Investor Presentation March 2016 Safe Harbor Statement Some of the - - PDF document
Investor Presentation March 2016 Safe Harbor Statement Some of the statements included in this presentation, particularly those anticipating future financial performance, business prospects, growth and operating strategies and similar matters,
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Key Specialty Property Offerings
(1) 2015 segment revenue of $6.25 billion includes net earned premiums and fees and other income. Excludes Assurant Health runoff
Key Solutions Offerings
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6 Note: Revenue consists of net earned premiums, fees and other income.
contracts
capital-light
revenue
revenue
revenue
Insurance
Insurance
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global market
traditional insurance
increased penetration
dynamics creating new opportunities
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Note: Consists of segment earnings from Assurant Specialty Property, excluding catastrophe losses, and Assurant Solutions. Excludes Corporate and other, amortization of deferred gains on disposal of business and interest expense. For the most directly comparable GAAP measures and a reconciliation, refer to Exhibit 1 in the Appendix.
Lender-placed ex. catastrophe losses Risk-based Fee-based/Capital-light
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2020 Target 2015 Adjusted Operating EPS1
(1) For the most directly comparable GAAP measures and a reconciliation, refer to Exhibit 1 in the Appendix. Adjusted Operating EPS excludes Assurant Health, Assurant Employee Benefits, amortization of deferred gain and catastrophe losses.
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2015 Adjusted Operating ROE
2020 Target
2020 Target
(1) For the most directly comparable GAAP measures and a reconciliation, refer to Exhibit 1 in the Appendix. Adjusted Operating ROE excludes Health, Employee Benefits, amortization of deferred gain and catastrophe losses.
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(1) Includes assumption for catastrophe losses
20%+ operating ROE1
Living globally
Vehicle Protection and Credit
for Preneed
exclude:
expense initiatives 10% average annual growth in net
for Multi-family housing and Mortgage Solutions
Lender-placed and Manufactured Housing risk businesses1
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Finance, Procurement and IT Transformation
Address Residual Expenses from Health and Employee Benefits
Phase 1 Phase 3
Implement Business Organizational Framework
Phase 2
Beyond 2015
15 Note: All information is as of December 31, 2015 and includes Assurant Health runoff operations and Assurant Employee Benefits unless otherwise stated. (1) Excludes AOCI. This is a non-GAAP measure. GAAP equity would include $118.5 million in AOCI at December 31, 2015. (2) Excludes AOCI and excludes Assurant Health runoff operations. (3) Equals total investments divided by total stockholders’ equity including AOCI. (4) $396 million available as of December 31, 2015.
$4.4 billion equity(1) Approximately $460 million corporate capital Maintain risk buffer for tail events 23.4% debt-to-capital ratio(2) Approximately $210 million deployable capital, excluding $250 million risk buffer Multi-faceted catastrophe reinsurance program 2.9 ratio of invested assets to equity(3) $400 million revolving credit facility through Sept. 2019(4) Conservative investment portfolio Limited callable liabilities
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(1) Consists of dividends from operating subsidiaries to the holding company, net of infusions, and excluding acquisitions and divestitures.
$353 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $501 $550 $422 $374 $614 $840 $563 $582 $623 $454 $175 2004
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Average 2010-2015
2020 Target
(1) Consists of dividends from operating subsidiaries to the holding company, net of infusions, less interest expense, and other holding company expenses.
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Increase Dividends Capitalize Businesses Share Repurchases Invest in Growth
Strong cash flow has allowed us to pursue our growth objectives while returning capital to shareholders
Shareholder dividends Share repurchases Acquisitions Capital infusions
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(1) Includes the repurchase of 2.4 million shares totaling $180 million year-to-date through March 4, 2016 and an estimated $32 million of common stock dividends payable on March 14, 2016. 20
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Connected Living Vehicle Protection Preneed Credit & Other
67% 16% 4% 13%
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Strategic Performance Management
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Device Journey How we process the devices Device is received Device is inspected Device is triaged Device is repaired or refurbished Device is added to inventory Device is added to kit Device utilization
1 2 3 4 5 6 7
Insurance claims E-commerce sale Bulk disposition
Sell to mobile carrier
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sales
global vehicle OEMs
proposition through technology suite and training
leader SCI
boomers entering target market
channels
running off as planned
systems
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Connected Living, including mobile protection
based/capital light products and services
and traditional warranty products
mortar” retailers
across products and footprint
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Note: Refer to the quarterly financial supplement for a list of disclosed items included in reported results.
