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,
2019 and accompanying notes included in our Annual Report on Form 10-K for the
year ended December 31, 2019 (the "2019 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, 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 the U.S. Private Securities
Litigation Reform Act of 1995. You can identify these statements by the use of
words such as "will," "may," "can," "anticipates," "expects," "estimates,"
"projects," "intends," "plans," "believes," "targets," "forecasts," "potential,"
"approximately," and the negative version of those words and other words and
terms with a similar meaning. Any forward-looking statements contained in this
Report are based upon our historical performance and on current plans, estimates
and expectations. The inclusion of this forward-looking information should not
be regarded as a representation by us or any other person that our future plans,
estimates or expectations will be achieved. Our actual results might differ
materially from those projected in the forward-looking statements. We undertake
no obligation to update or review any forward-looking statement, whether as a
result of new information, future events or other developments. The following
factors could cause our actual results to differ materially from those currently
estimated by management:
(i) the 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;
(ii) the loss of significant clients, distributors or other parties with whom
we do business, or if we are unable to renew contracts with them on
favorable terms, or those parties facing financial, reputational or
regulatory issues;
(iii) significant competitive pressures, changes in customer preferences and
disruption;
(iv) the failure to find suitable acquisitions, integrate completedacquisitions or grow organically, and risks associated with joint ventures
and franchise ownership and operations;
(v) the impact of general economic, financial market and political conditions,
including unfavorable conditions in the capital and credit markets and in
the markets in which we operate, including as a result of COVID-19;
(vi) risks related to our international operations, including the United
Kingdom's withdrawal from the
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;
43
--------------------------------------------------------------------------------(xvii) an impairment of goodwill or other intangible assets;
(xviii) the failure to maintain effective internal control over financial
reporting;
(xix) a decrease in the value of our investment portfolio, including due to
market, credit and liquidity risks, changes in interest rates and
COVID-19;
(xx) the impact of
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 of June 30, 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 run-off
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 and six months endedJune 30, 2020 ("Second Quarter 2020" and "Six Months 2020") and the three and six months endedJune 30, 2019 ("Second Quarter 2019" and "Six Months 2019"). 44 -------------------------------------------------------------------------------- Executive Summary COVID-19 While continuing to evolve, the COVID-19 pandemic has caused significant global economic and financial market disruption, resulting in increased financial market volatility, business and operational challenges such as the temporary closures of businesses, and overall diminished expectations for the economy and the financial markets. Toward the end of the three months endedMarch 31, 2020 ("First Quarter 2020") and into Second Quarter 2020, the pandemic impacted each of our operating segments and may continue to impact our businesses if similar conditions continue to persist or worsen. Overall, in Second Quarter 2020, we believe COVID-19 had a modest negative impact on our net income, mainly due to$15.2 million of after-tax direct and incremental expenses, primarily related to employee benefits described below, partially offset by lower claims frequency in some of our businesses. In addition, while we continue to see lower investment income from lower yields, the improvement of the financial markets in the Second Quarter 2020 benefitted our results when compared to First Quarter 2020. While the COVID-19 impact on net income for First Quarter 2020 included$76.1 million of after-tax net unrealized investment losses from our investments in equity securities and direct investments in collateralized loan obligations, we recorded$28.8 million of after-tax net unrealized investment gains from these securities in Second Quarter 2020. 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 10 to the Consolidated Financial Statements included elsewhere in this Report. Our Response to COVID-19 As a global organization, we actively monitor the developments of the continuously evolving situation resulting from COVID-19. Throughout this period of uncertainty, we have acted swiftly and deliberately to safeguard our employees, to maintain business operations and service levels for our customers, and to support our local communities. Since implementing restrictions on non-essential business travel and transitioning the vast majority of our workforce to work-from-home, we have approved a limited return to office within certain Asian and European locations, as well as limited, essential business travel. For those employees who need to work in our offices or global facilities, we've maintained safety and hygiene protocols, such as social distancing, mandatory use of personal protection equipment and regular cleaning and disinfecting of our locations. To support our employees, we have implemented additional floating holidays, a one-time COVID-19 relief payment for eligible work-from-home employees and incentive bonuses for eligible on-site employees, as well as increased well-being and mental health support services. We offered financial support through a special COVID-19 Emergency Relief Program to eligible employees who experienced severe financial hardship caused by the pandemic. We also have been active in maintaining our support within our local communities through charitable contributions. Evaluation of Business Trends, Capital and Liquidity We have run multiple scenarios based on the potential duration and severity of this crisis to better understand how our business might perform and stress-tested our capital, cash flows and liquidity. Our business has performed on the high-end of the scenarios, demonstrating its overall resilience. We could experience a greater negative impact to our business as a