Assurant Reports Second Quarter 2015 Financial Results
2Q 2015 Net Operating Income of
2Q 2015 Net Income of
- 13.3 percent annualized operating ROE, excluding AOCI, year-to-date1
- 3.3 percent annualized GAAP ROE year-to-date
-
$124 million returned to shareholders in dividends and share repurchases in 2Q 2015 -
$460 million corporate capital at quarter-end
“In the quarter, we continued to successfully execute on our strategic realignment and leverage our specialty capabilities to serve the housing and lifestyle markets," said
“We remain focused on meeting the needs of our customers, creating value for our shareholders and building a stronger company with the expertise and commitment of our employees,” Colberg added.
Reconciliation of Net Operating Income to Net Income
Beginning in second quarter 2015,
(UNAUDITED) | 2Q | 2Q | 6 Months | 6 Months | ||||||||||||||||
(dollars in millions, net of tax) | 2015 | 2014 | 2015 | 2014 | ||||||||||||||||
Housing and Lifestyle | ||||||||||||||||||||
Assurant Solutions | $ | 60.8 |
|
$ | 59.5 | $ | 115.2 |
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$ | 109.0 | ||||||||||
Assurant Specialty Property | 87.5 | 68.3 | 162.6 | 166.1 | ||||||||||||||||
Subtotal | 148.3 | 127.8 | 277.8 | 275.1 | ||||||||||||||||
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11.3 | 14.4 | 21.4 | 28.3 | ||||||||||||||||
Corporate and other | (9.1 | ) | (14.2 | ) | (13.2 | ) | (35.2 | ) | ||||||||||||
Amortization of deferred gain on disposal of businesses | 2.1 | 2.4 | 4.2 | 4.7 | ||||||||||||||||
Interest expense | (9.0 | ) | (9.0 | ) | (17.9 | ) | (20.0 | ) | ||||||||||||
Net operating income | 143.6 | 121.4 | 272.3 | 252.9 | ||||||||||||||||
Adjustments: | ||||||||||||||||||||
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(123.8 | ) | (2.5 | ) | (207.7 | ) | (9.6 | ) | ||||||||||||
Net realized gains on investments | 7.8 | 3.9 | 10.4 | 16.8 | ||||||||||||||||
Gain (loss) on divested business | (2.7 | ) | - | 0.7 | - | |||||||||||||||
Change in tax liabilities | - | 20.8 | - | 20.8 | ||||||||||||||||
Payment received related to previous sale of subsidiary | 9.9 | - | 9.9 | - | ||||||||||||||||
Change in derivative investment | (2.0 | ) | - | (2.8 | ) | - | ||||||||||||||
Net income | $ | 32.8 | $ | 143.6 | $ | 82.8 | $ | 280.9 | ||||||||||||
(a)
Note: Additional financial information, including a schedule of disclosed items that affected Assurant’s results by business for the last five quarters appears on page 21 of the Company’s Financial Supplement, and is located in the Investor Relations section of www.assurant.com.
Second Quarter 2015 Results
- Net operating income2 increased to
$143.6 million , or$2.07 per diluted share, compared to second quarter 2014 net operating income of$121.4 million , or$1.65 per diluted share, primarily reflecting fewer weather-related claims atAssurant Specialty Property. Results include an$8.4 million net tax benefit at Assurant Solutions and lower corporate expenses. - Net income decreased to
$32.8 million , or$0.47 per diluted share, compared to second quarter 2014 net income of$143.6 million , or$1.95 per diluted share. The decrease primarily reflects$106.7 million of charges associated with the wind down of theAssurant Health business including premium deficiency reserves. - Net earned premiums, fees and other income, excluding
Assurant Health runoff operations, decreased to$1.86 billion , compared to$1.92 billion in second quarter 2014. Results reflect theJan. 1, 2015 divestiture ofAmerican Reliable Insurance Company (ARIC), the ongoing normalization of lender-placed insurance and the previously disclosed loss of a domestic tablet program. - Net investment income, excluding
Assurant Health runoff operations, increased to$160.8 million , compared to$157.1 million in second quarter 2014. Results benefited from$8.1 million in additional investment income from real estate joint venture partnerships.
