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2: EX-10.1 Material Contract HTML 113K
3: EX-10.2 Material Contract HTML 112K
4: EX-31.1 Certification -- §302 - SOA'02 HTML 29K
5: EX-31.2 Certification -- §302 - SOA'02 HTML 28K
6: EX-32.1 Certification -- §906 - SOA'02 HTML 26K
7: EX-32.2 Certification -- §906 - SOA'02 HTML 26K
13: R1 Cover Page HTML 84K
14: R2 Consolidated Balance Sheets (Unaudited) HTML 142K
15: R3 Consolidated Balance Sheets (Unaudited) HTML 49K
(Parenthetical)
16: R4 Consolidated Statements of Operations (Unaudited) HTML 167K
17: R5 Consolidated Statements of Operations (Unaudited) HTML 26K
(Parenthetical)
18: R6 Consolidated Statements of Comprehensive Income HTML 67K
(Unaudited)
19: R7 Consolidated Statements of Comprehensive Income HTML 37K
(Unaudited) (Parenthetical)
20: R8 Consolidated Statements of Changes in Equity HTML 87K
(Unaudited)
21: R9 Consolidated Statements of Changes in Equity HTML 29K
(Unaudited) (Parenthetical)
22: R10 Consolidated Statements of Cash Flows (Unaudited) HTML 159K
23: R11 Nature of Operations HTML 28K
24: R12 Basis of Presentation HTML 31K
25: R13 Recent Accounting Pronouncements HTML 37K
26: R14 Dispositions HTML 45K
27: R15 Segment Information HTML 98K
28: R16 Contract Revenues HTML 36K
29: R17 Investments HTML 303K
30: R18 Fair Value Disclosures HTML 201K
31: R19 Deferred Acquisition Costs HTML 38K
32: R20 Reserves HTML 48K
33: R21 Debt HTML 31K
34: R22 Accumulated Other Comprehensive Income HTML 142K
35: R23 Equity Transactions HTML 32K
36: R24 Earnings Per Common Share HTML 88K
37: R25 Retirement and Other Employee Benefits HTML 75K
38: R26 Commitments and Contingencies HTML 30K
39: R27 Revision of Prior Period Financial Statements HTML 115K
40: R28 Basis of Presentation (Policies) HTML 45K
41: R29 Dispositions (Tables) HTML 46K
42: R30 Segment Information (Tables) HTML 91K
43: R31 Investments (Tables) HTML 314K
44: R32 Fair Value Disclosures (Tables) HTML 198K
45: R33 Deferred Acquisition Costs (Tables) HTML 39K
46: R34 Reserves (Tables) HTML 44K
47: R35 Accumulated Other Comprehensive Income (Tables) HTML 143K
48: R36 Earnings Per Common Share (Tables) HTML 88K
49: R37 Retirement and Other Employee Benefits (Tables) HTML 70K
50: R38 Revision of Prior Period Financial Statements HTML 115K
(Tables)
51: R39 Nature of Operations (Details) HTML 27K
52: R40 Dispositions - Narrative (Details) HTML 48K
53: R41 Dispositions - Schedule of Income (Loss) from HTML 76K
Discontinued Operations (Details)
54: R42 Segment Information - Narrative (Details) HTML 38K
55: R43 Segment Information - Schedule of Segment Adjusted HTML 81K
EBITDA Disclosure (Details)
56: R44 Segment Information - Schedule of Net Earned HTML 43K
Premiums, Fees and Other Income by Segment
(Details)
57: R45 Segment Information - Schedule of Asset by Segment HTML 43K
(Details)
58: R46 Contract Revenues - Narrative (Details) HTML 46K
59: R47 Investments - Amortized Cost, Gross Unrealized HTML 71K
Gains and Losses, Fair Value and OTTI (Details)
60: R48 Investments - Narrative (Details) HTML 41K
61: R49 Investments - Amortized Cost and Fair Value of HTML 71K
Fixed Maturity Securities by Contractual Maturity
(Details)
62: R50 Investments - Net Realized Gains (Losses), HTML 50K
Including Impairment, Recognized in the
Consolidated Statements of Operations (Details)
63: R51 Investments - Unrealized Gains on Equity HTML 42K
Securities (Details)
64: R52 Investments - Equity Securities without Readily HTML 33K
Determinable Fair Value (Details)
65: R53 Investments - Investment Category and Duration of HTML 77K
Gross Unrealized Losses on Fixed Maturity
Securities and Equity Securities (Details)
66: R54 Investments - Credit Quality Indicators (Details) HTML 92K
67: R55 Fair Value Disclosures - Fair Value for Assets and HTML 136K
Liabilities Measured at Fair Value on a Recurring
Basis (Details)
68: R56 Fair Value Disclosures - Carrying Value and Fair HTML 67K
Value of the Financial Instruments that are Not
Recognized or are Not Carried at Fair Value
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69: R57 Deferred Acquisition Costs - Schedule of Deferred HTML 36K
Acquisition Costs (Details)
70: R58 Reserves - Roll Forward of Claims and Benefits HTML 57K
Payable (Details)
71: R59 Reserves - Narrative (Details) HTML 45K
72: R60 Debt (Details) HTML 39K
73: R61 Accumulated Other Comprehensive Income - HTML 64K
Components of Accumulated Other Comprehensive
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74: R62 Accumulated Other Comprehensive Income - HTML 79K
Reclassification out of Accumulated Other
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75: R63 Equity Transactions - Narrative (Details) HTML 48K
76: R64 Earnings Per Common Share - Net Income, Weighted HTML 140K
Average Common Shares Used in Calculating Basic
Earnings Per Common Share and Diluted EPS
(Details)
77: R65 Earnings Per Common Share - Narrative (Details) HTML 29K
78: R66 Retirement and Other Employee Benefits - Narrative HTML 41K
(Details)
79: R67 Retirement and Other Employee Benefits - HTML 52K
Components of Net Periodic Benefit Cost (Details)
80: R68 Commitments and Contingencies - Narrative HTML 26K
(Details)
81: R69 Revision of Prior Period Financial Statements - HTML 89K
Revised Consolidated Balance Sheet (Details)
82: R70 Revision of Prior Period Financial Statements - HTML 126K
Revised Consolidated Statements of Operations
(Details)
83: R71 Revision of Prior Period Financial Statements - HTML 51K
Revised Consolidated Statements of Comprehensive
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84: R72 Revision of Prior Period Financial Statements - HTML 54K
Revised Consolidated Statements of Changes in
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85: R73 Revision of Prior Period Financial Statements - HTML 67K
Revised Consolidated Statements of Cash Flows
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(Exact name of registrant as specified in its charter)
iDelaware
i39-1126612
(State
or other jurisdiction of incorporation)
(I.R.S. Employer Identification No.)
i55 Broadway, iSuite
2901
iNew York, iNew Yorki10006
(i212) i859-7000
(Address, including zip code, and telephone number, including area code, of Registrant’s Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
Title
of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
iCommon Stock, $0.01 Par Value
iAIZ
iNew
York Stock Exchange
i5.25% Subordinated Notes due 2061
iAIZN
iNew
York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes☒ No ☐
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
iLarge
accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging
growth company
i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No ☒
(in millions, except number of shares
and per share amounts)
Assets
Investments:
Fixed maturity securities available for sale, at fair value (amortized cost - $i6,776.3 and $i6,903.9
at June 30, 2022 and December 31, 2021, respectively)
$
i6,308.8
$
i7,215.3
Equity
securities at fair value
i311.0
i445.7
Commercial
mortgage loans on real estate, at amortized cost (net of allowances for credit losses of $i0.9 and $i1.1 at June 30, 2022 and December
31, 2021, respectively)
i293.5
i256.5
Short-term
investments
i179.5
i247.8
Other
investments
i515.2
i506.3
Total investments
i7,608.0
i8,671.6
Cash
and cash equivalents
i1,182.0
i2,040.8
Premiums
and accounts receivable (net of allowances for credit losses of $i8.9 and $i9.4 at June 30, 2022 and December
31, 2021, respectively)
i2,376.9
i1,942.5
Reinsurance
recoverables (net of allowances for credit losses of $i5.7 and $i5.0 at June 30, 2022 and December 31, 2021, respectively)
i6,094.8
i6,181.2
Accrued
investment income
i94.0
i62.1
Deferred
acquisition costs
i9,359.0
i8,811.0
Property
and equipment, net
i608.8
i561.4
Goodwill
i2,558.2
i2,571.6
Value
of business acquired
i397.2
i583.4
Other
intangible assets, net
i676.2
i719.2
Other
assets (net of allowances for credit losses of $i2.3 and $i2.5 at June 30, 2022 and December 31, 2021, respectively)
i773.6
i698.9
Assets
held for sale (Note 4)
i—
i1,076.9
Total
assets
$
i31,728.7
$
i33,920.6
Liabilities
Future
policy benefits and expenses
$
i401.5
$
i413.2
Unearned
premiums
i19,219.5
i18,623.7
Claims
and benefits payable
i1,542.6
i1,604.8
Commissions
payable
i648.6
i692.7
Reinsurance
balances payable
i469.8
i446.2
Funds held under reinsurance
i338.7
i364.2
Accounts
payable and other liabilities
i2,519.5
i3,044.4
Debt
i2,128.8
i2,202.5
Liabilities
held for sale (Note 4)
i—
i1,064.8
Total
liabilities
i27,269.0
i28,456.5
Commitments
and contingencies (Note 16)
i
i
Stockholders’ equity
Common
stock, par value $ii0.01/ per share, ii800,000,000/
shares authorized, i55,557,497 and i58,050,202 shares issued and i53,261,408
and i55,754,113 shares outstanding at June 30, 2022 and December 31, 2021, respectively
(in millions, except number of shares and per share amounts)
Revenues
Net
earned premiums
$
i2,168.9
$
i2,150.6
$
i4,305.3
$
i4,256.2
Fees
and other income
i325.2
i298.5
i647.6
i548.4
Net
investment income
i92.0
i82.9
i178.3
i159.2
Net
realized (losses) gains on investments (including $(i1.6), $i1.2, $(i2.1)
and $i0.2 of impairment-related (losses) gains for the three and six months ended June 30, 2022 and 2021, respectively) and fair value changes to equity securities
(i76.4)
i10.3
(i138.8)
i11.1
Total
revenues
i2,509.7
i2,542.3
i4,992.4
i4,974.9
Benefits,
losses and expenses
Policyholder benefits
i600.0
i535.2
i1,090.0
i1,066.8
Underwriting,
selling, general and administrative expenses
i1,811.7
i1,738.6
i3,602.3
i3,426.4
Interest
expense
i27.2
i28.8
i54.1
i57.2
Loss
on extinguishment of debt
i0.9
i—
i0.9
i—
Total
benefits, losses and expenses
i2,439.8
i2,302.6
i4,747.3
i4,550.4
Income
from continuing operations before income tax expense
i69.9
i239.7
i245.1
i424.5
Income
tax expense
i17.7
i52.6
i43.9
i96.6
Net
income from continuing operations
i52.2
i187.1
i201.2
i327.9
Net
income from discontinued operations (Note 4)
i—
i18.9
i—
i33.2
Net
income
i52.2
i206.0
i201.2
i361.1
Less:
Net loss attributable to non-controlling interest
i—
(i0.2)
i—
i—
Net
income attributable to stockholders
i52.2
i205.8
i201.2
i361.1
Less:
Preferred stock dividends
i—
i—
i—
(i4.7)
Net
income attributable to common stockholders
$
ii52.2/
$
ii205.8/
$
ii201.2/
$
ii356.4/
Earnings
Per Common Share
Basic
Net income from continuing operations
$
i0.96
$
i3.07
$
i3.65
$
i5.38
Net
income from discontinued operations
$
ii—/
$
ii0.31/
$
i—
$
ii0.55/
Net
income attributable to common stockholders
$
i0.96
$
i3.38
$
i3.65
$
i5.93
Diluted
Net
income from continuing operations
$
i0.95
$
i3.05
$
i3.61
$
i5.33
Net
income from discontinued operations
$
ii—/
$
ii0.31/
$
i—
$
ii0.54/
Net
income attributable to common stockholders
$
i0.95
$
i3.36
$
i3.61
$
i5.87
Share
Data
Weighted average common shares outstanding used in basic per common share calculations
i54,607,321
i60,990,609
i55,190,104
i60,096,711
Plus:
Dilutive securities
i407,626
i331,947
i473,842
i1,457,291
Weighted
average common shares outstanding used in diluted per common share calculations
i55,014,947
i61,322,556
i55,663,946
i61,554,002
See
the accompanying Notes to Consolidated Financial Statements (unaudited)
3
Assurant, Inc.