result of financial market volatility, prolonged government lockdown measures impacting access to distribution channels and related changes to consumer behavior from a resurgence of COVID-19 cases. While 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, these trends have generally reversed through July, though most are still lower when compared to 2019. Our mobile business experienced lower trade-in activity and slower sales growth, which also improved through July combined with higher average selling prices in Second Quarter 2020 due to lower inventory. We believe we have benefitted from our installed customer base across Connected Living,Global Automotive ,Multifamily Housing and Global Preneed. We have also extended options, for a period of time, 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 cancellations across our product lines. Second Quarter 2020 Global Lifestyle results were impacted by COVID-19 factors, including more favorable international claims activity in Connected Living andGlobal Automotive , partially offset by weaker performance inGlobal Financial Services and lower mobile trade-in volumes when compared to 2019. For mobile, we expect fluctuation in new subscriber growth and trade-in volumes, reflecting store closures and carrier activity, with volumes continuing to recover if stores remain open. InGlobal Automotive , as some states are experiencing a resurgence of COVID-19, we expect sales volumes will also fluctuate. We believe a reduction in sales would impact the business longer term, while unearned premium continues to contribute in the shorter term. We expect claims activity in Connected Living andGlobal Automotive will 45 -------------------------------------------------------------------------------- normalize in the second half of 2020, depending on the reopening of the economy. 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. Second Quarter 2020Global Housing results were impacted by COVID-19-related factors, including lower claims frequency across ourLender-placed Insurance , Multifamily housing and Specialty and Other businesses, partially offset by lower real estate owned ("REO") volumes inLender-placed Insurance . ForMultifamily Housing , we have experienced a recovery in new renter policies. ForLender-placed Insurance , we will continue to monitor the state of the overall housing market and the potential impact of the current mortgage moratorium, including lower new policy placement and REO volumes. This was offset by lower claim frequencies, which we also expect to increase in the second half of 2020. Should the housing market deteriorate for a prolonged period, we would expect a longer-term increase in our placement rates after 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. We would also expect investment income to be impacted from lower investment yields coming from the investment of premiums resulting from new business. For Global Preneed, sales have rebounded from April levels but began to slow down in July as states where we have a concentrated footprint, such asCalifornia ,Texas andSouth Carolina , are experiencing high levels of infections. We are also monitoring mortality trends, which have been modestly elevated, with a risk for additional increase given our policy footprint. We expect longer term results to be impacted from lower yields on new sales due to the current interest rate environment, given the average duration of our investment portfolio. We continue to take actions to mitigate potential impacts, including deferring certain discretionary expenses and delaying the fulfillment of open positions in support functions, though we expect to see increased spending in these items in the second half of 2020, as well as in investments that had been deferred. Throughout this period, we believe our liquidity has remained strong. As ofJune 30, 2020 , we had$357.4 million of holding company liquidity. To strengthen our liquidity position and capital flexibility during a period of uncertainty, we drew$200.0 million under our revolving credit facility inMarch 2020 . Given our performance year-to-date and improved visibility into the ongoing impacts of COVID-19 on our business, we fully repaid the loan inJuly 2020 . 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 InMay 2020 , we sold our minority interests in Iké Grupo, Iké Asistencia and certain of their affiliates (collectively, "Iké"), terminated our obligations to purchase the remaining shares of Iké, and settled a financial derivative that provided an economic hedge against declines in the Mexican Peso relative to theU.S. Dollar. These transactions resulted in net cash outflows of$85.3 million , which included financing of$34.0 million , the proceeds from the settlement of the derivative and transaction expenses. For additional information on this transaction, see "-Liquidity and Capital Resources" below and Note 5 to the Consolidated Financial Statements included elsewhere in this Report.American Financial & Automotive Services OnMay 1, 2020 , we completed our acquisition ofAmerican Financial & Automotive Services, Inc. ("AFAS"), a provider of finance and insurance products and services including vehicle service contracts, guaranteed asset protection insurance and other ancillary products sold directly through a network of nearly 600 franchised dealership clients across 40 states, for total consideration of$176.9 million . See Note 4 to the Consolidated Financial Statements included elsewhere in this Report. Catastrophe Reinsurance Program InJune 2020 , we finalized our 2020 property catastrophe reinsurance program. TheU.S. per-event catastrophe coverage provides$930.0 million of protection in excess of$80.0 million of retention per event. The coverage was placed with more than 40 reinsurers that are all rated A- or better byA.M. Best . See "Catastrophe Reinsurance Program" below. Summary of Financial Results Consolidated net income attributable to common stockholders increased$34.0 million , or 24%, to$173.5 million for Second Quarter 2020 compared with net income attributable to common stockholders of$139.5 million for Second Quarter 46 -------------------------------------------------------------------------------- 2019, primarily due to improved profitability fromGlobal Housing and continued mobile growth in Global Lifestyle. Additionally, Second Quarter 2019 included an$11.4 million after-tax impairment associated with a prior acquisition inGlobal Housing . These increases were partially offset by$15.2 million of after-tax direct and incremental operating expenses incurred