Assurant Reports Second Quarter 2018 Financial Results
NEW YORK--(BUSINESS WIRE)--Aug 7, 2018--Assurant, Inc. (NYSE: AIZ), a premier global provider of risk management solutions, today reported results for second quarter ended June 30, 2018.
“We’re pleased with our results in the second quarter, which were driven by strong performance in our Global Lifestyle and Global Housing segments and a lower effective tax rate,” said Assurant President and Chief Executive Officer Alan Colberg. “Momentum continues across our Connected Living and Global Automotive businesses, where we’ve added global capabilities through our acquisition of The Warranty Group.”
Colberg added, “We also continued to evolve our Global Housing portfolio with the sale of our mortgage solutions business and the ongoing expansion of multifamily housing. We are well positioned to achieve our stated financial objectives for the year, as well as to return capital to shareholders.”
Note: Q2 2018 includes TWG results for the month of June, the related acquisition financing and results from mortgage solutions. Net operating income equals net income attributable to common stockholders, excluding Assurant Health runoff operations, net realized gains on investments, amortization of deferred gains, expenses relating to the acquisition of The Warranty Group (TWG) and other highly variable or unusual items.
(1) 2Q 2018 and Six Months 2018 net TWG acquisition-related charges include charges related to pre-close interest expense for the amortization of net premiums on certain interest rate derivative contracts used to hedge the acquisition debt, pre-close interest expense and preferred dividends related to the acquisition financing, transaction costs, financing costs, and integration costs net of pre-close investment income on the proceeds from the acquisition financing and a tax benefit realized after the close.
Additional financial information, including details regarding net TWG acquisition related charges and a schedule of disclosed items that affected Assurant’s results by business for the last eight quarters, is located on Assurant’s Investor Relations website http://ir.assurant.com/investor/default.aspx
Second Quarter 2018 Consolidated ResultsNet income declined to $62.2 million, or $1.09 per diluted share, compared to second quarter 2017 net income of $120.2 million, or $2.16 per diluted share, primarily reflecting the $34.4 million loss on net assets held for sale related to Global Housing’s mortgage solutions business and $32.5 million of net charges related to the acquisition of TWG. Net operating income4 increased to $121.9 million, or $2.13 per diluted share, compared to second quarter 2017 net operating income of $90.5 million, or $1.63 per diluted share. Results reflected a lower effective tax rate of 19.6 percent, compared to 32.4 percent, following the enactment of the U.S. Tax Cuts and Jobs Act (TCJA), organic growth in the Global Lifestyle and Global Housing segments and $9.4 million of net operating income from TWG for the month of June. Net earned premiums, fees and other income from Global Housing, Global Lifestyle and Global Preneed segments totaled $1.69 billion, compared to $1.43 billion in second quarter 2017. The increase primarily reflects the $202.6 million revenue contribution from TWG for the month of June, as well as organic growth from mobile programs in Connected Living and continued expansion of Assurant’s Global Automotive and multifamily housing businesses. This was partially offset by expected declines in lender-placed and mortgage solutions.
Note: On August 1, 2018, Assurant closed the sale of Global Housing’s mortgage solutions business. Results for this business are included in Global Housing’s revenue and net operating income through the second quarter 2018.Net operating income increased in second quarter 2018 primarily due to the impact of a lower effective tax rate following the enactment of the TCJA. Excluding the impact of a lower effective tax rate, underlying results grew mainly due to more favorable non-catastrophe loss experience in lender-placed insurance and profitable growth in multifamily housing, partially offset by ongoing lender-placed normalization. Net earned premiums, fees and other income decreased slightly in second quarter 2018, primarily due to lower real-estate owned volume, expected lower placement rates in lender-placed insurance and reduced client demand for originations and field services in mortgage solutions. This was partially offset by continued growth across multifamily housing, international and other housing products. Combined ratio for risk-based businesses (a) improved to 85.7 percent in the second quarter 2018 from 87.0 percent in prior-year quarter. This reflects fewer non-catastrophe claims and lower expenses. Second quarter 2018 included $1.3 million pre-tax of favorable development related to third quarter 2017 reportable catastrophes, compared to no reportable catastrophes in second quarter 2017. Pre-tax margin for fee-based, capital-light businesses (b) was 14.3 percent, up from 11.7 percent from the second quarter of 2017. The increase was primarily due to growth in multifamily housing.