Consolidated Statements of Comprehensive Income (unaudited)
Change in unrealized gains on securities, net of taxes of $i77.5,$(i22.4),
$i162.8 and $i36.4 for the three and six months ended June
30, 2022 and 2021, respectively
(i291.9)
i87.2
(i626.7)
(i123.1)
Change
in unrealized gains on derivative transactions, net of taxes of $i0.2, $i0.2,
$i0.4 and $i0.4
for each of the three and six months ended June 30, 2022 and 2021, respectively
(i0.7)
(i0.6)
(i1.3)
(i1.2)
Change
in foreign currency translation, net of taxes of $i1.0, $(i1.9),
$(i2.6) and $i0.2
for the three and six months ended June 30, 2022 and 2021, respectively
(i41.9)
i13.6
(i40.6)
i20.8
Change
in pension and postretirement unrecognized net periodic benefit cost, net of taxes of $i0.6, $i0.2,
$i0.9 and $i0.7 for the three and six
months ended June 30, 2022 and 2021, respectively
(i2.4)
(i0.7)
(i3.6)
(i2.3)
Total
other comprehensive (loss) income
(i336.9)
i99.5
(i672.2)
(i105.8)
Total
comprehensive (loss) income
(i284.7)
i305.5
(i471.0)
i255.3
Less:
Comprehensive loss attributable to non-controlling interest
i—
(i0.2)
i—
i—
Total
comprehensive (loss) income attributable to stockholders
$
(i284.7)
$
i305.3
$
(i471.0)
$
i255.3
See
the accompanying Notes to Consolidated Financial Statements (unaudited)
4
Assurant, Inc.
Consolidated Statements of Changes in Equity (unaudited)
Assurant, Inc. (the “Company”) is a leading global business services company that supports, protects and connects major consumer purchases. The Company supports the advancement of the connected world by partnering with the world’s leading brands to develop innovative solutions and to deliver an enhanced customer experience through mobile device solutions, extended service contracts,
vehicle protection services, renters insurance, lender-placed insurance products and other specialty products. The Company operates in North America, Latin America, Europe and Asia Pacific through itwo operating segments: Global Lifestyle and Global Housing. Through its Global Lifestyle segment, the Company provides mobile device solutions, extended service products and related services for consumer
electronics and appliances, and credit and other insurance products (referred to as “Connected Living”); and vehicle protection and related services (referred to as “Global Automotive”). Through its Global Housing segment, the Company provides lender-placed homeowners insurance, lender-placed manufactured housing insurance and lender-placed flood insurance (referred to as “Lender-placed Insurance”); renters insurance and related products (referred to as “Multifamily Housing”); and voluntary manufactured housing insurance, voluntary homeowners insurance and other specialty products (referred to as “Specialty and Other”).
The Company’s common stock is traded on the New York Stock Exchange under the symbol “AIZ”.
2. iiBasis of
Presentation /
The accompanying unaudited interim Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, these statements do not include all of the information and notes required by GAAP for complete financial statements.
The interim financial data as of June 30, 2022 and for the three and six months ended June 30, 2022 and 2021 is unaudited. In the opinion of management, the interim data includes all adjustments necessary for a fair
statement of the results for the interim periods. The unaudited interim Consolidated Financial Statements include the accounts of the Company and all of its wholly owned subsidiaries. All inter-company transactions and balances are eliminated in consolidation. Certain prior
9
period amounts have been revised to conform to the current year presentation, including the change to the segment measure of profitability described in Note 5.
Operating results for the three and six months ended June 30, 2022 are
not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The accompanying unaudited interim Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
i
Revision
of Prior Period Financial Statements
In connection with the preparation of the Company’s consolidated statement of operations for the three months ended June 30, 2022, the Company identified an error related to reinsurance of claims and benefits payables within the Connected Living business unit in the Global Lifestyle segment occurring in late 2018 through the three months ended March 31, 2022. In accordance with SAB No. 99, “Materiality,” and SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,”the
Company evaluated the error and determined that the related impact was not material to the Company’s results for any prior period, but that correcting the cumulative impact of the error in the current period would be material to the results of operations for the three months ended June 30, 2022. Accordingly, and for comparability, the Company revised all prior periods impacted including the consolidated balance sheet as of December 31, 2021; and the consolidated statements of operations, comprehensive income and changes in equity, in each case, for the three- and six-month periods ended June 30, 2021, and cash flows for the six-month period ended
June 30, 2021.
In addition, the Company corrected other unrelated immaterial errors which were previously recorded in the periods in which the Company identified them. A summary of revisions to the Company’s previously reported financial statements is presented in Note 17. The Company will also correct previously reported financial information for such errors in its future filings, as applicable.
3.
iiRecent Accounting Pronouncements/
Adopted
Facilitation
of the Effects of Reference Rate Reform on Financial Reporting: In March 2020, the Financial Accounting Standards Board (the “FASB”) issued guidance which provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.
The relief is applicable only to legacy contracts if the amendments made to the agreements are solely for reference rate reform activities. The provisions must be applied consistently for all relevant transactions other than derivatives, which may be applied at a hedging relationship level. The guidance is effective upon issuance. The guidance
on contract modifications is applied prospectively from any date beginning March 12, 2020. Unlike other topics, the provisions of this update are only available until December 31, 2022, when the reference rate replacement activity is expected to have been completed.
This standard is effective as of January 1, 2022, but has no impact on the Company’s consolidated financial statements as the Company currently has no contracts or
hedging relationships for which the reference LIBOR or another rate is expected to be discontinued and a GAAP contract modification is required.
Improvements to Convertible Instruments and Contracts in an Entity’s Own Equity: In August 2020, the FASB issued guidance that simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The guidance removes certain settlement conditions that are required for equity contracts
to qualify for the derivative scope exception, which will permit more contracts in an entity’s own equity to qualify for it. The guidance also simplifies the diluted earnings per common share (“EPS”) calculation in the areas of convertible instruments and instruments that qualify for the derivatives scope exception for contracts in an entity’s own equity to address accounting for the guidance changes to the classification, recognition and measurement.
This standard is effective as of January 1, 2022, but has no impact on the Company’s consolidated financial statements as the
Company currently has no convertible instruments or contracts in its own equity.
10
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
Not Yet Adopted
Targeted
improvements to the accounting for long-duration contracts: In August 2018, the FASB issued guidance that provides targeted improvements to the accounting for long-duration contracts. The guidance includes the following primary changes: assumptions supporting benefit reserves will no longer be locked-in but must be updated at least annually with the impact of changes to the liability reflected in earnings (except for discount rates); the discount rate assumptions will be based on the upper-medium grade (low credit risk) fixed-income instrument yield instead of the earnings rate of invested assets; the discount rate must be evaluated at each reporting date and the impact of changes to the liability estimate as a result of updating the discount rate assumption is required
to be recognized in other comprehensive income; the provision for adverse deviation is eliminated; and premium deficiency testing is eliminated. Other noteworthy changes include the following: differing models for amortizing deferred acquisition costs will become uniform for all long-duration contracts based on a constant rate over the expected term of the related in-force contracts; all market risk benefits associated with deposit contracts must be reported at fair value with changes reflected in income except for changes related to credit risk which will be recognized in other comprehensive income; and disclosures will be expanded to include disaggregated roll forwards of the liability for future
policy benefits, policyholder account balances, market risk benefits, separate account liabilities, and deferred acquisition costs, as well as information about significant inputs, judgments, assumptions and methods used in measurement.
The guidance is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted. Generally, the amendments are applied retrospectively as of the beginning of the earliest period presented with two transition options available for changing the assumptions. With the sale of the disposed Global Preneed business in August 2021, the adoption of this standard is expected to have no material impact on the Company’s financial position and results of operations.
Recognition
and Measurement of Revenue Contracts with Customers Acquired in a Business Combination: In October 2021, the FASB issued guidance to improve comparability after a business combination is reported in the acquirer’s financial statements by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. Generally, the acquirer will recognize the acquired contract assets and contract
liabilities at the same amounts recorded by the acquiree. Historically, such amounts were recognized by the acquirer at fair value in the acquisition accounting. Under the amended guidance, the acquirer should account for the related revenue contracts as if it had originated the contracts. The amendments provide certain practical expedients for acquirers when recognizing and measuring acquired contract assets and contract liabilities from revenue contracts in a business combination.
The
guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption of the amendment is permitted, including adoption in an interim period. An entity that early adopts in an interim period should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application. The adoption of this standard is expected to have no material impact on the Company’s financial position and results of operations.
Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions: In June 2022, the FASB issued guidance on investments in equity securities measured at fair value that are subject to contractual restrictions preventing the sale of those securities. The amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. Disclosures will be required to provide investors with information about the restriction including the fair value of the equity securities subject to any contractual sale restrictions reflected in the balance sheet, the nature and remaining duration of such restrictions, and any circumstances that could cause a lapse in such restrictions.
The guidance is effective for fiscal years
beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The Company plans to early adopt the standard if it invests in equity securities that have contractual restrictions preventing the sale of those securities prior to the effective date.
11
Assurant, Inc.
Notes to Consolidated Financial
Statements (unaudited)
(in millions, except number of shares and per share amounts)
4. iDispositions
Sale of Global Preneed
On August 2, 2021, the Company completed its sale of the legal entities which comprise the businesses previously reported as the Global Preneed segment and certain businesses previously disposed of through reinsurance, which were previously reported in the Corporate and Other segment, to subsidiaries of CUNA Mutual Group for an aggregate purchase price at closing of $i1.34 billion
in cash.
i
The following table summarizes the components of net income from discontinued operations included in the consolidated statements of operations:
Net
realized losses on investments and fair value changes to equity securities
i4.8
i3.7
Loss
on disposal of businesses
(i2.0)
(i6.3)
Total
revenues
i134.2
i256.0
Benefits, losses and expenses
Policyholder
benefits
i74.1
i148.1
Selling,
underwriting, general and administrative expenses
i35.7
i72.4
Total
benefits, losses and expenses
i109.8
i220.5
Income
from discontinued operations before income taxes
i24.4
i35.5
Benefit
for income taxes
i5.5
i2.3
Net
income from discontinued operations
$
i18.9
$
i33.2
/
Sale
of John Alden Life Insurance Company
On April 1, 2022, the Company completed its sale of John Alden Life Insurance Company (“JALIC”), a run-off business reported in the Corporate and Other segment. Prior to the sale, JALIC met the criteria for held for sale presentation and, therefore, its assets and liabilities were recorded as held for sale in the December 31, 2021 consolidated balance sheet. The major classes of assets and liabilities held for sale included $i915.8
million of future policy benefits and expenses, $i881.6 million of reinsurance recoverables, $i159.6 million of other investments and $i117.2
million of claims and benefits payable as December 31, 2021.
Most of the $i881.6 million reinsurance recoverables balance for JALIC, which was included in assets held for sale as of December 31, 2021 was reinsured with Employers Reassurance Corporation and was uncollateralized.
5.
iSegment Information
In conjunction with the transition of our new CEO and chief operating decision maker, the Company changed its segment measure of profitability for its reportable segments to an Adjusted EBITDA metric, as the primary measure used for purposes of making decisions about allocating resources to the segments and assessing performance, from segment net income from continuing operations, effective January
1, 2022. Prior period amounts have been revised to reflect the new segment measure of profitability.
Beginning with second quarter 2022, the Company changed the calculation of its segment measure of profitability, Adjusted EBITDA, to exclude certain businesses which the Company now expects to fully exit, including the long-tail commercial liability businesses in Global Housing (sharing economy and small commercial businesses), as well as certain legacy long-duration insurance policies within Global Lifestyle (collectively referred to as “non-core operations”), and present
12
Assurant, Inc.
Notes
to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
them as a reconciling item to consolidated net income from continuing operations. The non-core operations have been or are in the process of being exited by the Company, but do not qualify as held for sale or discontinued operations under GAAP accounting guidance.
As of June
30, 2022, the Company had ithree reportable segments: Global Lifestyle, Global Housing and Corporate and Other. The Company defines Adjusted EBITDA as net income from continuing operations, excluding net realized gains (losses) on investments and fair value changes to equity securities, COVID-19 direct and incremental expenses, loss on extinguishment of debt, non-core operations (defined
above), net income (loss) attributable to non-controlling interests, interest expense, provision (benefit) for income taxes, depreciation expense, amortization of purchased intangible assets, restructuring costs related to strategic exit activities (outside of normal periodic restructuring and cost management activities), as well as other highly variable or unusual items.
