UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
| ☒ | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | ||||
For the fiscal year ended December 31, 20192022
OR
| ☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | ||||
For the transition period from to .
Commission file number 001-31978
Assurant, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 39-1126612 | ||||||||||
| (State or other jurisdiction of incorporation) | (I.R.S. Employer Identification No.) | ||||||||||
(770) 763-1000
(Address, including zip code, and telephone number, including area code, of Registrant’s Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||||||
| Common Stock, $0.01 Par Value | AIZ | |||||||
New York Stock Exchange | ||||||||
| 5.25% Subordinated Notes due 2061 | AIZN | New York Stock Exchange | ||||||
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated filer | ☐ | |||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||||||||
| Emerging growth company | ☐ | |||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☒ No ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of these error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No x☒
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $6.47$9.17 billion as of the last business day of the fiscal quarter ended June 30, 20192022 based on the closing sale price of $106.38$172.85 per share for the common stock on such date as traded on the New York Stock Exchange.
The number of shares of the registrant’s common stock outstanding at February 14, 202010, 2023 was 59,823,754.52,919,741.
Documents Incorporated by Reference
Certain information contained in the definitive proxy statement for the registrant’s 20202022 annual meeting of stockholders, which will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates, is incorporated by reference into Part III hereof.
ASSURANT, INC.
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 20192022
TABLE OF CONTENTS
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Unless otherwise stated, all amounts are presented in United States of America (“U.S.”) Dollars and all amounts are in millions, except for number of shares, per share amounts, registered holders, number of employees, beneficial owners, number of securities in an unrealized loss position and number of loans.
FORWARD-LOOKING STATEMENTS
Some statements in “Item 1 – Business” and “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Annual Report on Form 10-K for the fiscal year ended December 31, 20192022 (this “Report”), particularly those anticipatingincluding our business and financial plans and any statements regarding our anticipated future financial performance, business prospects, growth and operating strategies and similar matters, aremay constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these statements by the use of words such as “will,” “may,” “can,” “anticipates,” “expects,” “estimates,” “projects,” “intends,” “plans,” “believes,” “targets,” “forecasts,” “potential,” “approximately,” and the negative versions 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. For a discussion of the risk factors that could affect our actual results, see “Item 1A – Risk Factors” and “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Factors Affecting Results.”
PART I
Unless the context otherwise requires, references to the terms “Assurant,” the “Company,” “we,” “us” and “our” refer to Assurant, Inc.’s consolidated operations.
Item 1. Business
Assurant, Inc. was incorporated as a Delaware corporation in 2004.
We are a leading global provider of lifestylebusiness services company that supports, protects and housing solutions that support, protect and connectconnects major consumer purchases. We partnersupport the advancement of the connected world by partnering with the world’s leading brands to develop innovative products and servicessolutions and to deliver an enhanced customer experience. We operate in North America, Latin America, Europe and Asia Pacific through threetwo operating segments: Global Lifestyle Global Housing and Global Preneed.Housing. Through our Global Lifestyle segment, we provide 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 “Connected Living”); and vehicle protection, leased and financed solutions and other related services (referred to as “Global Financial Services and Other”Automotive”). Through our Global Housing segment, we provide 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”). ThroughEffective January 1, 2023, we realigned the composition of our Global Preneed segment, we provide pre-funded funeral insurance, final need insurance and related services.reportable segments. See “—Segments” below for additional information.
Our Competitive Strengths
Our financial strength and core capabilities across our businesses create competitive advantages that we believe allow us to support our clients, deliver superior experience for their customers and drive sustainable profitable growth over the long term.
Our financial strength. We believe we have a strong balance sheet and operating cash flows. As of December 31, 2019,2022, we had $44.29$33.12 billion in total assets and our debt to total capital was 26.2%33.5%. In addition, ourOur Global Lifestyle Global Housing and Global PreneedHousing segments generate significant operating cash flows, which provides us with the flexibility to make investments to strengthen our strategic capabilities and enter into and growenhance our partnerships with our clients.
Insights and capabilities enable innovation to meet evolving consumer needs. Client and consumer insights and evolving capabilities support innovation. During our long business tenure, weWe have developed a comprehensivedeep understanding of our clients and the consumer markets wethey serve. We seek to leverage consumer insights, together with deep market knowledge andextensive capabilities, to identify and anticipate and identify the specific needs of our clients and the consumers they serve. We intend to continue capitalizing on our consumerleverage those insights as well as to leveragewith investments in emerging technologies and operations, including digital-first solutions, to introduce new and innovative products and services and continuously adapt those offerings to anticipate and address emerging issues.the changing needs of the consumers in the connected world.
Value chain integration.integration and customer experience. We own or manage multiple pieces of the value chain, which enables us to create products and service offerings based on client and consumer needs and provide a seamless experience for consumers.customer experience. Offering end-to-end solutions allows us to provide additional value for consumers and adapt more quickly and efficiently to their needs. Visibility across the value chain helps us leverage insights to further improve the customer experience and our offerings. Our ability to introduce value-added services and capabilities across the value chain and provide a superior customer experience allows us to strengthen our partnerships and our competitive position.
Our Strategy for Profitable Growth
Our vision is to be the premier providerleading global business services company supporting the advancement of lifestyle and housing solutions globally. To achieve thisthe connected world. As we focus on executing our vision, we believe we are positioned ourselves for continued long-term profitable growth by:
Growing our portfolio of market leadingmarket-leading businesses. We leverage our competitive strengths to focusOur businesses represent a group of leading, service-oriented offerings focused on businesses wherecompelling growth opportunities. This includes capitalizing on the convergence of the connected world in the global markets and geographies in which we can maintain or reach market-leading positions, achieve attractive returns and grow. We periodically assess our business portfolio to ensure we align resources with the best opportunities and we have identified Connected Living, Global Automotive and Multifamily Housing as key businesses targeted for growth.operate. We intend to grow our businesses by strengthening our partnerships with major clients and prospects globally, while continuing to invest in talent, capabilities and technology, which allowsincluding digital, to enable us to innovate and deliver a superior customer experience, as well as further expandingbroadening our offerings and diversifying our distribution channels.
Providing integrated offerings through a superior, digital-first customer experience.As we continue to evolve our product and service capabilities and respond to client and consumer needs, we expect to accelerate the pace of innovation for our integrated offerings and drive additional value through a superior, digital-first customer experience.
Deploying our capital strategically. We intend to maintain our strong financial position and our prudent capital management approach. We generally deploy capital to invest in and grow our businesses, pay dividends and repurchase shares and pay dividends. shares.
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Our approach to mergers, acquisitions and other growth opportunities reflects our strategic and disciplined approach
to capital management. We target new businesses and capabilities, organically and through acquisitions, that complement or support our strategy, which isstrategy.
Investing in talent. Our employees play a critical role in contributing to our success and supporting our business strategy. We believe in fostering a diverse, equitable and inclusive culture to drive sustained profitable growth through innovation. We are focused on expanding capabilitiesstrategically attracting, developing, retaining and distribution in targeted growth businesses globally.
2022 Highlights
On January 1, 2022, Keith Demmings succeeded as the Company’s chief executive officer (“CEO”) and joined the Company’s Board of Directors (the “Board”). Under his leadership, the Company made progress in executing on its vision to be the leading global services provider supporting the advancement of the connected world. We continued to strengthen partnerships with key clients and delivered new, innovative solutions, while navigating more volatile market conditions. We continued to execute on our commitment to being a numbersocially responsible company for our stakeholders, including being recognized as a Great Place to Work and advancing goals to reduce our environmental impact. We remain focused on engaging and developing our diverse talent pool through enhanced leadership and skills development programs.
Our business model represents a group of client partnerships acrossleading, service-oriented businesses supporting the connected world. In Global Lifestyle, our ability to continuously innovate our products and services supported a stronger and differentiated customer experience. In addition to key partner renewals, we secured new business opportunities and new client partnerships. In Global Housing, we initiated a business transformation, including exiting certain non-core businesses discussed below, as well as international catastrophe-exposed business, where we did not see a path to leadership positions. We took action to mitigate the impact of high inflation within our Lender-placed Insurance business and launched several new product offerings. We had significant organichave continued to renew clients. While growth in our mobile business, including as a result of scaling new and existing client partnerships, and a full year of contributions from our acquisition of TWG Holdings Limited and its subsidiaries (as subsequently reorganized, “TWG”). Duringaffinity partnerships in Multifamily Housing has slowed, our property management channel continues to expand.
Broadly across the year,Company, we alsoaccelerated several initiatives to realize greater efficiencies to position us for continued long-term growth. This included realigning our organizational structure, including in Global Housing, to make investmentsbetter deploy talent to support the launchdiverse needs of new programs, while enhancing our capabilitiesbusinesses. We also accelerated our ongoing real estate consolidation to support future growth. For example, we acquired Cell Phone Repair, a global franchisorwork-from-home arrangements given our increasingly hybrid workforce. We expect to complete these actions in 2023. The Company expects approximately $55 million in gross annualized run rate savings to be realized from these actions by year-end 2024, with more than half expected to be realized in 2023. These savings will mitigate the impact of electronic device repair stores focusing on mobile device repair,higher labor costs and we are making additional targeted investments in emerging technologies to enhance the customer experience. To support long-term growth, we also launched a multi-year transformation of our information technology to realign our IT operating model and fund investments in our technology infrastructure and cloud capabilities. We will continue to focus on investing in our key capabilities and strengthening our competitive advantage as we look to deliver more value for our clients and their customers
Throughout the year, we also undertook capital initiatives to drive shareholder value.have maintained a strong balance sheet as we navigated macroeconomic uncertainty. In 2019,2022, we returned $426.3$717.8 million to shareholders through share repurchases and common stock dividends. In 2019, we also refinanced our debt at lower interest rates. In August 2019, we issued $350.0 million of 3.70% senior notes due 2030, and useddividends, including the remaining net proceeds along with cash on hand, to complete a cash tender offer to purchase $100.0 millionfrom the sale of the $375.0 million then outstanding aggregate principal amount of our 6.75% senior notes due 2034 and to redeem $250.0Global Preneed businesses. In June 2022, we redeemed $75.0 million of the $300.0 million then outstanding aggregate principal amount of our floating rate senior notes4.20% Senior Notes due 2021.September 2023 at a make-whole premium plus accrued and unpaid interest to the redemption date.
In conjunction with the CEO transition, we changed our segment measure of profitability for our reportable segments to an Adjusted EBITDA metric, as the primary measure used for purposes of making decisions about allocating resources to the segments and assessing performance, from segment net income from continuing operations, effective as of that date. In addition, in the second quarter of 2022, we made the decision to fully exit certain businesses, including the long-tail commercial liability businesses in Global Housing (sharing economy and small commercial businesses), as well as certain legacy long-duration insurance policies within Global Lifestyle (collectively referred to as “non-core operations”), and revised the calculation of our segment measure of profitability, Adjusted EBITDA. Prior period amounts have been revised accordingly. See Note 6 to the Consolidated Financial Statements included elsewhere in this Report for more information.
Environment, social and governance (“ESG”) priorities
Assurant is a purpose-driven company committed to making meaningful advancements each year to integrate our sustainability efforts with our long-term strategy, global business operations and our product and service offerings. In 2022, we continued to make progress on building a more sustainable company for all of our stakeholders. Our Board, Management Committee and employees understand the importance of sustainability to deliver greater value as we operate our business each day and support Assurant’s long-term strategy.
Our sustainability strategic framework centers on four pillars against which we track our progress on significant ESG topics core to our business, as discussed below. Each of these pillars is dynamic with multiple dimensions that we align to our long-term business strategy.
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Responsible employer. We are a responsible employer with a culture that values diversity, equity and inclusion, and recognizes the importance of investing in employee talent. For additional information, refer to “– Human Capital Resources” below.
Impact on society. We actively engage to strengthen the communities where we live and work worldwide while operating our business and managing our investments with a meaningful environmental commitment.
Customer commitment. We deliver differentiated experiences by being customer-centric and anticipating the needs of the people we serve.
Integrity and ethics. We adhere to unwavering standards of integrity, ethics, governance, privacy and information security.
Our longer-term strategic planning process, overseen by our Board, prioritized three multiyear ESG areas of focus:
•Talent: Foster a diverse, equitable and inclusive culture to drive innovation for the benefit of all stakeholders,
•Products: Help customers thrive in a connected world, and
•Climate: Operate to minimize our carbon footprint and align our commitments to enhance climate action and environment performance.
For additional information on our ESG priorities, including our most recent Sustainability report, please refer to our website at https://www.assurant.com/our-story/sustainability. The information found on our website and in such reports is not incorporated by reference into and does not constitute a part of this Report.
Segments
The composition of our reportable segments matches how we view and manage our business. For additional information on our segments, see “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations” and Note 6 to the Consolidated Financial Statements included elsewhere in this Report.
Effective January 1, 2023, we realigned the composition of our reportable segments to correspond with changes to the Global Housing operating structure. As a result, the Global Housing segment is now comprised of two key lines of business, Homeowners, and Renters and Other. Certain specialty products, mainly the Leased and Financed business, previously reported in the Global Housing segment are now reported in Global Lifestyle to better align with our go-to-market strategy. The realignment has no impact on our consolidated results and will be reflected beginning with first quarter 2023 reporting.
Global Lifestyle
| Years Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Net earned premiums, fees and other income by product: | |||||||||||||||||
| Connected Living (1) | $ | 4,233.4 | $ | 4,303.2 | $ | 4,216.5 | |||||||||||
| Global Automotive | 3,702.7 | 3,436.9 | 3,115.1 | ||||||||||||||
| Total | $ | 7,936.1 | $ | 7,740.1 | $ | 7,331.6 | |||||||||||
| Segment Adjusted EBITDA | $ | 753.4 | $ | 702.1 | $ | 636.0 | |||||||||||
| Segment equity (2) | $ | 4,582.9 | $ | 4,559.1 | $ | 4,491.2 | |||||||||||
| Years Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Net earned premiums, fees and other income by product: | |||||||||||
| Connected Living (mobile and service contracts) (1) | $ | 3,768.4 | $ | 2,800.6 | $ | 2,156.0 | |||||
| Global Automotive | 2,873.6 | 1,909.2 | 782.8 | ||||||||
| Global Financial Services and Other | 452.2 | 473.5 | 457.4 | ||||||||
| Total | $ | 7,094.2 | $ | 5,183.3 | $ | 3,396.2 | |||||
| Segment net income | $ | 409.3 | $ | 297.7 | $ | 178.0 | |||||
| Segment Equity | $ | 3,948.2 | $ | 4,073.2 | $ | 1,967.3 | |||||
(1)For the years ended December 31, 2022, 2021 and 2020, 46.2%, 47.7%, and 48.8%, respectively, of net earned premiums, fees and other income was from mobile products, 44.0%, 43.3%, and 42.2%, respectively, was from extended service contracts and 9.8%, 9.0%, and 9.0%, respectively, was from financial services and other products.
Our Products and Services
The key lines of business in Global Lifestyle are: Connected Living, which includes mobile device solutions, and extended service contracts (insurance policies and warranties) (“ESCs”) for consumer electronics and appliances; Global Automotive;appliances, and credit and other insurance products; and Global Financial Services and Other.Automotive.
Connected Living: Through partnerships with mobile device carriers, retailers, multiple system operators (“MSOs”), original equipment manufacturers (“OEMs”) and financial and other institutions, we underwrite and provide administrative support and related services for ESCs. These contracts provide consumers with coverage on mobile devices and consumer electronics and appliances, protecting them from certain covered losses. We pay the cost of repairing or replacing these
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consumer goods in the event of loss, theft, accidental damage, mechanical breakdown or electronic malfunction after the manufacturer's warranty expires. Our strategy is to provide integrated service offerings to our clients that address all aspects of the insurance, ESC or warranty, including program design and marketing strategy, risk management, data analytics, customer support and claims handling, supply chain andservices, service delivery and repair and logistics.logistics management. For example, we seek to provide end-to-end mobile device lifecycle servicessolutions in our mobile business from when the device is received and inspected, repaired or refurbished, to when it is ultimately disposed of through a sale to a third-party or used to meetsupport an insurance claim. In addition to extended protection for multiple devices, our mobile offerings include trade-in and upgrade programs, premium customertechnical support, including device self-diagnostic tools, and device disposition. We also sell repaired or refurbished mobile and other electronic devices. We provide in-store, same-day device repairs to customers through our nationwide network of nearly 500 Cell Phone Repair locations. We believe that with the required administrative capability, digital platforms enabling on-boarding, claims management and service delivery, supply chain management, technical support infrastructure, and insurance underwriting capabilities and a variety of adjacent value-added services, like trade-in and upgrade and asset value recovery, we maintain a differentiated position in this marketplace.
Global Automotive: We underwrite and provide administrative services for vehicle service contracts (“VSCs”) and ancillary products providing coverage for vehicles, including automobiles, trucks, recreational vehicles, motorcycles, construction and motorcycles,agricultural equipment, as well as parts. For VSCs, we pay the cost of repairing a customer’s vehicle in the event of mechanical breakdown. For ancillary products, coverage varies, but, generally, we pay the cost of repairing, servicing or replacing parts or provide other financial compensation in the event of mechanical breakdown, accidental damage or theft. We provide integrated service offerings to our clients, including program design and marketing strategy, risk management, data analytics, customer support and claims handling, reinsurance facilitation, actuarial consulting, experiential and digital training and performance management.
Distribution and Clients
Global Lifestyle operates globally, with approximately 76%82% of its revenue from North America (the U.S. and Canada), 9%8% from Latin America (Brazil, Argentina, Puerto Rico, Mexico, Chile, Colombia and Peru), 8%5% from Europe (the United Kingdom (the “U.K.”), France, Italy, Spain, Germany and the Netherlands) and 7%5% from Asia Pacific (South Korea, China (and Hong Kong), Japan, Australia, India, Singapore and New Zealand) for the year ended December 31, 2019.2022. Global Lifestyle focuses on establishing strong, long-term relationships with clients that are leaders in their markets, including leading distributors of our products and services. In Connected Living, we partner with mobile device carriers, retailers, MSOs, OEMs and financial and other institutions to market our mobile device solutions and with some of the largest OEMs, consumer electronics retailers, appliance retailers (including e-commerce retailers) and MSOs to market our ESC products and related services. In addition, we partner with financial institutions, insurers and retailers to market our credit insurance and embedded card offerings. In Global Automotive, we partner with auto dealers and agents, third-party administrators and manufacturers to market our vehicle protection, leased and financed solutions and other related services. In Global Financial Services and Other, we partner with financial institutions, insurers and retailers to market our credit insurance and embedded card offerings. Systems, training, computer hardware and our overall market development approach are customized to fit the needs of each targeted market.
Most of our distribution agreements are exclusive. Typically, these agreements are multi-year with terms generally between three and five years and allow us to integrate our administrative systems with those of our clients.
| Years Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Net earned premiums, fees and other income by product: | |||||||||||
| Lender-placed Insurance | $ | 1,109.2 | $ | 1,149.7 | $ | 1,224.9 | |||||
| Multifamily Housing | 429.2 | 406.1 | 366.3 | ||||||||
| Specialty and Other | 495.3 | 417.3 | 326.1 | ||||||||
| Mortgage Solutions (sold in August 2018) | — | 116.1 | 257.7 | ||||||||
| Total | $ | 2,033.7 | $ | 2,089.2 | $ | 2,175.0 | |||||
| Segment net income | $ | 258.7 | $ | 150.8 | $ | 97.4 | |||||
| Segment equity | $ | 1,600.6 | $ | 1,505.3 | $ | 1,536.9 | |||||
Our Addressable Markets and Market Activity
Consumer needs relating to mobile devices are continuing to expand in 2020 reflecting the healthscope. We believe there are growth opportunities in bundled protection products, which support customers as they take full advantage of the overall housing marketfeatures and our mixfunctions of loans. We willtheir mobile devices through their daily interaction with a connected world. Customer support, device financing, buyback, trade-in
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and upgrade programs are some of the areas that continue to implement expense management effortsgain traction. Expanded capabilities like repair and logistics, technical support for customers and digital security allow us to mitigatecreate product and service offerings that customers find compelling. We believe there are additional growth opportunities in new device categories, such as accessories (e.g., ear buds, watches) and connected smart devices (e.g., smart speakers, laptops, tablets).
Our business is subject to fluctuations in mobile device trade-in and upgrade volumes based on the impact to our financial results,release of new devices and carrier promotional programs, as well as leveraging our proprietary tracking administration system.
| Years Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Net earned premiums, fees and other income | $ | 200.9 | $ | 189.5 | $ | 181.0 | |||||
| Segment net income | $ | 52.2 | $ | 57.7 | $ | 39.6 | |||||
| Segment equity | $ | 430.6 | $ | 423.7 | $ | 427.6 | |||||
In the vehicle sales markets, U.S. new vehicle sales have tempered as supply chain constraints, including chip shortages, and rising interest rates are creating headwinds in the used vehicle market. We expect new vehicle sales to increase as chip availability increases while the used vehicle market is expected to decline ifas sales shift to new vehicles. Assurant continues to expand our footprint in the U.S. by adding new dealership clients and growing our dealer and third-party administrator networks. We work closely with our global partners to develop innovative offerings that reflect the evolution of the auto market, such as our enhanced products for battery electric vehicles and plug-in hybrid electric vehicles. In addition, new vehicle sales outside of the U.S. continue to grow in most markets.
Consumers are becoming increasingly connected across their mobile devices, vehicles and homes, which is creating a global market for smart home devices and related services. As we continue into the “Connected Decade”, we believe it will create long-term opportunities for Assurant as consumers’ lifestyles will increasingly intertwine with their connected ecosystems, which we call the connected world. Due to our capabilities, including device protection, premium technology support, service delivery and financing, as well as technology components such as dynamic fulfillment, which integrates a dynamic mobile claims management process with risk and fraud mitigation, 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.”
In our financial services business, we anticipate continued declines in our traditional credit insurance in North America. Our focus is on expanding our complementary non-insurancepartnerships with leading financial institutions to offer credit card benefit offerings to their customers. The traditional credit and travel and credit card benefit products and services, including our executor assist product that helps executors manage a deceased’s accounts.are actively sold in select international markets.
Risk Management
We earn premiums on our insurance and warranty products and fees for our other services. We write a portion of our contracts on a retrospective commission basis. This allows us to adjust commissions on the basis of claims experience. Under these commission arrangements, our clients’ compensation is based upon the actual losses incurred compared to premiums earned after a specified net allowance to us. We believe that these arrangements better align our clients’ interests with ours and help us to better manage risk exposure. For additional risks relating to our Global Lifestyle segment, please see “Item 1A – Risk Factors.”
Inventory
In our mobile business, we carry inventory to meet the delivery requirements of certain clients. These devices are ultimately disposed of through sales to third parties. Our inventory includes devices and parts on consignment with our nationwide network of nearly 500 Cell Phone Repair locations through which we provide in-store repairs. Inventory levels may vary from period to period due to, among other things, differences between actual and forecasted demand, supply chain constraints, the addition of new devices and parts, and strategic purchases. Payment terms with clients also vary, which may result in less inventory financed by clients and more inventory financed with our own capital.
We take various actions to manage our inventory, including monitoring our inventory levels, managing the timing of purchases and obtaining return rights for some programs and devices. However, the value of certain inventory will be adversely impacted by technological changes affecting the usefulness or desirability of the devices and parts, physical problems resulting from faulty design or manufacturing, increased competition, decreased consumer demand, including due to changes in customer preferences and changes in client promotions, supply chain constraints, growing industry emphasis on cost containment and adverse foreign trade relationships. No assurance can be given that we will be adequately protected against declines in inventory value. See “Item 1A – Risk Factors – Business, Strategic and Operational Risks – “Our mobile business is subject to the risk of declines in the value and availability of mobile devices in our inventory, and to export compliance and other risks.”
Seasonality
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We experience seasonal fluctuations that impact demand in each of our lines of business. For example, seasonality for ESCs and VSCs aligns with the seasonality of the retail and automobile markets. In addition, our mobile results, which align with the seasonality of mobile device sales and are affected by trade-in volumes, may fluctuate quarter to quarter due to the actual and anticipated timing and availability of the release of new devices and carrier promotional programs.
Global Housing
| Years Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Net earned premiums, fees and other income by product: | |||||||||||||||||
| Lender-placed Insurance | $ | 1,124.0 | $ | 1,065.9 | $ | 1,052.5 | |||||||||||
| Multifamily Housing | 482.4 | 482.3 | 451.6 | ||||||||||||||
| Specialty and Other | 404.0 | 393.2 | 397.9 | ||||||||||||||
| Total | $ | 2,010.4 | $ | 1,941.4 | $ | 1,902.0 | |||||||||||
| Segment Adjusted EBITDA | $ | 302.0 | $ | 357.1 | $ | 318.0 | |||||||||||
| Segment equity (1) | $ | 1,433.2 | $ | 1,399.0 | $ | 1,471.2 | |||||||||||
(1)Segment equity does not include components of AOCI, which is primarily comprised of net unrealized gains on securities, net of taxes. For additional information on total AOCI, see Note 22 to the Consolidated Financial Statements included elsewhere in this Report.
Our Products and Services
The key lines of business in Global Housing are: Lender-placed Insurance; Multifamily Housing (which is comprised of renters insurance and related products); and Specialty and Other (which is comprised of voluntary manufactured housing insurance, voluntary homeowners insurance and other specialty products).
Lender-placed Insurance: We provide lender-placed homeowners, lender-placed manufactured housing and lender-placed flood insurance as described below.
Lender-placed homeowners insurance. Lender-placed homeowners insurance consists principally of fire and dwelling hazard insurance offered through our lender-placed program. The lender-placed program provides collateral protection to lenders, mortgage servicers and investors in mortgaged properties in the event that a homeowner does not maintain insurance on a mortgaged dwelling. Lender-placed homeowners insurance provides structural coverage, similar to that of a standard homeowners policy. The amount of coverage is often based on the last known insurance coverage under the prior policy for the property and provides replacement cost coverage on the property. It protects both the lender’s interest and the borrower’s interest and equity. We also provide real estate owned (“REO”) insurance, consisting of insurance on foreclosed properties managed by our clients.
In the majority of cases, we use proprietary insurance-tracking administration systems linked with the administrative systems of our clients to monitor clients’ mortgage portfolios to verify the existence of insurance on each mortgaged property and identify those that are uninsured. If there is a potential lapse in insurance coverage, we begin a process of notification and outreach to both the homeowner and the last known insurance carrier or agent through phone calls and written correspondence, which generally takes up to 90 days to complete. If coverage cannot be verified at the end of this process, the mortgage servicer procures a lender-placed policy. The process of tracking voluntary coverage - including determining whether voluntary coverage is in force, the policy limits in place, the perils insured and the deductibles, and obtaining other required insurance related information - is part of our risk exposure management for our Lender-placed Insurance business. The exposure management process is needed in order to underwrite the risk we assume, to understand loss exposure and to communicate with appropriate parties, including the lender, insurance agent and homeowner. Our placement rates reflect the ratio of insurance policies placed to loans tracked. The homeowner always retains the option to obtain or renew the insurance of his or her choice.
Lender-placed manufactured housing insurance. Lender-placed manufactured housing insurance consists principally of fire and dwelling hazard insurance for manufactured housing offered through our lender-placed program. Lender-placed manufactured housing insurance is issued after an insurance tracking and exposure management process similar to that described above. In most cases, tracking is performed using a proprietary insurance-tracking administration system.
Lender-placed flood insurance. Lender-placed flood insurance consists of flood insurance offered through our lender-placed program. It provides collateral protection to lenders in mortgaged properties in the event a homeowner does not maintain required flood insurance. Lender-placed flood insurance is issued after an insurance tracking and exposure management process similar to that described above.
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Multifamily Housing: We provide integrated solutions across the resident lifecycle. We offer renters insurance for a wide variety of single and multi-family rental properties, providing content protection for renters’ personal belongings and liability protection for the property owners against renter-caused damage. We also offer an integrated billing and tracking platform for our clients and their customers. In addition, we provide tenant bonds as an alternative to security deposits, which allows our clients to offer a lower move-in cost option while minimizing the risk of loss from damages, and receivables management, which helps our clients to maximize the collection of amounts owed by prior tenants.
Specialty and Other: We offer voluntary manufactured housing insurance, voluntary condominium and homeowners insurance and other specialty products. Our voluntary insurance generally provides structural coverage, contents and liability coverage. We are also the second largest administrator for the U.S. government under the voluntary National Flood Insurance Program (the “NFIP”), for which we earn fees for collecting premiums and processing claims. This business is 100% reinsured to the U.S. government.
Distribution and Clients
Global Housing establishes long-term relationships with leading mortgage lenders and servicers, manufactured housing lenders, property managers and financial, insurance and other institutions. Lender-placed Insurance products are distributed primarily through mortgage lenders, mortgage servicers and financial and other institutions. The majority of our lender-placed agreements are exclusive. Typically, these agreements have terms of three to five years and allow us to integrate our systems with those of our clients. Multifamily Housing products are distributed primarily through property management companies and affinity marketing partners. We offer our Specialty and Other insurance programs primarily through manufactured housing lenders and retailers, along with independent specialty agents. Independent specialty agents also distribute flood products and other specialty property products.
Global Housing is dependent on a few clients, and the loss of any one or more such clients could have a material adverse effect on our results of operations and cash flows. 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.”
Our Addressable Markets and Market Activity
With respect to the lender-placed market, placement rates have been and are expected to continue to be generally flat. We continue to monitor the state of the overall housing market and the potential impact of loan modifications, forbearances and foreclosure delays, including the impact to REO volumes. Should the housing market deteriorate for a prolonged period, we would expect a longer-term increase in our placement rates over time. In addition to the overall market, our lender-placed results are also impacted by inflation, which has and may continue to increase the costs of paying claims, and the mix of loans we service.
The U.S. renters insurance market is a growing market with new building development, occupancy and relocation trends. We believe there is opportunity to increase our market share and attachment rates with new and existing clients through our investments in digital platforms designed to deliver superior, digital-first customer experience and our expanded offerings to provide end-to-end solutions.
Risk Management
We earn premiums on our insurance products and fees for our services. Our lender-placed insurance products are not underwritten on an individual policy basis. Contracts with our clients require us to issue these policies automatically when a borrower’s insurance coverage is not maintained. These products are priced to factor in the additional risk from ensuring that all client properties have continuous insurance coverage. We monitor pricing adequacy based on a variety of factors and adjust pricing as required, subject to regulatory constraints. For additional risks related to pricing and modeling, see “Item 1A – Risk Factors – Financial Risks – Global PreneedWe may be unable to accurately predict and price for claims and other costs, which could reduce our profitability” and “ – 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.”
Because several of our business lines (such as homeowners, manufactured housing and other property policies) are exposed to catastrophe risks, we purchase reinsurance coverage to reduce our financial exposure, protect capital, and mitigate earnings and cash flow volatility. Our reinsurance program generally writes whole life insurance policiesincorporates a provision to allow for the reinstatement of coverage, which provides protection against the risk of multiple catastrophes in a single year.
For 2022, our property catastrophe reinsurance program includes U.S. per-occurrence catastrophe coverage providing $1.16 billion of protection in excess of $80.0 million retention in the main reinsurance program for a first event. In addition, it includes multi-year reinsurance contracts covering approximately 45% of the U.S. program, reducing volatility in future reinsurance costs. All layers of the program allow for one automatic reinstatement, except the first layer which has two reinstatements and covers the first $30.0 million of losses in excess of the $80.0 million retention. The 2022 program also
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maintains a cascading feature that provides multi-event protection in which higher coverage layers (Layers 3 through 6) drop down to $110.0 million as the lower layers and reinstatement limit are exhausted. Layer 7 does not cascade, with increasing death benefitsa retention of $955.0 million and obtainsa limit of $290.0 million. When combined with the majorityFlorida Hurricane Catastrophe Fund, the U.S. program is covered for gross Florida losses of its profitsup to approximately $1.34 billion. The 2022 catastrophe reinsurance program also includes Caribbean catastrophe coverage providing $150.0 million, including a $2.0 million co-participation on the top layer, in excess of a $20.0 million retention.
For our 2023 catastrophe reinsurance program, costs have increased, generally in line with expectations. As of January 2023, approximately 64% of the 2023 program was placed and we anticipate elevated pricing will continue in June.
We are also subject to non-catastrophe risk from interest rate spreads. Interest rate spreads referisolated fire, water and wind damage, theft and vandalism, as well as general liability in renters and homeowners policies. Losses are impacted by increases in inflation and supply chain disruptions that increase the cost of materials and labor required to settle claims. Please see “Item 1A – Risk Factors – Business, Strategic and Operational Risks – Catastrophe and non-catastrophe losses, including as a result of climate change and the current inflationary environment, could materially reduce our profitability and have a material adverse effect on our results of operations and financial condition.”
Seasonality
We experience seasonal fluctuation in several of our lines of business, which are exposed to the difference between the death benefit growth rates on pre-funded funeral insurance policiesrisk of catastrophe and the investment returns generated on the assets we hold related to those policies. To manage these spreads, we monitor the movement in new money yields and evaluate our actual net new achievable yields monthly. This information is used to evaluate rates to be credited on applicable new and in force pre-funded funeral insurance policies and annuities. In addition, we review asset benchmarks and perform asset/liability matching studies to maximize yield and reduce risk.
