(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 endedDecember 31, 2019 and accompanying notes included in our Annual Report on Form 10-K for the year endedDecember 31, 2019 (the "2019 Annual Report") filed with theU.S. Securities and Exchange Commission (the "SEC") and the unaudited consolidated financial statements for the three months endedMarch 31, 2020 and accompanying notes (the "Consolidated Financial Statements") included elsewhere in this Quarterly Report on Form 10-Q (this "Report"). Some of the statements included in this MD&A and elsewhere in this Report, particularly those anticipating future financial performance, business prospects, growth and operating strategies and similar matters, are forward-looking statements within the meaning of theU.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 those parties facing financial, reputational or regulatory issues; (ii) significant competitive pressures, changes in customer preferences and disruption; (iii) the failure to find suitable acquisitions, integrate completed
acquisitions or grow organically, and risks associated with joint ventures
and franchise ownership and operations;
(iv) the impact of general economic, financial market and political conditions,
including unfavorable conditions in the capital and credit markets and in
the markets in which we operate, including as a result of COVID-19;
(v) the impact of the COVID-19 pandemic, including the scope and duration of
the outbreak, government actions and restrictive measures taken in
response, and its effect on the global economic and financial markets;
(vi) risks related to our international operations, including the United
Kingdom's withdrawal from the
rates;
(vii) the impact of catastrophic and non-catastrophe losses, including as a
result of climate change;
(viii) our inability to recover should we experience a business continuity event,
including as a result of COVID-19;
(ix) our inability to develop and maintain distribution sources or attract and
retain sales representatives and executives with key client relationships;
(x) the failure to manage vendors and other third parties on whom we rely to
conduct business and provide services to our clients;
(xi) declines in the value of mobile devices, the risk of guaranteed buybacks
or export compliance risk in our mobile business;
(xii) negative publicity relating to our products and services or the markets in
which we operate;
(xiii) the failure to implement our strategy and to attract and retain key
personnel, including senior management;
(xiv) employee misconduct;
(xv) the adequacy of reserves established for claims and our inability to
accurately predict and price for claims;
(xvi) a decline in financial strength ratings or corporate senior debt ratings;
(xvii) an impairment of goodwill or other intangible assets;
38 --------------------------------------------------------------------------------
(xviii) the failure to maintain effective internal control over financial
reporting;
(xix) a decrease in the value of our investment portfolio, including due to market, credit and liquidity risks, changes in interest rates and COVID-19;
(xx) the impact of
assets;
(xxi) the unavailability or inadequacy of reinsurance coverage and the credit
risk of reinsurers, including those to whom we have sold business through
reinsurance;
(xxii) the credit risk of some of our agents, third-party administrators and
clients;
(xxiii) the inability of our subsidiaries to pay sufficient dividends to the holding company and limitations on our ability to declare and pay dividends, including as a result of COVID-19;
(xxiv) changes in the method for determining LIBOR or the replacement of LIBOR;
(xxv) the failure to effectively maintain and modernize our information
technology systems and infrastructure, or the failure to integrate those
of acquired businesses;
(xxvi) breaches of our information systems or those of third parties with whom we
do business, or the failure to protect data in such systems, including due
to cyber-attacks and as a result of working remotely during the COVID-19
pandemic;
(xxvii) the costs of complying with, or the failure to comply with, extensive
laws and regulations to which we are subject, including those related to
privacy, data security and data protection;
(xxviii) the impact from litigation and regulatory actions, including those
arising from COVID-19;
(xxix) reductions or deferrals in the insurance premiums we charge, including as
a result of COVID-19; and (xxx) changes in insurance and other regulation, including to mitigate the impact of COVID-19. For additional information on factors that could affect our actual results, please refer to "Critical Factors Affecting Results" below and in Item 7 of our 2019 Annual Report, and "Item 1A-Risk Factors" below and in our 2019 Annual Report. General As ofMarch 31, 2020 , the Company had four reportable segments, which are defined based on 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 "
insurance products (referred to as "
•
manufactured housing insurance and lender-placed flood insurance (referred
to as "
(referred to as "
insurance, voluntary homeowners insurance and other specialty products
(referred to as "Specialty and Other"); • Global Preneed: provides pre-funded funeral insurance, final need insurance and related services; and
• Corporate and Other: includes activities of the holding company, financing
and interest expenses, net realized gains (losses) on investments (which
includes unrealized gains (losses) on equity securities and changes in
fair value of direct investments in collateralized loan obligations),
interest income earned from short-term investments held, income (expenses)
primarily related to the Company's frozen benefit plans, amounts related
to businesses previously disposed of through reinsurance and the runoff of
the
foreign currency gains (losses) from remeasurement of monetary assets and
liabilities, changes in the fair value of derivative instruments and other
expenses related to merger and acquisition activities, as well as other
highly variable or unusual items other than reportable catastrophes
(reportable catastrophe losses, net of reinsurance and client profit
sharing adjustments, and including reinstatement and other premiums).
