(1)Reflects the acquisition of TWG beginning on May 31, 2018. The decrease for the year ended December 31, 2017 was primarily due to a change in program structure impacting the accounting for revenues on a net instead of gross basis for a large client in Connected Living. The change in program structure had no impact on net income.
(1)Policy liabilities include future policy benefits and expenses, unearned premiums and claims and benefits payable.
(2)Total book value per basic common share equals total Assurant, Inc. stockholders’ equity divided by the basic common shares outstanding. At December 31, 2020, 2019, 2018, 2017 and 2016 there were 58,690,004, 60,693,295, 62,770,031, 53,078,396, and 56,660,642 common shares, respectively, outstanding.
As a global organization, we actively monitor the developments of the continuously evolving situation resulting from COVID-19. Throughout this period of uncertainty, we have acted swiftly and deliberately to safeguard our employees, to maintain business operations and service levels for customers, and to support our local communities. See “Item 1 - Business” for additional information. While continuing to evolve, the COVID-19 pandemic has caused significant global economic and financial market disruption, resulting in increased financial market volatility, business and operational challenges such as the temporary closures of businesses, and overall diminished expectations for the economy and the financial markets. Overall, for Twelve Months 2020, we believe COVID-19 had a modest negative impact on our net income, mainly due to lower investment income from lower yields, lower REO volumes, foreign exchange rate fluctuations and higher mortality rates in our Global Preneed business. This was partially offset by lower expenses, more favorable international claims activity and more favorable non-catastrophe loss experience. Throughout this period, we believe our liquidity has remained strong. As of December 31, 2020, we had $407.2 million of holding company liquidity.
Our investment portfolio will continue to be impacted by COVID-19 and related financial market volatility. Though we generally believe our portfolio remains well diversified and high-quality, with the majority comprised of investment grade fixed maturity assets, interest rates are expected to remain relatively low for the foreseeable future. Refer to “-Investments” below and Note 8 to the Consolidated Financial Statements included elsewhere in this Report.
In May 2020, we sold our minority interests in Iké, terminated our obligations to purchase the remaining shares of Iké, and settled a financial derivative that provided an economic hedge against declines in the Mexican Peso relative to the U.S. Dollar. These transactions resulted in net cash outflows of $85.3 million, which included financing of $34.0 million, the proceeds from the settlement of the derivative and transaction expenses. For additional information on this transaction, see “-Liquidity and Capital Resources” below and Note 4 to the Consolidated Financial Statements included elsewhere in this Report.
During the third quarter of 2020, we identified impairment indicators impacting the fair value of Global Preneed in connection with exploring strategic alternatives for the Global Preneed business, including the possible sale of the business, to focus on opportunities within the broader Global Lifestyle and Global Housing portfolio. The fair value calculated in third quarter 2020 was lower than the carrying value of the reporting unit, resulting in the impairment of the entire goodwill of $137.8 million related to the Global Preneed reporting unit. For additional information on the impairment test, refer to “- Valuation and Recoverability of Goodwill” below and Note 15 to the Consolidated Financial Statements included elsewhere in this Report.
Consolidated net income attributable to common stockholders increased $59.2 million, or 16%, to $423.1 million for Twelve Months 2020 from $363.9 million for Twelve Months 2019. The increase was primarily driven by $154.6 million of lower after-tax losses from the reduction in fair value of Iké, as well as an $84.4 million one-time tax benefit related to the enactment of the federal CARES Act, which allows the carryback of net operating losses to years taxed at higher rates. The increase was partially offset by the $137.8 million after-tax impairment on the Global Preneed goodwill, as well as a $68.2 million decrease in net realized gains on investments, mostly due to a decline in the fair value of certain collateralized loan obligations and lower net unrealized gains on equity securities.
Global Lifestyle net earned premiums, fees and other income increased $243.4 million, or 3%, to $7.34 billion for the Twelve Months 2020 compared with $7.09 billion for Twelve Months 2019. Excluding the $117.0 million lower revenue impact resulting from the July 1, 2020 transition of one of our mobile trade-in and upgrade programs from our recognition of device sales revenue to a flat fee per device, revenue increased 5%, primarily due to continued growth in Global Automotive and Connected Living. The increase was partially offset by unfavorable foreign exchange and declines within Global Financial Services and Other.
Global Housing segment net income decreased $24.9 million, or 10%, to $233.8 million for Twelve Months 2020 from $258.7 million for Twelve Months 2019. Segment net income for Twelve Months 2020 included $137.2 million of reportable catastrophes compared to $40.9 million of reportable catastrophes for Twelve Months 2019. Excluding reportable catastrophes, segment net income increased $71.4 million, primarily due to more favorable non-catastrophe loss experience across all lines of business, including underwriting improvements in sharing economy offerings. The increase was also driven by higher premium rates in Lender-placed Insurance, which were partially offset by a reduction in REO volumes due to foreclosure moratoriums enacted in connection with COVID-19 and fewer policies-in-force. Lower investment income also contributed to the offset.