All prior period amounts have been revised, which impacts both segment Adjusted EBITDA and other adjustments under reconciling items to consolidated net income from continuing operations, but does not impact consolidated net income. The sharing economy and small commercial businesses, previously reported through the Company’s Global Housing segment, generated Adjusted EBITDA of $(i37.2) million
and $(i43.3) million for the three and six months ended June 30, 2022, respectively, and Adjusted EBITDA of $i0.6 million
and $i5.5 million for the three and six months ended June 30, 2021, respectively. The legacy long-duration insurance policies included in non-core operations and previously reported through the Company’s Global Lifestyle segment, generated Adjusted EBITDA of $i0.5 million
and $i1.1 million for the three and six months ended June 30, 2022, respectively, and Adjusted EBITDA of $(i0.1) million
and $i0.1 million for the three and six months ended June 30, 2021, respectively.
Segment Adjusted EBITDA was also revised for an error related to reinsurance of claims and benefits payables within the Connected Living business unit in the Global Lifestyle segment, and for other unrelated immaterial errors. See Note 2 for more information.
13
Assurant,
Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
i
The
following table presents segment Adjusted EBITDA with a reconciliation to net income attributable to common shareholders:
(1)Effective
January 1, 2022, the Connected Living line of business includes the previous Global Financial Services and Other line of business. Prior period amounts have been revised to reflect this change.
Net earned premiums, fees and other income for non-core operations were $i14.9 million and $i16.5 million
for the three months ended June 30, 2022 and 2021, respectively, and $i27.4 million and $i31.9 million
for the six months ended June 30, 2022 and 2021, respectively.
The following table presents total assets by segment:
(1)Segment
assets for Global Lifestyle and Global Housing do not include net unrealized gains (losses) on securities attributable to those segments, which are all included within Corporate and Other.
(2)Includes the assets for non-core operations of $i310.5 million and $i326.3 million
as of June 30, 2022 and December 31, 2021, respectively.
The
Company partners with clients to provide consumers with a diverse range of protection products and services. The Company’s revenues from protection products are accounted for as insurance contracts and are recognized over the term of the insurance protection provided. Revenues from service contracts and sales of products are recognized as the contractual performance obligations are satisfied or the products are delivered. Revenue is measured as the amount of consideration the Company expects to be entitled to in exchange for performing the services or transferring products. If payments are received before the related
revenue is recognized, the amount is recorded as unearned revenue or advance payment liabilities, until the performance obligations are satisfied or the products are transferred.
The disaggregated revenues from service contracts included in fees and other income on the consolidated statements of operations are $i290.0 million and $i301.1
million for Global Lifestyle and $i21.2 million and $i24.9
million for Global Housing for the three months ended June 30, 2022 and 2021, respectively. The disaggregated revenues from service contracts included in fees and other income on the consolidated statement of operations are $i567.6 million and $i466.1
million for Global Lifestyle and $i43.6 million and $i49.4
million for Global Housing for the six months ended June 30, 2022 and 2021, respectively.
Global Lifestyle
In the Company’s Global Lifestyle segment, revenues from service contracts and sales of products are primarily from the Company’s Connected Living business. Through partnerships with mobile carriers, the Company provides administrative
15
Assurant,
Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
services related to its mobile device protection products, including program design and marketing strategy, risk management, data analytics, customer support and claims handling, supply chain and service delivery, repair and logistics, and device disposition. Administrative fees are generally billed monthly based on the volume of services provided during the billing
period (for example, based on the number of mobile subscribers) with payment due within a short-term period. Each service or bundle of services, depending on the contract, is an individual performance obligation with a standalone selling price. The Company recognizes revenue as it invoices, which corresponds to the value transferred to the customer.
The Company also repairs, refurbishes and then sells mobile and other electronic devices, on behalf of its clients, for a bundled per unit fee. The entire processing of the device is considered one performance obligation with a standalone selling price and thus, the per unit fee is recognized when the products are sold.
Payments are generally due prior to shipment or within a short-term period.
Global Housing
In the Company’s Global Housing segment, revenues from service contracts and sales of products are primarily from the Company’s Lender-placed Insurance business. Under the Company’s Lender-placed Insurance business, the Company provides loan and claim payment tracking services for lenders. The
Company generally invoices its customers weekly or monthly based on the volume of services provided during the billing period with payment due within a short-term period. Each service is an individual performance obligation with a standalone selling price. The Company recognizes revenue as it invoices, which corresponds to the value transferred to the customer.
The receivables and unearned revenue under these contracts were $i320.5
million and $i176.8 million, respectively, as of June 30, 2022, and $i313.7 million and $i191.5
million, respectively, as of December 31, 2021. These balances are included in premiums and accounts receivable and accounts payable and other liabilities, respectively, in the consolidated balance sheets. Revenue from service contracts and sales of products recognized during the three months ended June 30, 2022 and 2021 that was included in unearned revenue as of December 31, 2021 and 2020 was $i26.4
million and $i23.4 million, respectively. Revenue from service contracts and sales of products recognized during the six months ended June 30, 2022 and 2021 that was included in unearned revenue as of December 31, 2021 and 2020 was $i49.0
million and $i35.1 million, respectively.
In certain circumstances, the Company defers upfront commissions and other costs in connection with client contracts in excess of one year where the Company can demonstrate future
economic benefit. For these contracts, expense is recognized as revenues are earned. The Company periodically assesses recoverability based on the performance of the related contracts. As of June 30, 2022 and December 31, 2021, the Company had approximately $i86.8
million and $i93.0 million, respectively, of such intangible assets attributed to service contracts that will be expensed over the term of the client contracts.
16
Assurant,
Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
7. iInvestments
i
The
following tables show the cost or amortized cost, allowance for credit losses, gross unrealized gains and losses, and fair value of the Company’s fixed maturity securities as of the dates indicated:
U.S.
government and government agencies and authorities
$
i83.0
$
i—
$
i2.1
$
(i0.1)
$
i85.0
States,
municipalities and political subdivisions
i142.2
i—
i7.0
(i0.7)
i148.5
Foreign
governments
i436.0
i—
i5.9
(i4.2)
i437.7
Asset-backed
i411.1
i—
i14.2
(i2.3)
i423.0
Commercial
mortgage-backed
i466.7
i—
i10.3
(i3.3)
i473.7
Residential
mortgage-backed
i578.4
i—
i25.2
(i1.7)
i601.9
U.S.
corporate
i3,581.2
i—
i235.9
(i14.0)
i3,803.1
Foreign
corporate
i1,205.3
i—
i46.0
(i8.9)
i1,242.4
Total
fixed maturity securities
$
i6,903.9
$
i—
$
i346.6
$
(i35.2)
$
i7,215.3
/
iThe
cost or amortized cost and fair value of fixed maturity securities as of June 30, 2022 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.
17
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
Cost
or Amortized Cost
Fair Value
Due in one year or less
$
i212.2
$
i211.9
Due
after one year through five years
i1,731.5
i1,683.1
Due
after five years through ten years
i2,192.6
i2,013.5
Due
after ten years
i1,046.9
i902.7
Total
i5,183.2
i4,811.2
Asset-backed
i590.6
i562.1
Commercial
mortgage-backed
i450.7
i417.5
Residential
mortgage-backed
i551.8
i518.0
Total
$
i6,776.3
$
i6,308.8
i
The
following table sets forth the net realized gains (losses) on investments and fair value changes to equity securities, including impairments, recognized in the consolidated statements of operations for the periods indicated:
Net realized (losses) gains on investments related to sales and other and fair value changes to equity securities:
Fixed maturity securities
$
(i22.6)
$
i0.2
$
(i41.1)
$
i3.2
Equity
securities (1)
(i54.0)
i7.2
(i97.2)
i5.5
Commercial
mortgage loans on real estate
i—
(i0.1)
i0.2
i0.2
Other
investments
i1.8
i1.8
i1.4
i2.0
Total
net realized (losses) gains on investments related to sales and other and fair value changes to equity securities
(i74.8)
i9.1
(i136.7)
i10.9
Net
realized (losses) gains related to impairments:
Fixed maturity securities
(i1.6)
i1.2
(i1.6)
i1.2
Other
investments
i—
i—
(i0.5)
(i1.0)
Total
net realized (losses) gains related to impairments
(i1.6)
i1.2
(i2.1)
i0.2
Total
net realized (losses) gains on investments and fair value changes to equity securities
$
(i76.4)
$
i10.3
$
(i138.8)
$
i11.1
(1)Upward
adjustments of $i9.5 million, $i19.5
million, $i0.0 million and $i2.1 million
and impairments of $i0.0 million, $i0.0
million, $i0.0 million and $i1.0 million
were realized on equity investments accounted for under the measurement alternative for the three and six months ended June 30, 2022 and 2021, respectively.
/i
The following table sets forth the portion of fair value changes to equity securities held for the periods
indicated:
Net
(losses) gains recognized on equity securities
$
(i54.0)
$
i7.2
$
(i97.2)
$
i5.5
Less:
Net realized gains related to sales of equity securities
i8.4
i0.1
i20.2
i1.0
Total
fair value changes to equity securities held (1)
$
(i62.4)
$
i7.1
$
(i117.4)
$
i4.5
/
(1)Three
and six months ended June 30, 2022 included $i44.2 million and $i77.9 million
of net losses from four equity positions that went public during 2021. The total fair value of these investments as of June 30, 2022 was $i25.0 million, included in equity securities on the consolidated balance sheet.
Equity investments accounted for under the measurement alternative are included within other investments on the consolidated balance sheets. iThe
following table summarizes information related to these investments:
18
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
The
investment category and duration of the Company’s gross unrealized losses on fixed maturity securities as of June 30, 2022 and December 31, 2021 were as follows:
U.S. government and government agencies and authorities
$
i31.5
$
(i0.1)
$
i—
$
i—
$
i31.5
$
(i0.1)
States,
municipalities and political subdivisions
i48.1
(i0.7)
i—
i—
i48.1
(i0.7)
Foreign
governments
i216.0
(i4.1)
i4.0
(i0.1)
i220.0
(i4.2)
Asset-backed
i257.7
(i2.1)
i9.8
(i0.2)
i267.5
(i2.3)
Commercial
mortgage-backed
i274.8
(i2.9)
i2.0
(i0.4)
i276.8
(i3.3)
Residential
mortgage-backed
i94.0
(i1.5)
i10.0
(i0.2)
i104.0
(i1.7)
U.S.
corporate
i687.8
(i13.1)
i15.2
(i0.9)
i703.0
(i14.0)
Foreign
corporate
i394.0
(i8.6)
i6.7
(i0.3)
i400.7
(i8.9)
Total
fixed maturity securities
$
i2,003.9
$
(i33.1)
$
i47.7
$
(i2.1)
$
i2,051.6
$
(i35.2)
/
Total
gross unrealized losses represented approximately i10% and i2% of the aggregate fair value of the related securities as of June
30, 2022 and December 31, 2021, respectively. Approximately i89% and i94%
of these gross unrealized losses had been in a continuous loss position for less than twelve months as of June 30, 2022 and December 31, 2021, respectively. The total gross unrealized losses are comprised of i3,518 and i1,202
individual securities as of June 30, 2022 and December 31, 2021, respectively. In accordance with its policy, the Company concluded that for these securities, the gross unrealized losses as of June 30, 2022 and December 31, 2021 were related to non-credit factors and therefore, did not recognize credit-related losses
19
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
during
the three and six months ended June 30, 2022. Additionally, the Company currently does not intend to and is not required to sell these investments prior to an anticipated recovery in value.
The Company has entered into commercial mortgage loans, collateralized by the underlying real estate, on properties located throughout the U.S. As of June 30, 2022, approximately i38%
of the outstanding principal balance of commercial mortgage loans was concentrated in the states of California, Texas and Nevada. Although the Company has a diversified loan portfolio, an economic downturn could have an adverse impact on the ability of its debtors to repay their loans. The outstanding balance of commercial mortgage loans range in size from less than $i0.1 million to $i9.4 million
as of June 30, 2022 and from $i0.1 million to $i9.6 million as of December 31, 2021.
Credit
quality indicators for commercial mortgage loans are loan-to-value and debt-service coverage ratios. The loan-to-value ratio compares the principal amount of the loan to the fair value of the underlying property collateralizing the loan, and is commonly expressed as a percentage. The debt-service coverage ratio compares a property’s net operating income to its debt-service payments and is commonly expressed as a ratio. The loan-to-value and debt-service coverage ratios are generally updated annually in the fourth quarter.
i
The
following table presents the amortized cost basis of commercial mortgage loans, excluding the allowance for credit losses, by origination year for certain key credit quality indicators at June 30, 2022 and December 31, 2021.
(1)Loan-to-value
ratio derived from current loan balance divided by the fair value of the property. The fair value of the underlying commercial properties is updated at least annually.