The following discussion covers the three months ended
39 -------------------------------------------------------------------------------- Executive Summary COVID-19 InMarch 2020 , theWorld Health Organization recognized the novel strain of coronavirus, COVID-19, as a pandemic. While still evolving, the COVID-19 pandemic has caused significant global economic and financial market disruption, resulting in increased financial market volatility, business and operational challenges such as temporary closures of businesses, and diminished expectations for the economy and the financial markets. Toward the end of First Quarter 2020 and into the second quarter of 2020, the pandemic began to impact each of our operating segments and may continue to impact our businesses if similar conditions persist or worsen. The COVID-19 impact on net income for First Quarter 2020 included$76.1 million of after-tax net unrealized investment losses related to a decrease in the fair value of our equity securities and collateralized loan obligations and$7.3 million after-tax increase in our allowances for expected credit losses largely related to increased credit risk for premiums receivable and reinsurance recoverables. These losses were mostly offset by a$79.3 million tax benefit related to theMarch 2020 enactment of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), which allows the carryback of net operating losses to years taxed at higher rates. Our investment portfolio will continue to be impacted by COVID-19 and related financial market volatility. Though we generally believe our portfolio remains well diversified and high-quality, with the majority comprised of investment grade fixed maturity assets, interest rates are expected to remain relatively low for the foreseeable future. Refer to "-Investments" below and Note 9 to the Consolidated Financial Statements included elsewhere in this Report. Our Response to COVID-19 As a global organization, we have been actively monitoring the developments of the rapidly evolving situation resulting from COVID-19. Throughout this period of uncertainty, we have acted swiftly and deliberately to safeguard our employees, to maintain business operations and service levels for our customers, and to support our local communities. We implemented a global ban on business travel and transitioned the vast majority of our workforce to work-from-home. For those employees who need to work in our global facilities due to the essential nature of their roles, we've continued to implement safety and hygiene protocols, such as social distancing, use of personal protection equipment and regular cleaning and disinfecting of our locations, based on the guidelines of theCenters for Disease Control . To support our employees during this period of uncertainty, we have offered financial support through a special COVID-19 Emergency Relief Program to eligible employees who are experiencing severe financial hardship caused by the pandemic. We also have been active in maintaining our support within our local communities through charitable contributions. Evaluation of Business Trends, Capital and Liquidity We recognize that our first quarter results may not be an indicator of performance in the coming quarters, as the COVID-19 pandemic continues to evolve. We have run multiple scenarios based on the potential duration and severity of this crisis to better understand how our business might perform and stress-tested our capital, cash flows and liquidity. We expect a greater impact to our business as a result of the ongoing financial market volatility, prolonged government containment measures and their impact on consumer behavior. In late March and through April, our businesses experienced a reduction in new sales across ourMultifamily Housing andGlobal Automotive lines of business, as well as Global Preneed. Our mobile business experienced lower trade-in activity and slower sales growth. This may be partially offset by our installed customer base across Connected Living,Global Automotive ,Multifamily Housing and Global Preneed and our counter-cyclicalLender-placed Insurance business, as well as multiple channels we have in place for consumers. We have also extended options such as extended grace periods for premium payments and waiving of late payment fees for policyholders experiencing financial hardship as a result of COVID-19 and are monitoring results across our product lines. For Global Lifestyle, in mobile, we expect new subscriber growth to be more muted in the event of a prolonged crisis and lower trade-in volumes, reflecting store closures and lower demand for new devices. While uncertain, we expect volumes to rebound when stores re-open and carriers resume in-store promotional activity. InGlobal Automotive , we believe a reduction in sales would impact the business longer term, while