Housing & Lifestyle
Assurant Solutions |
|||||||||||||||||||||||||
(in millions) | 2Q15 | 2Q14 | % Change | 6M15 | 6M14 | % Change | |||||||||||||||||||
Net operating income | $ | 60.8 | $ | 59.5 | 2% | $ | 115.2 |
$ |
109.0 | 6% | |||||||||||||||
Net earned premiums, fees and other |
$ | 931.2 | $ | 933.4 | (0)% | $ | 1,858.7 |
$ |
1,827.4 | 2% | |||||||||||||||
- Net operating income increased in second quarter 2015, due to an
$8.4 million net tax benefit primarily from international operations. Absent this item, net operating income declined primarily due to the previously disclosed loss of a domestic tablet program and lower contributions from mobile carrier-marketing programs. Improved mortality experience at preneed partially offset the decline. - Net earned premiums, fees and other income were flat in the quarter. Premiums decreased in the quarter due to foreign exchange volatility and the loss of a mobile tablet program. Growth from a large domestic service contract client and auto warranty business partially offset the decline. Fee income increased, primarily reflecting contributions from mobile protection programs and related services.
- Domestic combined ratio increased to 93.9 percent, compared to 91.4 percent in the prior year, reflecting lower contributions from mobile.
- International combined ratio increased to 103.0 percent, compared to 102.1 percent in second quarter 2014, primarily reflecting additional legal expenses.
Assurant Specialty Property |
|||||||||||||||||||||||||||||
(in millions) | 2Q15 | 2Q14 | % Change | 6M15 | 6M14 | % Change | |||||||||||||||||||||||
Net operating income | $ | 87.5 | $ | 68.3 | 28 % | $ | 162.6 | $ | 166.1 | (2)% | |||||||||||||||||||
Net earned premiums, fees and other | $ | 638.2 | $ | 714.3 | (11)% | $ | 1,250.8 | $ | 1,378.5 | (9)% | |||||||||||||||||||
Note: In second quarter 2014,
- Net operating income increased in second quarter 2015 driven by lower non-catastrophe losses, fewer reportable catastrophes as well as reduced reinsurance costs. Ongoing normalization of lender-placed insurance partially offset the improvement. Second quarter 2014 results included adverse reserve development from severe winter weather.
- Net earned premiums, fees and other income decreased in second quarter 2015, primarily due to the divestiture of
ARIC and lower placement and premium rates in lender-placed insurance. Fee income grew, reflecting contributions from mortgage solutions. - Combined ratio decreased in the quarter to 83.6 percent, compared to 89.1 percent in second quarter 2014. Results benefited primarily from lower frequency and severity of non-catastrophe claims and fewer reportable catastrophes, partially offset by lower lender-placed net earned premiums.
Employee Benefits
As announced on
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(in millions) | 2Q15 | 2Q14 | % Change | 6M15 | 6M14 | % Change | ||||||||||||||||||||||||
Net operating income | $ | 11.3 | $ | 14.4 | (22)% | $ | 21.4 | $ | 28.3 | (24)% | ||||||||||||||||||||
Net earned premiums, fees and other | $ | 275.6 | $ | 268.8 | 3% | $ | 548.8 | $ | 536.5 | 2% | ||||||||||||||||||||
- Net operating income decreased in the quarter, primarily due to less favorable life and disability loss experience.
- Net earned premiums, fees and other income increased in second quarter 2015 due to continued growth in voluntary products.
- Sales increased slightly in the quarter. The increase reflects higher voluntary product sales, partially offset by a decline in employer-paid products.
Corporate & Other |
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(in millions) | 2Q15 | 2Q14 | % Change | 6M15 | 6M14 | % Change | |||||||||||||||||||||||
Net operating loss | $ | (9.1) | $ | (14.2) | 35% | $ | (13.2) | $ | (35.2) | 62% | |||||||||||||||||||
- Net operating loss decreased in second quarter 2015, reflecting a favorable change in tax liabilities and lower employee-related benefit costs. This tax benefit is expected to reverse in the second half of the year.
