filings.toolsItem 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
63K characters. Original on sec.gov · Markdown
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, 2023 and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”) filed with the U.S. Securities and Exchange Commission (the “SEC”) and the unaudited consolidated financial statements for the three and nine months ended September 30, 2024 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 nine months ended September 30, 2024 (“Third Quarter 2024” and “Nine Months 2024”) and the three and nine months ended September 30, 2023 (“Third Quarter 2023” and “Nine Months 2023”).
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 they disintermediate us, 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 or divest of non-strategic businesses effectively or achieve 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 and availability of mobile devices, and regulatory 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, industry or clients;
(xiii)the impact of general economic, financial market and political conditions (including the Israel-Hamas war) and conditions in the markets in which we operate, including the current inflationary environment;
(xiv)the adequacy of reserves established for claims and our inability to accurately predict and price for claims and other costs;
(xv)a decline in financial strength ratings of our insurance subsidiaries or in our corporate senior debt ratings;
(xvi)fluctuations in exchange rates, including in the current environment;
(xvii)an impairment of goodwill or other intangible assets;
(xviii)the failure to maintain effective internal control over financial reporting;
(xix)unfavorable conditions in the capital and credit markets;
(xx)a decrease in the value of our investment portfolio, including due to market, credit and liquidity risks, and changes in interest rates;
(xxi)an impairment in the value of our deferred tax assets;
(xxii)the unavailability or inadequacy of reinsurance coverage and the credit risk of reinsurers, including those to whom we have sold business through reinsurance;
(xxiii)the credit risk of some of our agents, third-party administrators and clients;
(xxiv)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;
(xxv)limitations in the analytical models we use to assist in our decision-making;
(xxvi)the failure to effectively maintain and modernize our technology systems and infrastructure, or the failure to integrate those of acquired businesses;
(xxvii)breaches of our technology 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;
(xxviii)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 and tax;
(xxix)the impact of litigation and regulatory actions;
(xxx)reductions or deferrals in the insurance premiums we charge;
(xxxi)changes in insurance, tax and other regulations, including the Inflation Reduction Act of 2022;
(xxxii)volatility in our common stock price and trading volume; and
(xxxiii)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 2023 Annual Report, and “Item 1A—Risk Factors” below and in our 2023 Annual Report.
Segment Information
As of September 30, 2024, we had two reportable operating 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 (including extended service contracts, insurance policies and related services), extended service contracts and related services for consumer electronics and appliances, and credit and other insurance products (referred to as “Connected Living”); and vehicle protection services, commercial equipment services and other related services (referred to as “Global Automotive”); and
-
Global Housing: includes lender-placed homeowners, manufactured housing and flood insurance, as well as voluntary manufactured housing, condominium and homeowners insurance (referred to as “Homeowners”); and renters insurance and other products (referred to as “Renters and Other”).
In addition, we report the Corporate and Other segment, which includes corporate employee-related expenses and activities of the holding company.
We define Adjusted EBITDA, our segment measure of profitability, as net income, excluding net realized gains (losses) on investments and fair value changes to equity securities, non-core operations (which consists of certain businesses which we have fully exited or expect to fully exit, including the long-tail commercial liability businesses (sharing economy and small commercial businesses), certain legacy long-duration insurance policies and our operations in mainland China (not Hong Kong)), restructuring costs related to strategic exit activities (outside of normal periodic restructuring and cost management
activities), Assurant Health runoff operations, interest expense, provision (benefit) for income taxes, depreciation expense, amortization of purchased intangible assets, as well as other highly variable or unusual items.
Executive Summary
Summary of Financial Results
Consolidated net income decreased $56.3 million, or 30%, to $133.8 million for Third Quarter 2024 from $190.1 million for Third Quarter 2023, primarily due to higher reportable catastrophes within Global Housing. This was partially offset by higher top-line growth in Homeowners within Global Housing.
Global Lifestyle Adjusted EBITDA decreased $7.5 million, or 4%, to $184.3 million for Third Quarter 2024 from $191.8 million for Third Quarter 2023, primarily driven by unfavorable foreign exchange and modestly lower results within Global Automotive, where elevated losses within select ancillary products were partially offset by higher investment income. Excluding the impact of foreign exchange, Connected Living was flat as investments in new client programs and capabilities to support future growth were offset by growth in mobile device protection programs from increased subscribers, particularly in the U.S.
Global Lifestyle net earned premiums, fees and other income increased $143.7 million, or 7%, to $2.25 billion for Third Quarter 2024 from $2.11 billion for Third Quarter 2023, primarily driven by Connected Living from mobile growth, including contributions from newly launched trade-in programs and global device protection programs.
