ASSURANT, INC. – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations
(In millions, except number of shares and per share amounts) The following discussion and analysis of our financial condition and results of operations should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") and the annual audited consolidated financial statements for the year endedDecember 31, 2020 and accompanying notes included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 (the "2020 Annual Report") filed with theU.S. Securities and Exchange Commission (the "SEC") and the unaudited consolidated financial statements for the three and nine months endedSeptember 30, 2021 and accompanying notes (the "Consolidated Financial Statements") included elsewhere in this Quarterly Report on Form 10-Q (this "Report"). Some of the statements included in this MD&A and elsewhere in this Report, including our financial plans and any statements regarding our anticipated future financial performance, business prospects, growth and operating strategies and similar matters, are forward-looking statements within the meaning of theU.S. Private Securities Litigation Reform Act of 1995. You can identify these statements by the use of words such as "will," "may," "can," "anticipates," "expects," "estimates," "projects," "intends," "plans," "believes," "targets," "forecasts," "potential," "approximately," and the negative version of those words and other words and terms with a similar meaning. Any forward-looking statements contained in this Report are based upon our historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that our future plans, estimates or expectations will be achieved. Our actual results might differ materially from those projected in the forward-looking statements. We undertake no obligation to update or review any forward-looking statement, whether as a result of new information, future events or other developments. The following factors could cause our actual results to differ materially from those currently estimated by management: (i)the loss of significant clients, distributors or other parties with whom we do business, or if we are unable to renew contracts with them on favorable terms, or if those parties face financial, reputational or regulatory issues; (ii) significant competitive pressures, changes in customer preferences and disruption; (iii) the failure to implement our strategy and to attract and retain key personnel, including key executives and senior management; (iv) the failure to find suitable acquisitions at attractive prices, integrate acquired businesses effectively or grow organically; (v) our inability to recover should we experience a business continuity event; (vi) the failure to manage vendors and other third parties on whom we rely to conduct business and provide services to our clients; (vii) risks related to our international operations; (viii) declines in the value of mobile devices, the risk of guaranteed buybacks, or export compliance or other risks in our mobile business; (ix) our inability to develop and maintain distribution sources or attract and retain sales representatives and executives with key client relationships; (x) risks associated with joint ventures, franchises and investments in which we share ownership and management with third parties; (xi) negative publicity relating to our business or industry; (xii) the impact of general economic, financial market and political conditions and conditions in the markets in which we operate; (xiii) the impact of the COVID-19 pandemic and measures taken in response thereto; (xiv) the impact of catastrophic and non-catastrophe losses, including as a result of climate change; (xv) the adequacy of reserves established for claims and our inability to accurately predict and price for claims; (xvi) a decline in financial strength ratings of our insurance subsidiaries or in our corporate senior debt ratings; 38 -------------------------------------------------------------------------------- (xvii) fluctuations in exchange rates; (xviii) an impairment of goodwill or other intangible assets; (xix) the failure to maintain effective internal control over financial reporting; (xx) unfavorable conditions in the capital and credit markets; (xxi) a decrease in the value of our investment portfolio, including due to market, credit and liquidity risks, and changes in interest rates; (xxii) impairment of our deferred tax assets; (xxiii) the unavailability or inadequacy of reinsurance coverage and the credit risk of reinsurers, including those to whom we have sold business through reinsurance; (xxiv) the credit risk of some of our agents, third-party administrators and clients; (xxv) the inability of our subsidiaries to pay sufficient dividends to the holding company and limitations on our ability to declare and pay dividends or repurchase shares; (xxvi) the failure to effectively maintain and modernize our information technology systems and infrastructure, or the failure to integrate those of acquired businesses; (xxvii) breaches of our information systems or those of third parties with whom we do business, or the failure to protect the security of data in such systems, including due to cyber-attacks and as a result of working remotely; (xxviii) the costs of complying with, or the failure to comply with, extensive laws and regulations to which we are subject, including those related to privacy, data security, data protection or tax; (xxix) the impact of litigation and regulatory actions; (xxx) reductions or deferrals in the