(2)Debt-service coverage ratio calculated using most recent reported operating results from property operators divided by annual debt service coverage.
8. iFair
Value Disclosures
Fair Values, Inputs and Valuation Techniques for Financial Assets and Liabilities Disclosures
The fair value measurements and disclosures guidance defines fair value and establishes a framework for measuring fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company has categorized its recurring fair value basis financial assets and liabilities into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique.
The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1)
and the lowest priority to unobservable inputs (Level 3). The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and takes into account factors specific to the asset or liability.
The levels of the fair value hierarchy are described below:
•Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the
Company can access.
•Level 2 inputs utilize other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that
21
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
are
not active and inputs other than quoted prices that are observable in the marketplace for the asset or liability. The observable inputs are used in valuation models to calculate the fair value for the asset or liability.
•Level 3 inputs are unobservable but are significant to the fair value measurement for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.
The Company reviews fair value hierarchy classifications on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value
hierarchy.
i
The following tables present the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021. The amounts presented below for short-term investments, other investments,
cash equivalents, other assets, assets held in and liabilities related to separate accounts and other liabilities differ from the amounts presented in the consolidated balance sheets because only certain investments or certain assets and liabilities within these line items are measured at estimated fair value. Other investments are comprised of investments in the Assurant Investment Plan (“AIP”), the American Security Insurance Company Investment Plan, the Assurant Deferred Compensation Plan and other derivatives. Other liabilities are comprised of investments in the AIP, contingent considerations related to business combinations and other derivatives. The fair value amount and the majority of the associated levels presented for other investments and assets and liabilities held in separate accounts are received directly from third parties.
U.S.
government and government agencies and authorities
$
i85.0
$
i—
$
i85.0
$
i—
States,
municipalities and political subdivisions
i148.5
i—
i148.5
i—
Foreign
governments
i437.7
i—
i437.7
i—
Asset-backed
i423.0
i—
i423.0
i—
Commercial
mortgage-backed
i473.7
i—
i473.7
i—
Residential
mortgage-backed
i601.9
i—
i601.9
i—
U.S.
corporate
i3,803.1
i—
i3,799.7
i3.4
Foreign
corporate
i1,242.4
i—
i1,238.8
i3.6
Equity
securities:
Mutual funds
i33.3
i33.3
i—
i—
Common
stocks
i151.1
i15.5
i0.7
i134.9
(6)
Non-redeemable
preferred stocks
i261.3
i—
i261.3
i—
Short-term
investments
i207.2
i200.1
(2)
i7.1
i—
Other
investments
i72.6
i72.4
(1)
i—
i0.2
Cash
equivalents
i1,243.9
i1,190.9
(2)
i53.0
(3)
i—
Other
assets
i1.7
i—
i1.7
(4)
i—
Assets
held in separate accounts
i11.8
i7.7
(1)
i4.1
(3)
i—
Total
financial assets
$
i9,198.2
$
i1,519.9
$
i7,536.2
$
i142.1
Financial
Liabilities
Other liabilities
$
i76.4
$
i72.4
(1)
$
i—
$
i4.0
(5)
Liabilities
related to separate accounts
i11.8
i7.7
(1)
i4.1
(3)
i—
Total
financial liabilities
$
i88.2
$
i80.1
$
i4.1
$
i4.0
(1)Primarily
includes mutual funds and related obligations.
(2)Primarily includes money market funds.
(3)Primarily includes fixed maturity securities and related obligations.
(4)Primarily includes derivatives.
(5)Includes contingent consideration liabilities and other derivatives.
(6)These equity securities are subject to lock up agreements and therefore an illiquidity discount was applied to the exchange traded price, which includes significant unobservable inputs.
23
Assurant, Inc.
Notes
to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
i
The
following tables disclose the carrying value, fair value and hierarchy level of the financial instruments that are not recognized or are not carried at fair value in the consolidated balance sheets as of the dates indicated:
Policy reserves under investment products (Individual and group annuities, subject to discretionary withdrawal) (1)
$
i8.5
$
i9.6
$
i—
$
i—
$
i9.6
Funds
withheld under reinsurance
i364.2
i364.2
i364.2
i—
i—
Debt
i2,202.5
i2,456.3
i—
i2,456.3
i—
Total
financial liabilities
$
i2,575.2
$
i2,830.1
$
i364.2
$
i2,456.3
$
i9.6
/
(1)Only
the fair value of the Company’s policy reserves for investment-type contracts (those without significant mortality or morbidity risk) are reflected in the tables above.
9. iDeferred Acquisition
Costs
i
The following table discloses information about deferred acquisition costs as of the dates indicated:
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
10. iReserves
Reserve
Roll Forward
i
The following table provides a roll forward of the Company’s beginning and ending claims and benefits payable balances. Claims and benefits payable is the liability for unpaid loss and loss adjustment expenses and is comprised of case and incurred but not reported (“IBNR”) reserves.
Since unpaid loss and loss adjustment expenses are
estimates, the Company’s actual losses incurred may be more or less than the Company’s previously developed estimates, which is referred to as either unfavorable or favorable development, respectively.
The best estimate of ultimate loss and loss adjustment expense is generally selected from a blend of methods that are applied consistently each period. There have been no significant changes in the methodologies and assumptions utilized in estimating the liability for unpaid loss and loss adjustment expenses for any of the periods presented.
Claims and benefits payable, at beginning of period
$
i1,604.8
$
i1,619.9
Less:
Reinsurance ceded and other
(i825.9)
(i850.5)
Net
claims and benefits payable, at beginning of period
i778.9
i769.4
Incurred
losses and loss adjustment expenses related to:
Current year
i1,070.3
i1,106.2
Prior
years
i19.7
(i39.4)
Total
incurred losses and loss adjustment expenses
i1,090.0
i1,066.8
Paid
losses and loss adjustment expenses related to:
Current year
i631.6
i688.1
Prior
years
i383.5
i370.5
Total
paid losses and loss adjustment expenses
i1,015.1
i1,058.6
Net
claims and benefits payable, at end of period
i853.8
i777.6
Plus:
Reinsurance ceded and other (1)
i688.8
i831.3
Claims
and benefits payable, at end of period (1)
$
i1,542.6
$
i1,608.9
/
(1)Includes
reinsurance recoverables and claims and benefits payable of $i56.0 million and $i76.1 million as of June 30, 2022 and 2021,
respectively, which was ceded to the U.S. government. The Company acts as an administrator for the U.S. government under the voluntary National Flood Insurance Program.
The Company experienced net unfavorable loss development for the six months ended June 30, 2022 of $i19.7 million
and net favorable loss development of $i39.4 million for the six months ended June 30, 2021 as presented in the roll forward table above. The unfavorable development is attributed to the sharing economy and small commercial lines of business, now reported in the Corporate and Other segment within non-core operations.
Global
Lifestyle contributed $i40.7 million and $i35.0
million to the net favorable loss development for the six months ended June 30, 2022 and 2021, respectively. The net favorable loss development in both periods was attributable to nearly all lines of business across most of the Company’s regions with a concentration on more recent accident years and based on emerging evaluations regarding loss experience each period. For the six months ended June 30, 2022, Global Automotive also experienced favorable loss development from ancillary products due to the strong used vehicle market. Many of these contracts and products contain retrospective commission (profit sharing) provisions that would result in
offsetting increases or decreases in expense dependent on if the development was favorable or unfavorable.
Global Housing contributed $i15.2 million of net unfavorable loss development for the six months ended June 30, 2022 and $i5.7 million
of net favorable development for the six months ended June 30, 2021. The net unfavorable loss development for the six months ended June 30, 2022 was comprised of $i1.5 million from non-catastrophe losses and $i13.7 million
from prior catastrophe events. Hurricane Eta from accident year 2020 drove the unfavorable development for catastrophes where the
25
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
loss development pattern was longer than expected and the average claim
severities were higher than expected. For non-catastrophe losses, Lender-placed Insurance products developed unfavorably due to inflationary impacts on severity, partially offset by favorable development across other products. The net favorable loss development for the six months ended June 30, 2021 were attributable to multiple lines of business with a concentration in recent accident years.
The sharing economy and small commercial lines of business, reported within non-core operations, contributed $i49.3 million
and $i5.3 million in unfavorable development during the six months ended June 30, 2022 and 2021, respectively. The $i49.3 million
in unfavorable development consists of $i38.0 million from sharing economy and $i11.3 million
from small commercial. The unfavorable development from sharing economy was driven by emerging adverse claim development trends on known claims as well as reserve assumption revisions to reflect relevant industry benchmarks. Both sharing economy and small commercial experienced unfavorable development on known claims driven by social inflation and the release of the backlog from courts reopening after COVID-19. All others contributed $i4.1 million
and $i4.0 million of net favorable loss development for the six months ended June 30, 2022 and 2021 respectively.
11.
iDebt
Debt Redemption
In June 2022, the Company redeemed $i75.0
million of the $i300.0 million then outstanding aggregate principal amount of its i4.20% Senior Notes due September 2023 at a make-whole premium plus accrued and unpaid interest to the
redemption date. In connection with the redemption, the Company recognized a loss on extinguishment of debt of $i0.9 million.
12. iAccumulated
Other Comprehensive Income
Certain amounts included in the consolidated statements of comprehensive income are net of reclassification adjustments. iThe following tables summarize those reclassification adjustments (net of taxes) for the periods indicated:
Amortization of pension and postretirement unrecognized net periodic benefit cost:
Amortization of net loss
$
i2.2
$
i3.6
(1)
Amortization
of prior service credit
(i6.8)
(i6.8)
(1)
(i4.6)
(i3.2)
i1.0
i0.6
Provision
for income taxes
$
(i3.6)
$
(i2.6)
Net
of tax
Total reclassifications for the period
$
i21.2
$
(i9.0)
Net
of tax
/
(1)These AOCI components are included in the computation of net periodic pension cost. For additional information, see Note 15.
28
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
13.
iEquity Transactions
Mandatory Convertible Preferred Stock (“MCPS”)
In March 2018, the Company issued i2,875,000
shares of the MCPS, with a par value of $i1.00 per share, at a public offering price of $i100.00 per share. Each outstanding share of MCPS converted in March 2021 into i0.9405
of common shares, or i2,703,911 common shares in total plus an immaterial amount of cash in lieu of fractional shares. The Company used a portion of its treasury stock for the common shares, using the average cost method to account for the reissuance of such shares.
Dividends on the MCPS were payable on a cumulative basis when, as and if declared, at an annual rate of i6.50%
of the liquidation preference of $i100.00 per share. The Company paid preferred stock dividends of $i4.7
million for the six months ended June 30, 2021.
14. iEarnings Per Common Share
iThe
following table presents net income, the weighted average common shares used in calculating basic EPS and those used in calculating diluted EPS for each period presented below.Diluted EPS reflects the incremental common shares from: (1) common shares issuable upon vesting of performance share units (“PSUs”) and the purchase of shares under the Employee Stock Purchase Plan (the “ESPP”) using the treasury stock method; and (2) common shares issuable upon the conversion of the MCPS using the if-converted method. The outstanding restricted stock units (“RSUs”) have non-forfeitable rights to dividend equivalents and are therefore included in calculating basic and diluted EPS under the two-class method.
29
Assurant, Inc.
Notes
to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
Less:
Net loss attributable to non-controlling interest
i—
(i0.2)
i—
i—
Net
income from continuing operations attributable to stockholders
i52.2
i186.9
i201.2
i327.9
Less:
Preferred stock dividends
i—
i—
i—
(i4.7)
Net
income from continuing operations attributable to common stockholders
ii52.2/
ii186.9/
ii201.2/
ii323.2/
Less:
Common stock dividends paid
(i38.6)
(i41.8)
(i76.0)
(i80.0)
Undistributed
earnings
$
ii13.6/
$
ii145.1/
$
ii125.2/
$
ii243.2/
Net
income from continuing operations attributable to common stockholders
$
ii52.2/
$
ii186.9/
$
ii201.2/
$
ii323.2/
Add:
Net income from discontinued operations
i—
i18.9
i—
i33.2
Net
income attributable to common stockholders
$
ii52.2/
$
ii205.8/
$
ii201.2/
$
ii356.4/
Denominator
Weighted
average common shares outstanding used in basic per common share calculations
i54,607,321
i60,990,609
i55,190,104
i60,096,711
Incremental
common shares from:
PSUs
i361,287
i286,233
i427,503
i334,904
ESPP
i46,339
i45,714
i46,339
i45,714
MCPS
i—
i—
i—
i1,076,673
Weighted
average common shares outstanding used in diluted per common share calculations
i55,014,947
i61,322,556
i55,663,946
i61,554,002
Earnings
per common share - Basic
Distributed earnings
$
i0.71
$
i0.69
$
i1.38
$
i1.33
Undistributed
earnings
i0.25
i2.38
i2.27
i4.05
Net
income from continuing operations
i0.96
i3.07
i3.65
i5.38
Net
income from discontinued operations
ii—/
ii0.31/
i—
ii0.55/
Net
income attributable to common stockholders
$
i0.96
$
i3.38
$
i3.65
$
i5.93
Earnings
per common share - Diluted
Distributed earnings
$
i0.70
$
i0.68
$
i1.36
$
i1.30
Undistributed
earnings
i0.25
i2.37
i2.25
i4.03
Net
income from continuing operations
i0.95
i3.05
i3.61
i5.33
Net
income from discontinued operations
ii—/
ii0.31/
i—
ii0.54/
Net
income attributable to common stockholders
$
i0.95
$
i3.36
$
i3.61
$
i5.87
Average
PSUs totaling i82,222 and i1,590
for the three months ended June 30, 2022 and 2021, respectively, were anti-dilutive and thus not included in the computation of diluted EPS under the treasury stock method. Average PSUs totaling i48,673 and i35,164
for the six months ended June 30, 2022 and 2021, respectively, were anti-dilutive and thus not included in the computation of diluted EPS under the treasury stock method.