Competition
Our businesses focus on lifestylesupporting, protecting and housing products and related services within broader insurance and other markets.connecting major consumer purchases. Although we face global competition in each of our businesses, we believe that no single competitor competes against us in all of our business lines. Across Global Lifestyle Global Housing and Global Preneed,Housing, we compete for business, customers, agents and other distribution relationships with many insurance companies, warranty and protection companies, financial services companies, mobile device repair and logistics companies, technology and software companies and specialized competitors that focus on one market, product or service. We must respond to the threat of disruption by traditional players, as well as from new entrants, such as “Insurtech” start-up companies and others. Competition in each business is based on a number of factors, including but not limited to, scope of products and services offered, ability to tailor products and services to client and consumer needs, product features and terms, pricing, technology offerings, diversity of distribution resources, brand recognition, costs, financial strength and ratings, resources, and quality of service, including speed of claims payment and the overall customer experience. The relative importance of these factors varies by product and market. To remain competitive in many of our businesses, we must also anticipate and respond effectively to changes in customer preferences, new industry standards, evolving distribution models, and disruptive technology developments and alternate business models. In addition, across many of our businesses, we must respond to the threat of disruption by traditional players, such as insurers, as well as from new entrants, such as technology companies, “Insurtech” start-up companies and others. For further information on the risks associated with competition, see “Item 1A – Risk Factors – Business, Strategic and CompetitiveOperational Risks – Significant competitive pressures, changes in customer preferences and disruption could adversely affect our results of operations.”
Human Capital Resources
A cornerstone of Assurant is the employees who bring our purpose, values and commitments to life each day for the millions of customers we serve worldwide. We believe in fostering a diverse, equitable and inclusive culture to drive sustained profitable growth through innovation. We regularly evaluate our policies, practices and programs to ensure we continue to attract, develop and retain the best talent to support our strategy. This includes ongoing investments in competitive total rewards and wellbeing offerings, and providing programs for learning, development and engagement, while continuously enhancing the experience of our employees who are critical to our long-term success.
As of December 31, 2022, Assurant had approximately 13,700 employees in 21 countries. Our diverse workforce spans a wide range of roles and skills to further our vision of supporting the advancement of the connected world. While 80% of our employee base was located in North America, we continued to expand our presence in key international markets across Europe, Latin America and Asia Pacific to support our increasingly global client portfolio. As of December 31, 2022, approximately 64% of our employees were frontline workers, inclusive of hourly roles such as customer care, claims administration and mobile repair and logistics. The remaining 36% were in managerial roles, inclusive of salaried employees engaged in an array of business and support functions. As of December 31, 2022, 60% of our global workforce were female. In the U.S., our largest market, women accounted for 62% of employees while other underrepresented minority groups accounted for 53% of our domestic workforce. We continue to promote a more diverse and inclusive workforce across all levels of the Company in support of our business strategy.
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For full-year 2022, our global turnover rate was 25%, reflecting our blended workforce; turnover for managerial and salaried roles was 10%, generally consistent with the prior year despite an increasingly competitive market for talent. This compares to 32% turnover for frontline employees where turnover rates are typically higher. Following the height of the COVID-19 pandemic, we have seen an increase in turnover in these roles reflecting the tight market for hourly workers in customer care and claims roles, as well as the larger concentration of in-store mobile service and repair technicians in the U.S. in 2022.
The Board, through its Nominating and Corporate Governance Committee, in conjunction with the Compensation Committee, oversee the significant human capital management programs of Assurant, which are led by Assurant’s CEO and its Chief Administrative Officer.
Attracting, developing and retaining the best talent globally is key to our success in sustaining long-term profitable growth. In conjunction with the appointment of Keith Demmings as President and CEO in January 2022, we refreshed the composition of our Management Committee and evolved our organizational model and structure to support the execution of our strategy in alignment with our culture. In December 2022, we finalized a restructuring plan to further optimize our organizational structure in response to evolving business needs. We expect those actions will enable us to not only realize operational efficiencies, but also better leverage our global talent pool to support our business.
Overall, our talent strategy is focused on employee engagement and investments in programs to support career development, as well as recognizing and rewarding performance. We believe these programs and opportunities create a diverse pipeline of talent and leadership necessary to drive and deliver on our long-term strategy.
In 2022, we refreshed the key tenets of our culture, specifically to foster greater understanding of our renewed purpose and why the work we do each day matters to the stakeholders we serve, as well as the behaviors that drive success at Assurant.
We regularly engage with our employees to seek feedback through an array of forums and channels, including one-on-one discussions with managers, interactive townhall meetings, targeted employee surveys and our enterprise-wide listening program designed to expand opportunities for anonymous, real-time feedback between managers and employees. Key topics covered include our culture, diversity, equity and inclusion, learning and development, wellbeing and recognition. Based on employee feedback, action plans are implemented to address gaps or to further enhance employee satisfaction in alignment with our overall human capital strategy.
Results from our most recent listening program concluded in June 2022 benefited from strong employee participation and highlighted that employees generally feel engaged and aligned with the Company’s priorities. In many areas, such as mental wellbeing, recognition and freedom of opinion, results trended more favorably against our 2021 engagement survey and at or above comparable industry benchmarks. The 2022 results reinforced that our culture is a differentiator and strengths identified last year in the areas of overall engagement, goal setting, management support, work environment and flexibility, and diversity and inclusion continue to trend positively. Areas for continuing improvement include career development opportunities and managing workload. We will continue to develop actions plans in areas for improvement and monitor our progress each year.
Fostering Diversity, Equity and Inclusion
At Assurant, we believe diversity, equity and inclusion (“DE&I”) fosters innovation and creates growth opportunities by strengthening employee engagement for the benefit of all of our stakeholders. We believe diverse teams and inclusive cultures perform better by improving our ability to respond to the changing global marketplace and social landscape.
We are committed to gender, racial and ethnic diversity at all levels of the Company. As of December 31, 2022, women comprised 60% of our global workforce, 43% at the managerial levels, 18% at the Assurant Management Committee level and 31% of our Board; and 53% of our U.S. workforce, 44% at the managerial levels, 18% at the Assurant Management Committee level and 23% of our Board identified as racially or ethnically diverse. Four of the Company’s diverse directors held leadership roles, including the Board Chair and three committee chairs.
We are committed to continuing to increase representation and engagement of underrepresented groups within Assurant. Assurant’s Executive Inclusion Council, chaired by our CEO and comprised of our Management Committee, provides leadership oversight, engagement and accountability throughout Assurant to foster greater DE&I. Our Chief Administrative Officer has direct oversight and responsibility for our DE&I strategy. Additionally, the Nominating and Corporate Governance Committee is committed to including women and minority candidates in the pool of qualified candidates from which Board nominees are chosen and will continue to review its processes and procedures to ensure that diverse candidates are included.
We recruit talent in diverse communities, including through strategic and educational partnerships that bring greater visibility and expertise. We continue to strengthen our recruiting and talent practices to identify and remove inherent biases that could influence outcomes, including ongoing enterprise-wide diversity training and diverse slate and interviewing requirements for all managerial and above job openings. We are focused on inclusion through global programming that spotlights the experiences of underrepresented groups. In 2022, we launched three Employee Resource Groups to provide forums for
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employees to raise topics that are important to underrepresented groups. To augment local initiatives, we sponsored an inaugural, enterprise-wide diversity and inclusion mentorship program. In the marketplace, we support social justice causes through the Assurant Foundation and we partner with nonprofit organizations to provide leadership development opportunities. In 2022, we expanded our employees’ participation in targeted development programs for women and underrepresented groups including representation at various HACE (Hispanic Alliance for Career Enhancement), ELC (Executive Leadership Council) and LEAP (Leadership Acceleration Program) forums.
Pay Equity
Assurant is committed to pay equity. Our compensation practices and programs consider a variety of factors designed to set fair and equitable compensation levels. We take a holistic approach to evaluating and aligning roles with compensation levels based on job responsibilities, market competitiveness, geographical location, strategic importance of roles and other relevant factors. We periodically evaluate our compensation practices and for the last several years have engaged in a multi-step process to ensure that we are compensating equitably across employees performing similar job responsibilities. Results from our last review completed in 2022, which examined base pay for U.S. and U.K.-based employees, confirmed that we are fairly administering pay and see no evidence of systemic and material pay equity issues. We expect to continue to assess compensation practices annually and remain committed to remediate any significant pay disparities we may discover. We also continue to monitor and adjust market wages as necessary to ensure we provide competitive wages, consistent with our ongoing compensation practices.
We remain committed to investing in our people through competitive rewards and development opportunities. In 2022, this included making targeted off-cycle adjustments to ensure alignment of pay with the market and continuing to reward high performers. We continued to invest in merit increases, allocating more funding to front-line employees in recognition of the disproportionate impact of the current challenging economic environment. We have advanced our commitment to pay transparency, particularly in North America, by providing employees with base salary ranges for their role and grade beginning in 2023.
Total Rewards and Wellbeing
We are committed to the health and safety of our employees as we believe the success of our business is directly connected to their wellbeing. In addition to providing robust compensation and benefits programs and opportunities to invest in their financial future, we offer employees and their families access to a variety of health and wellness programs. Our Total Rewards programs help to provide protection and security related to events that may require time away from work or that impact their financial wellbeing, such as paid time off, family leave, family care resources and flexible work schedules. Our Global Employee Assistance Plan provides additional support to help employees and their families access critical resources for their wellbeing, including financial, physical and mental health.
We regularly benchmark our Total Rewards against companies of similar size and industries to ensure our offerings remain competitive and solicit employee feedback on the evolving needs of our workforce. In 2022, we conducted employee focus groups that helped validate that recommended plan changes for 2023 met the needs of our diverse workforce particularly around predictability and affordability of health care costs. We will continue to assess additional opportunities across Total Rewards and Wellbeing to help attract and retain top talent.
Recognizing the benefit of flexible work arrangements for our business, customers and employees, in 2022, we enabled a long-term shift to a hybrid work model to support our business and talent strategy. A majority of our employees now work virtually on a full-time or part-time basis and while we will continue to encourage purposeful in-person engagement to support our culture, team development and product innovation, we believe our hybrid work model will remain a key competitive advantage to support the evolving needs of our customers and employees. Within this hybrid environment, we introduced a new framework to support enterprise engagement. We accelerated our ongoing real estate consolidation to support work-from-home arrangements given our increasingly hybrid workforce, while making necessary investments in key facilities and markets to support the long-term strategy of the Company.
Learning and Development
Learning and development are essential to Assurant’s success. We continually invest in our employees’ career growth and provide employees with a wide range of training and development opportunities, including face-to-face, virtual and self-directed learning, mentoring and external development opportunities. We delivered live-virtual training to support the initial rollout of our redefined culture tenets which will continue as we further embed into our talent practices around key areas such as recruiting, performance management and recognition. Strengthening employees’ leadership, technical and professional skills to broaden career opportunities, while also reinforcing a culture of strong ethics and compliance, are primary focus areas. In 2022, we implemented key initiatives to increase adoption of new technology and processes providing both learning tools and change support, furthering our focus on a digital-first mindset. Assurant also assists employees in the pursuit of undergraduate and graduate degrees, certifications and continuing education required by certain professional organizations.
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We have adapted our learning and development programs and delivery modes to meet the varying needs of our business and our predominantly virtual workforce. We provide a broad array of training on topics such as managing virtual and hybrid teams, mental health awareness and building resilience, managerial skills, and diversity and inclusion.
Succession Planning
An important element of our talent strategy is succession planning and building diverse leadership pipelines for our most critical roles across the organization.
We assess the performance and potential of current incumbents, identify and assess potential successors, and create targeted development plans to strengthen the preparedness and diversity of our talent pipeline. Annually, we conduct a comprehensive talent review to discuss potential successors of our Management Committee and other key leadership roles. In 2022, we extended this to a broader group of top talent as we look to ensure better visibility into our strengths and opportunities for prioritized roles. The Board and the Nominating Committee annually review the CEO succession plan and succession plans for senior executives, which includes emergency successors for each role, with the goal to ensure we have the right leadership in place to execute the Company’s long-term strategic plans.
For more information on our human capital resources, please refer to our most recent Sustainability Report available at https://www.assurant.com/our-story/sustainability and our most recent Proxy Statement available at ir.assurant.com. The information found on our website and in such reports is not incorporated by reference into and does not constitute a part of this Report.
Ratings
Independent rating organizations periodically review the financial strength of insurers, including many of our insurance subsidiaries. Financial strength ratings represent the opinions of rating agencies regarding the ability of an insurance company to meet its financial obligations to policyholders and contract holders. These ratings are not applicable to our common stock preferred stock or debt securities. Ratings are an important factor in establishing the competitive position of insurance companies.
Rating agencies also use an “outlook statement” of “positive,” “stable,” “negative” or “developing” to indicate a medium- or long-term trend in credit fundamentals which, if continued, may lead to a rating change. A rating may have a stable outlook to indicate that the rating is not expected to change; however, a stable outlook does not preclude a rating agency from changing a rating at any time, without notice.
Most of our domestic and significant international operating insurance subsidiaries are rated by A.M. Best Company (“A.M. Best”). In addition, fourthree of our domestic operating insurance subsidiaries are rated by Moody’s Investors Service, Inc. (“Moody’s”) and five are rated by S&P Global Ratings, a division of S&P Global Inc. (“S&P”). The ratings issued on our operating insurance subsidiaries by these agencies are announced publicly and are available from the agencies.
For information on the risks associated with ratings downgrades, see “Item 1A – Risk Factors-FinancialFactors – Financial Risks – A decline in the financial strength ratings of our insurance subsidiaries could adversely affect our results of operations and financial condition.”
The following table summarizes the financial strength ratings and outlooks of our domestic and significant international operating insurance subsidiaries as of December 31, 2019:
2022:
| A.M. Best (1) | Moody’s (2) | S | |||||||||||||||
| Company | |||||||||||||||||
| American Bankers Insurance Company of Florida | A | A | |||||||||||||||
| American Bankers Life Assurance Company of Florida | A | ||||||||||||||||
| American Security Insurance Company | A | A | |||||||||||||||
| Caribbean American Life Assurance Company | N/A | N/A | |||||||||||||||
| Caribbean American Property Insurance Company | A | N/A | N/A | ||||||||||||||
| Reliable Lloyds Insurance Company | A | N/A | N/A | ||||||||||||||
| Standard Guaranty Insurance Company | A | N/A | N/A | ||||||||||||||
| Virginia Surety Company, | A | N/A | N/A | ||||||||||||||
| Voyager Indemnity Insurance Company | A | N/A | N/A | ||||||||||||||
(1)A.M. Best financial strength ratings range from “A++” (superior) to “D” (poor). Ratings of A fall under the “excellent” category, which is the second highest of A.M. Best’s seven ratings categories. A.M. Best has a stable outlook on American Bankers Life Assurance Company of Florida and Caribbean American Life Assurance Company and a positive outlook on all of our other domestic operating insurance subsidiaries’ financial strength ratings.
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Regulation
We are subject to extensive federal, state and international regulation and supervision in the jurisdictions in which we do business. Regulations vary from jurisdiction to jurisdiction.
The following is a summary of significant regulations that apply to our businesses, but is not intended to be a comprehensive review of every regulation to which we are subject. For information on the risks associated with regulations applicable to us, see “Item 1A – Risk Factors – Business, Strategic and CompetitiveOperational Risks”, “Item 1A – Risk Factors – Technology, Cybersecurity and Privacy Risks” and “Item 1A – Risk Factors – Legal and Regulatory Risks.”
Holding Company Insurance Regulations
Under applicable insurance holding company regulations, no person may acquire a controlling interest in the Company or any of our insurance company subsidiaries, unless such person has obtained prior regulatory approval for such acquisition. Under these laws, “control” is presumed when any person acquires or holds, directly or indirectly, 10% or more of our common stock or of the voting securities of any of our insurance company subsidiaries. To obtain approval, the proposed acquiror must file an application with the relevant regulator. For more information on the risks associated with holding company insurance regulations, see “Item 1A – Risk Factors – General Risk Factors – Applicable laws and our certificate of incorporation and by-laws may discourage takeovers and business combinations that some stockholders might consider to be in their best interests.”
U.S. Insurance Regulation
We are subject to the insurance holding company laws in the states and territories where our insurance companies are domiciled. These laws generally require insurance companies within the insurance holding company system to register with the
insurance departments of their respective states and territories of domicile and furnish reports to such insurance departments regarding capital structure, ownership, financial condition, risk management, corporate governance, general business operations and intercompany transactions. These laws also require that transactions between affiliated companies be fair and equitable. In addition, certain intercompany transactions, changes of control, certain dividend payments and certain transfers of assets between the companies within the holding company system are subject to prior notice to, or approval by, regulatory authorities in such states and territories.
We are licensed to sell insurance through our insurance subsidiaries in all 50 states, Puerto Rico and the District of Columbia. Like all U.S. insurance companies, our insurance subsidiaries are subject to regulation and supervision in the jurisdictions where they do business. In general, these regulations are designed to protect the interests of policyholders, and not necessarily the interests of shareholders and other investors. To that end, the laws of the various jurisdictions establish insurance departments with broad powers with respect to such things as:
•licensing;
•capital, surplus and dividends;
•underwriting requirements and limitations (including, in some cases, minimum or target loss ratios);
•entrance into and exit from markets;
•introduction, cancellation and termination of certain coverages;
•statutory accounting and annual statement disclosure requirements;
•product types, policy forms and mandated insurance benefits;
•premium rates;
•fines, penalties and assessments;
•claims practices, including occasional regulatory requirements to pay claims on terms other than those mandated by underlying policy contracts;
•transactions between affiliates;
•the form and content of disclosures to consumers;
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•the type, amounts and valuation of investments;
•annual tests of solvency and reserve adequacy;
•assessments or other surcharges for guaranty funds and the recovery of assessments through premium increases; and • |
market conduct and sales practices of insurers and agents.
Risk-Based Capital Requirements. In order to enhance the regulation of insurer solvency, the National Association of Insurance Commissioners (the “NAIC”) has established certain risk-based capital (“RBC”) standards applicable to life, health and property and casualty insurers. RBC, which regulators use to assess the sufficiency of an insurer’s statutory capital, is calculated by applying factors to various asset, premium, expense, liability and reserve items. Factors are higher for items that the NAIC views as having greater underlying risk. The NAIC periodically reviews the RBC formula and changes to the formula could occur in the future.
In addition,December 2020, the NAIC is continuing to developadopted a group capital calculation tool using an RBC aggregation methodology for all entities within the insurance holding company system, including non-U.S. entities. The goal is to provide U.S. regulators with a method to aggregate the available capital and the minimum capital of each entity in a group in a way that applies to all groups regardless of their structure.structure in order to identify risks that may emanate from an insurer’s holding company system. The NAIC has stated that the calculation will be a regulatory tool and will not constitute a requirement or standard. Nonetheless, any newState legislatures began adoption of the group capital calculation methodology may incorporate existing RBC concepts. Itmodel regulations in 2021 and state adoption is not possibleexpected to predict what impact any such regulatory tool may have on our business.continue in 2023.
Investment Regulation. Insurance company investments must comply with applicable laws and regulations that govern the kind, quality and concentration of investments made by insurance companies. These regulations require diversification of insurance company investment portfolios and limit the amount of investments in certain asset categories.
Financial Reporting. Regulators closely monitor the financial condition of licensed insurance companies. Our insurance subsidiaries are required to file periodic financial reports with insurance regulators. Moreover, states and territories regulate the form and content of these statutory financial statements.
Products and Coverage. Insurance regulators have broad authority to regulate many aspects of our products and services. Additionally, certain non-insurance products and services we offer, such as service contracts, may be regulated by regulatory bodies other than departments of insurance.insurance and may be subject to consumer protection laws.
Pricing and Premium Rates. Nearly all states and territories have insurance laws requiring insurers to file price schedules and policy forms with the state’s or territory’s regulatory authority. In many cases, these price schedules and/or policy forms must be approved prior to use, and state and territory insurance departments have the power to disapprove increases or require decreases in the premium rates we charge.
Market Conduct Regulation. Activities of insurers are highly regulated by state and territory insurance laws and regulations, that govern the form and content of disclosure to consumers, advertising, sales practices and complaint handling. State and territory regulatory authorities enforce compliance through periodic market conduct examinations.
Guaranty Associations and Indemnity Funds. Most states and territories require insurance companies to support guaranty associations or indemnity funds, which are established to pay claims on behalf of insolvent insurance companies. These associations may levy assessments on member insurers. In some states and territories, member insurers can recover a portion of these assessments through premium tax offsets and/or policyholder surcharges.
Insurance Regulatory Initiatives. The NAIC, state and territory regulators and professional organizations have considered and are considering various proposals that may alter or increase state and territory authority to regulate insurance companies and insurance holding companies. For example, at their Spring 2021 meeting, the NAIC adopted the NAIC Real Property Lender-Placed Insurance Model Act (the “LPI Model Act”). The LPI Model Act governs the insurance that a mortgage servicer obtains when a borrower fails to obtain or maintain required insurance. In 2022, Rhode Island enacted legislation that mirrors the LPI Model Act. It is anticipated that several states will follow suit and introduce state-level legislation relating to lender-placed insurance during their 2023 legislative session. See “Item 1A – Risk Factors – Legal and Regulatory Risks – Changes in insurance regulation may reduce our profitability and limit our growth” for a discussion of the risks related to such initiatives.
Federal Regulation
Although our business in the United States is primarily regulated by the states, federal initiatives often have an impact on our business in a variety of ways. Impacted areas include financial services regulation, privacy, tort reform legislation and taxation. In addition, various forms of direct and indirect federal regulation of insurance have been proposed from time to time,
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including proposals for the establishment of an optional federal charter for insurance companies. See “Item 1A – Risk Factors – Legal and Regulatory Risks – Our business is subject to risks related to litigation and regulatory actions.”
Employee Retirement Income Security Act. We are subject to regulation under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). ERISA places certain requirements on how we may administer employee benefit plans covered by ERISA. Among other things, regulations under ERISA set standards for certain notice and disclosure requirements and for claim processing and appeals.
Gramm-Leach-Bliley Act. Certain of our activities are subject to the privacy requirements of the Gramm-Leach-Bliley Act, which, along with regulations adopted thereunder, generally requires insurers to provide customers with notice regarding how their nonpublic personal financial information is used and the opportunity to “opt out” of certain disclosures, if applicable.
Dodd-Frank Wall Street Reform and Consumer Protection Act. Regulations under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) address mortgage servicers’ obligations to correct errors asserted by mortgage loan borrowers; provide certain information requested by such borrowers; and provide protections to such borrowers in connection with Lender-placed Insurance. These requirements affect our operations because, in many instances, we administer such operations on behalf of our mortgage servicer clients. While the Consumer Financial Protection Bureau (the “CFPB”) does not have direct jurisdiction over insurance products, it is possible that additional regulations promulgated by the CFPB may extend its authority more broadly to cover these products and thereby affect us or our clients.
Tax Reform. On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “TCJA”), which significantly amended the Internal Revenue Code of 1986, was enacted. Of particular interest to the Company was the reduction of the corporate tax rate from 35% to 21%. In 2022, the Inflation Reduction Act (the “IRA”)introduced a 15% corporate alternative minimum tax for corporations that report an average annual adjusted income of more than $1 billion for a period of three consecutive years and a 1% excise tax on corporate share repurchases, among other things. The overall impact of the IRA is uncertain due to the ambiguities in the application of certain provisions, the impact of future guidance, interpretations or rules issued by government agencies and potential court decisions interpreting the legislation. See “Item 1A – Risk Factors – Legal and Regulatory Risks – Changes in tax laws and regulations could have a material adverse impact on our results of operations and financial condition.”
International Regulation
We are subject to regulation and supervision of our international operations in various jurisdictions. These regulations, which vary depending on the jurisdiction, include, among others, anti-corruption laws; solvency and market conduct regulations; various privacy, insurance, tax, tariff and trade laws and regulations; and corporate, employment, intellectual property and investment laws and regulations. We operate in various jurisdictions, including Canada, the U.K., France, Argentina, Australia, Brazil, Chile, Peru, Colombia, Germany, India, the Netherlands, New Zealand, Puerto Rico, Spain, Italy, Mexico, Japan, South Korea, China and Singapore, and, in several of these jurisdictions, our businesses are supervised by local regulatory authorities in these jurisdictions.authorities.
oversight across national boundaries and the establishment of ongoing supervisory colleges. We qualifycolleges (“ComFrame”). ComFrame applies to entities that meet the IAIS’s criteria for IAIGs and that are so designated by their group-wide supervisor. The NAIC previously adopted changes to the IAIG designation; however, at present time no regulatory body has appliedModel Insurance Holding Company System Regulatory Act to supervise usallow state insurance regulators in this manner. The IAIS is lookingthe U.S. to implement the International Capital Standard over the coming years. Webe designated as group-wide supervisors for U.S.-based IAIGs. While we do not expectcurrently meet the criteria for IAIG designation, we are monitoring developments of reforms adopted by the IAIS as they influence NAIC activities, including those related to be involved in the early development of the framework. At this time, we cannot predict what additionalrisk and group capital requirements, compliance costs or other burdens these requirements would impose on us.oversight.
Securities and Corporate Governance Regulation
As a company with publicly-traded securities, we are subject to certain legal and regulatory requirements applicable generally to public companies, including the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) and the New York Stock Exchange (the “NYSE”) relating to public reporting and disclosure, accounting and financial reporting, corporate governance and other matters. Additionally, we and our subsidiaries are subject to the corporate governance laws of our respective jurisdictions of incorporation or formation.
Numerous federal, state and international consumer protection laws affect the Company. For example, as part of our subsidiaries is a registered investment adviserthe Dodd-Frank Act, Congress established the CFPB to supervise and as such isregulate institutions that provide certain financial products and services to consumers. Although the consumer financial services subject to the Investment Advisers Act of 1940, asCFPB’s jurisdiction generally exclude insurance businesses, the CFPB may take the position that it has the authority to regulate certain non-insurance consumer
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services we provide. In addition, new or amended (the “Advisers Act”). The Advisers Act, together with the SEC’sinternational regulations relating to fair value and interpretations thereunder, imposes substantivefair treatment relating to products and material restrictions and requirementsservices for consumers are being further considered or proposed, depending on the operations of our registered investment adviser subsidiaries that cover, among other things, disclosure of information about our business to clients; maintenance of written policies and procedures; maintenance of extensive books and records; restrictions on the types of fees we may charge, including performance fees; solicitation arrangements; engaging in transactions with clients; maintaining an effective compliance program; custody of client assets; client privacy; advertising; pay-to-play; and cybersecurity. The SEC is authorized to institute proceedings and impose sanctions for violations of the Advisers Act, ranging from fines and censures to termination of an investment adviser’s registration.jurisdiction.
Anti-Corruption Regulation
We are subject to certain U.S. and foreign laws applicable to businesses generally, including anti-corruption laws. The Foreign Corrupt Practices Act of 1977 (the “FCPA”) regulates U.S. companies in their dealings with foreign officials and prohibits bribes and similar practices. In addition, the U.K. Anti-Bribery Act has wide applicability to certain activities that affect U.K. companies, their commercial activities in the U.K., and potentially that of their affiliates located outside of the U.K. Anti-bribery and corruption laws and regulations continue to be implemented and/or enhanced across most of the jurisdictions in which we operate.
Cybersecurity and Privacy Regulation
We are subject to a variety of laws and regulations in the U.S. and abroad regarding privacy, data protection and data security. These laws and regulations are continuously evolving and developing. For example, the E.U. General Data Protection Regulation (“GDPR”), which became effective in May 2018, greatly increased the jurisdictional reach of the European Commission’s laws and added a broad array of requirements for handling personal data, such as the public disclosure of significant data breaches, privacy impact assessments, data portability and the appointment of data protection officers. GDPR’s goal is to impose increased individual rights and protections for all personal data located inSince the enactment of GDPR, other countries where we conduct business have or originating from the E.U. GDPR is extraterritorial in that it applies to all businessare in the E.U.process of enacting stricter data protections laws that model GDPR, including Brazil, China, Japan and any business outside the E.U. that processes E.U. personal data of individuals in the E.U. There are significant fines associated with non-compliance with GDPR. Additionally, in August 2018, Brazil passed its first privacy law, which is modeled after GDPR.India.
At the state level, the New York State Department of Financial ServicesNAIC Insurance Data Security Model Law has issued cybersecurity regulations that imposebeen enacted in multiple states, imposing an array of detailed security measures, reporting and attestation requirements on covered entitiesinsurance companies. With respect to privacy rights, five states (California, Colorado, Connecticut, Utah and California passed aVirginia) have enacted comprehensive privacy actlaws that increases California residents’further increase privacy rights in a manner similar to the GDPR. The accelerated rate of adoption of privacy legislation by states poses challenges for businesses as implementation and compliance may necessitate modifications to businesses processes, technological infrastructure, security measures and customer-facing websites.
Cybersecurity risks and incidents remain a focus for regulators.In March 2022, the SEC proposed rules to enhance disclosures regarding cybersecurity risk management, strategy, governance and incident reporting by public companies; and in November 2022, the New York Department of Financial Services proposed amendments to require substantial updates to companies’ cybersecurity compliance programs.
Environmental Regulation
Because we own and operate real property, we are subject to federal, state and local environmental laws. Potential environmental liabilities and costs in connection with any required remediation of such properties is an inherent risk in property ownership and operation. Additionally, under the laws of several states, contamination of a property may give rise to a lien on the property to secure recovery of the costs of the cleanup, which could have priority over the lien of an existing mortgage against the property. To the extent we hold a mortgage loan on any property subject to such a lien, our ability to foreclose on that property should the related loan be in default would be impaired. Further, under certain circumstances, we may be liable for the costs of addressing releases or threatened releases of hazardous substances at properties securing mortgage loans held by us.
Other Regulation
As we continue to grow and evolve our business mix to cover other non-insurance basednon-insurance-based products and services, we have and will continue to become subject to other legal and regulatory requirements, including regulations of the CFPB and other federal, state and municipal regulatory bodies, as well as additional regulatory bodies in non-U.S. jurisdictions. Examples include importU.S. and exportlocal customs and trade complianceregulations for the movement of mobile devices across geographic borders; health, safety, labor and environmental regulations, including those impacting our mobile supply chain operations; U.S. and international laws and regulations broadly relating to the performance, transparency and reporting of environmental, social and governance matters, including the SEC’s proposed rules to enhance climate-related disclosures, including greenhouse gas emissions, governance of climate-related risks and climate-related financial statement metrics; and antitrust and competition-related laws and regulations that may impact future transactions or business practices.
Global Risk Management
Governance
We have made effectiveemploy a risk management a key ongoing corporate objective. It is the responsibility ofgovernance structure, overseen by our Board and senior management and coordinated by the Global Risk Management function, to assessprovide a common framework for evaluating the risks embedded in and manageacross our exposure to risk. The Board directlybusinesses and through its committees oversees ourfunctional areas, developing risk management policiesappetites, managing these risks, and practices. As described belowidentifying current and in their charters, the committees of the Board overseefuture risk management in specific areaschallenges and regularly discuss risk-related issues with the entire Board, which is actively involved in oversight of enterpriseopportunities.
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Global risk management.
Our risk management framework cascades downwards into the enterprise through various management committees. Our risk governance structure is headed by an Executivethe management-level Enterprise Risk Committee, (“ERC”), comprised of the Chief Executive Officer, the Chief Financial Officer, the Chief Strategy and Risk Officer, and the Chief Legal Officer. Officer, the Treasurer, Chief Internal Auditor, Global Ethics and Compliance Officer, and other members of the risk leadership team.The ERCEnterprise Risk Committee reviews the most significant risks, the alignment to the risk appetite of the Company, and the mitigation and remediation plans that correspond to these risks.
Board of Directors and Committee Oversight
The Board, directly and through its committees as described below and in their charters, oversees our risk management policies and practices, including our risk appetite, and discusses risk-related issues at least quarterly. The Board reviews management’s assessment of the Company’s key enterprise risks and receives a risk management update from the Chief Strategy and Risk Officer annually and management’s strategy with respect to each risk. The Nominating and Corporate Governance Committee coordinates Board and committee oversight of the key risks. The Board and its committees receive updates from management on specific risks throughout the year, and each committee chair reports significant risk updates at least quarterly to the full Board so that the Board has the benefit of the committee’s specific areas of risk oversight.
The Audit Committee reviews the Company’s policies with respect to risk assessment and risk management and coordinates with the Finance and Risk Committee with respect to Board oversight of risk management and enterpriseglobal risk management activities. The Audit Committee also focuses on risks relating to financial statements, privacy and data security, information technology and cybersecurity,internal control over financial reporting, disclosures (including disclosure of the Company’s material risks within this Report), and compliance with legal and regulatory requirements. The Audit Committee receives reports at least quarterly from the Chief Internal Auditor and the Global Ethics and Compliance Officer. The Finance and Risk Committee has primary oversight responsibility of the Global Risk Management function and corresponding risk activities, and receives regular risk management updates at least quarterly from the Chief Strategy and Risk Officer and the Global Head of Risk that include the identification, assessment, reporting and mitigation of existing and emerging key enterprise risks. The Finance and Risk Committee also focuses on risks relating to investments, capital management and catastrophe reinsurance. The Compensation Committee focuses on risks relating to executive retention and compensation plan design, and the Nominating and Corporate Governance Committee focuses on risks relating to director and management successionsuccession. The Information Technology Committee is responsible for oversight of information technology risk assessment and diversity.risk management.This includes oversight of cybersecurity policies, controls and procedures, such as procedures to identify and assess internal and external cybersecurity risks. In fulfilling its responsibilities, the Board and each committee has the authority to retain external advisors.
Management Oversight
The Company uses the compliance departmentthree lines of defense operating model to provide structure around risk management and internal controls. The first line of defense is comprised of the business and functional areas that are responsible for the day-to-day management of Company’s business operations and related risks. The second line of defense provides independent oversight of risk-taking activities in the first line and is comprised of the Company’s Global Risk Management function and other second-line departmentsenterprise staff control functions.The second line of defense assists in determining the risk appetite, strategies, policies and committees overseeingstructure for managing risk, including business resiliency and operational risk. The third line of defense is comprised of the Internal Audit function and is independently governed by the Audit Committee. Internal Audit evaluates the adequacy of compliance with policies, procedures and processes established in the first and second lines, and assesses the design and ongoing effectiveness of risk management and the risk management framework.
