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Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| ☒ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2022
OR
| ☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission file number 001-31978
Assurant, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 39-1126612 | |||||||||||||
| (State or other jurisdiction of incorporation) | (I.R.S. Employer Identification No.) |
55 Broadway, Suite 2901
New York, New York 10006
(212) 859-7000
(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 | ||||||
| Common Stock, $0.01 Par Value | AIZ | New York Stock Exchange | ||||||
| 5.25% Subordinated Notes due 2061 | AIZN | New 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. Yes ☒ 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). Yes ☒ 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.
| Large accelerated filer | ☒ | Accelerated filer | ☐ | |||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||||||||
| Emerging growth company | ☐ |
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 ☐ No ☒
The number of shares of the registrant’s common stock outstanding at April 29, 2022 was 54,085,077.
ASSURANT, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022
TABLE OF CONTENTS
Assurant, Inc.
Consolidated Balance Sheets (unaudited)
| March 31, 2022 | December 31, 2021 | ||||||||||
| (in millions, except number of shares and per share amounts) | |||||||||||
| Assets | |||||||||||
| Investments: | |||||||||||
| Fixed maturity securities available for sale, at fair value (amortized cost - $6,996.0 and $6,903.9 at March 31, 2022 and December 31, 2021, respectively) | $ | 6,887.9 | $ | 7,215.3 | |||||||
| Equity securities at fair value | 371.7 | 445.7 | |||||||||
| Commercial mortgage loans on real estate, at amortized cost (net of allowances for credit losses of $0.9 and $1.1 at March 31, 2022 and December 31, 2021, respectively) | 280.7 | 256.5 | |||||||||
| Short-term investments | 144.4 | 247.8 | |||||||||
| Other investments | 534.4 | 506.3 | |||||||||
| Total investments | 8,219.1 | 8,671.6 | |||||||||
| Cash and cash equivalents | 1,250.9 | 2,040.8 | |||||||||
| Premiums and accounts receivable (net of allowances for credit losses of $8.8 and $9.4 at March 31, 2022 and December 31, 2021, respectively) | 2,267.5 | 1,942.5 | |||||||||
| Reinsurance recoverables (net of allowances for credit losses of $5.7 and $5.0 at March 31, 2022 and December 31, 2021, respectively) | 6,068.3 | 6,178.9 | |||||||||
| Accrued investment income | 89.2 | 62.1 | |||||||||
| Deferred acquisition costs | 9,025.4 | 8,811.0 | |||||||||
| Property and equipment, net | 585.3 | 561.4 | |||||||||
| Goodwill | 2,569.4 | 2,571.6 | |||||||||
| Value of business acquired | 484.3 | 583.4 | |||||||||
| Other intangible assets, net | 695.1 | 719.2 | |||||||||
| Other assets (net of allowances for credit losses of $2.6 and $2.5 at March 31, 2022 and December 31, 2021, respectively) | 706.4 | 680.2 | |||||||||
| Assets held in separate accounts | 11.1 | 11.9 | |||||||||
| Assets held for sale (Note 4) | 1,050.6 | 1,076.9 | |||||||||
| Total assets | $ | 33,022.6 | $ | 33,911.5 | |||||||
| Liabilities | |||||||||||
| Future policy benefits and expenses | $ | 408.4 | $ | 413.2 | |||||||
| Unearned premiums | 18,702.9 | 18,623.7 | |||||||||
| Claims and benefits payable | 1,535.7 | 1,595.9 | |||||||||
| Commissions payable | 629.4 | 692.7 | |||||||||
| Reinsurance balances payable | 425.6 | 420.4 | |||||||||
| Funds held under reinsurance | 355.1 | 364.2 | |||||||||
| Accounts payable and other liabilities | 2,693.3 | 3,032.5 | |||||||||
| Debt | 2,203.0 | 2,202.5 | |||||||||
| Liabilities related to separate accounts | 11.1 | 11.9 | |||||||||
| Liabilities held for sale (Note 4) | 1,037.0 | 1,064.8 | |||||||||
| Total liabilities | 28,001.5 | 28,421.8 | |||||||||
| Commitments and contingencies (Note 15) | |||||||||||
| Stockholders’ equity | |||||||||||
| Common stock, par value $0.01 per share, 800,000,000 shares authorized, 56,832,160 and 58,050,202 shares issued and 54,536,071 and 55,754,113 shares outstanding at March 31, 2022 and December 31, 2021, respectively | 0.6 | 0.7 | |||||||||
| Additional paid-in capital | 1,652.1 | 1,695.0 | |||||||||
| Retained earnings | 3,976.5 | 4,066.8 | |||||||||
| Accumulated other comprehensive loss | (485.3) | (150.0) | |||||||||
| Treasury stock, at cost; 2,296,089 shares at March 31, 2022 and December 31, 2021 | (122.8) | (122.8) | |||||||||
| Total equity | 5,021.1 | 5,489.7 | |||||||||
| Total liabilities and equity | $ | 33,022.6 | $ | 33,911.5 |
See the accompanying Notes to Consolidated Financial Statements (unaudited)
Assurant, Inc.
Consolidated Statements of Operations (unaudited)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| (in millions, except number of shares and per share amounts) | |||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Net earned premiums | $ | 2,136.4 | $ | 2,105.6 | |||||||||||||||||||
| Fees and other income | 322.4 | 249.9 | |||||||||||||||||||||
| Net investment income | 86.3 | 76.3 | |||||||||||||||||||||
| Net realized (losses) gains on investments (including $0.5 and $1.0 of impairment-related losses for the three months ended March 31, 2022 and 2021, respectively) and fair value changes to equity securities | (62.4) | 0.8 | |||||||||||||||||||||
| Total revenues | 2,482.7 | 2,432.6 | |||||||||||||||||||||
| Benefits, losses and expenses | |||||||||||||||||||||||
| Policyholder benefits | 494.5 | 528.7 | |||||||||||||||||||||
| Underwriting, selling, general and administrative expenses | 1,790.5 | 1,682.4 | |||||||||||||||||||||
| Interest expense | 26.9 | 28.4 | |||||||||||||||||||||
| Total benefits, losses and expenses | 2,311.9 | 2,239.5 | |||||||||||||||||||||
| Income from continuing operations before income tax expense | 170.8 | 193.1 | |||||||||||||||||||||
| Income tax expense | 25.3 | 44.6 | |||||||||||||||||||||
| Net income from continuing operations | 145.5 | 148.5 | |||||||||||||||||||||
| Net income from discontinued operations (Note 4) | — | 14.3 | |||||||||||||||||||||
| Net income | 145.5 | 162.8 | |||||||||||||||||||||
| Less: Net loss attributable to non-controlling interest | — | 0.2 | |||||||||||||||||||||
| Net income attributable to stockholders | 145.5 | 163.0 | |||||||||||||||||||||
| Less: Preferred stock dividends | — | (4.7) | |||||||||||||||||||||
| Net income attributable to common stockholders | $ | 145.5 | $ | 158.3 | |||||||||||||||||||
| Earnings Per Common Share | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Net income from continuing operations | $ | 2.61 | $ | 2.43 | |||||||||||||||||||
| Net income from discontinued operations | $ | — | $ | 0.24 | |||||||||||||||||||
| Net income attributable to common stockholders | $ | 2.61 | $ | 2.67 | |||||||||||||||||||
| Diluted | |||||||||||||||||||||||
| Net income from continuing operations | $ | 2.59 | $ | 2.41 | |||||||||||||||||||
| Net income from discontinued operations | $ | — | $ | 0.23 | |||||||||||||||||||
| Net income attributable to common stockholders | $ | 2.59 | $ | 2.64 | |||||||||||||||||||
| Share Data | |||||||||||||||||||||||
| Weighted average common shares outstanding used in basic per common share calculations | 55,779,362 | 59,192,880 | |||||||||||||||||||||
| Plus: Dilutive securities | 401,042 | 2,590,512 | |||||||||||||||||||||
| Weighted average common shares outstanding used in diluted per common share calculations | 56,180,404 | 61,783,392 |
See the accompanying Notes to Consolidated Financial Statements (unaudited)
Assurant, Inc.