(a) Combined ratio for the Global Housing risk-based businesses is equal to total policyholder benefits, losses and expenses, including reportable catastrophe losses, divided by net earned premiums and fees and other income, for lender-placed and manufactured housing and other risk-based businesses.
(b) Pre-tax margin for the Global Housing fee-based, capital-light businesses is equal to income before provision for income taxes divided by total net earned premiums, fees and other income, for multifamily housing and mortgage solutions businesses.
Note: Starting June 1, 2018, the results of TWG business operations, is reflected within Global Lifestyle segment results.Net operating income increased in second quarter 2018, benefitting from a lower effective tax rate following the enactment of the TCJA. Excluding the impact of a lower effective tax rate, underlying results increased, driven by strong mobile growth including contributions from programs launched in 2017. This was partially offset by continued declines in Financial Services. The quarter also included a $3.9 million tax benefit and approximately $2.0 million in one-time benefits in the Global Automotive business. TWG contributed $9.4 million of net operating income for the month of June. Net earned premiums, fees and other income increased primarily due to the addition of $202.6 million of TWG revenue for the month of June, new and existing mobile protection programs and Assurant’s Global Automotive business, mainly from Assurant’s third-party administrator distribution channel. This was partially offset by lower average selling prices for the trade-in of mobile devices. Combined ratio for risk-based businesses (a) improved to 96.6 percent from 97.0 percent in second quarter 2017, driven by favorable loss experience and $2.5 million pre-tax of one-time items in Global Automotive. Excluding TWG, the combined ratio was unchanged at 96.6 percent for the quarter. Pre-tax margin for fee-based, capital-light businesses (b) was 7.1 percent, up from 6.4 percent in second quarter 2017, including service contract business from TWG. The increase was largely driven by profitable growth from global mobile programs launched in 2017. Excluding TWG, the margin was 7.6 percent.
(a) Combined ratio for the Global Lifestyle risk-based businesses is equal to total policyholder benefits, losses and expenses, divided by net earned premiums and fees and other income, for Global Automotive and Financial Services.
(b) Pre-tax margin for the Global Lifestyle fee-based, capital-light businesses is equal to income before provision for income taxes divided by total net earned premiums, fees and other income, for Connected Living, including mobile, extended service contracts and assistance services.Net operating income increased in second quarter 2018 due to the impact of a lower effective tax rate following the enactment of the TCJA. Excluding the impact of a lower effective tax rate, underlying results were flat. Net earned premiums, fees and other income was flat. Growth in U.S. driven by prior period sales of the Final Need product was offset by lower production in Canada compared to a favorable second quarter 2017. Face sales totaled $257 million in second quarter 2018 compared to $239.0 million in second quarter 2017 as Global Preneed continued to benefit from its alignment with market leaders. Net operating loss 5 increased in second quarter 2018, reflecting the adverse impact from the lower effective tax rate and higher employee-related and technology expenses.
Capital PositionOn May 31, 2018, Assurant closed the TWG acquisition. The transaction was funded with $1.2 billion acquisition-related financing completed in March 2018, the issuance of 10.4 million shares, and cash available at the holding company at closing. As of June 30, 2018, corporate capital was approximately $497 million. Deployable capital totaled approximately $247 million, net of the company’s $250 million risk buffer. This excludes the $35 million of cash proceeds from the sale of mortgage solutions which will be included in third quarter 2018 holding company capital. Dividends paid to the holding company in the second quarter 2018 totaled $296 million, including $284 million from Assurant’s Global Housing, Global Lifestyle and Global Preneed operating segments, including the remaining $86 million of capital related to the reduction in deferred tax liabilities following the enactment of the TCJA. Assurant Employee Benefits and Assurant Health contributed $12 million in dividends. Overall, capital brought up to the holding company was accelerated during the quarter in preparation for the TWG close. Dividends to shareholders totaled $36 million, including $31 million in common stock dividends and $5 million in preferred stock dividends. There were no share repurchases during the quarter. From July 1 through August 3, 2018, the company repurchased an additional 319,000 shares for approximately $34 million, with $259 million remaining under the current repurchase authorization.
On May 31, 2018, Assurant closed the acquisition of The Warranty Group from TPG Capital for $2.5 billion of enterprise value, including TWG’s existing debt. Starting June 1, TWG results, the acquisition financing, and expected expense synergies will be reflected in Assurant’s operating results and its 2018 outlook. TWG business operations will be included in Global Lifestyle, while certain expenses will be allocated to Corporate & Other. Results for the mortgage solutions business sold on August 1, 2018 are included in the outlook for periods prior to sale.