15. iRetirement and Other Employee Benefits
The
Company and its subsidiaries participate in a non-contributory, qualified defined benefit pension plan (“Assurant Pension Plan”) covering substantially all employees prior to closing to new hires on January 1, 2014. The Company also has various non-contributory, non-qualified supplemental plans covering certain employees, including the Assurant Executive
30
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
Pension
Plan and the Assurant Supplemental Executive Retirement Plan. The qualified and non-qualified plans are referred to as “Pension Benefits” unless otherwise noted. In addition, the Company provides certain life and health care benefits (“Retirement Health Benefits”) for retired employees and their dependents. The Pension Benefits and Retirement Health Benefits (together, the “Plans”) were frozen on March 1, 2016.
In February 2020, the Company amended the Retirement Health Benefits to terminate effective December 31, 2024 (the “Termination Date”). Benefits will be paid up to the Termination Date. The Retirement Health Benefits obligations
were re-measured using a discount rate of i1.55%, selected based on a cash flow analysis using a bond yield curve as of February 29, 2020, and the fair market value of the Retirement Health Benefits assets as of February 29, 2020. The remeasurement resulted in a reduction to the Retirement Health Benefits obligations of $i65.6
million and a corresponding prior service credit in AOCI, which will be reclassified from AOCI as it is amortized in the net periodic benefit cost over the remaining period until the Termination Date.
i
The following tables present the components of net periodic benefit cost for the Plans for the three and six months ended June 30, 2022 and 2021:
The
Assurant Pension Plan funded status was $i76.9 million at June 30, 2022 and $i74.8
million at December 31, 2021 (based on the fair value of the assets compared to the accumulated benefit obligation). This equates to a i113% and i110% funded status at
June 30, 2022 and December 31, 2021, respectively. During the six months ended June 30, 2022, ino cash was contributed to the Assurant Pension Plan. Due to the Assurant Pension Plan’s current funded status, ino
additional cash is expected to be contributed to the Assurant Pension Plan over the remainder of 2022.
16. iCommitments and Contingencies
Letters of Credit
In the normal course of business, letters of credit are issued primarily to support reinsurance arrangements
in which the Company is the reinsurer. These letters of credit are supported by commitments under which the Company is required to indemnify the financial institution issuing the letter of credit if the letter of credit is drawn. The Company had $i7.1 million and $i7.2
million of letters of credit outstanding as of June 30, 2022 and December 31, 2021, respectively.
31
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
Legal
and Regulatory Matters
The Company is involved in a variety of litigation and legal and regulatory proceedings relating to its current and past business operations and, from time to time, it may become involved in other such actions. The Company continues to defend itself vigorously in these proceedings. The Company has participated and may participate in settlements on terms that the Company considers reasonable.
The Company has established an accrued
liability for certain legal and regulatory proceedings. The possible loss or range of loss resulting from such litigation and regulatory proceedings, if any, in excess of the amounts accrued is inherently unpredictable and uncertain. Consequently, no estimate can be made of any possible loss or range of loss in excess of the accrual. Although the Company cannot predict the outcome of any pending legal or regulatory proceeding, or the potential losses, fines, penalties or equitable relief, if any, that may result, it is possible that such outcome could have a material adverse effect on the Company’s consolidated results of operations or cash flows for an individual reporting period. However, on the basis of currently available information, management does not believe that the pending matters are likely
to have a material adverse effect, individually or in the aggregate, on the Company’s financial condition.
17. iRevision of Prior Period Financial Statements
The Company revised certain prior
period financial statements for an error related to reinsurance of claims and benefits payables within the Connected Living business unit in the Global Lifestyle segment occurring in late 2018 through first quarter 2022 that resulted in an understatement of policyholder benefits and an overstatement of net income. See Note 2 for additional information. In addition, the Company has corrected other unrelated immaterial errors which were previously recorded in the periods in which the Company identified them.
Recording the cumulative impact of the errors in the second quarter financials of 2022 would have a material impact on the results of operation for the quarter. A summary of revisions to our previously reported financial statements is presented below
(in millions, except for per share data).
Change
in deferred acquisition costs and value of business acquired
(i430.3)
i5.5
(i424.8)
Change
in taxes payable
i24.5
i0.1
i24.6
Change
in other assets and other liabilities
(i45.6)
(i3.2)
(i48.8)
Other
(i7.9)
i3.0
(i4.9)
Net
cash (used in) provided by operating activities
i529.0
i—
i529.0
34
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except number of shares and per share amounts)
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and the annual audited consolidated financial statements for the year ended December 31, 2021 and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report”) filed with the U.S. Securities and Exchange Commission (the “SEC”) and the unaudited consolidated financial statements for the three and six months ended June
30, 2022 and accompanying notes (the “Consolidated Financial Statements”) included elsewhere in this Quarterly Report on Form 10-Q (this “Report”). The following discussion and analysis covers the three and six months ended June 30, 2022 (“Second Quarter 2022” and “Six Months 2022”) and the three and six months ended June 30, 2021 (“Second Quarter 2021” and “Six Months 2021”).
Some of the statements in this Report, including our business and financial plans and any statements regarding our anticipated future financial performance, business prospects, growth and operating strategies and similar matters, may constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these statements by the use of words such
as “outlook,”“objective,”“will,”“may,”“can,”“anticipates,”“expects,”“estimates,”“projects,”“intends,”“plans,”“believes,”“targets,”“forecasts,”“potential,”“approximately,” and the negative version of those words and other words and terms with a similar meaning. Any forward-looking statements contained in this Report are based upon our historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that our future plans, estimates or expectations will be achieved. Our actual results might differ materially from those projected in the forward-looking statements. We undertake no obligation to update or review any forward-looking statement, whether as a result of new information, future events or other developments. The following
factors could cause our actual results to differ materially from those currently estimated by management:
(i)the loss of significant clients, distributors or other parties with whom we do business, or if we are unable to renew contracts with them on favorable terms, or if those parties face financial, reputational or regulatory issues;
(ii)significant competitive pressures, changes in customer preferences and disruption;
(iii)the failure to execute our strategy, including through the continuing service of key executives, senior leaders, highly-skilled personnel and a high-performing workforce;
(iv)the failure
to find suitable acquisitions at attractive prices, integrate acquired businesses effectively or identify new areas for organic growth;
(v)our inability to recover should we experience a business continuity event;
(vi)the failure to manage vendors and other third parties on whom we rely to conduct business and provide services to our clients;
(vii)risks related to our international operations;
(viii)declines in the value of mobile devices, or export compliance or other risks in our mobile business;
(ix)our inability to develop and maintain distribution sources or attract and retain sales representatives and executives with key
client relationships;
(x)risks associated with joint ventures, franchises and investments in which we share ownership and management with third parties;
(xi)the impact of catastrophe and non-catastrophe losses, including as a result of the current inflationary environment and climate change;
(xii)negative publicity relating to our business or industry;
(xiii)the impact of general economic, financial market and political conditions and conditions in the markets in which we operate, including the current inflationary environment (that has increased the costs of paying claims, including for materials and labor, as well as our employee wages), any prolonged recessionary environment and the conflict in
Ukraine;
(xiv)the impact of the COVID-19 pandemic and measures taken in response thereto;
(xv)the adequacy of reserves established for claims and our inability to accurately predict and price for claims;
(xvi)a decline in financial strength ratings of our insurance subsidiaries or in our corporate senior debt ratings;
(xvii)fluctuations in exchange rates;
(xviii)an impairment of goodwill or other intangible assets;
35
(xix)the failure to maintain effective internal control over financial reporting;
(xx)unfavorable conditions in the capital and credit markets;
(xxi)a decrease in the value of our investment portfolio, including due to market, credit and liquidity risks, and changes in interest rates;
(xxii)an impairment in the value of our deferred tax assets;
(xxiii)the unavailability or inadequacy of reinsurance coverage and the credit risk of reinsurers, including those to whom we have sold business through reinsurance;
(xxiv)the credit risk of some of our agents, third-party
administrators and clients;
(xxv)the inability of our subsidiaries to pay sufficient dividends to the holding company and limitations on our ability to declare and pay dividends or repurchase shares;
(xxvi)limitations in the analytical models we use to assist in our decision-making;
(xxvii)the failure to effectively maintain and modernize our information technology systems and infrastructure, or the failure to integrate those of acquired businesses;
(xxviii)breaches of our information systems or those of third parties with whom we do business, or the failure to protect the security of data in such systems,
including due to cyberattacks and as a result of working remotely;
(xxix)the costs of complying with, or the failure to comply with, extensive laws and regulations to which we are subject, including those related to privacy, data security, data protection or tax;
(xxx)the impact of litigation and regulatory actions;
(xxxi)reductions or deferrals in the insurance premiums we charge;
(xxxii)changes in insurance, tax and other regulations;
(xxxiii)volatility in our common stock price and trading volume; and
(xxxiv)employee misconduct.
For
additional information on factors that could affect our actual results, please refer to “Critical Factors Affecting Results” below and in Item 7 of our 2021 Annual Report, and “Item 1A—Risk Factors” below and in our 2021 Annual Report.
Reportable Segments
As of June 30, 2022, we had three reportable segments which are defined based on the manner in which the Company’s chief operating decision maker, our Chief Executive Officer (“CEO”), reviews the business to assess performance and allocate resources, and which align to the nature of the products and services offered:
•Global Lifestyle: includes mobile device solutions, extended service products and related
services for consumer electronics and appliances, and credit and other insurance products (referred to as “Connected Living”); and vehicle protection and related services (referred to as “Global Automotive”);
•Global Housing: includes lender-placed homeowners insurance, lender-placed manufactured housing insurance and lender-placed flood insurance (referred to as “Lender-placed Insurance”); renters insurance and related products (referred to as “Multifamily Housing”); and voluntary manufactured housing insurance, voluntary homeowners insurance and other specialty products (referred to as “Specialty and Other”); and
•Corporate and Other: includes corporate employee-related expenses and activities of the holding company.
In conjunction with the transition of
our new CEO and chief operating decision maker, we changed our segment measure of profitability for its reportable segments to an Adjusted EBITDA metric, as the primary measure used for purposes of making decisions about allocating resources to the segments and assessing performance, from segment net income from continuing operations, effective January 1, 2022. Prior period amounts have been revised to reflect the new segment measure of profitability.
We define Adjusted EBITDA as net income from continuing operations, excluding net realized gains (losses) on investments and fair value changes to equity securities, COVID-19 direct and incremental expenses, loss on extinguishment of debt, non-core operations (defined below), net income (loss) attributable to non-controlling interests, interest expense, provision (benefit) for income taxes, depreciation expense, amortization of
purchased intangible assets, restructuring costs related to strategic exit activities (outside of normal periodic restructuring and cost management activities), as well as other highly variable or unusual items.
36
Executive Summary
Beginning with Second Quarter 2022, we changed the calculation of our segment measure of profitability, Adjusted EBITDA, to exclude certain businesses which we now expect to fully exit, including the long-tail commercial liability businesses in Global Housing (sharing economy and small commercial businesses), as well as certain legacy long-duration insurance policies within Global
Lifestyle (collectively referred to as “non-core operations”). All prior period amounts have been revised, which impacts segment Adjusted EBITDA but does not impact consolidated net income. See Note 5 to the Consolidated Financial Statements included elsewhere in this Report for more information.