$848 $894 $933 $969 $1,000 $928 $931 $940 $1,003
$300 $450 $600 $750 $900 $1,050 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 30
2015 2020 Target
Risk-based Fee-based/Capital-light
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8% 4%
2015 2020 Target
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Lender-placed insurance Multi-family Housing Mortgage Solutions Manufactured Housing and Other
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– Reduced reinsurance costs and lower non- catastrophe loss experience partially
– Fee income grew, reflecting contributions from mortgage solutions
Note: In fourth quarter 2014, ARIC accounted for net earned premiums, fees and other income and net operating income of $62.3 million and $6.4 million, respectively. For the 12 months ended 2014, ARIC accounted for net earned premiums, fees and other income and net operating income of $249.3 million and $12.1 million, respectively. This divested business did not contribute to 2015 results. (1) Refer to the quarterly financial supplement for a list of disclosed items included in reported results. $703 $664 $714 $742 $687 $613 $638 $598 $602 $150 $310 $470 $630 $790 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 36.9% 42.2% 48.7% 39.4% 42.9% 38.7% 40.3% 35.1% 40.0% 32.0% 37.0% 42.0% 47.0% 52.0% 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 34
capital-light offerings
earnings
attractive business
maintaining high client servicing standards
placed insurance
due to catastrophe exposure
compliance, risk management and delivering customized solutions
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insurance products
management of compliance and regulatory risks
administrative complexity
experience through automation and customer focus
product
and improve customer experience through technology-led transformation of LPI
client relationships
advisor
practices
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28.4 28.4 30.6 30.8 31.2 32.9 33.8 34.5 34.7 35.0 34.7 34.5 33.9 33.8 33.5 33.4 33.3 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15
37 (1) Placement rates represent an average of prime and sub-prime loan portfolios and are estimates based on client information and classification. Does not include real estate owned policies.
2.75 2.84 2.83 2.73 2.87 2.89 2.81 2.75 2.77 2.74 2.68 2.64 2.58 2.57 2.46 2.34 2.28 0.0 1.0 2.0 3.0 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15
38 Note: Geographic spread of exposure based on Company’s assessment of total insured value for all of Assurant Specialty Property.
Southern & HI Coastal West Southern Inland Northern Inland Middle US Northeastern Coastal Western U.S. States As of 12/31/14 22.6% As of 12/31/15 20.7% Middle U.S. States As of 12/31/14 14.5% As of 12/31/15 15.0% Northern Inland Exposure As of 12/31/14 7.6% As of 12/31/15 9.0% Southern Inland Exposure As of 12/31/14 11.3% As of 12/31/15 12.0% Southern and HI Coastal Exposure As of 12/31/14 24.3% As of 12/31/15 23.1% Northeastern Coastal Exposure As of 12/31/14 19.7% As of 12/31/15 20.2%
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Note: Information presented at Investor Day 2016 as of March 8, 2016. (1) Excludes impact from reductions in commissions. (2) Excludes AOCI. Includes goodwill allocated to Assurant Specialty Property which totaled $304 million at December 31, 2015 and $288 million at December 31, 2013.
≈1.8–2.1% Customary Rate Reviews and Adjustments ≈$173-180K ~33.3M Flat to up slightly 10% of lender-placed gross written premiums ~66-72% of net earned premiums including goodwill
≈1.8–2.1% ~8-9% decrease from 2013 ≈$170-175K ~34.7M Flat to down slightly 10% of lender-placed gross written premiums ~66-72% of net earned premiums including goodwill
Average Placement Rate Rate Changes(1) Average Insured Value Loans Tracked Real Estate Owned Specialty Property Equity(2)
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Core Offerings:
Key Distribution Channels:
− Target large property management with ~ 7M units
− Align with carriers growing faster than market Competitive Differentiators:
(1) Source: National Multi-family Housing Council Apartment Manager Rankings
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2011 2015 2020 Target
$116 $283
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inspections, REO asset management and data analytics
across 50 states
basis drive revenue
inspections, REO asset management and data analytics
across 50 states
basis drive revenue
industry leading technology-based quality tools
20k appraisers
fees per appraisal and quality check
industry leading technology-based quality tools
20k appraisers
fees per appraisal and quality check
valuation reports providing insights into local real estate market trends
both servicers and capital markets
to servicers or investors
valuation reports providing insights into local real estate market trends
both servicers and capital markets
to servicers or investors
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2013-2014 Acquired Revenue1 $220 8-10% $290 2015 2020 Target
(1) Full-year revenue in year of acquisition.