Global Housing Adjusted EBITDA decreased $72.7 million, or 44%, to $92.4 million for Third Quarter 2024 from $165.1 million for Third Quarter 2023, primarily due to $110.6 million of higher pre-tax reportable catastrophes. Excluding reportable catastrophes, Adjusted EBITDA increased $37.9 million, or 20%, primarily from continued top-line growth within Homeowners, including higher policies in-force from new lender-placed programs and portfolios and increased voluntary insurance market pressure, and $30.1 million of favorable year-over-year prior period reserve development. The increase was partially offset by a $27.5 million non-run rate adjustment related to a change in earnings pattern assumptions.
Global Housing net earned premiums, fees and other income increased $48.6 million, or 9%, to $603.8 million for Third Quarter 2024 from $555.2 million for Third Quarter 2023, mainly driven by Homeowners top-line growth, including growth in policies in-force and higher average premiums within lender-placed insurance as well as growth across various specialty products, partially offset by the non-run rate adjustment mentioned above.
Corporate and Other Adjusted EBITDA was $(29.8) million for Third Quarter 2024 compared to $(26.2) million for Third Quarter 2023, primarily driven by higher third-party and employee-related expenses.
In fourth quarter 2024, Hurricane Milton is expected to be a reportable catastrophe event with losses in the range of $75.0 million to $110.0 million pre-tax. There is inherent variability in estimates of early loss projections and claims severity, particularly in high-damage regions, and therefore, the estimate may change as additional information emerges. For more information, see Note 15 to the Consolidated Financial Statements included elsewhere in this Report.
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 realize greater operational efficiencies and manage our expenses. Our results also depend on our ability to profitably grow our businesses, including our Connected Living and Global Automotive businesses, and the performance of our Homeowners business. Factors affecting these items, including conditions in the financial markets, the global economy, political conditions and the markets in which we operate, fluctuations in exchange rates, interest rates and inflation, including the current period of inflationary pressures which have impacted claims costs primarily in the Homeowners and the Global Automotive businesses, may have a material adverse effect on our results of operations or financial condition. For more information on these and other factors that could affect our results, see “Item 1A—Risk Factors” below and in our 2023 Annual Report, and “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Factors Affecting Results” in our 2023 Annual Report.
Our results may be impacted by our ability to continue to grow in the markets in which we operate, which will be impacted by our ability to provide a superior digital-first customer experience, including from our investments in technology and digital initiatives, capitalize on the connected home opportunity and investments to onboard and ramp-up new business. Our mobile business is subject to volatility in mobile device trade-in volumes and margins based on the actual and anticipated timing of the release of new devices, carrier promotional programs and sales prices for used devices, as well as to changes in consumer preferences. Our Homeowners revenues are impacted by changes in the housing and voluntary insurance markets. In addition, across many of our businesses, we must respond to competitive pressures, including the threat of disruption and competition for talent, which has increased due to labor shortages and wage inflation. See “Item 1A—Risk Factors—Business, Strategic and Operational Risks—Significant competitive pressures, changes in customer preferences and disruption could
adversely affect our results of operations”, “—Our mobile business is subject to the risk of declines in the value and availability of mobile devices, and to regulatory compliance and other risks” 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 2023 Annual Report.
Critical Accounting Policies and Estimates
Our 2023 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 2023 Annual Report were consistently applied to the unaudited interim Consolidated Financial Statements for Third Quarter 2024.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Note 3 to the Consolidated Financial Statements included elsewhere in this Report.