We have also revised our prior period financial statements to reflect the correction of an error identified in Second Quarter 2022 related to reinsurance of claims and benefits payables within the Connected Living business unit in our Global Lifestyle segment occurring in late 2018 through first quarter 2022, as well as other immaterial errors which were previously recorded in the periods in which the Company identified them. See Notes 2 and 17 to the Consolidated Financial Statements included elsewhere in this Report for more information.
Additionally, prior period disclosures have been revised to include Hurricane Eta, which should have been classified as a reportable catastrophe since fourth quarter 2020. This correction had an immaterial impact to prior periods.
Summary of Financial Results
Consolidated net income from continuing operations decreased $134.9 million, or 72%, to $52.2 million for Second Quarter 2022 from $187.1 million for Second Quarter 2021. The decline was primarily due to a decrease in net unrealized gains from changes in fair value of equity securities, lower earnings contributions from Global Housing, and a $29.4 million after-tax decrease in earnings from non-core operations, mostly driven by adverse prior year reserve development from sharing economy.
Global Lifestyle Adjusted EBITDA increased
$22.6 million, or 12%, to $206.8 million for Second Quarter 2022 from $184.2 million for Second Quarter 2021, from continued strong results across Connected Living and Global Automotive. Connected Living growth was primarily led by mobile from higher device protection contributions in North America, including subscriber growth and more favorable loss experience. Global Automotive increased primarily from higher investment income mainly from the sale of a real estate joint venture partnership and higher yields, as well as favorable loss experience in select ancillary products. Growth was partially offset by the unfavorable impact of foreign exchange.
Global Lifestyle net earned premiums, fees and other income increased $47.6 million, or 2%, to $1.98 billion for Second Quarter 2022 from $1.94 billion for Second Quarter 2021, primarily led by Global Automotive premium growth from strong prior period sales.
Connected Living decreased modestly, mainly from the impact of runoff mobile programs, partially offset by higher mobile fee income driven by an increase in global mobile devices serviced (defined below), as well as device protection growth in North America.
Global Housing Adjusted EBITDA decreased $57.2 million, or 43%, to $75.2 million for Second Quarter 2022 from $132.4 million for Second Quarter 2021. Pre-tax reportable catastrophes (defined as individual catastrophic events that generate losses in excess of $5.0 million pre-tax, net of reinsurance and client profit sharing adjustments, and including reinstatement and other premiums) increased $17.2 million, primarily due to prior period development from Hurricane Eta and current period losses from Tropical Storm Alex. Excluding reportable catastrophes, Adjusted EBITDA decreased $40.0 million, or 30%, year-over-year. Approximately $25.0 million
of the decrease was driven by higher non-catastrophe loss experience, largely within Lender-placed Insurance, from higher claims severity related to inflation. Higher loss experience included a $12.0 million year-over-year increase in reserves for prior and current year periods along with elevated severity in the current quarter, particularly from fire claims. The remainder of the decline was mainly from higher catastrophe reinsurance costs, largely driven by increased exposures.
Global Housing net earned premiums, fees and other income was $495.7 million for Second Quarter 2022, compared to $496.8 million for Second Quarter 2021, as growth in Lender-placed Insurance from higher average insured values and premium rates were offset by higher catastrophe reinsurance costs.
Corporate and Other Adjusted EBITDA was $(24.9) million for Second
Quarter 2022 compared to $(16.9) million for Second Quarter 2021, primarily driven by higher employee-related expenses and technology expenses.
Catastrophe Reinsurance Program
In July 2022, we finalized our 2022 property catastrophe reinsurance program. The U.S. per-event catastrophe coverage provides $1.16 billion of protection in excess of an $80.0 million retention per event. The coverage was placed with more than 40 reinsurers that are all rated A- or better by A.M. Best. See “Catastrophe Reinsurance Program” below.
37
Critical Factors Affecting Results
Our results depend on, among other things, the appropriateness of our
product pricing, underwriting, the accuracy of our reserving methodology for future policyholder benefits and claims, the frequency and severity of reportable and non-reportable catastrophes, returns on and values of invested assets, our investment income and our ability to manage our expenses and achieve expense savings. Our results also depend on our ability to profitably grow our businesses, in particular our Connected Living, Multifamily Housing and Global Automotive businesses, and to maintain our position in our Lender-placed Insurance business. Factors affecting these items, including conditions in financial markets, the global economy and the markets in which we operate, including interest rates and inflation, any prolonged recessionary environment, the conflict in Ukraine, fluctuations in exchange rates and competition, may have a material adverse effect on our results of operations or financial condition. For example, the current inflationary environment has
increased the costs of paying claims, including for materials and labor, as well as our employee wages, which has impacted the results of our Lender-placed Insurance business and other businesses within Global Housing. For more information on these and other factors that could affect our results, see “Item 1A—Risk Factors” below and in our 2021 Annual Report, and “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Factors Affecting Results” in our 2021 Annual Report.
Our results may be impacted by our ability to continue to grow in the markets in which we operate, including in our Connected Living, Multifamily Housing and Global Automotive businesses, which may be impacted by our ability to provide a superior digital-first customer experience, including from our investments in technology and digital initiatives, to capitalize on the smart home opportunity, and
to maintain relationships with significant clients, distributors and other parties or renew contracts with them on favorable terms. Our mobile business is subject to volatility in mobile device trade-in volumes based on the actual and anticipated timing of the release of new devices and carrier promotional programs, as well as to changes in consumer preferences. Our Lender-placed Insurance results will be impacted by changes in the housing market as well as inflation. In addition, across many of our businesses, we must respond to the actions of our competitors, the threat of disruption and the competition for talent. See “Item 1A—Risk Factors—Business, Strategic and Operational Risks—Our revenues and profits may decline if we are unable to maintain relationships with significant clients, distributors and other parties, or renew contracts
with them on favorable terms, or if those parties face financial, reputational or regulatory issues,” “Significant competitive pressures, changes in customer preferences and disruption could adversely affect our results of operations” and “The success of our business depends on the execution of our strategy, including through the continuing service of key executives, senior leaders, highly-skilled personnel and a high-performing workforce” in our 2021 Annual Report.
Critical Accounting Policies and Estimates
Our 2021 Annual Report describes the accounting policies and estimates that are critical to the understanding of our results of operations, financial condition and liquidity. The accounting policies and estimation process described in the 2021 Annual Report were consistently applied to the unaudited
interim Consolidated Financial Statements for Second Quarter 2022.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Note 3 to the Consolidated Financial Statements included elsewhere in this Report.
38
Results of Operations
Assurant Consolidated
The table below presents information regarding our consolidated results of operations for the periods indicated:
Net income from continuing operationsdecreased $134.9 million, or 72%, to $52.2 million for Second Quarter 2022 from $187.1 million for Second Quarter 2021, primarily driven by a decrease in net unrealized gains from changes in fair value of equity securities, mostly related to four equity positions that went public in 2021 through SPAC mergers, and from preferred stocks due to an increase in interest rates. The decrease was also driven by a decrease in earnings from Global Housing due to higher non-catastrophe loss experience and an increase in reportable catastrophe losses. Additionally, the decrease was due to a $29.4 million after-tax decrease in earnings from our non-core operations, mostly
driven by adverse prior year reserve development from the sharing economy business. The decrease was partially offset by higher earnings from Global Lifestyle, driven by Connected Living and Global Automotive results.
Net income from continuing operations decreased $126.7 million, or 39%, to $201.2 million for Six Months 2022 from $327.9 million for Six Months 2021, primarily driven by a decrease in net unrealized gains from changes in fair value of equity securities mostly related to four equity positions that went public in 2021 through SPAC mergers and
from preferred stocks due to an increase in interest rates. The decrease was also due to a $37.8 million after-tax decrease in earnings from our non-core operations, mostly driven by adverse prior year reserve development from the sharing economy business. Additionally, the decrease was driven by a decrease in earnings from Global Housing due to higher non-catastrophe loss experience. The decrease was partially offset by higher earnings from Global Lifestyle, driven by Connected Living and Global Automotive results, as well as lower reportable catastrophe losses.
39
Discontinued Operations
In August 2021, we completed the sale of the legal entities which comprise the businesses previously reported as the Global Preneed segment
and certain businesses previously disposed of through reinsurance, which were previously reported in the Corporate and Other segment (collectively, the “disposed Global Preneed business”) to subsidiaries of CUNA Mutual Group for an aggregate purchase price at closing of $1.34 billion. For additional information, refer to Note 4 to the Consolidated Financial Statements included elsewhere in this Report.
40
Global Lifestyle
The table below presents information regarding
the Global Lifestyle segment’s results of operations for the periods indicated:
Adjusted EBITDA increased $22.6 million, or 12%, to $206.8 million for Second Quarter 2022 from $184.2 million for Second Quarter 2021, due to strong results across Connected Living and Global Automotive. Connected Living growth was primarily led by mobile from higher device protection contributions in North America, including subscriber growth and more favorable loss experience. Global Automotive earnings increased primarily from higher net investment income, mainly from the sale of a real estate joint venture partnership and higher yields, as well as favorable loss experience in select ancillary products. The increase was partially offset by the unfavorable impact of foreign exchange.
Total
revenues increased $63.5 million, or 3%, to $2.05 billion for Second Quarter 2022 from $1.98 billion for Second Quarter 2021. Fees and other income increased $28.9 million, or 11%, mainly driven by an increase in global mobile devices serviced (which includes devices for which we provide value to our consumers and partners, through trade-ins and upgrades, technology, claims fulfillment, repair capabilities, logistics, and asset disposition). Net earned premiums increased $18.7 million, or 1%, primarily driven by continued organic growth from strong prior period U.S. sales in our Global Automotive business across all distribution channels and domestic mobile subscriber growth within our cable operator distribution channel. The increase in net earned premiums was partially offset by a decrease from the run-off of certain global mobile programs and unfavorable impacts of foreign exchange. Net investment income increased $15.9 million, or 33%, primarily
due to higher real estate related income, higher fixed maturity asset levels and higher yields.
Total benefits, losses and expenses increased $40.9 million, or 2%, to $1.84 billion for Second Quarter 2022 from $1.80 billion for Second Quarter 2021. Underwriting, selling, general and administrative expenses increased $57.3 million, or 4%, primarily due to higher cost of sales in Connected Living from our recently launched service and repair capabilities and higher operating costs associated with growth. Higher commission expenses also contributed to the increase, mainly from growth across our Global Automotive business and domestic mobile subscriber growth within our cable operator distribution channel, which was partially offset by the run-off of certain global mobile programs. The increase was partially offset by a decrease in policyholder benefits of $16.4 million, or 5%, primarily due to the run-off
of certain global mobile programs and favorable loss experience within Global Automotive, from select domestic ancillary products and Connected Living, partially offset by growth across our Global Automotive and Connected Living businesses.
Adjusted EBITDA increased $51.7 million, or 14%, to $421.4 million for Six Months 2022 from $369.7 million for Six Months 2021, primarily driven by strong results
across Connected Living and Global Automotive. In Connected Living, mobile increased primarily from device protection contributions in North America, including subscriber growth and favorable loss experience. Global Automotive increased primarily from higher net investment income, mainly from the sale of real estate joint venture partnership and higher yields, as well as favorable loss experience in select ancillary products and expansion across distribution channels. The increase was partially offset by unfavorable impacts of foreign exchange and higher operating costs associated with growth.
Total revenues increased $169.5 million, or 4%, to $4.06 billion for Six Months 2022 from $3.89 billion for Six Months 2021. Fees and other income increased $102.9 million, or 22%, mainly driven by an increase in global mobile devices serviced. Net earned premiums increased $44.5 million, or 1%, primarily driven
by continued organic growth from strong prior period U.S. sales in our Global Automotive business across all distribution channels and domestic mobile subscriber growth within our cable operator distribution channel. The increase in net earned premiums was partially offset by the run-off of certain global mobile programs. Net investment income increased $22.1 million, or 22%, primarily due to higher real estate related income, higher fixed maturity asset levels and higher yields.
Total benefits, losses and expenses increased $117.8 million, or 3%, to $3.64 billion for Six Months 2022 from $3.53 billion for Six Months 2021. Underwriting, selling, general and administrative expenses increased $157.8 million, or 6%, to $3.01 billion for Six Months 2022 from $2.85 billion for Six Months 2021 due to higher cost of sales in Connected Living from our recently launched service and repair capabilities and higher
operating costs associated with growth. Higher commission expenses also contributed to the increase, mainly from growth across our Global Automotive business and domestic mobile subscriber growth within our cable operator distribution channel, which was partially offset by the run-off of certain global mobile programs. This increase was partially offset by a decrease in policyholder benefits of $40.0 million, or 6%, to $632.3 million for Six Months 2022 from $672.3 million for Six Months 2021, primarily due to the run-off of certain global mobile programs and favorable loss experience within Global Automotive from select domestic ancillary products, partially offset by growth across our Global Automotive and Connected Living businesses.