Consolidated Statements of Comprehensive Income (unaudited)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Net income | $ | 145.5 | $ | 162.8 | |||||||||||||||||||
| Other comprehensive (loss) income: | |||||||||||||||||||||||
| Change in unrealized gains on securities, net of taxes of $85.3 and $58.8 for the three months ended March 31, 2022 and 2021, respectively | (334.8) | (210.3) | |||||||||||||||||||||
| Change in unrealized gains on derivative transactions, net of taxes of $0.2 and $0.2 for each of the three months ended March 31, 2022 and 2021, respectively | (0.6) | (0.6) | |||||||||||||||||||||
| Change in foreign currency translation, net of taxes of $(3.6) and $2.1 for the three months ended March 31, 2022 and 2021, respectively | 1.3 | 7.2 | |||||||||||||||||||||
| Change in pension and postretirement unrecognized net periodic benefit cost, net of taxes of $0.3 and $0.5 for the three months ended March 31, 2022 and 2021, respectively | (1.2) | (1.6) | |||||||||||||||||||||
| Total other comprehensive loss | (335.3) | (205.3) | |||||||||||||||||||||
| Total comprehensive loss | (189.8) | (42.5) | |||||||||||||||||||||
| Less: Comprehensive loss attributable to non-controlling interest | — | 0.2 | |||||||||||||||||||||
| Total comprehensive loss attributable to stockholders | $ | (189.8) | $ | (42.3) |
See the accompanying Notes to Consolidated Financial Statements (unaudited)
Assurant, Inc.
Consolidated Statements of Changes in Equity (unaudited)
| Three Months Ended March 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Total | ||||||||||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | 0.7 | $ | 1,695.0 | $ | 4,066.8 | $ | (150.0) | $ | (122.8) | $ | 5,489.7 | |||||||||||||||||||||||||||||||||||
| Stock plan exercises | — | 7.8 | — | — | — | 7.8 | |||||||||||||||||||||||||||||||||||||||||
| Stock plan compensation expense | — | 12.4 | — | — | — | 12.4 | |||||||||||||||||||||||||||||||||||||||||
| Common stock dividends ($0.68 per share) | — | — | (37.4) | — | — | (37.4) | |||||||||||||||||||||||||||||||||||||||||
| Acquisition of common stock | (0.1) | (63.1) | (198.4) | — | — | (261.6) | |||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | 145.5 | — | — | 145.5 | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | (335.3) | — | (335.3) | |||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | 0.6 | $ | 1,652.1 | $ | 3,976.5 | $ | (485.3) | $ | (122.8) | $ | 5,021.1 |
| Three Months Ended March 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Non-controlling Interest | Total | ||||||||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | 2.9 | $ | 0.6 | $ | 1,956.8 | $ | 3,548.7 | $ | 709.8 | $ | (267.4) | $ | 3.4 | $ | 5,954.8 | |||||||||||||||||||||||||||||||
| Stock plan exercises | — | — | 5.4 | — | — | — | — | 5.4 | |||||||||||||||||||||||||||||||||||||||
| Stock plan compensation expense | — | — | 13.2 | — | — | — | — | 13.2 | |||||||||||||||||||||||||||||||||||||||
| Common stock dividends ($0.66 per share) | — | — | — | (38.2) | — | — | — | (38.2) | |||||||||||||||||||||||||||||||||||||||
| Acquisition of common stock | — | — | (29.3) | (33.3) | — | — | — | (62.6) | |||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | 163.0 | — | — | (0.2) | 162.8 | |||||||||||||||||||||||||||||||||||||||
| Preferred stock conversion | (2.9) | 0.1 | (141.8) | — | — | 144.6 | — | — | |||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends ($1.63 per share) | — | — | — | (4.7) | — | — | — | (4.7) | |||||||||||||||||||||||||||||||||||||||
| Change in equity of non-controlling interest | — | — | — | — | — | — | 0.2 | 0.2 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (205.3) | — | — | (205.3) | |||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | — | $ | 0.7 | $ | 1,804.3 | $ | 3,635.5 | $ | 504.5 | $ | (122.8) | $ | 3.4 | $ | 5,825.6 |
See the accompanying Notes to Consolidated Financial Statements (unaudited)
Assurant, Inc.
Consolidated Statements of Cash Flows (unaudited)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (in millions) | |||||||||||
| Operating activities | |||||||||||
| Net income attributable to stockholders | $ | 145.5 | $ | 163.0 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Noncash revenues, expenses, gains and losses included in net income from operations: | |||||||||||
| Income from discontinued operations | — | (14.3) | |||||||||
| Deferred tax expense | 26.1 | 19.2 | |||||||||
| Depreciation and amortization | 47.3 | 41.4 | |||||||||
| Net realized losses (gains) on investments, including impairment losses | 62.4 | (0.8) | |||||||||
| Stock based compensation expense | 12.4 | 13.2 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Insurance policy reserves and expenses | (30.6) | 4.9 | |||||||||
| Premiums and accounts receivable | (311.2) | (385.0) | |||||||||
| Commissions payable | (66.4) | (142.6) | |||||||||
| Reinsurance recoverable | 113.2 | 69.9 | |||||||||
| Reinsurance balance payable | (2.8) | 64.0 | |||||||||
| Funds withheld under reinsurance | (9.7) | 0.6 | |||||||||
| Deferred acquisition costs and value of business acquired | (91.0) | (111.4) | |||||||||
| Taxes payable | (70.5) | 6.5 | |||||||||
| Other assets and other liabilities | (285.0) | (187.9) | |||||||||
| Other | (40.8) | (9.0) | |||||||||
| Net cash provided by operating activities - discontinued operations | — | 49.6 | |||||||||
| Net cash used in operating activities | (501.1) | (418.7) | |||||||||
| Investing activities | |||||||||||
| Sales of: | |||||||||||
| Fixed maturity securities available for sale | 729.6 | 215.5 | |||||||||
| Equity securities | 28.9 | 3.4 | |||||||||
| Other invested assets | 29.2 | 25.8 | |||||||||
| Maturities, calls, prepayments, and scheduled redemption of: | |||||||||||
| Fixed maturity securities available for sale | 151.6 | 239.0 | |||||||||
| Commercial mortgage loans on real estate | 10.6 | 4.2 | |||||||||
| Purchases of: | |||||||||||
| Fixed maturity securities available for sale | (951.7) | (390.6) | |||||||||
| Equity securities | (7.9) | (10.3) | |||||||||
| Commercial mortgage loans on real estate | (34.6) | (10.0) | |||||||||
| Other invested assets | (31.9) | (12.2) | |||||||||
| Property and equipment and other | (41.1) | (39.6) | |||||||||
| Subsidiaries, net of cash transferred | — | (4.1) | |||||||||
| Change in short-term investments | 103.8 | 41.6 | |||||||||
| Other | 0.2 | 0.5 | |||||||||
| Net cash used in investing activities - discontinued operations | — | (48.7) | |||||||||
| Net cash (used in) provided by investing activities | (13.3) | 14.5 |
Assurant, Inc.
