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ASSURANT, INC. – 10-K – Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and accompanying notes included elsewhere in this Report. It contains forward-looking statements that involve risks and uncertainties. Our actual results might differ materially from those projected in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Report, particularly under the headings "Item 1A - Risk Factors" and "Forward-Looking Statements."
General
Sale of Global Preneed
InAugust 2021 , we completed the sale of the disposed Global Preneed business to CUNA for an aggregate purchase price at closing of$1.34 billion in cash. For additional information, refer to Note 4 to the Consolidated Financial Statements included elsewhere in this Report. Prior to the sale, we determined that the disposed Global Preneed business met the criteria to be classified as held for sale and that the sale represented a strategic shift that had a major impact on our operations and financial results. Accordingly, the results of operations of the disposed Global Preneed business are presented as net income from discontinued operations in the consolidated statements of operations and segregated in the consolidated statement of cash flows for all periods presented, and the assets and liabilities for the disposed Global Preneed business have been classified as held for sale and segregated as ofDecember 31, 2020 in the consolidated balance sheets. Transactions between the disposed Global Preneed business and businesses in our continuing operations were not eliminated to appropriately reflect the continuing operations and the assets, liabilities and results of the disposed Global Preneed business. Refer to "-Results of Operations - Discontinued Operations" below and Note 4 to the Consolidated Financial Statements included elsewhere in this Report.
Reportable Segments
We report our results through three segments: Global Lifestyle,Global Housing and Corporate and Other. Corporate and Other includes activities of the holding company, financing and interest expenses, net realized gains (losses) on investments and fair value changes to equity securities, interest income earned from short-term investments held, income (expenses) primarily related to our frozen benefit plans, amounts related to businesses previously disposed of through reinsurance and the run-off of theAssurant Health business. Corporate and Other also includes goodwill impairments, the foreign currency gains (losses) from remeasurement of monetary assets and liabilities, changes in the fair value of derivative instruments and other expenses related to merger and acquisition activities, as well as other highly variable or unusual items other than reportable catastrophes (reportable catastrophe losses, net of reinsurance and client profit sharing adjustments, and including reinstatement and other premiums). 42 -------------------------------------------------------------------------------- The following discussion covers the year endedDecember 31, 2021 ("Twelve Months 2021"), the year endedDecember 31, 2020 ("Twelve Months 2020") and the year endedDecember 31, 2019 ("Twelve Months 2019"). Please see the discussion that follows, for each of these segments, for a more detailed comparative analysis. Executive Summary Overview We have undertaken several acquisitions and dispositions in the current and prior years, which are reflected in our results. InAugust 2021 , we completed the sale of the disposed Global Preneed business to CUNA for an aggregate purchase price at closing of$1.34 billion in cash. For additional information, refer to Notes 3 and 4 to the Consolidated Financial Statements included elsewhere in this Report. InJune 2021 , we issued$350.0 million of 2.65% senior notes dueJanuary 2032 and used the proceeds, along with cash on hand, to redeem all of the$350.0 million outstanding aggregate principal amount of our 4.00% senior notes dueMarch 2023 and paid accrued interest, related premiums, fees and expenses inJuly 2021 . See " - Liquidity and Capital Resources" below for further details.
Summary of Financial Results
Consolidated net income from continuing operations increased$93.1 million , or 18%, to$613.5 million for Twelve Months 2021 from$520.4 million for Twelve Months 2020. The increase was primarily driven by higher net realized gains on investments and fair value changes to equity securities, including$67.5 million of fair value changes in unrealized equity positions that went public during Twelve Months 2021, compared to net losses in Twelve Months 2020, as well as growth in Global Lifestyle. This was partially offset by the absence of an$84.4 million tax benefit that was recorded in Twelve Months 2020 related to the utilization of net operating losses in connection with the 2020 Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). Global Lifestyle segment net income increased$47.5 million , or 11%, to$484.7 million for Twelve Months 2021 from$437.2 million for Twelve Months 2020, primarily driven by significant growth inGlobal Automotive , continued expansion in mobile within Connected Living and greater contributions fromGlobal Financial Services and Other.Global Automotive results included underlying growth from prior period sales driven by expanded and new client relationships globally, favorable loss experience in select ancillary products and$8.2 million of one-time benefits in the first half of Twelve Months 2021 that are not expected to repeat. Mobile growth was primarily driven by strong trade-in volumes, including HYLA, and improved performance inAsia Pacific . Results were partially offset by investments in our in-store service and repair capabilities. Global Lifestyle net earned premiums, fees and other income increased$410.1 million , or 6%, to$7.75 billion for the Twelve Months 2021 compared with$7.34 billion for Twelve Months 2020, primarily driven byGlobal Automotive from strong sales across theU.S. , as well as growth in Connected Living from extended service contracts. In mobile, higher trade-in volumes and subscriber growth were offset by declines from runoff programs and the$176 million reduction from the previously disclosed program contract change.Global Housing segment net income increased$10.8 million , or 5%, to$244.6 million for Twelve Months 2021 from$233.8 million for Twelve Months 2020. Segment net income for Twelve Months 2021 included$113.9 million of reportable catastrophes compared to$137.2 million of reportable catastrophes for Twelve Months 2020. Excluding reportable catastrophes, segment net income decreased$12.5 million , primarily due to higher non-catastrophe loss experience from an anticipated increase to more normalized levels, as well as a$12.3 million year-over-year increase within small commercial that was primarily related to reserve strengthening for run-off claims. This was partially offset by higher premium rates and average insured values inLender-placed Insurance .
million
billion
Housing
Specialty and Other products from client runoff.
Corporate and Other segment net loss decreased$34.8 million , or 23%, to$115.8 million for Twelve Months 2021 from$150.6 million for Twelve Months 2020, primarily due to the higher net realized gains on investments and fair value changes to equity securities, compared to net losses in Twelve Months 2020, partially offset by the absence of an$84.4 million tax benefit related to the utilization of net operating losses in connection with the CARES Act. 43 --------------------------------------------------------------------------------
Critical Factors Affecting Results
Our results depend on, among other things, the appropriateness of our product pricing, underwriting, the accuracy of our reserving methodology for future policyholder benefits and claims, the frequency and severity of reportable and non-reportable catastrophes, returns on and values of invested assets, our investment income and our ability to manage our expenses and achieve expense savings. Our results also depend on our ability to profitably grow all of our businesses, including our Connected Living,Multifamily Housing andGlobal Automotive businesses, and maintain our position in ourLender-placed Insurance business. Factors affecting these items, including conditions in financial markets, the global economy and the markets in which we operate, fluctuations in exchange rates, interest rates and inflation, including the current period of inflationary pressures, 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." Our results may also be impacted by our ability to continue to grow in the markets in which we operate, including in our Connected Living,Multifamily Housing andGlobal Automotive businesses, which will be impacted by our ability to provide a superior digital-first customer experience, including from our investments in technology and digital initiatives, and capitalize on the smart home opportunity. Our mobile business is subject to volatility in mobile device trade-in volumes based on the actual and anticipated timing of the release of new devices and carrier promotional programs, as well as to changes in consumer preferences. OurLender-placed Insurance revenues will be impacted by changes in the housing market. In addition, across many of our businesses, we must respond to the threat of disruption and the competition for talent. 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" 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." For Twelve Months 2021, net cash provided by operating activities from continuing operations was$630.5 million ; net cash provided by investing activities from continuing operations was$302.8 million ; and net cash used in financing activities from continuing operations was$1.09 billion . We had$2.04 billion in cash and cash equivalents as ofDecember 31, 2021 . Please see " - Liquidity and Capital Resources" below for further details.
Revenues
We generate revenues primarily from the sale of our insurance policies, service contracts and related products and services and from income earned on our investments. Sales of insurance policies are recognized in revenue as earned premiums while sales of administrative services are recognized as fee income. Our premium and fee income is supplemented by income earned from our investment portfolio. We recognize revenue from interest payments, dividends, change in market value of equity securities and sales of investments. Currently, our investment portfolio is primarily invested in fixed maturity securities. Both investment income and changes in market value on these investments can be significantly affected by changes in interest rates. Interest rate volatility can increase or reduce unrealized gains or losses in our investment portfolios. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions, inflation and other factors beyond our control. Fluctuations in interest rates affect our returns on, and the market value of, fixed maturity and short-term investments. The fair market value of the fixed maturity securities in our investment portfolio and the investment income from these securities fluctuate depending on general economic and market conditions. The fair market value generally increases or decreases in an inverse relationship with fluctuations in interest rates, while net investment income realized by us from future investments in fixed maturity securities will generally increase or decrease with interest rates. We also have investments that are subject to pre-payment risk, such as mortgage-backed and asset-backed securities. Interest rate fluctuations may cause actual net investment income and/or timing of cash flows from such investments to differ from estimates made at the time of investment. In periods of declining interest rates, mortgage prepayments generally increase and mortgage-backed securities, commercial mortgage obligations and bonds are more likely to be prepaid or redeemed as borrowers seek to borrow at lower interest rates. Therefore, in these circumstances we may be required to reinvest those funds in lower interest-earning investments.
Expenses
Our expenses are primarily policyholder benefits, underwriting, general and
administrative expenses and interest expense.
Policyholder benefits are affected by our claims management programs,
reinsurance coverage, contractual terms and conditions, regulatory requirements,
economic conditions, and numerous other factors. Benefits paid or reserves
required for future benefits could substantially exceed our expectations,
causing a material adverse effect on our business, results of operations and
financial condition.
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Underwriting, general and administrative expenses consist primarily of
commissions, premium taxes, licenses, fees, amortization of deferred costs,
general operating expenses and income taxes. We continue to undertake various
expense savings initiatives while also making investments in talent,
capabilities and technology, among other things, which will impact our expenses.
We also incur interest expense related to our debt.
Critical Accounting Policies and Estimates
Certain items in our Consolidated Financial Statements are based on estimates
and judgment. Differences between actual results and these estimates and
judgments could in some cases have material impacts on our Consolidated
Financial Statements. The following critical accounting policies require
significant estimates and judgment:
•Reserves, Net of Reinsurance
•Valuation of Investments, including Evaluation of Credit Losses
•Valuation and Recoverability of
Reserves, Net of Reinsurance
Reserves are established using generally accepted actuarial methods and reflect
judgments about expected future claim payments. Factors used in their
calculation include experience derived from historical claim payments and
actuarial assumptions. Calculations incorporate assumptions about the incidence
of incurred claims, the extent to which all claims have been reported, reporting
lags, expenses, inflation rates, future investment earnings, internal claims
processing costs and other relevant factors. While the methods of making such
estimates and establishing the related liabilities are periodically reviewed and
updated, the estimation of reserves includes an element of uncertainty given
that management is using historical information and methods to project future
events and reserve outcomes.