Results of Operations
Assurant Consolidated
The table below presents information regarding our consolidated results of operations for the periods indicated:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Net earned premiums | $ | 2,417.2 | $ | 2,357.3 | $ | 7,238.3 | $ | 6,965.8 | |||||||||||||||
| Fees and other income | 439.1 | 310.4 | 1,200.0 | 888.8 | |||||||||||||||||||
| Net investment income | 129.7 | 125.5 | 381.1 | 343.6 | |||||||||||||||||||
| Net realized losses on investments and fair value changes to equity securities | (18.3) | (19.1) | (46.7) | (49.7) | |||||||||||||||||||
| Total revenues | 2,967.7 | 2,774.1 | 8,772.7 | 8,148.5 | |||||||||||||||||||
| Benefits, losses and expenses: | |||||||||||||||||||||||
| Policyholder benefits | 776.8 | 644.6 | 2,096.0 | 1,922.7 | |||||||||||||||||||
| Underwriting, selling, general and administrative expenses | 2,012.7 | 1,873.7 | 5,919.2 | 5,564.5 | |||||||||||||||||||
| Interest expense | 26.7 | 27.0 | 80.2 | 81.2 | |||||||||||||||||||
| Gain on extinguishment of debt | — | — | — | (0.1) | |||||||||||||||||||
| Total benefits, losses and expenses | 2,816.2 | 2,545.3 | 8,095.4 | 7,568.3 | |||||||||||||||||||
| Income before provision for income taxes | 151.5 | 228.8 | 677.3 | 580.2 | |||||||||||||||||||
| Provision for income taxes | 17.7 | 38.7 | 118.4 | 120.2 | |||||||||||||||||||
| Net income | $ | 133.8 | $ | 190.1 | $ | 558.9 | $ | 460.0 | |||||||||||||||
For the Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023
Net income decreased $56.3 million, or 30%, to $133.8 million for Third Quarter 2024 from $190.1 million for Third Quarter 2023, primarily due to $88.3 million of higher after-tax reportable catastrophes and $10.3 million of higher after-tax depreciation expense mainly related to the previously disclosed implementation of the integrated global financial systems and infrastructure and other internally developed software. The decrease in net income was partially offset by higher Global Housing earnings, excluding the impact of reportable catastrophes, and $11.3 million of lower after-tax restructuring costs (see Note 13 to the Consolidated Financial Statements included elsewhere in this Report).
For the Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023
Net income increased $98.9 million, or 22%, to $558.9 million for Nine Months 2024 from $460.0 million for Nine Months 2023, primarily driven by higher earnings in Global Housing, excluding the impact of reportable catastrophes, $24.4 million of lower after-tax losses from our non-core operations, mainly from sharing economy, a lower annualized effective tax rate, mainly due to transferable tax credits and a favorable mix of foreign business, and a $21.1 million favorable change in after-tax foreign exchange related gains (losses) (including gains (losses) from foreign exchange transactions and derivatives and from the remeasurement of net monetary assets in Argentina). The increase in net income was partially offset by $84.3 million of higher after-tax reportable catastrophes and $17.3 million of higher after-tax depreciation expense, as described above.
Global Lifestyle
The table below presents information regarding the Global Lifestyle segment’s results of operations for the periods indicated:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Net earned premiums | $ | 1,857.8 | $ | 1,828.7 | $ | 5,553.7 | $ | 5,457.1 | |||||||||||||||
| Fees and other income | 391.7 | 277.1 | 1,067.1 | 797.9 | |||||||||||||||||||
| Net investment income | 88.4 | 86.1 | 264.3 | 243.7 | |||||||||||||||||||
| Total revenues | 2,337.9 | 2,191.9 | 6,885.1 | 6,498.7 | |||||||||||||||||||
| Benefits, losses and expenses | |||||||||||||||||||||||
| Policyholder benefits | 448.3 | 421.9 | 1,277.8 | 1,195.2 | |||||||||||||||||||
| Underwriting, selling, general and administrative expenses | 1,705.3 | 1,578.2 | 5,025.6 | 4,715.8 | |||||||||||||||||||
| Total benefits, losses and expenses | 2,153.6 | 2,000.1 | 6,303.4 | 5,911.0 | |||||||||||||||||||
| Global Lifestyle Adjusted EBITDA | $ | 184.3 | $ | 191.8 | $ | 581.7 | $ | 587.7 | |||||||||||||||
| Net earned premiums, fees and other income: | |||||||||||||||||||||||
| Connected Living | $ | 1,223.5 | $ | 1,082.9 | $ | 3,512.3 | $ | 3,188.7 | |||||||||||||||
| Global Automotive | 1,026.0 | 1,022.9 | 3,108.5 | 3,066.3 | |||||||||||||||||||
| Total | $ | 2,249.5 | $ | 2,105.8 | $ | 6,620.8 | $ | 6,255.0 | |||||||||||||||
| Net earned premiums, fees and other income: | |||||||||||||||||||||||
| Domestic | $ | 1,747.3 | $ | 1,633.8 | $ | 5,149.0 | $ | 4,903.7 | |||||||||||||||
| International | 502.2 | 472.0 | 1,471.8 | 1,351.3 | |||||||||||||||||||
| Total | $ | 2,249.5 | $ | 2,105.8 | $ | 6,620.8 | $ | 6,255.0 |
For the Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023
Adjusted EBITDA decreased $7.5 million, or 4%, to $184.3 million for Third Quarter 2024 from $191.8 million for Third Quarter 2023, primarily driven by ongoing elevated losses within select ancillary products in Global Automotive, higher expenses for investments in new client programs and capabilities in Connected Living and the unfavorable impact of foreign exchange. The decrease was partially offset by higher net investment income and growth from mobile device protection programs in Connected Living from increased subscribers, particularly in the U.S.