due to the COVID-19 pandemic during Second Quarter 2020. Global Lifestyle segment net income increased$12.5 million , or 11%, to$121.8 million for Second Quarter 2020 from$109.3 million for Second Quarter 2019, primarily driven by our mobile business due to continued subscriber growth inNorth America andAsia Pacific and higher average selling prices on mobile trade-in devices. OurGlobal Automotive business also contributed to the increase, including a discrete client benefit. Both Connected Living andGlobal Automotive benefitted from lower claims activity mainly outside theU.S. due to COVID-19, while partially offset by higher claims frequency withinGlobal Financial Services and Other. Global Lifestyle net earned premiums, fees and other income decreased$40.4 million , or 2%, to$1.77 billion for Second Quarter 2020 from$1.81 billion for Second Quarter 2019, primarily from lower mobile trade-in volumes due to global lockdown measures for COVID-19 and unfavorable foreign exchange. The decrease was partially offset by growth in Connected Living, mainly from mobile subscriber growth from protection programs added over the past several years and prior period sales from ourGlobal Automotive business.Global Housing segment net income increased$13.9 million , or 19%, to$85.4 million for Second Quarter 2020 compared with$71.5 million for Second Quarter 2019. Segment net income for Second Quarter 2020 included$10.1 million of reportable catastrophes, mainly related to severe weather across theU.S. , compared to$2.7 million of favorable development for Second Quarter 2019. Excluding reportable catastrophes, segment net income increased$26.7 million , primarily due to favorable non-catastrophe loss experience across all major products driven by lower claims frequency, including the impacts of COVID-19, and previously implemented underwriting initiatives. Modest growth across our Specialty and Other product lines and the absence of losses from our small commercial product also contributed to the increase.Global Housing net earned premiums, fees and other income decreased$21.2 million , or 4%, to$488.9 million for Second Quarter 2020 from$510.1 million for Second Quarter 2019, primarily due to the reduction inLender-placed Insurance policies in-force from the previously disclosed financially insolvent client and lower REO volumes due to foreclosure moratoriums enacted in connection with COVID-19. The expected run-off of our small commercial product also contributed to the decrease. The decrease was partially offset by growth in Specialty and Other products and in ourMultifamily Housing business. Global Preneed segment net income decreased$3.2 million , or 19%, to$13.7 million for Second Quarter 2020 from$16.9 million for Second Quarter 2019, primarily due to lower investment income from lower yields compared to a strong prior year period, as well as higher mortality, including impacts of COVID-19. Global Preneed net earned premiums, fees and other income increased$0.7 million , or 1%, to$50.3 million for Second Quarter 2020 from$49.6 million for Second Quarter 2019, primarily driven by prior period sales of final need insurance and growth in pre-funded funeral policies. Critical Factors Affecting Results Our results depend on, among other things, the appropriateness of our product pricing, underwriting, the accuracy of our reserving methodology for future policyholder benefits and claims, the frequency and severity of reportable and non-reportable catastrophes, returns on and values of invested assets, and our ability to manage our expenses and achieve expense savings. Our results will also depend on our ability to profitably grow our businesses, in particular our Connected Living,Multifamily Housing andGlobal Automotive businesses, and maintaining our position 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 "-Executive Summary-COVID-19" and "-Executive Summary-Our Response to COVID-19," above. 47 -------------------------------------------------------------------------------- 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 six months endedJune 30, 2020 , net cash provided by operating activities was$292.2 million ; net cash used in investing activities was$32.2 million ; and net cash provided by financing activities was$12.0 million . We had$2.14 billion in cash and cash equivalents as ofJune 30, 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 Second Quarter 2020. Recent Accounting Pronouncements For a discussion of recent accounting pronouncements, see Note 3 to the Consolidated Financial Statements included elsewhere in this Report. Regulatory Matters We are subject to extensive federal, state and international regulation and supervision in the jurisdictions in which we do business, including insurance holding company laws in the jurisdictions in which our insurance companies are domiciled. For example, under applicable insurance holding company regulations, no person may acquire a controlling interest in the Company or any of our insurance company subsidiaries, unless such person has obtained prior regulatory approval for such acquisition. Under these laws, "control" is presumed when any person acquires or holds, directly or indirectly, 10% or more of our common stock or of the voting securities of any of our insurance company subsidiaries. To obtain approval, the proposed acquiror must file an application with the relevant regulator, including the regulator for the insurance subsidiaries we have established inthe Netherlands for continued access to the European markets after the transition period for theU.K.'s withdrawal from theEuropean Union . As previously disclosed, our insurance subsidiaries inthe Netherlands have received the necessary regulatory approvals for the Company to continue conducting business inEurope following the end of the transition period. For additional information, see "Item 1-Business-Regulation" in our 2019 Annual Report. 48 -------------------------------------------------------------------------------- Results of Operations Assurant Consolidated Overview The table below presents information regarding our consolidated results of operations for the periods indicated: For the Three Months Ended
For the Six Months Ended June
June 30, 30,
2020 2019 2020 2019
Revenues:
Net earned premiums $ 2,036.4 $ 2,032.7 $ 4,120.2 $ 3,937.1
Fees and other income 271.5 336.1 688.4 664.4
Net investment income 137.2 154.2 293.2 320.5
Net realized gains (losses) on
investments 24.1 17.8 (71.2 ) 46.6
Amortization of deferred gains on
disposal of businesses 2.4 4.7 6.6 12.5