unearned premium continues to contribute in the shorter term. Furthermore, approximately half of our business withinGlobal Automotive comes from service contracts on used car sales, which have been less impacted as a result of prior economic downturns. We would also expect investment income to be impacted from lower investment yields coming from new business. Throughout Global Lifestyle, we may also continue to see adverse fluctuations in foreign exchange. ForGlobal Housing , we expect some level of continued decline in new policies as renters delay moving, which may be offset if tenants regain comfort with moving and as we enter the summer when we typically experience increased activity. ForLender-placed Insurance , we will continue to monitor the state of the overall housing market, including the potential impact of the current mortgage moratorium which would delay placement of new policies. Should the economy deteriorate for a 40 -------------------------------------------------------------------------------- prolonged period, we would expect a longer term increase in our placement rates which would be beyond 2020. Lastly, our small commercial business continues to run-off and we continue to monitor regulatory actions regarding business interruption coverage, though our policies generally include virus exclusions. For Global Preneed, we are working with our clients on product changes and increasing our virtual presence. We are also monitoring mortality trends, which are currently largely consistent with 2019 given our policy footprint which is concentrated inCalifornia ,Texas ,South Carolina andTennessee . We expect longer term results to be impacted from lower yields on new sales due to the current interest rate environment, given the average duration of our investment portfolio. We are taking actions to mitigate potential impacts, including deferring certain discretionary expenses and delaying the fulfillment of open positions in support functions. While we are deferring some investments as a precautionary measure, we have continued to make progress against key strategic initiatives to support our clients and their customers. These have included continuing to enhance our self-service capabilities and our dynamic claims fulfillment to facilitate faster claims resolution, as well as our ongoing IT transformation. Throughout this period, we believe our liquidity has remained strong. At the end of March, we had$433.4 million of holding company liquidity and, to strengthen our liquidity position and capital flexibility during this period of uncertainty, we drew$200.0 million under our revolving credit facility in March. The COVID-19 situation remains fluid and we are actively managing our response in collaboration with our clients, our employees, our vendors and other third parties with whom we work, and assessing potential impacts to our business, results of operations and financial condition. For a discussion of the material risks relating to COVID-19 on our business, results of operations and financial condition, refer to the risk factor disclosed in Item 8.01 of our Current Report on Form 8-K filed onMay 5, 2020 and "Item 1A-Risk Factors-The value of our deferred tax assets could become impaired, which could materially and adversely affect our results of operations and financial condition" in our 2019 Annual Report. Iké In 2019, we undertook a strategic review of our investment in Iké Grupo, Iké Asistencia and certain of their affiliates (collectively, "Iké"). In the third quarter of 2019, we decided to pursue the sale of our interests in Iké and onJanuary 29, 2020 , we entered into agreements to sell our interests in Iké to the management shareholders of Iké. We expect closing to occur in the second quarter of 2020 resulting in an expected net cash outflow of$54 million , plus seller financing in an amount of up to$40 million as well as transaction costs. In connection with this agreement, we recorded an incremental after-tax loss of$5.8 million in First Quarter 2020, primarily due to changes in foreign currency, as partially offset by gains from an economic hedge that we established. The sale is subject to customary closing conditions. For additional information on this transaction, see "-Liquidity and Capital Resources" below and Note 5 to the Consolidated Financial Statements included elsewhere in this Report.American Financial & Automotive Services OnMay 1, 2020 , we completed our acquisition ofAmerican Financial & Automotive Services ("AFAS"), a provider of finance and insurance products and services including vehicle service contracts and other ancillary products sold directly through a network of nearly 600 franchised dealership clients across 40 states, for$157.5 million . Summary of Financial Results: Consolidated net income attributable to common stockholders decreased$11.0 million , or 7%, to$150.0 million for First Quarter 2020 compared with net income attributable to common stockholders of$161.0 million for First Quarter 2019, primarily driven by an increase in unrealized losses on investments mostly related to a net decrease in the fair value of equity securities and direct investments in collateralized loan obligations compared to net unrealized gains from equity securities in First Quarter 2019, partially offset by a$79.3 million tax benefit related to the CARES Act. Global Lifestyle segment net income increased$20.3 million , or 20%, to$120.9 million for First Quarter 2020 from$100.6 million for First Quarter 2019. First Quarter 2020 included a$6.7 million client recoverable in Connected Living. Excluding this item, segment net income growth was driven primarily by an increase in mobile subscribers from new and existing programs, as well as higher income fromGlobal Automotive , including some one-time benefits. The increase was partially offset by lower margins from our mobile trade-in programs, in part due to the impact of COVID-19, and unfavorable foreign exchange. Global Lifestyle net earned premiums, fees and other income increased$265.3 million , or 16%, to$1.95 billion for First Quarter 2020 from$1.68 billion for First Quarter 2019, primarily due to higher mobile trade-in volumes and continued 41 -------------------------------------------------------------------------------- subscriber growth from recently added protection programs. Growth in extended service contracts andGlobal Automotive also contributed to the increase.Global Housing segment net income increased$1.5 million , or 2%, to$74.2 million for First Quarter 2020 compared with$72.7 million for First Quarter 2019. Results included$4.0 million of higher reportable catastrophes, mainly related to earthquakes inPuerto Rico , compared to First Quarter 2019. Excluding reportable catastrophes, segment net income increased primarily due to favorable non-catastrophe loss experience, the absence of losses within the small commercial business, which is now in run-off, and higher premium rates in ourLender-placed Insurance business. The increase was partially offset by a reduction of policies in-force, including from the previously disclosed financially insolvent client.Global Housing net earned premiums, fees and other income were flat year-over-year, as continued growth from sharing economy products andMultifamily Housing was offset by declines inLender-placed Insurance , primarily related to the financially insolvent client and the expected run-off of small commercial products as referenced above. Global Preneed segment net income increased$0.5 million , or 4%, to$12.3 million for First Quarter 2020 from$11.8 million in First Quarter 2019, primarily due to continued growth in theU.S. from prefunded funeral policies as well as prior period sales of final need insurance. Global Preneed net earned premiums, fees and other income increased$4.3 million , or 9%, to$53.4 million for First Quarter 2020 from$49.1 million for First Quarter 2019, primarily driven by the factors listed above. Critical Factors Affecting Results Our results depend on, among other things, the appropriateness of our product pricing, underwriting, the accuracy of our reserving methodology for future policyholder benefits and claims, the frequency and severity of reportable and non-reportable catastrophes, returns on and values of invested assets, and our ability to manage our expenses and achieve expense savings. Our results will also depend on our ability to profitably grow all of our businesses, in particular our Connected Living,Multifamily Housing andGlobal Automotive businesses, and manage the pace of declines in placement rates in ourLender-placed Insurance business and the North American credit insurance business inGlobal Financial Services and Other. Factors affecting these items, including the impact of the COVID-19 pandemic and measures taken in response thereto, conditions in financial markets, the global economy and the markets in which we operate, fluctuations in exchange rates and inflation, may have a material adverse effect on our results of operations or financial condition. For more information on these and other factors that could affect our results, see "Item 1A-Risk Factors", below and in our 2019 Annual Report, "Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Factors Affecting Results" in our 2019 Annual Report and "Item 2-Management's Discussion and Analysis of Financial Condition and Results of Operations-Executive Summary-COVID-19," above. Our results may be impacted by our ability to continue to grow in the markets in which we operate, including in our Connected Living,Multifamily Housing andGlobal 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. OurLender-placed Insurance revenues will also be