Based on current market conditions, for full-year 2018 the company now expects:Assurant net operating income, excluding reportable catastrophe losses, to increase between 20 to 25 percent from Assurant 2017 reported results of $413 million. Earnings growth to reflect contributions from TWG, a lower effective tax rate, and modest organic growth. Assurant to realize approximately $10 million after-tax of operating synergies from the TWG acquisition through year-end. With the enactment of the U.S. Tax Cuts and Jobs Act (TCJA), Assurant’s consolidated effective tax rate is expected to decrease to 22 to 24 percent from 33 percent, with approximately one-third of the savings to be reinvested in the second half of 2018 to support future growth. Assurant operating earnings per diluted share, excluding catastrophe losses to grow reflecting earnings expansion and capital management, but at a slower rate than net operating income due to the effect of TWG-related share issuance without a full run-rate contribution of TWG income. Global Housing net operating income, excluding reportable catastrophes, to increase after reflecting a lower effective tax rate of approximately 20 to 21 percent, with a portion of the tax savings to be reinvested for future growth, primarily in the second half of 2018. Net operating income, excluding reportable catastrophes, to decrease before taking into account the benefit of lower effective tax rate. Declines in lender-placed insurance to be partially offset by continued profitable growth in multifamily housing. Additional savings from expense management efforts to be realized towards the end of 2018 and into 2019. Revenue expected to contract from 2017 levels due to declines in lender-placed and mortgage solutions through July 2018. Excluding mortgage solutions for the full year, revenue to increase due to growth in multifamily housing, international and other housing products. Global Lifestyle net operating income to increase after reflecting contributions from TWG inclusive of operating synergies, a lower effective tax rate of approximately 22 to 24 percent and organic growth. A portion of the tax savings to be reinvested for future growth, primarily in the second half of 2018. The tax rate to fluctuate based on geographic mix of income across various jurisdictions. Before taking into account the benefit from a lower effective tax rate and contributions from TWG acquisition, net operating income to increase modestly. Profitable growth driven primarily by newly launched mobile programs, Global Automotive expansion and ongoing expense management efforts, partially offset by ongoing declines in Financial Services due to discontinued client partnerships in the second half of 2018. Mobile trade-in activity to vary based on the timing and availability of new smartphone introductions and carrier promotional activity. Revenue expected to increase from growth in Connected Living and Global Automotive, globally. Global Preneed revenue and earnings to increase modestly from our alignment with market leaders, before taking into account recently enacted tax reform. Results to benefit from a lower effective tax rate of roughly 22 percent, with a portion of the tax savings to be reinvested for future growth, primarily in the second half of 2018. Corporate & Other 6 full-year net operating loss to be in the range of $80 to $85 million, after accounting for the adverse impact of lower effective tax rate of approximately 20 percent, increased investments for growth and additional expenses related to legacy TWG corporate functions. This will be partially offset by continued expense management efforts. Business segment dividends from Global Housing, Global Lifestyle and Global Preneed to exceed segment net operating income, including catastrophe losses, due to the impact of TCJA and TWG’s full-year dividend contributions. This is subject to the growth of the businesses and rating agency and regulatory capital requirements. Capital to be deployed primarily to fund the financing and integration of TWG and other ongoing capital needs of the business. Excess capital will be deployed primarily to fund other investments and return capital to shareholders in the form of share repurchase and dividends, subject to market conditions.
Earnings Conference Call
The second quarter 2018 earnings conference call and webcast will be held Wednesday, August 8, 2018 at 8:00 a.m. ET. The live and archived webcast, along with supplemental information, will be available in the Investor Relations section of www.assurant.com.
Assurant, Inc. (NYSE: AIZ) is a global provider of risk management solutions, protecting where consumers live and the goods they buy. A Fortune 500 company, Assurant focuses on the housing and lifestyle markets, and is among the market leaders in mobile device protection and related services; extended service contracts; vehicle protection products; pre-funded funeral insurance; renters insurance; and lender-placed homeowners insurance. Assurant has a market presence in 21 countries, while its Assurant Foundation works to support and improve communities. Learn more at assurant.com or on Twitter @AssurantNews.
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