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Global Housing
The table below presents information regarding the Global Housing segment’s results of operations for the periods indicated:
Adjusted EBITDA decreased $57.2 million, or 43%, to $75.2 million for Second Quarter 2022 from $132.4 million for Second Quarter 2021. Pre-tax reportable catastrophes for Second Quarter 2022 increased $17.2 million to $20.3 million, compared to $3.1 million for Second Quarter 2021, primarily due to prior period development from Hurricane Eta and current period losses from Tropical Storm Alex. Excluding reportable catastrophes, Adjusted EBITDA decreased $40.0 million, or 30%, year-over-year. Approximately $25.0 million of the decrease was driven by higher non-catastrophe loss experience, largely within Lender-placed Insurance, from higher claims severity related to inflation. Higher loss experience included a $12.0 million
year-over-year increase in reserves for prior and current year periods along with elevated severity in the current quarter, particularly from fire claims. The remainder of the decline was mainly from higher catastrophe reinsurance costs, largely driven by increased exposures.
Total revenues decreased $5.0 million, or 1%, to $514.7 million for Second Quarter 2022 from $519.7 million for Second Quarter 2021. The decrease was primarily due to a decrease in net investment income of $3.9 million, or 17%, primarily due to lower income from real estate-related investments. The decrease was partially offset by an increase in net earned premiums of $1.1 million, or 0.2%, as growth in Lender-placed Insurance from higher average insured values and premium rates was partially offset by higher catastrophe reinsurance costs.
Total benefits, losses and expenses
increased $52.2 million, or 13%, to $439.5 million for Second Quarter 2022 from $387.3 million for Second Quarter 2021. Policyholder benefits increased $42.6 million, or 24%, due to higher non-catastrophe loss experience as described above. Underwriting, selling, general and administrative expenses increased $9.6 million, or 5%, mainly due to higher expenses to support operations.
Adjusted EBITDA decreased $28.3 million, or 13%, to $191.7 million for Six Months 2022 from $220.0 million for Six Months 2021. Pre-tax reportable catastrophes decreased $22.6
million, or 46%, to $26.5 million for Six Months 2022 compared to $49.1 million for Six Months 2021. Excluding reportable catastrophes, Adjusted EBITDA decreased $50.9 million, or 19%, mainly driven by higher non-catastrophe loss experience, primarily in Lender-placed Insurance due to higher claims severity
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from inflation, particularly from elevated fire losses, as well as higher catastrophe reinsurance premiums mainly from increased exposures. The decrease was partially offset by higher average insured values and premium rates in Lender-Placed Insurance.
Total revenues increased $2.5 million, or 0.2%, to $1.02 billion for Six Months 2022 from $1.02 billion for Six Months 2021. Net earned premiums
increased $9.1 million, or 1%, primarily due to higher average insured values and premium rates in our Lender-placed Insurance business, and continued growth from renters insurance in our Multifamily Housing business, partially offset by higher catastrophe reinsurance premiums and a decline in Specialty and Other from client run-off. The increase was partially offset by a decrease in fees and other income of $3.9 million, or 5%, primarily due to declines in our Multifamily Housing business and our Lender-placed Insurance business, and a decrease in net investment income of $2.7 million, or 6%, primarily due to lower income from real estate-related investments.
Total benefits, losses and expenses increased $30.8 million, or 4%, to $828.9 million for Six Months 2022 from $798.1 million for Six Months 2021. Policyholder benefitsincreased $16.8 million, or
5%, due to higher non-catastrophe loss experience as described above, partially offset by lower reportable catastrophe losses. Underwriting, selling, general and administrative expensesincreased $14.0 million, or 3%, mainly due to higher expenses to support operations.
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Corporate and Other
The tables below present information regarding the Corporate and Other’s segment results of operations for the periods indicated:
Adjusted EBITDA was $(24.9) million for Second Quarter 2022 compared to $(16.9) million for
Second Quarter 2021. The change in results was primarily due to higher employee-related and technology expenses and a decrease in net investment income.
Total revenues decreased $2.9 million, or 30%, to $6.9 million for Second Quarter 2022 from $9.8 million for Second Quarter 2021, primarily driven by a decrease in net investment income of $2.9 million, or 30%, mostly due to a reduction in income from limited partnerships that was partially offset by increased income from higher invested assets balances, primarily reflecting the remaining proceeds from the sale of Global Preneed.
Total benefits, losses and expenses increased $5.1 million, or 19%, to $31.8 million for Second Quarter 2022 from $26.7 million for Second Quarter 2021, primarily driven by higher employee-related and technology expenses.
Adjusted EBITDA was $(47.1) million for Six Months 2022 compared to $(44.8) million for Six Months 2021. The change in results was primarily due to higher employee-related and technology expenses.
Total revenues decreased $0.3 million, or 2%, to $15.7 million for Six Months 2022 from $16.0 million for Six Months 2021 primarily driven by a decrease in net investment income of $0.5 million, or 3%, mostly due a reduction in income from limited partnerships that was partially offset by increased income from higher invested assets balances, primarily reflecting the remaining proceeds from the sale of Global Preneed.
Total
benefits, losses and expenses increased $2.0 million, or 3%, to $62.8 million for Six Months 2022 from $60.8 million for Six Months 2021. General and administrative expensesincreased $1.6 million, or 3%, to $62.4 million for Six Months 2022 from $60.8 million for Six Months 2021, primarily due to higher employee-related and technology expenses.
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Investments
We had total investments of $7.61 billion and $8.67 billion as of June 30, 2022 and December 31,
2021, respectively. Net unrealized gains on our fixed maturity securities portfolio decreased by $778.9 million during Six Months 2022, from $311.4 million as of December 31, 2021 to a net unrealized loss of $467.5 million as of June 30, 2022, primarily due to an increase in Treasury yields.
The following table shows the credit quality of our fixed maturity securities portfolio as of the dates indicated:
Net investment income increased $9.1 million, or 11%, to $92.0 million for Second Quarter 2022 from $82.9 million for Second Quarter 2021, primarily driven by increased income from fixed maturity securities related to higher invested assets and higher yields, partially offset by lower income from other investments mostly due to a reduction in income from limited
partnerships.
Net realized losses on investments and fair value changes to equity securities were $76.4 million for Second Quarter 2022 compared to net gains of $10.3 million for Second Quarter 2021. The change in Second Quarter 2022 was mostly due to $62.5 million of net unrealized losses from changes in fair value of equity securities that were driven by a $47.8 million decrease in net unrealized gains from four equity positions that went public in 2021 through SPAC mergers. The net realized losses were also driven by $22.6 million of net realized losses on sales of fixed maturity securities, partially offset by $8.4 million of net realized gains on sales of equity securities.
Net
investment income increased $19.1 million, or 12%, to $178.3 million for Six Months 2022 from $159.2 million for Six Months 2021, primarily driven by increased income from fixed maturity securities related to higher invested assets and higher yields, higher rates on short-term investments and cash and cash equivalents, and higher income on commercial mortgage loans on real estate due to higher asset levels and prepayment fees.
Net realized losses on investments and fair value changes to equity securities were $138.8 million for Six Months 2022 compared to net gains of $11.1 million for Six Months 2021. The change in Six Months 2022 was mostly due to $117.4 million of net unrealized losses from changes in fair value of equity securities that included a $93.7 million decrease in net unrealized gains from four equity positions that went public in 2021 through SPAC mergers. The net realized losses were also driven by $41.1 million
of net realized losses on sales of fixed maturity securities, partially offset by $20.2 million of net realized gains on sales of equity securities.
As of June 30, 2022, we owned $18.3 million of securities guaranteed by financial guarantee insurance companies. Included in this amount was $15.2 million of municipal securities, whose credit rating was A+ with the guarantee, but would have had a rating of AA- without the guarantee.
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For more information on our investments, see Notes 7 and 8 to the Consolidated Financial Statements included elsewhere in this Report.
Catastrophe
Reinsurance Program
In July 2022, we finalized our 2022 property catastrophe reinsurance program. 2022 reinsurance premiums for this program are estimated to be approximately $189.0 million pre-tax compared to approximately $149.0 million pre-tax for 2021, predominantly reflecting increased lender-placed exposure as a result of higher average insured values compared to 2021. Coverage was placed with more than 40 reinsurers that are all rated A- or better by A.M. Best. Actual reinsurance premiums will vary if exposure changes significantly from estimates or if reinstatement premiums are required due to catastrophe events.
The U.S. per-occurrence catastrophe coverage includes a main reinsurance program providing $1.16 billion of coverage in excess of an $80.0 million retention per event. In addition, it includes multiyear reinsurance contracts
covering approximately 45% of the U.S. program, reducing volatility in future reinsurance costs. All layers of the program allow for one automatic reinstatement, except the first layer, which has two reinstatements. The 2022 U.S. program also maintains a cascading feature that provides multi-event protection in which higher coverage layers (Layers 3 through 6) drop down to $110.0 million as the lower layers and reinstatement limit are exhausted. Layer 7 does not cascade, with a retention of $955.0 million and a limit of $290.0 million. When combined with the Florida Hurricane Catastrophe Fund, the U.S. program is covered for gross Florida losses of up to approximately $1.37 billion.
The 2022 catastrophe reinsurance program also includes Caribbean protection of up to $150.0 million, including a $2.0 million co-participation on the top layer, in excess of a $20.0 million retention.
Liquidity
and Capital Resources
Management believes that we will have sufficient liquidity to satisfy our needs over the next twelve months, including the ability to pay interest on our debt and dividends on our common stock.
Regulatory Requirements
Assurant, Inc. is a holding company and, as such, has limited direct operations of its own. Our assets consist primarily of the capital stock of our subsidiaries. Accordingly, our future cash flows depend upon the availability of dividends and other statutorily permissible payments from our subsidiaries, such as payments under our tax allocation agreement and under management agreements with our subsidiaries.
Our subsidiaries’ ability to pay such dividends and make such other payments is regulated by the states and territories in which our subsidiaries are domiciled. These dividend regulations vary from jurisdiction to jurisdiction and by type of insurance provided by the applicable subsidiary, but generally require our insurance subsidiaries to maintain minimum solvency requirements and limit the amount of dividends these subsidiaries can pay to the holding company. See “Item 1—Business—Regulation—U.S. Insurance Regulation” and “Item 1A—Risk Factors—Legal and Regulatory Risks—Changes
in insurance regulation may reduce our profitability and limit our growth” in our 2021 Annual Report. Along with solvency regulations, the primary driver in determining the amount of capital used for dividends from insurance subsidiaries is the level of capital needed to maintain desired financial strength ratings from A.M. Best Company (“A.M. Best”). For the year ending December 31, 2022, the maximum amount of dividends our regulated U.S. domiciled insurance subsidiaries could pay us, under applicable laws and regulations currently in effect and without prior regulatory approval, is approximately $475.3 million. In addition, our international and non-insurance subsidiaries
provide additional sources of dividends.
Regulators or rating agencies could become more conservative in their methodology and criteria, increasing capital requirements for our insurance subsidiaries or the enterprise.
In July 2022, Moody’s upgraded the senior debt rating of Assurant, Inc. to Baa2 from Baa3 with a stable outlook and upgraded the insurance financial strength ratings on our insurance operating subsidiaries to A2 from A3 with a stable outlook. For further information on our ratings and the risks of ratings downgrades, see “Item 1—Business—Ratings” and “Item 1A—Risk Factors—Financial Risks—A decline in the financial strength ratings of our insurance subsidiaries
could adversely affect our results of operations and financial condition” in our 2021 Annual Report.
Holding Company
As of June 30, 2022, we had approximately $595.4 million in holding company liquidity, which was $370.4 million above our targeted minimum level of $225.0 million. The target minimum level of holding company liquidity, which can be used for unforeseen capital needs at our subsidiaries or liquidity needs at the holding company, is calibrated based on approximately one year of corporate operating and interest expenses. We use the term “holding company liquidity” to represent the portion of cash and other liquid marketable securities held at Assurant, Inc., out of a total of $679.8 million of holding
company investment
47
securities and cash, which we are not otherwise holding for a specific purpose as of the balance sheet date. We can use such assets for stock repurchases, stockholder dividends, acquisitions and other corporate purposes.
