Assurant reports third quarter 2016 financial results

3Q 2016 Net Income of $144.4 million, $2.37 per diluted share
3Q 2016 Net Operating Income of $60.7 million, $1.00 per diluted share

Assurant, Inc. (NYSE: AIZ), a global provider of risk management solutions, today reported results for third quarter ended Sept. 30, 2016.

“Despite disappointing third quarter results that fell short of expectations, we remain confident in Assurant’s long-term strategy and growth potential, as we execute our multi-year transformation,” said Alan Colberg, president and CEO, Assurant. “We are managing headwinds from the normalization of lender-placed insurance and declines in legacy businesses, and are committed to improving overall profitability by leveraging our global capabilities, driving operating efficiencies and continuing to deploy capital to maximize shareholder returns.”

Reconciliation of Net Operating Income to GAAP Net Income (Loss)

Note: Beginning in first quarter 2016, Assurant revised its financial supplement and corresponding news release to reflect the company’s ongoing multi-year, transformation to focus on specialty housing and lifestyle protection products and services and align revenue categories with its key business lines as well as risk-based and fee-based, capital-light models. Assurant Health runoff operations, Assurant Employee Benefits, which was sold on March 1, 2016, and amortization of deferred gains and gains on disposal of businesses and other variable items have been removed from net operating income. Prior period amounts have been revised to conform to the updated presentation.

Additional financial information, including a schedule of disclosed items that affected Assurant’s results by business for the last four quarters appears on page 21 of the company’s Financial Supplement, and is located in the Investor Relations section of www.assurant.com.

Third Quarter 2016 Consolidated Results

• Net income increased to $144.4 million, or $2.37 per diluted share, compared to third quarter 2015 net loss of $7.0 million, or $(0.10) per diluted share. This increase was primarily due to lower losses and exit-related charges from Assurant Health runoff operations, and the amortization of deferred gains and gains resulting from the sale of Assurant Employee Benefits. Reportable catastrophe losses from the Louisiana floods, as well as the ongoing normalization of lender-placed insurance, partially offset the increase in net income.

• Net operating income² decreased to $60.7 million, or $1.00 per diluted share, compared to third quarter 2015 net operating income of $104.3 million, or $1.53 per diluted share. Results primarily reflect higher reportable catastrophe losses, the ongoing normalization of lender-placed insurance and declines in mobile and legacy extended service contracts and credit insurance. The decline was partially offset by lower Corporate net operating loss.

  Excluding catastrophe losses, net operating income for third quarter 2016 decreased to $93.8 million, or $1.54 per diluted share, compared to $104.3 million, or $1.53 per diluted share in the prior year period. The decrease in net operating income reflects the factors noted above.

• Net earned premiums, fees and other income from Assurant Solutions and Assurant Specialty Property increased slightly to $1.55 billion, compared to $1.54 billion in third quarter 2015, as growth in mobile subscribers and vehicle protection offerings offset expected declines in lender-placed insurance.

Housing and Lifestyle Businesses

Assurant Solutions

• Net operating income decreased in third quarter 2016, primarily due to lower contributions from mobile, legacy extended service contracts and credit insurance. Mobile results reflected lower than expected volumes from mobile repair and logistics and higher expenses related to certain technology systems. Third quarter 2015 results included a $4.5 million net tax benefit from international operations while third quarter 2016 results reflected $3.3 million of investment income from real estate joint venture partnerships.

• Net earned premiums, fees and other income increased compared to third quarter 2015, due to growth in mobile subscribers and vehicle protection contracts. Foreign exchange volatility, as well as declines from legacy retail clients and credit insurance, partially offset the improvement.

Assurant Specialty Property

• Net operating income decreased in the quarter due to higher weather-related claims and the ongoing normalization of lender-placed insurance business. Results included $33.1 million of reportable catastrophe losses, compared to none in third quarter 2015.
• Net earned premiums, fees and other income decreased in third quarter 2016 due to lender-placed insurance normalization. Growth in multi-family housing and mortgage solutions, including fee income from the recently acquired title and valuation business, partially offset the decline.
• Combined ratio for risk-based businesses^(a) increased to 92.0 percent from 79.4 percent in third quarter 2015, driven by higher reportable catastrophe losses. Excluding these losses, the combined ratio was flat year-over-year as lower general expenses offset declining lender-placed insurance net earned premiums.

• Pre-tax margin for fee-based, capital-light businesses^(b) was 9.7 percent, compared to 15.2 percent in third quarter 2015. The decrease was primarily due to higher expenses to support growth in the field services and valuation businesses.