Global Preneed segment net income decreased $4.2 million, or 8%, to $48.0 million for Twelve Months 2020 from $52.2 million for Twelve Months 2019, primarily due to higher mortality from COVID-19 and lower investment income. This decrease was partially offset by the absence of a $9.9 million after-tax expense related to an out of period adjustment for over-capitalization of deferred acquisition costs occurring over a ten-year period recorded in Twelve Months 2019.
Global Preneed net earned premiums, fees and other income increased $8.5 million, or 4%, to $209.4 million for Twelve Months 2020 compared with $200.9 million for Twelve Months 2019, primarily due to growth in domestic pre-funded funeral policies and prior period sales of the Final Need product.
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 Housing and Global Automotive businesses. Our mobile business is subject to volatility in mobile device trade-in volumes based on the actual and anticipated timing of the release of new devices and carrier promotional programs, as well as to changes in consumer preferences. Our Lender-placed Insurance revenues will also be impacted by changes in the housing market. In addition, across many of our businesses, we must respond to the threat of disruption. See “Item 1A - Risk Factors - Business, Strategic and Operational Risks - Significant competitive pressures, changes in customer preferences and disruption could adversely affect our results of operations.”
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.
Underwriting, general and administrative expenses consist primarily of commissions, premium taxes, licenses, fees, amortization of deferred costs, general operating expenses and income taxes. We continue to undertake various expense savings initiatives while also making investments in information technology, among other things, which will impact our expenses.
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” for more detail on this risk.
•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
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.
We have exposure to asbestos, environmental and other general liability claims arising from our participation in various reinsurance pools from 1971 through 1985. This exposure arose from a contract that we discontinued writing many years ago. We carried case reserves for these liabilities, as recommended by the various pool managers, and IBNR reserves totaling $22.1 million (before reinsurance) and $19.1 million (net of reinsurance) at December 31, 2020. Estimation of these liabilities is subject to greater than normal variation and uncertainty due to the general lack of sufficiently detailed data, reporting delays and absence of a generally accepted actuarial methodology for determining the exposures. There are significant unresolved industry legal issues, including such items as whether coverage exists and what constitutes an occurrence. In addition, the determination of ultimate damages and the final allocation of losses to financially responsible parties are highly uncertain. Based on information currently available, and after consideration of the reserves reflected in the Consolidated Financial Statements, we do not believe or expect that changes in reserve estimates for these claims are likely to be material.
Historically, premium deficiency testing on continuing lines of business has not resulted in material adjustments to deferred acquisition costs or reserves. Such adjustments could occur, however, if economic or mortality conditions significantly deteriorated.
For preneed life insurance issued prior to 2009, the long-duration accounting model is applied whereby reserve assumptions are made with provision for adverse deviation. Interest and discount rates are based upon investment returns of the assets acquired to support the business. Expected mortality rates, lapse rates and future death benefit increases are based upon pricing assumptions.
Premium deficiency testing is performed annually and generally reviewed quarterly. Such testing involves the use of best estimate assumptions including the anticipation of investment income to determine if anticipated future policy premiums are adequate to recover all DAC and related claims, benefits and expenses. To the extent a premium deficiency exists, it is recognized immediately by a charge to the consolidated statement of operations and a corresponding reduction in DAC. If the premium deficiency is greater than unamortized DAC, a loss (and related liability) is recorded for the excess deficiency.
Subsequent changes in the allowance for credit losses are recorded as a provision for, or reversal of, credit loss expense. For fixed maturities where we record a credit loss, a determination is made as to the cause of the impairment and whether we expect a recovery in the value. Write-offs are charged against the allowance when management concludes the financial asset is uncollectible. For fixed maturities where we expect a recovery in value, the effective yield method is utilized, and the investment is amortized to par. We recorded a $1.5 million allowance for credit losses on fixed maturity securities available for sale for the year ended December 31, 2020.
For available for sale fixed maturity securities that we intend to sell, or for which it is more likely than not that we will be required to sell before recovery of our amortized cost basis, the entire impairment loss, or difference between the fair value and amortized cost basis of the security, is recognized in net realized gains (losses). The new cost basis of the security is the previous amortized cost basis less the impairment recognized and is not adjusted for any subsequent recoveries in fair value.
We have used reinsurance to exit certain businesses, including Assurant Employee Benefits and blocks of individual life, annuity and long-term care business. The reinsurance recoverables relating to these dispositions amounted to $4.42 billion and $4.46 billion at December 31, 2020 and 2019, respectively.
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.