insurance premiums we charge; (xxxi) changes in insurance, tax and other regulation; (xxxii) volatility in our common stock price and trading volume; and (xxxiii) employee misconduct. For additional information on factors that could affect our actual results, please refer to "Critical Factors Affecting Results" below and in Item 7 of our 2020 Annual Report, and "Item 1A-Risk Factors" below and in our 2020 Annual Report. General Global Preneed Discontinued Operations InAugust 2021 , we completed the sale of the legal entities which comprise the businesses previously reported as the Global Preneed segment and certain businesses previously disposed of through reinsurance, which were previously reported in the Corporate and Other segment (collectively, the "disposed Global Preneed business") to subsidiaries ofCUNA Mutual Group ("CUNA") for total cash consideration of$1.25 billion , subject to certain purchase price adjustments at closing. For additional information, refer to Note 4 to the Consolidated Financial Statements included elsewhere in this Report. Prior to the sale, we had 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 will have 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 for all periods presented in the consolidated balance sheets. Transactions between the disposed Global Preneed business and businesses in our continuing operations are 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. 39 -------------------------------------------------------------------------------- Reportable Segments As ofSeptember 30, 2021 , the Company had three reportable segments which are defined based on the manner in which the Company's chief operating decision maker, our Chief Executive Officer ("CEO"), reviews the business to assess performance and allocate resources, and which align to the nature of the products and services offered: •Global Lifestyle: provides mobile device solutions and extended service products and related services for consumer electronics and appliances (referred to as "Connected Living"); vehicle protection and related services (referred to as "Global Automotive "); and credit and other insurance products (referred to as "Global Financial Services and Other"); •Global Housing: provides lender-placed homeowners insurance, lender-placed manufactured housing insurance and lender-placed flood insurance (referred to as "Lender-placed Insurance "); renters insurance and related products (referred to as "Multifamily Housing "); and voluntary manufactured housing insurance, voluntary homeowners insurance and other specialty products (referred to as "Specialty and Other"); and •Corporate and Other: includes activities of the holding company, financing and interest expenses, net realized gains (losses) on investments (which includes unrealized gains (losses) on equity securities and changes in fair value of direct investments in collateralized loan obligations), interest income earned from short-term investments held, income (expenses) primarily related to the Company's 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). The following discussion covers the three and nine months endedSeptember 30, 2021 ("Third Quarter 2021" and "Nine Months 2021") and the three and nine months endedSeptember 30, 2020 ("Third Quarter 2020" and "Nine Months 2020"). Executive Summary Summary of Financial Results Consolidated net income from continuing operations increased$65.6 million , or 75%, to$153.6 million for Third Quarter 2021 from$88.0 million for Third Quarter 2020, primarily driven by higher net realized gains on investments, including$58.9 million of after-tax unrealized gains from three equity positions that went public in Third Quarter 2021 and$18.2 million of after-tax unrealized gains from equity securities accounted for under the measurement alternative, and favorable earnings contributions from Global Lifestyle. This was partially offset by a$16.3 million loss on extinguishment of debt related to the repayment of our 4.00% senior notes dueMarch 2023 and a decrease in earnings contributions fromGlobal Housing mostly driven by anticipated higher non-catastrophe losses. Assurant incurred$78.0 million of after-tax reportable catastrophes in Third Quarter 2021, compared to$87.0 million in Third Quarter 2020. Hurricane Ida accounted for$87 million of total pre-tax losses, as the event reached the Company's$80 million pre-tax per-event retention. This also includes associated reinstatement premiums to restore the second layer of the Company's catastrophe reinsurance program. The remainder of losses were primarily related to the wildfires inCalifornia . Global Lifestyle segment net income increased$17.4 million , or 16%, to$124.0 million for Third Quarter 2021 from$106.6 million for Third Quarter 2020, primarily driven by growth acrossGlobal Automotive and Connected Living.Global Automotive's performance was primarily driven by global growth across distribution channels, includingAmerican Financial & Automotive Services, Inc. ("AFAS") contributions, and higher investment income. Higher earnings in Connected Living were led by mobile, mainly from subscriber growth inNorth America , higher contributions fromAsia Pacific and an increase in trade-in volumes, includingHYLA, Inc. ("HYLA") contributions. Global Lifestyle segment net income also included a modest one-time tax benefit in Third Quarter 2021. Global Lifestyle net earned premiums, fees and other income increased$158.0 million , or 9%, to$1.96 billion for Third Quarter 2021 from$1.81 billion for Third Quarter 2020, primarily due to fee income growth in Connected Living as a result of higher trade-in volume from increasing carrier promotions. Net earned premium growth from strong prior period sales inGlobal Automotive was also a driver.Global Housing segment net income decreased$9.9 million , or 76%, to$3.2 million for Third Quarter 2021 from$13.1 million for Third Quarter 2020. Excluding reportable catastrophes, segment net income decreased$18.9 million , or 19%, primarily due to higher non-catastrophe loss experience from an anticipated increase to more normalized levels, as well as an increase in reserves in Specialty and Other and higher claims costs. 