impacted by changes in the housing market. In addition, across many of our businesses, we must respond to the threat of disruption. See "Item 1A-Risk Factors-Business and Competitive Risks-Significant competitive pressures, changes in customer preferences and disruption could adversely affect our results of operations" in our 2019 Annual Report. Management believes that we will have sufficient liquidity to satisfy our needs over the next twelve months, including the ability to pay interest on our debt and dividends on our common and preferred stock. For the three months endedMarch 31, 2020 , net cash used in operating activities was$123.7 million ; net cash provided by investing activities was$181.9 million and net cash provided by financing activities was$91.4 million . We had$2.00 billion in cash and cash equivalents as ofMarch 31, 2020 as compared to$1.87 billion as ofDecember 31, 2019 . See "-Liquidity and Capital Resources," below for further details. Critical Accounting Policies and Estimates Our 2019 Annual Report describes the accounting policies and estimates that are critical to the understanding of our results of operations, financial condition and liquidity. The accounting policies and estimation process described in the 2019 Annual Report were consistently applied to the unaudited interim Consolidated Financial Statements for First Quarter 2020. Recent Accounting Pronouncements 42 -------------------------------------------------------------------------------- For a discussion of recent accounting pronouncements, see Note 3 to the Consolidated Financial Statements included elsewhere in this Report. Regulatory Matters We are subject to extensive federal, state and international regulation and supervision in the jurisdictions in which we do business, including insurance holding company laws in the jurisdictions in which our insurance companies are domiciled. For example, under applicable insurance holding company regulations, no person may acquire a controlling interest in the Company or any of our insurance company subsidiaries, unless such person has obtained prior regulatory approval for such acquisition. Under these laws, "control" is presumed when any person acquires or holds, directly or indirectly, 10% or more of our common stock or of the voting securities of any of our insurance company subsidiaries. To obtain approval, the proposed acquiror must file an application with the relevant regulator, including the regulator for the insurance subsidiaries we have established inthe Netherlands for continued access to the European markets after the transition period for theU.K.'s withdrawal from theEuropean Union . For additional information, see "Item 1-Business-Regulation" in our 2019 Annual Report. 43 -------------------------------------------------------------------------------- Results of Operations Assurant Consolidated Overview The table below presents information regarding our consolidated results of operations for the periods indicated: For the Three Months Ended March 31, 2020 2019 Revenues: Net earned premiums$ 2,083.8 $ 1,904.4 Fees and other income 416.9 328.3 Net investment income 156.0 166.3 Net realized (losses) gains on investments (95.3 )
28.8
Amortization of deferred gains on disposal of businesses 4.2
7.8
Total revenues 2,565.6
2,435.6
Benefits, losses and expenses: Policyholder benefits 607.2
614.7
Amortization of deferred acquisition costs and value of business acquired
914.2
777.3
Underwriting, general and administrative expenses 908.1 799.9 Iké net losses 1.4 0.2 Interest expense 25.5 26.5 Total benefits, losses and expenses 2,456.4
2,218.6
Income before (benefit) provision for income taxes 109.2
217.0
(Benefit) provision for income taxes (46.6 )
48.4
Net income 155.8
168.6
Less: Net income attributable to non-controlling interest (1.1 )
(2.9 ) Net income attributable to stockholders 154.7
165.7
Less: Preferred stock dividends (4.7 ) (4.7 ) Net income attributable to common stockholders$ 150.0
For the Three Months EndedMarch 31, 2020 Compared to the Three Months EndedMarch 31, 2019 Net Income Attributable to Common Stockholders Consolidated net income attributable to common stockholders decreased$11.0 million , or 7%, to$150.0 million for First Quarter 2020 compared with$161.0 million for First Quarter 2019. The decrease was mostly due to an increase in net realized losses on investments driven by$76.1 million of after-tax net unrealized losses from a decrease in the fair value of our equity securities and collateralized loan obligations in First Quarter 2020 compared to$24.4 million of after-tax unrealized gains on equity securities in First Quarter 2019. This decrease was partially offset by a$79.3 million tax benefit related to the utilization of net operating losses in connection with the CARES Act and favorable earnings contributions from Global Lifestyle. 44 -------------------------------------------------------------------------------- Global Lifestyle Overview The table below presents information regarding the Global Lifestyle segment's results of operations for the periods indicated: For the Three Months Ended March 31, 2020 2019 Revenues: Net earned premiums$ 1,597.7 $ 1,428.5 Fees and other income 349.2 253.1 Net investment income 54.7 58.9 Total revenues 2,001.6 1,740.5 Benefits, losses and expenses: Policyholder benefits 336.2