Total revenues increased $146.0 million, or 7%, to $2.34 billion for Third Quarter 2024 from $2.19 billion for Third Quarter 2023. Fees and other income increased $114.6 million, or 41%, primarily due to contributions from newly launched mobile trade-in programs. Net earned premiums increased $29.1 million, or 2%, primarily driven by Connected Living growth from global mobile device protection programs, partially offset by a decline in U.S. extended service contracts and the unfavorable impact of foreign exchange. Net investment income increased $2.3 million, or 3%, primarily due to higher yields and asset balances in fixed maturity securities, partially offset by lower cash and cash equivalents and short-term investments.
Total benefits, losses and expenses increased $153.5 million, or 8%, to $2.15 billion for Third Quarter 2024 from $2.00 billion for Third Quarter 2023. Underwriting, selling, general and administrative expenses increased $127.1 million, or 8%, primarily due to an increase in Connected Living expenses, mainly from higher cost of sales from newly launched mobile trade-in programs and higher commission expenses due to growth from global mobile device protection programs, partially offset by the favorable impact of foreign exchange and lower commission expenses for Global Automotive and U.S. extended service contracts in Connected Living. Policyholder benefits increased $26.4 million, or 6%, primarily due to ongoing elevated claims costs in Global Automotive, as described above, and an increase in global mobile device protection subscribers in Connected Living, partially offset by lower losses for extended service contracts in line with the decrease in net earned premiums.
For the Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023
Adjusted EBITDA decreased $6.0 million to $581.7 million for Nine Months 2024 from $587.7 million for Nine Months 2023, primarily due to ongoing elevated claims costs in Global Automotive, mainly from elevated losses in select ancillary products, as well as higher labor and parts costs due to inflation, higher expenses for investments in new client programs and
capabilities in Connected Living and the unfavorable impact of foreign exchange. The decrease in Adjusted EBITDA was partially offset by higher net investment income, as well as higher U.S. financial services profitability and growth in domestic mobile device protection programs in Connected Living.
Total revenues increased $386.4 million, or 6%, to $6.89 billion for Nine Months 2024 from $6.50 billion for Nine Months 2023. Fees and other income increased $269.2 million, or 34%, primarily due to contributions from newly launched mobile trade-in programs. Net earned premiums increased $96.6 million, or 2%, primarily driven by growth from global mobile device protection programs in Connected Living and from prior period sales in Global Automotive, partially offset by a decline in U.S. extended service contracts in Connected Living and the unfavorable impact of foreign exchange. Net investment income increased $20.6 million, or 8%, primarily due to higher yields and asset balances in fixed maturity securities.
Total benefits, losses and expenses increased $392.4 million, or 7%, to $6.30 billion for Nine Months 2024 from $5.91 billion for Nine Months 2023. Underwriting, selling, general and administrative expenses increased $309.8 million, or 7%, primarily due to an increase in Connected Living expenses, mainly from higher cost of sales from newly launched mobile trade-in programs and higher commission expenses due to growth from global mobile device protection programs, partially offset by the favorable impact of foreign exchange and lower commission expenses for U.S. extended service contracts in Connected Living and Global Automotive. Policyholder benefits increased $82.6 million, or 7%, primarily due to ongoing elevated claims costs in Global Automotive, as described above, and from higher claims in the global mobile device protection business in Connected Living, partially offset by lower losses for extended service contracts in Connected Living in line with the decrease in net earned premiums.