40 --------------------------------------------------------------------------------Global Housing net earned premiums, fees and other income decreased$4.6 million , or 1%, to$486.7 million for Third Quarter 2021 from$491.3 million for Third Quarter 2020, primarily due to modest declines in Specialty andOther and Lender-placed Insurance , partially offset by growth inMultifamily Housing . InLender-placed Insurance , the catastrophe reinsurance reinstatement premium recorded in Third Quarter 2021 related to Hurricane Ida offset premium growth from higher average insured values and premium rates. Corporate and Other segment net income was$26.4 million for Third Quarter 2021 compared to a segment net loss of$31.7 million for Third Quarter 2020. The change in results was primarily due to higher net realized gains on investments, as described above, partially offset by a$16.3 million loss on extinguishment of debt related to the repayment of our 4.00% senior notes dueMarch 2023 . 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, and our ability to manage our expenses and achieve expense savings. Our results also depend on our ability to profitably grow our businesses, in particular our Connected Living,Multifamily Housing andGlobal Automotive businesses, and to 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, and competition, may have a material adverse effect on our results of operations or financial condition. For more information on these and other factors that could affect our results, see "Item 1A-Risk Factors" below and in our 2020 Annual Report, and "Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Factors Affecting Results" in our 2020 Annual Report. Our results may be impacted by our ability to continue to grow in the markets in which we operate and to maintain relationships with significant clients, distributors and other parties or renew contracts with them on favorable terms, including in our Connected Living,Multifamily Housing andGlobal Automotive businesses. 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 also be impacted by changes in the housing market. In addition, across many of our businesses, we must respond to the actions of our competitors and the threat of disruption. See "Item 1A-Risk Factors-Business, Strategic and Operational Risks-Our revenues and profits may decline if we are unable to maintain relationships with significant clients, distributors and other parties, or renew contracts with them on favorable terms, or if those parties face financial, reputational or regulatory issues" and "Significant competitive pressures, changes in customer preferences and disruption could adversely affect our results of operations" in our 2020 Annual Report. 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. For Nine Months 2021, net cash provided by operating activities from continuing operations was$375.8 million ; net cash provided by investing activities from continuing operations was$181.9 million ; and net cash used in financing activities from continuing operations was$757.4 million . We had$2.03 billion in cash and cash equivalents as ofSeptember 30, 2021 as compared to$2.21 billion as ofDecember 31, 2020 . See "-Liquidity and Capital Resources," below for further details. Critical Accounting Policies and Estimates Our 2020 Annual Report describes the accounting policies and estimates that are critical to the understanding of our results of operations, financial condition and liquidity. The accounting policies and estimation process described in the 2020 Annual Report were consistently applied to the unaudited interim Consolidated Financial Statements for Third Quarter 2021. Recent Accounting Pronouncements For a discussion of recent accounting pronouncements, see Note 3 to the Consolidated Financial Statements included elsewhere in this Report. 41 -------------------------------------------------------------------------------- Results of Operations Assurant Consolidated Overview The table below presents information regarding our consolidated results of operations for the periods indicated: For the Three Months Ended For the Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Revenues: Net earned premiums$ 2,140.1 $ 2,086.8 $ 6,396.3 $ 6,173.6 Fees and other income 309.6 209.4 858.0 829.4 Net investment income 76.0 63.3 235.2 212.3 Net realized gains (losses) on investments 112.1 17.2 123.2 (37.9) Total revenues 2,637.8 2,376.7 7,612.7 7,177.4 Benefits, losses and expenses: Policyholder benefits 614.2 638.5 1,681.2 1,697.3
Amortization of deferred acquisition costs and value of
business acquired
965.6 927.3 2,903.7 2,689.6 Underwriting, general and administrative expenses 818.3 672.9 2,301.2 2,290.9 Interest expense 27.5 25.5 84.7 77.7 Loss on extinguishment of debt 20.7 - 20.7 - Total benefits, losses and expenses 2,446.3 2,264.2 6,991.5 6,755.5 Income before provision for income taxes 191.5 112.5 621.2 421.9 Provision for income taxes 37.9 24.5 134.4 20.6 Net income from continuing operations 153.6 88.0 486.8 401.3 Net income (loss) from discontinued operations 728.8 (118.5) 762.0 (97.6) Net income (loss) 882.4 (30.5) 1,248.8 303.7