Dividends or returns of capital paid by our subsidiaries, net of infusions and excluding amounts used for acquisitions or received for dispositions, were $317.9 million for Six Months 2022. In 2021, dividends, net of infusions and excluding amounts used for acquisitions or received for dispositions, were $728.6 million (including approximately $12.0 million of dividends from subsidiaries,
net of infusions, included in the disposed Global Preneed business). We use these cash inflows primarily to pay holding company operating expenses, to make interest payments on indebtedness, to make dividend payments to our common stockholders, to fund investments and acquisitions, and to repurchase our common stock. From time to time, we may also seek to purchase outstanding debt in open market repurchases or privately negotiated transactions.
Dividends and Repurchases
During Six Months 2022, we made common stock repurchases and paid common stock dividends of $550.2 million.
We paid dividends of $0.68 per common share on June 20, 2022 to stockholders of record as of May 31, 2022. Any determination to pay future dividends on our outstanding
common stock will be at the discretion of the Board and will be dependent upon various factors, including: our subsidiaries’ payments of dividends and other statutorily permissible payments to us; our results of operations and cash flows; our financial condition and capital requirements; general business conditions and growth prospects; any legal, tax, regulatory and contractual restrictions on the payment of dividends; and any other factors the Board deems relevant. The Credit Facility also contains limitations on our ability to pay dividends to our stockholders and repurchase capital stock if we are in default, or such dividend payments or repurchases would cause us to be in default, of our obligations thereunder. In addition, if we elect to defer the payment of interest on our 7.00% Fixed-to-Floating Rate Subordinated Notes due March 2048 or our 5.25% Subordinated Notes due
January 2061 (refer to “—Senior and Subordinated Notes” below), we generally may not make payments on or repurchase any shares of our capital stock.
During Six Months 2022, we repurchased 2,765,056 shares of our outstanding common stock at a cost of $474.2 million, exclusive of commissions. In May 2021, the Board authorized a share repurchase program for up to $900.0 million, respectively, of our outstanding common stock. As of June 30, 2022, $367.9 million aggregate cost at purchase remained unused under the repurchase authorization. The timing and the amount of future repurchases will depend on various factors, including those listed above.
We expect to deploy capital primarily to support business growth by funding investments, mergers and acquisitions and returning capital to shareholders
in the form of share repurchases and dividends, subject to Board approval and market conditions. As previously announced, we returned $900.0 million of the Global Preneed net proceeds through share repurchases within one year of closing, completing the return in Second Quarter 2022. For additional information, refer to Note 4 to the Consolidated Financial Statements included elsewhere in this Report.
The primary sources of funds for our subsidiaries consist of premiums and fees collected, proceeds from the sales and maturity of investments and net investment income. Cash is primarily used to pay insurance claims, agent commissions, operating expenses and taxes. We generally invest
our subsidiaries’ excess funds in order to generate investment income.
We conduct periodic asset liability studies to measure the duration of our insurance liabilities, to develop optimal asset portfolio maturity structures for our significant lines of business and ultimately to assess that cash flows are sufficient to meet the timing of cash needs. These studies are conducted in accordance with formal company-wide Asset Liability Management guidelines.
To complete a study for a particular line of business, models are developed to project asset and liability cash flows and balance sheet items under a large, varied set of plausible economic scenarios. These models consider many factors including the current investment portfolio, the required capital for the related assets and liabilities, our
tax position and projected cash flows from both existing and projected new business. For risks related to modeling, see “Item 1A – Risk Factors – Financial Risks –Actual results may differ materially from the analytical models we use to assist in our decision-making in key areas such as pricing, catastrophe risks, reserving and capital management.” in our 2021 Annual Report.
Alternative asset portfolio structures are analyzed for significant lines of business. An investment portfolio maturity structure is then selected from these profiles given our return hurdle and risk appetite. Scenario testing of significant liability assumptions and new business projections is also performed.
Our liabilities generally have limited policyholder optionality, which means that the timing of payments is generally insensitive to the interest rate
environment. In addition, our investment portfolio is largely comprised of highly liquid fixed-
48
maturity securities with a sufficient component of such securities invested that are near maturity which may be sold with minimal risk of loss to meet cash needs.
Generally, our subsidiaries’ premiums, fees and investment income, along with planned asset sales and maturities, provide sufficient cash to pay claims and expenses. However, there may be instances when unexpected cash needs arise in excess of that available from usual operating sources. In such instances, we have several options to raise needed funds, including selling assets
from the subsidiaries’ investment portfolios, using holding company cash (if available), issuing commercial paper, or drawing funds from the Credit Facility (as defined below).
Senior and Subordinated Notes
The following table shows the principal amount and carrying value of our outstanding debt, less unamortized discount and issuance costs as applicable, as of June 30, 2022 and December 31, 2021:
7.00%
Fixed-to-Floating Rate Subordinated Notes due March 2048
400.0
396.2
400.0
395.9
5.25% Subordinated Notes due January 2061
250.0
244.1
250.0
244.0
Total
Debt
$
2,128.9
$
2,202.5
In June 2022, we redeemed $75.0 million of the $300.0 million then outstanding aggregate principal amount of our 4.20% Senior Notes due September 2023 (the “2023 Senior Notes”) at a make-whole premium plus accrued and unpaid interest to the redemption date. In connection with the redemption, we recognized a loss on extinguishment of debt of $0.9 million, which included a $1.0 million make-whole premium and $0.2 million in debt issuance costs that were written off, partially offset by $0.3 million in unamortized hedging gains
recognized upon extinguishment. The gain was reclassified out of accumulated other comprehensive income and recorded through interest expense. In the next five years, we have one upcoming debt maturity in September 2023 when the 2023 Senior Notes will become due and payable.
Credit Facility and Commercial Paper Program
We have a $500.0 million five-year senior unsecured revolving credit facility (the “Credit Facility”) with a syndicate of banks arranged by JPMorgan Chase Bank, N.A. and Wells Fargo Bank, National Association. The Credit Facility provides for revolving loans and the issuance of multi-bank, syndicated letters of credit and letters of credit from a sole issuing bank in an aggregate amount of $500.0 million, which may be increased up to $700.0 million. The Credit Facility is available until December 2026, provided we are in compliance with all covenants. The
Credit Facility has a sublimit for letters of credit issued thereunder of $50.0 million. The proceeds from these loans may be used for our commercial paper program or for general corporate purposes.
We made no borrowings using the Credit Facility during Six Months 2022 and no loans were outstanding as of June 30, 2022.
Our commercial paper program requires us to maintain liquidity facilities either in an available amount equal to any outstanding notes from the program or in an amount sufficient to maintain the ratings assigned to the notes issued from the program. Our commercial paper is rated AMB-1 by A.M. Best, P-2 by Moody’s and A-2 by S&P. Our subsidiaries do not maintain commercial paper or other borrowing facilities. This program is
currently backed up by the Credit Facility, of which $495.5 million out of the $500.0 million was available as of June 30, 2022, due to $4.5 million of letters of credit outstanding.
We did not use the commercial paper program during Six Months 2022 and there were no amounts relating to the commercial paper program outstanding as of June 30, 2022.
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Cash Flows
We monitor cash flows at the consolidated, holding company and subsidiary levels. Cash flow forecasts at the consolidated and subsidiary levels are provided on a monthly basis, and we use trend and variance analyses to project
future cash needs making adjustments to the forecasts when needed.
The table below shows our net cash flows for the periods indicated:
For the Six Months Ended June 30,
Net cash provided by (used in):
2022
2021
Operating activities - continuing operations
$
(328.1)
$
409.9
Operating
activities - discontinued operations
—
119.1
Operating activities
(328.1)
529.0
Investing activities - continuing operations
107.0
148.1
Investing activities - discontinued operations
—
(114.8)
Investing
activities
107.0
33.3
Financing activities - continuing operations
(624.9)
(20.8)
Financing activities - discontinued operations
—
—
Financing activities
(624.9)
(20.8)
Effect
of exchange rate changes on cash and cash equivalents - continuing operations
(26.8)
1.2
Effect of exchange rate changes on cash and cash equivalents - discontinued operations
—
0.5
Effect of exchange rate changes on cash and cash equivalents
(26.8)
1.7
Net change in cash
$
(872.8)
$
543.2
We
typically generate operating cash inflows from premiums collected from our insurance products, fees received for services and income received from our investments, while outflows consist of policy acquisition costs, benefits paid and operating expenses. These net cash flows are then invested to support the obligations of our insurance products and required capital supporting these products. Our cash flows from operating activities are affected by the timing of premiums, fees, and investment income received and expenses paid.
Net cash used in operating activities from continuing operations was $328.1 million for Six Months 2022 compared to net cash provided by operating activities from continuing operations of $409.9 million for Six Months 2021. The decrease in net operating cash flows was primarily driven by a reduction in premium and fees collected during the period due to lower collections of receivables as well as an increase
in payments to vendors for the acquisition of mobile devices used to meet insurance claims or generate profits through sales to third parties.The increase in cash used in operations was impacted by the growth in our mobile business from expanded relationships and our recently launched service and repair capabilities.
Net cash provided by investing activities from continuing operations was $107.0 million for Six Months 2022 compared to net cash provided by investing activities from continuing operations of $148.1 million for Six Months 2021. The decrease in cash flows provided by investing activities was primarily driven by the ongoing management of our investment portfolio. Additionally, net cash provided by investing activities for Six Months 2021 included a $60.1 million net cash outflow for transfers from the disposed Global Preneed business to continuing operations related
to investments that were not included in the sale.
Net cash used in financing activities from continuing operations was $624.9 million for Six Months 2022 compared to net cash used in financing activities from continuing operations of $20.8 million for Six Months 2021. The increase in net cash used in financing activities was primarily due to the absence of $347.2 million of net proceeds from the issuance of our 2032 Senior Notes during Six Months 2021, as well as $243.5 million increase in share repurchases during Six Months 2022, mainly funded using the remaining net proceeds from the Global Preneed sale.
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The table below shows our cash outflows for interest and dividends for the periods indicated:
In the normal course of business, letters of credit are issued primarily to support reinsurance arrangements in which we are the reinsurer. These letters of credit are supported by commitments under which we are required to indemnify the financial institution issuing the letter of credit if the letter of credit is drawn. We had $7.1 million and $7.2 million of letters of credit outstanding as of June 30, 2022 and December 31, 2021, respectively.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that are reasonably likely to have a material effect on the financial condition, results of operations, liquidity
or capital resources of the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our 2021 Annual Report described our Quantitative and Qualitative Disclosures About Market Risk. As of June 30, 2022, there were no material changes to the assumptions or risks.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls
and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of June 30, 2022. Based on such evaluation, management, including our CEO and CFO, has concluded that as of June 30, 2022, our disclosure controls and procedures were effective and provide reasonable assurance that information we are required to disclose in our reports pursuant to Rule 13a-15(e) or 15d-15(e) under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms. Our CEO and CFO also have concluded that as of June
30, 2022, information that we are required to disclose in our reports under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act) during the quarterly period ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings
For a description of any material pending legal proceedings in which we are involved, see “Commitments and Contingencies—Legal and Regulatory Matters” in Note 16 to the Consolidated Financial Statements included elsewhere in this Report, which is hereby incorporated by reference.
Item 1A. Risk Factors
Certain factors
may have a material adverse effect on our business, financial condition, results of operations and cash flows, and you should carefully consider them. It is not possible to predict or identify all such factors. For a discussion of potential risks or uncertainties affecting us, please refer to the information under the heading “Item 1A—Risk Factors” in our 2021 Annual Report. Additional risks and uncertainties that are not yet identified or that we currently believe to be immaterial may also materially harm our business, financial condition, results of operations and cash flows.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities:
(In
millions, except number of shares and per share amounts)
Period in 2022
Total Number of Shares Purchased
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Programs (1)
Approximate Dollar Value of Shares that May Yet be Purchased Under the Programs (1)
April
1 - April 30
460,337
186.77
460,337
513.7
May 1 - May 31
149,808
184.10
149,808
486.2
June 1 -
June 30
674,911
175.20
674,911
367.9
Total
1,285,056
$
180.38
1,285,056
$
367.9
(1)Shares
repurchased pursuant to the May 2021 publicly announced share repurchase authorization of up to $900.0 million aggregate cost at purchase of outstanding common stock. As of June 30, 2022, $367.9 million aggregate cost at purchase remained unused under the repurchase authorization.
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Item 6. Exhibits
The following exhibits either (a) are filed with this Report or (b) have previously been filed with the SEC and are incorporated herein by reference to those prior filings.
The
following materials from the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 2022, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Equity, (v) the Consolidated Statements of Cash Flows and (vi) Notes to the Consolidated Financial Statements.
104
Cover Page Interactive Data File (embedded within the Inline XBRL document).
53
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.