Global Housing
The table below presents information regarding the Global Housing segment’s results of operations for the periods indicated:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Net earned premiums | $ | 557.0 | $ | 521.9 | $ | 1,678.0 | $ | 1,501.4 | |||||||||||||||
| Fees and other income | 46.8 | 33.3 | 131.6 | 95.7 | |||||||||||||||||||
| Net investment income | 31.7 | 29.6 | 90.1 | 76.0 | |||||||||||||||||||
| Total revenues | 635.5 | 584.8 | 1,899.7 | 1,673.1 | |||||||||||||||||||
| Benefits, losses and expenses | |||||||||||||||||||||||
| Policyholder benefits | 323.3 | 218.7 | 803.5 | 685.4 | |||||||||||||||||||
| Underwriting, selling, general and administrative expenses | 219.8 | 201.0 | 650.4 | 599.6 | |||||||||||||||||||
| Total benefits, losses and expenses | 543.1 | 419.7 | 1,453.9 | 1,285.0 | |||||||||||||||||||
| Global Housing Adjusted EBITDA | $ | 92.4 | $ | 165.1 | $ | 445.8 | $ | 388.1 | |||||||||||||||
| Impact of reportable catastrophes | $ | 136.8 | $ | 26.2 | $ | 195.2 | $ | 89.1 | |||||||||||||||
| Net earned premiums, fees and other income | |||||||||||||||||||||||
| Homeowners | $ | 478.4 | $ | 434.1 | $ | 1,438.5 | $ | 1,237.8 | |||||||||||||||
| Renters and Other | 125.4 | 121.1 | 371.1 | 359.3 | |||||||||||||||||||
| Total | $ | 603.8 | $ | 555.2 | $ | 1,809.6 | $ | 1,597.1 |
For the Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023
Adjusted EBITDA decreased $72.7 million, or 44%, to $92.4 million for Third Quarter 2024 from $165.1 million for Third Quarter 2023, mainly due to $110.6 million of higher pre-tax reportable catastrophes and a $27.5 million non-run rate adjustment related to a change in earnings pattern assumptions. The decrease in Adjusted EBITDA was partially offset by continued growth within Homeowners, primarily from higher policies in-force from new lender-placed programs and portfolios and increased voluntary insurance market pressure, higher premium rates and average insured values, and $30.1 million of favorable year-over-year non-catastrophe prior period reserve development. Third Quarter 2024 had $44.7 million of favorable non-catastrophe prior period reserve development compared to $14.6 million in Third Quarter 2023.
Total revenues increased $50.7 million, or 9%, to $635.5 million for Third Quarter 2024 from $584.8 million for Third Quarter 2023. Net earned premiums increased $35.1 million, or 7%, primarily driven by Homeowners from higher lender-placed policies in-force, premium rates and average insured values as described above and growth across various specialty products, partially offset by a non-run rate adjustment described above. Fees and other income increased $13.5 million, or 41%, driven by reclassification of certain service fees to fee income from an expense account. Net investment income increased $2.1 million, or 7%, primarily due to higher yields and asset balances in fixed maturity securities.
Total benefits, losses and expenses increased $123.4 million, or 29%, to $543.1 million for Third Quarter 2024 from $419.7 million for Third Quarter 2023. Policyholder benefits increased $104.6 million, or 48%, primarily due to higher reportable catastrophe losses, partially offset by lower non-catastrophe losses from favorable year-over-year prior period reserve development. Underwriting, selling, general and administrative expenses increased $18.8 million, or 9%, primarily due to the reclassification described above, as well as higher costs associated with growth.
For the Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023
Adjusted EBITDA increased $57.7 million, or 15%, to $445.8 million for Nine Months 2024 from $388.1 million for Nine Months 2023, mainly due to continued growth from higher policies in-force, average insured values and rates within Homeowners and $44.7 million of favorable year-over-year net impact to non-catastrophe prior year reserve development. Nine Months 2024 had $85.1 million of favorable non-catastrophe prior year reserve development compared to $40.4 million in Nine Months 2023. The increase in Adjusted EBITDA was also driven by ongoing expense leverage from scale and operating
efficiencies and higher net investment income. The increase in Adjusted EBITDA was partially offset by $106.1 million of higher reportable catastrophes and a $27.5 million non-run rate adjustment related to a change in earnings pattern assumptions.
Total revenues increased $226.6 million, or 14%, to $1.90 billion for Nine Months 2024 from $1.67 billion for Nine Months 2023. Net earned premiums increased $176.6 million, or 12%, primarily driven by Homeowners from higher lender-placed policies in-force and average insured values, as well as higher premium rates and growth across various specialty products, partially offset by the non-run rate adjustment described above and exits from certain international markets. Fees and other income increased $35.9 million, or 38%, mainly driven by the reclassification described above. Net investment income increased $14.1 million, or 19%, primarily due to higher yields and asset balances on fixed maturity securities, cash and cash equivalents and short-term investments.
Total benefits, losses and expenses increased $168.9 million, or 13%, to $1.45 billion for Nine Months 2024 from $1.29 billion for Nine Months 2023. Policyholder benefits increased $118.1 million, or 17%, primarily due to higher reportable catastrophe losses and non-catastrophe losses from exposure growth, partially offset by the favorable year-over-year non-catastrophe prior year reserve development. Underwriting, selling, general and administrative expenses increased $50.8 million, or 8%, primarily due to the reclassification described above and higher costs associated with growth.