The recorded reserves represent our best estimate at a point in time of the
ultimate costs of settlement and administration of a claim or group of claims,
based upon actuarial assumptions and projections using facts and circumstances
known at the time of calculation. The adequacy of reserves may be impacted by
future trends in claims severity, frequency, judicial theories of liability and
other factors. These variables are affected by both external and internal
events, including: changes in the economic cycle, inflation, changes in repair
costs, natural or human-made catastrophes, judicial trends, legislative changes
and claims handling procedures.
Many of these items are not directly quantifiable and not all future events can
be anticipated when reserves are established. Reserve estimates are refined as
experience develops. Adjustments to reserves, both positive and negative, are
reflected in the consolidated statement of operations in the period in which
such estimates are updated.
Because establishment of reserves is an inherently complex process involving
significant judgment and estimates, there can be no certainty that future
settlement amounts for claims incurred through the financial reporting date will
not vary from reported claims reserves. Future loss development could require
reserves to be increased or decreased, which could have a material effect on our
earnings in the periods in which such increases or decreases are made. However,
based on information currently available, we believe our reserve estimates are
adequate. See "Item 1A - Risk Factors - Financial Risks - Our actual claims
losses may exceed our reserves for claims, requiring us to establish additional
reserves or to incur additional expense for settling unreserved liabilities,
which could have a material adverse effect on our results of operations,
profitability and capital" and " - 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"
for more detail on this risk.
Reinsurance Recoverables
We utilize reinsurance for loss protection and capital management, business
dispositions and client risk and profit sharing. Reinsurance premiums paid are
amortized as reductions to premium over the terms of the underlying reinsured
policies. Amounts recoverable from reinsurers are estimated in a manner
consistent with claim and claim adjustment expense reserves or future policy
benefits reserves. Reinsurance recoverables include amounts we are owed by
reinsurers for claims paid as well as those included in reserve estimates that
are subject to the reinsurance.
We use a probability of default and loss given default methodology in estimating
an expected credit loss allowance, whereby the credit ratings of reinsurers are
used in determining the probability of default. The allowance is established for
reinsurance recoverables on paid and unpaid future policy benefits and claims
and benefits. Prior to applying default factors, the net exposure to credit risk
is reduced for any collateral for which the right of offset exists, such as
funds withheld, assets held in
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trust and letters of credit, which are part of the reinsurance arrangements,
with adjustments to include consideration of credit exposure on the collateral.
Our methodology incorporates historical default factors for each reinsurer based
on their credit rating using comparably rated bonds as published by a major
ratings service. The allowance is based upon our ongoing review of amounts
outstanding, length of collection periods, changes in reinsurer credit standing
and other relevant factors.
In the ordinary course of business, we are involved in both the assumption and
cession of reinsurance with non-affiliated companies. The following table
provides details of the reinsurance recoverables balance as of December 31, 2021
and 2020:
2021 2020
Ceded future policyholder benefits and expense
Ceded unearned premium
4,950.0 4,565.4 Ceded claims and benefits payable 821.8 846.2 Ceded paid losses 68.7 60.0 Total$ 6,178.9 $ 6,605.4
For additional information regarding our reserves and reinsurance recoverables,
see Notes 2, 5, 17 and 18 to the Consolidated Financial Statements included
elsewhere in this Report.
Short Duration Contracts
Claims and benefits payable reserves for short duration contracts include (1) case reserves for known claims which are unpaid as of the balance sheet date; (2) IBNR reserves for claims where the insured event has occurred but has not been reported to us as of the balance sheet date; and (3) loss adjustment expense reserves for the expected handling costs of settling the claims. Periodically, we review emerging experience and make adjustments to our reserves and assumptions where necessary. Ultimate loss and loss adjustment expenses are estimated utilizing generally accepted actuarial loss reserving methods. Both paid claims development as well as case incurred development are typically analyzed at the product or product grouping level, considering product size and data credibility. The reserving methods widely employed by us include the Chain Ladder, Munich Chain Ladder and Bornhuetter-Ferguson methods. ForGlobal Housing , reportable catastrophes are analyzed and reserved for separately using a frequency and severity approach. The methods all involve aggregating paid and case-incurred loss data by accident quarter (or accident year) and accident age for each product grouping. As the data ages, development factors are calculated that measure emerging claim development patterns between reporting periods. By selecting loss development factors indicative of remaining development, known losses are projected to an ultimate incurred basis for each accident period. The underlying premise of the Chain Ladder method is that future claims development is best estimated using past claims development, whereas the Bornhuetter-Ferguson method employs a combination of past claims development and prior estimates of ultimate losses based on an expected loss ratio. The Munich Chain Ladder method incorporates the correlations between paid and incurred development in projecting future development factors, and is typically more applicable to products experiencing variability in incurred to paid ratios. Each of these methods applied to the data groupings produces an estimate of the loss reserves for the product grouping. The best estimate is generally selected from a blend of the different methods. The IBNR associated with the best estimate is then allocated to accident year based on a weighting of the underlying actuarial methods. The determination of the best estimate is based on many factors, including:
•the nature and extent of the underlying assumptions;
•the quality and applicability of historical data - whether internal or industry
data;
•current and expected future economic and market conditions;
•regulatory, legislative, and judicial considerations;
•the extent of data segmentation - data should be homogeneous yet credible
enough for loss development methods to apply;
•trends in loss frequency and severity for various causes of loss;
•consideration of the distribution of loss reserves, management's selection of the best estimate that may exceed an estimate based on median values, suggesting that favorable development may be more likely than unfavorable development; and
•hindsight testing of prior loss estimates - the loss estimates on some product
lines will vary from actual loss experience more than others.
46 -------------------------------------------------------------------------------- When employing the reserving methods, consideration is given to contractual requirements, historical utilization trends and payment patterns, coverage changes, seasonality, product mix, the legislative and regulatory environment, economic factors, natural catastrophes and other relevant factors. We consistently apply reserving principles and methodologies from year to year, while also giving due consideration to the potential variability of these factors. While management has used judgment in establishing its best estimate of required reserves, different assumptions and variables could lead to significantly different reserve estimates. Two key measures of loss activity are loss frequency, which is a measure of the number of claims per unit of insured exposure, and loss severity, which is a measure of the average size of claims. Factors affecting loss frequency include the effectiveness of loss controls, changes in economic activity and weather patterns. Factors affecting loss severity include changes in policy limits, retentions, rate of inflation and judicial interpretations. If the actual level of loss frequency and severity are higher or lower than expected, the ultimate reserves required will be different than management's estimate. The effect of higher and lower levels of loss frequency and severity on our ultimate costs for claims occurring in 2021 would be as follows: Change in both loss frequency and severity Ultimate cost of claims Change in cost of claims for all Global Lifestyle and Global Housing occurring in 2021 occurring in 2021 3% higher $ 1,354.0 $ 77.5 2% higher $ 1,328.0 $ 51.5 1% higher $ 1,302.0 $ 25.5 Base scenario (1) $ 1,276.5 $ - 1% lower $ 1,251.0 $ (25.5) 2% lower $ 1,225.0 $ (51.5) 3% lower $ 1,199.0 $ (77.5)
(1)Represents the sum of the case reserves and incurred but not reported
reserves as of
Long Duration Contracts, including Disposed and Runoff Long Duration Lines
Reserves for future policy benefits represent the present value of future benefits to policyholders and related expenses less the present value of future net premiums. Reserve assumptions reflect best estimates for expected investment yield, inflation, mortality, morbidity, expenses and withdrawal rates. These assumptions are based on our experience to the extent it is credible, modified where appropriate to reflect current trends, industry experience and provisions for possible unfavorable deviation. We also record an unearned revenue reserve which represents premiums received which have not yet been recognized in our consolidated statements of operations. Risks related to the reserves recorded for certain discontinued individual life, annuity and long-term care insurance policies have been fully ceded via reinsurance. While we have not been released from our contractual obligation to the policyholders, changes in and deviations from economic, mortality, morbidity, and withdrawal assumptions used in the calculation of these reserves will not directly affect our results of operations unless there is a default by the assuming reinsurer. Valuation of Investments In determining the estimated fair value of our investments, fair values are primarily based on unadjusted quoted prices for identical investments in active markets that are readily and regularly obtainable. When such unadjusted quoted prices are not available, estimated fair values are based on quoted prices for identical or similar investments in markets that are not active, or other observable inputs. If these observable inputs are not available, or observable inputs are not determinable, unobservable inputs or adjustments to observable inputs requiring management judgment are used to determine the estimated fair value of investments. The methodologies, assumptions and inputs utilized are described in Note 10 to the Consolidated Financial Statements. Financial markets are susceptible to severe events evidenced by rapid depreciation in asset values accompanied by a reduction in asset liquidity. Our ability to sell investments and the price ultimately realized for investments depends upon the demand and liquidity in the market.
See also Notes 2 and 8 to the Consolidated Financial Statements included
elsewhere in this Report, "Item 1A - Risk Factors - Financial Risks - Our
investment portfolio is subject to market risk, including changes in interest
rates, that may adversely affect our results of operations and financial
condition" and " - Investments" contained in this Item 7.
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Valuation and Recoverability of
Our goodwill related to acquisitions of businesses was$2.57 billion and$2.59 billion as ofDecember 31, 2021 and 2020, respectively. We review our goodwill annually in the fourth quarter for impairment, or more frequently if indicators of impairment exist. Such indicators include: a significant adverse change in legal factors, an adverse action or assessment by a regulator, unanticipated competition, loss of key personnel or a significant decline in our expected future cash flows due to changes in company-specific factors or the broader business climate. The evaluation of such factors requires considerable management judgment. Any adverse change in these factors could have a significant impact on the recoverability of goodwill and could have a material impact on our Consolidated Financial Statements.Goodwill is tested for impairment at the reporting unit level, which is either at the operating segment or one level below, if that component is a business for which discrete financial information is available and segment management regularly reviews such information. Components within an operating segment can be aggregated into one reporting unit if they have similar economic characteristics. A goodwill impairment loss is measured as the excess of the carrying value, including goodwill, of the reporting unit over its fair value. An impairment loss is limited to the amount of goodwill allocated to the reporting unit.
Our Global Lifestyle operating segment is disaggregated into the following three
reporting units: Connected Living,
Services
level as the operating segment for
The following table illustrates the amount of goodwill carried by operating
segment as of the dates indicated:
December 31,
2021 2020
Global Lifestyle (1) $ 2,192.1 $ 2,209.8
Global Housing 379.5 379.5
Total $ 2,571.6 $ 2,589.3
(1) As of December 31, 2021 , $698.7 million , $1,420.5 million and $72.9 million
of goodwill was assigned to the Connected Living, Global Automotive and Global
Financial Services and Other reporting unit, respectively. As of December 31,
2020 , $715.2 million , $1,421.3 million , and $73.3 million of goodwill was
assigned to the Connected Living, Global Automotive and Global Financial
Services and Other reporting unit, respectively.