Risk Appetite, Identification Measuring,and Assessment, Monitoring and Reporting, and Mitigation
Risk appetite is used to ensure that we managedefined as the levels, types and amount of risk we arethat the Company is willing to assume,accept to in the pursuit of its business and strategic objectives, consistent with prudent management of risk concomitant with available levels of capital. Global Risk Management, in conjunction with various management committees, develops recommendations for risk limits as part of our businessrisk appetite framework.Using metrics as appropriate in establishing these risk limits allows for a cohesive
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assessment of risk, resources and strategy, and objectives. The Company’ssupports management and the Board in making well-informed business decisions.
Risk identification and assessment, which involve the identification of risks, information gathering and analyses, are performed by Global Risk Management and conducted in coordination with the second and third lines of defense. Global Risk Management measures risk appetite is subject to Board oversight.
Available Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as well as the Statements of Beneficial Ownership of Securities on Forms 3, 4 and 5 for our directors and officers, are available free of charge through the SEC website at www.sec.gov. These documents are alsoWe make our periodic reports and other information filed with or furnished to the SEC available, free of charge, through the Investor Relations page of our website (www.assurant.com) as soon as reasonably practicable after they are electronically filed with or furnished to the SEC.
We use our website (www.assurant.com) and social media accounts, including Twitter (@Assurant), LinkedIn (@Assurant) and Facebook (@AssurantInc), as a means of disclosing information about us and our services and for complying with our disclosure obligations under the SEC’s Regulation FD (Fair Disclosure). The information we post on our website and social media accounts may be deemed material. Accordingly, investors should monitor our website and social media accounts in addition to following our press releases, SEC filings, and public conference calls and webcasts. Except as specifically noted, the information found on our website isand social media accounts are not incorporated by reference into, and doesdo not constitute a part of, this Report or any other report filed with or furnished to the SEC.
Item 1A. Risk Factors
Certain factors may have a material adverse effect on our business, financial condition, results of operations and cash flows. You should carefully consider them, along with the other information presented in this Report. It is not possible to predict or identify all such factors. Additional risks and uncertainties that are not yet identified or that we currently believe to be immaterial may also materially harm our business, financial condition, results of operations and cash flows.
The following is a summary of the material risks that could adversely affect our business, financial condition, results of operations and cash flows.
Business, Strategic and CompetitiveOperational 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.
•Significant competitive pressures, changes in customer preferences and disruption could adversely affect our results of operations.
•We may be unable to grow our business if we cannot find suitable acquisition candidates at attractive prices, integrate acquired businesses or divest of non-strategic businesses effectively or identify new areas for organic growth.
•Our inability to successfully recover should we experience a business continuity event could have a material adverse effect on our business, financial condition and results of operations.
We face risks associated with joint ventures, franchisesour international operations.
•Our mobile business is subject to the risk of declines in the value and investmentsavailability of mobile devices in which we share ownership or management with third parties.
•Sales of our products and services may decline if we are unable to develop and maintain distribution sources or attract and retain sales representatives and executives with key client relationships.
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•We distribute manyface risks associated with joint ventures, franchises and investments in which we share ownership or management with third parties.
•Catastrophe and non-catastrophe losses, including as a result of climate change and the current inflationary environment, could materially reduce our insurance productsprofitability and services throughhave a variety of distribution channels, including mobile carriers, financial institutions, mortgage lenders and servicers, retailers, funeral homes, association groups, other third-party marketing organizations and, to a limited extent, our own captives and affiliated agents. Our relationships with these distributors are significant for our revenues and profits. There is intense competition for distribution outlets. Agents who distribute our products are typically not exclusively dedicated to us, but also market the products of our competitors. In some cases, such agents may be affiliated with other insurers who may choose to write the product that such agents are now sellingmaterial adverse effect on our behalf. Therefore, we face continued competition from competing productsresults of operations and services.financial condition.
Macroeconomic, Political and segment executives to developGlobal Market Risks
•General economic, financial market and maintain client relationships. Our inability to attractpolitical conditions and retain effective sales representatives and executives with key client relationships couldconditions in the markets in which we operate may materially adversely affect our results of operations and financial condition.
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.
We may be unable to accurately predict and price for claims and other costs, which could reduce our profitability.
•A decline in the financial strength ratings of our insurance subsidiaries could adversely affect our results of operations and financial condition.
•A credit rating agency downgrade of our corporate senior debt rating could have a significant adversematerially and adversely impact on our business.
•Fluctuations in the exchange rate of the U.S. Dollar and other foreign currencies may materially and adversely affect our results of operations.
•An impairment of our goodwill or other intangible assets could materially adversely affect our results of operations and book value.
Failure to maintain effective internal control over financial reporting could have a material adverse effect on our business and stock price.
•Unfavorable conditions in the capital and credit markets may significantly and adversely affect our access to capital and our ability to pay our debts or expenses.
•Our investment portfolio is subject to market risk, including changes in interest rates, that may adversely affect our results of operations and financial condition.
Our investment portfolio is subject to credit, liquidity and other risks that may adversely affect our results of operations and financial condition.
The value of our deferred tax assets could become impaired, which could materially and adversely affect our results of operations and financial condition.
•Reinsurance may not be adequate or available to protect us against losses, and we are subject to the credit risk of reinsurers.
•Through reinsurance, we have sold or exited businesses that could again become our direct financial and administrative responsibility if the reinsurers become insolvent.
Due to the structure of our commission program, we are exposed to risks related to the creditworthiness and reporting systems of some of our agents, third-party administrators and clients.
•Our subsidiaries’ inability to pay us sufficient dividends could prevent us from meeting our obligations and paying future stockholder dividends.
Our ability to declare and pay dividends on our capital stock or repurchase shares may be limited.
Technology, Cybersecurity and Privacy Risks
•The failure to effectively maintain and modernize our information technology systems and infrastructure and integrate those of acquired businesses could adversely affect our business.
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•The costs of complying with, or our failure to comply with, U.S. and foreign laws related to privacy, data security and data protection could adversely affect our financial condition, operating results and reputation.
Legal and Regulatory Risks
•We are subject to extensive laws and regulations, which increase our costs and could restrict the conduct of our business, and violations or alleged violations of such laws and regulations could have a material adverse effect on our reputation, business and results of operations.
•Changes in tax laws and regulations could have a material adverse impact on our results of operations and financial condition.
•Our business is subject to risks related to litigation and regulatory actions.
•Our business is subject to risks related to reductions in the insurance premium rates we charge.
•Changes in insurance regulation may reduce our profitability and limit our growth.
General Risk Factors
•Our common stock may be subject to stock price and trading volume volatility.
•Employee misconduct could harm us by subjecting us to significant legal liability, regulatory scrutiny and reputational harm.
•Applicable laws and our certificate of incorporation and by-laws may discourage takeovers and business combinations that some stockholders might consider to be in their best interests.
For a more complete discussion of these risks, please see below.
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.
The success of our business depends largely on our relationships and contractual arrangements with significant clients, distributors and other parties, including vendors. Many of these arrangements are exclusive and some rely on preferred provider or similar relationships. If our key clients, distributors or other parties terminate important business arrangements with us, or renew contracts on terms less favorable to us, we may fail to meet our business objectives and targets, and our cash flows, results of operations and financial condition could be materially adversely affected.
Each of our Global Lifestyle and Global Housing segments receives a substantial portion of its revenue from a few clients. A reduction in business with or the loss of one or more of our significant clients could have a material adverse effect on the results of operations and cash flows of individual segments or the Company. Reliance on a few significant clients may weaken our bargaining power, and we may be unable to renew contracts with them without concessions (including up-front payments) or on favorable terms or at all. Examples of important business arrangements include, at Global Lifestyle, exclusive and non-exclusive relationships with mobile device carriers, retailers, dealerships and agents, MSOs, OEMs, consumer electronics retailers, appliance retailers (including e-commerce retailers), and financial, insurance and other institutions through which we distribute our products and services. At Global Housing, we have exclusive and non-exclusive relationships with mortgage lenders and servicers, manufactured housing lenders, property managers, and financial, insurance and other institutions.
We are subject to the risk that clients, distributors and other parties may face financial difficulties (including as a result of macroeconomic challenges), reputational issues, problems with respect to their own products and services, or regulatory restrictions or compliance issues that may lead to lower than expected or cessation of sales of our products and services and have other adverse impacts on our results of operations or financial condition. In addition, our clients and other parties with whom we do business may change their strategic priorities or initiatives, including exiting or deprioritizing products, services, programs, distribution channels or lines of business that we service or support, or they may disintermediate us by developing internal capabilities, products or services that would allow them to service their clients without our involvement, which could materially reduce our revenues and profits. Furthermore, if one or more of our clients or distributors, for example in the wireless, automotive or mortgage servicing markets, consolidate or align themselves with other companies with whom we do not do business, they may choose to utilize or distribute the products and services of our competitors, which could materially reduce our revenues and profits.
Significant competitive pressures, changes in customer preferences and disruption could adversely affect our results of operations.
We compete for business, customers, agents and other distribution relationships with many insurance companies, financial services companies, mobile device repair and logistics companies, technology and software companies and specialized
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competitors that focus on one market, product or service. Some of our competitors may offer a broader array of products and services than we do or be better able to tailor those products and services to customer needs, including through better technology systems or infrastructure, or may have greater diversity of distribution resources, better brand recognition, more competitive pricing, lower costs, greater financial strength, more resources or higher ratings.
There is a risk that purchasers may be able to obtain more favorable terms and offerings from competitors, vendors or other third parties, including pricing and technology. Additionally, customers may turn to our competitors as a result of our or our client’s failure, or perceived failure, to deliver on customer expectations, product or service flaws, technology issues, gaps in operational support or other issues affecting customer experience. As a result, competition may adversely affect the persistency of our policies, our ability to sell products and provide services, maintain client relationships, and our revenues and results of operations.
To remain competitive in many of our businesses, we must anticipate and respond effectively to changes in customer preferences, new industry standards, evolving distribution models, and disruptive technology developments and alternate business models. The evolving nature of consumer needs and preferences and improvements in technology could result in a reduction in consumer demand and in the prices of the products and services we offer. In addition, across many of our businesses, we must respond to the threat of disruption by traditional players, such as insurers, as well as from new entrants, such as “Insurtech” start-up companies and others. These players are focused on using technology and innovation to simplify and improve the customer experience, increase efficiencies, alter business models and effect other potentially disruptive changes in the markets in which we operate. In order to maintain a competitive position, we must continue to invest in new technologies and new ways to deliver our products and services. If we do not anticipate and respond to customer preferences and disruptive changes, our business and results of operations could be adversely impacted.
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.
Our strategy is focused on delivering long-term profitable growth. As part of our strategy, we are developing new and innovative products and services, and enhancing existing offerings. We are investing in technology and other capabilities to continuously improve the customer experience, while seeking to increase efficiencies. We will continue to incur expenses related to, among other things: investments in digital capabilities and large-scale, critical programs, such as information technology and global financial systems and infrastructure; research and development of new products and capabilities; scaling our global operations, including accessing the global labor market; and costs associated with the implementation of new contracts and businesses in runoff, including sharing economy and small commercial, and improvements in operational efficiency. In December 2022, we announced restructuring initiatives that include realigning our organizational structure and talent to support our business strategy, which has resulted in severance and employee benefits charges, and accelerating ongoing real estate consolidation efforts to support work-from-home arrangements. Actual costs to implement these initiatives may exceed our estimates and we may not be able to fully realize our expected run rate savings and operational efficiency improvements. Our long-term strategy depends on successful operational execution and our ability to execute on our transformational initiatives, including acquisitions, combined with our ability to innovate and develop new products, achieve operating efficiencies and attract and retain a global and diverse workforce. See “ – We may be unable to find suitable acquisition candidates at attractive prices, integrate acquired businesses or divest of non-strategic businesses effectively or identify new areas for organic growth, which could have a material adverse effect on our business, financial condition and results of operations.”
We rely on the continued service of key executives, senior leaders, highly-skilled personnel and a high-performing workforce to achieve our long-term strategy. We believe that our future success depends in substantial part on our ability to attract, recruit, motivate, develop and retain a high-performing workforce, particularly those with specialized industry knowledge or within critical or in-demand areas such as sales, digital, customer experience, data and analytics, and supply chain, across our lines of businesses. Doing so may be difficult due to many factors, including fluctuations in economic and industry conditions; employee expectations; the effectiveness of our talent strategies and total rewards and wellbeing programs, including compensation; and fluctuations in the labor market, including rising wages and competition for talent, which has increased due to persistent labor shortages and wage inflation. In addition, the global talent market and shift to remote or hybrid work arrangements at many companies, including us, have significantly increased competition for highly-skilled personnel, who are no longer limited to opportunities within a particular geographic area. A lack of employee engagement, including as a result of working remotely, may reduce efficiency and productivity; increase turnover, burnout and absenteeism; cause product development delays and hamper new product innovation; and otherwise adversely affect our business and impede the achievement of our strategy. We rely on attracting and retaining talent, including at the executive level, with diverse backgrounds and experiences to effectively oversee our businesses and our long-term strategy. If we do not succeed in attracting, retaining and motivating key personnel, including diverse personnel, our revenue growth and profitability may be materially adversely affected. Furthermore, our business and results of operations could be adversely affected if we fail to adequately plan for and successfully carry out the succession of our key executives and senior leaders.
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We may be unable to find suitable acquisition candidates at attractive prices, integrate acquired businesses or divest of non-strategic businesses effectively or identify new areas for organic growth, which could have a material adverse effect on our business, financial condition and results of operations.
There can be no assurance that we will continue to be able to identify suitable acquisition candidates or new venture opportunities, or to finance or complete transactions on acceptable terms. Additionally, the integration of acquired businesses and divestiture of non-strategic businesses may result in significant challenges and additional costs, and we may be unable to accomplish such transactions smoothly or successfully.
Acquisitions and divestitures of non-strategic businesses may not provide us with the benefits that we anticipate, require significant effort and expenditures, and entail numerous risks, difficulties and uncertainties. These include, among others, diversion of management’s attention and resources to the integration of operations and infrastructure, which could otherwise have been devoted to other strategic opportunities; inaccurate assessment of risks and liabilities; difficulties in realizing projected efficiencies, synergies and cost savings, including the incurrence of unexpected integration or divestiture costs; difficulties in keeping existing customers and obtaining new customers; exposure to jurisdictions or businesses with heightened legal and regulatory risks, including corruption, which may increase compliance costs; difficulties in integrating operations and systems, including cybersecurity and other technology systems, and internal control over financial reporting; difficulties in assimilating employees and corporate cultures; failure to achieve anticipated revenues, earnings, cash flows, business opportunities and growth prospects; an increase in our indebtedness or future borrowing costs; and limitations on our ability to access additional capital when needed. Our failure to adequately address these and other transaction risks, difficulties and uncertainties could materially adversely affect our results of operations and financial condition.
The market price of our stock may decline if we are unable to integrate acquired businesses or divest of non-strategic businesses successfully, if the integration or divestiture takes longer than expected or fails to achieve financial benefits to the extent anticipated by financial analysts or investors, or if the effect of the business combination on the financial results of the combined company or the divestiture on the financial results of the standalone company is otherwise not consistent with the expectations of financial analysts or investors.
Our ability to effectively identify and capitalize on opportunities for organic growth depends on, among other things, our ability to: deliver on customer expectations and provide a positive customer experience; successfully execute large-scale, critical programs and projects in a timely and cost-effective manner; identify and successfully enter and market our services in new geographic markets and market segments; recruit and retain qualified personnel; coordinate our efforts across various geographic markets and market segments; maintain and grow relationships with our existing customers and expand our customer base; offer new products and services; form strategic alliances and partnerships; secure key vendor and distributor relationships; and access sufficient capital. There can be no assurance that we will be successful in executing on our organic growth initiatives or that those initiatives will provide us with the expected benefits. Our failure to effectively identify and capitalize on opportunities for organic growth could have a material adverse effect on our results of operations and financial condition. See “ – 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.”
Our inability to successfully recover should we experience a business continuity event could have a material adverse effect on our business, financial condition and results of operations.
If we experience a business continuity event, such as an earthquake, hurricane, flood, terrorist attack, pandemic, security breach, cyber attack, power loss, telecommunications outage or other systems failure, or other disaster, our ability to continue operations will depend on an effective business continuity and disaster recovery plan, including the safety and continued availability of our personnel, vendors and other third parties and facilities, and the proper functioning of our telecommunications and other systems and operations. An extended period of such conditions may strain our business continuity and disaster recovery plan, introduce additional operational risk, including cybersecurity and fraud risks, and negatively impact employee morale, and our inability to successfully recover from a business continuity event could have a material adverse effect on our business, financial condition and results of operations. We have from time to time experienced business continuity events, including events that impacted the availability of our systems and the COVID-19 pandemic that impacted various aspects of our operations such as the safety and continued availability of our personnel. See “ –Technology, Cybersecurity and Privacy Risks – The failure to effectively maintain and modernize our information technology systems and infrastructure and integrate those of acquired businesses could adversely affect our business.”
Our operations depend upon our ability to protect our technology infrastructure against damage and interruption. If a business continuity event occurs, we could lose Company, customer, vendor and other third-party data, lose significant processing capability or experience interruptions to our operations or delivery of products and services to our clients and their customers, which has occurred from time to time and which could have a material adverse effect on our business, financial condition and results of operations. A cyber attack or other business continuity event affecting us or key third parties with whom we work could result in a significant and extended disruption in the functioning of our information technology systems
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or operations, requiring us to incur significant expense to address and remediate or otherwise resolve such issues. An extended outage could result in the loss of income and clients, negative publicity and reputational damage, substantial volatility in our financial results and a decline in our revenues. See “ –Technology, Cybersecurity and Privacy Risks – We could incur significant liability if our information technology systems or those of third parties are breached or we or third parties otherwise fail to protect the security of data residing on our respective systems, which could adversely affect our business and results of operations.”
The risk of business disruption is more pronounced in certain geographic areas across the world, including the cities in which our device care centers, data centers and operations personnel are located; major metropolitan centers, such as Atlanta, where our headquarters is located; and certain catastrophe-prone areas, such as Miami, Florida, where we have significant operations. This risk is heightened in certain countries and regions in which we operate that are subject to higher potential threat of terrorist attacks, military conflicts, political instability and data breaches.
A disaster or other business continuity event on a significant scale or affecting our key businesses or our data centers, or our inability to successfully and quickly recover from such an event and any legislative and regulatory responses thereto, could materially interrupt our business operations and result in material financial loss, loss of human capital, regulatory actions, reputational harm, loss of customers or damaged customer relationships, legal liability and other adverse consequences. Our liability insurance policies may not fully cover, in type or amount, the cost of a successful recovery in the event of such a disruption.
Failure to successfully manage vendors and other third parties could adversely affect our business.
As we continue to improve operating efficiencies, we rely on vendors and other third parties, including independent contractors, to conduct business and provide services to our clients. For example, we use vendors and other third parties for business, investment management, information technology, operations, facilities management and other services. We take steps to monitor and regulate the performance of vendors and other third parties, including in our agreements with such parties, but our oversight controls could prove inadequate. Since we do not fully control the actions of vendors and other third parties, we are subject to the risk that their decisions or operations adversely impact us and replacing them could create significant delay and expense. If these vendors or other third parties fail to satisfy their obligations to us or if they fail to comply with legal or regulatory requirements in a high-quality and timely manner, our operations and reputation could be compromised, we may not realize the anticipated economic and other benefits from these arrangements, and we could suffer adverse legal, regulatory and financial consequences. In addition, these third parties face their own technology, operating, business and economic risks, and any significant failures by them, including the improper use or disclosure of our confidential client, employee or Company information or failure to comply with applicable law, could cause harm to our reputation or otherwise expose us to liability. An interruption in or the cessation of service by any service provider as a result of systems failures, capacity constraints, financial difficulties or for any other reason could disrupt our operations, impact our ability to offer certain products and services and result in contractual or regulatory penalties, liability claims from clients or employees, damage to our reputation and harm to our business. If we are unable to attract and retain relationships with qualified vendors, independent contractors and other third-party service providers, or if changes in law or judicial decisions require independent contractors to be classified as employees, our business could be significantly adversely affected.
To the extent we engage international vendors or third parties to provide services or carry out business functions, we are exposed to the risks that accompany operations in a foreign jurisdiction, including international economic and political conditions, foreign laws and regulations, fluctuations in currency values and, potentially, increased risk of data breaches. For more information on the risks associated with the use of international vendors and third parties, see “ – We face risks associated with our international operations.”
We face risks associated with our international operations.
Our international operations face economic, political, legal, compliance, regulatory, operational, supply chain and other risks. For example, we face the risk of restrictions on currency conversion and the repatriation of non-U.S. investments and earnings; burdens and costs of compliance with a variety of foreign laws and regulations and the associated risk and costs of non-compliance; exposure to undeveloped or evolving legal systems, which may result in unpredictable or inconsistent application of laws and regulations; exposure to commercial, political, legal or regulatory corruption; political, economic or other instability in countries in which we conduct business, including possible terrorist acts; the imposition of sanctions, tariffs, trade barriers or other protectionist laws or business practices that favor local competition, increase costs and may otherwise adversely affect our business; inflation and foreign exchange rate fluctuations; diminished ability to enforce our contractual rights; potential increased risk of data breaches; differences in cultural environments; changes in regulatory requirements, including changes in regulatory treatment of certain products or services; exposure to local economic conditions and its impact on our clients’ performance and creditworthiness; and a competitive global labor market.
If our business model is not successful in a particular country or region, or a country or region in which we do business experiences economic, political or other instability, we may lose all or part of our investment in that country or region. As we
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continue to scale our global operations, our business becomes increasingly exposed to these and other risks, in particular where certain countries or regions have recently experienced economic or political instability, such as in Argentina and Brazil.
As we engage with international clients, we may make certain up-front commission payments or similar cash outlays, which we may not recover if the business does not develop as we expect. These up-front payments are typically supported by various protections, such as letters of credit, letters of guarantee and real estate, but we may not fully or timely recover amounts owed to us as a result of difficulties in enforcing contracts or judgments in undeveloped or evolving legal systems and other factors. In addition, we rely on fronting carriers in certain countries to maintain their licenses and product approvals, satisfy local regulatory requirements and continue in business. If they fail to do so, our business, reputation, and relationships with our clients and their customers could be adversely affected.
For additional information on the significant international regulations that apply to us, including data protection regulations, and the risks relating thereto, see “Item 1 –Business –Regulation –International Regulation” in this Report, “ –Legal and Regulatory Risks – We are subject to extensive laws and regulations, which increase our costs and could restrict the conduct of our business, and violations or alleged violations of such laws and regulations could have a material adverse effect on our reputation, business and results of operations,” “ –Legal and Regulatory Risks – Our business is subject to risks related to litigation and regulatory actions” and “ – Technology, Cybersecurity and Privacy Risks – The costs of complying with, or our failure to comply with, U.S. and foreign laws related to privacy, data security and data protection could adversely affect our financial condition, operating results and reputation.”
Our mobile business is subject to the risk of declines in the value and availability of mobile devices in our inventory, and to export compliance and other risks.
The value of the mobile devices that we collect and refurbish for our clients may fall below the prices we have paid or guaranteed, which could adversely affect our profitability. In our mobile business, we carry inventory to meet the delivery requirements of certain clients. These devices are ultimately disposed of through sales to third parties. In addition, our inventory includes devices and parts on consignment with our nationwide network of nearly 500 Cell Phone Repair locations for in-store repairs. Our mobile business is subject to the risk that the value, including selling price, or availability of devices and parts will be adversely affected by: technological changes affecting the usefulness or desirability of the devices and parts; physical problems resulting from faulty design or manufacturing; increased competition; decreased customer demand, including due to changes in customer preferences, changes in client promotions and seasonality; supply chain constraints; and growing industry emphasis on cost containment. The value and availability of devices may also be impacted by adverse foreign trade relationships and an escalation of U.S.-China and China-Taiwan trade tensions, including with respect to trade policies, treaties, government relations, tariffs and other trade restrictions. If the value or availability of devices or parts is significantly reduced, it could have a material adverse effect on our profitability.
Our sales of mobile devices to third parties domiciled outside of the U.S. subject us to compliance risks relating to export control laws and regulations, which may adversely impact our ability to find buyers. Furthermore, certain businesses we acquire may violate, and from time to time have violated, such laws and regulations, which could subject us to liability. Non-compliance with such laws could adversely affect our business, reputation, relationships with our clients and their customers, financial condition and results of operations. See “ – We face risks associated with our international operations” and “ – Significant competitive pressures, changes in customer preferences and disruption could adversely affect our results of operations.”
Sales of our products and services may decline if we are unable to develop and maintain distribution sources or attract and retain sales representatives and executives with key client relationships.
We distribute many of our insurance products and services through a variety of distribution channels, including mobile carriers, financial institutions, mortgage lenders and servicers, retailers, association groups, other third-party marketing organizations and, to a limited extent, our own captives and affiliated agents. Our relationships with these distributors are significant for our revenues and profits. There is intense competition for distribution outlets. Agents who distribute our products are typically not exclusively dedicated to us, but also market the products of our competitors. In some cases, such agents may be affiliated with other insurers who may choose to write the product that such agents are now selling on our behalf.
We have our own sales representatives. We depend in large part on our sales representatives and segment executives to develop and maintain client relationships. Our inability to attract and retain effective sales representatives and executives with key client relationships could materially adversely affect our results of operations and financial condition.
We face risks associated with joint ventures, franchises and investments in which we share ownership or management with third parties.
From time to time, we have and may continue to enter into joint ventures and franchises and invest in entities in which we share ownership or management with third parties. In certain circumstances, we may not have complete control over governance, financial reporting, operations, legal and regulatory compliance or other matters relating to such joint ventures,
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franchises or entities. As a result, we may face certain operating, financial, legal and regulatory compliance and other risks relating to these joint ventures, franchises and entities, including risks related to the financial strength of joint venture partners, franchisees and other investors; the willingness of joint venture partners, franchisees and other investors to provide adequate funding for the joint venture, franchise or entity; differing goals, strategies, priorities or objectives between us and joint venture partners, franchisees or other investors; our inability to unilaterally implement actions, policies or procedures with respect to the joint venture, franchise or entity that we believe are favorable; legal and regulatory compliance risks relating to actions of the joint venture, franchise, entity, joint venture partners, franchisees or other investors; the risk that the actions of joint venture partners, franchisees and other investors could damage our brand image and reputation; and the risk that we will be unable to resolve disputes with joint venture partners, franchisees or other investors. As a result, joint ventures, franchises and investments in which we share ownership or management subject us to risk and may contribute significantly less than anticipated to our earnings and cash flows.
Catastrophe and non-catastrophe losses, including as a result of climate change and the current inflationary environment, could materially reduce our profitability and have a material adverse effect on our results of operations and financial condition.
Our insurance operations expose us to claims arising from catastrophes and non-catastrophes, particularly in our homeowners insurance, renters insurance and flood offerings, as well as in certain businesses the Company is exiting, including the sharing economy and commercial liability businesses. Catastrophes include hurricanes, windstorms, tornados, earthquakes, hailstorms, floods, severe winter weather, wildfires, epidemics and pandemics, terrorist attacks and accidents, and may result in reportable catastrophe losses, which are individual catastrophe events that generate losses in excess of $5.0 million, pre-tax and net of reinsurance. Non-catastrophe losses include losses from isolated fire, water and wind damage, theft and vandalism, as well as general liability in renters and homeowners policies, and losses from the sharing economy and small commercial businesses. Losses are impacted by increases in inflation and supply chain disruptions that increase the cost of materials and labor required to settle claims. In addition, non-catastrophe losses related to the sharing economy and small commercial businesses in particular have been, and may continue to be, impacted by increased claim settlement and loss adjustment expenses. We have experienced, and expect to continue to experience, catastrophe and non-catastrophe losses that materially reduce our profitability and impact our available capital, which may have a material adverse effect on our results of operations and financial condition.
Changing weather patterns and climate change have increased the unpredictability, frequency and severity of weather-related events, such as wildfires, hurricanes, floods and tornadoes, particularly in coastal areas, and may result in increased claims and higher catastrophe losses, which could have a material adverse effect on our results of operations and financial condition. Regulation in the area of climate change is increasing and we cannot predict how legal, regulatory, political and social responses to concerns around climate change may impact our business. While the frequency and severity of catastrophes are inherently unpredictable, increases in the value and geographic concentration of insured property and the effects of inflation have and may continue to increase the frequency and severity of claims from catastrophes. In addition, legislative and regulatory initiatives and court decisions may have the effect of limiting the ability of insurers to manage catastrophe losses, including by forcing expansion of certain insurance coverages for catastrophe claims, which may adversely impact our business. See “ – Macroeconomic, Political and Global Market Risks – General economic, financial market and political conditions and conditions in the markets in which we operate may materially adversely affect our results of operations and financial condition.”
Catastrophe and non-catastrophe losses can vary widely and could significantly exceed our expectations. We use modeling tools that help estimate our probable losses, but these projections are based on historical data and other assumptions that may differ materially from actual events, and their reliability and predictive value may decrease as a result of climate change. These modeling tools may not be able to anticipate emerging trends or changing marketplace conditions. See “ – 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.”
We purchase reinsurance for certain risks, but if the severity of an event were sufficiently high, our losses could exceed our reinsurance coverage limits and could have a material adverse effect on our results of operations and financial condition. In addition, recent availability and cost of reinsurance have been adversely impacted by market conditions. See “ – Financial Risks – Reinsurance may not be adequate or available to protect us against losses, and we are subject to the credit risk of reinsurers.” In addition, claims from catastrophe and non-catastrophe events could result in substantial volatility in our results of operations and financial condition for any particular fiscal quarter or year.
Accounting rules do not permit insurers to reserve for catastrophe or non-catastrophe events before they occur. Once such an event occurs, the establishment of appropriate reserves is an inherently uncertain and complex process. The ultimate cost of losses may vary materially from recorded reserves and such variance may have a material adverse effect on our results of operations, financial condition and capital. See “ – Financial Risks – Our actual claims losses may exceed our reserves for
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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.”
Because Global Housing’s lender-placed homeowners and lender-placed manufactured housing insurance products are designed to automatically provide property coverage for client portfolios, our exposure to certain catastrophe-prone locations, such as Florida, California, Texas, North Carolina and South Carolina, may increase. The withdrawal of other insurers from these or other states may lead to adverse selection and increased use of our products in these areas, and may negatively affect our loss experience and increase our costs.
Negative publicity relating to our business, industry or clients may have a material adverse effect on our financial results.
We communicate with and distribute our products and services ultimately to individual consumers. From time to time, regulators, consumer advocacy groups and the media may focus their attention on our products and services, which may subject us to negative publicity. We may be negatively affected if another company in one of our industries or in a related industry, or if one of our clients, engages in practices that subject our industry or businesses to negative publicity. Negative publicity may result from judicial inquiries, unfavorable outcomes in lawsuits, social media, regulatory or governmental actions with respect to our products or services and industry commercial practices. For example, we may be subject to regulatory queries to assess practices in the insurance sector that potentially disadvantage people of color or historically underrepresented groups in certain insurance lines of business, or whether consumers have received fair value from our products and services. In addition, there is increased investor and regulatory focus on sustainability matters, including diversity, equity and inclusion, and commitment to long-term sustainability and efforts related to climate. A failure or perceived failure in our achievement of various sustainability initiatives and goals we may from time to time announce, or an actual or perceived increase in related risks as a result of our or our industry’s business activities, may subject us to negative publicity.
Negative publicity may cause increased regulation and legislative scrutiny of industry practices as well as increased litigation or enforcement action by civil and criminal authorities. Additionally, negative publicity may increase our costs of doing business and adversely affect our profitability by impeding our ability to market our products and services, constraining our ability to price our products appropriately for the risks we are assuming, requiring us to change the products and services we offer or increasing the regulatory burdens under which we operate.
Macroeconomic, Political and Global Market Risks
General economic, financial market and political conditions and conditions in the markets in which we operate may materially adversely affect our results of operations and financial condition.
Limited availability of credit, deteriorations of the global mortgage and real estate markets, declines in consumer confidence and consumer spending, including in Europe, increases in prices or in the rate of inflation, periods of high unemployment or labor shortages, persistently low or rapidly increasing interest rates, disruptive geopolitical events, including the ongoing conflict in Ukraine, China-Taiwan relations and supply chain disruptions, and other events outside of our control, such as a major epidemic or a pandemic, including the COVID-19 pandemic, political or civil unrest, or the possibility of a U.S. government default on its debt obligations, could contribute, and in some cases have contributed, to increased volatility and diminished expectations for the economy and the financial markets, including the market for our stock, and may materially adversely affect our business, results of operations and financial condition. Specifically, during periods of economic downturn:
•individuals and businesses may (i) choose not to purchase our insurance products, warranties and other products and services, (ii) terminate existing policies or contracts or permit them to lapse and (iii) choose to reduce the amount of coverage they purchase;
•conditions in the markets in which we operate may deteriorate, impacting, among other things, consumer demand for the mobile devices, electronics, appliances, automobiles, housing and other products we insure, including the rate of introduction and success of new products, technologies and promotional programs that provide opportunities for growth;
•clients are more likely to underperform expectations, experience financial distress and declare bankruptcy, which could have an adverse impact on the remittance of premiums from such clients and the collection of receivables from such clients for items such as unearned premiums and could otherwise expose us to credit risk;
•claims on certain specialized insurance products tend to rise;
•there is a risk of fraudulent insurance claims;
•there may be an impairment in the value of our tangible and intangible assets and our investment portfolio may be adversely affected;
•there may be fluctuations in the labor market and a negative impact on employee retention;
•our ability to access the capital markets on favorable terms or at all may be negatively impacted; and
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•there may be substantial decreases in loan availability and origination, which may reduce the demand for credit insurance that we write or debt cancellation or debt deferment products that we administer.