Corporate and Other
The tables below present information regarding the Corporate and Other’s segment results of operations for the periods indicated:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Net earned premiums | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
| Fees and other income | 0.1 | 0.1 | 0.4 | 0.2 | |||||||||||||||||||
| Net investment income | 7.8 | 7.3 | 20.5 | 15.6 | |||||||||||||||||||
| Total revenues | 7.9 | 7.4 | 20.9 | 15.8 | |||||||||||||||||||
| Benefits, losses and expenses | |||||||||||||||||||||||
| Policyholder benefits | — | — | — | 0.1 | |||||||||||||||||||
| General and administrative expenses | 37.7 | 33.6 | 107.4 | 94.8 | |||||||||||||||||||
| Total benefits, losses and expenses | 37.7 | 33.6 | 107.4 | 94.9 | |||||||||||||||||||
| Corporate and Other Adjusted EBITDA | $ | (29.8) | $ | (26.2) | $ | (86.5) | $ | (79.1) |
For the Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023
Adjusted EBITDA was $(29.8) million for Third Quarter 2024 compared to $(26.2) million for Third Quarter 2023. The change in results was primarily due to higher third-party consulting expenses to support enterprise growth initiatives and higher employee-related expenses, partially offset by higher net investment income from higher asset balances in fixed maturity securities.
Total revenues increased $0.5 million, or 7%, to $7.9 million for Third Quarter 2024 from $7.4 million for Third Quarter 2023, primarily driven by an increase in net investment income of $0.5 million, or 7%, mostly due to higher asset balances in fixed maturity securities.
Total benefits, losses and expenses increased $4.1 million, or 12%, to $37.7 million for Third Quarter 2024 from $33.6 million for Third Quarter 2023, primarily driven by higher third-party consulting expenses to support enterprise growth initiatives and higher employee-related expenses.
For the Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023
Adjusted EBITDA was $(86.5) million for Nine Months 2024 compared to $(79.1) million for Nine Months 2023. The change in results was primarily due to higher third-party consulting expenses to support enterprise growth initiatives and higher employee-related expenses, partially offset by higher net investment income.
Total revenues increased $5.1 million, or 32%, to $20.9 million for Nine Months 2024 from $15.8 million for Nine Months 2023, primarily driven by an increase in net investment income of $4.9 million, or 31%, mostly due to higher yields and asset balances in fixed maturity securities.
Total benefits, losses and expenses increased $12.5 million, or 13%, to $107.4 million for Nine Months 2024 from $94.9 million for Nine Months 2023, primarily driven by higher third-party consulting expenses to support enterprise growth initiatives and higher employee-related expenses.
Investments
We had total investments of $8.97 billion and $8.22 billion as of September 30, 2024 and December 31, 2023, respectively. Net unrealized losses on our fixed maturity securities portfolio decreased by $210.0 million during Nine Months 2024, from $380.3 million as of December 31, 2023 to a net unrealized loss of $170.3 million as of September 30, 2024, primarily due to a decrease in Treasury yields.
The following table shows the credit quality of our fixed maturity securities portfolio as of the dates indicated:
| Fair value as of | |||||||||||||||||||||||
| Fixed Maturity Securities by Credit Quality | September 30, 2024 | December 31, 2023 | |||||||||||||||||||||
| Aaa / Aa / A | $ | 4,274.7 | 56.3 | % | $ | 3,958.7 | 57.3 | % | |||||||||||||||
| Baa | 2,817.8 | 37.1 | % | 2,564.8 | 37.1 | % | |||||||||||||||||
| Ba | 422.8 | 5.6 | % | 318.6 | 4.6 | % | |||||||||||||||||
| B and lower | 80.8 | 1.0 | % | 70.0 | 1.0 | % | |||||||||||||||||
| Total | $ | 7,596.1 | 100.0 | % | $ | 6,912.1 | 100.0 | % |
The following table shows the major categories of net investment income for the periods indicated:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Fixed maturity securities | $ | 99.2 | $ | 86.2 | $ | 285.9 | $ | 245.8 | |||||||||||||||
| Equity securities | 3.3 | 4.0 | 10.1 | 11.6 | |||||||||||||||||||
| Commercial mortgage loans on real estate | 4.8 | 4.5 | 14.5 | 12.9 | |||||||||||||||||||
| Short-term investments | 4.3 | 4.8 | 13.5 | 10.9 | |||||||||||||||||||
| Other investments | 2.1 | 7.0 | 11.5 | 15.2 | |||||||||||||||||||
| Cash and cash equivalents | 19.7 | 23.5 | 58.0 | 59.7 | |||||||||||||||||||
| Total investment income | 133.4 | 130.0 | 393.5 | 356.1 | |||||||||||||||||||
| Investment expenses | (3.7) | (4.5) | (12.4) | (12.5) | |||||||||||||||||||
| Net investment income | $ | 129.7 | $ | 125.5 | $ | 381.1 | $ | 343.6 |
Net investment income increased $4.2 million, or 3%, to $129.7 million for Third Quarter 2024 from $125.5 million for Third Quarter 2023. The increase was primarily driven by higher yields and asset balances in fixed maturity securities.