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$263 $268 $269 $270 $269 $273 $276 $272 $271
$0 $50 $100 $150 $200 $250 $300
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15
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– Actual losses were in line with the premium deficiency accrual estimate established in third quarter 2015
Health dividends expected to approximate 2015 statutory capital subject to ultimate development of claims, actual expenses needed to wind down operations, recoveries from ACA- risk mitigation payments and regulatory approval
Note: As of Dec. 31, 2015, ACA risk-mitigation estimated recoverables for 2015 ACA-qualified policies totaled $521.6 million, reflecting $225.2 million from the risk-adjustment program and $296.4 million from the reinsurance program. The Company did not record any net recoverables for the 2015 risk-corridors program. ACA risk-mitigation payments received from the Centers for Medicare and Medicaid Services as of Dec. 31, 2015 for 2014 ACA-qualified policies totaled a net $351.8 million with no further remaining receivables accrued for 2014 policies.
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Solutions
international profitability and additional expense initiatives
retail clients and continued declines in credit insurance
Specialty Property
increased efficiencies and expense savings initiatives
Corporate and Capital
expenses associated with Assurant Employee Benefits and Assurant Health
business and acquisitions in Housing and Lifestyle, subject to market conditions and other factors
Health Runoff Operations
related charges, as well as certain overhead expenses that are excluded from the premium deficiency reserve accrual
expenses needed to wind down operations, recoveries from ACA-risk mitigation payments and regulatory approval
Note: 2016 Outlook from Fourth Quarter 2015 Earnings Release as of February 9, 2016. 48
A.M. Best
Security Life Insurance Company of New York
S&P
Moody’s
Company
Information as of February 2016.
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All portfolio information as of December 31, 2015.
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Unrealized Gain on Fixed Maturities (billions) $1.2 Market Value (billions) $16.1 Average Duration (years) 6.5 Investment Yield 4.4% Average Quality A2
Market Value (billions) $14.3 Investment Yield Quarter-to-Date 12/31/15(2) 4.31% Unrealized Gain on Fixed Maturities (billions) $0.7 Average Duration(3) (years) 6.52 Average Quality A2
Investment Portfolio Breakdown(1) 12/31/15 Fixed Maturity Securities by Credit Quality 12/31/15
Note: Investment Portfolio Information includes Assurant Health Runoff Operations. (1) Expressed as a percentage of total investments & cash and cash equivalents of $14.3 billion as of 12/31/15. (2) Investment yield excludes investment (loss) income from real estate joint venture partnerships. (3) Average duration excludes policy loans, securities lending, and other investments and includes cash and cash equivalents held at Corporate.
RMBS CMBS ABS 7% Municipals 5% Foreign Govt 4% U.S. Govt/Agency 1% Cash and Cash Equivalents 9% Short-term 4% Commercial Mortgages 8% Other 5% Preferred Stocks 3% Aaa / Aa / A 62% Baa 32% Ba 4%
B and lower 2%
Corporate 54%
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Long-Term Equity Incentive Plan(2)
– Year-over-year growth in book value per diluted share excluding AOCI
– Year-over-year growth in total GAAP revenue
– Percent change in Company stock price plus dividend yield percentage
Note: Information as of 2015 Proxy Statement. (1) The Assurant Management Committee is required to hold at least 3 times base salary while the President and CEO is required to hold at least 5 times base salary. (2) Relative metrics and weightings applicable to 2010-2012, 2011-2013, 2012-2014, 2013-2015 and 2014-2016 performance cycles.
Executive Short-Term Incentive Plan
– Net operating income – Operating return on equity – Operating earnings per share
– Revenues in targeted areas – Sales in targeted areas
Growth 50% Profitability 50% Book value 33% Total shareholder return 33% Revenue 33%
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75th 50th 25th No Payout Threshold Target Maximum
Payout above target only if above median performance
Performance‐Based Long‐Term Equity Percentile 150% 100% 50% Payout
Payout Capped Payout Capped
No Payout
(1) For 2013 and previous performance periods, Assurant’s performance is based on these metrics compared to performance of companies in the A.M. Best U.S. Insurance Index, excluding those with revenues less than $1 billion or that are not in the health or insurance Global Industry Classification Standard codes (3510 and 4030). A.M. Best ceased publication of this index Jan. 1, 2014 and therefore beginning in 2014 and in the future, company performance is measured against the S&P Total Market Index with similar adjustments. Please reference the Proxy for further explanation.