General inflationary pressures and supply chain disruptions, including within the current environment, has and may continue to increase the costs of paying claims, including for materials and labor, particularly in our Global Housing segment. In addition, inflationary pressures and shortages in the labor market have increased, and may continue to increase, our labor costs, including employee wages, and rising interest rates in response to rising inflation has impacted, and may continue to impact, our investment portfolio and capital. See “ – 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.” Conversely, deflationary pressures may affect the pricing of our products and services.
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.
We maintain reserves to cover our estimated ultimate exposure for claims and claim adjustment expenses with respect to reported claims and incurred but not reported (“IBNR”) claims as of the end of each accounting period. Whether calculated under accounting principles generally accepted in the United States of America (“GAAP”), Statutory Accounting Principles or accounting principles applicable in foreign jurisdictions, reserves are estimates. Reserving is inherently a matter of judgment and our ultimate liabilities could exceed reserves for a variety of reasons, including changes in macroeconomic factors (such as inflation, unemployment and interest rates), case development and other factors. From time to time, we adjust our reserves, and may adjust our reserving methodology, as these factors, our claims experience and estimates of future trends in claims frequency and severity change. In 2022, we have had $77.4 million of unfavorable loss development from our sharing economy and small commercial products, two lines of business that we expect to fully exit. Reserve development, changes in our reserving methodology and paid losses exceeding corresponding reserves could have a material adverse effect on our results of operations, profitability and capital. See “Item 7 –Management’s Discussion and Analysis of Financial Condition and Results of Operations –Critical Accounting Estimates –Reserves” in this Report for additional detail on our reserves.
We may be unable to accurately predict and price for claims and other costs, which could reduce our profitability.
Our profitability could be reduced if we are unable to accurately predict and price for claims and other costs, including the frequency and severity of property and other claims. This ability could be affected by various factors, including macroeconomic conditions, inflation, changes in the regulatory environment, changes in industry practices, changes in legal, social or environmental conditions, new technologies, or domestic and global supply chain and labor issues. In addition, modeling tools that support business decisions involve historical data and numerous assumptions that may differ materially from actual events. Climate change may make it more difficult to predict and model catastrophes, reducing our ability to accurately price our exposure to such events and mitigate risks. The inability to accurately predict and price for claims and other costs, including costs related to climate change and macroeconomic conditions, could materially adversely affect our results of operations and financial condition. See “ – 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.”
A decline in the financial strength ratings of our insurance subsidiaries could adversely affect our results of operations and financial condition.
Ratings are important considerations in establishing the competitive position of insurance companies. A.M. Best rates most of our domestic and significant international operating insurance subsidiaries. Moody’s and S&P rate three of our domestic operating insurance subsidiaries. These ratings are subject to periodic review by A.M. Best, Moody’s and S&P, and we cannot assure that we will be able to retain them. Rating agencies may change their methodology or requirements for determining ratings, or they may become more conservative in assigning ratings. S&P is expected to announce proposed changes to its rating methodologies for comment in first quarter 2023, the impact of which is uncertain at this time. Rating agencies could increase capital requirements for our subsidiaries or the enterprise, thereby reducing deployable capital at such subsidiary or at the holding company. Any reduction in these ratings could materially adversely affect our standing in the insurance industry and the demand for our products from intermediaries and consumers, which could materially adversely affect our results of operations.
As of December 31, 2022, our operations had a significant number of contracts that contain provisions that require the applicable subsidiaries to maintain minimum financial strength ratings, typically from A.M. Best, ranging from “A” or better to “B+” or better, depending on the contract. Our clients may terminate these contracts or fail to renew them if the subsidiaries’ ratings fall below these minimums. Termination of or failure to renew these agreements could materially and adversely affect our results of operations and financial condition.
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A credit rating agency downgrade of our corporate senior debt rating could materially and adversely impact on our business.
Currently, Assurant, Inc.’s senior debt is rated BBB by S&P and Baa2 by Moody’s, and both ratings carry a stable outlook.
If our senior debt credit ratings were downgraded, particularly if downgraded below investment grade, our business, financial condition and results of operations, and perceptions of our financial strength, could be materially and adversely affected. A downgrade could adversely affect our liquidity and ability to access liquidity quickly, increase our borrowing costs, decrease demand for our debt securities, and increase the expense and difficulty of financing our operations, including temporary financing for subsidiaries necessary to address any immediate liquidity concerns, or refinancing our existing indebtedness on similar or more favorable terms. For example, the interest rate payable on certain series of our senior notes is subject to increase if either of S&P or Moody’s downgrades the credit rating assigned to such series of senior notes to BB+ or below or to Ba1 or below, respectively. Additionally, we could be subject to more restrictive financial and operational covenants in any indebtedness we issue in the future, which could reduce our operational flexibility. There can be no assurance that our credit ratings will not be downgraded. See Note 19 to the Consolidated Financial Statements included elsewhere in this Report for additional information on our senior notes and the impact of rating changes.
Fluctuations in the exchange rate of the U.S. Dollar and other foreign currencies may materially and adversely affect our results of operations.
While most of our costs and revenues are in U.S. Dollars, some are in other currencies. Because our financial results in certain countries are translated from local currency into U.S. Dollars upon consolidation, our results of operations, including period-over-period comparisons, have been and may continue to be affected by foreign exchange rate fluctuations. To a large extent, we do not currently hedge foreign currency risk. If the U.S. Dollar weakens against a local currency, the translation of our foreign-currency-denominated balances will result in increased net assets, net revenue, operating expenses and net income. Similarly, our net assets, net revenue, operating expenses and net income will decrease if the U.S. Dollar strengthens against a local currency. In 2022, we reported a $13.4 million unfavorable impact to net income due to foreign exchange-related losses. These fluctuations in currency exchange rates may result in losses that materially and adversely affect our results of operations.
Additionally, we may incur foreign exchange losses in connection with the designation of the U.S. Dollar as the functional currency of our international subsidiaries. For example, management has classified Argentina’s economy as highly inflationary in accordance with GAAP accounting requirements and, as a result, the functional currency of our Argentina subsidiaries was changed from the local currency to U.S. Dollars and their non-U.S. Dollar denominated monetary assets and liabilities were subject to remeasurement resulting in losses. We could incur additional losses, which would adversely affect our results of operations. For additional information on the change in functional currency for our Argentina subsidiaries and the effect thereof, see Note 2 to the Consolidated Financial Statements included elsewhere in this Report.
An impairment of our goodwill or other intangible assets could materially adversely affect our results of operations and book value.
As a result of acquisitions, we have added a considerable amount of goodwill and other intangible assets to our balance sheet. Goodwill represented 62% of our total equity as of December 31, 2022. We review our goodwill annually in the fourth quarter for impairment or more frequently if indicators of impairment exist. Such circumstances 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. In addition, other intangible assets collectively represented 15% of our total equity as of December 31, 2022. Estimated useful lives of finite intangible assets are reassessed on an annual basis. Generally, other intangible assets with finite lives are only tested for impairment if there are indicators of impairment identified, including a significant adverse change in the extent, manner or length of time in which the other intangible asset is being used or a significant adverse change in legal factors or in the business climate that could affect the value of the other intangible asset.
An impairment of goodwill or other intangible assets, or significant reduction in the useful lives of intangible assets, could have a material adverse effect on our profitability and book value. For more information on our annual goodwill impairment testing, the goodwill of our segments and related reporting units and intangible asset impairment testing, see “Item 7 –Management’s Discussion and Analysis of Financial Condition and Results of Operations –Critical Accounting Estimates – Valuation and Recoverability of Goodwill” and Notes 2 and 15 to the Consolidated Financial Statements included elsewhere in this Report.
Failure to maintain effective internal control over financial reporting could have a material adverse effect on our business and stock price.
As a public company, we are required to maintain effective internal control over financial reporting. While management has certified that our internal control over financial reporting was effective as of December 31, 2022, because internal control over financial reporting is complex, there can be no assurance that our internal control over financial reporting will be effective
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in the future. We rely on manual processes and procedures that subject us to increased risk of error and internal control failure compared to automated processes. In second quarter 2022, we identified and disclosed certain accounting errors. Although we are in the process of implementing an integrated global financial system to, among other things, minimize our reliance on and use of manual processes, there can be no assurance that the implementation will be completed in a timely manner or on budget, or that it will achieve all of its intended goals. Any failure to implement required controls, or difficulties or errors encountered in their operation, including as a result of remote work arrangements, could adversely affect our results of operations or cause us to fail to meet our reporting obligations, which could deteriorate investor confidence. If we are not able to maintain or document effective internal control over financial reporting, our independent registered public accounting firm would be unable to certify the effectiveness of our internal control over financial reporting or opine that our financial statements fairly present, in all material respects, our financial position, results of operations and cash flows in conformity with GAAP. Significant deficiencies or material weaknesses in internal control over financial reporting may prevent us from reporting our financial information on a timely basis or cause us to restate previously issued financial information, and thereby subject us to litigation and adverse regulatory consequences, including fines and other sanctions. If any of the foregoing were to occur, investor confidence in us and the reliability of our financial statements could erode, resulting in a decline in our stock price, impairing our ability to raise capital, negatively affecting our reputation and subjecting us to legal and regulatory risk.
Unfavorable conditions in the capital and credit markets may significantly and adversely affect our access to capital and our ability to pay our debts or expenses.
The global capital and credit markets have experienced periods of uncertainty, volatility and disruption, including the possibility of a U.S. government default on its debt obligations, changes to U.S. and foreign tax and trade policies, imposition of new or increased tariffs, other trade restrictions, other government actions, foreign currency fluctuations and other factors. Our ability to raise money during such periods could be severely or entirely restricted. Our ability to borrow or raise money is important if our operating cash flow is insufficient to pay our expenses, meet capital requirements, repay debt, pay dividends on our common stock or make investments. As a holding company, we have limited direct operations of our own. The principal sources of our liquidity are dividends and other statutorily permissible payments from our subsidiaries, cash flow from our investment portfolio, the Credit Facility (as defined below) and liquid assets, consisting mainly of cash or assets that are readily convertible into cash. Sources of liquidity in normal markets include a variety of short-and long-term instruments. If our access to the capital and credit markets is restricted, our cost of capital could increase, thus decreasing our profitability and reducing our financial flexibility, including our ability to refinance maturities of existing indebtedness on similar or more favorable terms. Our results of operations, financial condition, cash flows and statutory capital position could be materially and adversely affected by periods of uncertainty, volatility and disruption in the capital or credit markets.
Our investment portfolio is subject to market risk, including changes in interest rates, that may adversely affect our results of operations and financial condition.
Investment returns are an important part of our profitability. Our investments are subject to market-wide risks and fluctuations, including in the fixed maturity and equity securities markets, which could impair our profitability, financial condition and cash flows. Further, in pricing our products and services, we incorporate assumptions regarding returns on our investments. Market conditions may not allow us to invest in assets with sufficiently high returns to meet our pricing assumptions and profit targets over the long term.
We are subject to interest rate risk in our investment portfolio. Changes in interest rates have, and may continue to, materially adversely affect the performance of some of our investments, including by materially reducing the fair value of and investment income from fixed maturity securities and increasing unrealized losses in our investment portfolio, which can adversely impact our capital. As of December 31, 2022, fixed maturity securities represented approximately 84% of our total investments and full year 2022 gross investment income from fixed maturity securities totaled $270.0 million. The fair market value of fixed maturity securities 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 generally increases or decreases directly with fluctuations in interest rates. In addition, actual investment income and cash flows from investments that carry prepayment risk, such as mortgage-backed and other asset-backed securities, may differ from those anticipated at the time of investment as a result of interest rate fluctuations.
Recent periods have been characterized by increasing interest rates. A prolonged period during which interest rates remain at high levels may result in greater unrealized losses in our investment portfolio. Conversely, a prolonged period during which interest rates are at lower levels may result in lower-than-expected investment income. Though we employ asset/liability management strategies to manage the adverse effects of interest rate changes, significant fluctuations may require us to liquidate investments prior to maturity at a significant loss to pay claims, which could have a material adverse effect on our results of operations and financial condition. See “Item 7A –Quantitative and Qualitative Disclosures About Market Risk –Interest Rate Risk” in this Report.
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Our investment portfolio is subject to credit, liquidity and other risks that may adversely affect our results of operations and financial condition.
We are subject to credit risk in our investment portfolio, primarily from our investments in corporate bonds, preferred stocks, leveraged loans, municipal bonds and commercial mortgages. Defaults by third parties in the payment or performance of their obligations could reduce our investment income and result in realized investment losses. The value of our investments may be materially adversely affected by downgrades in the corporate bonds included in our portfolio, increases in treasury rates or credit spreads and by other factors that may result in realized and unrealized investment losses and other-than-temporary impairments. The determination that a security has incurred an other-than-temporary impairment requires the judgment of management and there are inherent risks and uncertainties involved in making these judgments. Changes in facts, circumstances or critical assumptions could cause management to conclude that further impairments have occurred, which could lead to additional losses on investments. Each of these events may cause us to reduce the carrying value of our investment portfolio. For further details on net investment losses, see Note 8 to the Consolidated Financial Statements included elsewhere in this Report.
The value of any particular fixed maturity security is subject to impairment based on the creditworthiness of its issuer. As of December 31, 2022, fixed maturity securities represented approximately 84% and below investment grade securities (rated “BB” or lower by nationally recognized statistical rating organizations) represented approximately 5% of our total investments. Below investment grade securities generally are expected to provide higher returns but present greater risk and can be less liquid than investment grade securities. A significant increase in defaults and impairments on our fixed maturity securities portfolio could materially adversely affect our results of operations and financial condition. See “Item 7A –Quantitative and Qualitative Disclosures About Market Risk –Credit Risk” in this Report for additional information on the composition of our fixed maturity securities portfolio.
Equity securities represented approximately 4% of our total investments as of December 31, 2022. However, we have had higher percentages of equity securities in the past and may make more equity investments in the future. Investments in equity securities generally are expected to provide higher total returns but present greater risk to preservation of capital than our fixed maturity securities. All changes in the fair value of equity securities are reported in our statements of operations, which has increased the volatility of our financial results. See Note 2 to the Consolidated Financial Statements included elsewhere in this Report for more information.
Our investments in commercial mortgage loans on real estate (which represented approximately 4% of our total investments as of December 31, 2022) are relatively illiquid. If we require extremely large amounts of cash on short notice, we may have difficulty selling these investments at attractive prices and in a timely manner.
The manner in which we allocate our resources across the portfolio or the types of assets in which we seek to invest may increase credit, liquidity and other risks that may adversely affect our results of operations and financial condition.
The value of our deferred tax assets could become impaired, which could materially and adversely affect our results of operations and financial condition.
In accordance with applicable income tax guidance, we must determine whether our ability to realize the value of our deferred tax asset or to recognize certain tax liabilities related to uncertain tax positions is “more likely than not”. Under current income tax guidance, a deferred tax asset should be reduced by a valuation allowance, or a liability related to uncertain tax positions should be accrued, if, based on the weight of all available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized. The realization of deferred tax assets depends upon the existence of sufficient taxable income of the same character during the carryback or carry-forward periods.
In determining the appropriate valuation allowance, management made certain judgments relating to recoverability of deferred tax assets, use of tax loss and tax credit carry-forwards, levels of expected future taxable income and available tax planning strategies. The assumptions in making these judgments are updated periodically on the basis of current business conditions affecting us and overall economic conditions. These management judgments are therefore subject to change due to factors that include changes in our ability to realize sufficient taxable income of the same character in the same jurisdiction or in our ability to execute other tax planning strategies. Furthermore, any future changes in tax laws could impact the value of our deferred tax assets. Management will continue to assess and determine the need for, and the amount of, the valuation allowance in subsequent periods. Any change in the valuation allowance could have a material adverse impact on our results of operations and financial condition.
Reinsurance may not be adequate or available to protect us against losses, and we are subject to the credit risk of reinsurers.
As part of our overall risk and capacity management strategy, we purchase reinsurance for certain risks underwritten by our various operating segments. We also access the Florida Hurricane Catastrophe Fund (“FHCF”) to reinsure eligible Florida risks. Although reinsurers are liable to us for claims properly ceded under our reinsurance arrangements, we remain liable to the insured as the direct insurer on all risks reinsured. Ceded reinsurance arrangements therefore do not eliminate our obligation to
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pay claims. We are subject to credit risk with respect to our ability to recover amounts due from reinsurers. The inability to collect amounts due from reinsurers and any changes in the FHCF could materially adversely affect our results of operations and financial condition.
The availability and cost of reinsurance are subject to prevailing reinsurance market conditions, which have been, and in the future may continue to be, adversely impacted by: the occurrence of significant reinsured events, including catastrophes, or expectations regarding increased occurrences of such events due to climate change; and other impacts on reinsurers’ capital, such as increased demand for coverage driven by inflation, a volatile investment market or unforeseen litigation costs. Recently, premiums charged for reinsurance coverage increased significantly and we expect elevated pricing to continue through 2023. In the future, we may not be able to obtain reinsurance coverage for some of our businesses at commercially reasonable rates or at all. In such a situation, we might be adversely affected by state and other regulations that prohibit us from excluding catastrophe exposures or from withdrawing from or increasing premium rates in catastrophe-prone areas. In addition, we may not be able to renew our current reinsurance facilities or obtain other reinsurance facilities in adequate amounts, at favorable rates and with favorable terms. The inability to obtain reinsurance at favorable rates or at all could cause us to reduce the level of our underwriting commitments, take more risk, hold more capital or incur higher costs. Any of these developments could materially adversely affect our results of operations and financial condition.
Through reinsurance, we have sold or exited businesses that could again become our direct financial and administrative responsibility if the reinsurers become insolvent.
In the past, we have sold, and in the future we may sell, businesses through reinsurance ceded to third parties. We have exited certain businesses through reinsurance. We have a reinsurance recoverable balance with John Hancock Life Insurance Company (“John Hancock”) of $436.5 million as of December 31, 2022, related to the sale of our Long-Term Care division through reinsurance. The A.M. Best rating of John Hancock is currently A+. Certain assets backing reserves reinsured under this sale and other sales are held in trusts or separate accounts. However, if the reinsurers became insolvent, the assets in the trusts or separate accounts could prove insufficient to support the liabilities that would revert to us and we may again become responsible for administering these businesses. We do not currently have the administrative systems and capabilities to process these businesses. We might be forced to obtain such capabilities on unfavorable terms with a resulting material adverse effect on our results of operations and financial condition. In addition, other third parties to whom we have sold businesses in the past may in turn sell these businesses to other third parties, through reinsurance or otherwise, and we could face credit risks and risks related to the new administrative systems and capabilities of these third parties in administering these businesses.
For more information on these arrangements, including the reinsurance recoverables and risk mitigation mechanisms used, see “Item 7A –Quantitative and Qualitative Disclosures About Market Risks –Credit Risk” in this Report.
Due to the structure of our commission program, we are exposed to risks related to the creditworthiness and reporting systems of some of our agents, third-party administrators and clients.
We are subject to the credit risk of some of the agents, third-party administrators and clients with which we contract in our businesses. We may incur losses related to accounts receivables, write-downs of upfront fees, write-downs of deferred acquisition costs, insurance reserves held by third parties without collateral, reimbursement of claims or commissions prepaid by us and loans granted to such counterparties. In addition, some of our agents, third-party administrators and clients collect and report premiums or pay claims on our behalf. These parties’ failure to remit all premiums collected or to pay claims on our behalf on a timely and accurate basis could have an adverse effect on our results of operations.
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Our subsidiaries’ inability to pay us sufficient dividends could prevent us from meeting our obligations and paying future stockholder dividends.
As a holding company whose principal assets are the capital stock of our subsidiaries, we rely primarily on dividends and other statutorily permissible payments from our subsidiaries to meet our obligations for payment of interest and principal on outstanding debt obligations, to repurchase shares or debt, to pay for certain expenses, to acquire new businesses, and to pay dividends to common stockholders. Our subsidiaries’ ability to pay dividends and to make such other payments depends on their GAAP equity or statutory surplus, future earnings, cash position, rating agency requirements and regulatory restrictions, as applicable. Regulators could increase capital requirements for our subsidiaries, thereby reducing deployable capital at such subsidiary. Except to the extent that we are a creditor with recognized claims against our subsidiaries, claims of our subsidiaries’ creditors, including policyholders, have priority over our claims with respect to our subsidiaries’ assets and earnings. If any of our subsidiaries should become insolvent, liquidate or otherwise reorganize, our creditors and stockholders will have no right to proceed against our subsidiaries’ assets or to cause the liquidation, bankruptcy or winding-up of our subsidiaries under applicable liquidation, bankruptcy or winding-up laws. The applicable insurance laws of the jurisdiction where each of our insurance subsidiaries is domiciled would govern any proceedings relating to that subsidiary and the insurance authority of that jurisdiction would act as a liquidator or rehabilitator for the subsidiary.
The payment of dividends by any of our regulated domestic insurance company subsidiaries in excess of specified amounts (i.e., extraordinary dividends) must be approved by the subsidiary’s domiciliary jurisdiction department of insurance. Ordinary dividends, for which no regulatory approval is generally required, are limited to amounts determined by a formula, which varies by jurisdiction. The formula for the majority of the jurisdictions in which our subsidiaries are domiciled is based on the prior year’s statutory net income or 10% of the statutory surplus as of the end of the prior year. Some jurisdictions have an additional stipulation that dividends may only be paid out of earned surplus. If insurance regulators determine that payment of an ordinary dividend or any other payments by our insurance subsidiaries to us (such as payments under a tax sharing agreement or payments for employee or other services) would be adverse to policyholders or creditors, they may block such payments that would otherwise be permitted without prior approval. Future regulatory actions could further restrict our insurance subsidiaries’ ability to pay us dividends. For more information on the maximum amount of dividends our regulated U.S. domiciled insurance subsidiaries could pay us in 2022 under applicable laws and regulations, without prior regulatory approval, see “Item 5 –Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities –Dividend Policy.”
Any additional material restrictions on our insurance subsidiaries’ ability to pay us dividends could adversely affect our ability to pay any dividends on our common stock, service our debt and pay other expenses.
Our ability to declare and pay dividends on our capital stock may be limited.
Our declaration and payment of dividends on our common stock in the future will be determined by the Board in its sole discretion and will depend on various factors, including: our subsidiaries’ payment 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 factor the Board deems relevant. The payment of dividends on our common stock is subject to the preferential rights of preferred stock that the Board may create from time to time. The Credit Facility contains limitations on our ability to pay dividends to our stockholders if we are in default, or such dividend payments would cause us to be in default, of our obligations thereunder. In addition, if we defer the payment of interest on our Subordinated Notes (as defined hereafter), we generally may not make payments on our capital stock. Furthermore, the agreements governing any of our or our subsidiaries’ future indebtedness may limit our ability to declare and pay dividends on our common stock. In the event that any agreements governing any such indebtedness restrict our ability to declare and pay dividends in cash on our common stock, we may be unable to declare and pay dividends in cash on our common stock unless we can repay or refinance the amounts outstanding under such agreements.
At any time when we have given notice of our election to defer interest payments on the Subordinated Notes, we generally may not make payments on our capital stock, subject to certain limited exceptions.
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.
We use various modeling techniques and data analytics throughout the organization to analyze and estimate exposures, loss trends, and other risks associated with our assets, liabilities, profitability and cash flows. This includes both proprietary and third-party modeled outputs and related analysis to assist us in decision-making related to pricing and rate filings, catastrophe and non-catastrophe modeling, loss reserving, asset management, corporate tax, financial reporting, and risk and capital management, among other things. The modeled outputs and related analyses are subject to uncertainties and the inherent limitations of any statistical analysis, including model design errors; rely on numerous assumptions and the use of historical internal and industry data; and may lead to unintentional bias. In addition, climate change may make it more difficult to predict
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and model catastrophes, reducing our ability to accurately price our exposure to such events and mitigate risks. As a result, actual results may differ materially from our modeled results. If, based upon these models, we misprice our products, underestimate the frequency or severity of catastrophes and non-catastrophe losses, or fail to appropriately estimate the risks we are exposed to, our business, results of operations and financial condition may be materially adversely affected.
Technology, Cybersecurity and Privacy Risks
The failure to effectively maintain and modernize our information technology systems and infrastructure and integrate those of acquired businesses could adversely affect our business.
The success of our business depends on our ability to maintain effective, secure and reliable information technology systems and infrastructure and to modernize them to support current and new clients and grow in an efficient and cost-effective manner. Some of the Company’s information technology systems and software are legacy-type systems that are less efficient and require an ongoing commitment of significant resources to maintain or upgrade to current standards, including business continuity procedures. We are undergoing a multiyear transformation of our information technology systems and infrastructure involving several enterprise-wide technology initiatives to support our strategy and keep pace with continuing changes in information processing technology and evolving industry and regulatory requirements. This includes implementing an integrated global financial system; enhancing existing systems, procedures and controls; developing new systems and products; and retiring certain legacy systems. We have also migrated many of our systems and applications to the cloud, which is key to our technology strategy. We currently rely on significant manual processes and procedures that subject us to increased risk of error and internal control failure compared to automated processes, such as the accounting errors that were identified and disclosed in second quarter 2022. We must integrate the systems of acquired businesses effectively so that technology gained through acquisitions meets the required level of security and performance capabilities to avoid additional risk to existing operations.
Our ability to modernize our information technology systems and infrastructure requires us to execute large-scale, complex programs and projects, which rely on the commitment of significant financial and managerial resources and effective planning and management processes. We may be unable to implement these programs and projects effectively, efficiently or in a timely manner, which could result in operational resiliency issues, poor customer experience, cost overruns, additional expenses, reputational harm, legal and regulatory actions, and other adverse consequences.
If we are unable to maintain information technology systems, infrastructure, procedures (including technology continuity planning and recovery testing) and controls that function effectively without interruption and securely (including through a failure to replace or update redundant or obsolete hardware, applications or software systems), or to update or integrate our systems, we may not be able to service our clients and their customers, successfully offer our products, grow our business and account for transactions in an appropriate and timely manner, and our relationships with clients could be adversely affected. We are dependent on vendors and other third parties to maintain reliable network systems that provide adequate speed and data capacity. For example, we utilize third-party cloud service providers in connection with certain key aspects of our business and operations, including in the Global Automotive businesses and in implementing an integrated global financial system, and any disruption of, or interference with, our use of such cloud services could have a material adverse impact on our business and operations. We have from time to time experienced operational resiliency issues, including the unavailability of information technology systems upon which our clients rely. Such failures could result in loss of business and adversely affect our financial condition and results of operations. For risks relating to the security of our information technology systems and cyber attacks, see “ – We could incur significant liability if our information technology systems or those of third parties are breached or we or third parties otherwise fail to protect the security of data residing on our respective systems, which could adversely affect our business and results of operations.”
We could incur significant liability if our information technology systems or those of third parties are breached or we or third parties otherwise fail to protect the security of data residing on our respective systems, which could adversely affect our business and results of operations.
We rely on the uninterrupted and secure operation of our information technology systems to operate our business and securely process, transmit and store electronic information. This electronic information includes confidential and other sensitive information, including personal data, that we receive from our customers, vendors and other third parties. Our information technology systems and safety control systems and those of our vendors and other third parties with whom we share sensitive information are vulnerable to, and in some cases have been subject to, damage or interruption from a variety of external threats, including cyber attacks, computer viruses, malware and ransomware, as well as targeted attacks against our employees, which recently have been increasing in frequency.
Cyber attacks are rapidly evolving and becoming increasingly sophisticated. We are at risk of attack by a growing list of adversaries, including state-sponsored organizations, organized crime, hackers and “hacktivists” (activist hackers), through use of increasingly sophisticated methods of attack, including long-term, persistent attacks referred to as advanced persistent threats, attacks via yet unknown vulnerabilities referred to as zero-day threats and credential harvesting attacks against our
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employees. Because the techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures, resulting in potential data loss or other damage to information technology systems. As the breadth and complexity of the technologies we use continue to grow, and as a result of the remote and hybrid work arrangements for a portion of our employees, the risk of security breaches and cyber attacks has increased.
Our systems are also subject to compromise from internal threats such as improper action by employees and third parties who may have otherwise legitimate access to our systems. Our call centers subject us to additional risk from internal threats due to access to personal data. Moreover, we face the ongoing challenge of managing access controls in a complex environment. Remote and hybrid work arrangements, including the use of personal devices and home networks that are not managed by the organization’s security control framework, bypass certain physical security controls for our employees and the employees of our vendors who have access to sensitive information. While additional technical controls have been put in place, they may not be sufficient to discover compromises that occur due to the loss of physical controls. The latency of a compromise is often measured in months but could be years, and we may not be able to detect a compromise in a timely manner. We could experience significant financial and reputational harm as a result of operational resiliency issues, including if our information technology systems are breached, sensitive client or Company data are compromised, surreptitiously modified, rendered inaccessible for any period of time or maliciously made public, or if we fail to make adequate disclosures to the public or law enforcement agencies following any such event.
Our data protection measures may not be effective to protect our network and systems from external and internal threats. Should an attacker gain access to our network using compromised credentials of an authorized user or otherwise, we are at risk that the attacker might successfully leverage that access to compromise additional systems and data. Certain measures that could increase the security of our systems take significant time and resources to deploy broadly and may not be effective against an attack. Additionally, our policies, procedures and technical safeguards may be insufficient to prevent or detect improper access to confidential, personal or proprietary information and other cybersecurity incidents, assess the severity or impact of any such incidents or appropriately respond in a timely manner. The inability to implement, maintain and upgrade effective protective measures and other safeguards or adequately respond to a breach could have a material adverse effect on our business.
Although we continue to invest in security and engage in best practices for software development, code vulnerabilities may still be introduced into production environments. Our information technology systems must be continually patched and upgraded to protect against vulnerabilities, including zero-day threats, and we are at risk that cyber attackers exploit these vulnerabilities before they have been addressed. Due to the large number and age of the systems and platforms that we operate and the increased frequency with which vendors issue security patches to their products, the need to test patches and, in some cases coordinate with clients and vendors, before they can be deployed, we are at risk that we cannot deploy these patches in a timely and effective manner. We are dependent on vendors and other third parties, such as cloud service providers, to keep their systems patched in order to protect our data. We have vendors and other third parties who receive data from us in connection with the services we offer our customers. In addition, we have migrated certain data, and may increasingly migrate data, to the cloud hosted by third-party providers. We are at risk of a cyber attack involving a vendor or other third party, which could result in a breakdown of such third party’s data protection measures or access to our infrastructure through the third party. To the extent that a vendor or third party suffers a cyber attack that compromises their operations, our data and our customers’ data could be compromised or we may experience service interruption. Any failure related to these activities and operational resiliency could have a material adverse effect on our business.
The process of integrating the information technology systems of the businesses we acquire is complex and exposes us to additional risk. For instance, we may not adequately identify weaknesses in an acquired entity’s information technology systems, either before or after the acquisition, which could affect the value we are able to derive from the acquisition, expose us to unexpected liabilities or make our own systems more vulnerable to a cyber attack. We may be unable to integrate the systems of the businesses we acquire into our environment in a timely manner, which could further increase these risks until such integration takes place.
We have from time to time experienced cybersecurity incidents, such as malware incursions, distributed denial of service attacks, hardware misconfigurations, zero-day exploits, employee misconduct and incidents resulting from human error, such as loss of portable and other data storage devices. Like many companies, we are subject to regular phishing email and social media engineering campaigns directed at our employees that can result in malware infections and financial and data losses. Although some of these incidents have resulted in data loss and other damages, to date, they have not had a material adverse effect on our business or operations. In the future, these types of incidents could result in confidential, restricted personal or proprietary information being lost or stolen, surreptitiously modified, rendered inaccessible for any period of time, or maliciously made public, including client, employee or Company data, which could have a material adverse effect on our business.
Improper access to or disclosure of sensitive client or Company information could harm our reputation and subject us to significant liability under our contracts, as well as under existing or future laws, rules and regulations. In the event of a cyber
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attack, we might have to take our systems offline, which could interfere with services to our clients or damage our reputation. We may be unable to detect an incident, assess its severity or impact, or appropriately respond and recover any financial and data loss in a timely manner. We may be required to expend significant additional resources to mitigate the damage and to protect against future damage. In addition, our liability insurance, which includes cyber insurance, may not be sufficient in type or amount to cover us against claims related to security breaches, cyber attacks and other related data and system incidents.
The costs of complying with, or our failure to comply with, U.S. and foreign laws related to privacy, data security and data protection could adversely affect our financial condition, operating results and reputation.
In providing services and solutions to our customers and operating our business, we process, store and transfer sensitive customer, end-consumer and Company data, including personal data, in and across multiple jurisdictions. As a result, we are or may become subject to a variety of laws and regulations in the U.S. and abroad regarding privacy, data protection and data security. For discussion of the various laws and regulations affecting our business, see “Item 1 –Business –Regulation” in this Report. The scope and interpretation of these laws and additional laws that are or may be applicable to us are continuously evolving, often uncertain and may be conflicting, particularly with respect to foreign laws. All of these evolving compliance and operational requirements impose significant costs that are likely to increase over time and may restrict the way services involving data are offered, all of which may adversely affect our results of operations. Complying with these and similar laws and regulations requires us to make significant changes to our operations, which rely on the commitment of significant financial and managerial resources and effective planning and management processes. We may be unable to implement required operational changes effectively, efficiently or in a timely manner, which could result in cost overruns, additional expenses, reputational harm, legal and regulatory actions and other adverse consequences.