Total revenues 2,471.6 2,545.5 5,037.2 4,981.1
Benefits, losses and expenses:
Policyholder benefits 592.1 687.0 1,199.3 1,301.7
Amortization of deferred acquisition
costs and value of business acquired 885.3 815.8 1,799.5 1,593.1
Underwriting, general and administrative
expenses 736.2 823.7 1,644.3 1,623.6
Iké net losses 4.5 9.2 5.9 9.4
Interest expense 26.7 26.5 52.2 53.0Total benefits, losses and expenses 2,244.8 2,362.2
4,701.2 4,580.8 Income before provision for income taxes 226.8 183.3 336.0 400.3 Provision for income taxes 48.4 40.7 1.8 89.1 Net income 178.4 142.6 334.2 311.2 Less: Net (income) loss attributable to non-controlling interest (0.3 ) 1.5 (1.4 ) (1.4 ) Net income attributable to stockholders 178.1 144.1 332.8 309.8 Less: Preferred stock dividends (4.6 ) (4.6 ) (9.3 ) (9.3 ) Net income attributable to common stockholders$ 173.5 $ 139.5 $ 323.5 $ 300.5 For the Three Months EndedJune 30, 2020 Compared to the Three Months EndedJune 30, 2019 Net Income Attributable to Common Stockholders Consolidated net income attributable to common stockholders increased$34.0 million , or 24%, to$173.5 million for Second Quarter 2020 compared with$139.5 million for Second Quarter 2019. The increase was primarily due to improved results fromGlobal Housing and continued mobile growth in Global Lifestyle. Additionally, Second Quarter 2019 included an$11.4 million after-tax impairment of certain intangible assets from our acquisition ofGreen Tree Insurance Agency . These increases were partially offset by$15.2 million of after-tax direct and incremental operating expenses incurred in connection with the COVID-19 pandemic during Second Quarter 2020. For the Six Months EndedJune 30, 2020 Compared to the Six Months EndedJune 30, 2019 Net Income Attributable to Common Stockholders Consolidated net income attributable to common stockholders increased$23.0 million , or 8%, to$323.5 million for Six Months 2020 compared with$300.5 million for Six Months 2019, primarily due to a$84.4 million tax benefit from Six Months 2020 related to the utilization of net operating losses in connection with the CARES Act. This increase was also due to improved results from Global Lifestyle andGlobal Housing . These increases were partially offset by$47.4 million of after-tax net unrealized losses from a decrease in the fair value of our equity securities and collateralized loan obligations for Six Months 2020 compared to$29.9 million of after-tax unrealized gains on equity securities for Six Months 2019 and$17.6 million of 49 --------------------------------------------------------------------------------
after-tax direct and incremental operating expenses incurred in connection with the COVID-19 pandemic during Six Months 2020.
50
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Global Lifestyle
Overview
The table below presents information regarding the Global Lifestyle segment's
results of operations for the periods indicated:
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Revenues:
Net earned premiums $ 1,568.1 $ 1,545.5 $ 3,165.8 $ 2,974.0
Fees and other income 200.6 263.6 549.8 516.7
Net investment income 44.2 56.5 98.9 115.4
Total revenues 1,812.9 1,865.6 3,814.5 3,606.1
Benefits, losses and expenses:
Policyholder benefits 343.1 412.9 679.3 760.1
Amortization of deferred acquisition
costs and value of business acquired 810.8 740.7 1,649.2 1,446.5
Underwriting, general and administrative
expenses 500.7 570.2 1,168.6 1,126.0
Total benefits, losses and expenses 1,654.6 1,723.8 3,497.1 3,332.6
Segment income before provision for
income taxes 158.3 141.8 317.4 273.5
Provision for income taxes 36.5 32.5 74.7 63.6
Segment net income $ 121.8 $ 109.3 $ 242.7 $ 209.9
Net earned premiums, fees and other
income:
Connected Living (mobile and service
contracts) $ 916.6 $ 961.7 $ 2,004.9 $ 1,832.7
Global Automotive 755.4 731.4 1,508.5 1,425.0
Global Financial Services and Other 96.7 116.0 202.2 233.0
Total $ 1,768.7 $ 1,809.1 $ 3,715.6 $ 3,490.7
Net earned premiums, fees and other
income:
Domestic $ 1,310.3 $ 1,251.1 $ 2,744.8 $ 2,442.4
International 458.4 558.0 970.8 1,048.3
Total $ 1,768.7 $ 1,809.1 $ 3,715.6 $ 3,490.7
For the Three Months Ended June 30, 2020 Compared to the Three Months Ended June
30, 2019
Net Income
Segment net income increased $12.5 million , or 11%, to $121.8 million for Second
Quarter 2020 from $109.3 million for Second Quarter 2019. The increase was
primarily driven by our Connected Living business, mainly due to continued
mobile subscriber growth in North America and Asia Pacific and higher average
selling prices on mobile trade-in programs from lower inventory in the global
marketplace. Our Global Automotive business also contributed to the increase,
including a $4.2 million after-tax client benefit. Both Connected Living and
Global Automotive benefitted from reduced claims activity mainly outside the
U.S. due to COVID-19. These increases were partially offset by lower income from
our Global Financial Services and Other business mainly due to higher loss
experience from COVID-19 and unfavorable foreign exchange from our international
credit business, as well as anticipated declines from domestic credit insurance
business in run-off.
Total Revenues
Total revenues decreased $52.7 million , or 3%, to $1.81 billion for Second
Quarter 2020 from $1.87 billion for Second Quarter 2019. Fees and other income
decreased $63.0 million , or 24%, primarily due to a decline in our Connected
Living business driven by lower mobile trade-in volumes from our repairs and
logistics business due to global lockdown measures for COVID-19 that were
partially offset by higher average selling prices. Net investment income
decreased $12.3 million , or 22%, primarily due to declines in cash yields, lower
average assets and unfavorable foreign exchange. These decreases were partially
offset by a $22.6 million , or 1%, increase in net earned premiums that was
driven by our Global Automotive business due to growth from prior period
production and new business, as well as organic growth in our Connected Living
business due to continued subscriber growth from mobile protection programs
added over the past several years and a new extended service
51
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contract program. These increases in net earned premiums were partially offset
by unfavorable foreign exchange and continued run-off of our domestic credit
insurance business.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses decreased $69.2 million , or 4%, to $1.65
billion for Second Quarter 2020 from $1.72 billion for Second Quarter 2019.