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Assurant uses the following non-GAAP financial measures to analyze the Company’s operating performance for the periods presented in this presentation. Because Assurant’s calculation of these measures may differ from similar measures used by other companies, investors should be careful when comparing Assurant’s non-GAAP financial measures to those of
1. Assurant uses book value per diluted share, excluding AOCI, as an important measure of the Company’s stockholder value. Book value per diluted share, excluding AOCI, equals total stockholders’ equity, excluding AOCI, divided by diluted shares outstanding. The company believes book value per diluted share, excluding AOCI, provides investors a valuable measure of stockholder value because it excludes the effect of unrealized gains (losses) on investments which tend to be highly variable from period-to-period and other AOCI items. The comparable GAAP measure would be book value per diluted share defined as total stockholders’ equity divided by diluted shares outstanding. Book value per diluted share was $67.05 as of December 31, 2015, as shown in the reconciliation table below.
As of December 31, 2015 $65.29 Change due to effect of including AOCI 1.76 Book value per diluted share $67.05 Book value per diluted share (excluding AOCI)
As of December 31, 2015 $6.06 Other adjustments (4.01) GAAP earnings per diluted share $2.05 Operating earnings per diluted share
2. Assurant uses operating earnings per diluted share ("EPS"), excluding Assurant Health runoff operations, Assurant Employee Benefits and other adjustments, as an important measure of the Company’s stockholder value. Operating earnings per diluted share, excluding Assurant Health run-off
realized gains (losses) on investments that tend to be highly variable from period to period, catastrophe losses, Assurant Health run-off operations, Assurant Employee Benefits and those events that are unusual and/or unlikely to recur. The comparable GAAP measure would be earnings per diluted share, defined as net income divided by weighted average diluted shares outstanding. Earnings per diluted share was $2.05 as of December 31, 2015, as shown in the following reconciliation table. 54 4. Assurant uses a ratio of debt to total capital, excluding AOCI and Assurant Health runoff operations, as an important measure of the Company’s financial
stockholders’ equity excluding AOCI and Assurant Health runoff operations. The Company believes that the debt to total capital ratio, excluding AOCI and Assurant Health runoff operations, provides investors a valuable measure of financial leverage, because it excludes the effect of unrealized gains (losses) on investments, which tend to be highly variable from period-to-period, other AOCI items and Assurant Health runoff operations. The comparable GAAP measure would be the ratio of debt to total capital. The debt to total capital ratio as of Dec. 31, 2015 and Dec. 31, 2014 was 20.6 percent and 18.4 percent, respectively, as shown in the following reconciliation table.
4Q 4Q 2015 2014 Debt to total capital ratio (excluding AOCI and Assurant Health runoff operations) 23.4% 21.9% Change due to effect of including AOCI (0.4)% (1.8)% Change due to effect of including Assurant Health runoff operations (2.4)% (1.7)% Debt to total capital ratio 20.6% 18.4% 3. Assurant uses operating return on equity ("ROE"), excluding accumulated other comprehensive income ("AOCI"), Assurant Health runoff operations, Assurant Employee Benefits and catastrophe losses, as an important measure of the Company’s operating performance. Operating ROE, excluding accumulated other comprehensive income ("AOCI"), Assurant Health runoff operations, Assurant Employee Benefits and catastrophe losses, equals net operating income for the periods presented divided by average stockholders’ equity for the year to date period, excluding AOCI, Assurant Health runoff operations, Assurant Employee Benefits and catastrophe losses. The Company believes operating ROE, excluding accumulated other comprehensive income ("AOCI"), Assurant Health runoff
because it excludes the effect of Assurant Health runoff operations, Assurant Employee Benefits, catastrophe losses, net realized gains (losses) on investments that tend to be highly variable from period-to-period, other AOCI items and those events that are unusual and/or unlikely to recur. The comparable GAAP measure would be GAAP ROE, defined as net income, for the period presented, divided by average stockholders’ equity for the year to date period. Consolidated GAAP ROE for the twelve months ended December 31, 2015 was 2.9%, as shown in the following reconciliation table.