Runoff Operations
After exploring potential strategic options for
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(in millions) | 2Q15 | 2Q14 | % Change | 6M15 | 6M14 | % Change | |||||||||||||||||||||||
Net loss | $ | (123.8) | $ | (2.5) | NM | $ | (207.7) | $ | (9.6) | NM | |||||||||||||||||||
- Net loss increased in second quarter 2015, compared to the prior year, due to
$106.7 million after-tax of exit-related charges including premium deficiency reserves as well as less favorable loss experience on Affordable Care Act (ACA) qualified policies.The Company expects future premiums and current policyholder reserves for major medical policies to be inadequate to cover future claim payments and direct expenses during the wind down. In the quarter, the Company recorded a premium deficiency reserve charge of
$79.6 million after-tax for the periodJuly 1, 2015 through the wind-down process.Other exit-related charges totaled
$27.1 million after-tax in the quarter and include severance and retention, asset impairments and other related transaction costs.
- ACA risk-mitigation estimated recoverables for 2014 qualified policies were revised in the quarter to
$355.5 million from$346.3 million , based on final notification from theCenters for Medicare and Medicaid Services .As of
June 30, 2015 , recoverables under 2015 ACA Risk Adjustment and Reinsurance for ACA-qualified policies were estimated at$237.0 million .
Capital Position
- Corporate capital approximated
$460 million as ofJune 30, 2015 . Adjusting for the Company’s$250 million risk buffer, deployable capital totaled approximately$210 million . Business segments, excludingAssurant Health , paid approximately$155 million of dividends to the holding company in the quarter. In addition, approximately$225 million was infused into the Company’s business segments, including$215 million intoAssurant Health to fund estimated exit-related charges, including premium deficiency reserves, through the wind-down process. - Share repurchases and dividends totaled
$123.8 million in second quarter 2015. Dividends to shareholders totaled$21.6 million . ThroughJuly 24, 2015 , the Company repurchased an additional 257,000 shares for$18.1 million , with$284.7 million remaining in the current repurchase authorization.
Financial Position Excluding Assurant Health Runoff Operations
- Stockholders’ equity3, excluding accumulated other comprehensive income (AOCI), decreased to
$4.0 billion atJune 30, 2015 , down$188.1 million sinceDec. 31, 2014 . The decline reflects share repurchases and dividends to shareholders, partially offset by net income. - Book value per diluted share4, excluding AOCI, decreased to
$58.21 atJune 30, 2015 , compared to$58.61 atDec. 31, 2014 . AOCI decreased$207.4 million to$348.4 million as ofJune 30, 2015 , from$555.8 million atDec. 31, 2014 . - Annualized operating return on average equity (ROE)1, excluding AOCI, was 13.3 percent year-to-date compared to 12.1 percent for full-year 2014.
- Total assets5 as of
June 30, 2015 were approximately$29.3 billion . The ratio of debt to total capital6, excluding AOCI, increased to 22.7 percent atJune 30, 2015 from 21.9 percent atDec. 31, 2014 .
Company Outlook
Based on current market conditions, for full-year 2015, the Company now expects:
- Capital to be deployed on share repurchases, common stock dividends, investments in the business and strategic acquisitions, subject to market conditions and legal requirements. Business segment dividends, excluding
Assurant Health , to exceed segment net operating income and to be subject to the growth of the businesses, rating agency and regulatory capital requirements. Capital infused into the health business as ofJune 30, 2015 to fund total exit-related charges, including premium deficiency reserves. Additional infusions intoAssurant Health to reflect runoff capital ratio targets and potential changes in estimates for exit-related costs, future experience on major medical policies, recoverables under ACA risk-mitigation programs as well as timing and amount of expense reductions during the course of the wind down.