Consolidated Statements of Cash Flows (unaudited)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Financing activities | |||||||||||
| Repayment of debt | — | (50.0) | |||||||||
| Acquisition of common stock | (230.0) | (42.0) | |||||||||
| Common stock dividends paid | (37.4) | (38.2) | |||||||||
| Preferred stock dividends paid | — | (4.7) | |||||||||
| Employee stock purchases and withholdings | (10.1) | (18.1) | |||||||||
| Net cash used in financing activities | (277.5) | (153.0) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents - continuing operations | (4.1) | — | |||||||||
| Effect of exchange rate changes on cash and cash equivalents - discontinued operations | — | 0.2 | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (4.1) | 0.2 | |||||||||
| Change in cash and cash equivalents | (796.0) | (557.0) | |||||||||
| Cash and cash equivalents at beginning of period - continuing operations | 2,040.8 | 2,228.6 | |||||||||
| Add: Cash and cash equivalents reclassified as held for sale at beginning of period | 14.0 | — | |||||||||
| Cash and cash equivalents at beginning of period | 2,054.8 | 2,228.6 | |||||||||
| Cash and cash equivalents at end of period | 1,258.8 | 1,671.6 | |||||||||
| Less: Cash and cash equivalents reclassified as held for sale at end of period | 7.9 | — | |||||||||
| Less: Cash and cash equivalents of discontinued operations at end of period | — | 20.3 | |||||||||
| Cash and cash equivalents of continuing operations at end of period | $ | 1,250.9 | $ | 1,651.3 |
See the accompanying Notes to Consolidated Financial Statements (unaudited)
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
INDEX OF NOTES
1. Nature of Operations
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 two 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. Basis 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 March 31, 2022 and for the three months ended March 31, 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 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 months ended March 31, 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.
3. Recent 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.
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
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
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.
4. Dispositions
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 (collectively, the “disposed Global Preneed business”), to subsidiaries of CUNA Mutual Group (“CUNA”) for an aggregate purchase price at closing of $1.34 billion in cash.
The following table summarizes the components of net income (loss) from discontinued operations included in the consolidated statements of operations:
| Three Months Ended March 31, | |||||||||||
| 2021 | |||||||||||
| Revenues | |||||||||||
| Net earned premiums | $ | 17.7 | |||||||||
| Fees and other income | 37.5 | ||||||||||
| Net investment income | 72.0 | ||||||||||
| Net realized losses on investments and fair value changes to equity securities | (1.1) | ||||||||||
| Loss on disposal of businesses | (4.3) | ||||||||||
| Total revenues | 121.8 | ||||||||||
| Benefits, losses and expenses | |||||||||||
| Policyholder benefits | 74.0 | ||||||||||
| Selling, underwriting, general and administrative expenses | 36.7 | ||||||||||
| Total benefits, losses and expenses | 110.7 | ||||||||||
| Income from discontinued operations before income taxes | 11.1 | ||||||||||
| Benefit for income taxes | (3.2) | ||||||||||
| Net income from discontinued operations | $ | 14.3 |
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
Sale of John Alden Life Insurance Company
On April 1, 2022, the Company completed its sale of John Alden Life Insurance Company (“JALIC”), a runoff 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 March 31, 2022 and December 31, 2021 consolidated balance sheets. The major classes of assets and liabilities held for sale included $908.2 million and $915.8 million of future policy benefits and expenses, $875.4 million and $881.6 million of reinsurance recoverables, $146.7 million and $159.6 million of other investments and $114.1 million and $117.2 million of claims and benefits payable as of March 31, 2022 and December 31, 2021, respectively.
Most of the $875.4 million and $881.6 million reinsurance recoverables balance for JALIC, which was included in assets held for sale as of March 31, 2022 and December 31, 2021, respectively, was reinsured with Employers Reassurance Corporation (“ERAC”) and was uncollateralized.
5. Segment 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 for profitability.
As of March 31, 2022, the Company had three 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, 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.
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
The following table presents segment Adjusted EBITDA with a reconciliation to net income attributable to common shareholders:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Adjusted EBITDA by segment: | |||||||||||||||||||||||
| Global Lifestyle | $ | 217.4 | $ | 193.0 | |||||||||||||||||||
| Global Housing | 103.8 | 93.5 | |||||||||||||||||||||
| Corporate and Other | (22.2) | (27.9) | |||||||||||||||||||||
| Reconciling items to consolidated net income from continuing operations: | |||||||||||||||||||||||
| Interest expense | (26.9) | (28.4) | |||||||||||||||||||||
| Depreciation expense | (20.3) | (16.8) | |||||||||||||||||||||
| Amortization of purchased intangible assets | (17.6) | (17.0) | |||||||||||||||||||||
| Net realized (losses) gains on investments and fair value changes to equity securities | (62.4) | 0.8 | |||||||||||||||||||||
| COVID-19 direct and incremental expenses | (1.4) | (3.0) | |||||||||||||||||||||
| Other adjustments | 0.4 | (0.9) | |||||||||||||||||||||
| Loss attributable to non-controlling interest | — | (0.2) | |||||||||||||||||||||
| Total reconciling items | (128.2) | (65.5) | |||||||||||||||||||||
| Income from continuing operations before income tax expense | 170.8 | 193.1 | |||||||||||||||||||||
| Income tax expense | 25.3 | 44.6 | |||||||||||||||||||||
| Net income from continuing operations | $ | 145.5 | $ | 148.5 |
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
The Company’s net earned premiums, fees and other income by segment and product are as follows:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Global Lifestyle: | |||||||||||||||||||||||
| Connected Living (1) | $ | 1,072.5 | $ | 1,049.9 | |||||||||||||||||||
| Global Automotive | 889.1 | 812.4 | |||||||||||||||||||||
| Total | $ | 1,961.6 | $ | 1,862.3 | |||||||||||||||||||
| Global Housing: | |||||||||||||||||||||||
| Lender-placed Insurance | $ | 266.8 | $ | 260.4 | |||||||||||||||||||
| Multifamily Housing | 119.9 | 117.4 | |||||||||||||||||||||
| Specialty and Other | 110.1 | 115.2 | |||||||||||||||||||||
| Total | $ | 496.8 | $ | 493.0 |
(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.