As of December 31, 2015 12.0% Assurant Health runoff operations (10.6)% Assurant Employee Benefits 1.4% Catastrophe losses (0.6)% Other adjustments 1.8% Change due to effect of including AOCI (1.1)% Annual GAAP return on average equity 2.9% Annual operating return on average equity
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Note: Additional financial information, including a schedule of disclosed items that affected Assurant’s results by business for the last eight quarters appears on page 21 of the Company’s Financial Supplement, and is located in the Investor Relations section of www.assurant.com. 1. Assurant uses net operating income as an important measure of the Company’s operating performance. Net operating income equals net income, excluding Assurant Health runoff operations, Assurant Employee Benefits, net realized gains (losses) on investments, catastrophe losses and other unusual and/or infrequent items. The Company believes net operating income provides investors a valuable measure of the performance of the Company’s ongoing business, because it excludes the effect of Assurant Health runoff operations, Assurant Employee Benefits, which was sold on March 1, 2016, net realized gains (losses) on investments that tend to be highly variable from period-to-period, and those events that are unusual and/or unlikely to recur. ($ in thousands) As of December 31, 2015 Housing and Lifestyle Assurant Solutions $ 197,183 Assurant Specialty Property, excl catastrophe losses 326,979 Subtotal 524,162 Corporate and other (70,433) Interest expense (35,826) Net operating income 417,903 Adjustments: Assurant Health runoff operations (367,907) Assurant Employee Benefits 47,322 Net realized gains on investments 20,687 Gain on divested business 10,743 Change in tax liabilities 16,025 Payment received related to previous sale of subsidiary 9,935 Change in derivative investment (2,321) Amortization of deferred gain on disposal of businesses 8,442 Catastrophe losses (19,274) Net income $ 141,555 56
Some of the statements included in this investor presentation and its exhibits, particularly those anticipating future financial performance, business prospects, growth and operating strategies and similar matters, are 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,” “anticipates,” “expects,” “estimates,” “projects,” “intends,” “plans,” “believes,” “targets,” “forecasts,” “potential,” “approximately,” or the negative version of those words and other words and terms with a similar meaning. Any forward-looking statements contained in this investor presentation or the exhibits 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 the future plans, estimates or expectations contemplated by us will be
events or other developments. The following risk factors could cause our actual results to differ materially from those currently estimated by management, including those projected in the Company outlook: (i) actions by governmental agencies or government sponsored entities or other circumstances, including pending regulatory matters affecting our lender-placed insurance business, that could result in reductions of premium rates or increases in expenses, including claims, fines, penalties or other expenses; (ii) inability to implement, or delays in implementing, strategic plans for the Assurant Employee Benefits and Assurant Health segments; (iii) loss of significant client relationships or business, distribution sources
Reconciliation Act of 2010 (the "Affordable Care Act"), and the rules and regulations thereunder, on our health and employee benefits businesses; potential variations between the final risk adjustment amount and reinsurance amounts, as determined by the U.S. Department of Health and Human Services under the Affordable Care Act, and the Company's estimate; (v) unfavorable outcomes in litigation and/or regulatory investigations that could negatively affect our results, business and reputation; (vi) inability to execute strategic plans related to acquisitions, dispositions or new ventures; (vii)failure to adequately predict or manage benefits, claims and other costs; (viii) inadequacy of reserves established for future claims; (ix) current or new laws and regulations that could increase our costs and decrease our revenues; (x) significant competitive pressures in
catastrophes; (xiii) a decline in our credit or financial strength ratings (including the risk of ratings downgrades in the insurance industry); (xiv) deterioration in the Company’s market capitalization compared to its book value that could result in an impairment of goodwill; (xv) risks related to our international operations, including fluctuations in exchange rates; (xvi) data breaches compromising client information and privacy; (xvii) general global economic, financial market and political conditions (including difficult conditions in financial, capital, credit and currency markets, the global economic slowdown, fluctuations in interest rates or a prolonged period of low interest rates, monetary policies, unemployment and inflationary pressure); (xviii) cyber security threats and cyber attacks; (xix) failure to effectively maintain and modernize our information systems; xx)uncertain tax positions and unexpected tax liabilities; (xxi) risks related to outsourcing activities; (xxii) unavailability, inadequacy and unaffordable pricing of reinsurance coverage; (xxiii) diminished value of invested assets in our investment portfolio (due to, among other things, volatility in financial markets; the global economic slowdown; credit, currency and liquidity risk; other than temporary impairments and increases in interest rates); (xxiv) insolvency of third parties to whom we have sold or may sell businesses through reinsurance or modified co-insurance; (xxv) inability of reinsurers to meet their obligations; (xxvi) credit risk of some of our agents in Assurant Specialty Property and Assurant Solutions; (xxvii) inability of our subsidiaries to pay sufficient dividends; (xxviii) failure to provide for succession of senior management and key executives; and (xxix) cyclicality of the insurance industry. For a detailed discussion of the risk factors that could affect our actual results, please refer to the risk factors identified in our SEC reports, including, but not limited to our 2014 Annual Report on Form 10-K and 2015 First Quarter, Second Quarter and Third Quarter Quarterly Reports on Form 10-Q, as filed with the SEC. .
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