Net realized losses on investments and fair value changes to equity securities decreased $0.8 million, or 4%, to $18.3 million for Third Quarter 2024 from $19.1 million for Third Quarter 2023. The decrease was primarily driven by realized gains from changes in fair value of equity securities, which was partially offset by realized losses on sales of fixed maturity securities.
Net investment income increased $37.5 million, or 11%, to $381.1 million for Nine Months 2024 from $343.6 million for Nine Months 2023. The increase was primarily driven by higher yields and asset balances in fixed maturity securities.
Net realized losses on investments and fair value changes to equity securities decreased $3.0 million, or 6%, to $46.7 million for Nine Months 2024 from $49.7 million for Nine Months 2023. The decrease was primarily driven by unrealized gains from changes in fair value of equity securities and realized gains on sales of equity securities, which was partially offset by realized losses on sales of fixed maturity securities.
As of September 30, 2024, we owned $ $17.4 million of securities guaranteed by financial guarantee insurance companies. Included in this a mount was $15.8 million of municipal securities, whose credit rating was A+ with the guarantee, but would have had a rating AA- without the guarantee.
For more information on our investments, see Notes 6 and 7 to the Consolidated Financial Statements included elsewhere in this Report.
Catastrophe Reinsurance Program
We consolidated our main reinsurance purchases into a single placement date of April 2024. Coverage was placed with more than 40 reinsurers that are all rated A- or better by A.M. Best. 2024 reinsurance premiums for the total program are estimated to be $191.4 million pre-tax, as of September 30, 2024, compared to $207.2 million pre-tax for 2023, reflecting impacts from changing the timing of program placement in this initial year of transition to a single placement date, as well as favorable underlying rates from improved reinsurance market conditions. 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 $1.48 billion of coverage in excess of a $150.0 million retention for a first event. Layers 1 through 7 of the program allow for one automatic reinstatement. When combined with the Florida Hurricane Catastrophe Fund, the U.S. program protects against gross Florida losses of up to approximately $1.69 billion, in excess of 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.
We are in the process of negotiating an agreement to sell our Miami, Florida property to a potential buyer. If the transaction is consummated pursuant to the terms of the agreement, we expect to record a gain above the current carrying value of $46.0 million as of September 30, 2024. We do not anticipate that any such gain will impact our capital deployment priorities. There can be no assurance that a definitive agreement will be executed or that a transaction will be approved or consummated.
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 2023 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, 2024, 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 $592.4 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. 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 2023 Annual Report.
Holding Company
As of September 30, 2024, we had approximately $636.2 million in holding company liquidity, which was $411.2 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 losses 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 $723.6 million as of September 30, 2024) which we are not otherwise holding for a specific purpose as of the balance sheet date. We can use such assets for stockholder dividends, stock repurchases, acquisitions and other corporate purposes.
Dividends or returns of capital paid by our subsidiaries to the holding company, net of infusions of liquid assets and excluding amounts used for or as a result of acquisitions or received from dispositions, were $556.4 million and $772.6 million for Nine Months 2024 and Twelve Months 2023, respectively. 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 repurchase our common stock and to fund investments and acquisitions. From time to time, we may also seek to purchase outstanding debt in open market repurchases or privately negotiated transactions.
Dividends and Repurchases
During Nine Months 2024, we made common stock repurchases and paid common stock dividends of $294.8 million. We paid dividends of $0.72 per common share on September 30, 2024 to stockholders of record as of September 3, 2024. Any determination to pay future dividends will be at the discretion of the Board of Directors (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 (as defined below) 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 Nine Months 2024, we repurchased 990,010 shares of our outstanding common stock at a cost of $180.0 million, exclusive of commissions. In November 2023, the Board authorized an additional share repurchase program for up to $600.0 million of our outstanding common stock. As of September 30, 2024, $494.5 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.
Assurant Subsidiaries
The primary sources of funds for our subsidiaries consist of premiums and fees collected, proceeds from the sales and maturity of investments and net investment income. Cash is primarily used to pay insurance claims, agent commissions, operating expenses and taxes. We generally invest our subsidiaries’ 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 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 2023 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 public fixed-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 what is 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.