Quantitative Impairment Testing
In the fourth quarter of 2021, we performed a quantitative assessment for the Global Lifestyle andGlobal Housing reporting units given the uncertainty in macro-economic conditions and the overall industry performance due to prolonged COVID-19 impacts. Based on this quantitative assessment, the Company determined that it was more likely than not that the reporting units' fair values were more than their carrying amounts and that there was no impairment for the Global Lifestyle andGlobal Housing reporting units as ofOctober 1, 2021 . The determination of fair value of the reporting units requires many estimates and assumptions. These estimates and assumptions include earnings and required capital projections discussed above, discount rates, terminal growth rates, operating income and dividend forecasts for each reporting unit and the weighting assigned to the results of each of the three valuation methods described above. Changes in certain assumptions could have a significant impact on the goodwill impairment assessment. Should the operating results of these reporting units decline substantially compared to projected results, or should further interest rate declines increase the net unrealized investment portfolio gain position, we could determine that we need to perform an updated impairment test due to the potential impairment indicators, which may require the recognition of a goodwill impairment loss in any of the reporting units. For the fourth quarter of 2021 quantitative assessment, had the net book value for any of the reporting units exceeded its estimated fair value, the Company would have recognized a goodwill impairment loss for the difference up to the amount of goodwill allocated to the reporting unit.
Refer to Note 15 to the Consolidated Financial Statements included elsewhere in
this Report for further detail.
Recent Accounting Pronouncements
Please see Note 2 to the Consolidated Financial Statements included elsewhere in
this Report.
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Results of Operations Assurant Consolidated Overview
The table below presents information regarding our consolidated results of
operations:
For
the Years Ended
2021 2020 2019 Revenues: Net earned premiums$ 8,572.1 $ 8,275.8 $ 7,958.8 Fees and other income 1,172.9 1,042.3 1,170.1 Net investment income 314.4 285.6 383.2 Net realized gains (losses) on investments and fair value changes to equity securities 128.2 (8.2) 57.0 Total revenues 10,187.6 9,595.5 9,569.1 Benefits, losses and expenses: Policyholder benefits 2,195.7 2,264.9 2,385.7
Amortization of deferred acquisition costs and value of
business acquired
3,835.8 3,591.5 3,237.2 Underwriting, general and administrative expenses 3,240.6 3,047.9 3,186.5 Iké net losses - 5.9 163.0 Interest expense 111.8 104.5 110.6 Loss on extinguishment of debt 20.7 - 31.4 Total benefits, losses and expenses 9,404.6 9,014.7 9,114.4 Income before provision for income taxes 783.0 580.8 454.7 Provision for income taxes 169.5 60.4 148.3 Net income from continuing operations 613.5 520.4 306.4 Net income (loss) from discontinued operations 758.9 (77.7) 80.4 Net income 1,372.4 442.7 386.8 Less: Net income attributable to non-controlling interest - (0.9) (4.2) Net income attributable to stockholders 1,372.4 441.8 382.6 Less: Preferred stock dividends (4.7) (18.7) (18.7) Net income attributable to common stockholders$ 1,367.7
Year Ended
Net Income from Continuing Operations
Consolidated net income from continuing operations increased$93.1 million , or 18%, to$613.5 million for Twelve Months 2021 from$520.4 million for Twelve Months 2020, primarily due to higher net realized gains on investments and fair value changes to equity securities compared to net losses in the prior period, including$67.5 million of after-tax unrealized gains from four equity positions that went public during Twelve Months 2021, the absence of$25.5 million of after-tax net unrealized losses on collateralized loan obligations in Twelve Months 2020 and$19.2 million of after-tax unrealized gains from equity securities accounted for under the measurement alternative. The increase was also due to favorable earnings contributions from Global Lifestyle, mainly due to continued organic growth and favorable loss experience inGlobal Automotive . These increases were partially offset by the absence of an$84.4 million tax benefit that was recorded in Twelve Months 2020 related to the utilization of net operating losses in connection with the CARES Act.
Year Ended
Net Income from Continuing Operations
Consolidated net income from continuing operations increased$214.0 million , or 70%, to$520.4 million for Twelve Months 2020 from$306.4 million for Twelve Months 2019. Net income for Twelve Months 2020 included$137.2 million of reportable catastrophes, due to several storms in 2020 including Hurricane Laura, compared to$41.0 million in Twelve Months 49 -------------------------------------------------------------------------------- 2019. Excluding reportable catastrophes, net income increased$310.2 million , or 89%, due to$154.6 million of lower after-tax losses from decreases in the estimated fair value of Iké Grupo, Iké Asistencia and certain of their affiliates (collectively, "Iké"), an$84.4 million tax benefit related to the utilization of net operating losses in connection with the CARES Act and an improvement in our results fromGlobal Housing and Global Lifestyle. The increase was also due to the absence of$29.6 million of after-tax debt related charges from Twelve Months 2019. These increases were partially offset by a$55.8 million after-tax decrease in net realized gains on investments and fair value changes to equity securities mostly due to a decrease in net unrealized gains on equity securities and higher unrealized losses from the decrease in fair value of collateralized loan obligations, as well as$21.2 million of after-tax direct and incremental operating expenses incurred in connection with the COVID-19 pandemic. 50
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Global Lifestyle
Overview
The table below presents information regarding the Global Lifestyle segment's
results of operations for the periods indicated:
For
the Years Ended
2021 2020 2019 Revenues: Net earned premiums$ 6,720.3 $ 6,442.2 $ 6,073.7 Fees and other income 1,027.4 895.4 1,020.5 Net investment income 201.3 194.3 250.8 Total revenues 7,949.0 7,531.9 7,345.0 Benefits, losses and expenses: Policyholder benefits 1,333.1 1,412.6 1,516.2
Amortization of deferred acquisition costs and value of
business acquired
3,602.2 3,365.9 3,015.7 Underwriting, general and administrative expenses 2,398.5 2,189.1 2,277.6 Total benefits, losses and expenses 7,333.8 6,967.6 6,809.5 Segment income before provision for income taxes 615.2 564.3 535.5 Provision for income taxes 130.5 127.1 126.2 Segment net income$ 484.7 $ 437.2 $ 409.3 Net earned premiums, fees and other income: Connected Living$ 3,915.8 $ 3,836.6 $ 3,768.4 Global Automotive 3,436.9 3,113.0 2,873.6 Global Financial Services and Other 395.0 388.0 452.2 Total$ 7,747.7 $ 7,337.6 $ 7,094.2 Net earned premiums, fees and other income: Domestic$ 5,879.1 $ 5,408.3 $ 5,020.1 International 1,868.6 1,929.3 2,074.1 Total$ 7,747.7 $ 7,337.6 $ 7,094.2
Year Ended
Net Income
Segment net income increased$47.5 million , or 11%, to$484.7 million for Twelve Months 2021 from$437.2 million for Twelve Months 2020, primarily due toGlobal Automotive from underlying growth from prior period sales driven by expanded and new client relationships globally, favorable loss experience in select ancillary products and$8.2 million of one-time benefits in Twelve Months 2021 that are not expected to repeat. Connected Living andGlobal Financial Services and Other also contributed to the increase. Connected Living growth was led by mobile, mainly from higher mobile trade-in volumes, including Hyla, better performance inAsia Pacific and additional domestic mobile subscribers across carrier and cable operator clients. This increase was partially offset by investments to build out service and repair capabilities and a$6.7 million after-tax benefit for an extended service contract client recoverable in Twelve Months 2020. Growth inGlobal Financial Services and Other was mainly due to claims and sales recoveries as Twelve Months 2020 included unfavorable impacts related to COVID-19.
Total Revenues
Total revenues increased$417.1 million , or 6%, to$7.95 billion for Twelve Months 2021 from$7.53 billion for Twelve Months 2020. Net earned premiums increased$278.1 million , or 4%, primarily driven by continued growth from strongU.S. sales in ourGlobal Automotive business across all distribution channels. The increase in net earned premiums was partially offset by modest declines in Connected Living, as the run-off of certain global mobile programs was offset by growth in extended service contract programs and domestic mobile subscribers within our cable operator distribution channel. Fees and other income increased$132.0 million , or 15%, driven by Connected Living from higher mobile repair and logistics volumes 51 -------------------------------------------------------------------------------- mainly from HYLA contributions and mobile carrier promotions, partially offset by the$176 million reduction from the previously disclosed program contract change. Net investment income increased$7.0 million , or 4%, primarily due to higher income from real estate related investments.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased$366.2 million , or 5%, to$7.33 billion for Twelve Months 2021 from$6.97 billion for Twelve Months 2020. Amortization of deferred acquisition costs and value of business acquired increased$236.3 million , or 7%, primarily due to an increase in amortization of deferred acquisition costs ("DAC") due to growth in ourGlobal Automotive business and extended service contract programs within our Connected Living business, partially offset by a decrease in amortization of VOBA related to the acquisition ofTWG Holdings Limited and its subsidiaries. Underwriting, general and administrative expenses increased$209.4 million , or 10%, primarily due to growth across the businesses, including higher mobile repair and logistics volumes, with contributions from HYLA, and investments to build out service and repair capabilities, partially offset by the impact of the previously disclosed program contract change. The increase in total benefits, losses and expenses was partially offset by a$79.5 million , or 6%, decrease in policyholder benefits, primarily due to the run-off of certain global mobile programs in our Connected Living business and lower loss experience in select ancillary products inGlobal Automotive , partially offset by growth across ourGlobal Automotive and Connected Living businesses.
Year Ended
Net Income
Segment net income increased$27.9 million , or 7%, to$437.2 million for Twelve Months 2020 from$409.3 million for Twelve Months 2019, primarily driven by our Connected Living business, mainly due to continued mobile subscriber growth inNorth America andAsia Pacific and improved extended service contract loss experience, as well as higher income and organic growth from ourGlobal Automotive business. These increases were partially offset by lower investment income and unfavorable foreign exchange. Additionally, ourGlobal Financial Services and Other business had lower income, mainly due to lower volumes and higher loss experience, primarily resulting from the COVID-19 pandemic, and anticipated declines from domestic business in run-off.
