 million and $7.2 million of letters of credit outstanding as
of June 30, 2022 and December 31, 2021 , respectively.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that are reasonably likely to have a material effect on the financial condition, results of operations, liquidity or capital resources of the Company.
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