Less: Net loss (income) attributable to non-controlling
interest
- 0.3 - (1.1) Net income (loss) attributable to stockholders 882.4 (30.2) 1,248.8 302.6 Less: Preferred stock dividends - (4.7) (4.7) (14.0)
Net income (loss) attributable to common stockholders
For the Three Months EndedSeptember 30, 2021 Compared to the Three Months EndedSeptember 30, 2020 Net Income from Continuing Operations Consolidated net income from continuing operations increased$65.6 million , or 75%, to$153.6 million for Third Quarter 2021 from$88.0 million for Third Quarter 2020, primarily due to higher net realized gains on investments that included$58.9 million of after-tax unrealized gains from three equity positions that went public in Third Quarter 2021 and$18.2 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 driven by growth acrossGlobal Automotive and Connected Living. These increases were partially offset by a$16.3 million after-tax loss on extinguishment of debt related to the repayment of our 4.00% senior notes dueMarch 2023 and a decrease in earnings contributions fromGlobal Housing mostly driven by anticipated higher non-catastrophe losses. For the Nine Months EndedSeptember 30, 2021 Compared to the Nine Months EndedSeptember 30, 2020 Net Income from Continuing Operations Consolidated net income from continuing operations increased$85.5 million , or 21%, to$486.8 million for Nine Months 2021 from$401.3 million for Nine Months 2020, primarily due to higher net realized gains on investments that included$58.9 million of after-tax unrealized gains from three equity positions that went public in Third Quarter 2021 and the absence of$25.5 million of after-tax net unrealized losses on collateralized loan obligations from Nine Months 2020. The increase was 42 -------------------------------------------------------------------------------- also due to favorable earnings contributions from Global Lifestyle, mainly due to continued organic growth inGlobal Automotive . These increases were partially offset by the absence of an$84.4 million tax benefit that was recorded in Nine Months 2020 related to the utilization of net operating losses in connection with the 2020 Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). 43
-------------------------------------------------------------------------------- Global Lifestyle Overview The table below presents information regarding the Global Lifestyle segment's results of operations for the periods indicated: For the Three Months Ended For the Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Revenues: Net earned premiums$ 1,688.5 $ 1,633.2 $ 5,014.6 $ 4,799.0 Fees and other income 274.5 171.8 748.5 721.6 Net investment income 48.5 44.6 148.7 143.5 Total revenues 2,011.5 1,849.6 5,911.8 5,664.1 Benefits, losses and expenses: Policyholder benefits 335.1 365.4 1,007.3 1,044.7
Amortization of deferred acquisition costs and value of
business acquired
910.0 870.5 2,731.8 2,519.7 Underwriting, general and administrative expenses 614.6 480.8 1,690.0 1,649.4 Total benefits, losses and expenses 1,859.7 1,716.7 5,429.1 5,213.8 Segment income before provision for income taxes 151.8 132.9 482.7 450.3 Provision for income taxes 27.8 26.3 105.8 101.0 Segment net income$ 124.0
Net earned premiums, fees and other income:
Connected Living (mobile and service contracts)
867.1 802.5 2,535.1 2,311.0 Global Financial Services and Other 99.4 93.0 295.2 295.2 Total$ 1,963.0 $ 1,805.0 $ 5,763.1 $ 5,520.6 Net earned premiums, fees and other income: Domestic$ 1,502.1 $ 1,335.4 $ 4,347.4 $ 4,080.2 International 460.9 469.6 1,415.7 1,440.4 Total$ 1,963.0 $ 1,805.0 $ 5,763.1 $ 5,520.6 For the Three Months EndedSeptember 30, 2021 Compared to the Three Months EndedSeptember 30, 2020 Net Income Segment net income increased$17.4 million , or 16%, to$124.0 million for Third Quarter 2021 from$106.6 million for Third Quarter 2020, primarily driven byGlobal Automotive , mainly from global organic growth across distribution channels, higher investment income and lower loss experience in select ancillary products, and Connected Living, mainly due to mobile increases from subscriber growth inNorth America , higher contributions fromAsia Pacific and higher trade-in volumes, including contributions from HYLA. Global Lifestyle also included a modest one-time tax benefit in Third Quarter 2021. Total Revenues Total revenues increased$161.9 million , or 9%, to$2.01 billion for Third Quarter 2021 from$1.85 billion for Third Quarter 2020. Fees and other income increased$102.7 million , or 60%, mainly driven by higher mobile trade-in volumes from HYLA contributions and increasing carrier promotions. Net earned premiums increased$55.3 million , or 3%, primarily driven by continued growth from strong sales in ourGlobal Automotive business. This increase was partially offset by a modest decline in Connected Living, due to the run-off of certain global mobile programs; the Connected Living decline was partially offset by organic growth in existing mobile programs and extended service contract programs. Net investment income increased$3.9 million , or 9%, primarily due to higher income from real estate related investments and other limited partnerships. Total Benefits, Losses and Expenses 44 -------------------------------------------------------------------------------- Total