Total Revenues
Total revenues increased$186.9 million , or 3%, to$7.53 billion for Twelve Months 2020 from$7.35 billion for Twelve Months 2019. Net earned premiums increased$368.5 million , or 6%, primarily driven by continued growth from prior period production in ourGlobal Automotive business and growth in our Connected Living business, mainly due to growth in domestic extended service contract programs and continued subscriber growth from mobile protection programs. These increases in net earned premiums were partially offset by unfavorable foreign exchange and a decrease in ourGlobal Financial Services and Other business, mainly due to domestic business in run-off. Fees and other income decreased$125.1 million , or 12%, primarily driven by lower mobile trade-in results, mainly due to a$117.0 million impact resulting from the previously mentioned mobile program contract change. Net investment income decreased$56.5 million , or 23%, primarily due to lower cash yields, lower invested asset balances, lower income from real estate and unfavorable foreign exchange.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased$158.1 million , or 2%, to$6.97 billion for Twelve Months 2020 from$6.81 billion for Twelve Months 2019. Amortization of deferred acquisition costs and value of business acquired increased$350.2 million , or 12%, primarily due to growth from ourGlobal Automotive and Connected Living businesses. This increase was partially offset by a decrease in policyholder benefits of$103.6 million , or 7%, primarily driven by a favorable mix of mobile business, lower loss experience within our Connected Living andGlobal Automotive businesses, in part due to COVID-19, partially offset by an increase from growth in those businesses. Underwriting, general and administrative expenses decreased$88.5 million , or 4%, primarily due to a mobile program contract change, as mentioned above, favorable foreign exchange and expense initiatives across the segment, partially offset by an increase from growth in ourGlobal Automotive and Connected Living businesses, including new acquisitions. 52 --------------------------------------------------------------------------------
Overview
The table below presents information regarding the
results of operations for the periods indicated:
For
the Years Ended
2021 2020 2019 Revenues: Net earned premiums$ 1,851.8 $ 1,833.6 $ 1,885.1 Fees and other income 144.8 143.7 148.6 Net investment income 81.0 72.8 95.2 Total revenues 2,077.6 2,050.1 2,128.9 Benefits, losses and expenses: Policyholder benefits 862.6 852.1 869.5
Amortization of deferred acquisition costs and value of
business acquired
233.6 225.6 221.5 Underwriting, general and administrative expenses 671.4 677.3 711.6 Total benefits, losses and expenses 1,767.6 1,755.0 1,802.6 Segment income before provision for income taxes 310.0 295.1 326.3 Provision for income taxes 65.4 61.3 67.6 Segment net income$ 244.6 $ 233.8 $ 258.7 Net earned premiums, fees and other income: Lender-placed Insurance$ 1,065.9 $ 1,052.5 $ 1,109.2 Multifamily Housing 482.3 451.6 429.2 Specialty and Other 448.4 473.2 495.3 Total$ 1,996.6 $ 1,977.3 $ 2,033.7
Year Ended
Net Income
Segment net income increased$10.8 million , or 5%, to$244.6 million for Twelve Months 2021 compared to$233.8 million for Twelve Months 2020. Segment net income for Twelve Months 2021 included$113.9 million of reportable catastrophes, primarily related to Hurricane Ida and theTexas winter storms, compared to$137.2 million for Twelve Months 2020. Excluding reportable catastrophes, segment net income decreased$12.5 million , or 3%, driven by higher non-catastrophe loss experience from an anticipated increase to more normalized levels than experienced in Twelve Months 2020 and a$12.3 million year-over-year increase within small commercial that was primarily related to reserve strengthening for run-off claims, as well as lower REO volumes related to COVID-19 foreclosure moratoriums inLender-placed Insurance . These decreases were partially offset by premium rate and average insured value increases in ourLender-placed Insurance business.
Total Revenues
Total revenues increased$27.5 million , or 1%, to$2.08 billion for Twelve Months 2021 from$2.05 billion for Twelve Months 2020. Net earned premiums increased$18.2 million , or 1%, primarily due to average insured value and premium rate increases in ourLender-placed Insurance business and continued growth from renters insurance in ourMultifamily Housing business. These increases were partially offset by a decline in Specialty and Other from client run-offs, lower REO volumes, higher estimated catastrophe premium and higher reinsurance reinstatement premium primarily related to Hurricane Ida. Net investment income increased$8.2 million , or 11%, primarily due to higher income from real estate related investments.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased$12.6 million , or 1%, to$1.77 billion for Twelve Months 2021 from$1.76 billion for Twelve Months 2020. The increase was primarily due to an increase in policyholder benefits of$10.5 million , or 1%, from higher non-catastrophe losses, primarily inLender-placed Insurance and, to a lesser extent, Specialty and Other andMultifamily Housing , from an anticipated increase to more normalized levels than experienced in Twelve Months 2020 as well as an increase in reserves related to the cost of settling run-off claims within our small commercial product, partially offset by a decrease in reportable catastrophe losses. Amortization of DAC and VOBA increased$8.0 million , or 4%, consistent with the 53 --------------------------------------------------------------------------------
increase in net earned premium. Underwriting, general and administrative
expenses decreased
commission expense in our Specialty and Other business, partially offset by an
increase in expenses from growth and continued investments in
Housing
Year Ended
Net Income
Segment net income decreased$24.9 million , or 10%, to$233.8 million for Twelve Months 2020 from$258.7 million for Twelve Months 2019. Segment net income for Twelve Months 2020 included$137.2 million of reportable catastrophes, due to several storms in 2020, compared to$40.9 million in Twelve Months 2019. Excluding reportable catastrophes, segment net income increased$71.4 million , or 24%, primarily driven by favorable non-catastrophe losses across all major lines of businesses, including underwriting improvements in sharing economy offerings. The increase was also driven by higher premium rates in ourLender-placed Insurance business, the absence of losses from our small commercial product and lower operating expenses in ourLender-placed Insurance business. The increase was partially offset by lower REO volume and fee income in ourLender-placed Insurance business, fewer policies in-force from a financially insolvent client and lower investment income.
Total Revenues
Total revenues decreased$78.8 million , or 4%, to$2.05 billion for Twelve Months 2020 from$2.13 billion for Twelve Months 2019. Net earned premiums decreased$51.5 million , or 3%, primarily due to declines in ourLender-placed Insurance business, declines in our small commercial business, a reduction in policies in-force for a financially insolvent client and lower REO volume. This decrease was partially offset by premium rate increases in ourLender-placed Insurance business, continued growth from renters insurance in ourMultifamily Housing business and growth from our Specialty and Other business, mainly sharing economy products. Net investment income decreased$22.4 million , or 24%, primarily due to lower income from real estate related investments, lower cash yields and a decrease in invested assets. Fees and other income decreased$4.9 million , or 3%, primarily due to a decline in ourLender-placed Insurance business, mostly due to lower loss draft volume.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses decreased$47.6 million , or 3%, to$1.76 billion for Twelve Months 2020 from$1.80 billion for Twelve Months 2019. The decrease was primarily due to a decrease of$34.3 million , or 5%, in underwriting, general and administrative expenses, primarily due to lower employment related expenses in ourLender-placed Insurance business. Policyholder benefits decreased$17.4 million , or 2%, mainly from lower non-catastrophe losses across all major lines of businesses and the absence of losses from our small commercial product, partially offset by higher reportable catastrophe losses. 54
--------------------------------------------------------------------------------
Corporate and Other
Overview
The table below presents information regarding the Corporate and Other segment's
results of operations for the periods indicated:
For the
Years Ended
2021 2020 2019 Revenues: Fees and other income$ 0.7 $ 3.2 $ 1.0 Net investment income 32.1 18.5 37.2
Net realized gains (losses) on investments and fair
value changes to equity securities
128.2 (8.2) 57.0 Total revenues 161.0 13.5 95.2 Benefits, losses and expenses: Policyholder benefits - 0.2 - General and administrative expenses 170.7 181.5 197.3 Iké net losses - 5.9 163.0 Interest expense 111.8 104.5 110.6 Loss on extinguishment of debt 20.7 - 31.4 Total benefits, losses and expenses 303.2 292.1 502.3 Segment loss before benefit for income taxes (142.2) (278.6) (407.1) Benefit for income taxes (26.4) (128.0) (45.5) Segment net loss from continuing operations$ (115.8)
Year Ended
Net Loss from Continuing Operations
Segment net loss from continuing operations decreased$34.8 million , or 23%, to$115.8 million for Twelve Months 2021 from$150.6 million for Twelve Months 2020, primarily due to a$110.0 million after-tax increase in net realized gains on investments and fair value changes to equity securities compared to net losses in the prior year, including$67.5 million of after-tax unrealized gains from four equity positions that went public during Twelve Months 2021, the absence of$25.5 million of after-tax unrealized losses on collateralized loss obligations in Twelve Months 2020 and$19.2 million of after-tax unrealized gains from equity securities accounted for under the measurement alternative. The decrease in net loss was also driven by lower general operating expenses, which included a$13.2 million decrease in after-tax direct and incremental expenses incurred in connection with the COVID-19 pandemic, and an increase in net investment income. These items were partially offset by the absence of an$84.4 million tax benefit related to the utilization of net operating losses in connection with the CARES Act from Twelve Months 2020, a$16.3 million after-tax loss on extinguishment of debt and the absence of an$11.8 million gain related to the reduction of the valuation allowance on our Patient Protection and Affordable Health Care Act of 2010 ("ACA") risk corridor program receivable.
Total Revenues
Total revenues increased$147.5 million to$161.0 million for Twelve Months 2021 from$13.5 million for Twelve Months 2020, primarily driven by an$136.4 million increase in net realized gains on investments and fair value changes to equity securities compared to net losses in the prior year, including$85.4 million of unrealized gains from four equity positions that went public during Twelve Months 2021, the absence of$32.3 million of unrealized losses on collateralized loss obligations in Twelve Months 2020 and$24.3 million of unrealized gains from equity securities accounted for under the measurement alternative. The increase is also due to$13.6 million of higher net investment income, mostly driven by gains from the sale of real estate joint venture properties and higher income from limited partnerships. 55 --------------------------------------------------------------------------------
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased$11.1 million , or 4%, to$303.2 million for Twelve Months 2021 from$292.1 million for Twelve Months 2020, primarily due to the$20.7 million loss on extinguishment of debt, the absence of certain gains from Twelve Months 2020 that included a$14.8 million gain related to the reduction of the valuation allowance of our ACA risk corridor program receivable and$10.8 million of income, net of certain exit costs from the sale of our CLO asset management platform. These increases were partially offset by$17.3 million of lower operating expenses, including employee-related and third-party expenses, and a$16.8 million decrease in direct and incremental operating expenses incurred in connection with the COVID-19 pandemic.
Year Ended
Net Loss from Continuing Operations
Segment net loss from continuing operations decreased$211.0 million , or 58%, to$150.6 million for Twelve Months 2020 from$361.6 million for Twelve Months 2019, primarily due to$154.6 million of lower after-tax losses from decreases in the estimated fair value of Iké, an$84.4 million tax benefit related to the utilization of net operating losses in connection with the CARES Act in Twelve Months 2020, the absence of$29.6 million of after-tax debt related charges associated with refinancing debt at a lower interest rate in Twelve Months 2019. These increases were partially offset by a$55.8 million after-tax decrease in net realized gains on investments and fair value changes to equity securities as well as$21.2 million of after-tax direct and incremental operating expenses incurred in connection with the COVID-19 pandemic.