  (a) Combined ratio for the risk-based businesses is equal to total 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 businesses.
  (b) Pre-tax margin for the 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 multi-family housing and mortgage solutions businesses.

Corporate & Other

• Net operating loss³ decreased in third quarter 2016, primarily due to lower tax expense and employee benefit costs.

Assurant Health Runoff Operations
The company expects the exit of the health insurance market to be substantially completed by the end of 2016.

• Net loss of $1.7 million due to a slight reduction in estimated recoverables related to 2015 Affordable Care Act (ACA) risk mitigation programs, offset by favorable claims development.
• ACA risk-mitigation payments received from the Centers for Medicare and Medicaid Services (CMS) for 2015 ACA-qualified policies totaled $378 million for nine months ended Sept. 30, 2016. Estimated net recoverables for 2015 ACA-qualified policies as of Sept. 30, 2016 were $99 million. This includes $67 million from the risk-adjustment program and $32 million from the reinsurance program. The company did not record any net recoverables for the 2015 risk-corridors program.

Capital Position

• Corporate capital approximated $875 million as of Sept. 30, 2016. Deployable capital totaled approximately $625 million, adjusting for the company’s $250 million risk buffer.Segment dividends paid to the holding company in third quarter totaled $418 million. This is comprised of $189 million from Assurant Health, $150 million in capital releases from the sale of Assurant Employee Benefits, and $79 million from Assurant Solutions and Assurant Specialty Property.

  During the quarter, the company completed its previously announced acquisition of a title and valuation business and invested another $11 million for capabilities    in areas targeted for growth.

• Share repurchases and dividends totaled $266 million in third quarter 2016. Dividends to shareholders totaled $30 million, and Assurant repurchased approximately 2.7 million shares of common stock for $236 million. From Oct. 1 through Oct. 21, 2016, the company repurchased an additional 742,000 shares for approximately $66 million, with $199 million remaining under the current repurchase authorization.

Company Outlook

Based on current market conditions, for full-year 2016, the company expects:

• Assurant Solutions’ net operating income to decline modestly from 2015. Growth from new and existing mobile programs in 2016 is not expected to offset declines in legacy extended service contracts, credit insurance and the loss of the tablet program. Net earned premiums and fees to increase, driven by growth in mobile subscribers and vehicle service contracts, partially offset by lower service contract revenue from legacy North American retail clients and continued declines in credit insurance.

• Assurant Specialty Property’s net earned premiums and net operating income to decrease from 2015 levels. Results to be affected by the ongoing normalization of lender-placed insurance business, partially offset by increased efficiencies and related expense saving initiatives. Multi-family housing and mortgage solutions businesses to expand via market share gains. Overall results to reflect catastrophe losses including claims from Hurricane Matthew, a fourth quarter 2016 catastrophe event.

• Corporate & Other⁴ full-year net operating loss to approximate $70 million.
• Capital to be deployed through a combination of share repurchases, common stock dividends, reinvestments in the business and acquisitions in Housing and Lifestyle, subject to market conditions and other factors. Business segment dividends from Assurant Solutions and Assurant Specialty Property to approximate segment net operating income, subject to reportable catastrophe losses, the growth of the businesses, rating agency and regulatory capital requirements. Company to receive nearly $1 billion of net proceeds, including capital releases, related to the sale of Assurant Employee Benefits mainly in 2016, with a total of $768 million received year-to-date.

For runoff operations, the company expects:

• Assurant Health substantially to complete the process to exit the health insurance market in 2016. During the remainder of the wind down, the company expects to incur $13 million to $20 million pre-tax of additional exit-related charges, as well as certain overhead expenses that are excluded from the premium deficiency reserve accrual. Assurant Health dividends to approximate $475 million for full-year 2016, of which $338 million was received in the first nine months, subject to ultimate development of claims, actual expenses needed to wind down operations, ACA-risk mitigation payments and regulatory approval.

Earnings Conference Call
The third quarter 2016 earnings conference call and webcast will be held on Wednesday, Oct. 26, 2016 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.

About Assurant

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; extended service contracts; vehicle protection; pre-funded funeral insurance; renters insurance; lender-placed homeowners insurance; and mortgage valuation and field services. With approximately $30 billion in assets and $6 billion in annualized revenue as of September 30, 2016, Assurant is located in 16 countries, while its Assurant Foundation works to support and improve communities. Learn more at assurant.com or on Twitter @AssurantNews.

Media Contact:
Linda Recupero
Senior Vice President, Global Communication
Phone: 212.859.7005
linda.recupero@assurant.com

Investor Relations Contact:
Suzanne Shepherd
Vice President, Investor Relations
Phone: 212.859.7062
suzanne.shepherd@assurant.com

Learn more here.