benefits, losses and expenses increased$143.0 million , or 8%, to$1.86 billion for Third Quarter 2021 from$1.72 billion for Third Quarter 2020. The increase was primarily due to a$133.8 million , or 28%, increase in underwriting, general and administrative expenses, mainly due to higher expenses due to higher mobile trade-in volumes, including contributions from HYLA, and continued growth inGlobal Automotive . Amortization of deferred acquisition costs ("DAC") and value of business acquired ("VOBA") increased$39.5 million , or 5%, mainly due to an increase in amortization of DAC due to growth in ourGlobal Automotive business, partially offset by a decrease in amortization of VOBA related to the acquisition ofTWG Holdings Limited and its subsidiaries ("TWG"). The increase in total benefits, losses and expenses was partially offset by a$30.3 million , or 8%, decrease in policyholder benefits, mainly due to the run-off of certain global mobile programs, improved performance inAsia Pacific and favorable claims experience in ourGlobal Automotive business. For the Nine Months EndedSeptember 30, 2021 Compared to the Nine Months EndedSeptember 30, 2020 Net Income Segment net income increased$27.6 million , or 8%, to$376.9 million for Nine Months 2021 from$349.3 million for Nine Months 2020, primarily driven byGlobal Automotive from organic growth, higher investment income and lower claims activity in select ancillary products.Global Financial Services and Other also contributed to the increase, mainly due to claims and sales recoveries as Nine Months 2020 included unfavorable impacts related to COVID-19. Connected Living results were relatively flat as declines in extended service contract programs, which included a$6.7 million after-tax benefit for a client recoverable in Nine Months 2020, were mostly offset by growth in mobile, including contributions from HYLA and better performance inAsia Pacific . Total Revenues Total revenues increased$247.7 million , or 4%, to$5.91 billion for Nine Months 2021 from$5.66 billion for Nine Months 2020. Net earned premiums increased$215.6 million , or 4%, primarily driven by continued growth from strong sales in ourGlobal Automotive business as well as a modest increase in Connected Living, driven by organic growth in extended service contract programs and domestic mobile subscriber growth within our cable operator distribution channel, partially offset by the run-off of certain global mobile programs. Fees and other income increased$26.9 million , or 4%, mainly from growth inGlobal Automotive and Connected Living, driven by recent acquisitions and increasing mobile carrier promotions, partially offset by the previously disclosed mobile program contract change. Net investment income increased$5.2 million , or 4%, primarily due to higher income from real estate related investments. Total Benefits, Losses and Expenses Total benefits, losses and expenses increased$215.3 million , or 4%, to$5.43 billion for Nine Months 2021 from$5.21 billion for Nine Months 2020. The increase was primarily due to a$212.1 million , or 8%, increase in amortization of DAC and VOBA, mainly related to an increase in amortization of DAC due to growth in ourGlobal Automotive business, partially offset by a decrease in amortization of VOBA related to the acquisition of TWG. Underwriting, general and administrative expenses increased$40.6 million , or 2%, primarily due to growth across the businesses, including higher mobile trade-in volumes from HYLA, partially offset by the impact of a previously disclosed mobile contract change. The increase in total benefits, losses and expenses was partially offset by a$37.4 million , or 4%, decrease in policyholder benefits, primarily due to improved claims experience in ourGlobal Financial Services and Other andGlobal Automotive businesses, as well as run-off of certain global mobile programs and better performance inAsia Pacific . The decrease in policyholder benefits was partially offset by growth in ourGlobal Automotive and Connected Living businesses and unfavorable foreign exchange. 45 --------------------------------------------------------------------------------Global Housing Overview The table below presents information regarding theGlobal Housing segment's results of operations for the periods indicated: For the Three Months Ended For the Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Revenues: Net earned premiums$ 451.6 $ 453.6 $ 1,381.7 $ 1,374.6 Fees and other income 35.1 37.7 109.1 106.0 Net investment income 20.2 16.5 63.3 54.9 Total revenues 506.9 507.8 1,554.1 1,535.5 Benefits, losses and expenses: Policyholder benefits 279.1 272.8 673.9 651.9
Amortization of deferred acquisition costs and value of
business acquired
55.6 56.8 171.9 169.9 Underwriting, general and administrative expenses 169.5 162.2 501.3 496.6 Total benefits, losses and expenses 504.2 491.8 1,347.1 1,318.4
Segment income before (benefit) provision for income
taxes