Total Revenues
Total revenues decreased$81.7 million , or 86%, to$13.5 million for Twelve Months 2020 from$95.2 million for Twelve Months 2019, primarily driven by an$65.2 million decrease in net realized gains on investments and fair value changes to equity securities mostly due to$22.6 million of higher net unrealized losses from the decrease in fair value of our collateralized loan obligations,$21.4 million of lower net unrealized gains on equity securities, a$15.6 million increase in impairments on equity investments accounted for under the measurement alternative and a decrease in net realized gains from sales of fixed maturity securities. The decrease was also driven by$18.7 million of lower net investment income due to a higher concentration of lower yielding liquid investments in 2020 compared to 2019 and lower income from real estate.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses decreased$210.2 million , or 42%, to$292.1 million for Twelve Months 2020 from$502.3 million for Twelve Months 2019. The decrease in expenses for Twelve Months 2020 was primarily due to the absence of certain events that occurred in Twelve Months 2019, mainly$157.1 million of lower losses associated with Iké,$37.4 million of debt related charges associated with refinancing debt at a lower interest rate and a$15.6 million impairment of certain intangible assets from our acquisition ofGreen Tree Insurance Agency . The decrease was also due to$10.0 million of income, net of certain exit costs, from the sale of our CLO asset management platform,$10.0 million increase in the net pension benefit and the absence of a$9.6 million loss on the sale of our Mortgage Solutions business in Twelve Months 2019. These decreases were partially offset by$26.8 million of direct and incremental operating expenses incurred in connection with the COVID-19 pandemic and$11.8 million lower gain related to the reduction of the valuation allowance on the Company's ACA risk corridor program receivables. 56 --------------------------------------------------------------------------------
Discontinued Operations
Overview
The table below presents information regarding the results of the discontinued
operations for the periods indicated:
For the Years Ended December 31,
2021 2020 2019
Revenues:
Net earned premiums $ 42.6 $ 66.9 $ 61.2
Fees and other income 91.0 151.1 155.4
Net investment income 168.4 289.3 291.8
Net realized gains (losses) on investments and fair
value changes to equity securities
4.2 (8.0) 9.3 Gain on disposal of businesses 916.2 - - Total revenues 1,222.4 499.3 517.7 Benefits, losses and expenses: Policyholder benefits 172.7 284.4 269.0 Amortization of deferred acquisition costs and value of business acquired 46.2 80.5 84.9 Underwriting, general and administrative expenses 39.0 62.1 64.0 Goodwill impairment - 137.8 - Total benefits, losses and expenses 257.9 564.8 417.9 Income (loss) before provision for income taxes 964.5 (65.5) 99.8 Provision for income taxes 205.6 12.2 19.4
Net income (loss) from discontinued operations
(77.7)
Year Ended
Net Income (Loss) from Discontinued Operations
Net income from discontinued operations was$758.9 million for Twelve Months 2021 compared to a net loss from discontinued operations of$77.7 million for Twelve Months 2020. The change was primarily due to a$720.1 million after-tax gain on the sale of the disposed Global Preneed business in Twelve Months 2021. The gain includes$606.0 million in after-tax AOCI, primarily net unrealized gains on investments, that was recognized in earnings upon the sale. The increase was also due to the absence of a$137.8 million after-tax goodwill impairment on the disposed Global Preneed business from Twelve Months 2020. These items were partially offset by lower operating results for the disposed Global Preneed business as Twelve Months 2021 included only seven months of results since the sale closed onAugust 2, 2021 .
Total Revenues
Total revenues increased$723.1 million to$1.22 billion for Twelve Months 2021 from$499.3 million for Twelve Months 2020, primarily due to the gain on the sale of the disposed Global Preneed business. The gain is inclusive of$774.2 million of pre-tax AOCI, primarily net unrealized gains on investments, that was recognized in earnings upon sale. The increase in total revenues was partially offset by a$120.9 million , or 42%, decrease in net investment income, a$60.1 million , or 40%, decrease in fees and other income and a$24.3 million , or 36%, decrease in net earned premiums, primarily because Twelve Months 2021 included only seven months of results.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses decreased$306.9 million , or 54%, to$257.9 million for Twelve Months 2021 from$564.8 million for Twelve Months 2020, primarily due to the absence of a$137.8 million goodwill impairment on the disposed Global Preneed business from Twelve Months 2020. The decrease in total benefits, losses and expenses was also due to a$111.7 million , or 39%, decrease in policyholder benefits, a$34.3 million , or 43%, decrease in amortization of deferred acquisition costs and value of business acquired and a$23.1 million , or 37%, decrease in underwriting, general and administrative expenses, primarily because Twelve Months 2021 included only seven months of results. 57 --------------------------------------------------------------------------------
Year Ended
Net Income (Loss) from Discontinued Operations
Net loss from discontinued operations was$77.7 million for Twelve Months 2020 compared to net income from discontinued operations of$80.4 million for Twelve Months 2019. The change was primarily due to the$137.8 million after-tax impairment on the disposed Global Preneed business goodwill, lower amortization of deferred gains mainly associated with the sale ofAssurant Employee Benefits , higher mortality from COVID-19, a decrease in investment income, an increase in final need policy cancellations in the disposed Global Preneed business in the fourth quarter of 2020, partly due to COVID-19, and updated assumptions for the earnings patterns of new policies. These decreases were partially offset by the absence of a$9.9 million after-tax expense related to an out of period adjustment for over-capitalization of deferred acquisition costs occurring over a ten-year period recorded in Twelve Months 2019.
Total Revenues
Total revenues decreased$18.4 million , or 4%, to$499.3 million for Twelve Months 2020 from$517.7 million for Twelve Months 2019, primarily due to a$17.3 million decrease in net realized gains on investments and fair value changes to equity securities mostly due to lower net unrealized gains on equity securities, a$7.1 million decrease in amortization of deferred gains mainly associated with the sale ofAssurant Employee Benefits and lower investment income, mainly due to lower income from real estate and lower yielding new money fixed maturity securities purchases. The decrease was partially offset by an increase in net earned premiums and fees and other income, primarily due to growth in domestic pre-funded funeral policies in theU.S. and sales of the Final Need product.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased$146.9 million , or 35%, to$564.8 million for Twelve Months 2020 from$417.9 million for Twelve Months 2019, primarily due to the$137.8 million impairment on the Global Preneed goodwill and an increase in policyholder benefits, mainly driven by the growth in the domestic preneed business. The increase was partially offset by a decrease in amortization of deferred acquisition costs and value of business acquired, primarily due to the absence of a$14.2 million expense recorded in Twelve Months 2019 related to an out of period adjustment for over-capitalization of deferred acquisition costs occurring over a ten-year period, partially offset by growth in the domestic preneed business and higher amortization resulting from the increase in final need policy cancellations in the disposed Global Preneed business in the fourth quarter of 2020. 58 --------------------------------------------------------------------------------
Investments
We had total investments of$8.67 billion and$8.22 billion as ofDecember 31, 2021 and 2020, respectively. Net unrealized gains on our fixed maturity securities portfolio decreased$259.5 million during Twelve Months 2021, from$570.9 million atDecember 31, 2020 to$311.4 million atDecember 31, 2021 , primarily due to an increase inTreasury 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 December 31, 2021 December 31, 2020
Aaa / Aa / A $ 4,066.5 56.4 % $ 4,051.3 59.5 %
Baa 2,719.0 37.7 % 2,288.1 33.6 %
Ba 333.7 4.6 % 384.4 5.6 %
B and lower 96.1 1.3 % 91.7 1.3 %
Total $ 7,215.3 100.0 % $ 6,815.5 100.0 %
The following table shows the major categories of net investment income for the
periods indicated:
Years Ended December 31,
2021 2020 2019
Fixed maturity securities $ 232.8 $ 228.4 $ 241.2
Equity securities 14.9 14.5 14.9
Commercial mortgage loans on real estate 8.9 8.2 8.3
Short-term investments 2.1 5.7 10.8
Other investments 61.0 16.6 41.4
Cash and cash equivalents 8.5 13.3 37.8
Revenue from consolidated investment entities (1) - 56.3 119.2
Total investment income 328.2 343.0 473.6
Investment expenses (13.8) (20.5) (20.3)
Expenses from consolidated investment entities (1) - (36.9) (70.1)
Net investment income $ 314.4 $ 285.6 $ 383.2
(1)The following table shows the revenues net of expenses from consolidated
investment entities for the periods indicated.
Years
Ended
2021 2020 2019
Investment income from direct investments in:
Real estate funds (1) $ - $ 8.3 $ 25.1
CLO entities - 8.0 17.0
Investment management fees - 3.1 7.0
Net investment income from consolidated
investment entities $ - $
19.4
(1)The investment income from the real estate funds includes income attributable to non-controlling interest of$1.1 million and$3.8 million for the years endedDecember 31, 2020 and 2019, respectively. Net investment income increased$28.8 million , or 10%, to$314.4 million for Twelve Months 2021 from$285.6 million for Twelve Months 2020. The increase was primarily driven by higher income from other investments mostly due to higher income from sales of real estate joint venture partnerships and higher valuations in our real estate joint venture and other partnerships. Fixed maturity income increased, mostly due to higher asset levels, partially offset by lower yields. Investment expenses decreased due to prior year costs associated with the disposed Global Preneed business and one-time expenses related to the outsourcing of our real estate asset management. These increases were offset in part by a decrease in income from short-term investments and cash and cash equivalents mainly due to continued low yields. Net investment income decreased$97.6 million , or 25%, to$285.6 million for Twelve Months 2020 from$383.2 million for Twelve Months 2019. The decrease was primarily driven by lower income from other investments, primarily due to lower income from sales of real estate joint venture partnerships and lower unrealized gains from increases in fair market value in each period, and a decrease in income from short term investments and cash and cash equivalents mainly due to lower cash 59 --------------------------------------------------------------------------------
yields and unfavorable foreign exchange. The decrease was also due to a
reduction in income from fixed maturity securities due to lower-yielding new
money bond purchases.
As of
financial guarantee insurance companies. Included in this amount was
million
but would have had a rating of AA- without the guarantee.
For more information on our investments, see Notes 8 and 10 to the Consolidated
Financial Statements included elsewhere in this Report.
Liquidity and Capital Resources
The following section discusses our ability to generate cash flows from each of our subsidiaries, borrow funds at competitive rates and raise new capital to meet our operating and growth needs. Management believes that we will have sufficient liquidity to satisfy our needs over the next twelve months, including the ability to pay interest on our debt and dividends on our common stock.
Regulatory Requirements
Assurant, Inc. is a holding company and, as such, has limited direct operations of its own. Our assets consist primarily of the capital stock of our subsidiaries. Accordingly, our future cash flows depend upon the availability of dividends and other statutorily permissible payments from our subsidiaries, such as payments under our tax allocation agreement and under management agreements with our subsidiaries. Our subsidiaries' ability to pay such dividends and make such other payments is regulated by the states and territories in which our subsidiaries are domiciled. These dividend regulations vary from jurisdiction to jurisdiction and by type of insurance provided by the applicable subsidiary, but generally require our insurance subsidiaries to maintain minimum solvency requirements and limit the amount of dividends they 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." 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 fromA.M. Best . For the year endingDecember 31, 2022 , the maximum amount of dividends our regulatedU.S. domiciled insurance subsidiaries could pay us, under applicable laws and regulations without prior regulatory approval, is approximately$475.3 million . In addition, our international and non-insurance subsidiaries provide additional sources of dividends.