Unauthorized disclosure or transfer of personal or otherwise sensitive data, whether through systems failure, employee negligence, fraud, misappropriation or other means, by us, our vendors or other parties with whom we do business could subject us to significant litigation, monetary damages, regulatory enforcement actions, fines, criminal prosecution and other adverse consequences in one or more jurisdictions. Such events could result in negative publicity and damage to our reputation and cause us to lose clients, which could have a material adverse effect on our results of operations.
Legal and Regulatory Risks
We are subject to extensive laws and regulations, which increase our costs and could restrict the conduct of our business, and violations or alleged violations of such laws and regulations could have a material adverse effect on our reputation, business and results of operations.
We are subject to extensive regulation under the laws of the U.S. and its various states and territories, the E.U. and its member states, the U.K. and the other jurisdictions in which we operate. For example, we are subject to regulation by state and territory insurance regulators in the U.S., by the Prudential Regulatory Authority and the Financial Conduct Authority in the U.K. and agencies such as the SEC, both in our capacity as a publicly-traded company and through our registered investment adviser subsidiary. We are also subject to anti-bribery and anti-corruption laws, such as the FCPA and the U.K. Anti-Bribery Act, trade sanctions, export control regulations and restrictions and anti-money laundering laws. We are subject to other laws and regulations on matters as diverse as antitrust, internal control over financial reporting and disclosure controls and procedures, data privacyaccounting standards implemented by the Financial Accounting Standards Board and protection, taxation,accounting-related rules and interpretations of the Securities and Exchange Commission, environmental protection, wage-and-hour standards, and employment and labor relations. In addition, new or proposed environmental, social and governance laws and regulations, including those related to climate change, may result in expanded mandatory and voluntary reporting, diligence and disclosure. Furthermore, our domestic and international insurance subsidiaries are subject to extensive regulatory oversight, including: restrictions and requirements related to licensing; capital, surplus and dividends; underwriting limitations; the ability to enter, exit and continue to operate in markets, including as a result of Brexit;markets; statutory accounting and other disclosure requirements; coverage; the ability to provide, terminate or cancel certain coverages; premium rates, including regulatory ability to disapprove or reduce the premium rates companies may charge; trade and claims practices; product forms, including regulatory ability to disapprove new product filings; content of disclosures to consumers; type, amount and valuation of investments; assessments or other surcharges for guaranty funds and companies’ ability to recover assessments through premium increases; and market conduct and sales practices.
The U.S. and foreign laws and regulations that apply to our operations are complex and may change rapidly, and our efforts to comply and keep up with them require significant resources and increase the costs and risks of doing business in these jurisdictions. The regulations we are subject to have become more stringent over time, may decrease the need for our services, impose significant operational limits on our business and may be inconsistent across jurisdictions. Further, the laws and regulations affecting our business are subject to change as a result of, among other things, new interpretations and judicial decisions, and any such changes may increase the regulatory requirements imposed on us, impact the way we are able to do business, impact efforts to protect intellectual and other property, and significantly harm our business and results of operations. While we attempt to comply with applicable laws and regulations, there can be no assurance that we or our employees, consultants, contractors and other agents are in full compliance with such laws and regulations at all times or that we will be able to comply with any future laws or regulations. If we fail to comply with applicable laws and regulations, we may be subject to investigations, criminal penalties, civil remedies or other adverse consequences, including fines, injunctions, loss of
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an operating license or approval, increased scrutiny or oversight by regulatory authorities, the suspension of individual employees, limitations on engaging in a particular business, redress to clients, exposure to negative publicity or reputational damage and harm to client, employee and other relationships. Moreover, our failure to comply with laws or regulations in one jurisdiction may result in increased regulatory scrutiny by other regulatory agencies in that jurisdiction or regulatory agencies in other jurisdictions. The cost of compliance and the consequences of non-compliance could have a material adverse effect on our business, results of operations and financial condition. For additional discussion of the various laws and regulations affecting our business, see “Item 1 – Business –
Regulation” in this ReportReport.
Changes in tax laws and “ –Business and Competitive Risks – The withdrawal of the United Kingdom from the European Union may adversely affectregulations could have a material adverse impact on our business, financial condition and results of operations and financial condition.
Federal, state or foreign tax laws and regulations, or their interpretation and application, are subject to significant change and may have a material adverse impact on our results of operations and financial condition. For example, in 2017, the TCJA, which significantly amended the Internal Revenue Code of 1986, was enacted; and in 2022, the Inflation Reduction Act (the “IRA”), which introduced a 15% corporate alternative minimum tax applicable to corporations in certain situations and a 1% excise tax on corporate share repurchases, among other things, was enacted. Compliance with the TCJA and the IRA may require the collection of information not regularly produced within the Company, the use of estimates in our Consolidated Financial Statements, the exercise of significant judgment in accounting for its provisions and increase costs. The overall impact of the TCJA and the IRA is uncertain due to the ambiguities in the region.application of certain provisions, the impact of future guidance, interpretations or rules issued by government agencies and potential court decisions interpreting the legislation. Future changes in tax laws, including changes in the application or interpretation of the TCJA or the IRA, or increases to the corporate tax rate, could have a material adverse impact on our results of operations and financial condition.”In addition, the Organization for Economic Co-operation and Development’s efforts around Global Pillars I and II dealing with possible new digital taxes and global minimum taxes, if implemented, could increase the Company’s overall tax burden, adversely impacting the Company’s business, results of operations and financial condition.
Our business is subject to risks related to litigation and regulatory actions.actions.
From time to time, we may be, and in certain cases have been, subject to a variety of legal and regulatory actions relating to our current and past business operations, including:
•industry-wide investigations regarding business practices, including the use and marketing of certain types of insurance policies or certificates of insurance, and compliance with guidance issued by regulators;
•actions by regulatory authorities that may restrict our ability to increase or maintain our premium rates, require us to reduce premium rates, require us to allow customers to defer premium payments on certain of our products, make offering our products more expensive or unattractive to our clients, impose fines or penalties, and result in other expenses;
•market conduct examinations, for which we are required to pay the expenses of the regulator as well as our own expenses, and which may result in fines, penalties, and other adverse consequences;
•disputes regarding our Lender-placed Insurance products, including those relating to rates, agent compensation, consumer disclosure, continuous coverage requirements, loan tracking services and other services that we provide to mortgage servicers;
•disputes over coverage or claims adjudication;
•disputes over our treatment of claims, in which states or insureds may allege that we failed to make required payments or meet prescribed deadlines for adjudicating claims;
•disputes regarding regulatory compliance, sales practices, disclosures, premium refunds, licensing, underwriting and compensation arrangements;
•disputes over liability claims under comprehensive general liability policies involving property damage or personal injury at insured properties or relating to insured vehicles;
•disputes alleging bundling of credit insurance and warranty products with other products provided by financial institutions;
•disputes with tax and insurance authorities regarding our tax liabilities; and
•investigations alleging violations of sanctions and/or export control laws;
•disputes relating to customers’ claims that they were not aware of the full cost or existence of the insurance or limitations on insurance coverage.coverage; and
•employment litigation claims brought by current or former employees.
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Further, actions by certain regulators may cause additional changes to the structure of the Lender-placed Insurance industry, including the arrangements under which we track coverage on mortgaged properties. These changes could materially adversely affect the results of operations of Global Housing and the results of operations and financial condition of the Company. For additional information, see “Item 1 – Business – Regulation” in this Report.
We are involved in a variety of litigation and legal and regulatory actionsproceedings relating to our current and past business operations and may, from time to time, become involved in other such actions. In particular, we are a defendant in class actions in a number of jurisdictions regarding our Lender-placed Insurance programs. These cases allege a variety of claims under a number of legal theories. The plaintiffs seek premium refunds and other relief. We continue to defend ourselves vigorously in these class actions and, as appropriate, enter into settlements.proceedings.
We participate in settlements on terms that we consider reasonable; however, the results of any pending or future litigation and regulatory proceedings are inherently unpredictable and involve significant uncertainty. Unfavorable outcomes in litigation or regulatory proceedings or significant problems in our relationships with regulators could materially adversely affect our results of operations, financial condition, reputation, ratings and ability to continue to do business. They could also expose us to further investigations or litigation. In addition, certain of our clients in the mortgage, auto financing, credit card and banking industries are the subject of various regulatory investigations and litigation matters regarding mortgage lending practices, credit insurance, debt-deferment and debt cancellation products, and the sale of ancillaryprotection products, which could indirectly negatively affect our businesses. For additional information, see “Item 3 – Legal Proceedings” and Note 2728 to the Consolidated Financial Statements included elsewhere in this Report.
Our business is subject to risks related to reductions in the insurance premium rates we charge.
The premiums we charge are subject to review by regulators. If they consider our loss ratios to be too low, they could require us to reduce our rates. Significant rate reductions could materially reduce our profitability.
We file rates with the state departments of insurance in the ordinary course of business. In addition to this routine correspondence, from time to time we engage in discussions and proceedings with certain state regulators regarding our Lender-placed Insurance business. The results of such reviews may vary. As previously disclosed, we have reached agreements with state insurance regulators in certain states, including New York, Florida, California, Indiana, Texas and Minnesota, regarding our Lender-placed Insurance business in those states. In addition, we completed a regulatory settlement agreement (the “RSA”) to resolve a targeted multistate market conduct examination sponsored by the NAIC and focused on Lender-placed Insurance, which includes a number of requirements and restrictions that are applicable in all participating states and U.S. territories. Among other things, the terms of the RSA require more frequent rate filings for Lender-placed Insurance. This could result in downward pressure on premium rates for these products. If such filings result in significant decreases in premium rates for our Lender-placed Insurance products, our cash flows and results of operations could be materially adversely affected.
Changes in insurance regulation may reduce our profitability and limit our growth.growth.
Legislation or other regulatory reform related to the insurance industry that increases the regulatory requirements imposed on us or that changes the way we are able to do business may significantly harm our business or results of operations. Various state and federal regulatory authorities have also taken actions with respect to our Lender-placed Insurance business, including the multistate market conduct examination and related RSA. If we were unable for any reason to comply with any new or revised requirements, including the RSA, it could result in substantial costs to us and may materially adversely affect our results of operations and financial condition. In addition, new interpretations of existing laws or new judicial decisions affecting the insurance industry could adversely affect our business.
Insurance industry-related legislative or regulatory changes that could significantly harm our subsidiaries and us include, but are not limited to:include:
•imposed reductions in premium rates, limitations on the ability to raise premiums on existing policies, or new minimum loss ratios;
•increases in minimum capital, reserves and other financial viability requirements;
•enhanced or new regulatory requirements intended to prevent future financial crises or to otherwise ensure the stability of institutions;
•new licensing requirements;
•restrictions on the ability to offer certain types of insurance products, service contracts or service contracts;other protection products;
•prohibitions or limitations on provider financial incentives and provider risk-sharing arrangements;
•more stringent standards of review for claims denials or coverage determinations;
•increased regulation relating to Lender-placed Insurance; and
•new or enhanced regulatory requirements that require insurers to pay claims on terms other than those mandated by underlying policy contracts; andcontracts.
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In addition, regulators in certain states have hired third-party auditors to audit the unclaimed property records of insurance companies operating in those states. Among other companies, we are currently subject to these audits in a number of states and have been responding to information requests from these auditors.
Our common stock may be subject to stock price and trading volume volatility.
Our common stock price and trading volume could materially fluctuate in response to a number of events and factors, including: variations in our quarterly operating results, including against expectations; catastrophe and non-catastrophe losses; the operating and stock price performance of comparable companies; changes in our insurance subsidiaries’ financial strength ratings; changes in our corporate debt ratings; changes to our registered securities; limitations on premium levels or the ability to maintain or raise premiums on existing policies; regulatory developments affecting our products or services; and negative publicity relating to us or our competitors. In addition, macroeconomic, geopolitical conflicts and industry fluctuations may materially and adversely affect the trading price or volume of our common stock, regardless of our actual operating performance.
Employee misconduct could harm us by subjecting us to significant legal liability, regulatory scrutiny and reputational harm.
Our ability to attract, recruit, hire, motivate, develop and retain employees and clients depends upon our corporate culture. Our employees are the cornerstone of our culture and acts of misconduct by any employee, and particularly by senior management, could erode trust and confidence and damage our reputation. Our employees could engage or be accused of engaging in misconduct that subjects us to litigation, regulatory sanctions, financial costs and serious harm to our reputation or financial position. Employee misconduct could prompt regulators to allege or determine, on the basis of such misconduct, that we have been adoptednot established an adequate program to inform employees of applicable rules or are currently pending to amend state insurance holding companydetect and other laws that increase the scopedeter violations of insurance company regulation globally. The NAIC has implemented the Own Risk and Solvency Assessment, which requires U.S. insurers and insurance groupssuch rules. It is not always possible to perform an annual assessment, and Corporate Governance Annual Disclosure reporting, which requires U.S. insurers and insurance groups to report on their governance structure, policies and practices. Regulatory bodies are expected to increase the frequency of discussions between each otherdeter employee misconduct and the levelprecautions we take to detect and prevent misconduct may not be effective. Misconduct by employees, or even unsubstantiated allegations, could have a material adverse effect on our financial position, reputation and business.
Applicable laws and our certificate of data sharing across bordersincorporation and by-laws may discourage takeovers and business combinations that some stockholders might consider to be in ordertheir best interests.
Applicable laws and our certificate of incorporation and by-laws may delay, defer, prevent or render more difficult a takeover attempt that our stockholders might consider to enablebe in their best interests. For example, Section 203 of the General Corporation Law of the State of Delaware may limit the ability of an “interested stockholder” to engage in business combinations with us. An interested stockholder is defined to include persons owning 15% or more consistent regulation of global companies.our outstanding voting stock. These provisions may make it difficult for stockholders to replace or remove our directors, which could delay, defer or prevent a change in control. Such provisions may prevent our stockholders from receiving the benefit from any premium to the market price of our common stock offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging future takeover attempts.
Additionally, applicable state and foreign insurance laws may require prior approval of an application to acquire control of a domestic insurer. State statutes generally provide, and certain foreign statutes provide, that control over a domestic insurer is presumed to exist when any person directly or indirectly owns, controls, has voting power over, or holds proxies representing, 10% or more of the domestic insurer’s voting securities. The application process can be extensive, thereby discouraging the acquisition of a control position.
Our certificate of incorporation or by-laws contain provisions that permit the Board to issue one or more series of preferred stock, prohibit stockholders from filling vacancies on the Board, prohibit stockholders from calling special meetings of stockholders and from taking action by written consent and impose advance notice requirements for stockholder proposals and nominations of directors to be considered at stockholder meetings.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We own fivefour properties. Three buildings serveWe have a shared headquarters building in Atlanta, Georgia, which serves as our corporate headquarters, as well as the headquarters for our operating segments and two buildings serve as operations centers for Global Housing. Global Lifestyle and Global Housing share headquarters buildings located inbusinesses. It is also a primary
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information technology center. In addition, our Miami, Florida location serves as a shared office space supporting our Global Lifestyle and Atlanta, Georgia.Global Housing businesses, and Global Housing has operations centers located in Florence, South Carolina and Springfield, Ohio. Global Preneed has a headquarters building in Rapid City, South Dakota. We lease office space for various offices and servicedevice care centers located throughout the U.S. and internationally, including our New York, New York corporate office and our data center in Woodbury, Minnesota. Our leases haveglobally, with terms ranging from month-to-month to fifteen years. We believe that our owned and leased properties are adequate forsufficient to support our current business operations.
Item 3. Legal Proceedings
For a description of any material pending legal and regulatory mattersproceedings in which we are involved, see “Commitments and Contingencies – Legal and Regulatory Matters” in Note 2728 to the Consolidated Financial Statements included elsewhere in this Report, which is hereby incorporated by reference.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is listed on the NYSE under the symbol “AIZ.” On February 14, 2020,10, 2023, there were approximately 176209 registered holders of record of our common stock.
Stock Performance Graph
The following graph compares the cumulative total return (stock price increase plus reinvestment of dividends paid) on our common stock from December 31, 20142017 through December 31, 20192022 with the cumulative total returns for the S&P 400 MidCap Index and the S&P 500 Index, as the broad equity market indexes, and the S&P 400 Multi-line Insurance Index and the S&P 500 Multi-line Insurance Index, as the published industry indexes.index. The graph assumes that the value of the investment in our common stock and each index was $100 on December 31, 20142017 and that all dividends were reinvested.
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Total Values/Annual Return Percentages
(Includes reinvestment of dividends)
| Initial Investment at 12/31/2017 | TOTAL VALUES December 31, | ||||||||||||||||||||||||||||||||||
| Security / Index | 2018 | 2019 | 2020 | 2021 | 2022 | ||||||||||||||||||||||||||||||
| Assurant, Inc. Common Stock | $ | 100.00 | $ | 90.82 | $ | 136.03 | $ | 144.32 | $ | 168.07 | $ | 137.25 | |||||||||||||||||||||||
| S&P 500 Index | 100.00 | 95.62 | 125.72 | 148.85 | 191.58 | 156.88 | |||||||||||||||||||||||||||||
| S&P 400 MidCap Index | 100.00 | 88.92 | 112.21 | 127.54 | 159.12 | 138.34 | |||||||||||||||||||||||||||||
| S&P 500 Multi-line Insurance Index | 100.00 | 75.56 | 102.49 | 83.75 | 122.09 | 133.90 | |||||||||||||||||||||||||||||
| ANNUAL RETURN PERCENTAGES Years Ended December 31, | |||||||||||||||||||||||||||||||||||
| Security / Index | 2018 | 2019 | 2020 | 2021 | 2022 | ||||||||||||||||||||||||||||||
| Assurant, Inc. Common Stock | (9.18) | % | 49.78 | % | 6.09 | % | 16.46 | % | (18.34) | % | |||||||||||||||||||||||||
| S&P 500 Index | (4.38) | 31.49 | 18.40 | 28.71 | (18.11) | ||||||||||||||||||||||||||||||
| S&P 400 MidCap Index | (11.08) | 26.20 | 13.66 | 24.76 | (13.06) | ||||||||||||||||||||||||||||||
| S&P 500 Multi-line Insurance Index | (24.44) | 35.64 | (18.28) | 45.78 | 9.67 | ||||||||||||||||||||||||||||||
| Initial Investment at 12/31/14 | TOTAL VALUES December 31, | ||||||||||||||||||||||
| Security / Index | 2015 | 2016 | 2017 | 2018 | 2019 | ||||||||||||||||||
| Assurant, Inc. Common Stock | $ | 100.00 | $ | 119.94 | $ | 141.76 | $ | 157.33 | $ | 142.89 | $ | 214.02 | |||||||||||
| S&P 500 Index | 100.00 | 101.38 | 113.51 | 138.29 | 132.23 | 173.86 | |||||||||||||||||
| S&P 400 MidCap Index | 100.00 | 97.82 | 118.11 | 137.30 | 122.08 | 154.07 | |||||||||||||||||
| S&P 500 Multi-line Insurance Index* | 100.00 | 107.24 | 118.26 | 119.48 | 90.27 | 122.45 | |||||||||||||||||
| S&P 400 Multi-line Insurance Index* | 100.00 | 124.47 | 155.46 | 213.15 | 189.38 | 240.65 | |||||||||||||||||
ANNUAL RETURN PERCENTAGES Years Ended December 31, | |||||||||||||||||||||||
| Security / Index | 2015 | 2016 | 2017 | 2018 | 2019 | ||||||||||||||||||
| Assurant, Inc. Common Stock | 19.94 | % | 18.19 | % | 10.98 | % | (9.18 | )% | 49.78 | % | |||||||||||||
| S&P 500 Index | 1.38 | 11.96 | 21.83 | (4.38 | ) | 31.49 | |||||||||||||||||
| S&P 400 MidCap Index | (2.18 | ) | 20.74 | 16.24 | (11.08 | ) | 26.20 | ||||||||||||||||
| S&P 500 Multi-line Insurance Index* | 7.24 | 10.27 | 1.03 | (24.44 | ) | 35.64 | |||||||||||||||||
| S&P 400 Multi-line Insurance Index* | 24.47 | 24.90 | 37.11 | (11.15 | ) | 27.07 | |||||||||||||||||
Issuer Purchases of Equity Securities
The table below provides information regarding purchases of our common stock during 2019. No sharesthe fourth quarter of our MCPS were2022.
| Period in 2022 | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (1) | |||||||||||||||||||
| October 1 – October 31 | 89,887 | $ | 144.63 | 89,887 | $ | 274.5 | |||||||||||||||||
| November 1 – November 30 | — | — | — | 274.5 | |||||||||||||||||||
| December 1 – December 31 | — | — | — | 274.5 | |||||||||||||||||||
| Total fourth quarter | 89,887 | $ | 144.63 | 89,887 | $ | 274.5 | |||||||||||||||||
(1)Shares purchased during this period.
| Period in 2019 | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (1) | |||||||||
| January 1 – January 31 | 189,230 | $ | 93.43 | 189,230 | $ | 743.5 | |||||||
| February 1 – February 28 | 152,000 | 98.39 | 152,000 | 728.5 | |||||||||
| March 1 – March 31 | 184,449 | 97.07 | 184,449 | 710.6 | |||||||||
| Total first quarter | 525,679 | 96.14 | 525,679 | 710.6 | |||||||||
| April 1 – April 30 | 196,583 | 94.37 | 196,583 | 692.1 | |||||||||
| May 1 – May 31 | 184,000 | 97.13 | 184,000 | 674.2 | |||||||||
| June 1 – June 30 | 131,000 | 104.93 | 131,000 | 660.5 | |||||||||
| Total second quarter | 511,583 | 98.06 | 511,583 | 660.5 | |||||||||
| July 1 – July 31 | 154,000 | 111.57 | 154,000 | 643.3 | |||||||||
| August 1 – August 31 | 125,186 | 118.80 | 125,186 | 628.4 | |||||||||
| September 1 – September 30 | 266,000 | 125.38 | 266,000 | 595.1 | |||||||||
| Total third quarter | 545,186 | 119.97 | 545,186 | 595.1 | |||||||||
| October 1 – October 31 | 132,322 | 125.33 | 132,322 | 578.5 | |||||||||
| November 1 – November 30 | 384,000 | 131.75 | 384,000 | 527.9 | |||||||||
| December 1 – December 31 | 318,728 | 130.55 | 318,728 | 486.3 | |||||||||
| Total fourth quarter | 835,050 | 130.28 | 835,050 | 486.3 | |||||||||
| Total January 1 – December 31 | 2,417,498 | $ | 113.71 | 2,417,498 | $ | 486.3 | |||||||
Dividend Policy
Any determination to pay future dividends will be at the discretion of the Board and will be dependent upon various factors, including: our subsidiaries’ paymentpayments 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.
We are a holding company and, therefore, our ability to pay dividends on our MCPS and common stock, repurchase shares or debt, service our debt and meet our other obligations depends primarily on the ability of our subsidiaries to pay dividends and make other statutorily permissible payments to us. Our insurance subsidiaries are subject to significant regulatory and contractualother restrictions limiting their ability to declare and pay dividends. See “Item 1A – Risk Factors – Financial Risks – Our subsidiaries’ inability to pay us sufficient dividends could prevent us from meeting our obligations and paying future stockholder dividends.” For the year ending December 31, 2020,2023, the maximum amount of dividends our regulated U.S. domiciled insurance subsidiaries could pay us under applicable laws and regulations, without prior regulatory approval, is $423.7approximately $344.7 million. We may seek approval of regulators to pay dividends in excess of any amounts that would be permitted without such approval. However, there can be no assurance that we would obtain such approval if sought. Our international and non-insurance subsidiaries provide additional sources of dividends. Dividends or returns of capital paid by our subsidiaries, net of infusions of liquid assets and excluding amounts used for acquisitions or received from dispositions, was approximately $748.0$549.5 million for the year ended December 31, 2019,2022, of which $444.0$349.4 million was generated by our U.S. domiciled insurance subsidiaries.
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Payments of dividends on shares of common stock are subject to the preferential rights of the MCPS and otherany preferred stock that the Board may create from time to time. As of December 31, 2019, we had 2,875,000 shares of the MCPS issued and outstanding.
In addition, the Credit Facility restricts payments ofon our capital stock, including common stock dividends, if an event of default under the Credit Facility has occurred or if a proposed common stock dividend payment would cause an event of default under the Credit Facility. Further, if we elect to defer the payment of interest on our Subordinated Notes, we generally may not make payments on our capital stock. For more information regarding the Credit Facility, the Subordinated Notes and restrictions on the payment of dividends by us and our insurance subsidiaries, see “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”
Securities Authorized for Issuance Under Equity Compensation Plans
See Item 12 of this Report for information about securities authorized for issuance under our equity compensation plans.
Item 6. Selected Financial DataReserved
Not applicable.
| For the Years Ended December 31, | |||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||
| (in millions except number of shares and per share amounts) | |||||||||||||||||||
| Consolidated Statements of Operations Data: | |||||||||||||||||||
| Revenues | |||||||||||||||||||
| Net earned premiums | $ | 8,020.0 | $ | 6,156.9 | $ | 4,404.1 | $ | 5,007.3 | $ | 8,351.0 | |||||||||
| Fees and other income | 1,311.2 | 1,308.1 | 1,383.1 | 1,422.5 | 1,303.5 | ||||||||||||||
| Net investment income | 675.0 | 598.4 | 493.8 | 515.7 | 626.2 | ||||||||||||||
| Net realized gains (losses) on investments | 66.3 | (62.7 | ) | 30.1 | 162.2 | 31.8 | |||||||||||||
| Amortization of deferred gains and gains on disposal of businesses | 14.3 | 56.9 | 103.9 | 394.5 | 13.0 | ||||||||||||||
| Gain on pension plan curtailment | — | — | — | 29.6 | — | ||||||||||||||
| Total revenues (1) | 10,086.8 | 8,057.6 | 6,415.0 | 7,531.8 | 10,325.5 | ||||||||||||||
| Benefits, losses and expenses | |||||||||||||||||||
| Policyholder benefits (2) | 2,654.7 | 2,342.6 | 1,870.6 | 1,808.5 | 4,742.5 | ||||||||||||||
| Amortization of deferred acquisition costs and value of businesses acquired | 3,322.1 | 2,300.8 | 1,340.0 | 1,351.3 | 1,402.6 | ||||||||||||||
| Underwriting, general and administrative expenses | 3,250.5 | 2,980.4 | 2,710.4 | 3,442.8 | 3,924.1 | ||||||||||||||
| Iké net losses | 163.0 | — | — | — | — | ||||||||||||||
| Interest expense | 110.6 | 100.3 | 49.5 | 57.6 | 55.1 | ||||||||||||||
| Loss on extinguishment of debt | 31.4 | — | — | 23.0 | — | ||||||||||||||
| Total benefits, losses and expenses (1) | 9,532.3 | 7,724.1 | 5,970.5 | 6,683.2 | 10,124.3 | ||||||||||||||
| Income before provision (benefit) for income taxes | 554.5 | 333.5 | 444.5 | 848.6 | 201.2 | ||||||||||||||
| Provision (benefit) for income taxes (3) | 167.7 | 80.9 | (75.1 | ) | 283.2 | 59.6 | |||||||||||||
| Net income | 386.8 | 252.6 | 519.6 | 565.4 | 141.6 | ||||||||||||||
| Less: Net income attributable to non-controlling interest | (4.2 | ) | (1.6 | ) | — | — | — | ||||||||||||
| Net income attributable to stockholders | 382.6 | 251.0 | 519.6 | 565.4 | 141.6 | ||||||||||||||
| Less: Preferred stock dividends | (18.7 | ) | (14.2 | ) | — | — | — | ||||||||||||
| Net income attributable to common stockholders | $ | 363.9 | $ | 236.8 | $ | 519.6 | $ | 565.4 | $ | 141.6 | |||||||||
| Earnings per common share: | |||||||||||||||||||
| Basic | $ | 5.87 | $ | 4.00 | $ | 9.45 | $ | 9.23 | $ | 2.08 | |||||||||
| Diluted | $ | 5.84 | $ | 3.98 | $ | 9.39 | $ | 9.13 | $ | 2.05 | |||||||||
| Dividends per common share | $ | 2.43 | $ | 2.28 | $ | 2.15 | $ | 2.03 | $ | 1.37 | |||||||||
| Share data: | |||||||||||||||||||
| Weighted average common shares outstanding used in basic per common share calculations | 61,942,969 | 59,239,608 | 54,986,654 | 61,261,288 | 68,163,825 | ||||||||||||||
| Plus: Dilutive securities | 370,499 | 305,916 | 324,378 | 673,486 | 853,384 | ||||||||||||||
| Weighted average common shares used in diluted per common share calculations | 62,313,468 | 59,545,524 | 55,311,032 | 61,934,774 | 69,017,209 | ||||||||||||||
| Other data: | |||||||||||||||||||
| Pre-tax reportable catastrophes (4) | $ | 51.8 | $ | 214.8 | $ | 295.7 | $ | 157.4 | $ | 29.7 | |||||||||
| As of December 31, | |||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||
| (in millions except number of shares and per share amounts) | |||||||||||||||||||
| Consolidated Balance Sheets Data: | |||||||||||||||||||
| Cash and cash equivalents and total investments | $ | 16,434.4 | $ | 14,657.9 | $ | 12,550.3 | $ | 12,511.0 | $ | 14,283.1 | |||||||||
| Total assets | $ | 44,291.2 | $ | 41,089.3 | $ | 31,843.0 | $ | 29,709.1 | $ | 30,036.4 | |||||||||
| Policy liabilities (1) | $ | 29,098.6 | $ | 27,702.6 | $ | 21,218.2 | $ | 20,040.6 | $ | 19,787.1 | |||||||||
| Debt | $ | 2,006.9 | $ | 2,006.0 | $ | 1,068.2 | $ | 1,067.0 | $ | 1,164.7 | |||||||||
| Total Assurant, Inc. stockholders’ equity | $ | 5,652.8 | $ | 5,112.0 | $ | 4,270.6 | $ | 4,098.1 | $ | 4,524.0 | |||||||||
| Per share data: | |||||||||||||||||||
| Total book value per basic common share (2) | $ | 93.14 | $ | 81.44 | $ | 80.46 | $ | 72.33 | $ | 67.92 | |||||||||
Item 7. 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 maymight differ materially from those anticipatedprojected 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
Reportable Segments
We report our results through fourthree segments: Global Lifestyle, Global Housing Global Preneed and Corporate and Other. Corporate and Other includes corporate employee-related expenses and activities of the holding company, financingcompany.
In conjunction with the transition of our CEO and interest expenses,chief operating decision maker on January 1, 2022, we changed our segment measure of profitability for our reportable segments to an Adjusted EBITDA metric, as the primary measure used for purposes of making decisions about allocating resources to the segments and assessing performance, from segment net income from continuing operations, effective as of that date. Prior period amounts have been revised to reflect the new segment measure of profitability. See Note 6 to the Consolidated Financial Statements included elsewhere in this Report for more information.
We define Adjusted EBITDA as net income from continuing operations, excluding net realized gains (losses) on investments and fair value changes to equity securities, COVID-19 direct and incremental expenses, loss on extinguishment of debt, non-core operations (defined below), net income (loss) attributable to non-controlling interests, interest expense, provision (benefit) for income earned from short-term investments held and income (expenses) primarilytaxes, depreciation expense, amortization of purchased intangible assets, restructuring costs related to strategic exit activities (outside of normal periodic restructuring and cost management activities), as well as other highly variable or unusual items.
Revision of Prior Period Financial Statements
Beginning with second quarter 2022, we changed the calculation of our frozen benefit plans. Corporatesegment measure of profitability, Adjusted EBITDA, to exclude certain businesses which we expect to fully exit, including the long-tail commercial liability businesses in Global Housing (sharing economy and Othersmall commercial businesses), as well as certain legacy long-duration insurance policies within Global Lifestyle (collectively referred to as “non-core operations”). All prior period amounts have been revised, which impacts segment Adjusted EBITDA but does not impact consolidated net income. See Note 6 to the Consolidated Financial Statements included elsewhere in this Report for more information.
We have also includesrevised our prior period financial statements to reflect the amortizationcorrection of deferred gains and gains associated with the sales of Fortis Financial Group, Long-Term Care and Assurant Employee Benefits through reinsurance agreements, expensesan error identified in second quarter 2022 related to reinsurance of claims and benefits payable within the acquisition of TWG, foreign gains (losses) from remeasurement of monetary assetsConnected Living business unit in our Global Lifestyle segment, as well as other immaterial errors which were previously recorded in the periods in which we identified them. See Notes 2 and liabilities,17 to the gain or loss onConsolidated Financial Statements included elsewhere in this Report for more information. Additionally, prior period disclosures have been revised to include Hurricane Eta, which should have been classified as a reportable catastrophe.
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Discontinued Operations
In August 2021, we completed the sale of the legal entities which comprise the businesses gains or losses associated withpreviously reported as the valuationGlobal Preneed segment and certain businesses previously disposed of our investmentthrough reinsurance, which were previously reported in Iké and other unusual or infrequent items. Additionally, the Corporate and Other segment includes amounts related(collectively, the “disposed Global Preneed business”) to businesses disposedsubsidiaries of through reinsuranceCUNA Mutual Group for an aggregate purchase price at closing of $1.34 billion. For additional information, refer to “–Results of Operations – Discontinued Operations” below and Note 4 to the runoff of the Assurant Health business.Consolidated Financial Statements included elsewhere in this Report.