2.7 16.0 207.0 217.1 (Benefit) provision for income taxes (0.5) 2.9 42.7 44.4 Segment net income$ 3.2 $ 13.1 $ 164.3 $ 172.7 Net earned premiums, fees and other income: Lender-placed Insurance$ 256.2 $ 258.2 $ 790.9 $ 787.5 Multifamily Housing 121.7 117.9 361.1 338.1 Specialty and Other 108.8 115.2 338.8 355.0 Total$ 486.7 $ 491.3 $ 1,490.8 $ 1,480.6 For the Three Months EndedSeptember 30, 2021 Compared to the Three Months EndedSeptember 30, 2020 Net Income Segment net income decreased$9.9 million , or 76%, to$3.2 million for Third Quarter 2021 from$13.1 million for Third Quarter 2020. Segment net income for Third Quarter 2021 included$78.0 million of reportable catastrophes, primarily related to Hurricane Ida, compared to$87.0 million for Third Quarter 2020. Excluding reportable catastrophes, segment net income decreased$18.9 million , or 19%, driven by higher non-catastrophe loss experience from an anticipated increase to more normalized levels than experienced in Third Quarter 2020, primarily in ourLender-placed Insurance business, an increase in reserves within Specialty and Other products and higher claims costs. Total Revenues Total revenues decreased$0.9 million , or 0.2%, to$506.9 million for Third Quarter 2021 from$507.8 million for Third Quarter 2020. Net earned premiums decreased$2.0 million , or 0.4%, primarily due to higher reinsurance reinstatement premiums related to Hurricane Ida, a modest decline in Specialty and Other and lower REO volume withinLender-placed Insurance . This decrease was partially offset by higher average insured value and premium rate increases in ourLender-placed Insurance business and continued growth from renters insurance in ourMultifamily Housing business. Fees and other income decreased$2.6 million , or 7%, primarily due to a decrease in ourLender-placed Insurance business from a loss of a client. Net investment income increased$3.7 million , or 22%, primarily due to higher income from real estate related investments. Total Benefits, Losses and Expenses Total benefits, losses and expenses increased$12.4 million , or 3%, to$504.2 million for Third Quarter 2021 from$491.8 million for Third Quarter 2020. The increase was primarily due to underwriting, general and administrative expenses, which increased$7.3 million , or 5%, mainly due to higher information technology expenses. Policyholder benefits increased$6.3 million , or 2%, primarily from higher non-catastrophe loss experience, partially offset by lower reportable catastrophe losses. 46 -------------------------------------------------------------------------------- For the Nine Months EndedSeptember 30, 2021 Compared to the Nine Months EndedSeptember 30, 2020 Net Income Segment net income decreased$8.4 million , or 5%, to$164.3 million for Nine Months 2021 compared to$172.7 million for Nine Months 2020. Segment net income for Nine Months 2021 included$112.9 million of reportable catastrophes, primarily related to Hurricane Ida and theTexas winter storms, compared to$109.9 million for Nine Months 2020. Excluding reportable catastrophes, segment net income decreased$5.4 million , or 2%, driven by higher non-catastrophe loss experience from an anticipated increase to more normalized levels than experienced in Nine Months 2020, primarily in ourLender-placed Insurance business, an increase in reserves within Specialty and Other products and moderate impact from higher claims activity, as well as lower REO volumes related to COVID-19 foreclosure moratoriums. These decreases were partially offset by premium rate and average insured value increases in ourLender-placed Insurance business and higher income from real estate related investments. Total Revenues Total revenues increased$18.6 million , or 1%, to$1.55 billion for Nine Months 2021 from$1.54 billion for Nine Months 2020. Net investment income increased$8.4 million , or 15%, primarily due to higher income from real estate related investments. Net earned premiums increased$7.1 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. This increase was partially offset by lower REO volume, a decline in Specialty and Other and higher reinsurance reinstatement premium primarily related to Hurricane Ida. Fees and other income increased$3.1 million , or 3%, primarily due to growth inMultifamily Housing . Total Benefits, Losses and Expenses Total benefits, losses and expenses increased$28.7 million , or 2%, to$1.35 billion for Nine Months 2021 from$1.32 billion for Nine Months 2020. The increase was primarily due to an increase in policyholder benefits of$22.0 million , or 3%, from higher non-catastrophe losses across various products, as well as an increase in reserves within Specialty and Other products, partially offset by a small decrease in reportable catastrophe losses. Underwriting, general and administrative expenses increased$4.7 million , or 1%, primarily due to higher information technology expenses. 47 -------------------------------------------------------------------------------- Corporate and Other Overview The tables below present information regarding the Corporate and Other's segment results of operations for the periods indicated: For the Three Months Ended For the Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Revenues: Fees and other income $ -$ (0.1) $ 0.4 $ 1.8 Net investment income 7.3 2.2 23.2 13.9 Net realized gains (losses) on investments 112.1 17.2 123.2 (37.9) Total revenues 119.4 19.3 146.8 (22.2) Benefits, losses and expenses: Policyholder benefits - 0.3 - 0.7 General and administrative expenses 34.2 29.9 109.9 144.9 Interest expense 27.5 25.5 84.7 77.7 Loss on extinguishment of debt 20.7 - 20.7 - Total benefits, losses and expenses 82.4 55.7 215.3 223.3
Segment income (loss) before expense (benefit) for
income taxes
37.0 (36.4) (68.5) (245.5) Expense (benefit) for income taxes 10.6 (4.7) (14.1) (124.8) Segment net income (loss) from continuing operations$ 26.4 $
(31.7)