Policyholder benefits decreased $69.8 million , or 17%, mostly due to lower loss
experience in our Connected Living business, as a result of a favorable mix of
mobile business and COVID-19, and our Global Automotive business, as well as
favorable foreign exchange. The decrease was partially offset by Global
Financial Services and Other from higher losses in our credit business, also due
to COVID-19. Underwriting, general and administrative expenses decreased $69.5
million , or 12%, primarily due to lower trade-in volumes in our domestic repairs
and logistics business and favorable foreign exchange, partially offset by
growth in our mobile protection and extended service contract programs within
our Connected Living business and growth in our Global Automotive business.
These decreases were partially offset by a $70.1 million , or 9%, increase in
amortization of deferred acquisition costs and value of business acquired,
primarily due to prior period growth from our Global Automotive and Connected
Living businesses.
For the Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30,
2019
Net Income
Segment net income increased $32.8 million , or 16%, to $242.7 million for Six
Months 2020 from $209.9 million for Six Months 2019, and included a $6.7 million
after-tax benefit for a client recoverable in our Connected Living business.
Excluding this item, the increase in net income was mostly driven by our
Connected Living business, primarily due to continued mobile subscriber growth
in North America and Asia Pacific and higher income in our Global Automotive
business, including $9.2 million of client benefits. The increase was partially
offset by lower income in our Global Financial Services and Other business
mainly due to higher loss experience and unfavorable foreign exchange from our
international credit business as well as anticipated declines from the domestic
credit insurance business in run-off.
Total Revenues
Total revenues increased $208.4 million , or 6%, to $3.81 billion for Six Months
2020 from $3.61 billion for Six Months 2019. Net earned premiums increased
$191.8 million , or 6%, primarily driven by growth in our Connected Living
business, mainly due to continued subscriber growth from mobile protection
programs and a new extended service contract program, and continued growth from
prior period production in our Global Automotive business, partially offset by
unfavorable foreign exchange. Fees and other income increased $33.1 million , or
6%, primarily due to higher mobile trade-in volumes and an $11.1 million benefit
for a client recoverable in our Connected Living business. Net investment income
decreased $16.5 million , or 14%, primarily due to declines in cash yields, lower
average assets and unfavorable foreign exchange.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased $164.5 million , or 5%, to $3.50
billion for Six Months 2020 from $3.33 billion for Six Months 2019, primarily
driven by amortization of deferred acquisition costs and value of business
acquired which increased $202.7 million , or 14%, primarily due to growth from
our Global Automotive and Connected Living businesses. Underwriting, general and
administrative expenses increased $42.6 million , or 4%, primarily due to growth
from our Connected Living business, including higher mobile trade-in volumes and
growth in our mobile protection and extended service contract programs, and
growth from our Global Automotive business, partially offset by favorable
foreign exchange. Policyholder benefits decreased $80.8 million , or 11%, mostly
due to lower loss experience in our Connected Living business, as a result of a
favorable mix of mobile business and COVID-19, and our Global Automotive
business, as well as favorable foreign exchange. The decrease was partially
offset by an increase from growth in our Connected Living business.
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Global Housing
Overview
The table below presents information regarding the Global Housing segment's
results of operations for the periods indicated:
For the Three Months Ended For the Six Months Ended June
June 30, 30,
2020 2019 2020 2019
Revenues:
Net earned premiums $ 453.2 $ 471.8 $ 921.0 $ 931.9
Fees and other income 35.7 38.3 68.3 78.2
Net investment income 16.4 18.8 38.4 44.2
Total revenues 505.3 528.9 1,027.7 1,054.3
Benefits, losses and expenses:
Policyholder benefits 180.4 207.8 379.1 406.7
Amortization of deferred acquisition
costs and value of business acquired 56.2 57.5 113.1 111.4
Underwriting, general and administrative
expenses 161.1 173.3 334.4 354.0
Total benefits, losses and expenses 397.7 438.6 826.6 872.1
Segment income before provision for
income taxes 107.6 90.3 201.1 182.2
Provision for income taxes 22.2 18.8 41.5 38.0
Segment net income $ 85.4 $ 71.5 $ 159.6 $ 144.2
Net earned premiums, fees and other
income:
Lender-placed Insurance $ 265.0 $ 281.8 $ 529.3 $ 556.0
Multifamily Housing 111.2 106.6 220.2 210.6
Specialty and Other 112.7 121.7 239.8 243.5
Total $ 488.9 $ 510.1 $ 989.3 $ 1,010.1
For the Three Months Ended June 30, 2020 Compared to the Three Months Ended June
30, 2019
Net Income
Segment net income increased $13.9 million , or 19%, to $85.4 million for Second
Quarter 2020 from $71.5 million for Second Quarter 2019. Segment net income for
Second Quarter 2020 included $10.1 million of reportable catastrophes, mainly
related to severe weather across the U.S. , compared to $2.7 million of favorable
development for Second Quarter 2019. Excluding reportable catastrophes, segment
net income increased $26.7 million , or 39%, primarily due to favorable
non-catastrophe loss experience across all major products, driven by lower
claims frequency, including impacts from COVID-19, and previously implemented
underwriting initiatives. Modest growth across our Specialty and Other product
lines and the absence of losses from our small commercial product, which is now
in run-off, also contributed to the increase, as well as higher premium rates in
our Lender-placed Insurance business. The increase was partially offset by
declines in our Lender-placed Insurance policies in-force from a financially
insolvent client, as well as lower REO volumes as less homes are moving to
default or foreclosure due to moratoriums enacted in connection with COVID-19.