The following table presents total assets by segment:
| March 31, 2022 | December 31, 2021 | ||||||||||
| Global Lifestyle (1) | $ | 26,244.2 | $ | 26,210.0 | |||||||
| Global Housing (1) | 3,963.6 | 4,131.2 | |||||||||
| Corporate and Other | 2,814.8 | 3,570.3 | |||||||||
| Segment assets | $ | 33,022.6 | $ | 33,911.5 |
(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.
6. Contract Revenues
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 $277.6 million and $164.9 million for Global Lifestyle and $22.4 million and $24.5 million for Global Housing for the three months ended March 31, 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 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.
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
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.
Contract Balances
The receivables and unearned revenue under these contracts were $320.0 million and $193.1 million, respectively, as of March 31, 2022, and $313.7 million and $191.5 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 March 31, 2022 and 2021 that was included in unearned revenue as of December 31, 2021 and 2020 was $22.6 million and $11.7 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 March 31, 2022 and December 31, 2021, the Company had approximately $87.2 million and $93.0 million, respectively, of such intangible assets attributed to service contracts that will be expensed over the term of the client contracts.
7. Investments
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:
| March 31, 2022 | |||||||||||||||||||||||||||||
| Cost or Amortized Cost | Allowance for Credit Losses | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||||||||||||||
| Fixed maturity securities: | |||||||||||||||||||||||||||||
| U.S. government and government agencies and authorities | $ | 81.5 | $ | — | $ | 0.8 | $ | (2.8) | $ | 79.5 | |||||||||||||||||||
| States, municipalities and political subdivisions | 144.8 | — | 3.1 | (6.9) | 141.0 | ||||||||||||||||||||||||
| Foreign governments | 428.5 | — | 2.7 | (10.1) | 421.1 | ||||||||||||||||||||||||
| Asset-backed | 476.9 | — | 12.7 | (10.5) | 479.1 | ||||||||||||||||||||||||
| Commercial mortgage-backed | 481.6 | — | 1.2 | (16.3) | 466.5 | ||||||||||||||||||||||||
| Residential mortgage-backed | 536.4 | — | 5.8 | (15.9) | 526.3 | ||||||||||||||||||||||||
| U.S. corporate | 3,556.2 | — | 85.4 | (111.5) | 3,530.1 | ||||||||||||||||||||||||
| Foreign corporate | 1,290.1 | — | 15.9 | (61.7) | 1,244.3 | ||||||||||||||||||||||||
| Total fixed maturity securities | $ | 6,996.0 | $ | — | $ | 127.6 | $ | (235.7) | $ | 6,887.9 |
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
| December 31, 2021 | |||||||||||||||||||||||||||||
| Cost or Amortized Cost | Allowance for Credit Losses | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||||||||||||||
| Fixed maturity securities: | |||||||||||||||||||||||||||||
| U.S. government and government agencies and authorities | $ | 83.0 | $ | — | $ | 2.1 | $ | (0.1) | $ | 85.0 | |||||||||||||||||||
| States, municipalities and political subdivisions | 142.2 | — | 7.0 | (0.7) | 148.5 | ||||||||||||||||||||||||
| Foreign governments | 436.0 | — | 5.9 | (4.2) | 437.7 | ||||||||||||||||||||||||
| Asset-backed | 411.1 | — | 14.2 | (2.3) | 423.0 | ||||||||||||||||||||||||
| Commercial mortgage-backed | 466.7 | — | 10.3 | (3.3) | 473.7 | ||||||||||||||||||||||||
| Residential mortgage-backed | 578.4 | — | 25.2 | (1.7) | 601.9 | ||||||||||||||||||||||||
| U.S. corporate | 3,581.2 | — | 235.9 | (14.0) | 3,803.1 | ||||||||||||||||||||||||
| Foreign corporate | 1,205.3 | — | 46.0 | (8.9) | 1,242.4 | ||||||||||||||||||||||||
| Total fixed maturity securities | $ | 6,903.9 | $ | — | $ | 346.6 | $ | (35.2) | $ | 7,215.3 |
The cost or amortized cost and fair value of fixed maturity securities as of March 31, 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.
| Cost or Amortized Cost | Fair Value | ||||||||||
| Due in one year or less | $ | 356.6 | $ | 358.7 | |||||||
| Due after one year through five years | 2,012.2 | 2,013.1 | |||||||||
| Due after five years through ten years | 2,074.3 | 2,020.5 | |||||||||
| Due after ten years | 1,058.0 | 1,023.7 | |||||||||
| Total | 5,501.1 | 5,416.0 | |||||||||
| Asset-backed | 476.9 | 479.1 | |||||||||
| Commercial mortgage-backed | 481.6 | 466.5 | |||||||||
| Residential mortgage-backed | 536.4 | 526.3 | |||||||||
| Total | $ | 6,996.0 | $ | 6,887.9 |
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:
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Net realized (losses) gains on investments related to sales and other and fair value changes to equity securities: | |||||||||||||||||||||||
| Fixed maturity securities | $ | (18.5) | $ | 3.0 | |||||||||||||||||||
| Equity securities (1) (2) | (43.2) | (1.7) | |||||||||||||||||||||
| Commercial mortgage loans on real estate | 0.2 | 0.3 | |||||||||||||||||||||
| Other investments | (0.4) | 0.2 | |||||||||||||||||||||
| Total net realized (losses) gains on investments related to sales and other and fair value changes to equity securities | (61.9) | 1.8 | |||||||||||||||||||||
| Net realized losses related to impairments: | |||||||||||||||||||||||
| Fixed maturity securities | — | — | |||||||||||||||||||||
| Other investments | (0.5) | (1.0) | |||||||||||||||||||||
| Total net realized losses related to impairments | (0.5) | (1.0) | |||||||||||||||||||||
| Total net realized (losses) gains on investments and fair value changes to equity securities | $ | (62.4) | $ | 0.8 |
(1)Upward adjustments of $10.0 million and $2.1 million and impairments of $0.0 million and $0.5 million were realized on equity investments accounted for under the measurement alternative for the three months ended March 31, 2022 and 2021, respectively.
(2)Three months ended March 31, 2022 included $33.7 million of net losses from four equity positions that went public during 2021. The total fair value of these investments as of March 31, 2022 was $77.0 million, included in equity securities on the consolidated balance sheet.