Regulators or rating agencies could become more conservative in their
methodology and criteria, increasing capital requirements for our insurance
subsidiaries or the enterprise. In 2021, the following actions were taken by the
rating agencies:
A.M. Best •InJuly 2021 , affirmed all financial strength ratings ofAssurant, Inc. and our subsidiaries, each with a stable outlook, except forUnion Security Life Insurance Company of New York , whose financial strength rating was withdrawn inAugust 2021 at our request, following the sale of the disposed Global Preneed business.
Moody's
•InJune 2021 , assigned a Baa3 rating to our new 2032 Senior Notes (as defined below) with a stable outlook. •InAugust 2021 , upgraded the insurance financial strength rating ofAmerican Bankers Life Assurance Company of Florida to A3 from Baa1. •InMarch 2021 , affirmed all other ratings with a stable outlook.
S&P
•InJune 2021 , assigned a BBB rating to our new 2032 Senior Notes (as defined below) with a stable outlook. •InSeptember 2021 , affirmed all other ratings with a stable outlook. For further information on our ratings and the risks of ratings downgrades, see "Item 1 - Business - Ratings" and "Item 1A - Risk Factors - Financial Risks - A decline in the financial strength ratings of our insurance subsidiaries could adversely affect our results of operations and financial condition." 60 --------------------------------------------------------------------------------
Holding Company
As ofDecember 31, 2021 , we had approximately$1.05 billion in holding company liquidity,$827.0 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 atAssurant, Inc. , out of a total of$1.16 billion of holding company investment securities and cash, which we are not otherwise holding for a specific purpose as of the balance sheet date. We can use such assets for stock repurchases, stockholder dividends, acquisitions and other corporate purposes. Dividends or returns of capital paid by our subsidiaries, net of infusions and excluding amounts used for or as a result of acquisitions or received from dispositions, were$728.6 million and$821.0 million for Twelve Months 2021 and Twelve Months 2020, respectively, which included approximately$12.0 million and$31.0 million , respectively, of dividends from subsidiaries, net of infusions, in the disposed Global Preneed business. We use these cash inflows primarily to pay holding company operating expenses, to make interest payments on indebtedness, to make dividend payments to our common stockholders, to fund investments and acquisitions, and to repurchase our common stock. From time to time, we may also seek to purchase outstanding debt in open market repurchases or privately negotiated transactions.
Dividends and Repurchases
During Twelve Months 2021 and Twelve Months 2020, we made common stock
repurchases and paid dividends to our common stockholders of
OnJanuary 11, 2022 , the Board declared a quarterly dividend of$0.68 per common share payable onMarch 21, 2022 to stockholders of record as ofFebruary 28, 2022 . We paid dividends of$0.68 per common share onDecember 20, 2021 to stockholders of record as ofNovember 29, 2021 . This represented a 3% increase to the quarterly dividend of$0.66 per common share paid onSeptember 21 ,June 22 , andMarch 15, 2021 . We paid a quarterly dividend of$1.6250 per share of MCPS onMarch 15, 2021 to stockholders of record as ofMarch 1, 2021 , which was the final dividend paid on the MCPS. The MCPS converted into shares of common stock inMarch 2021 . Refer to "-Mandatory Convertible Preferred Stock" below. Any determination to pay future dividends will be at the discretion of the Board and will be dependent upon various factors, including: our subsidiaries' payments of dividends and other statutorily permissible payments to us; our results of operations and cash flows; our financial condition and capital requirements; general business conditions and growth prospects; any legal, tax, regulatory and contractual restrictions on the payment of dividends; and any other factors the Board deems relevant. The Credit Facility also contains limitations on our ability to pay dividends to our stockholders and repurchase capital stock if we are in default, or such dividend payments or repurchases would cause us to be in default, of our obligations thereunder. In addition, if we elect to defer the payment of interest on our Subordinated Notes, we generally may not make payments on or repurchase any shares of our capital stock. During Twelve Months 2021, we repurchased 5,337,122 shares of our outstanding common stock at a cost of$844.4 million , exclusive of commissions. In January andMay 2021 , the Board authorized new share repurchase programs for up to$600.0 million and$900.0 million , respectively, of our outstanding common stock. As ofDecember 31, 2021 ,$842.1 million aggregate cost at purchase remained unused under theMay 2021 authorization. The timing and the amount of future repurchases will depend on various factors, including those listed above. We expect to deploy capital primarily to support business growth, fund other investments and return capital to shareholders, subject to Board approval and market conditions. In addition, we completed the sale of the disposed Global Preneed business to CUNA inAugust 2021 for net proceeds of$1.31 billion and, as previously disclosed, we intend to return$900.0 million to shareholders through share repurchases within one year of closing. Refer to Note 4 to the Consolidated Financial Statements included elsewhere in this Report.
Mandatory Convertible Preferred Stock
InMarch 2018 , we issued 2,875,000 shares of our MCPS. InMarch 2021 , each outstanding share of MCPS converted automatically into 0.9405 shares of common stock, or 2,703,911 common shares in total plus an immaterial amount of cash in lieu of fractional 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. We paid preferred stock dividends of$4.7 million and$18.7 million for Twelve Months 2021 and Twelve Months 2020, respectively. For additional information regarding the MCPS, see Note 20 to the Consolidated Financial Statements included elsewhere in this Report. 61 --------------------------------------------------------------------------------
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." Alternative asset portfolio asset allocations 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 do not include 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 that available from usual operating sources. In such instances, we have several options to raise needed funds, including selling assets from the subsidiaries' investment portfolios, using holding company cash (if available), issuing commercial paper, or drawing funds from the Credit Facility (as defined below).
Senior and Subordinated Notes
The following table shows the principal amount and carrying value of our
outstanding debt, less unamortized discount and issuance costs as applicable, as
of
December 31, 2021 December 31, 2020
Principal Amount Carrying Value Principal Amount Carrying Value
Floating Rate Senior Notes due March 2021 $ - $ - $ 50.0 $ 50.0
4.00% Senior Notes due March 2023 - - 350.0 348.9
4.20% Senior Notes due September 2023 300.0 299.0 300.0 298.4
4.90% Senior Notes due March 2028 300.0 297.5 300.0 297.2
3.70% Senior Notes due February 2030 350.0 347.3 350.0 347.0
2.65% Senior Notes due January 2032 350.0 346.4 - -
6.75% Senior Notes due February 2034 275.0 272.4 275.0 272.3
7.00% Fixed-to-Floating Rate Subordinated
Notes due March 2048 400.0 395.9 400.0 395.4
5.25% Subordinated Notes due January 2061 250.0 244.0 250.0 243.7
Total Debt $ 2,202.5 $ 2,252.9
In January 2021 , we repaid the remaining $50.0 million outstanding aggregate
principal amount of our floating rate senior notes due March 2021 . In June 2021 ,
we issued 2.65% senior notes due January 2032 with an aggregate principal amount
of $350.0 million (the "2032 Senior Notes"). We used the proceeds from the
issuance along with cash on hand, to redeem all of the $350.0 million
outstanding aggregate principal amount of our 4.00% senior notes due March 2023
and paid accrued interest, related premiums, fees and expenses in July 2021 .
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In the next five years, we have one upcoming debt maturity in September 2023
when our 4.20% senior notes with an outstanding aggregate principal of $300.0
million are due. For additional information, see Note 19 to the Consolidated
Financial Statements included elsewhere in this Report.
Credit Facility and Commercial Paper Program
InDecember 2021 , we entered into a$500.0 million five-year senior unsecured revolving credit facility (the "Credit Facility") with a syndicate of banks arranged byJPMorgan Chase Bank, N.A . andWells Fargo Bank, National Association . The Credit Facility replaced our prior five-year$450.0 million revolving credit facility, which terminated upon the effectiveness of the Credit Facility. 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 untilDecember 2026 , provided we are in compliance with all covenants. The Credit Facility has a sublimit for letters of credit issued thereunder of$50.0 million . The proceeds from these loans may be used for our commercial paper program or for general corporate purposes.
We made no borrowings using the Credit Facility or our prior five-year
were outstanding as of
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 byA.M. Best , P-3 by Moody's and A-2 by S&P. Our subsidiaries do not maintain commercial paper or other borrowing facilities. This program is currently backed up by the Credit Facility, of which$495.5 million was available as ofDecember 31, 2021 , and$4.5 million letters of credit were outstanding.
We did not use the commercial paper program during Twelve Months 2021 and there
were no amounts relating to the commercial paper program outstanding as of
Covenants
The Credit Facility contains restrictive covenants including:
(i)Maintenance of a maximum consolidated total debt to capitalization ratio on
the last day of any fiscal quarter of not greater than 0.35 to 1.0; and
(ii)Maintenance of a consolidated adjusted net worth in an amount not less than a "Minimum Amount" equal to the sum of (a)$4.20 billion , (b) 25% of consolidated net income (if positive) for each fiscal quarter ending afterDecember 31, 2021 and (c) 25% of the net cash proceeds received from any capital contribution to, or issuance of any capital stock, disqualified capital stock and hybrid securities.
In the event of a breach of certain covenants, all obligations under the Credit
Facility, including unpaid principal and accrued interest and outstanding
letters of credit, may become immediately due and payable.
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$7.2 million and$7.6 million of letters of credit outstanding as ofDecember 31, 2021 and 2020, respectively.
Cash Flows
We monitor cash flows at the consolidated, holding company and subsidiary
levels. Cash flow forecasts at the consolidated and subsidiary levels are
provided on a monthly basis, and we use trend and variance analyses to project
future cash needs making adjustments to the forecasts when needed.