The following discussion covers the year ended December 31, 20192022 (“Twelve Months 2019”2022”) and, the year ended December 31, 20182021 (“Twelve Months 2018”2021”) and the year ended December 31, 2020 (“Twelve Months 2020”). Please see the discussion that follows, for each of these segments, for a more detailed comparative analysis. Our comparative analysis of Twelve Months 2018 and the year ended December 31, 2017 is included under the heading “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed with the SEC on February 22, 2019.
Executive Summary
In October 2019,December 2022, we acquired the remaining 60% interestfinalized our plan to realize greater efficiencies by continuing to simplify our business portfolio and leverage our global footprint to reduce costs. This included realigning our organizational structure, including in MMI-CPR, LLC (dba Cell Phone Repair), a global franchisor of electronic device repair stores focusing on mobile device repair. In 2019, weGlobal Housing, and talent to support our business strategy. We also undertook a strategic review ofaccelerated our investment in Iké. As part ofongoing real estate consolidation to support work-from-home arrangements given our initial investment in 2014, we entered into a put/call with the majority shareholders. In the third quarter of 2019, we decided to pursue the sale of our interests in Iké and recorded a partial impairment in our investment and an increase in our put obligation related to the decline in fair value of the business in connection with our decision to sell. On January 29, 2020, we entered into agreements to sell our interests in Iké to certain management shareholders of Iké.increasingly hybrid workforce. We expect closing to occur in the second quarter of 2020 resulting in an expected net cash outflow of $54 million, which could increase by up to an additional $40 million in the event we provide seller financing to the management shareholders at closing, plus transaction costs. In connection with this agreement, we recorded an incremental loss related to the agreed sale price. The sale is subject to customary closing conditions, including regulatory approvals. For additional information on this transaction, see “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” and Note 5 to the Consolidated Financial Statements included elsewhere in this Report.
Summary of Financial Results:Results
Consolidated net income attributable to common stockholders increased $127.1from continuing operations decreased $326.3 million, or 54%, to $363.9$276.6 million for Twelve Months 20192022 from $236.8$602.9 million for Twelve Months 2018.2021. The decline was primarily driven by a net decrease in unrealized gains to unrealized losses from Assurant Ventures (our corporate venture capital team), net realized losses from sales of fixed maturity securities in 2022, and a decrease from non-core operations.
Global Lifestyle Adjusted EBITDA increased $51.3 million, or 7%, to $753.4 million for Twelve Months 2022 from $702.1 million for Twelve Months 2021. The increase was driven by $128.7growth across U.S. Connected Living and Global Automotive, partially offset by weaker performance in Europe and Asia Pacific, including the unfavorable impact of foreign exchange. Growth in Connected Living reflected increased mobile subscribers in North America and more favorable mobile loss experience. Global Automotive increased primarily from higher investment income and favorable loss experience in select ancillary products. For the year, segment results included $24.1 million of lowerincome from real estate and a $11.2 million one-time client contract benefit.
Global Lifestyle net earned premiums, fees and other income increased $196.0 million, or 3%, to $7.94 billion for the Twelve Months 2022 from $7.74 billion for Twelve Months 2021, driven by strong prior period sales in Global Automotive. Connected Living decreased mainly from runoff mobile programs, partially offset by mobile subscriber growth in North America. In-store mobile service and repair contributed $148.4 million of fee income, and as previously announced, is not expected to continue in 2023.
Global Housing Adjusted EBITDA decreased $55.1 million, or 15%, to $302.0 million for Twelve Months 2022 from $357.1 million for Twelve Months 2021. Pre-tax reportable catastrophes (reportable catastrophe(defined as individual catastrophic events that generate losses in excess of $5.0 million pre-tax, net of reinsurance and client profit sharing adjustments, and including reinstatement and other premiums) and expansion in our Global Lifestyle segment, as well as full-year contributions from
Global Housing net earned premiums, fees and other income decreased $55.5 increased $69.0 million, or 4%, to $2.03$2.01 billion for Twelve Months 2019 compared with $2.092022 from $1.94 billion for Twelve Months 2018, primarily due to the sale of Mortgage Solutions. Excluding Mortgage Solutions, net earned premiums, fees2021, largely from Lender-placed Insurance. This was driven by higher average insured values, premium rates and other income increased 3% primarily due to growthpolicies in-force, including contributions from a new client onboarded in Specialtyfourth quarter 2022.
Corporate and Other and Multifamily Housing, partially offset by declines in Lender-placed Insurance, including the impact of additional catastrophe reinsurance.
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Critical Factors Affecting Results
Our results depend on, among other things, the appropriateness of our product pricing, underwriting, the accuracy of our reserving methodology for future policyholder benefits and claims, the frequency and severity of reportable and non-reportable catastrophes, returns on and values of invested assets, our investment income, and our ability to realize greater operational efficiencies and manage our expenses and achieve expense savings.expenses. Our results will also depend on our ability to profitably grow all of our businesses, in particularincluding our Connected Living, Multifamily HousingRenters and Global Automotive businesses, and manage the pace of declines in placement ratesmaintain our position in our Lender-placed Insurance business and the North American credit insurance business in Global Financial Services and Other.Homeowners business. Factors affecting these items, including but not limited to, conditions in the financial markets, the global economy, political conditions and the markets in which we operate, fluctuations in exchange rates, interest rates and inflation, including the current period of inflationary pressures, 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 HousingRenters and Global Automotive businesses, which will be impacted by our ability to provide a superior digital-first customer experience, including from our investments in technology and to manage our Lender-placed Insurance business, includingdigital initiatives, and capitalize on the expected reduction in loans tracked from a financially insolvent client.smart home opportunity. Our mobile business is subject to volatility in mobile device trade-in volumes and margins based on the actual and anticipated timing of the release of new devices and carrier promotional programs, as well as to changes in consumercustomer preferences. Our Lender-placed InsuranceHomeowners revenues will also be impacted by changes in the housing market. In addition, across many of our businesses, we must respond to the threat of disruption.disruption and the competition for talent, which has increased due to labor shortages and wage inflation. See “Item 1A – Risk Factors – Business, Strategic and CompetitiveOperational Risks – Significant competitive pressures, changes in customer preferences and disruption could adversely affect our results of operations,.” “ – Our mobile business is subject to the risk of declines in the value and availability of mobile devices in our inventory, and to export compliance and other risks” and “ – The success of our business depends on the execution of our strategy, including through the continuing service of key executives, senior leaders, highly-skilled personnel and a high-performing workforce.”
For Twelve Months 2019,2022, net cash provided by operating activities totaled $1.41 billion;from continuing operations was $596.9 million; net cash used in investing activities totaled $619.8 millionfrom continuing operations was $262.1 million; and net cash used in financing activities totaled $179.2from continuing operations was $818.4 million. We had $1.87$1.54 billion in cash and cash equivalents as of December 31, 2019.2022. 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 realized capital gainschanges 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 increaseincreases or decreasedecreases with fluctuations in 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 earninglower interest-earning investments.
Please see “Item 7A – Quantitative and Qualitative Disclosures About Market Risk” below for further details.
Expenses
Our expenses are primarily policyholder benefits, underwriting, selling, general and administrative expenses and interest expense.
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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.
Underwriting, selling, general and administrative expenses consist primarily of commissions, premium taxes, licenses, fees, amortization of deferred costs, general operating expenses and income taxes. In connection with our transformation,addition to the restructuring plan announced in December 2022, we are undertakingcontinue to undertake various expense savings initiatives while also making investments in informationtalent, 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. The actual amounts realized in these areas could ultimately be materially different from the amounts currently provided for in our Consolidated Financial Statements.estimates and judgment:
•Reserves, Net of Reinsurance
•Valuation of Investments
•Valuation and Recoverability of Goodwill
Reserves, Net of Reinsurance
Reserves are established using generally accepted actuarial methods and reflect judgmentssignificant judgment and estimates 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, but not limited to: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.
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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 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, 2022 and 2021:
| 2022 | 2021 | ||||||||||
| Ceded future policyholder benefits and expense | $ | 360.6 | $ | 338.4 | |||||||
| Ceded unearned premium | 5,158.1 | 4,950.0 | |||||||||
| Ceded claims and benefits payable | 1,312.7 | 824.0 | |||||||||
| Ceded paid losses | 174.5 | 68.8 | |||||||||
| Total | $ | 7,005.9 | $ | 6,181.2 | |||||||
For additional information regarding our reserves and reinsurance recoverables, see Notes 2, 5, 17 and 1718 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. Below are further discussions on the reserving process for our major short duration products.
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. For Global 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 but not limited to: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 frequenciesfrequency and severitiesseverity 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
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•hindsight testing of prior loss estimates - the loss estimates on some product lines will vary from actual loss experience more than others.
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 20192022 would be as follows:
Change in both loss frequency and severity for all Global Lifestyle and Global Housing | Ultimate cost of claims occurring in 2022 | Change in cost of claims occurring in 2022 | |||||||||
| 3% higher | $ | 1,914.0 | $ | 110.2 | |||||||
| 2% higher | $ | 1,877.0 | $ | 73.2 | |||||||
| 1% higher | $ | 1,840.0 | $ | 36.2 | |||||||
| Base scenario (1) | $ | 1,803.8 | $ | — | |||||||
| 1% lower | $ | 1,768.0 | $ | (35.8) | |||||||
| 2% lower | $ | 1,731.0 | $ | (72.8) | |||||||
| 3% lower | $ | 1,694.0 | $ | (109.8) | |||||||
(1)Represents the sum of the case reserves and incurred but not reported reserves as of December 31, 2022 for Global Lifestyle and Global Housing.
Change in both loss frequency and severity for all Global Lifestyle and Global Housing | Ultimate cost of claims occurring in 2019 | Change in cost of claims occurring in 2019 | |||||
| 3% higher | $ | 1,218.0 | $ | 70.3 | |||
| 2% higher | $ | 1,194.0 | $ | 46.3 | |||
| 1% higher | $ | 1,171.0 | $ | 23.3 | |||
| Base scenario (1) | $ | 1,147.7 | $ | — | |||
| 1% lower | $ | 1,125.0 | $ | (22.7 | ) | ||
| 2% lower | $ | 1,101.0 | $ | (46.7 | ) | ||
| 3% lower | $ | 1,078.0 | $ | (69.7 | ) | ||
Short Duration Lines
The reserving methodology described for other short duration contacts is applicable for non-core operations. Given the nature of commercial liability coverages and its relatively long claim runoff duration, additional emphasis is placed on elevated loss activity from increasing attorney involvement and analysis of individual case reserve adequacy on known claims. This is done through use of average cost per claim methods that changes in reserve estimatesinclude an allowance for thesefuture inflation impacts, detailed open claim inventory analysis, and leveraging industry development patterns to supplement our own historical claims are likely to be material.experience.
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 Business Acquired (“VOBA”)Investments
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inputs or adjustments to cash flows that include a provision for credit risk. For vehicle service contracts and extended service contracts, VOBA is amortized consistent with the premium earning patterns of the underlying in-force contracts. For limited payment policies, preneed life insurance policies, universal life policies and annuities, the valuation of VOBA at the time of acquisition is derived from similar assumptions to thoseobservable inputs requiring management judgment are used to establishdetermine the associated claim or benefit reservesestimated fair value of investments. The methodologies, assumptions and is amortized overinputs utilized are described in Note 10 to the expected life ofConsolidated 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 policies.
See also Notes 2, 8 and 810 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 ratescredit, liquidity and other risks that may adversely affect our results of operations and financial condition” and “ – Investments” contained later in this Item 7.
Our goodwill related to acquisitions of businesses was $2.60 billion and $9.17$2.57 billion as of December 31, 20192022 and 2018, respectively, which include amounts we are owed by reinsurers for claims paid as well as those included in reserve estimates that are subject to the reinsurance. 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. An estimated allowance for doubtful accounts is recorded on the basis of periodic evaluations of balances due from reinsurers (net of collateral), reinsurer solvency, historical disputes of reinsurance liabilities, management’s experience and current economic conditions. The ceding of insurance does not discharge our primary liability to our insureds.
| 2019 | 2018 | ||||||
| Ceded future policyholder benefits and expense | $ | 3,329.3 | $ | 3,132.3 | |||
| Ceded unearned premium | 4,248.1 | 3,876.3 | |||||
| Ceded claims and benefits payable | 1,895.5 | 2,046.1 | |||||
| Ceded paid losses | 120.5 | 111.3 | |||||
| Total | $ | 9,593.4 | $ | 9,166.0 | |||
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.
The following table illustrates the amount of goodwill carried by operating segment as of the dates indicated:
| December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Global Lifestyle (1) | $ | 2,193.9 | $ | 2,192.1 | |||||||
| Global Housing (2) | 409.1 | 379.5 | |||||||||
| Total | $ | 2,603.0 | $ | 2,571.6 | |||||||
| December 31, | |||||||
| 2019 | 2018 | ||||||
| Global Lifestyle (1) | $ | 1,825.9 | $ | 1,804.7 | |||
| Global Housing | 379.5 | 379.5 | |||||
| Global Preneed | 138.0 | 137.6 | |||||
| Total | $ | 2,343.4 | $ | 2,321.8 | |||
(1)As of December 31, 2019, $461.52022, $689.1 million, $1,291.7$1,432.9 million and $72.7$71.9 million of goodwill was assigned to the Connected Living, Global Automotive and Global Financial Services and Other reporting unit, respectively. As of December 31, 2018, $451.22021, $698.7 million, $1,281.3$1,420.5 million, and $72.2$72.9 million of goodwill was assigned to the Connected Living, Global Automotive and Global Financial Services and Other reporting unit, respectively.
(2)Goodwill of $7.8 million associated with the sharing economy and small commercial businesses was included in Global Housing as of December 31, 2021 and subsequently reclassified to Corporate and Other, impaired and written off in 2022.
Quantitative Impairment Testing
In the fourth quarter of 2019,2022, we performed a qualitativequantitative assessment for each of our Connected Living,the Global Lifestyle and Global Housing reporting units given the uncertainty in macro-economic conditions, inflation concerns, and Global Preneed reporting units.lingering COVID-19 impacts on industry performance. Based on these assessments, wethis quantitative assessment, the Company determined that it was more likely than not that the reporting units’ fair values were more than their respective carrying amounts and therefore furtherthat there was no impairment testing was not necessary. We performed quantitative tests on ourfor the Global AutomotiveLifestyle and Global Financial Services and OtherHousing reporting units given the relative lower excess fair value over carrying value results from the prior year, concluded that the estimated fair values exceeded their respective book values by an increased amount over the prior year tests and therefore determined that goodwill was not impaired.as of October 1, 2022.
The determination of fair value of the reporting units requires many estimates and assumptions. These estimates and assumptions include but are not limited to, 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 ofvaluation method included in the three valuation methods described above.fair value calculation. Changes in certain assumptions could have a significant impact on the goodwill impairment assessment.
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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.
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.
Results of Operations
Assurant Consolidated
The table below presents information regarding our consolidated results of operations:
| For the Years Ended December 31, | For the Years Ended December 31, | |||||||||||||||||||||||
| 2019 | 2018 | 2022 | 2021 | 2020 | ||||||||||||||||||||
| Revenues: | Revenues: | |||||||||||||||||||||||
| Net earned premiums | $ | 8,020.0 | $ | 6,156.9 | Net earned premiums | $ | 8,765.3 | $ | 8,572.1 | $ | 8,277.9 | |||||||||||||
| Fees and other income | 1,311.2 | 1,308.1 | Fees and other income | 1,243.3 | 1,172.9 | 1,042.3 | ||||||||||||||||||
| Net investment income | 675.0 | 598.4 | Net investment income | 364.1 | 314.4 | 285.6 | ||||||||||||||||||
| Net realized gains (losses) on investments | 66.3 | (62.7 | ) | |||||||||||||||||||||
| Amortization of deferred gains on disposal of businesses | 14.3 | 56.9 | ||||||||||||||||||||||
| Net realized (losses) gains on investments and fair value changes to equity securities | Net realized (losses) gains on investments and fair value changes to equity securities | (179.7) | 128.2 | (8.2) | ||||||||||||||||||||
| Total revenues | 10,086.8 | 8,057.6 | Total revenues | 10,193.0 | 10,187.6 | 9,597.6 | ||||||||||||||||||
| Benefits, losses and expenses: | Benefits, losses and expenses: | |||||||||||||||||||||||
| Policyholder benefits | 2,654.7 | 2,342.6 | Policyholder benefits | 2,359.8 | 2,201.9 | 2,275.2 | ||||||||||||||||||
| Amortization of deferred acquisition costs and value of business acquired | 3,322.1 | 2,300.8 | ||||||||||||||||||||||
| Underwriting, general and administrative expenses | 3,250.5 | 2,980.4 | ||||||||||||||||||||||
Iké net losses | 163.0 | — | ||||||||||||||||||||||
| Underwriting, selling, general and administrative expenses | Underwriting, selling, general and administrative expenses | 7,366.3 | 7,081.9 | 6,639.8 | ||||||||||||||||||||
| Goodwill impairment | Goodwill impairment | 7.8 | — | — | ||||||||||||||||||||
| Interest expense | 110.6 | 100.3 | Interest expense | 108.3 | 111.8 | 104.5 | ||||||||||||||||||
| Loss on extinguishment of debt | 31.4 | — | Loss on extinguishment of debt | 0.9 | 20.7 | — | ||||||||||||||||||
| Total benefits, losses and expenses | 9,532.3 | 7,724.1 | Total benefits, losses and expenses | 9,843.1 | 9,416.3 | 9,019.5 | ||||||||||||||||||
| Income before provision (benefit) for income taxes | 554.5 | 333.5 | ||||||||||||||||||||||
| Provision (benefit) for income taxes | 167.7 | 80.9 | ||||||||||||||||||||||
| Income before provision for income taxes | Income before provision for income taxes | 349.9 | 771.3 | 578.1 | ||||||||||||||||||||
| Provision for income taxes | Provision for income taxes | 73.3 | 168.4 | 58.7 | ||||||||||||||||||||
| Net income from continuing operations | Net income from continuing operations | 276.6 | 602.9 | 519.4 | ||||||||||||||||||||
| Net income (loss) from discontinued operations | Net income (loss) from discontinued operations | — | 758.9 | (77.7) | ||||||||||||||||||||
| Net income | 386.8 | 252.6 | Net income | 276.6 | 1,361.8 | 441.7 | ||||||||||||||||||
| Less: Net income attributable to non-controlling interest | (4.2 | ) | (1.6 | ) | Less: Net income attributable to non-controlling interest | — | — | (0.9) | ||||||||||||||||
| Net income attributable to stockholders | 382.6 | 251.0 | Net income attributable to stockholders | 276.6 | 1,361.8 | 440.8 | ||||||||||||||||||
| Less: Preferred stock dividends | (18.7 | ) | (14.2 | ) | Less: Preferred stock dividends | — | (4.7) | (18.7) | ||||||||||||||||
| Net income attributable to common stockholders | $ | 363.9 | $ | 236.8 | Net income attributable to common stockholders | $ | 276.6 | $ | 1,357.1 | $ | 422.1 | |||||||||||||
Year Ended December 31, 20192022 Compared to the Year Ended December 31, 20182021
Net Income Attributable to Common Stockholdersfrom Continuing Operations
Consolidated net income attributable to common stockholders increased $127.1from continuing operations decreased $326.3 million, or 54%, to $363.9$276.6 million for Twelve Months 20192022 from $236.8$602.9 million for Twelve Months 2018,2021, primarily due to a $128.7net decrease in unrealized gains from changes in fair value of equity securities mostly driven by the four equity positions that went public in 2021 through SPAC mergers. The changes in fair value of these investments resulted in $84.1 million reductionof after-tax unrealized losses in reportable catastrophes2022 compared to $67.5 million of after-tax unrealized gains in 2021. The decrease was also due to $50.3 million of net realized losses from sales of fixed maturity securities in 2022 compared to $13.6 million of net realized gains from sales in 2021, and growtha $52.8 million after-
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tax decrease in earnings from our non-core operations mostly related to adverse prior year reserve development from the sharing economy business. Also contributing to the decrease was $41.8 million of after-tax restructuring costs related to realigning our organizational structure and the acceleration of real estate consolidation strategy announced in December 2022, and lower earnings contributions from Global Housing, mainly due to higher non-catastrophe loss experience, partially offset by higher earnings contributions from Global Lifestyle segment, benefitingdriven by favorable results from continued organic growth inboth Connected Living and Global Automotive.
Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020
Consolidated net income from continuing operations increased $83.5 million, or 16%, to $602.9 million for Twelve Months 2021 from $519.4 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 TWG acquisition.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 an increase in net realized gains on investments mostlyfavorable earnings contributions from Global Lifestyle, mainly due to an increasecontinued organic growth and favorable loss experience in the fair value of equity securities and sales of fixed maturity securities at net gains in 2019 compared to net losses in 2018, and a $44.1 million reduction in net charges associated with the TWG acquisition.Global Automotive. These increases were partially offset by a $163.9the absence of an $84.4 million after-tax loss related to a decrease in the estimated fair value of Iké (of which $38.4 million related to cumulative foreign currency lossestax benefit that was recorded in other comprehensive income), lower after-tax amortization of deferred gains associated with the sale of Assurant Employee Benefits and $29.6 million of after-tax charges primarilyTwelve Months 2020 related to the August 2019 tender offer for a portionutilization of net operating losses in connection with the Company’s senior notes maturing in 2034.2020 Coronavirus Aid, Relief, and Economic Security Act.
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Global Lifestyle
The table below presents information regarding the Global Lifestyle segment’s results of operations for the periods indicated:
| For the Years Ended December 31, | For the Years Ended December 31, | |||||||||||||||||||||||
| 2019 | 2018 | 2022 | 2021 | 2020 | ||||||||||||||||||||
| Revenues: | Revenues: | |||||||||||||||||||||||
| Net earned premiums | $ | 6,073.7 | $ | 4,291.8 | Net earned premiums | $ | 6,829.9 | $ | 6,712.7 | $ | 6,436.2 | |||||||||||||
| Fees and other income | 1,020.5 | 891.5 | Fees and other income | 1,106.2 | 1,027.4 | 895.4 | ||||||||||||||||||
| Net investment income | 250.8 | 189.4 | Net investment income | 249.4 | 198.8 | 191.5 | ||||||||||||||||||
| Total revenues | 7,345.0 | 5,372.7 | Total revenues | 8,185.5 | 7,938.9 | 7,523.1 | ||||||||||||||||||
| Benefits, losses and expenses: | Benefits, losses and expenses: | |||||||||||||||||||||||
| Policyholder benefits | 1,516.2 | 1,145.6 | Policyholder benefits | 1,325.5 | 1,333.1 | 1,411.8 | ||||||||||||||||||
| Amortization of deferred acquisition costs and value of business acquired | 3,015.7 | 2,025.8 | ||||||||||||||||||||||
| Underwriting, general and administrative expenses | 2,277.6 | 1,812.6 | ||||||||||||||||||||||
| Underwriting, selling, general and administrative expenses | Underwriting, selling, general and administrative expenses | 6,106.6 | 5,903.7 | 5,475.3 | ||||||||||||||||||||
| Total benefits, losses and expenses | 6,809.5 | 4,984.0 | Total benefits, losses and expenses | 7,432.1 | 7,236.8 | 6,887.1 | ||||||||||||||||||
| Segment income before provision for income taxes | 535.5 | 388.7 | ||||||||||||||||||||||
| Provision for income taxes | 126.2 | 91.0 | ||||||||||||||||||||||
| Segment net income | $ | 409.3 | $ | 297.7 | ||||||||||||||||||||
| Global Lifestyle Adjusted EBITDA | Global Lifestyle Adjusted EBITDA | $ | 753.4 | $ | 702.1 | $ | 636.0 | |||||||||||||||||
| Net earned premiums, fees and other income: | Net earned premiums, fees and other income: | |||||||||||||||||||||||
| Connected Living (mobile and service contracts) | $ | 3,768.4 | $ | 2,800.6 | ||||||||||||||||||||
| Connected Living | Connected Living | $ | 4,233.4 | $ | 4,303.2 | $ | 4,216.5 | |||||||||||||||||
| Global Automotive | 2,873.6 | 1,909.2 | Global Automotive | 3,702.7 | 3,436.9 | 3,115.1 | ||||||||||||||||||
| Global Financial Services and Other | 452.2 | 473.5 | ||||||||||||||||||||||
| Total | $ | 7,094.2 | $ | 5,183.3 | Total | $ | 7,936.1 | $ | 7,740.1 | $ | 7,331.6 | |||||||||||||
| Net earned premiums, fees and other income: | Net earned premiums, fees and other income: | |||||||||||||||||||||||
| Domestic | $ | 5,020.1 | $ | 3,560.9 | Domestic | $ | 6,156.3 | $ | 5,871.5 | $ | 5,402.3 | |||||||||||||
| International | 2,074.1 | 1,622.4 | International | 1,779.8 | 1,868.6 | 1,929.3 | ||||||||||||||||||
| Total | $ | 7,094.2 | $ | 5,183.3 | Total | $ | 7,936.1 | $ | 7,740.1 | $ | 7,331.6 | |||||||||||||
Year Ended December 31, 20192022 Compared to the Year Ended December 31, 20182021
Total revenues increased $1.97 billion,$246.6 million, or 37%3%, to $7.35$8.19 billion for Twelve Months 20192022 from $5.37$7.94 billion for Twelve Months 2018.2021. Net earned premiums increased $1.78 billion,$117.2 million, or 42%2%, primarily due to full year of revenues from the TWG acquisition,driven by continued organic growth in our Connected Living business, mainly due to subscriber growth from mobile protection programs, and continued growthstrong prior period U.S. sales in our Global Automotive business due to strong prior period sales of warranty contracts.across all distribution channels and domestic mobile subscriber growth within our cable operator distribution channel. The increase in net earned premiums was partially offset by the run-off of certain global mobile programs and unfavorable foreign exchange. Fees and other income increased $129.0$78.8 million, or 14%8%, mainly driven by an increase in global mobile devices serviced, which included $148.4 million from in-store mobile service and repair program, which, as previously announced, is not expected to continue in 2023. Net investment income increased $50.6 million, or 25%, primarily due to income from higher fixed maturity yields and asset levels and higher real estate related income.
Total benefits, losses and expenses increased $195.3 million, or 3%, to $7.43 billion for Twelve Months 2022 from $7.24 billion for Twelve Months 2021. Underwriting, selling, general and administrative expenses increased $202.9 million, or 3%, mainly due to higher commission expenses, primarily from growth across our Global Automotive business and domestic mobile subscriber growth within our cable operator distribution channel, as well as higher cost of sales in Connected Living due to an increase in global mobile devices serviced, which included expenses from the in-store mobile service and repair program, and higher operating costs to support growth. This was partially offset by lower commission expenses related to the run-off of certain global mobile programs. The increase in total benefits losses and expenses was partially offset by a decrease in policyholder benefits of $7.6 million, or 1%, due to the run-off of certain global mobile programs and favorable loss experience
52
from select domestic ancillary products in Global Automotive and from mobile device protection products, partially offset by growth across our Global Automotive and Connected Living businesses.
Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020
Adjusted EBITDA increased $66.1 million, or 10%, to $702.1 million for Twelve Months 2021 from $636.0 million for Twelve Months 2020, primarily due to Global Automotive from underlying growth from prior period sales driven by expanded and new client relationships globally, favorable loss experience in select ancillary products and $10.4 million of one-time benefits in Twelve Months 2021 that are not expected to repeat. Connected Living also contributed to the increase, led by mobile, mainly from higher mobile trade-in volumes, including our acquisition of Hyla Mobile, Inc.(“Hyla”), better performance in Asia Pacific and additional domestic mobile subscribers across carrier and cable operator clients, as well as financial services and other products, mainly due to claims and sales recoveries as Twelve Months 2020 included unfavorable impacts related to COVID-19. This increase was partially offset by investments to build out service and repair capabilities in mobile and an $11.1 million benefit for an extended service contract client recoverable in Twelve Months 2020.
Total revenues increased $415.8 million, or 6%, to $7.94 billion for Twelve Months 2021 from $7.52 billion for Twelve Months 2020. Net earned premiums increased $276.5 million, or 4%, primarily driven by continued growth from strong U.S. sales in our Global 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%, primarily driven by Connected Living from higher trade-in volumes from our mobile repairsrepair and logistics businessvolumes mainly from Hyla contributions and growthmobile carrier promotions, partially offset by the $176 million reduction from mobile programs.the previously disclosed program contract change. Net investment income increased $61.4$7.3 million, or 32%4%, primarily due to full year contributions from the TWG acquisition and higher income from real estate related investments.
Total benefits, losses and expenses increased $1.83 billion,$349.7 million, or 37%5%, to $6.81$7.24 billion for Twelve Months 20192021 from $4.98$6.89 billion for Twelve Months 2018. Policyholder benefits increased $370.6 million, or 32%, primarily driven by a full year of policyholder benefits from the TWG acquisition and growth from our Connected Living and Global Automotive businesses, partially offset by favorable foreign exchange. Amortization of deferred acquisition costs and value of business acquired increased $989.9 million, or 49%, primarily due to a full year of expenses from the TWG acquisition.2020. Underwriting, selling, general and administrative expenses increased $465.0$428.4 million, or 26%8%, 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 ourtotal benefits, losses and expenses was partially offset by a $78.7 million, or 6%, decrease in policyholder benefits, primarily due to the run-off of certain global mobile programs including higher trade-in volumes from our domestic repairs and logistics business, a full year of expenses from the TWG acquisition and continued investments in our Connected Living business and lower loss experience in select ancillary products in Global Automotive, partially offset by favorable foreign exchange.growth across our Global Automotive and Connected Living businesses.
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Global Housing
The table below presents information regarding the Global Housing segment’s results of operations for the periods indicated:
| For the Years Ended December 31, | |||||||
| 2019 | 2018 | ||||||
| Revenues: | |||||||
| Net earned premiums | $ | 1,885.1 | $ | 1,806.2 | |||
| Fees and other income | 148.6 | 283.0 | |||||
| Net investment income | 95.2 | 80.8 | |||||
| Total revenues | 2,128.9 | 2,170.0 | |||||
| Benefits, losses and expenses: | |||||||
| Policyholder benefits | 869.5 | 938.4 | |||||
| Amortization of deferred acquisition costs and value of business acquired | 221.5 | 204.5 | |||||
| Underwriting, general and administrative expenses | 711.6 | 837.1 | |||||
| Total benefits, losses and expenses | 1,802.6 | 1,980.0 | |||||
| Segment income before provision for income taxes | 326.3 | 190.0 | |||||
| Provision for income taxes | 67.6 | 39.2 | |||||
| Segment net income | $ | 258.7 | $ | 150.8 | |||
| Net earned premiums, fees and other income: | |||||||
| Lender-placed Insurance | $ | 1,109.2 | $ | 1,149.7 | |||
| Multifamily Housing | 429.2 | 406.1 | |||||
| Specialty and Other | 495.3 | 417.3 | |||||
| Mortgage Solutions | — | 116.1 | |||||
| Total | $ | 2,033.7 | $ | 2,089.2 | |||
| For the Years Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Revenues: | |||||||||||||||||
| Net earned premiums | $ | 1,874.0 | $ | 1,796.6 | $ | 1,758.3 | |||||||||||
| Fees and other income | 136.4 | 144.8 | 143.7 | ||||||||||||||
| Net investment income | 80.0 | 78.0 | 68.5 | ||||||||||||||
| Total revenues | 2,090.4 | 2,019.4 | 1,970.5 | ||||||||||||||
| Benefits, losses and expenses: | |||||||||||||||||
| Policyholder benefits | 915.2 | 798.8 | 794.3 | ||||||||||||||
| Underwriting, selling, general and administrative expenses | 873.2 | 863.5 | 858.2 | ||||||||||||||
| Total benefits, losses and expenses | 1,788.4 | 1,662.3 | 1,652.5 | ||||||||||||||
| Global Housing Adjusted EBITDA | $ | 302.0 | $ | 357.1 | $ | 318.0 | |||||||||||
| Impact of reportable catastrophes | $ | 172.7 | $ | 155.1 | $ | 178.5 | |||||||||||
| Net earned premiums, fees and other income: | |||||||||||||||||
| Lender-placed Insurance | $ | 1,124.0 | $ | 1,065.9 | $ | 1,052.5 | |||||||||||
| Multifamily Housing | 482.4 | 482.3 | 451.6 | ||||||||||||||
| Specialty and Other | 404.0 | 393.2 | 397.9 | ||||||||||||||
| Total | $ | 2,010.4 | $ | 1,941.4 | $ | 1,902.0 | |||||||||||
Year Ended December 31, 20192022 Compared to the Year Ended December 31, 20182021
Total revenues decreased $41.1 increased $71.0 million, or 2%4%, to $2.13$2.09 billion for Twelve Months 20192022 from $2.17$2.02 billion for Twelve Months 2018.2021. Net earned premiums increased $77.4 million, or 4%, primarily due to higher average insured values, policies in force and premium rates in our Lender-placed Insurance business, including contributions from a new client onboarded during fourth quarter 2022, partially offset by higher catastrophe reinsurance costs including higher reinstatement premiums. The decreaseincrease was mainly due topartially offset by a decrease in fees and other income of $134.4$8.4 million, or 47%6%, primarily due to a decline in fees from our Multifamily Housing and Lender-placed Insurance businesses.
Total benefits, losses and expenses increased $126.1 million, or 8%, to $1.79 billion for Twelve Months 2022 from $1.66 billion for Twelve Months 2021. Policyholder benefits increased $116.4 million, or 15%, due to higher non-catastrophe loss experience as described above. Underwriting, selling, general and administrative expenses increased $9.7 million, or 1%, mainly due to higher operating costs to support growth, with general and administrative expenses remaining relatively flat through operational savings initiatives.