The following table sets forth the portion of fair value changes to equity securities held for the periods indicated:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Net losses recognized on equity securities | $ | (43.2) | $ | (1.7) | |||||||||||||||||||
| Less: Net realized gains related to sales of equity securities | 11.8 | 0.9 | |||||||||||||||||||||
| Total fair value changes to equity securities held | $ | (55.0) | $ | (2.6) |
Equity investments accounted for under the measurement alternative are included within other investments on the consolidated balance sheets. The following table summarizes information related to these investments:
| March 31, 2022 | December 31, 2021 | ||||||||||
| Initial cost | $ | 83.7 | $ | 77.0 | |||||||
| Cumulative upward adjustments | 52.1 | 42.7 | |||||||||
| Cumulative downward adjustments (including impairments) | (16.0) | (16.0) | |||||||||
| Carrying value | $ | 119.8 | $ | 103.7 |
The investment category and duration of the Company’s gross unrealized losses on fixed maturity securities as of March 31, 2022 and December 31, 2021 were as follows:
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
| March 31, 2022 | |||||||||||||||||||||||||||||||||||
| Less than 12 months | 12 Months or More | Total | |||||||||||||||||||||||||||||||||
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||
| Fixed maturity securities: | |||||||||||||||||||||||||||||||||||
| U.S. government and government agencies and authorities | $ | 53.5 | $ | (2.7) | $ | 0.6 | $ | (0.1) | $ | 54.1 | $ | (2.8) | |||||||||||||||||||||||
| States, municipalities and political subdivisions | 59.0 | (5.9) | 6.5 | (1.0) | 65.5 | (6.9) | |||||||||||||||||||||||||||||
| Foreign governments | 246.9 | (9.2) | 12.7 | (0.9) | 259.6 | (10.1) | |||||||||||||||||||||||||||||
| Asset-backed | 373.4 | (9.9) | 23.3 | (0.6) | 396.7 | (10.5) | |||||||||||||||||||||||||||||
| Commercial mortgage-backed | 314.9 | (13.9) | 20.2 | (2.4) | 335.1 | (16.3) | |||||||||||||||||||||||||||||
| Residential mortgage-backed | 233.8 | (15.0) | 12.1 | (0.9) | 245.9 | (15.9) | |||||||||||||||||||||||||||||
| U.S. corporate | 1,359.3 | (94.8) | 96.5 | (16.7) | 1,455.8 | (111.5) | |||||||||||||||||||||||||||||
| Foreign corporate | 735.6 | (49.3) | 75.0 | (12.4) | 810.6 | (61.7) | |||||||||||||||||||||||||||||
| Total fixed maturity securities | $ | 3,376.4 | $ | (200.7) | $ | 246.9 | $ | (35.0) | $ | 3,623.3 | $ | (235.7) |
| December 31, 2021 | |||||||||||||||||||||||||||||||||||
| Less than 12 months | 12 Months or More | Total | |||||||||||||||||||||||||||||||||
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||
| Fixed maturity securities: | |||||||||||||||||||||||||||||||||||
| U.S. government and government agencies and authorities | $ | 31.5 | $ | (0.1) | $ | — | $ | — | $ | 31.5 | $ | (0.1) | |||||||||||||||||||||||
| States, municipalities and political subdivisions | 48.1 | (0.7) | — | — | 48.1 | (0.7) | |||||||||||||||||||||||||||||
| Foreign governments | 216.0 | (4.1) | 4.0 | (0.1) | 220.0 | (4.2) | |||||||||||||||||||||||||||||
| Asset-backed | 257.7 | (2.1) | 9.8 | (0.2) | 267.5 | (2.3) | |||||||||||||||||||||||||||||
| Commercial mortgage-backed | 274.8 | (2.9) | 2.0 | (0.4) | 276.8 | (3.3) | |||||||||||||||||||||||||||||
| Residential mortgage-backed | 94.0 | (1.5) | 10.0 | (0.2) | 104.0 | (1.7) | |||||||||||||||||||||||||||||
| U.S. corporate | 687.8 | (13.1) | 15.2 | (0.9) | 703.0 | (14.0) | |||||||||||||||||||||||||||||
| Foreign corporate | 394.0 | (8.6) | 6.7 | (0.3) | 400.7 | (8.9) | |||||||||||||||||||||||||||||
| Total fixed maturity securities | $ | 2,003.9 | $ | (33.1) | $ | 47.7 | $ | (2.1) | $ | 2,051.6 | $ | (35.2) |
Total gross unrealized losses represented approximately 7% and 2% of the aggregate fair value of the related securities as of March 31, 2022 and December 31, 2021, respectively. Approximately 85% and 94% of these gross unrealized losses had been in a continuous loss position for less than twelve months as of March 31, 2022 and December 31, 2021, respectively. The total gross unrealized losses are comprised of 2,460 and 1,202 individual securities as of March 31, 2022 and December 31, 2021, respectively. In accordance with its policy, the Company concluded that for these securities, the gross unrealized losses as of March 31, 2022 and December 31, 2021 were related to non-credit factors and therefore, did not recognize credit-related losses during the three months ended March 31, 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 March 31, 2022, approximately 35% 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 $0.1 million to $9.5 million as of March 31, 2022 and from $0.1 million to $9.6 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
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
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.
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 March 31, 2022 and December 31, 2021.
| March 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| Origination Year | |||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Total | % of Total | ||||||||||||||||||||||||||||||||||||||||
| Loan to value ratios (1): | |||||||||||||||||||||||||||||||||||||||||||||||
| 70% and less | $ | 21.3 | $ | 71.6 | $ | 2.9 | $ | — | $ | — | $ | 100.4 | $ | 196.2 | 69.7 | % | |||||||||||||||||||||||||||||||
| 71% to 80% | 12.7 | 62.2 | 2.7 | — | 4.7 | — | 82.3 | 29.2 | % | ||||||||||||||||||||||||||||||||||||||
| 81% to 95% | — | — | — | — | — | 1.1 | 1.1 | 0.4 | % | ||||||||||||||||||||||||||||||||||||||
| Greater than 95% | — | — | — | — | — | 2.0 | 2.0 | 0.7 | % | ||||||||||||||||||||||||||||||||||||||
| Total | $ | 34.0 | $ | 133.8 | $ | 5.6 | $ | — | $ | 4.7 | $ | 103.5 | $ | 281.6 | 100.0 | % |
| March 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| Origination Year | |||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Total | % of Total | ||||||||||||||||||||||||||||||||||||||||
| Debt-service coverage ratios (2): | |||||||||||||||||||||||||||||||||||||||||||||||
| Greater than 2.0 | $ | 8.0 | $ | 59.8 | $ | 5.6 | $ | — | $ | — | $ | 67.0 | $ | 140.4 | 49.9 | % | |||||||||||||||||||||||||||||||
| 1.5 to 2.0 | 18.4 | 34.0 | — | — | 4.7 | 21.0 | 78.1 | 27.7 | % | ||||||||||||||||||||||||||||||||||||||
| 1.0 to 1.5 | 7.6 | 40.0 | — | — | — | 9.7 | 57.3 | 20.3 | % | ||||||||||||||||||||||||||||||||||||||
| Less than 1.0 | — | — | — | — | — | 5.8 | 5.8 | 2.1 | % | ||||||||||||||||||||||||||||||||||||||
| Total | $ | 34.0 | $ | 133.8 | $ | 5.6 | $ | — | $ | 4.7 | $ | 103.5 | $ | 281.6 | 100.0 | % |
| December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
| Origination Year | |||||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Total | % of Total | ||||||||||||||||||||||||||||||||||||||||
| Loan to value ratios (1): | |||||||||||||||||||||||||||||||||||||||||||||||
| 70% and less | $ | 71.7 | $ | 5.6 | $ | — | $ | — | $ | 4.0 | $ | 99.8 | $ | 181.1 | 70.3 | % | |||||||||||||||||||||||||||||||
| 71% to 80% | 61.8 | — | — | 4.7 | — | 1.0 | 67.5 | 26.2 | % | ||||||||||||||||||||||||||||||||||||||
| 81% to 95% | — | — | — | — | — | 1.1 | 1.1 | 0.4 | % | ||||||||||||||||||||||||||||||||||||||
| Greater than 95% | — | — | — | — | 5.8 | 2.1 | 7.9 | 3.1 | % | ||||||||||||||||||||||||||||||||||||||
| Total | $ | 133.5 | $ | 5.6 | $ | — | $ | 4.7 | $ | 9.8 | $ | 104.0 | $ | 257.6 | 100.0 | % |
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
| December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
| Origination Year | |||||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Total | % of Total | ||||||||||||||||||||||||||||||||||||||||
| Debt-service coverage ratios (2): | |||||||||||||||||||||||||||||||||||||||||||||||
| Greater than 2.0 | $ | 59.3 | $ | 5.6 | $ | — | $ | — | $ | — | $ | 70.5 | $ | 135.4 | 52.6 | % | |||||||||||||||||||||||||||||||
| 1.5 to 2.0 | 34.1 | — | — | 4.7 | 4.0 | 17.5 | 60.3 | 23.4 | % | ||||||||||||||||||||||||||||||||||||||
| 1.0 to 1.5 | 40.1 | — | — | — | — | 9.9 | 50.0 | 19.4 | % | ||||||||||||||||||||||||||||||||||||||
| Less than 1.0 | — | — | — | — | 5.8 | 6.1 | 11.9 | 4.6 | % | ||||||||||||||||||||||||||||||||||||||
| Total | $ | 133.5 | $ | 5.6 | $ | — | $ | 4.7 | $ | 9.8 | $ | 104.0 | $ | 257.6 | 100.0 | % |
(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. Fair 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 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.