The table below shows our recent net cash flows for the periods indicated:
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For the
Years Ended
2021 2020 2019
Net cash provided by (used in):
Operating activities - continuing operations $ 630.5 $ 1,114.3 $ 1,128.3
Operating activities - discontinued operations 151.2 227.7 285.1
Operating activities 781.7 1,342.0 1,413.4
Investing activities - continuing operations 302.8 (519.4) (336.9)
Investing activities - discontinued operations (145.2) (215.8) (282.9)
Investing activities 157.6 (735.2) (619.8)
Financing activities - continuing operations (1,089.8) (264.8) (179.2)
Financing activities - discontinued operations - - -
Financing activities (1,089.8) (264.8) (179.2)
Effect of exchange rate changes on cash and cash
equivalents - continuing operations (23.5) 19.4 (1.6)
Effect of exchange rate changes on cash and cash
equivalents - discontinued operations 0.2 0.1 0.3
Effect of exchange rate changes on cash and cash
equivalents (23.3) 19.5 (1.3)
Net change in cash $ (173.8) $ 361.5 $ 613.1
Cash Flows for the Years Ended
Operating Activities
We typically generate operating cash inflows from premiums collected from our insurance products, fees received for services and income received from our investments while outflows consist of policy acquisition costs, benefits paid and operating expenses. These net cash flows are then invested to support the obligations of our insurance products and required capital supporting these products. Our cash flows from operating activities are affected by the timing of premiums, fees, and investment income received and expenses paid. Net cash provided by operating activities from continuing operations was$630.5 million and$1.11 billion for Twelve Months 2021 and Twelve Months 2020, respectively. The decrease in net cash provided by operating activities was primarily due to the timing of certain cash payments and business activities from our Global Lifestyle segment. The primary factors contributing to the variance included timing of cumulative payments to a vendor related to various programs for acquiring mobile devices used to meet insurance claims or generate profits through sales to third parties and higher commission payments associated with fourth quarter 2020 premiums that were paid in first quarter 2021. The decrease was also due to the absence of a$204.9 million tax refund, including interest, related to the ability to carry back operating losses to prior periods under the CARES Act that was collected during Twelve Months 2020 and higher tax payments, net of refunds, primarily due to the gain on sale of the disposed Global Preneed business and an increase in taxable income for Twelve Months 2021. These decreases were partially offset by an increase in premiums collected in connection with the continued growth inGlobal Automotive . Net cash provided by operating activities from continuing operations was$1.11 billion and$1.13 billion for Twelve Months 2020 and Twelve Months 2019, respectively. The decrease in net cash provided by operating activities was primarily due to the timing of certain cash payments and business activities from our Global Lifestyle business. The primary factors contributing to the decrease included the absence of a prior year receipt of prepaid premiums inJapan given subsequent changes in payment terms under the program and the timing of cumulative payments to a vendor related to a program initiated in 2019 for acquiring mobile devices used to meet insurance claims or generate profits through sales to third parties. These decreases were partially offset by receipt of a$204.9 million tax refund, which includes interest, related to the ability to carryback net operating losses to prior periods under the CARES Act and higher collections of premium receivable balances mostly due to timing.
Investing Activities
Net cash provided by investing activities from continuing operations was$302.8 million for Twelve Months 2021 compared to net cash used in investing activities from continuing operations of$519.4 million for Twelve Months 2020, respectively. The increase in cash provided by investing activities was primarily driven by an increase in cash from sales and maturities, net of purchases, due to the ongoing management of our investment portfolio and a reduction in net cash used for acquisitions. Twelve Months 2021 included$1.27 billion of proceeds from the sale of the disposed Global Preneed business that were mostly reinvested within our investment portfolio. Twelve Months 2020 included$135.8 million of net cash used for 64 -------------------------------------------------------------------------------- the AFAS acquisition,$276.8 million of net cash used for the HYLA acquisition and$51.3 million of cash outflow, net of$22.0 million of proceeds from a foreign currency hedge, for the sale of our interests in Iké. Additionally, Twelve Months 2020 included a$34.0 million cash outflow to Iké Grupo for the Iké Loan that was repaid and reflected as a net cash inflow for Twelve Months 2021. These increases were partially offset by the absence of$197.1 million of net cash provided by consolidated investment entities and a$66.2 million increase in purchases of property and equipment mostly due to continued investments in information technology supporting our core operations. Net cash used in investing activities from continuing operations was$519.4 million and$336.9 million for Twelve Months 2020 and Twelve Months 2019, respectively. The increase in net cash used in investing activities was primarily due to$458.6 million of cash used for acquisitions, net of$135.5 million of cash acquired, partially offset by the timing of net purchases of securities in connection with collateralized loan obligations structures launched in 2019. For additional information, see Notes 3 and 4 to the Consolidated Financial Statements included elsewhere in this Report. The remaining changes were due to the ongoing management of our investment portfolio.
Financing Activities
Net cash used in financing activities from continuing operations was$1.09 billion and$264.8 million for Twelve Months 2021 and Twelve Months 2020, respectively. The increase in net cash used in financing activities was mainly due to a$542.3 million increase in share repurchases, a portion of which was funded using the proceeds from the Global Preneed sale, the issuance of the 5.25% subordinated notes dueJanuary 2061 with an aggregate principal amount of$250.0 million (the "2061 Subordinated Notes"), net of issuance costs, of$243.7 million in Twelve Months 2020, the$50.0 million repayment of our floating rate senior notes dueMarch 2021 in first quarter 2021 and the loss on extinguishment of debt related to the repayment of our 4.00% senior notes dueMarch 2023 . Net cash used in financing activities from continuing operations was$264.8 million and$179.2 million for Twelve Months 2020 and Twelve Months 2019, respectively. The increase in net cash used in financing activities was primarily due to$268.4 million of lower cash from our CIEs provided, net of repayments of borrowings to short-term warehouse facilities, primarily related to the timing of CLO structures launched in 2019. Also contributing was an increase in the repurchase of the Company's outstanding common stock for Twelve Months 2020. These were partially offset by the issuance of the 2061 Subordinated Notes, net of issuance costs, of$243.7 million in Twelve Months 2020 and a$31.4 million loss on extinguishment of debt in connection with the tender offer of$100.0 million of our 6.75% notes due 2034 recorded in Twelve Months 2019. For additional information, see Notes 9 and 19, respectively, to the Consolidated Financial Statements included elsewhere in this Report.
Discontinued operations
Changes in cash flows from the operating and investing activities from our discontinued operations for Twelve Months 2021 as compared to Twelve Months 2020 were lower mainly due to Twelve Months 2021 including only seven months of net cash flows since the sale closed onAugust 2, 2021 . Cash flows provided by operating activities from our discontinued operations for Twelve Months 2020 compared to Twelve Months 2019 were lower mainly due to higher mortality in Twelve Months 2020 and an increase in final need policy cancellations in the disposed Global Preneed business in Twelve Months 2020, partially due to COVID-19. Cash flows used in investing activities from discontinued operations for Twelve Months 2020 compared to Twelve Months 2019 were lower due to ongoing management of the investment portfolio. The table below shows our cash outflows for taxes, interest and dividends for the periods indicated: For the Years Ended December 31, 2021 2020 2019 Income taxes paid$ 221.1 $ 98.5 $ 93.1 Interest paid on debt 109.8 103.6 103.2 Common stock dividends 157.6 154.6 151.4 Preferred stock dividends 4.7 18.7 18.7 Total$ 493.2 $ 375.4 $ 366.4 65
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Contractual Obligations and Commitments
We have contractual obligations and commitments to third parties as a result of our operations, as detailed in the table below by maturity date as ofDecember 31, 2021 : As of December 31, 2021 Less than 1 1-3 3-5 More than 5 Total Year Years Years Years Contractual obligations: Insurance liabilities (1)$ 1,224.0 $ 862.4
Debt and related interest
4,017.0 109.2 502.7 193.2 3,211.9 Operating leases 69.4 17.4 24.4 11.5 16.1 Pension obligations and postretirement benefits (2) 538.1 71.4 114.9 105.3 246.5
Commitments:
Investment purchases outstanding: Commercial mortgage loans on real estate 14.1 14.1 Capital contributions to non-consolidated VIEs 38.8 38.8 Liability for unrecognized tax benefits 19.9 16.2 3.7
Total obligations and commitments
(1)Insurance liabilities reflect undiscounted estimated cash payments to be made to policyholders, net of expected future premium cash receipts on in-force policies and excluding fully reinsured runoff operations. The total gross reserve for fully reinsured runoff operations that was excluded was$625.7 million which, if the reinsurers defaulted, would be payable over a 30+ year period with the majority of the payments occurring after 5 years. Additional information on the reinsurance arrangements can be found in Note 18 to the Consolidated Financial Statements included elsewhere in this Report. As a result, the amounts presented in this table do not agree to the future policy benefits and expenses and claims and benefits payable in the consolidated balance sheets. (2)Our pension obligations and postretirement benefits include an Assurant Pension Plan, various non-qualified pension plans (including an Executive Pension Plan) and certain life and health care benefits for retired employees and their dependents ("Retirement Health Benefits"), all of which were frozen in 2016. InFebruary 2020 , we amended the Retirement Health Benefits to terminate such plan benefits to retirees effectiveDecember 31, 2024 . Due to the Assurant Pension Plan's current overfunded status, no contributions were made during 2021 and none are expected to be made in 2022. See Note 24 to the Consolidated Financial Statements included elsewhere in this Report for more information. Liabilities for future policy benefits and expenses have been included in the commitments and contingencies table. Significant uncertainties relating to these liabilities include mortality, morbidity, expenses, persistency, investment returns, inflation, contract terms and the timing of payments.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that are reasonably
likely to have a material effect on the financial condition, results of
operations, liquidity or capital resources of the Company.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to potential loss from various market risks, in particular
interest rate risk and credit risk. Additionally, we are exposed, to a lesser
extent, to foreign exchange risk.
Interest rate risk is the possibility that the fair value of liabilities will
change more or less than the market value of investments in response to changes
in interest rates, including changes in investment yields and changes in spreads
due to credit risks and other factors.
Credit risk is the possibility that counterparties may not be able to meet
payment obligations when they become due. We assume counterparty credit risk in
many forms. A counterparty is any person or entity from which cash or other
forms of consideration are expected to extinguish a liability or obligation to
us. We have exposure to credit risk primarily from customers, as a holder of
fixed maturity securities and by entering into reinsurance cessions.
Foreign exchange risk is the possibility that changes in exchange rates produce
an adverse effect on earnings and equity when measured in domestic currency.
This risk is largest when assets backing liabilities payable in one currency are
invested in
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financial instruments of another currency. Our general principle is to invest in
assets that match the currency in which we expect the liabilities to be paid.
Interest Rate Risk
Interest rate risk arises as we invest substantial funds in interest-sensitive fixed income assets, such as fixed maturity securities, mortgage-backed and asset-backed securities and commercial mortgage loans, primarily in theU.S. andCanada . There are two forms of interest rate risk - price risk and reinvestment risk. Price risk occurs when fluctuations in interest rates have a direct impact on the market valuation of these investments. As interest rates rise, the market value of these investments falls, and conversely, as interest rates fall, the market value of these investments rises. Reinvestment risk is primarily associated with the need to reinvest cash flows (primarily coupons and maturities) in an unfavorable lower interest rate environment. In addition, for securities with embedded options such as callable bonds, mortgage-backed securities and certain asset-backed securities, reinvestment risk occurs when fluctuations in interest rates have a direct impact on expected cash flows. As interest rates fall, an increase in prepayments on these assets results in earlier than expected receipt of cash flows, forcing us to reinvest the proceeds in an unfavorable lower interest rate environment. Conversely, as interest rates rise, a decrease in prepayments on these assets results in later than expected receipt of cash flows, forcing us to forgo reinvesting in a favorable higher interest rate environment.