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 September 30, 2024 and December 31, 2023:
| September 30, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Principal Amount | Carrying Value | Principal Amount | Carrying Value | ||||||||||||||||||||
| 6.10% Senior Notes due February 2026 | $ | 175.0 | $ | 174.1 | $ | 175.0 | $ | 173.7 | |||||||||||||||
| 4.90% Senior Notes due March 2028 | 300.0 | 298.5 | 300.0 | 298.2 | |||||||||||||||||||
| 3.70% Senior Notes due February 2030 | 350.0 | 348.1 | 350.0 | 347.9 | |||||||||||||||||||
| 2.65% Senior Notes due January 2032 | 350.0 | 347.3 | 350.0 | 347.0 | |||||||||||||||||||
| 6.75% Senior Notes due February 2034 | 275.0 | 272.8 | 275.0 | 272.7 | |||||||||||||||||||
| 7.00% Fixed-to-Floating Rate Subordinated Notes due March 2048 | 400.0 | 397.5 | 400.0 | 397.0 | |||||||||||||||||||
| 5.25% Subordinated Notes due January 2061 | 250.0 | 244.2 | 250.0 | 244.1 | |||||||||||||||||||
| Total Debt | $ | 2,082.5 | $ | 2,080.6 |
In the next five years, we have a debt maturity in each of February 2026 and March 2028, when the 2026 Senior Notes and the 2028 Senior Notes, respectively, 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 under the Credit Facility during Nine Months 2024 and no loans were outstanding as of September 30, 2024.
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. This program is currently backed up by the Credit Facility, of which $500.0 million was available as of September 30, 2024.
We did not use the commercial paper program during Nine Months 2024 and there were no amounts relating to the commercial paper program outstanding as of September 30, 2024. Our subsidiaries do not maintain commercial paper or other borrowing facilities.
Cash Flows
We monitor cash flows at the consolidated and entity levels. Cash flow forecasts at the consolidated and entity 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 Nine Months Ended September 30, | |||||||||||
| Net cash provided by (used in): | 2024 | 2023 | |||||||||
| Operating activities | $ | 1,229.9 | $ | 775.5 | |||||||
| Investing activities | (728.8) | (640.8) | |||||||||
| Financing activities | (317.8) | (241.9) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | 2.7 | (4.2) | |||||||||
| Net change in cash | $ | 186.0 | $ | (111.4) |
We typically generate operating cash inflows from premiums collected from our insurance products, fees received for services and income received from our investment portfolio, while outflows generally consist of policy acquisition costs,
benefits paid and operating expenses. These net cash flows are then invested to meet 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 provided by operating activities was $1.23 billion for Nine Months 2024 compared to net cash provided by operating activities of $775.5 million for Nine Months 2023. The change in net operating cash flows was largely attributable to the timing of collections of premiums and fees in our mobile business operations and timing of tax payments as we received a refund in 2024 related to prior year tax returns as compared to a payment in 2023. This was partially offset by the timing of payments to various vendors for the acquisition of mobile devices used to meet insurance claims or generate profits through sales to third parties, higher net paid claims and an increase in employee incentive-based payments largely based on the performance of the Company.
Net cash used in investing activities was $728.8 million for Nine Months 2024 compared to net cash used in investing activities of $640.8 million for Nine Months 2023. The change in net investing cash flows was primarily driven by the increased investment of net cash provided by operating activities and reinvestment of proceeds from the sale of fixed maturity securities during the period. Also contributing to the change was a decrease in sales of short-term investments due to the timing of working capital needs.
Net cash used in financing activities was $317.8 million for Nine Months 2024 compared to net cash used in financing activities of $241.9 million for Nine Months 2023. The change in net financing cash flows was primarily due to higher share repurchases for Nine Months 2024 and the issuance of the 2026 Senior Notes during Nine Months 2023, partially offset by the redemption of our 4.20% senior notes due 2023 during Nine Months 2023. For additional detail on our debt, refer to Note 19 to the Consolidated Financial Statements in the 2023 Annual Report.
The table below shows our cash outflows for interest and dividends for the periods indicated:
| For the Nine Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Interest paid on debt | $ | 82.7 | $ | 99.0 | |||||||
| Common stock dividends | 114.8 | 113.8 | |||||||||
| Total | $ | 197.5 | $ | 212.8 |
Letters of Credit
In the normal course of business, letters of credit are issued primarily to support reinsurance arrangements in which we are the reinsurer. These letters of credit are supported by commitments under which we are required to indemnify the financial institution issuing the letter of credit if the letter of credit is drawn. We had $1.8 million and $2.9 million of letters of credit outstanding as of September 30, 2024 and December 31, 2023, respectively.
Previous: Cover and table of contents · Next: Item 3. Quantitative and Qualitative Disclosures About Market Risk