The following tables present the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis as of March 31, 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
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
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.
| March 31, 2022 | ||||||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||
| Financial Assets | ||||||||||||||||||||||||||
| Fixed maturity securities: | ||||||||||||||||||||||||||
| U.S. government and government agencies and authorities | $ | 79.5 | $ | — | $ | 79.5 | $ | — | ||||||||||||||||||
| States, municipalities and political subdivisions | 141.0 | — | 141.0 | — | ||||||||||||||||||||||
| Foreign governments | 421.1 | — | 421.1 | — | ||||||||||||||||||||||
| Asset-backed | 479.1 | — | 479.1 | — | ||||||||||||||||||||||
| Commercial mortgage-backed | 466.5 | — | 466.5 | — | ||||||||||||||||||||||
| Residential mortgage-backed | 526.3 | — | 526.3 | — | ||||||||||||||||||||||
| U.S. corporate | 3,530.1 | — | 3,526.9 | 3.2 | ||||||||||||||||||||||
| Foreign corporate | 1,244.3 | — | 1,240.8 | 3.5 | ||||||||||||||||||||||
| Equity securities: | ||||||||||||||||||||||||||
| Mutual funds | 32.2 | 32.2 | — | — | ||||||||||||||||||||||
| Common stocks | 94.2 | 38.8 | 0.7 | 54.7 | (6) | |||||||||||||||||||||
| Non-redeemable preferred stocks | 245.3 | — | 245.3 | — | ||||||||||||||||||||||
| Short-term investments | 105.6 | 95.8 | (2) | 9.8 | — | |||||||||||||||||||||
| Other investments | 73.1 | 72.9 | (1) | — | 0.2 | |||||||||||||||||||||
| Cash equivalents | 496.5 | 480.1 | (2) | 16.4 | (3) | — | ||||||||||||||||||||
| Other assets | 3.7 | — | 3.7 | (4) | — | |||||||||||||||||||||
| Assets held in separate accounts | 11.1 | 7.1 | (1) | 4.0 | (3) | — | ||||||||||||||||||||
| Total financial assets | $ | 7,949.6 | $ | 726.9 | $ | 7,161.1 | $ | 61.6 | ||||||||||||||||||
| Financial Liabilities | ||||||||||||||||||||||||||
| Other liabilities | $ | 76.9 | $ | 72.9 | (1) | $ | — | $ | 4.0 | (5) | ||||||||||||||||
| Liabilities related to separate accounts | 11.1 | 7.1 | (1) | 4.0 | (3) | — | ||||||||||||||||||||
| Total financial liabilities | $ | 88.0 | $ | 80.0 | $ | 4.0 | $ | 4.0 |
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
| December 31, 2021 | ||||||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||
| Financial Assets | ||||||||||||||||||||||||||
| Fixed maturity securities: | ||||||||||||||||||||||||||
| U.S. government and government agencies and authorities | $ | 85.0 | $ | — | $ | 85.0 | $ | — | ||||||||||||||||||
| States, municipalities and political subdivisions | 148.5 | — | 148.5 | — | ||||||||||||||||||||||
| Foreign governments | 437.7 | — | 437.7 | — | ||||||||||||||||||||||
| Asset-backed | 423.0 | — | 423.0 | — | ||||||||||||||||||||||
| Commercial mortgage-backed | 473.7 | — | 473.7 | — | ||||||||||||||||||||||
| Residential mortgage-backed | 601.9 | — | 601.9 | — | ||||||||||||||||||||||
| U.S. corporate | 3,803.1 | — | 3,799.7 | 3.4 | ||||||||||||||||||||||
| Foreign corporate | 1,242.4 | — | 1,238.8 | 3.6 | ||||||||||||||||||||||
| Equity securities: | ||||||||||||||||||||||||||
| Mutual funds | 33.3 | 33.3 | — | — | ||||||||||||||||||||||
| Common stocks | 151.1 | 15.5 | 0.7 | 134.9 | (6) | |||||||||||||||||||||
| Non-redeemable preferred stocks | 261.3 | — | 261.3 | — | ||||||||||||||||||||||
| Short-term investments | 207.2 | 200.1 | (2) | 7.1 | — | |||||||||||||||||||||
| Other investments | 72.6 | 72.4 | (1) | — | 0.2 | |||||||||||||||||||||
| Cash equivalents | 1,243.9 | 1,190.9 | (2) | 53.0 | (3) | — | ||||||||||||||||||||
| Other assets | 1.7 | — | 1.7 | (4) | — | |||||||||||||||||||||
| Assets held in separate accounts | 11.8 | 7.7 | (1) | 4.1 | (3) | — | ||||||||||||||||||||
| Total financial assets | $ | 9,198.2 | $ | 1,519.9 | $ | 7,536.2 | $ | 142.1 | ||||||||||||||||||
| Financial Liabilities | ||||||||||||||||||||||||||
| Other liabilities | $ | 76.4 | $ | 72.4 | (1) | $ | — | $ | 4.0 | (5) | ||||||||||||||||
| Liabilities related to separate accounts | 11.8 | 7.7 | (1) | 4.1 | (3) | — | ||||||||||||||||||||
| Total financial liabilities | $ | 88.2 | $ | 80.1 | $ | 4.1 | $ | 4.0 |
(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.