347.2
Amortization of deferred acquisition costs and value of business acquired
838.4
705.8
Underwriting, general and administrative expenses 667.9
555.8
Total benefits, losses and expenses 1,842.5
1,608.8
Segment income before provision for income taxes 159.1 131.7 Provision for income taxes 38.2 31.1 Segment net income$ 120.9 $ 100.6 Net earned premiums, fees and other income: Connected Living (mobile and service contracts)$ 1,088.3 $ 871.0 Global Automotive 753.1
693.6
Global Financial Services and Other 105.5
117.0
Total$ 1,946.9 $ 1,681.6 Net earned premiums, fees and other income: Domestic$ 1,434.5 $ 1,191.3 International 512.4 490.3 Total$ 1,946.9 $ 1,681.6 For the Three Months EndedMarch 31, 2020 Compared to the Three Months EndedMarch 31, 2019 Net Income Segment net income increased$20.3 million , or 20%, to$120.9 million for First Quarter 2020 from$100.6 million for First Quarter 2019, and included a$6.7 million after-tax benefit for a client recoverable in our Connected Living business. Excluding this item, net income increased primarily due to an increase in mobile subscribers from new and existing programs, as well as higher income in ourGlobal Automotive business, including some one-time benefits. The increase was partially offset by lower trade-in margins from our mobile repairs and logistics business, partially due to the impact of COVID-19, and unfavorable foreign exchange. Total Revenues Total revenues increased$261.1 million , or 15%, to$2.00 billion for First Quarter 2020 from$1.74 billion for First Quarter 2019. Net earned premiums increased$169.2 million , or 12%, mostly driven by organic growth in our Connected Living business, mainly due to a new extended service contract program and continued subscriber growth from recently added mobile protection programs, and continued growth in ourGlobal Automotive business, partially offset by unfavorable foreign exchange. Fees and other income increased$96.1 million , or 38%, primarily due to higher trade-in volumes from our mobile repairs and logistics business and an$11.1 million benefit for a client recoverable in our Connected Living business. Net investment income decreased$4.2 million , or 7%, primarily due to unfavorable foreign exchange and an increase in investment expenses related to our strategic decision to outsource the management of our investment portfolio. 45 -------------------------------------------------------------------------------- Total Benefits, Losses and Expenses Total benefits, losses and expenses increased$233.7 million , or 15%, to$1.84 billion for First Quarter 2020 from$1.61 billion for First Quarter 2019. Policyholder benefits decreased$11.0 million , or 3%, primarily driven by lower loss experience due to a favorable mix of mobile business and favorable foreign exchange, partially offset by an increase from growth in Connected Living business. Amortization of deferred acquisition costs and value of business acquired increased$132.6 million , or 19%, primarily due to growth in ourGlobal Automotive and Connected Living businesses. Underwriting, general and administrative expenses increased$112.1 million , or 20%, primarily due to growth in our Connected Living business, including higher trade-in volumes from our domestic repairs and logistics business and growth in our mobile protection and extended service contract programs, as well as growth in ourGlobal Automotive business. 46 --------------------------------------------------------------------------------Global Housing Overview The table below presents information regarding theGlobal Housing segment's results of operations for the periods indicated: For the Three Months Ended March 31, 2020 2019 Revenues: Net earned premiums$ 467.8 $ 460.1 Fees and other income 32.6 39.9 Net investment income 22.0 25.4 Total revenues 522.4 525.4 Benefits, losses and expenses: Policyholder benefits 198.7
198.9
Amortization of deferred acquisition costs and value of business acquired
56.9
53.9
Underwriting, general and administrative expenses 173.3
180.7
Total benefits, losses and expenses 428.9
433.5