Consistent with the previously reported outlook, for full-year 2015, the Company continues to expect:
- Assurant Solutions’ net earned premiums and fees and net operating income to approximate 2014 levels driven by continued growth from mobile and vehicle service contracts globally. Results to be affected by the previously disclosed loss of a domestic mobile tablet program, carrier-marketing programs, declining volumes at certain retailers and foreign exchange volatility.
- Assurant Specialty Property’s net earned premiums and net operating income to decrease from 2014, reflecting ongoing normalization of lender-placed insurance business, previously announced loss of client business and the sale of
ARIC . Initiatives to lower expenses in lender-placed insurance to generate net savings in the latter part of the year. Contributions from multi-family housing and mortgage solutions to partially offset the decline. Overall results to be affected by catastrophe losses. -
Assurant Employee Benefits ’ net earned premiums and fees to increase compared to 2014 due to growth in voluntary products. Continued expense management actions to offset pressures from lower investment income. Results to be affected by U.S. employment trends and capital market conditions. - Corporate & Other full-year net operating loss to decline to
$60-$65 million , reflecting expense reductions.
Based on the announced exit from the health insurance market, the Company expects:
-
Assurant Health to substantially complete the process to exit the health insurance market in 2016.Assurant Health results through the wind down to include approximately$80 million to$95 million pre-tax of additional exit-related charges as well as certain overhead expenses that are excluded from the premium deficiency reserve calculation. Capital infusions as ofJune 30, 2015 took into account these additional expenses. The Company to refine exit-related costs and premium deficiency reserve estimates based on future claims experience on major medical policies, estimated ACA risk-mitigation recoverables and timing and amount of expense reductions during the wind down.
Earnings Conference Call
- The second quarter 2015 earnings conference call and webcast to be held on
July 29, 2015 at8:00 a.m. ET . The live and archived webcast along with supplemental information also will be available in the Investor Relations section of www.assurant.com.
About
A global provider of specialty protection products and related services,
With approximately
Safe Harbor Statement
Some of the statements included in this news release and its exhibits, particularly those anticipating future financial performance, business prospects, growth and operating strategies and similar matters, are forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these statements by the use of words such as “will,” “may,” “anticipates,” “expects,” “estimates,” “projects,” “intends,” “plans,” “believes,” “targets,” “forecasts,” “potential,” “approximately,” or the negative version of those words and other words and terms with a similar meaning. Any forward-looking statements contained in this news release or the exhibits 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 the future plans, estimates or expectations contemplated by us will be achieved. Our actual results might differ materially from those projected in the forward-looking statements. The Company undertakes no obligation to update or review any forward-looking statements in this news release or the exhibits as a result of new information or future events or other developments. The following risk factors could cause our actual results to differ materially from those currently estimated by management, including those projected in the Company outlook:
(i) | actions by governmental agencies or government sponsored entities or other circumstances, including pending regulatory matters affecting our lender-placed insurance business, that could result in reductions of premium rates or increases in expenses, including claims, commissions, fines, penalties or other expenses; | |
(ii) | inability to implement, or delays in implementing, strategic plans for the |
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(iii) | loss of significant client relationships or business, distribution sources or contracts and reliance on a few clients; | |
(iv) | the effects of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (“the Affordable Care Act”), and the rules and regulations thereunder, on our health and employee benefits businesses; | |
(v) | potential variations between the final risk adjustment amount and reinsurance amounts, as determined by the |
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(vi) | unfavorable outcomes in litigation and/or regulatory investigations that could negatively affect our results, business and reputation; | |