We manage interest rate risk by selecting investments with characteristics such
as duration, yield, currency and liquidity tailored to the anticipated cash
outflow characteristics of our insurance and reinsurance liabilities.
The interest rate sensitivity relating to price risk of our fixed maturity securities investment portfolio is assessed using hypothetical scenarios that assume several positive and negative parallel shifts of the yield curves. We have assumed that theU.S. and Canadian yield curve shifts are equal in direction and magnitude. The individual securities are repriced under each scenario using a valuation model. For investments such as callable bonds and mortgage-backed and asset-backed securities, a prepayment model is used in conjunction with a valuation model. Our actual experience may differ from the results noted below particularly due to assumptions utilized or if events occur that were not included in the methodology. The following tables summarize the results of this analysis for bonds, mortgage-backed securities and asset-backed securities held in our investment portfolio as of the dates indicated: Interest Rate Movement Analysis of Market Value of Fixed Maturity Securities Investment Portfolio December 31, 2021 -100 bps -50 bps Base 50 bps 100 bps Total market value$ 7,597.1 $ 7,402.0 $ 7,215.3 $ 7,036.7 $ 6,865.7 % change in market value from base case 5.29 % 2.59 % - % (2.48) % (4.85) % $ change in market value from base case$ 381.8 $ 186.7 $ -$ (178.6) $ (349.6) December 31, 2020 -100 bps -50 bps Base 50 bps 100 bps Total market value$ 7,067.4 $ 6,905.8 $ 6,815.5 $ 6,601.4 $ 6,457.2 % change in market value from base case 3.70 % 1.32 % - % (3.14) % (5.26) % $ change in market value from base case$ 251.9 $ 90.3 $ -$ (214.1) $ (358.3) The interest rate sensitivity relating to reinvestment risk of our fixed maturity securities investment portfolio is assessed using hypothetical scenarios that assume purchases in the primary market and consider the effects of interest rates on sales. The effects of embedded options, including call or put features are not considered. Our actual results may differ from the results noted below particularly due to assumptions utilized or if events occur that were not included in the methodology. 67 --------------------------------------------------------------------------------
The following tables summarize the results of this analysis on our reported
portfolio yield as of the dates indicated:
Interest Rate
Movement Analysis
of Portfolio Yield of Fixed Maturity
Securities Investment Portfolio
December 31, 2021
-100 bps -50 bps Base 50 bps 100 bps
Portfolio yield 3.23 % 3.39 % 3.55 % 3.71 % 3.87 %
% change in portfolio yield (0.32) % (0.16) % - % 0.16 % 0.32 %
December 31, 2020
-100 bps -50 bps Base 50 bps 100 bps
Portfolio yield 3.51 % 3.63 % 3.76 % 3.89 % 4.01 %
% change in portfolio yield (0.25) % (0.13) % - % 0.13 % 0.25 %
Credit Risk
We have exposure to credit risk primarily from customers, as a holder of fixed
maturity securities and by entering into reinsurance cessions.
Our risk management strategy and investment policy is to invest in debt instruments of high credit quality issuers and to limit the amount of credit exposure with respect to any one issuer. We attempt to limit our credit exposure by imposing fixed maturity portfolio limits on individual issuers based upon credit quality. Currently our portfolio limits are 1.5% for issuers rated AA- and above, 1% for issuers rated A- to A+, 0.75% for issuers rated BBB- to BBB+, 0.38% for issuers rated BB- to BB+ and 0.25% for issuers rated B and below. These portfolio limits are further reduced for certain issuers with whom we have credit exposure on reinsurance agreements. For our portfolio limits, we use credit ratings from Moody's, S&P,Fitch Ratings, Inc. andDBRS, Inc. (collectively, the "NRSROs") to determine an issuer's rating. When three or more credit ratings are available for an issuer, the second lowest rating will be used. When two or fewer credit ratings are available for an issuer, the lower rating will be used.
The following table presents our fixed maturity securities investment portfolio
by ratings of the NRSROs as of the dates indicated:
December 31, 2021 December 31, 2020
Percentage of Percentage of
Rating Fair Value Total Fair Value Total
Aaa/Aa/A $ 4,066.5 56.4 % $ 4,051.3 59.5 %
Baa 2,719.0 37.7 % 2,288.1 33.6 %
Ba 333.7 4.6 % 384.4 5.6 %
B and lower 96.1 1.3 % 91.7 1.3 %
Total $ 7,215.3 100.0 % $ 6,815.5 100.0 %
We are also exposed to the credit risk of our reinsurers. When we purchase
reinsurance, we are still liable to our insureds regardless of whether we get
reimbursed by our reinsurer. As part of our overall risk and capacity management
strategy, we purchase reinsurance for certain risks underwritten by our various
business segments as described above under "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations - Critical Accounting
Estimates - Reinsurance."
We had $6.18 billion and $6.61 billion of reinsurance recoverables as of
December 31, 2021 and 2020, respectively, the majority of which are protected
from credit risk by various types of risk mitigation mechanisms such as trusts,
letters of credit or by withholding the assets in a modified coinsurance or
co-funds-withheld arrangement. For example, reserves of $410.2 million as of
December 31, 2021 relating to coinsurance arrangements with John Hancock related
to the sale of LTC that is backed by trusts. If the value of the assets in these
trusts falls below the value of the associated liabilities, John Hancock will be
required to put more assets in the trusts. We may be dependent on the financial
condition of John Hancock , whose A.M. Best financial strength rating is
currently A+, with a stable outlook.
As of December 31, 2021 , we had $817.4 million of reinsurance recoverables from
ERAC that are included in assets held for sale on our consolidated balance sheet
related to the agreement to sell JALIC. A.M. Best withdrew its rating for ERAC
in 2019 and there are currently no assets or other collateral backing reserves
relating to the reinsurance recoverable from ERAC. General Electric Company, the
ultimate parent of ERAC, has a capital maintenance agreement in place to
maintain ERAC's
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RBC ratios at an acceptable regulatory level, which has been maintained in
recent years through capital infusions into ERAC. For ERAC and other reinsurance
recoverables that are not protected by the risk mitigation mechanisms referenced
above, we are dependent on the creditworthiness of the reinsurer. See "Item 1A -
Risk Factors - Financial Risks - Reinsurance may not be adequate or available to
protect us against losses, and we are subject to the credit risk of reinsurers",
"Item 1A - Risk Factors - Financial Risks - Through reinsurance, we have sold or
exited businesses that could again become our direct financial and
administrative responsibility if the reinsurers become insolvent" and Note 18 to
the Consolidated Financial Statements included elsewhere in this Report.
Foreign Exchange Risk
We are exposed to foreign exchange risk arising from our international operations, mainly inCanada . We also have foreign exchange risk exposure to the British Pound, Brazilian Real, Euro, Mexican Peso and Argentine Peso. Total invested assets denominated in currencies other than the Canadian Dollar were approximately 5% and 6% of our total invested assets atDecember 31, 2021 and 2020, respectively.
Foreign exchange risk is mitigated by matching our liabilities under insurance
policies that are payable in foreign currencies with investments that are
denominated in such currencies.
The foreign exchange risk sensitivity of our fixed maturity securities denominated in Canadian Dollars, whose balance was$423.2 million and$466.5 million of the total market value as ofDecember 31, 2021 and 2020, respectively, on our entire fixed maturity securities portfolio is summarized in the following tables: Foreign Exchange Movement Analysis of Market Value of
December
31, 2021
Foreign exchange spot rate at December 31, 2021, US Dollar to Canadian Dollar -10% -5% 0 5% 10% Total market value$ 7,173.0
% change of market value from base case
(0.59) % (0.29) % - % 0.29 % 0.59 % $ change of market value from base case$ (42.3) $ (21.2) $ -$ 21.1 $ 42.3 December 31, 2020
Foreign exchange spot rate at
Dollar to Canadian Dollar
-10% -5% 0 5% 10% Total market value$ 6,768.9
% change of market value from base case
(0.68) % (0.34) % - % 0.34 % 0.68 % $ change of market value from base case$ (46.6)
The foreign exchange risk sensitivity of our consolidated net income from continuing operations is assessed using hypothetical test scenarios that assume earnings in Canadian Dollars are recognized evenly throughout a period. Our actual results may differ from the results noted below particularly due to assumptions utilized or if events occur that were not included in the methodology. For more information on this risk, see "Item 1A - Risk Factors - Financial Risks - Fluctuations in the exchange rate of theU.S. Dollar and other foreign currencies may materially and adversely affect our results of operations." The following tables summarize the results of this analysis on our reported net income from continuing operations for the periods indicated: 69 --------------------------------------------------------------------------------
Foreign Exchange Movement Analysis
of Net Income from Continuing Operations
Year Ended December 31, 2021
Foreign exchange daily average rate
for the year
ended December 31, 2021 , US Dollar
to Canadian
Dollar -10% -5% 0 5% 10%
Net income from continuing
operations $ 610.8 $ 612.2 $ 613.5 $ 614.8 $ 616.2
% change of net income from base
case (0.44) % (0.21) % - % 0.21 % 0.44 %
$ change of net income from base
case $ (2.7) $ (1.3) $ - $ 1.3 $ 2.7
Year Ended December 31, 2020
Foreign exchange daily average rate
for the year
ended December 31, 2020 , US Dollar
to Canadian
Dollar -10% -5% 0 5% 10%
Net income from continuing
operations $ 517.6 $ 519.0 $ 520.4 $ 521.8 $ 523.2
% change of net income from
base case (0.54) % (0.27) % - % 0.27 % 0.54 %
$ change of net income from
base case $ (2.8) $ (1.4) $ - $ 1.4 $ 2.8
Derivatives
Derivatives are financial instruments whose values are derived from interest
rates, foreign exchange rates, financial indices or the prices of securities or
commodities. Derivative financial instruments may be exchange-traded or
contracted in the over-the-counter market and include swaps, futures, options
and forward contracts.
Under insurance statutes, our insurance companies may use derivative financial
instruments to hedge actual or anticipated changes in their assets or
liabilities, to replicate cash market instruments or for certain
income-generating activities. These statutes generally prohibit the use of
derivatives for speculative purposes. We generally do not use derivative
financial instruments.
In accordance with the guidance on embedded derivatives, we have bifurcated the modified coinsurance agreement with Talcott Resolution into its debt host and embedded derivative (total return swap) and recorded the embedded derivative at fair value in the consolidated balance sheets. The invested assets related to this modified coinsurance agreement are included in other investments in the consolidated balance sheets.
For additional information on derivatives, see Notes 8 and 19 to the
Consolidated Financial Statements included elsewhere in this Report.
AMERISAFE Announces 2021 Fourth Quarter and Year-end Results
CENTENE CORP – 10-K – Management's Discussion and Analysis of Financial Condition and Results of Operations
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