54
Year Ended December 31, 2021 Compared to the saleYear Ended December 31, 2020
Adjusted EBITDA increased $39.1 million, or 12%, to $357.1 million for Twelve Months 2021 compared to $318.0 million for Twelve Months 2020. Adjusted EBITDA for Twelve Months 2021 included $155.1 million of pre-tax reportable catastrophes, primarily related to Hurricane Ida and the Texas winter storms, compared to $178.5 million for Twelve Months 2020. Excluding reportable catastrophes, Adjusted EBITDA increased $15.7 million, or 3%, driven by premium rate and average insured value increases in our Mortgage SolutionsLender-placed Insurance business. These increases were partially offset by decreases from higher non-catastrophe loss experience from an anticipated increase to more normalized levels than experienced in Twelve Months 2020 as well as lower REO volumes related to COVID-19 foreclosure moratoriums in Lender-placed Insurance.
Total revenues increased $48.9 million, or 2%, to $2.02 billion for Twelve Months 2021 from $1.97 billion for Twelve Months 2020. Net earned premiums increased $78.9$38.3 million, or 4%2%, primarily due to growth from our Specialtyaverage insured value and Other business, mainly small commercial and sharing economy products, premium rate increases in our Lender-placed Insurance business and continued growth from renters insurance in our Multifamily Housing business,business. These increases were partially offset by lower REO volumes, higher estimated catastrophe premium, higher reinsurance reinstatement premium primarily related to Hurricane Ida, and a decline in Lender-placed InsuranceSpecialty and Other from lower placement rates, the reduction in loans tracked from a financially insolvent client and the cost of additional catastrophe reinsurance protection.run-offs. Net investment income increased $14.4$9.5 million, or 18%14%, primarily due to higher income from real estate related investments and an increase in invested assets.investments.
Total benefits, losses and expenses decreased $177.4 increased $9.8 million, or 9%1%, to $1.80$1.66 billion for Twelve Months 20192021 from $1.98$1.65 billion for Twelve Months 2018. The decrease was2020. Policyholder benefits increased $4.5 million, or 1%, primarily duefrom higher non-catastrophe losses across all lines of business from an anticipated increase to more normalized levels than experienced in Twelve Months 2020, partially offset by a decrease in underwriting,reportable catastrophe losses. Underwriting, selling, general and administrative expenses of $125.5increased $5.3 million, or 15%, primarily due to the sale of our Mortgage Solutions business. Total policyholder benefits decreased $68.9 million, or 7%, primarily due to a decrease of $164.2 million in reportable catastrophe losses, partially offset by higher non-catastrophe loss experience mainly from our small commercial and sharing economy products. Amortization of deferred acquisition costs increased $17.0 million, or 8%, primarily related to growth in our Specialty and Other and Multifamily Housing businesses.
| For the Years Ended December 31, | |||||||
| 2019 | 2018 | ||||||
| Revenues: | |||||||
| Net earned premiums | $ | 61.2 | $ | 58.4 | |||
| Fees and other income | 139.7 | 131.1 | |||||
| Net investment income | 285.3 | 278.0 | |||||
| Total revenues | 486.2 | 467.5 | |||||
| Benefits, losses and expenses: | |||||||
| Policyholder benefits | 269.0 | 263.3 | |||||
| Amortization of deferred acquisition costs and value of business acquired | 84.9 | 70.5 | |||||
| Underwriting, general and administrative expenses | 67.3 | 60.1 | |||||
| Total benefits, losses and expenses | 421.2 | 393.9 | |||||
| Segment income before provision for income taxes | 65.0 | 73.6 | |||||
| Provision for income taxes | 12.8 | 15.9 | |||||
| Segment net income | $ | 52.2 | $ | 57.7 | |||
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Corporate and Other
The table below presents information regarding the Corporate and Other segment’s results of operations for the periods indicated:
| For the Years Ended December 31, | |||||||
| 2019 | 2018 | ||||||
| Revenues: | |||||||
| Net earned premiums | $ | — | $ | 0.5 | |||
| Fees and other income | 2.4 | 2.5 | |||||
| Net investment income | 43.7 | 50.2 | |||||
| Net realized gains (losses) on investments | 66.3 | (62.7 | ) | ||||
| Amortization of deferred gains on disposal of businesses | 14.3 | 56.9 | |||||
| Total revenues | 126.7 | 47.4 | |||||
| Benefits, losses and expenses: | |||||||
| Policyholder benefits | — | (4.7 | ) | ||||
| General and administrative expenses | 194.0 | 270.6 | |||||
| Iké net losses | 163.0 | — | |||||
| Interest expense | 110.6 | 100.3 | |||||
| Loss on extinguishment of debt | 31.4 | — | |||||
| Total benefits, losses and expenses | 499.0 | 366.2 | |||||
| Segment loss before benefit for income taxes | (372.3 | ) | (318.8 | ) | |||
| Benefit for income taxes | (38.9 | ) | (65.2 | ) | |||
| Segment net (loss) income | (333.4 | ) | (253.6 | ) | |||
| Less: Net income attributable to non-controlling interest | (4.2 | ) | (1.6 | ) | |||
| Net (loss) income attributable to stockholders | (337.6 | ) | (255.2 | ) | |||
| Less: Preferred stock dividends | (18.7 | ) | (14.2 | ) | |||
| Net (loss) income attributable to common stockholders | $ | (356.3 | ) | $ | (269.4 | ) | |
| For the Years Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Revenues: | |||||||||||||||||
| Net earned premiums | $ | — | $ | — | $ | — | |||||||||||
| Fees and other income | 0.5 | 0.3 | 0.5 | ||||||||||||||
| Net investment income | 26.9 | 31.9 | 17.6 | ||||||||||||||
| Total revenues | 27.4 | 32.2 | 18.1 | ||||||||||||||
| Benefits, losses and expenses | |||||||||||||||||
| Policyholder benefits | 0.5 | — | — | ||||||||||||||
| General and administrative expenses | 126.1 | 125.5 | 142.5 | ||||||||||||||
| Total benefits, losses and expenses | 126.6 | 125.5 | 142.5 | ||||||||||||||
| Corporate and Other Adjusted EBITDA | $ | (99.2) | $ | (93.3) | $ | (124.4) | |||||||||||
Year Ended December 31, 20192022 Compared to the Year Ended December 31, 20182021
Total revenues decreased $4.8 million, of after-tax loss relatedor 15%, to $27.4 million for Twelve Months 2022 from $32.2 million for Twelve Months 2021 primarily driven by a decrease in net investment income of $5.0 million, or 16%, mostly due to a reduction in income from limited partnerships, partially offset by increased income from higher invested assets balances, primarily reflecting the estimated fair valueremaining proceeds from the sale of IkéGlobal Preneed.
Total benefits, losses and expenses increased $1.1 million, or 1%, to $126.6 million for Twelve Months 2022 from $125.5 million for Twelve Months 2021. General and administrative expensesincreased modestly, primarily due to higher employee-related and technology expenses.
Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020
Adjusted EBITDA was $(93.3) million for Twelve Months 2021 compared to $(124.4) million for Twelve Months 2020, primarily driven by lower general operating expenses and an increase in net realized gains on investments driven by an increase in the fair value of equity securities and sales of fixed maturity securities at net gains in 2019 compared to net losses in 2018, a $44.1 million after-tax reduction in net charges associated with the TWG acquisition and a $24.1 million after-tax decrease in the loss on the sale of our Mortgage Solutions business. The decreases were partially offset by $29.6 million of after-tax charges related to the August 2019 tender offer for a portion of the Company’s senior notes maturing in 2034, additional interest expense and preferred dividends from acquisition related financing and lower amortization of deferred gains with the sale of Assurant Employee Benefits.investment income.
Total Revenues
Total Benefits, Losses and Expenses
56
Discontinued Operations
The increase in expensestable below presents information regarding the results of the discontinued operations for the periods indicated:
| For the Years Ended December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Revenues: | |||||||||||
| Net earned premiums | $ | 42.6 | $ | 66.9 | |||||||
| Fees and other income | 91.0 | 151.1 | |||||||||
| Net investment income | 168.4 | 289.3 | |||||||||
| Net realized gains (losses) on investments and fair value changes to equity securities | 4.2 | (8.0) | |||||||||
| Gain on disposal of businesses | 916.2 | — | |||||||||
| Total revenues | 1,222.4 | 499.3 | |||||||||
| Benefits, losses and expenses: | |||||||||||
| Policyholder benefits | 172.7 | 284.4 | |||||||||
| Underwriting, selling, general and administrative expenses | 85.2 | 142.6 | |||||||||
| Goodwill impairment | — | 137.8 | |||||||||
| Total benefits, losses and expenses | 257.9 | 564.8 | |||||||||
| Income (loss) before provision for income taxes | 964.5 | (65.5) | |||||||||
| Provision for income taxes | 205.6 | 12.2 | |||||||||
| Net income (loss) from discontinued operations | $ | 758.9 | $ | (77.7) | |||||||
Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020
Net income from discontinued operations was $758.9 million for Twelve Months 20192021 compared to a net loss from discontinued operations of $77.7 million for Twelve Months 2020. The change was primarily due to a $163.0$720.1 million loss related to a decrease in estimated fair value of Iké, $37.4 million of debt related charges primarily related toafter-tax gain on the August 2019 tender offer for a portionsale of the Company’s senior notes maturing 2034 anddisposed Global Preneed business in Twelve Months 2021. The gain included $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 $17.7a $137.8 million of gainsafter-tax goodwill impairment on the disposed Global Preneed business from the sale of Time Insurance Company, a legal entity associated with the previously exited Assurant Health business.Twelve Months 2020. These increasesitems were partially offset by $59.2lower operating results for the disposed Global Preneed business as Twelve Months 2021 included only seven months of results since the sale closed on August 2, 2021.
Total revenues increased $723.1 million decrease in net charges associated with the TWG acquisition and a $30.7to $1.22 billion for Twelve Months 2021 from $499.3 million changefor Twelve Months 2020, primarily due to the comparison to the 2018 lossgain on the sale of our Mortgage Solutionsthe disposed Global Preneed business. Additionally,The gain included $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 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 and a $57.4 million, or 40%, decrease in underwriting, selling, general and administrative expenses, forprimarily because Twelve Months 20192021 included a $26.7 million gain related to the reductiononly seven months of the valuation allowance on the Company’s Patient Protection and Affordable Health Care Act of 2010 (“ACA”) risk corridor program receivables. The reduction in the allowance related to improved collection prospects following recent litigation activity as well as the Company’s entry into an agreement to effectively sell its right to any future claim proceeds received by the Company related to the risk corridor program receivables. For more information, see Note 4 to the Consolidated Financial Statements included elsewhere in this Report.results.
Investments
We had total investments of $14.57$7.52 billion and $13.40$8.67 billion as of December 31, 20192022 and 2018,2021, respectively. Net unrealized gainsgains/losses on our fixed maturity securities portfolio increased $834.5decreased $948.5 million during Twelve Months 2019,2022, from $423.1a $311.4 million unrealized gain at December 31, 20182021 to $1.26 billiona $637.1 million unrealized loss at December 31, 2019. The increase was mainly2022, primarily due to a decreasean increase in U.S. Treasury yields and tightening credit spreads.yields.
The following table shows the credit quality of our fixed maturity securities portfolio as of the dates indicated:
| Fair Value as of | Fair Value as of | |||||||||||||||||||||||||||||||||||||||
| Fixed Maturity Securities by Credit Quality | December 31, 2019 | December 31, 2018 | Fixed Maturity Securities by Credit Quality | December 31, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||||||
| Aaa / Aa / A | $ | 8,014.7 | 65.1 | % | $ | 7,329.8 | 65.1 | % | Aaa / Aa / A | $ | 3,615.2 | 57.5 | % | $ | 4,066.5 | 56.4 | % | |||||||||||||||||||||||
| Baa | 3,734.7 | 30.3 | % | 3,322.7 | 29.5 | % | Baa | 2,295.4 | 36.5 | % | 2,719.0 | 37.7 | % | |||||||||||||||||||||||||||
| Ba | 480.7 | 3.9 | % | 447.9 | 4.0 | % | Ba | 305.2 | 4.9 | % | 333.7 | 4.6 | % | |||||||||||||||||||||||||||
| B and lower | 92.3 | 0.7 | % | 156.7 | 1.4 | % | B and lower | 67.9 | 1.1 | % | 96.1 | 1.3 | % | |||||||||||||||||||||||||||
| Total | $ | 12,322.4 | 100.0 | % | $ | 11,257.1 | 100.0 | % | Total | $ | 6,283.7 | 100.0 | % | $ | 7,215.3 | 100.0 | % | |||||||||||||||||||||||
The following table shows the major categories of net investment income for the periods indicated:
| Years Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Fixed maturity securities | $ | 270.0 | $ | 232.8 | $ | 228.4 | |||||||||||
| Equity securities | 15.0 | 14.9 | 14.5 | ||||||||||||||
| Commercial mortgage loans on real estate | 14.9 | 8.9 | 8.2 | ||||||||||||||
| Short-term investments | 4.7 | 2.1 | 5.7 | ||||||||||||||
| Other investments | 48.6 | 61.0 | 16.6 | ||||||||||||||
| Cash and cash equivalents | 25.7 | 8.5 | 13.3 | ||||||||||||||
| Revenue from consolidated investment entities (1) | — | — | 56.3 | ||||||||||||||
| Total investment income | 378.9 | 328.2 | 343.0 | ||||||||||||||
| Investment expenses | (14.8) | (13.8) | (20.5) | ||||||||||||||
| Expenses from consolidated investment entities (1) | — | — | (36.9) | ||||||||||||||
| Net investment income | $ | 364.1 | $ | 314.4 | $ | 285.6 | |||||||||||
| Years Ended December 31, | |||||||
| 2019 | 2018 | ||||||
| Fixed maturity securities | $ | 492.8 | $ | 451.6 | |||
| Equity securities | 22.1 | 21.5 | |||||
| Commercial mortgage loans on real estate | 36.6 | 33.4 | |||||
| Short-term investments | 13.6 | 22.0 | |||||
| Other investments | 49.2 | 41.6 | |||||
| Cash and cash equivalents | 36.1 | 25.7 | |||||
| Revenue from consolidated investment entities (1) | 119.2 | 77.8 | |||||
| Total investment income | 769.6 | 673.6 | |||||
| Investment expenses | (24.5 | ) | (23.3 | ) | |||
| Expenses from consolidated investment entities (1) | (70.1 | ) | (51.9 | ) | |||
| Net investment income | $ | 675.0 | $ | 598.4 | |||
(1)The following table shows the revenues net of expenses from consolidated investment entities for the periods indicated.
| Years Ended December 31, | Years Ended December 31, | |||||||||||||||||||||||
| 2019 | 2018 | 2022 | 2021 | 2020 | ||||||||||||||||||||
| Investment income from direct investments in: | Investment income from direct investments in: | |||||||||||||||||||||||
| Real estate funds (1) | $ | 25.1 | $ | 11.3 | Real estate funds (1) | $ | — | $ | — | $ | 8.3 | |||||||||||||
| CLO entities | 17.0 | 9.5 | CLO entities | — | — | 8.0 | ||||||||||||||||||
| Investment management fees | 7.0 | 5.1 | Investment management fees | — | — | 3.1 | ||||||||||||||||||
| Net investment income from consolidated investment entities | $ | 49.1 | $ | 25.9 | 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 for the year ended December 31, 2020.
Net investment income increased $76.6$49.7 million, or 13%16%, to $675.0$364.1 million for Twelve Months 20192022 from $598.4$314.4 million for Twelve Months 2018 benefiting from the investments acquired from the TWG acquisition. In addition to TWG, the2021. The increase was alsoprimarily driven by higher yields on fixed maturity securities and cash and cash equivalents, and higher income from commercial mortgage loans on real estate due to higher invested assets, partially offset by lower income from other investments mostly due to a reduction in income from limited partnerships.
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 CIEs, primarily related to our investmentsales of real estate joint venture partnerships and higher valuations in our real estate fund resulting from an increase in the fair market value of certain real estate propertiesjoint venture and other partnerships. Fixed maturity income from our direct investment in Assurant-issued CLO structures launched in 2019. The increase in net investment income was alsoincreased, mostly due to proceeds from the sale of direct real estate venture properties and an increase in fair market value of certain other properties, as well as increased income from higher overall invested assets consistent with the underlying growth of our business. The increase wasasset levels, partially offset by lower yields. Investment expenses decreased due to prior year costs associated with the absencedisposed Global Preneed business and one-time expenses related
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to the outsourcing of $2.9our 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 realized losses on investments and fair value changes to equity securities were $179.7 million for Twelve Months 2022 compared to net realized gains and fair value changes to equity securities of $128.2 million for Twelve Months 2021. The change in Twelve Months 2022 was primarily driven by $132.7 million of interest income related to the recoverynet unrealized losses from changes in fair value of equity securities that included a $106.4 million decrease in net unrealized gains from four equity positions that went public in Twelve Months 2021. The change in Twelve Months 2022 was also driven by $63.7 million of net realized losses on certain mortgage-backedsales of fixed maturity securities, and $2.4partially offset by $18.1 million of interest income from the reinvestmentnet realized gains on sales of debt proceedsequity securities. The change in anticipation of the TWG acquisition that were recorded for the Twelve Months 2018.2021 was primarily driven by $112.4 million of net unrealized gains from changes in fair value of equity securities that included $85.4 million of unrealized gains from three equity positions that went public in third quarter 2021, and $17.2 million of net realized gains from sales of fixed maturity securities.
As of December 31, 2019,2022, we owned $69.6$17.4 million of securities guaranteed by financial guarantee insurance companies. Included in this amount was $57.9$14.7 million of municipal securities, whose credit rating was A+ with the guarantee, but would have had a rating of A-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 insurance subsidiaries’ ability to pay such dividends and to make such other payments will be limitedis regulated by applicable lawsthe states and regulations of the jurisdictionsterritories in which our subsidiaries are domiciled, which subject our subsidiaries to significant regulatory restrictions. Thedomiciled. These dividend requirements and regulations vary from jurisdiction to jurisdiction and by type of insurance provided by the applicable subsidiary. These laws and regulationssubsidiary, but generally require among other things, 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 growthgrowth..” Along with solvency regulations, the primary driver in determining the amount of capital used for dividends from insurance subsidiaries is the level of capital needed to maintain desired financial strength ratings from A.M. Best Company (“A.M. Best”).Best. For the year ending December 31, 2023, the maximum amount of dividends our regulated U.S. domiciled insurance subsidiaries could pay us, under applicable laws and regulations without prior regulatory approval, is approximately $344.7 million. 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.subsidiaries or the enterprise. In 2019,2022, the following actions were taken by the rating agencies:
A.M. Best
Moody’s
•In June 2022, upgraded the senior debt rating of Assurant, entitiesInc. to Baa2 from Baa3 with a stable outlook except for two of our subsidiaries that soldand upgraded the Assurant Employee Benefits business through reinsurance, whoseinsurance financial strength ratings were downgradedon our insurance operating subsidiaries, American Bankers Insurance Company of Florida, ABLAC and American Security Insurance Company, to A2 from A- to B++ due to their diminished profile following the sale. The outlook for the ratings of these two entities was revised from negative to stable.
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 company subsidiaries could adversely affect our results of operations and financial conditioncondition..”
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Holding Company
As of December 31, 2019,2022, we had approximately $533.9$446.1 million in holding company liquidity, $308.9$221.1 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 and MCPS dividends.expenses. We use the term “holding company liquidity” to represent the portion of cash and other liquid marketable securities held at Assurant, Inc., out of a total of $648.0$532.1 million 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 of liquid assets and excluding amounts used for or as a result of acquisitions or received from dispositions, were approximately $748.0$549.5 million and $739.0$728.6 million for Twelve Months 20192022 and Twelve Months 2018,2021, respectively. Twelve Months 2021 included approximately $12.0 million 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 shares.common stock.
Dividends and Repurchases
During Twelve Months 20192022 and Twelve Months 2018,2021, we made common stock repurchases and paid dividends to our common stockholders of $426.3$717.8 million and $266.1$1.00 billion, respectively.
On January 19, 2023, the Board declared a quarterly dividend of $0.70 per common share payable on March 20, 2023 to stockholders of record as of February 27, 2023. We paid dividends of $0.70 per common share on December 19, 2022 to stockholders of record as of November 28, 2022. This represented a 3% increase to the quarterly dividend of $0.68 per common share paid on September 19, June 20, and March 21, 2022.
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 (as defined below) also contains limitations on our ability to pay dividends to our stockholders and repurchase capital stock if we are in default, or such dividend payments or repurchases would cause us to be in default, of our obligations thereunder. In addition, if we elect to defer the payment of interest on our 7.00% Fixed-to-Floating Rate Subordinated Notes due March 2048 or our 5.25% Subordinated Notes due January 2061 (refer to “— Senior and Subordinated Notes” below), we generally may not make payments on or repurchase any shares of our capital stock.
During Twelve Months 2022, we repurchased 3,347,558 shares of our outstanding common stock at a cost of $567.6 million, respectively. We expectexclusive of commissions. In May 2021, the Board authorized a share repurchase program for up to deploy capital primarily to support business growth, fund other investments and return capital to shareholders, subject to Board approval and market conditions.
As previously announced, in second quarter 2022 and within one year of closing the right to put their interests in Iké to us, in mid-2019. In April 2019,transaction, we entered into a cooperation agreement withcompleted the majority shareholdersreturn of Iké to explore strategic alternatives. We also agreed to delay the call and put rights to January 31, 2020. In the third quarter$900.0 million of 2019, we decided to pursuenet proceeds from the sale of our interests in Iké and on January 29, 2020, we entered into agreementsthe disposed Global Preneed business through share repurchases. For additional information, refer to sell our interest in Iké to certain management shareholders, which is subject to regulatory approval. We expect closing to occur in the second quarter of 2020 resulting in an expected net cash outflow of $54 million, which could increase by up to an additional $40 million in the event we provide seller financing to the management shareholders at closing, plus transaction costs. There can be no assurance that our efforts to sell our interests in Iké will be successful. See Note 54 to the Consolidated Financial Statements included elsewhere in this Report.
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’ excess 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 large, 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 –
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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 structuresasset 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 preference. Sensitivityappetite. Scenario testing of significant liability assumptions and new business projections is also performed.
Our liabilities generally have limiteddo not include policyholder optionality, which means that the timing of payments is relativelygenerally 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. Therefore, we believe we have limited exposure to disintermediation risk.
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 five-year senior unsecured $450.0 million revolving credit agreement (the “Credit Facility”) with a syndicate of banks arranged by JPMorgan Chase Bank, N.A.Credit Facility.
Senior and Wells Fargo Bank, National Association. In addition, in January 2018, we filed an automatically effective shelf registration statement on Form S-3 with the SEC. This registration statement allows us to issue equity, debt and other types of securities through one or more methods of distribution. The terms of any offering would be established at the time of the offering, subject to market conditions. If we decide to make an offering of securities, we will consider the nature of the cash requirement as well as the cost of capital in determining what type of securities we may offer.Subordinated Notes
| December 31, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Principal Amount | Carrying Value | Principal Amount | Carrying Value | ||||||||||||||||||||
| 4.20% Senior Notes due September 2023 | 225.0 | 224.7 | 300.0 | 299.0 | |||||||||||||||||||
| 4.90% Senior Notes due March 2028 | 300.0 | 297.8 | 300.0 | 297.5 | |||||||||||||||||||
| 3.70% Senior Notes due February 2030 | 350.0 | 347.6 | 350.0 | 347.3 | |||||||||||||||||||
| 2.65% Senior Notes due January 2032 | 350.0 | 346.7 | 350.0 | 346.4 | |||||||||||||||||||
| 6.75% Senior Notes due February 2034 | 275.0 | 272.5 | 275.0 | 272.4 | |||||||||||||||||||
| 7.00% Fixed-to-Floating Rate Subordinated Notes due March 2048 | 400.0 | 396.5 | 400.0 | 395.9 | |||||||||||||||||||
| 5.25% Subordinated Notes due January 2061 | 250.0 | 244.1 | 250.0 | 244.0 | |||||||||||||||||||
| Total Debt | $ | 2,129.9 | $ | 2,202.5 | |||||||||||||||||||
In June 17, 2019 to stockholders of record as of June 1, 2019, and $1.6250 per share of MCPS on March 15, 2019 to stockholders of record as of March 1, 2019.
Credit Facility and Commercial Paper Program
We have a $500.0 million five-year senior unsecured revolving credit facility (the “Credit Facility”) with a syndicate of banks arranged by JPMorgan Chase Bank, N.A. and Wells Fargo Bank, National Association. The Credit Facility that 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 $450.0$500.0 million, which may be increased up to $575.0$700.0 million. The Credit Facility is available until December 2022,2026, provided we are in compliance with all covenants. The Credit Facility has a sub-limitsublimit 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 during Twelve Months 2022 and no loans were outstanding as of December 31, 2022.
Our commercial paper program requires us to maintain liquidity facilities either in an available amount equal to any outstanding notes from the program or in an amount sufficient to maintain the ratings assigned to the notes issued from the program. Our commercial paper is rated AMB-1 by A.M. Best, P-3P-2 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 $441.0$499.8 million out of the $500.0 million was available as of December 31, 2019, and $9.02022, due to $0.2 million of letters of credit were outstanding.
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We did not use the commercial paper program during Twelve Months 2019 or Twelve Months 20182022 and there were no amounts relating to the commercial paper program outstanding as of December 31, 2019 or 2018. We made no borrowings using the Credit Facility during Twelve Months 2019 or Twelve Months 2018 and no loans were outstanding as of December 31, 2019 or 2018.2022.
| December 31, 2019 | December 31, 2018 | ||||||||||||||
| Principal Amount | Carrying Value | Principal Amount | Carrying Value | ||||||||||||
| Floating Rate Senior Notes due March 2021 (1) | $ | 50.0 | $ | 49.9 | $ | 300.0 | $ | 298.1 | |||||||
| 4.00% Senior Notes due March 2023 | 350.0 | 348.5 | 350.0 | 348.1 | |||||||||||
| 4.20% Senior Notes due September 2023 | 300.0 | 297.8 | 300.0 | 296.8 | |||||||||||
| 4.90% Senior Notes due March 2028 | 300.0 | 296.8 | 300.0 | 297.6 | |||||||||||
| 3.70% Senior Notes due February 2030 | 350.0 | 346.8 | — | — | |||||||||||
| 6.75% Senior Notes due February 2034 | 275.0 | 272.1 | 375.0 | 370.9 | |||||||||||
| 7.00% Fixed-to-Floating Rate Subordinated Notes due March 2048 (2) | 400.0 | 395.0 | 400.0 | 394.5 | |||||||||||
| Total debt | $ | 2,006.9 | $ | 2,006.0 | |||||||||||
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:
| For the Years Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Net cash provided by (used in): | |||||||||||||||||
| Operating activities - continuing operations | $ | 596.9 | $ | 630.5 | $ | 1,114.3 | |||||||||||
| Operating activities - discontinued operations | — | 151.2 | 227.7 | ||||||||||||||
| Operating activities | 596.9 | 781.7 | 1,342.0 | ||||||||||||||
| Investing activities - continuing operations | (262.1) | 302.8 | (519.4) | ||||||||||||||
| Investing activities - discontinued operations | — | (145.2) | (215.8) | ||||||||||||||
| Investing activities | (262.1) | 157.6 | (735.2) | ||||||||||||||
| Financing activities - continuing operations | (818.4) | (1,089.8) | (264.8) | ||||||||||||||
| Financing activities - discontinued operations | — | — | — | ||||||||||||||
| Financing activities | (818.4) | (1,089.8) | (264.8) | ||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents - continuing operations | (34.5) | (23.5) | 19.4 | ||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents - discontinued operations | — | 0.2 | 0.1 | ||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | (34.5) | (23.3) | 19.5 | ||||||||||||||
| Net change in cash | $ | (518.1) | $ | (173.8) | $ | 361.5 | |||||||||||
| For the Years Ended December 31, | |||||||
| 2019 | 2018 | ||||||
| Net cash provided by (used in): | |||||||
| Operating activities | $ | 1,413.4 | $ | 656.7 | |||
| Investing activities | (619.8 | ) | (2,202.5 | ) | |||
| Financing activities | (179.2 | ) | 1,838.0 | ||||
| Effect of exchange rate changes on cash and cash equivalents | (1.3 | ) | (35.0 | ) | |||
| Net change in cash | $ | 613.1 | $ | 257.2 | |||
Cash Flows for the Years Ended December 31, 20192022, 2021 and 20182020
Operating Activities: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 $1.41 billion$596.9 million and $656.7$630.5 million for Twelve Months 20192022 and Twelve Months 2018,2021, respectively. The increasedecrease in net cash provided by operating activities was primarily due to growththe timing of our mobile business operations mostly due to lower collections of premiums and fees receivable and an increase in payments to vendors for the acquisition of mobile devices used to meet insurance claims or generate profits through sales to third parties. These decreases were partially offset by an increase in cash from the receipt of a tax refund that was in excess of tax payments for Twelve Months 2022.
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 businesssegment. 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 benefitted fromwere paid in first quarter 2021. The decrease was also due to the TWG acquisition and organic growth in Connected Living from new and existing mobile protection programs domestically and internationally as well as absence of
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a decrease in claim payments for reportable catastrophes. Additionally, Twelve Months 2018 included a $41.5$204.9 million payment of an accrued indemnification liabilitytax refund, including interest, related to the previousability 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 our general agencythe 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 prior year.continued growth in Global Automotive.
Investing Activities:Activities
Net cash used in investing activities from continuing operations was $619.8$262.1 million for Twelve Months 2022 compared to net cash provided by investing activities from continuing operations of $302.8 million for Twelve Months 2021. The decrease in cash provided by investing activities was primarily driven by a decrease in cash from sales of subsidiaries, partially offset by an increase in cash from sales and maturities, net of purchases, and a change in our short term investments, due to ongoing management of our investment portfolio. Twelve Months 2021 included $1.31 billion of proceeds, net of $27.3 million of cash transferred, from the sale of the disposed Global Preneed business that were mostly reinvested in short-term high quality liquid fixed income investments.
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. 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 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.
Financing Activities
Net cash used in financing activities from continuing operations was $818.4 million and $2.20$1.09 billion for Twelve Months 20192022 and Twelve Months 2018,2021, respectively. The decrease in net cash used in investing activities was primarily due to the acquisition of TWG in the Second Quarter 2018 when $1.49 billion of cash was used to fund a portion of the $2.47 billion purchase price. In addition, cash from our CIEs was lower due to the timing of CLO structures launched in each year. For additional information, see Note 9 to the Consolidated Financial Statements included elsewhere in the Report. The reductions in cash were partially offset by normal changes in our operating portfolio.
Net cash used in financing activities from continuing operations was $1.09 billion and preferred stock related to the TWG acquisition were $1.29 billion for Twelve Months 2018 and $276.4$264.8 million for Twelve Months 2019. A portion of2021 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, mainly funded by the net proceeds forfrom the Global Preneed sale, the issuance of the 5.25% subordinated notes due January 2061 with an aggregate principal amount of $250.0 million, net of issuance costs, of $243.7 million in Twelve Months 2018 were used to repay in full2020, the Company’s then outstanding 2.50%$50.0 million repayment of our floating rate senior notes due 2018. The decreaseMarch 2021 in net cash provided by financing activities also included a $619.8 million decrease in cash provided by our CIEs, net of repayments of borrowings to short-term warehouse facilities, primarily related tofirst quarter 2021 and the timing of CLO structures launched in each year and a $31.4 million loss on extinguishment of debt primarily related to the tender offerrepayment of $100.0 million of its 6.75%our 4.00% senior notes due 2034. For additional information, see Note 12March 2023.
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 Consolidated Financial Statements included elsewhere in this Report.sale closed on August 2, 2021.