(vii) | inability to execute strategic plans related to acquisitions, dispositions or new ventures; | |
(viii) | current or new laws and regulations that could increase our costs and decrease our revenues; | |
(ix) | significant competitive pressures in our businesses; | |
(x) | failure to attract and retain sales representatives, key managers, agents or brokers; | |
(xi) | losses due to natural or man-made catastrophes; | |
(xii) | a decline in our credit or financial strength ratings (including the risk of ratings downgrades in the insurance industry); | |
(xiii) | deterioration in the Company’s market capitalization compared to its book value that could result in an impairment of goodwill; | |
(xiv) | risks related to our international operations, including fluctuations in exchange rates; | |
(xv) | data breaches compromising client information and privacy; | |
(xvi) | general global economic, financial market and political conditions (including difficult conditions in financial, capital, credit and currency markets, the global economic slowdown, fluctuations in interest rates or a prolonged period of low interest rates, monetary policies, unemployment and inflationary pressure); | |
(xvii) | cyber security threats and cyber attacks; | |
(xviii) | failure to effectively maintain and modernize our information systems; | |
(xix) | failure to predict or manage benefits, claims and other costs; | |
(xx) | uncertain tax positions and unexpected tax liabilities; | |
(xxi) | inadequacy of reserves established for future claims; | |
(xxii) | risks related to outsourcing activities; | |
(xxiii) | unavailability, inadequacy and unaffordable pricing of reinsurance coverage; | |
(xxiv) | diminished value of invested assets in our investment portfolio (due to, among other things, volatility in financial markets; the global economic slowdown; credit, currency and liquidity risk; other than temporary impairments and increases in interest rates); | |
(xxv) | insolvency of third parties to whom we have sold or may sell businesses through reinsurance or modified co-insurance; | |
(xxvi) | inability of reinsurers to meet their obligations; | |
(xxvii) | credit risk of some of our agents in Assurant Specialty Property and Assurant Solutions; | |
(xxviii) | inability of our subsidiaries to pay sufficient dividends; | |
(xxix) | failure to provide for succession of senior management and key executives; and | |
(xxx) | cyclicality of the insurance industry. | |
For a detailed discussion of the risk factors that could affect our actual results, please refer to the risk factors identified in our
Non-GAAP Financial Measures
(1) | |
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6 |
12 |
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2015 | 2014 | ||||||
Annual operating return on average equity (excluding |
13.3% | 12.1% | |||||
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(10.2)% | (6.1)% | |||||
Net realized gains on investments | 0.5% | 3.8% | |||||
Gain (loss) on divested business | 0.0% | (1.9)% | |||||
Change in tax liabilities | - | 1.4% | |||||
Payment received related to previous sale of subsidiary | 0.5% | - | |||||
Change in derivative investment | (0.1)% | (0.2)% | |||||
Change due to effect of including AOCI | (0.7)% | 0.3% | |||||
Annual GAAP return on average equity | 3.3% | 9.4% | |||||
(2) | |
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(3) | |
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6 Months | 12 Months | ||||||
2015 | 2014 | ||||||
Stockholders' equity excluding |
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485.5 | 443.3 | |||||
Consolidated stockholders' equity, excluding AOCI |
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(4) | |
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2Q | 4Q | ||||||
2015 | 2014 | ||||||
Book value per diluted share (excluding |
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Change due to effect of including AOCI | 5.07 | 7.79 | |||||
Change due to effect of including |
7.08 | 6.21 | |||||
Book value per diluted share | |
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(5) | |
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6 Months | 12 Months | ||||||
2015 | 2014 | ||||||
Total assets, excluding |
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1,492.2 | 1,210.6 | |||||
Consolidated total assets | |
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(6) | |
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2Q | 4Q | ||||||
2015 | 2014 | ||||||
Debt to total capital ratio (excluding |
22.7% | 21.9% | |||||
Change due to effect of including AOCI | (1.2)% | (1.8)% | |||||
Change due to effect of including |
(2.0)% | (1.7)% | |||||
Debt to total capital ratio | 19.5% | 18.4% | |||||
A summary of net operating income disclosed items is included on page 21 of the Company’s Financial Supplement, which is available in the Investor Relations section of www.assurant.com.