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
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:
| March 31, 2022 | |||||||||||||||||||||||||||||
| Fair Value | |||||||||||||||||||||||||||||
| Carrying Value | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
| Financial Assets | |||||||||||||||||||||||||||||
| Commercial mortgage loans on real estate | $ | 280.7 | $ | 279.4 | $ | — | $ | — | $ | 279.4 | |||||||||||||||||||
| Other investments | 4.7 | 4.7 | 2.0 | — | 2.7 | ||||||||||||||||||||||||
| Other assets | 22.7 | 22.7 | — | — | 22.7 | ||||||||||||||||||||||||
| Total financial assets | $ | 308.1 | $ | 306.8 | $ | 2.0 | $ | — | $ | 304.8 | |||||||||||||||||||
| Financial Liabilities | |||||||||||||||||||||||||||||
| Policy reserves under investment products (Individual and group annuities, subject to discretionary withdrawal) (1) | $ | 8.6 | $ | 8.7 | $ | — | $ | — | $ | 8.7 | |||||||||||||||||||
| Funds withheld under reinsurance | 355.1 | 355.1 | 355.1 | — | — | ||||||||||||||||||||||||
| Debt | 2,203.0 | 2,239.1 | — | 2,239.1 | — | ||||||||||||||||||||||||
| Total financial liabilities | $ | 2,566.7 | $ | 2,602.9 | $ | 355.1 | $ | 2,239.1 | $ | 8.7 | |||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||||||||
| Fair Value | |||||||||||||||||||||||||||||
| Carrying Value | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
| Financial Assets | |||||||||||||||||||||||||||||
| Commercial mortgage loans on real estate | $ | 256.5 | $ | 266.0 | $ | — | $ | — | $ | 266.0 | |||||||||||||||||||
| Other investments | 4.2 | 4.2 | 2.0 | — | 2.2 | ||||||||||||||||||||||||
| Other assets | 24.9 | 24.9 | — | — | 24.9 | ||||||||||||||||||||||||
| Total financial assets | $ | 285.6 | $ | 295.1 | $ | 2.0 | $ | — | $ | 293.1 | |||||||||||||||||||
| Financial Liabilities | |||||||||||||||||||||||||||||
| Policy reserves under investment products (Individual and group annuities, subject to discretionary withdrawal) (1) | $ | 8.5 | $ | 9.6 | $ | — | $ | — | $ | 9.6 | |||||||||||||||||||
| Funds withheld under reinsurance | 364.2 | 364.2 | 364.2 | — | — | ||||||||||||||||||||||||
| Debt | 2,202.5 | 2,456.3 | — | 2,456.3 | — | ||||||||||||||||||||||||
| Total financial liabilities | $ | 2,575.2 | $ | 2,830.1 | $ | 364.2 | $ | 2,456.3 | $ | 9.6 |
(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. Deferred Acquisition Costs
The following table discloses information about deferred acquisition costs as of the dates indicated:
| For the Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Beginning balance | $ | 8,811.0 | $ | 7,388.0 | |||||||
| Costs deferred | 1,103.9 | 1,044.8 | |||||||||
| Amortization | (889.5) | (783.1) | |||||||||
| Ending balance | $ | 9,025.4 | $ | 7,649.7 |
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
10. Reserves
Reserve Roll Forward
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.
| For the Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Claims and benefits payable, at beginning of period | $ | 1,595.9 | $ | 1,610.3 | |||||||
| Less: Reinsurance ceded and other | (825.6) | (849.4) | |||||||||
| Net claims and benefits payable, at beginning of period | 770.3 | 760.9 | |||||||||
| Incurred losses and loss adjustment expenses related to: | |||||||||||
| Current year | 524.6 | 574.9 | |||||||||
| Prior years | (30.1) | (46.2) | |||||||||
| Total incurred losses and loss adjustment expenses | 494.5 | 528.7 | |||||||||
| Paid losses and loss adjustment expenses related to: | |||||||||||
| Current year | 211.4 | 235.8 | |||||||||
| Prior years | 259.2 | 268.3 | |||||||||
| Total paid losses and loss adjustment expenses | 470.6 | 504.1 | |||||||||
| Net claims and benefits payable, at end of period | 794.2 | 785.5 | |||||||||
| Plus: Reinsurance ceded and other (1) | 741.5 | 792.5 | |||||||||
| Claims and benefits payable, at end of period (1) | $ | 1,535.7 | $ | 1,578.0 |
(1)Includes reinsurance recoverables and claims and benefits payable of $75.4 million and $66.1 million as of March 31, 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 favorable loss development in both periods presented in the roll forward table above. Global Lifestyle contributed $33.1 million and $30.6 million to the net favorable loss development during the three months ended March 31, 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. 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 had net unfavorable loss development of $7.6 million for the three months ended March 31, 2022 and net favorable loss development of $12.6 million for the three months ended March 31, 2021. The net unfavorable loss development for the three months ended March 31, 2022 was primarily attributable to sharing economy products from a reserve adjustment and adverse development from policies previously written under less favorable terms. The net unfavorable loss development from non-catastrophe losses was partially offset by net favorable loss development of $1.6 million from prior catastrophe events. The favorable loss development for the three months ended March 31, 2021 was primarily attributable to Lender-placed Insurance products from the most recent accident years due to lower than expected non-catastrophe claim frequency. All others contributed $4.6 million and $3.0 million on net favorable loss development for the three months ended March 31, 2022 and 2021, respectively.