The table below shows our cash outflows for taxes, interest and dividends for the periods indicated:
| For the Years Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Income taxes paid | $ | 127.7 | $ | 221.1 | $ | 98.5 | |||||||||||
| Interest paid on debt | 108.4 | 109.8 | 103.6 | ||||||||||||||
| Common stock dividends | 150.2 | 157.6 | 154.6 | ||||||||||||||
| Preferred stock dividends | — | 4.7 | 18.7 | ||||||||||||||
| Total | $ | 386.3 | $ | 493.2 | $ | 375.4 | |||||||||||
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| For the Years Ended December 31, | |||||||
| 2019 | 2018 | ||||||
| Income taxes paid | $ | 93.1 | $ | 93.9 | |||
| Interest paid on debt | 103.2 | 79.5 | |||||
| Common stock dividends | 151.3 | 133.8 | |||||
| Preferred stock dividends | 18.7 | 14.2 | |||||
| Total | $ | 366.3 | $ | 321.4 | |||
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 of December 31, 2019:2022:
| As of December 31, 2019 | |||||||||||||||||||
| Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | |||||||||||||||
Contractual obligations: | |||||||||||||||||||
| Insurance liabilities (1) | $ | 8,948.3 | $ | 1,157.8 | $ | 768.5 | $ | 741.7 | �� | $ | 6,280.3 | ||||||||
| Debt and related interest | 3,436.0 | 102.4 | 252.0 | 814.9 | 2,266.7 | ||||||||||||||
| Operating leases | 101.4 | 20.4 | 33.1 | 19.3 | 28.6 | ||||||||||||||
| Pension obligations and postretirement benefits | 578.5 | 69.4 | 114.4 | 114.1 | 280.6 | ||||||||||||||
| Purchase agreements | 4.5 | 4.5 | — | — | — | ||||||||||||||
| Commitments: | |||||||||||||||||||
| Investment purchases outstanding: | |||||||||||||||||||
| Commercial mortgage loans on real estate | 1.8 | 1.8 | — | — | — | ||||||||||||||
Capital contributions to consolidated VIEs | 1.6 | 1.6 | — | — | — | ||||||||||||||
Capital contributions to non-consolidated VIEs | 27.4 | 27.4 | — | — | — | ||||||||||||||
| Liability for unrecognized tax benefits | 14.0 | — | 10.3 | — | 3.7 | ||||||||||||||
| Total obligations and commitments | $ | 13,113.5 | $ | 1,385.3 | $ | 1,178.3 | $ | 1,690.0 | $ | 8,859.9 | |||||||||
| As of December 31, 2022 | |||||||||||||||||||||||||||||
| Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | |||||||||||||||||||||||||
Contractual obligations: | |||||||||||||||||||||||||||||
| Insurance liabilities (1) | $ | 2,116.8 | $ | 1,506.4 | $ | 462.1 | $ | 81.1 | $ | 67.2 | |||||||||||||||||||
| Debt and related interest | 3,830.9 | 328.8 | 193.3 | 193.3 | 3,115.5 | ||||||||||||||||||||||||
| Operating leases | 42.0 | 15.9 | 19.2 | 6.1 | 0.8 | ||||||||||||||||||||||||
| Pension obligations and postretirement benefits (2) | 495.5 | 56.1 | 106.8 | 101.3 | 231.3 | ||||||||||||||||||||||||
| Commitments: | |||||||||||||||||||||||||||||
| Investment purchases outstanding: | |||||||||||||||||||||||||||||
| Commercial mortgage loans on real estate | 7.9 | 7.9 | |||||||||||||||||||||||||||
| Capital contributions to non-consolidated VIEs | 143.6 | 143.6 | |||||||||||||||||||||||||||
| Liability for unrecognized tax benefits | 20.4 | 16.9 | 3.5 | ||||||||||||||||||||||||||
| Total obligations and commitments | $ | 6,657.1 | $ | 2,058.7 | $ | 798.3 | $ | 381.8 | $ | 3,418.3 | |||||||||||||||||||
(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 $607.9 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. These liabilities also do not include recoverable amounts related to certain high deductible policies in our sharing economy business, included in our non-core operations, for which we are responsible for paying the entirety of the claim and are subsequently reimbursed by the insured for the deductible portion of the claim. As of December 31, 2022, we had exposure to $379.1 million of reserves below the deductible that we would be responsible for if the clients were to default on their contractual obligation to pay us the deductible. See Note 5 to the Consolidated Financial Statements included elsewhere in this Report for more information on our evaluation of the credit risk exposure from these recoverables. 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. In February 2020, we amended the Retirement Health Benefits to terminate such plan benefits to retirees effective December 31, 2024. Due to the Assurant Pension Plan’s current overfunded status, no contributions were made during 2022 and none are expected to be made in 2023. 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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our investment portfolio consists primarily of investmentsfixed maturity securities, denominated in responseboth U.S. dollars and foreign currencies, which are sensitive to changes in interest rates, including impacts of changes in investment yieldscredit spreads, foreign currency exchange rates and changes in spreads due to credit risks and other factors.
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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 inis the U.S. and Canada. There are two formspossibility that the fair value 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,liabilities will change more or less than 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 needin response 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 fluctuationschanges in interest rates, have a direct impact on expected cash flows. As interest rates fall, an increaseincluding changes in prepayments on these assets resultsinvestment yields and changes in earlier than expected receipt of cash flows, forcing usspreads due to reinvest the proceeds in an unfavorable lowercredit risks and other factors.
Our investment portfolio, including our fixed maturity portfolio, has exposure to interest rate environment. Conversely, as interest rates rise, a decreaserisk. Changes in prepayments on these assets results in later than expected receipt of cash flows, forcing usinvestment values attributable to forgo reinvesting in a favorable higher interest rate environment.
changes are mitigated by corresponding and partially offsetting changes in the economic value of our liabilities. We monitor this exposure through periodic reviews of our asset and liability positions and 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.
Interest Rate Movement Analysis of Market Value of Fixed Maturity Securities Investment Portfolio | ||||||||||||||||||||
| December 31, 2019 | ||||||||||||||||||||
| -100 bps | -50 bps | Base | 50 bps | 100 bps | ||||||||||||||||
| Total market value | $ | 13,279.2 | $ | 12,785.7 | $ | 12,322.4 | $ | 11,888.9 | $ | 11,478.5 | ||||||||||
| % change in market value from base case | 7.76 | % | 3.76 | % | — | % | (3.52 | )% | (6.85 | )% | ||||||||||
| $ change in market value from base case | $ | 956.8 | $ | 463.3 | $ | — | $ | (433.5 | ) | $ | (843.9 | ) | ||||||||
| December 31, 2018 | ||||||||||||||||||||
| -100 bps | -50 bps | �� | Base | 50 bps | 100 bps | |||||||||||||||
| Total market value | $ | 12,075.8 | $ | 11,655.8 | $ | 11,257.1 | $ | 10,882.2 | $ | 10,527.0 | ||||||||||
| % change in market value from base case | 7.27 | % | 3.54 | % | — | % | (3.33 | )% | (6.49 | )% | ||||||||||
| $ change in market value from base case | $ | 818.7 | $ | 398.7 | $ | — | $ | (374.9 | ) | $ | (730.1 | ) | ||||||||
Interest Rate Movement Analysis of Portfolio Yield of Fixed Maturity Securities Investment Portfolio | ||||||||||||||
| December 31, 2019 | ||||||||||||||
| -100 bps | -50 bps | Base | 50 bps | 100 bps | ||||||||||
| Portfolio yield* | 4.34 | % | 4.41 | % | 4.47 | % | 4.53 | % | 4.60 | % | ||||
| % change in portfolio yield | (0.13 | )% | (0.06 | )% | — | % | 0.06 | % | 0.13 | % | ||||
| December 31, 2018 | ||||||||||||||
| -100 bps | -50 bps | Base | 50 bps | 100 bps | ||||||||||
| Portfolio yield* | 4.31 | % | 4.39 | % | 4.46 | % | 4.53 | % | 4.61 | % | ||||
| % change in portfolio yield | (0.15 | )% | (0.07 | )% | — | % | 0.07 | % | 0.15 | % | ||||
| December 31, 2019 | December 31, 2018 | ||||||||||||
| Rating | Fair Value | Percentage of Total | Fair Value | Percentage of Total | |||||||||
| Aaa/Aa/A | $ | 8,014.7 | 65 | % | $ | 7,329.8 | 65 | % | |||||
| Baa | 3,734.7 | 30 | % | 3,322.7 | 30 | % | |||||||
| Ba | 480.7 | 4 | % | 447.9 | 4 | % | |||||||
| B and lower | 92.3 | 1 | % | 156.7 | 1 | % | |||||||
| Total | $ | 12,322.4 | 100 | % | $ | 11,257.1 | 100 | % | |||||
Our sensitivity analysis model produces a loss in fair value in the fixed maturity portfolio of (i) $143.9 million and $178.6 million as of December 31, 2022 and 2021, respectively, based on a hypothetical and instantaneous 50 basis point parallel increase in interest rates (including impacts of changes in credit spreads), and (ii) $283.2 million and $349.6 million as of December 31, 2022 and 2021, respectively, based on a hypothetical and instantaneous 100 basis point parallel increase in interest rates (including impacts of changes in credit spreads).
Our debt obligations also have exposure to interest rate risk, primarily at the credittime of refinancing. We monitor market interest rates and evaluate refinancing opportunities for our debt obligations as maturity dates approach. We stagger the maturity dates of our debt to mitigate the interest rate 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” andin any given year. For additional information, see Note 1819 to the Consolidated Financial Statements included elsewhere in this Report.Report and “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources”.
Foreign Exchange Risk
We are exposed to foreign exchange risk arising from our international operations, mainlyinvestments in Canada. We also haveforeign subsidiaries. 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 financial instruments of another currency. To manage foreign exchange risk, exposureour general principle is to invest in assets that match the British Pound, Brazilian Real, Euro, Mexican Peso and Argentine Peso. Total invested assets denominatedcurrency in currencies other than the Canadian Dollar were approximately 5% and 7% of our total invested assets at December 31, 2019 and 2018, respectively.
which we expect liabilities to be paid. 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. We also have entered into forward contracts to hedge certain exposures denominated in the Euro, British Pound and Mexican Peso.
Foreign Exchange Movement Analysis of Market Value of Fixed Maturity Securities | ||||||||||||||||||||
| December 31, 2019 | ||||||||||||||||||||
Foreign exchange spot rate at December 31, 2019, US Dollar to Canadian Dollar | -10% | -5% | 0 | 5% | 10% | |||||||||||||||
| Total market value | $ | 12,114.0 | $ | 12,218.2 | $ | 12,322.4 | $ | 12,426.6 | $ | 12,530.8 | ||||||||||
| % change of market value from base case | (1.69 | )% | (0.85 | )% | — | % | 0.85 | % | 1.69 | % | ||||||||||
| $ change of market value from base case | $ | (208.4 | ) | $ | (104.2 | ) | $ | — | $ | 104.2 | $ | 208.4 | ||||||||
| December 31, 2018 | ||||||||||||||||||||
Foreign exchange spot rate at December 31, 2018, US Dollar to Canadian Dollar | -10% | -5% | 0 | 5% | 10% | |||||||||||||||
| Total market value | $ | 11,079.1 | $ | 11,168.1 | $ | 11,257.1 | $ | 11,346.1 | $ | 11,435.1 | ||||||||||
| % change of market value from base case | (1.58 | )% | (0.79 | )% | — | % | 0.79 | % | 1.58 | % | ||||||||||
| $ change of market value from base case | $ | (178.0 | ) | $ | (89.0 | ) | $ | — | $ | 89.0 | $ | 178.0 | ||||||||
The foreign exchange risk sensitivity of the fair value of our consolidated net incomeinvestments in foreign subsidiaries is assessed using a hypothetical test scenarios that assume earnings10% immediate change in Canadian Dollarseach of the foreign currency exchange rates to which we are recognized evenly throughout a period.exposed. The modeling technique we use to report our currency exposure does not take into account correlation among foreign currency exchange rates. Our actual resultsexperience may differ from the results notedindicated below, particularly due to the assumptions utilizedreflected or if events occur that were not included in the methodology. For more information, on this risk, 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” and “– Fluctuations in the exchange rate of the U.S. Dollar and other foreign currencies may materially and adversely affect our results of operationsoperations..”
The following tables summarizetable summarizes the results of this analysis on our reported net income for the periods indicated:
Foreign Exchange Movement Analysis of Net Income | ||||||||||||||||||||
| Year Ended December 31, 2019 | ||||||||||||||||||||
| Foreign exchange daily average rate for the year ended December 31, 2019, US Dollar to Canadian Dollar | -10% | -5% | 0 | 5% | 10% | |||||||||||||||
| Net Income | $ | 384.7 | $ | 385.8 | $ | 386.8 | $ | 387.8 | $ | 388.9 | ||||||||||
| % change of net income from base case | (0.54 | )% | (0.26 | )% | — | % | 0.26 | % | 0.54 | % | ||||||||||
| $ change of net income from base case | $ | (2.1 | ) | $ | (1.0 | ) | $ | — | $ | 1.0 | $ | 2.1 | ||||||||
| Year Ended December 31, 2018 | ||||||||||||||||||||
| Foreign exchange daily average rate for the year ended December 31, 2018, US Dollar to Canadian Dollar | -10% | -5% | 0 | 5% | 10% | |||||||||||||||
| Net income | $ | 250.1 | $ | 251.4 | $ | 252.6 | $ | 253.8 | $ | 255.1 | ||||||||||
| % change of net income from base case | (0.99 | )% | (0.48 | )% | — | % | 0.48 | % | 0.99 | % | ||||||||||
| $ change of net income from base case | $ | (2.5 | ) | $ | (1.2 | ) | $ | — | $ | 1.2 | $ | 2.5 | ||||||||
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| December 31, 2022 | December 31, 2021 | 2022 vs. 2021 | |||||||||||||||||||||||||||
| Value of net assets (liabilities) | Exchange rate per USD | Value of net assets (liabilities) | Exchange rate per USD | % Change in exchange rate per USD | |||||||||||||||||||||||||
| British pound sterling (GBP) | $ | 306.9 | 1.2153 | $ | 351.1 | 1.3235 | (8.2)% | ||||||||||||||||||||||
| Canadian dollar (CAD) | 209.8 | 0.7393 | 229.4 | 0.7874 | (6.1)% | ||||||||||||||||||||||||
| Euro (EUR) | 179.4 | 1.0608 | 192.1 | 1.1235 | (5.6)% | ||||||||||||||||||||||||
| Brazilian real (BRL) | 68.8 | 0.1888 | 67.1 | 0.1755 | 7.6% | ||||||||||||||||||||||||
| Australian dollar (AUD) | 59.6 | 0.6701 | 61.6 | 0.7124 | (5.9)% | ||||||||||||||||||||||||
| Mexican peso (MXN) | 63.5 | 0.0505 | 80.9 | 0.0480 | 5.2% | ||||||||||||||||||||||||
| Japanese yen (JPY) | 26.9 | 0.0073 | 37.4 | 0.0088 | (17.0)% | ||||||||||||||||||||||||
| Argentine peso (ARS) | 27.4 | 0.0056 | 32.0 | 0.0097 | (42.3)% | ||||||||||||||||||||||||
| Other (various currencies) | 21.8 | 4.5 | |||||||||||||||||||||||||||
| Value of net assets denominated in foreign currencies | $ | 964.1 | $ | 1,056.1 | |||||||||||||||||||||||||
| Net assets | $ | 4,228.7 | $ | 5,464.1 | |||||||||||||||||||||||||
| As a percentage of total net assets | 22.8 | % | 19.3 | % | |||||||||||||||||||||||||
| Pre-tax decrease in fair value of our investments in foreign subsidiaries from a hypothetical 10 percent strengthening of the USD | $ | (117.3) | $ | (128.4) | |||||||||||||||||||||||||
| Pre-tax increase in fair value of our investments in foreign subsidiaries from a hypothetical 10 percent weakening of the USD | $ | 117.3 | $ | 128.4 | |||||||||||||||||||||||||
Credit Risk
Credit risk is the possibility that counterparties may not be able to cap the inflationmeet payment obligations when they become due. 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. With respect to our market risk exposure inherent in some of our preneed insurance policies.
Our risk management strategy and investment policy is to invest in securities from a diversified pool of issuers and to limit the modified coinsurance agreementamount of credit exposure 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 relatedrespect to this modified coinsurance agreement are included inany one issuer. We attempt to limit our credit exposure by imposing fixed maturity portfolio limits on individual issuers based upon credit quality, among other investments in the consolidated balance sheets.
strategies. For additional information, on derivatives, seerefer to “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Investments” and Notes 85 and 198 to the Consolidated Financial Statements included elsewhere in this Report.
Item 8. Financial Statements and Supplementary Data
The Consolidated Financial Statements and Financial Statement Schedules in Part IV, Item 15(a)(1) and (2) of this Report are incorporated by reference into this Item 8.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”)CEO and our Chief Financial Officer (“CFO”), has evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) or 15d-15(b) under the Exchange Act as of December 31, 2019.2022. Based on such evaluation, management, including our CEO and CFO, has concluded that as of December 31, 2019,2022, our disclosure controls and procedures were effective and provide reasonable assurance that information we are required to disclose in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms. Our CEO and CFO also have concluded that as of December 31, 2019, 2022,
66
information that we are required to disclose in our reports under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for us as defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. A company’s internal control over financial reporting includes policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management, with the participation of our CEO and CFO, evaluated the effectiveness of our internal control over financial reporting as of December 31, 20192022 using criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Management, including our CEO and CFO, based on its evaluation of our internal control over financial reporting, has concluded that our internal control over financial reporting was effective as of December 31, 2019.2022.
The effectiveness of our internal control over financial reporting as of December 31, 20192022 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
Changes in Internal Control Over Financial Reporting
Item 9B. Other Information
Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required under this Item 10 regarding directors is incorporated by reference to the information in our upcoming 20202023 Proxy Statement (the “2020“2023 Proxy Statement”) under the caption “Proposals Requiring Your Vote – Proposal One – Election of Directors” is incorporated herein by reference.. The information required under this Item 10 regarding executive officers is incorporated by reference to the information in the 20202023 Proxy Statement under the caption “Executive Officers” is incorporated herein by reference. If applicable, the. The information required under this Item 10 regarding compliance with Section 16(a) of the Exchange Act is incorporated by reference to the information in the 20202023 Proxy Statement under the caption “Delinquent Section 16(a) Reports” is incorporated herein by reference., if included in the 2023 Proxy Statement. The information required under this Item 10 regarding our Code of Business Conduct and Ethics is incorporated by reference to the information in the 20202023 Proxy Statement under the caption “Corporate Governance – Corporate Governance Guidelines and Code of Ethics – Code of Ethics” is incorporated herein by reference.. The information required under this Item 10 regarding the Nominating and Corporate Governance Committee and the Audit Committee is incorporated by reference to the information in the 20202023 Proxy Statement under the captions “Corporate Governance – Director Recruitment, Nomination and Qualifications”, “Corporate Governance – Board and Committee Leadership, Composition Leadership and Refreshment”, “Corporate Governance – Director Nomination, Qualifications and Succession Planning”Audit Committee” and “Corporate Governance – Audit Committee” is incorporated herein by reference.Director Independence”.
Item 11. Executive Compensation
The information required under this Item 11 is incorporated by reference to the information in the 20202023 Proxy Statement under the captions “Compensation Discussion and Analysis,”Analysis”, “Executive Compensation” and “Director Compensation”. The information required under this Item 11 is incorporated herein by reference. Thereference to the information in the 20202023 Proxy Statement regarding the Compensation Committee under the captions “Corporate Governance – Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” is incorporated herein by reference..
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required under this Item 12 is incorporated by reference to the information in the 20202023 Proxy Statement under the captions “Equity Compensation Plan Information”, “Security Ownership of Certain Beneficial Owners,”Owners” and “Security Ownership of Directors and Executive Officers” and “Equity Compensation Plan Information” is incorporated herein by reference..
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required under this Item 13 is incorporated by reference to the information in the 20202023 Proxy Statement under the captions “Transactions with Related Persons” and “Corporate Governance – Director Independence” is incorporated herein by reference..
Item 14. Principal Accounting Fees and Services
The information required under this Item 14 is incorporated by reference to the information in the 20202023 Proxy Statement under the caption “Audit Committee Matters – Fees of Principal Accountants” is incorporated herein by reference..
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)(1) Consolidated Financial Statements
The following Consolidated Financial Statements of Assurant, Inc. are attached hereto:
| Page Number | |||||
| Consolidated Financial Statements of Assurant, Inc. | |||||
Report of Independent Registered Public Accounting Firm (PCAOB ID 238) | F- | ||||
F- | |||||
F- | |||||
F- | |||||
F- | |||||
F- | |||||
F- | |||||
(a)(2) Consolidated Financial Statement Schedules
The following Consolidated Financial Statement Schedules of Assurant, Inc. are attached hereto:
*All other financial statement schedules are omitted because they are not applicable or not required or the information is included in the Consolidated Financial Statements or the notes thereto.
(a)(3) Exhibits
The following exhibits either (a) are filed with this Report or (b) have previously been filed with the SEC and are incorporated herein by reference to those prior filings.
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| 4.6 | Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the Registrant hereby agrees to furnish to the SEC, upon request, a copy of any other instrument defining the rights of holders of long-term debt of the Registrant and its subsidiaries. | |||||
Restricted Stock Unit Award Agreement for Time-based Awards under the Assurant, Inc. Long Term Equity Incentive Plan, dated July 18, 2016, by and between Assurant, Inc. and Richard Dziadzio (incorporated by reference from Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q, originally filed on August 2, 2016). * | ||||||
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71
| 101 | The following materials from the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, | |||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). | |||||
*Management contract or compensatory plan.
Item 16. Form 10-K Summary
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on February 19, 2020.
17, 2023.
| ASSURANT, INC. | ||||||||
| By: | /s/ KEITH W. DEMMINGS | |||||||
| Keith W. Demmings | ||||||||
| Title: | ||||||||
| President, Chief Executive Officer and Director (Principal Executive Officer) | ||||||||
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Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the registrant in the capacities indicated on February 19, 2020.
17, 2023.
| Signature | Title | |||||||
| / | President, Chief Executive Officer and Director (Principal Executive Officer) | |||||||
| / | Executive Vice President and Chief Financial Officer (Principal Financial Officer) | |||||||
| Richard S. Dziadzio | ||||||||
| / | Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer) | |||||||
| * | Non-Executive Board Chair | |||||||
| Elaine D. Rosen | ||||||||
| * | Director | |||||||
| Paget L. Alves | ||||||||
| * | Director | |||||||
| J. Braxton Carter | ||||||||
| * | Director | |||||||
| Juan N. Cento | ||||||||
| * | Director | |||||||
| Harriet Edelman | ||||||||
| * | Director | |||||||
| * | Director | |||||||
| Lawrence V. Jackson | ||||||||
| * | Director | |||||||
| Jean-Paul L. Montupet | ||||||||
| * | Director | |||||||
| Debra J. Perry | ||||||||
| * | Director | |||||||
| Ognjen Redzic | ||||||||
| * | Director | |||||||
| Paul J. Reilly | ||||||||
| * | Director | |||||||
| Robert W. Stein |
| *By: | /S/ RICHARD S. DZIADZIO | |||||||
| Name: | Richard S. Dziadzio | |||||||
| Attorney-in-Fact | ||||||||
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Assurant, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Assurant, Inc. and its subsidiaries (the “Company”) as of December 31, 20192022 and 2018,2021, and the related consolidated statements of operations, of comprehensive income, of changes in stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2019,2022, including the related notes and financial statement schedules listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2019,2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20192022 and 2018,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20192022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
F-1
Critical Audit Matters
The critical audit mattersmatter communicated below are mattersis a matter arising from the current period audit of the consolidated financial statements that werewas communicated or required to be communicated to the audit committee and that (i) relaterelates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit mattersmatter below, providing a separate opinionsopinion on the critical audit mattersmatter or on the accounts or disclosures to which they relate.it relates.
Valuation of Claims and Benefits Payable Reserves for Global Lifestyle, Global Housing and Non-Core Operations Short Duration Insurance Contracts
As described in Notes 2 and 17 to the consolidated financial statements, the Company maintains claims and benefits payable reserves for short duration insurance contracts. Reserves are established using generally accepted actuarial methods and reflect judgments about expected future claim payments. The reserve liability is based on the expected ultimate cost of settling the claims. As of December 31, 2019,2022, the Company’s total liability for claims and benefits payable was $2.69$2.30 billion, which included $1.95$2.02 billion of liabilities for short duration contracts.contracts within the Global Lifestyle and Global Housing reporting segments as well as within its non-core operations. Claims and benefits payable reserves include case reserves for known claims which are unpaid as of the balance sheet date; incurred but not reported reserves for claims where the insured event has occurred but has not been reported as of the balance sheet date; and loss adjustment expense reserves for the expected handling costs of settling the claims. Factors used in the calculation of the reserves include experience derived from historical claim payments and actuarial assumptions. As described by management, the best estimate of ultimate loss and loss adjustment expense is generally selected from a blend of different actuarial methods that are applied consistently each period, considering significant assumptions including projected loss development factors and expected loss ratios.
The principal considerations for our determination that performing procedures relating to the valuation of claims and benefits payable reserves for short duration insurance contracts is a critical audit matter are (i) there wasthe significant judgment by management when determining their estimates, which in turn led to a high degree of auditor judgment, subjectivity and subjectivityeffort in performing procedures relating to the valuation; (ii) there was significant auditor effort and judgment in evaluating audit evidence relatingrelated to the actuarial methods and projected loss development factors and expected loss ratio assumptions; and (iii)(ii) the audit effort includedinvolved the involvementuse of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of claims and benefits payable reserves for short duration insurance contracts, including controls over the selection of actuarial methods, completeness and accuracy of claims data and the development of the significant assumptions. On a test basis, these procedures also included, among others, testing the completeness and accuracy of historical claims data provided by management and the involvement of professionals with specialized skill and knowledge to assist in either (i) testing management’s process for determining the estimates by evaluating the appropriateness of management’s actuarial methods and the reasonableness of projected loss development factors and expected loss ratio assumptions; or (ii) developing an actuarially determined independent estimate utilizing actual historical data and loss development patterns, as well as industry data and other benchmarks, and comparing this independent estimate to management’s actuarially determined reserves. These procedures also involved testing the completeness and accuracy of historical claims data provided by management.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 19, 202017, 2023
We have served as the Company’s auditor since 2000.
Assurant, Inc.
Consolidated Balance Sheets
As of December 31, 20192022 and 20182021
| December 31, | December 31, | |||||||||||||||||
| 2019 | 2018 | 2022 | 2021 | |||||||||||||||
| (in millions except number of shares and per share amounts) | (in millions except number of shares and per share amounts) | |||||||||||||||||
| Assets | Assets | |||||||||||||||||
| Investments: | Investments: | |||||||||||||||||
| Fixed maturity securities available for sale, at fair value (amortized cost – $11,064.8 and $10,834.0 at December 31, 2019 and 2018, respectively) | $ | 12,322.4 | $ | 11,257.1 | ||||||||||||||
| Fixed maturity securities available for sale, at fair value (amortized cost – $6,920.8 and $6,903.9 at December 31, 2022 and 2021, respectively) | Fixed maturity securities available for sale, at fair value (amortized cost – $6,920.8 and $6,903.9 at December 31, 2022 and 2021, respectively) | $ | 6,283.7 | $ | 7,215.3 | |||||||||||||
| Equity securities at fair value | 388.5 | 378.8 | Equity securities at fair value | 281.3 | 445.7 | |||||||||||||
| Commercial mortgage loans on real estate, at amortized cost | 815.0 | 759.6 | ||||||||||||||||
| Commercial mortgage loans on real estate, at amortized cost (net of allowances for credit losses of $1.8 and $1.1 at December 31, 2022 and 2021, respectively) | Commercial mortgage loans on real estate, at amortized cost (net of allowances for credit losses of $1.8 and $1.1 at December 31, 2022 and 2021, respectively) | 295.6 | 256.5 | |||||||||||||||
| Short-term investments | 402.5 | 373.2 | Short-term investments | 155.5 | 247.8 | |||||||||||||
| Other investments | 638.9 | 635.2 | Other investments | 508.4 | 506.3 | |||||||||||||
| Total investments | 14,567.3 | 13,403.9 | Total investments | 7,524.5 | 8,671.6 | |||||||||||||
| Cash and cash equivalents | 1,867.1 | 1,254.0 | Cash and cash equivalents | 1,536.7 | 2,040.8 | |||||||||||||
| Premiums and accounts receivable, net | 1,692.8 | 1,643.5 | ||||||||||||||||
| Reinsurance recoverables | 9,593.4 | 9,166.0 | ||||||||||||||||
| Premiums and accounts receivable (net of allowances for credit losses of $9.2 and $9.4 at December 31, 2022 and 2021, respectively) | Premiums and accounts receivable (net of allowances for credit losses of $9.2 and $9.4 at December 31, 2022 and 2021, respectively) | 2,406.4 | 1,942.5 | |||||||||||||||
| Reinsurance recoverables (net of allowances for credit losses of $5.4 and $5.0 at December 31, 2022 and 2021, respectively) | Reinsurance recoverables (net of allowances for credit losses of $5.4 and $5.0 at December 31, 2022 and 2021, respectively) | 7,005.9 | 6,181.2 | |||||||||||||||
| Accrued investment income | 131.1 | 125.5 | Accrued investment income | 85.1 | 62.1 | |||||||||||||
| Deferred acquisition costs | 6,668.0 | 5,103.0 | Deferred acquisition costs | 9,677.1 | 8,811.0 | |||||||||||||
| Property and equipment, at cost less accumulated depreciation | 433.7 | 392.5 | ||||||||||||||||
| Property and equipment, net | Property and equipment, net | 645.1 | 561.4 | |||||||||||||||
| Goodwill | 2,343.4 | 2,321.8 | Goodwill | 2,603.0 | 2,571.6 | |||||||||||||
| Value of business acquired | 2,004.3 | 3,157.8 | Value of business acquired | 262.8 | 583.4 | |||||||||||||
| Other intangible assets, net | 540.2 | 622.4 | Other intangible assets, net | 638.9 | 719.2 | |||||||||||||
| Other assets | 590.1 | 603.8 | ||||||||||||||||
| Assets held in separate accounts | 1,839.7 | 1,609.7 | ||||||||||||||||
| Assets of consolidated investment entities (1) | 2,020.1 | 1,685.4 | ||||||||||||||||
| Other assets (net of allowances for credit losses of $1.7 and $2.5 at December 31, 2022 and 2021, respectively) | Other assets (net of allowances for credit losses of $1.7 and $2.5 at December 31, 2022 and 2021, respectively) | 738.3 | 698.9 | |||||||||||||||
| Assets held for sale (Note 4) | Assets held for sale (Note 4) | — | 1,076.9 | |||||||||||||||
| Total assets | $ | 44,291.2 | $ | 41,089.3 | Total assets | $ | 33,123.8 | $ | 33,920.6 | |||||||||
| Liabilities | Liabilities | |||||||||||||||||
| Future policy benefits and expenses | $ | 9,807.3 | $ | 9,240.9 | Future policy benefits and expenses | $ | 428.5 | $ | 413.2 | |||||||||
| Unearned premiums | 16,603.6 | 15,648.0 | Unearned premiums | 19,802.4 | 18,623.7 | |||||||||||||
| Claims and benefits payable | 2,687.7 | 2,813.7 | Claims and benefits payable | 2,295.9 | 1,604.8 | |||||||||||||
| Commissions payable | 540.5 | 338.6 | Commissions payable | 647.5 | 692.7 | |||||||||||||
| Reinsurance balances payable | 358.5 | 330.9 | Reinsurance balances payable | 492.8 | 446.2 | |||||||||||||
| Funds held under reinsurance | 319.4 | 272.0 | Funds held under reinsurance | 366.6 | 364.2 | |||||||||||||
| Accounts payable and other liabilities | 2,758.5 | 2,240.5 | ||||||||||||||||
| Accounts payable and other liabilities (net of allowances for credit losses of $10.3 at December 31, 2022) | Accounts payable and other liabilities (net of allowances for credit losses of $10.3 at December 31, 2022) | 2,731.5 | 3,044.4 | |||||||||||||||
| Debt | 2,006.9 | 2,006.0 | Debt | 2,129.9 | 2,202.5 | |||||||||||||
| Liabilities related to separate accounts | 1,839.7 | 1,609.7 | ||||||||||||||||
| Liabilities of consolidated investment entities (1) | 1,687.0 | 1,455.1 | ||||||||||||||||
| Liabilities held for sale (Note 4) | Liabilities held for sale (Note 4) | — | 1,064.8 | |||||||||||||||
| Total liabilities | 38,609.1 | 35,955.4 | Total liabilities | 28,895.1 | 28,456.5 | |||||||||||||
| Commitments and contingencies (Note 27) | ||||||||||||||||||
| Commitments and contingencies (Note 28) | Commitments and contingencies (Note 28) | |||||||||||||||||
| Stockholders’ equity | Stockholders’ equity | |||||||||||||||||
| 6.50% Series D mandatory convertible preferred stock, par value $1.00 per share, 2,875,000 shares authorized, 2,875,000 issued and outstanding at December 31, 2019 and 2018 | 2.9 | 2.9 | ||||||||||||||||
| Common stock, par value $0.01 per share, 800,000,000 shares authorized, 161,607,866 and 161,153,454 shares issued and 59,945,893 and 61,908,979 shares outstanding at December 31, 2019 and 2018, respectively | 1.6 | 1.6 | ||||||||||||||||
| Common stock, par value $0.01 per share, 800,000,000 shares authorized, 55,126,470 and 58,050,202 shares issued and 52,830,381 and 55,754,113 shares outstanding at December 31, 2022 and 2021, respectively | Common stock, par value $0.01 per share, 800,000,000 shares authorized, 55,126,470 and 58,050,202 shares issued and 52,830,381 and 55,754,113 shares outstanding at December 31, 2022 and 2021, respectively | 0.6 | 0.7 | |||||||||||||||
| Additional paid-in capital | 4,537.7 | 4,495.6 | Additional paid-in capital | 1,637.8 | 1,695.0 | |||||||||||||
| Retained earnings | 5,966.4 | 5,759.7 | Retained earnings | 3,699.3 | 4,041.2 | |||||||||||||
| Accumulated other comprehensive income | 411.5 | (155.4 | ) | |||||||||||||||
| Treasury stock, at cost; 101,661,973 and 99,244,475 shares at December 31, 2019 and 2018, respectively | (5,267.3 | ) | (4,992.4 | ) | ||||||||||||||
| Total Assurant, Inc. stockholders’ equity | 5,652.8 | 5,112.0 | ||||||||||||||||
| Non-controlling interest | 29.3 | 21.9 | ||||||||||||||||
| Accumulated other comprehensive (loss) income | Accumulated other comprehensive (loss) income | (986.2) | (150.0) | |||||||||||||||
| Treasury stock, at cost; 2,296,089 shares at December 31, 2022 and 2021 | Treasury stock, at cost; 2,296,089 shares at December 31, 2022 and 2021 | (122.8) | (122.8) | |||||||||||||||
| Total equity | 5,682.1 | 5,133.9 | Total equity | 4,228.7 | 5,464.1 | |||||||||||||
| Total liabilities and equity | $ | 44,291.2 | $ | 41,089.3 | Total liabilities and equity | $ | 33,123.8 | $ | 33,920.6 | |||||||||