For the Three Months EndedSeptember 30, 2021 Compared to the Three Months EndedSeptember 30, 2020 Net Income (Loss) from Continuing Operations Segment net income from continuing operations was$26.4 million for Third Quarter 2021 compared to a segment net loss from continuing operations of$31.7 million for Third Quarter 2020. The change in results was primarily due to higher net realized gains on investments that included$58.9 million of after-tax unrealized gains from three equity positions that went public in Third Quarter 2021 and$18.2 million of after-tax unrealized gains from equity securities accounted for under the measurement alternative. The increase was partially offset by the$16.3 million after-tax loss on extinguishment of debt related to the repayment of our 4.00% senior notes dueMarch 2023 . Total Revenues Total revenues increased$100.1 million to$119.4 million for Third Quarter 2021 from$19.3 million for Third Quarter 2020, primarily due to higher net realized gains on investments that included$74.6 million of unrealized gains from three equity positions that went public in Third Quarter 2021 and$23.0 million of unrealized gains from equity securities accounted for under the measurement alternative. Total Benefits, Losses and Expenses Total benefits, losses and expenses increased$26.7 million , or 48%, to$82.4 million for Third Quarter 2021 from$55.7 million for Third Quarter 2020. The increase was primarily driven by$20.7 million loss on extinguishment of debt and the absence of the$11.5 million income from the sale of our CLO asset management platform in Third Quarter 2020, net of certain exit costs. The increase was partially offset by$6.6 million of lower general operating expenses, mostly driven by lower employee-related and third-party expenses as well as expense savings from real estate. For the Nine Months EndedSeptember 30, 2021 Compared to the Nine Months EndedSeptember 30, 2020 Net Loss from Continuing Operations Segment net loss from continuing operations decreased$66.3 million , or 55%, to$54.4 million for Nine Months 2021 from$120.7 million for Nine Months 2020. The decrease in net loss was primarily due to a$128.3 million after-tax increase in net realized gains on investments that included$58.9 million of after-tax unrealized gains from three equity positions that went public in Third Quarter 2021,$18.2 million of after-tax unrealized gains from equity securities accounted for under the 48 -------------------------------------------------------------------------------- measurement alternative and the absence of$25.5 million of after-tax net unrealized losses on collateralized loan obligations from Nine Months 2020. The decrease was also driven by a$13.3 million after-tax decrease in general operating expenses mostly due to a reduction in employee related incentive compensation, lower third-party fees for general corporate services and expense savings on real estate. The decrease in net loss was also driven by an$11.2 million decrease in after-tax direct and incremental operating expenses incurred in connection with the COVID-19 pandemic and the absence of a$9.3 million after-tax loss from the sale of Iké from Nine Months 2020. 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 Nine Months 2020 and the$16.3 million after-tax loss on extinguishment of debt. Total Revenues Total revenues increased$169.0 million to$146.8 million for Nine Months 2021 from$(22.2) million for Nine Months 2020, primarily due to higher net realized gains on investments that included$74.6 million of net unrealized gains from three equity positions that went public in Third Quarter 2021, a$23.0 million increase in unrealized gains from equity securities accounted for under the measurement alternative and the absence of$32.3 million of net unrealized losses on collateralized loan obligations from Nine Months 2020. The increase is also due to higher net investment income mostly driven by higher income from limited partnerships and a gain from the sale of a real estate joint venture property. Total Benefits, Losses and Expenses Total benefits, losses and expenses decreased$8.0 million , or 4% to$215.3 million for Nine Months 2021 from$223.3 million for Nine Months 2020. The decrease was primarily driven by$16.8 million of lower general operating expenses mostly due to a reduction in employee related incentive compensation, lower third-party fees for general corporate services and expense savings on real estate, and$14.3 million of lower direct and incremental operating expenses incurred in connection with the COVID-19 pandemic. These items were partially offset by the$20.7 million loss on extinguishment and the absence of the$10.1 million income from the sale of our CLO asset management platform, net of certain exit costs. 49 -------------------------------------------------------------------------------- Discontinued Operations Overview The table below presents information regarding the results of the discontinued operations for the periods indicated: For the Three Months Ended For the Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Revenues: Net earned premiums$ 6.1 $ 16.0 $ 42.6 $ 49.4 Fees and other income 13.6 38.6 91.0 113.6 Net investment income 23.7 71.8 168.4 216.0 Net realized gains (losses) on investments 0.5 (0.6) 4.2 (16.7) Gain on disposal of businesses 926.4 - 920.1 - Total revenues 970.3 125.8 1,226.3 362.3 Benefits, losses and expenses: Policyholder benefits 24.6 71.1 172.7 211.6
Amortization of deferred acquisition costs and value of
business acquired
7.1 18.9 46.2 56.1 Underwriting, general and administrative expenses 5.7 14.6 39.0 46.8 Goodwill impairment - 137.8 - 137.8 Total benefits, losses and expenses 37.4 242.4 257.9 452.3 Income (loss) before provision for income taxes 932.9 (116.6) 968.4 (90.0) Provision for income taxes 204.1 1.9 206.4 7.6