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
11. Accumulated Other Comprehensive Income
Certain amounts included in the consolidated statements of comprehensive income are net of reclassification adjustments. The following tables summarize those reclassification adjustments (net of taxes) for the periods indicated:
| Three Months Ended March 31, 2022 | |||||||||||||||||||||||||||||
| Foreign currency translation adjustment | Net unrealized losses on investments | Net unrealized gains on derivative transactions | Unamortized net losses on Pension Plans | Accumulated other comprehensive loss | |||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | (326.9) | $ | 256.6 | $ | 12.4 | $ | (92.1) | $ | (150.0) | |||||||||||||||||||
| Change in accumulated other comprehensive income (loss) before reclassifications | 1.3 | (347.8) | — | 0.6 | (345.9) | ||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | — | 13.0 | (0.6) | (1.8) | 10.6 | ||||||||||||||||||||||||
| Net current-period other comprehensive income (loss) | 1.3 | (334.8) | (0.6) | (1.2) | (335.3) | ||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | (325.6) | $ | (78.2) | $ | 11.8 | $ | (93.3) | $ | (485.3) | |||||||||||||||||||
| Three Months Ended March 31, 2021 | |||||||||||||||||||||||||||||
| Foreign currency translation adjustment | Net unrealized gains on investments | Net unrealized gains on derivative transactions | Unamortized net losses on Pension Plans | Accumulated other comprehensive income | |||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | (295.6) | $ | 1,097.6 | $ | 14.7 | $ | (106.9) | $ | 709.8 | |||||||||||||||||||
| Change in accumulated other comprehensive income (loss) before reclassifications | 7.2 | (207.9) | — | (0.3) | (201.0) | ||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | — | (2.4) | (0.6) | (1.3) | (4.3) | ||||||||||||||||||||||||
| Net current-period other comprehensive income (loss) | 7.2 | (210.3) | (0.6) | (1.6) | (205.3) | ||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | (288.4) | $ | 887.3 | $ | 14.1 | $ | (108.5) | $ | 504.5 | |||||||||||||||||||
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
The following tables summarize the reclassifications out of accumulated other comprehensive income (“AOCI”) for the periods indicated:
| Details about accumulated other comprehensive income components | Amount reclassified from accumulated other comprehensive income | Affected line item in the statement where net income is presented | ||||||||||||||||||
| Three Months Ended March 31, | ||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||
| Net unrealized losses (gains) on investments | $ | 16.4 | $ | (3.1) | Net realized losses (gains) on investments | |||||||||||||||
| (3.4) | 0.7 | Provision for income taxes | ||||||||||||||||||
| $ | 13.0 | $ | (2.4) | Net of tax | ||||||||||||||||
| Net unrealized gains on derivative transactions | $ | (0.7) | $ | (0.7) | Interest expense | |||||||||||||||
| 0.1 | 0.1 | Provision for income taxes | ||||||||||||||||||
| $ | (0.6) | $ | (0.6) | Net of tax | ||||||||||||||||
| Amortization of pension and postretirement unrecognized net periodic benefit cost: | ||||||||||||||||||||
| Amortization of net loss | $ | 1.1 | $ | 1.8 | (1) | |||||||||||||||
| Amortization of prior service credit | (3.4) | (3.4) | (1) | |||||||||||||||||
| (2.3) | (1.6) | |||||||||||||||||||
| 0.5 | 0.3 | Provision for income taxes | ||||||||||||||||||
| $ | (1.8) | $ | (1.3) | Net of tax | ||||||||||||||||
| Total reclassifications for the period | $ | 10.6 | $ | (4.3) | Net of tax | |||||||||||||||
(1)These AOCI components are included in the computation of net periodic pension cost. For additional information, see Note 14.
12. Equity Transactions
Mandatory Convertible Preferred Stock (“MCPS”)
In March 2018, the Company issued 2,875,000 shares of the MCPS, with a par value of $1.00 per share, at a public offering price of $100.00 per share. Each outstanding share of MCPS converted in March 2021 into 0.9405 of common shares, or 2,703,911 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 6.50% of the liquidation preference of $100.00 per share. The Company paid preferred stock dividends of $4.7 million for the three months ended March 31, 2021.
13. Earnings Per Common Share
The 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.
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Numerator | |||||||||||||||||||||||
| Net income from continuing operations | $ | 145.5 | $ | 148.5 | |||||||||||||||||||
| Less: Net loss attributable to non-controlling interest | — | 0.2 | |||||||||||||||||||||
| Net income from continuing operations attributable to stockholders | 145.5 | 148.7 | |||||||||||||||||||||
| Less: Preferred stock dividends | — | (4.7) | |||||||||||||||||||||
| Net income from continuing operations attributable to common stockholders | 145.5 | 144.0 | |||||||||||||||||||||
| Less: Common stock dividends paid | (37.4) | (38.2) | |||||||||||||||||||||
| Undistributed earnings | $ | 108.1 | $ | 105.8 | |||||||||||||||||||
| Net income from continuing operations attributable to common stockholders | $ | 145.5 | $ | 144.0 | |||||||||||||||||||
| Add: Net income from discontinued operations | — | 14.3 | |||||||||||||||||||||
| Net income attributable to common stockholders | $ | 145.5 | $ | 158.3 | |||||||||||||||||||
| Denominator | |||||||||||||||||||||||
| Weighted average common shares outstanding used in basic per common share calculations | 55,779,362 | 59,192,880 | |||||||||||||||||||||
| Incremental common shares from: | |||||||||||||||||||||||
| PSUs | 399,632 | 367,274 | |||||||||||||||||||||
| ESPP | 1,410 | — | |||||||||||||||||||||
| MCPS | — | 2,223,238 | |||||||||||||||||||||
| Weighted average common shares outstanding used in diluted per common share calculations | 56,180,404 | 61,783,392 | |||||||||||||||||||||
| Earnings per common share - Basic | |||||||||||||||||||||||
| Distributed earnings | $ | 0.67 | $ | 0.64 | |||||||||||||||||||
| Undistributed earnings | 1.94 | 1.79 | |||||||||||||||||||||
| Net income from continuing operations | 2.61 | 2.43 | |||||||||||||||||||||
| Net income from discontinued operations | — | 0.24 | |||||||||||||||||||||
| Net income attributable to common stockholders | $ | 2.61 | $ | 2.67 | |||||||||||||||||||
| Earnings per common share - Diluted | |||||||||||||||||||||||
| Distributed earnings | $ | 0.66 | $ | 0.62 | |||||||||||||||||||
| Undistributed earnings | 1.93 | 1.79 | |||||||||||||||||||||
| Net income from continuing operations | 2.59 | 2.41 | |||||||||||||||||||||
| Net income from discontinued operations | — | 0.23 | |||||||||||||||||||||
| Net income attributable to common stockholders | $ | 2.59 | $ | 2.64 |
Average PSUs totaling 14,777 and 18,373 for the three months ended March 31, 2022 and 2021, respectively, were anti-dilutive and thus not included in the computation of diluted EPS under the treasury stock method.
14. Retirement 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 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.
Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in millions, except number of shares and per share amounts)
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 1.55%, 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 $65.6 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.
The following tables present the components of net periodic benefit cost for the Plans for the three months ended March 31, 2022 and 2021:
| Qualified Pension Benefits | Unfunded Non-qualified Pension Benefits | Retirement Health Benefits | |||||||||||||||||||||||||||||||||
| For the Three Months Ended March 31, | For the Three Months Ended March 31, | For the Three Months Ended March 31, | |||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||
| Interest cost | $ | 4.2 | $ | 3.5 | $ | 0.4 | $ | 0.3 | $ | — | $ | — | |||||||||||||||||||||||
| Expected return on plan assets | (6.9) | (6.9) | — | — | (0.3) | (0.4) | |||||||||||||||||||||||||||||
| Amortization of prior service credit | — | — | — | — | (3.4) | (3.4) | |||||||||||||||||||||||||||||
| Amortization of net loss (gain) | 0.8 | 1.2 | 0.5 | 0.8 | (0.2) | (0.1) | |||||||||||||||||||||||||||||
| Net periodic benefit cost | $ | (1.9) | $ | (2.2) | $ | 0.9 | $ | 1.1 | $ | (3.9) | $ | (3.9) | |||||||||||||||||||||||
The Assurant Pension Plan funded status was $83.5 million at March 31, 2022 and $74.8 million at December 31, 2021 (based on the fair value of the assets compared to the accumulated benefit obligation). This equates to a 112% and 110% funded status at March 31, 2022 and December 31, 2021, respectively. During the three months ended March 31, 2022, no cash was contributed to the Assurant Pension Plan. Due to the Assurant Pension Plan’s current funded status, no additional cash is expected to be contributed to the Assurant Pension Plan over the remainder of 2022.
15. Commitments 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 $7.2 million of letters of credit outstanding as of March 31, 2022 and December 31, 2021.
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.
Next: Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations