Assurant Beats Estimates - Analyst Blog

Assurant Inc.'s (AIZ) operating earnings for the third quarter came in at $1.27 per share, ahead of the Zacks Consensus Estimate of $1.20. This also compared favorably with operating earnings of $1.07 per share recorded in the prior-year quarter. The earnings surprise of 5.8% was bought about by improved results across all its business segments – Solutions, Specialty Property, Health and Employee Benefits.

Total revenue of $2.1 billion was in line with the Zacks Consensus Estimate, but declined 5.0% year over year. The fall was primarily due lower net realized investment gains, partially offset by a modest increase in net investment income and fees & other income.

Net earned premiums declined modestly by 2.2% year over year to $1.8 billion led by a decline in the Solutions and Health segments. Net investment income increased a modest 2% to $176.2 million.

Segmental Performance

Year over year, net operating income at Assurant Solutions increased 2.2% to $32.3 million due to favorable foreign exchange movement. Net earned premiums declined 9% to $611.3 million due primarily due lower service contract sales in the domestic line of business, continued run-off of domestic credit, partially offset by an increase in international business due to new client addition and heightened Preneed sales.  

Year over year, Assurant Specialty Property reported a 3.4% increase in net operating income to $106.7 million, primarily led by favorable reserve development coupled with an absence of catastrophe losses. Net earned premiums increased a modest 0.5% to $481.1 million as growth in creditor-placed homeowners, creditor-placed flood and renters' insurance was largely offset by an increase in ceded premiums and lower real estate owned premiums.    

Net premiums earned at Assurant Health of $467.7 million were down modestly by 0.6% relative to the prior-year quarter. This was due to reduced small group and short-term medical premium, largely offset by increased premiums from individual medical business. Net operating income improved significantly to $5.3 million from an operating loss of $4.8 million in the year-ago quarter due to a decline in the loss ratios, which was bought by plan and pricing changes to meet higher medical utilization trends.

Year over year, Assurant Employee Benefits reported a 6.4% increase in net premiums earned to $272.4 million, due primarily to an increase in premiums as a result of acquisition and reinsurance clients at year end 2009. Net operating income increased significantly by 48% to $16.9 million on the back of favorable loss experience, very low disability incidence and favorable life mortality rates.  

The financial position at Assurant remains strong with $4.9 billion of equity capital. The company maintains a low leverage ratio (16.8% vs. 17.0% at the end of last year) and there is no debt maturing until 2014.

During the quarter, 2.1 million shares were repurchased at an average cost of $44.9. Assurant had bought back no shares in the prior-year quarter.

Book value per share, excluding accumulated other comprehensive income, increased 10.4% from the end of last year to $44.67.

Assurant has provided a nice streak of earnings with an average earnings surprise of 18.61% for the past four quarters. The stock carries a Zacks #3 Rank, which implies a “Hold” recommendation over the near term (1−3 months). Over the longer term, we also advise investors to maintain a “Neutral” stance on the shares.