Net income (loss) from discontinued operations
For the Three Months EndedSeptember 30, 2021 Compared to the Three Months EndedSeptember 30, 2020 Net Income (Loss) from Discontinued Operations Net income from discontinued operations was$728.8 million for Third Quarter 2021 compared to a net loss from discontinued operations of$118.5 million for Third Quarter 2020. The change in results was primarily due to a$723.2 million after-tax gain from the sale of our Global Preneed business. The gain is inclusive of$606.0 million in after-tax accumulated other comprehensive income ("AOCI"), primarily net unrealized gains on investments, that was recognized in earnings upon sale. The increase was also due to the absence of a$137.8 million goodwill impairment on Global Preneed from Third Quarter 2020 that was partially offset by lower operating results from the Global Preneed business since Third Quarter 2021 only included one month of results since the sale closed onAugust 2, 2021 . Total Revenues Total revenues increased$844.5 million to$970.3 million for Third Quarter 2021 from$125.8 million for Third Quarter 2020, primarily due to the gain on the sale of our 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$48.1 million , or 67%, decrease in net investment income, a$25.0 million , or 65%, decrease in fees and other income and a$9.9 million , or 62%, decrease in net earned premiums, primarily because Third Quarter 2021 only included one month of revenue. Total Benefits, Losses and Expenses Total benefits, losses and expenses decreased$205.0 million , or 85%, to$37.4 million for Third Quarter 2021 from$242.4 million for Third Quarter 2020, primarily driven by the absence of the goodwill impairment which was recorded in Third Quarter 2020. The decrease in total benefits, losses and expenses was also due to a$46.5 million , or 65%, decrease in policyholder benefits, an$11.8 million , or 62%, decrease in amortization of DAC and VOBA and an$8.9 million , or 61%, decrease in underwriting, general and administrative expenses, primarily because Third Quarter 2021 only included one month of benefits, losses and expenses. 50 -------------------------------------------------------------------------------- For the Nine Months EndedSeptember 30, 2021 Compared to the Nine Months EndedSeptember 30, 2020 Net Income (Loss) from Discontinued Operations Net income from discontinued operations was$762.0 million for Nine Months 2021 compared to a net loss from discontinued operations of$97.6 million for Nine Months 2020. The change in results was primarily due to the aforementioned gain on the sale of the disposed Global Preneed business in Nine Months 2021 and the goodwill impairment in Nine Months 2020, as well as a reduction in net realized losses on investments. These items were partially offset by lower operating results for the Global Preneed business as Nine Months 2021 only included seven months of results since the sale closed onAugust 2, 2021 . Total Revenues Total revenues increased$864.0 million to$1.23 billion for Nine Months 2021 from$362.3 million for Nine Months 2020, primarily due to the gain on the sale of the disposed Global Preneed business and a reduction in net realized losses on investments mostly due to the absence of net unrealized losses on collateralized loan obligations and equity securities from Nine Months 2020. The increase in total revenues was partially offset by a$47.6 million , or 22%, decrease in net investment income, a$22.6 million , or 20%, decrease in fees and other income and a$6.8 million , or 14%, decrease in net earned premiums, primarily because Nine Months 2021 only included seven months of revenues. Total Benefits, Losses and Expenses Total benefits, losses and expenses decreased$194.4 million , or 43%, to$257.9 million for Nine Months 2021 from$452.3 million for Nine Months 2020, primarily driven by the absence of the goodwill impairment which was recorded in Nine Months 2020. The decrease in total benefits, losses and expenses was also due to a$38.9 million , or 18%, decrease in policyholder benefits, a$9.9 million , or 18%, decrease in amortization of DAC and VOBA and a$7.8 million , or 17%, decrease in underwriting, general and administrative expenses, primarily because Nine Months 2021 only included seven months of benefits, losses and expenses. 51
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Investments
We had total investments of$9.20 billion and$8.22 billion as ofSeptember 30, 2021 andDecember 31, 2020 , respectively. Net unrealized gains on our fixed maturity securities portfolio decreased by$191.9 million during Nine Months 2021, from$570.9 million as ofDecember 31, 2020 to$379.0 million as ofSeptember 30, 2021 , primarily due to an increase inTreasury yields. The following table shows the credit quality of our fixed maturity securities portfolio as of the dates indicated: Fair value as of Fixed Maturity Securities by Credit Quality September 30, 2021 December 31, 2020 Aaa / Aa / A$ 4,394.0 57.4 %$ 4,051.3 59.5 % Baa 2,769.5 36.2 % 2,288.1 33.6 % Ba 341.7 4.5 % 384.4 5.6 % B and lower 145.1 1.9 % 91.7 1.3 % Total$ 7,650.3 100.0 %$ 6,815.5 100.0 %
The following table shows the major categories of net investment income for the
periods indicated:
BERKLEY W R CORP – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations
PRUDENTIAL FINANCIAL INC – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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