Total Revenues
Total revenues decreased $23.6 million , or 4%, to $505.3 million for Second
Quarter 2020 from $528.9 million for Second Quarter 2019. Net earned premiums
decreased $18.6 million , or 4%, primarily due to the run-off of our small
commercial product and declines in our Lender-placed Insurance business, mainly
from the reduction of policies in-force for a financially insolvent client and
lower REO volume, partially offset by premium rate increases in our
Lender-placed Insurance business, and continued growth from renters insurance in
our Multifamily Housing business. Fees and other income decreased $2.6 million ,
or 7%, primarily due to a decline in Lender-placed Insurance mostly due to
declines in policies in-force. Net investment income decreased $2.4 million , or
13%, primarily due to lower cash yields, lower income from real estate related
investments and a decrease in invested assets.
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Total Benefits, Losses and Expenses
Total benefits, losses and expenses decreased $40.9 million , or 9%, to $397.7
million for Second Quarter 2020 from $438.6 million for Second Quarter 2019. The
decrease was primarily due to a decrease in total policyholder benefits of $27.4
million , or 13%, from lower non-catastrophe losses, as previously described,
partially offset by an increase in reportable catastrophe losses mainly related
to severe weather across the U.S. in Second Quarter 2020. Underwriting, general
and administrative expenses decreased $12.2 million , or 7%, primarily due to
lower employment related expenses in our Lender-placed Insurance business.
For the Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30,
2019
Net Income
Segment net income increased $15.4 million , or 11%, to $159.6 million for Six
Months 2020 from $144.2 million for Six Months 2019. Segment net income included
$16.8 million of higher reportable catastrophes in Six Months 2020 compared to
Six Months 2019 primarily driven by severe weather across the U.S. in Second
Quarter 2020 and earthquakes in Puerto Rico in First Quarter 2020. Excluding
reportable catastrophes, segment net income increased $32.2 million , or 21%,
primarily driven by favorable non-catastrophe losses across all major products,
the absence of losses from our small commercial product, which is now in
run-off, and higher premium rates and lower operating expenses in our
Lender-placed Insurance business. The increase was partially offset by declines
in our Lender-placed Insurance business, mainly from a reduction in policies
in-force from a financially insolvent client and lower fee income and REO
volume.
Total Revenues
Total revenues decreased $26.6 million , or 3%, to $1.03 billion for Six Months
2020 from $1.05 billion for Six Months 2019. Net earned premiums decreased $10.9
million , or 1%, primarily due to our small commercial business and declines in
our Lender-placed Insurance business, mainly from the reduction in policies
in-force for a financially insolvent client and lower REO volume. This decrease
was partially offset by premium rate increases in our Lender-placed Insurance
business, growth from our Specialty and Other business, mainly sharing economy
products, and continued growth from renters insurance in our Multifamily Housing
business. Fees and other income decreased $9.9 million , or 13%, primarily due to
a decline in Lender-placed Insurance , mostly due to declines in policies
in-force. Net investment income decreased $5.8 million , or 13%, primarily due to
lower cash yields, lower income from real estate related investments and a
decrease in invested assets.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses decreased $45.5 million , or 5%, to $826.6
million for Six Months 2020 from $872.1 million for Six Months 2019. The
decrease was primarily due to a decrease in total policyholder benefits of $27.6
million , or 7%, from lower non-catastrophe losses, as explained above, partially
offset by an increase in reportable catastrophe losses mainly related to severe
weather across the U.S. in Second Quarter 2020 and earthquakes in Puerto Rico in
First Quarter 2020. Underwriting, general and administrative expenses decreased
$19.6 million , or 6%, primarily due to lower employment related expenses in our
Lender-placed Insurance business.
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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 For the Six Months Ended June
June 30, 30,
2020 2019 2020 2019
Revenues:
Net earned premiums $ 15.1 $ 15.4 $ 33.4 $ 31.2
Fees and other income 35.2 34.2 70.3 67.5
Net investment income 70.1 70.6 140.2 139.7
Total revenues 120.4 120.2 243.9 238.4
Benefits, losses and expenses:
Policyholder benefits 68.5 66.2 140.5 134.8
Amortization of deferred acquisition
costs and value of business acquired 18.3 17.6 37.2 35.2
Underwriting, general and administrative
expenses 16.1 14.7 33.1 31.6
Total benefits, losses and expenses 102.9 98.5 210.8 201.6
Segment income before provision for
income taxes 17.5 21.7 33.1 36.8
Provision for income taxes 3.8 4.8 7.1 8.1
Segment net income $ 13.7 $ 16.9 $ 26.0 $ 28.7
For the Three Months Ended June 30, 2020 Compared to the Three Months Ended June
30, 2019
Net Income
Segment net income decreased $3.2 million , or 19%, to $13.7 million for Second
Quarter 2020 from $16.9 million for Second Quarter 2019, primarily due to lower
investment income from lower yields, as well as higher mortality, including
impacts of COVID-19.