Segment income before provision for income taxes 93.5 91.9 Provision for income taxes 19.3 19.2 Segment net income$ 74.2 $ 72.7 Net earned premiums, fees and other income: Lender-placed Insurance$ 264.3 $ 274.2 Multifamily Housing 109.0 104.0 Specialty and Other 127.1 121.8 Total$ 500.4 $ 500.0 For the Three Months EndedMarch 31, 2020 Compared to the Three Months EndedMarch 31, 2019 Net Income Segment net income increased$1.5 million , or 2%, to$74.2 million for First Quarter 2020 from$72.7 million for First Quarter 2019. Segment net income included$4.0 million of higher reportable catastrophes in First Quarter 2020 compared to First Quarter 2019 mainly related to earthquakes inPuerto Rico . Excluding reportable catastrophes, segment net income increased$5.5 million , or 7%, primarily driven by the absence of losses within the small commercial business, which is now in run-off, and higher premium rates in ourLender-placed Insurance business. The increase was partially offset by declines in ourLender-placed Insurance business, mainly from a reduction in loans tracked, including those from a financially insolvent client. Total Revenues Total revenues decreased$3.0 million , or 1%, to$522.4 million for First Quarter 2020 from$525.4 million for First Quarter 2019. Net earned premiums increased$7.7 million , or 2%, primarily due to growth from our Specialty and Other business, mainly sharing economy products, premium rate increases in ourLender-placed Insurance business and continued growth from renters insurance in ourMultifamily Housing business, partially offset by declines in ourLender-placed Insurance business, mainly from the reduction in loans tracked for a financially insolvent client, decline in placement rates and lower real estate owned volume. Fees and other income decreased$7.3 million , or 18%, primarily due to a decline inLender-placed Insurance mostly due to declines in the volume of loans tracked and reduced fees for services. Net investment income decreased$3.4 million , or 13%, primarily due to a lower income from real estate related investments. 47 -------------------------------------------------------------------------------- Total Benefits, Losses and Expenses Total benefits, losses and expenses decreased$4.6 million , or 1%, to$428.9 million for First Quarter 2020 from$433.5 million for First Quarter 2019. The decrease was primarily due to a decrease in underwriting, general and administrative expenses of$7.4 million , or 4%, primarily due to lower employment related expenses in ourLender-placed Insurance business. Total policyholder benefits were flat as a decrease in non-catastrophe losses, primarily due to reduced frequency of water damage losses across various products, was largely offset by an increase in reportable catastrophe losses mainly related to earthquakes inPuerto Rico . Amortization of deferred acquisition costs increased$3.0 million , or 6%, primarily due to newLender-placed Insurance business and growth in ourMultifamily Housing business, partially offset by the runoff of our small commercial business. 48 -------------------------------------------------------------------------------- Global Preneed Overview The table below presents information regarding the Global Preneed segment's results of operations for the periods indicated: For the Three Months Ended March 31, 2020 2019 Revenues: Net earned premiums$ 18.3 $ 15.8 Fees and other income 35.1 33.3 Net investment income 70.1 69.1 Total revenues 123.5 118.2 Benefits, losses and expenses: Policyholder benefits 72.0
68.6
Amortization of deferred acquisition costs and value of business acquired
18.9
17.6
Underwriting, general and administrative expenses 17.0
16.9
Total benefits, losses and expenses 107.9
103.1
Segment income before provision for income taxes 15.6 15.1 Provision for income taxes 3.3 3.3 Segment net income$ 12.3 $ 11.8 For the Three Months EndedMarch 31, 2020 Compared to the Three Months EndedMarch 31, 2019 Net Income Segment net income increased$0.5 million , or 4%, to$12.3 million in First Quarter 2020 from$11.8 million in First Quarter 2019, primarily due to continued growth in theU.S. from prefunded funeral policies as well as prior period sales of final need insurance. Total Revenues Total revenues increased$5.3 million , or 4%, to$123.5 million for First Quarter 2020 from$118.2 million for First Quarter 2019. Net earned premiums increased$2.5 million , or 16%, primarily due to supplemental policy conversions and sales of final need insurance. Fees and other income increased$1.8 million , or 5%, primarily due to growth in prefunded funeral policies in theU.S. Net investment income increased$1.0 million , or 1%, primarily due to an increase in invested assets, partially offset by lower yields and an increase in investment expenses related to our strategic decision to outsource the management of our investment portfolio. Total Benefits, Losses and Expenses Total benefits, losses and expenses increased$4.8 million , or 5%, to$107.9 million for First Quarter 2020 from$103.1 million for First Quarter 2019. Policyholder benefits increased$3.4 million , or 5%, primarily due to higher mortality. Amortization of deferred acquisition costs and value of business acquired increased$1.3 million , or 7%. 