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2Q | 6 Months | |||||||||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||||||||
(in thousands except number of shares and per share amounts) | ||||||||||||||||||||||
Revenues | ||||||||||||||||||||||
Net earned premiums | $ | 2,138,258 | $ | 2,171,734 | $ | 4,297,820 | $ | 4,232,196 | ||||||||||||||
Fees and other income | 323,609 | 259,128 | 603,171 | 455,569 | ||||||||||||||||||
Net investment income | 167,786 | 167,508 | 320,059 | 335,566 | ||||||||||||||||||
Net realized gains on investments | 11,999 | 6,087 | 15,954 | 25,838 | ||||||||||||||||||
Amortization of deferred gain on disposal of businesses | 3,242 | 3,644 | 6,500 | 7,304 | ||||||||||||||||||
Total revenues | 2,644,894 | 2,608,101 | 5,243,504 | 5,056,473 | ||||||||||||||||||
Benefits, losses and expenses | ||||||||||||||||||||||
Policyholder benefits | 1,267,714 | 1,149,613 | 2,478,441 | 2,157,645 | ||||||||||||||||||
Selling, underwriting, general and administrative expenses | 1,323,377 | 1,250,925 | 2,614,289 | 2,438,947 | ||||||||||||||||||
Interest expense | 13,778 | 13,776 | 27,556 | 30,841 | ||||||||||||||||||
Total benefits, losses and expenses | 2,604,869 | 2,414,314 | 5,120,286 | 4,627,433 | ||||||||||||||||||
Income before provision for income taxes | 40,025 | 193,787 | 123,218 | 429,040 | ||||||||||||||||||
Provision for income taxes | 7,236 | 50,177 | 40,385 | 148,185 | ||||||||||||||||||
Net income | $ | 32,789 | $ | 143,610 | $ | 82,833 | $ | 280,855 | ||||||||||||||
Net income per share: | ||||||||||||||||||||||
Basic | $ | 0.48 | $ | 1.98 | $ | 1.20 | $ | 3.86 | ||||||||||||||
Diluted | $ | 0.47 | $ | 1.95 | $ | 1.18 | $ | 3.81 | ||||||||||||||
Dividends per share | $ | 0.30 | $ | 0.27 | $ | 0.57 | $ | 0.52 | ||||||||||||||
Share data: | ||||||||||||||||||||||
Basic weighted average shares outstanding | 68,558,472 | 72,659,590 | 69,161,001 | 72,753,651 | ||||||||||||||||||
Diluted weighted average shares outstanding | 69,244,399 | 73,544,191 | 69,946,364 | 73,735,399 | ||||||||||||||||||
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2015 | 2014 | ||||||||
(in thousands) | |||||||||
Assets | |||||||||
Investments and cash and cash equivalents | $ | 15,002,943 | $ | 15,450,108 | |||||
Reinsurance recoverables | 7,376,942 | 7,254,585 | |||||||
Deferred acquisition costs | 3,078,233 | 2,957,740 | |||||||
Goodwill | 842,202 | 841,239 | |||||||
Assets held in separate accounts | 1,919,609 | 1,906,237 | |||||||
Other assets | 2,622,153 | 3,152,557 | |||||||
Total assets | $ | 30,842,082 | $ | 31,562,466 | |||||
Liabilities | |||||||||
Policyholder benefits and claims payable | $ | 13,500,609 | $ | 13,182,278 | |||||
Unearned premiums | 6,429,804 | 6,529,675 | |||||||
Debt | 1,171,229 | 1,171,079 | |||||||
Liabilities related to separate accounts | 1,919,609 | 1,906,237 | |||||||
Deferred gain on disposal of businesses | 94,317 | 100,817 | |||||||
Accounts payable and other liabilities | 2,898,554 | 3,491,073 | |||||||
Total liabilities | 26,014,122 | 26,381,159 | |||||||
Stockholders' equity | |||||||||
Equity, excluding accumulated other comprehensive income | 4,479,541 | 4,625,540 | |||||||
Accumulated other comprehensive income | 348,419 | 555,767 | |||||||
Total stockholders' equity | 4,827,960 | 5,181,307 | |||||||
Total liabilities and stockholders' equity | $ | 30,842,082 | $ | 31,562,466 | |||||
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