Total Revenues
Total revenues were relatively flat at $120.4 million for Second Quarter 2020
compared to $120.2 million for Second Quarter 2019 as prior period sales of
final need insurance and growth in pre-funded funeral policies were partially
offset by lower net investment income.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased $4.4 million , or 4%, to $102.9
million for Second Quarter 2020 from $98.5 million for Second Quarter 2019.
Policyholder benefits increased $2.3 million , or 3%, primarily due to higher
losses as a result of growth in the domestic preneed business and higher
mortality due to the impact of COVID-19. Underwriting, general and
administrative expenses increased $1.4 million , or 10%, primarily due to an
increase in general expenses.
For the Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30,
2019
Net Income
Segment net income decreased $2.7 million , or 9%, to $26.0 million for Six
Months 2020 from $28.7 million for Six Months 2019, primarily due to higher
investment expenses and lower yields, as well as higher mortality and increased
general expenses, partially offset by growth in pre-funded funeral policies in
the U.S.
Total Revenues
Total revenues increased $5.5 million , or 2%, to $243.9 million for Six Months
2020 from $238.4 million for Six Months 2019. Net earned premium increased $2.2
million , or 7%, primarily due to sales of final need insurance. Fees and other
income increased $2.8 million , or 4%, due to the growth in pre-funded funeral
policies in the U.S. Net investment income increased
55
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$0.5 million primarily due to an increase in invested assets, partially offset
by higher investment expenses related to our strategic decision to outsource the
management of our investment portfolio, as well as lower yields.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased $9.2 million , or 5%, to $210.8
million for Six Months 2020 from $201.6 million for Six Months 2019.
Policyholder benefits increased $5.7 million , or 4%, primarily due to the growth
in the domestic preneed business and higher mortality due to the impact of
COVID-19. Amortization of deferred acquisition costs and value of business
acquired increased $2.0 million , or 6%, due to the business growth.
Underwriting, general and administrative expenses increased $1.5 million , or 5%,
due to an increase in general expenses.
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Corporate and Other
Overview
The tables below present information regarding the Corporate and Other's segment
results of operations for the periods indicated:
For the Three Months Ended June 30, For the Six Months Ended June 30,
2020 2019 2020 2019
Revenues:
Net earned premiums $ - $ - $ - $ -
Fees and other income - - - 2.0
Net investment income 6.5 8.3 15.7 21.2
Net realized gains (losses) on
investments 24.1 17.8 (71.2 ) 46.6
Amortization of deferred gains on
disposal of businesses 2.4 4.7 6.6 12.5
Total revenues 33.0 30.8 (48.9 ) 82.3
Benefits, losses and expenses:
Policyholder benefits 0.1 0.1 0.4 0.1
General and administrative expenses 58.3 65.5 108.2 112.0
Iké net losses 4.5 9.2 5.9 9.4
Interest expense 26.7 26.5 52.2 53.0
Total benefits, losses and expenses 89.6 101.3 166.7 174.5
Segment loss before benefit for income
taxes (56.6 ) (70.5 ) (215.6 ) (92.2 )
Benefit for income taxes (14.1 ) (15.4 ) (121.5 ) (20.6 )
Segment net loss (42.5 ) (55.1 ) (94.1 ) (71.6 )
Less: Net (income) loss attributable to
non-controlling interest (0.3 ) 1.5 (1.4 ) (1.4 )
Net loss attributable to stockholders (42.8 ) (53.6 ) (95.5 ) (73.0 )
Less: Preferred stock dividends (4.6 ) (4.6 ) (9.3 ) (9.3 )
Net loss attributable to common
stockholders $ (47.4 ) $
(58.2 )
For the Three Months EndedJune 30, 2020 Compared to the Three Months EndedJune 30, 2019 Net Loss Attributable to Common Stockholders Segment net loss attributable to common stockholders decreased$10.8 million , or 19%, to$47.4 million for Second Quarter 2020 compared to$58.2 million for Second Quarter 2019, primarily due to the absence of an$11.4 million after-tax impairment of certain intangible assets from our acquisition ofGreen Tree Insurance Agency that was recognized in Second Quarter 2019 and a$4.8 million increase in after-tax net realized gains on investments, mostly driven by net unrealized gains on equity securities and collateralized loan obligations in Second Quarter 2020, partially offset by a decrease in net realized gains on sales of fixed maturities. The decrease in segment net loss attributable to common stockholders was partially offset by$15.2 million of after-tax direct and incremental operating expenses incurred in connection with the COVID-19 pandemic. Second quarter 2020 COVID-19 expenses were primarily related to employee-related expenses, including additional paid time off, a one-time COVID-19 relief payment to eligible employees and incentive bonuses for eligible on-site employees. Total Revenues Total revenues increased$2.2 million , or 7%, to$33.0 million for Second Quarter 2020 from$30.8 million for Second Quarter 2019, primarily due to net unrealized gains from an increase in the fair value of our equity securities and collateralized loan obligations in Second Quarter 2020. This increase was partially offset by a decrease in net realized gains on sales of fixed maturities, lower amortization of deferred gains associated with the sale ofAssurant Employee Benefits and lower investment