49 -------------------------------------------------------------------------------- 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 March 31, 2020 2019 Revenues: Fees and other income - 2.0 Net investment income 9.2 12.9 Net realized (losses) gains on investments (95.3 ) 28.8 Amortization of deferred gains on disposal of businesses 4.2 7.8 Total revenues (81.9 ) 51.5 Benefits, losses and expenses: Policyholder benefits 0.3 - General and administrative expenses 49.9 46.5 Iké net losses 1.4 0.2 Interest expense 25.5 26.5 Total benefits, losses and expenses 77.1 73.2 Segment loss before benefit for income taxes (159.0 ) (21.7 ) Benefit for income taxes (107.4 ) (5.2 ) Segment net loss (51.6 ) (16.5 ) Less: Net income attributable to non-controlling interest (1.1 ) (2.9 ) Net loss attributable to stockholders (52.7 ) (19.4 ) Less: Preferred stock dividends (4.7 ) (4.7 ) Net loss attributable to common stockholders $ (57.4
) $ (24.1 )
For the Three Months EndedMarch 31, 2020 Compared to the Three Months EndedMarch 31, 2019 Net Loss Attributable to Common Stockholders Segment net loss attributable to common stockholders increased$33.3 million , or 138%, to$57.4 million for First Quarter 2020 compared to$24.1 million for First Quarter 2019, primarily due to an increase in net realized losses on investments driven by$76.1 million of after-tax net unrealized losses from a decrease in the fair value of our equity securities and collateralized loan obligations in First Quarter 2020 compared to$24.4 million of after-tax net unrealized gains on equity securities in First Quarter 2019. This decrease was partially offset by a$79.3 million tax benefit related to the utilization of net operating losses in connection with the CARES Act. Total Revenues Total revenues decreased$133.4 million to$(81.9) million for First Quarter 2020 from$51.5 million for First Quarter 2019, primarily due to an increase in unrealized losses on investments mostly related to a decrease in the fair value of equity securities, a decrease in net investment income primarily due to a higher concentration of lower yielding liquid investments in First Quarter 2020 compared to First Quarter 2019 and lower amortization of deferred gains associated with the sale ofAssurant Employee Benefits . Total Expenses Total benefits, losses and expenses increased$3.9 million , or 5%, to$77.1 million for First Quarter 2020 from$73.2 million for First Quarter 2019. The increase was primarily driven by$4.6 million of expenses associated with merger and acquisition related activities,$3.4 million of current expected credit losses due to an increase in credit risk from reinsurance recoverables related to business placed into runoff and$3.1 million of direct and incremental operating expenses incurred in 50 --------------------------------------------------------------------------------
connection with the COVID-19 pandemic, partially offset by a
51 --------------------------------------------------------------------------------
Investments
We had total investments of$13.62 billion and$14.57 billion as ofMarch 31, 2020 andDecember 31, 2019 , respectively. Net unrealized gains on our fixed maturity securities portfolio decreased by$461.3 million during First Quarter 2020, from$1.26 billion as ofDecember 31, 2019 to$796.3 million as ofMarch 31, 2020 . This decrease was mainly due to widening credit spreads due to the market volatility caused by the COVID-19 pandemic, partially offset by a decrease in treasury rates. The following table shows the credit quality of our fixed maturity securities portfolio as of the dates indicated: Fair value as of Fixed Maturity Securities by Credit Quality March 31, 2020 December 31, 2019 Aaa / Aa / A$ 7,709.9 66.1 %$ 8,014.7 65.1 % Baa 3,436.6 29.4 % 3,734.7 30.3 % Ba 447.6 3.8 % 480.7 3.9 % B and lower 76.5 0.7 % 92.3 0.7 % Total$ 11,670.6 100.0 %$ 12,322.4 100.0 % The following table shows the major categories of net investment income for the periods indicated: Three Months Ended March 31, 2020 2019 Fixed maturity securities$ 120.7 $ 122.1 Equity securities 5.2 5.8 Commercial mortgage loans on real estate 9.7 8.5 Short-term investments 2.8 5.6 Other investments 5.2 7.6 Cash and cash equivalents 7.0 7.0
Revenue from consolidated investment entities (1) 31.9 40.7 Total investment income
182.5 197.3 Investment expenses (9.1 ) (5.6 )
Expenses from consolidated investment entities (1) (17.4 ) (25.4 ) Net investment income
$ 156.0 $ 166.3
(1) The following table shows the net of revenues and expenses from consolidated
investment entities for the periods indicated. Refer to Note 10 to the
Consolidated Financial Statements included elsewhere in this Report for
further detail.
© Edgar Online, source