income, primarily due to a higher concentration of lower yielding liquid investments in Second Quarter 2020 compared to Second Quarter 2019. Total Expenses 57 -------------------------------------------------------------------------------- Total benefits, losses and expenses decreased$11.7 million , or 12%, to$89.6 million for Second Quarter 2020 from$101.3 million for Second Quarter 2019, primarily driven by the absence of a$14.6 million impairment of certain intangible assets from our acquisition ofGreen Tree Insurance Agency and a$9.2 million loss from a decrease in fair value of derivative instruments for our investment in Iké that were both recognized in Second Quarter 2019. The decrease was also due to a$3.4 million benefit from the amortization of the deferred gain related to the termination of our retirement health benefits plan, a decrease in integration expenses associated with the acquisition ofTWG Holdings Limited and its subsidiaries ("TWG") and lower unfavorable remeasurement related foreign exchange. These decreases were partially offset by$19.2 million of direct and incremental operating expenses incurred in connection with the COVID-19 pandemic and a$3.9 million loss on the sale of Iké. For the Six Months EndedJune 30, 2020 Compared to the Six Months EndedJune 30, 2019 Net Income Segment net loss attributable to common stockholders increased$22.5 million , or 27%, to$104.8 million for Six Months 2020 from$82.3 million for Six Months 2019, primarily due to an increase in net realized losses on investments driven by$47.4 million of after-tax net unrealized losses from a decrease in the fair value of our equity securities and collateralized loan obligations in Six Months 2020 compared to$29.9 million of after-tax unrealized gains on equity securities in Six Months 2019, as well as$17.6 million of after-tax direct and incremental operating expenses incurred in connection with the COVID-19 pandemic. The increase in segment net loss attributable to common stockholders was partially offset by an$84.4 million tax benefit related to the utilization of net operating losses in connection with the CARES Act. In addition, Second Quarter 2019 included an$11.4 million after-tax impairment of certain intangible assets from our acquisition ofGreen Tree Insurance Agency . Total Revenues Total revenues decreased$131.2 million to$(48.9) million for Six Months 2020 from$82.3 million for Six Months 2019, primarily due to an increase in unrealized losses on investments mostly related to a net decrease in the fair value of our equity securities and collateralized loan obligations. Lower amortization of deferred gains associated with the sale ofAssurant Employee Benefits and lower investment income, primarily due to a higher concentration of lower yielding liquid investments in Six Months 2020 compared to Six Months 2019, also contributed to the decrease. Total Benefits, Losses and Expenses Total benefits, losses and expenses decreased$7.8 million , or 4%, to$166.7 million for Six Months 2020 from$174.5 million for Six Months 2019, primarily due to the absence of a$14.6 million impairment of certain intangible assets recognized in Six Months 2019,$9.8 million decrease in integration expenses associated with the TWG acquisition and a$4.5 million benefit from the amortization of the deferred gain related to the termination of our retirement health benefits plan. These decreases were partially offset by$22.3 million of direct and incremental operating expenses incurred in connection with the COVID-19 pandemic. 58 --------------------------------------------------------------------------------
Investments
We had total investments of$14.65 billion and$14.57 billion as ofJune 30, 2020 andDecember 31, 2019 , respectively. Net unrealized gains on our fixed maturity securities portfolio increased by$331.6 million during Six Months 2020, from$1.26 billion as ofDecember 31, 2019 to$1.59 billion as ofJune 30, 2020 , primarily due to spread compression, partially offset by decreases in foreign exchange rates in several countries. The following table shows the credit quality of our fixed maturity securities portfolio as of the dates indicated: Fair value as of Fixed Maturity Securities by Credit Quality June 30, 2020 December 31, 2019 Aaa / Aa / A$ 8,079.4 63.9 %$ 8,014.7 65.1 % Baa 3,969.4 31.4 % 3,734.7 30.3 % Ba 514.5 4.1 % 480.7 3.9 % B and lower 76.3 0.6 % 92.3 0.7 % Total$ 12,639.6 100.0 %$ 12,322.4 100.0 % The following table shows the major categories of net investment income for the periods indicated: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Fixed maturity securities$ 118.2 $ 123.0 $ 238.9 $ 245.1 Equity securities 5.2 5.7 10.4 11.5 Commercial mortgage loans on real estate 8.6 9.2 18.3 17.7 Short-term investments 1.5 5.8 4.3 11.4 Other investments 3.1 4.7 8.3 12.3 Cash and cash equivalents 2.3 6.5 9.3 13.5 Revenue from consolidated investment entities (1) 20.5 23.9 52.4 64.6 Total investment income 159.4 178.8 341.9 376.1 Investment expenses (6.6 ) (6.4 ) (15.7 ) (12.0 ) Expenses from consolidated investment entities (1) (15.6 ) (18.2 )$ (33.0 ) $ (43.6 ) Net investment income$ 137.2 $ 154.2 $ 293.2 $ 320.5
(1) The following table shows the net of revenues and expenses from consolidated
investment entities for the periods indicated. Refer to Note 11 to the
Consolidated Financial Statements included elsewhere in this Report for
further detail.
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